ACCOUNTING FOR ASSETS - Accounts Receivable Demonstration Problem

MODULE 5
ACCOUNTING FOR ASSETS - Accounts Receivable
Demonstration Problem
Morton Precision Tools completed a number of transactions involving credit sales, accounts receivable
collection and uncollectible accounts in the years 2000 and 2001. Morton Precision Tools uses the
percentage of sales method for estimating uncollectible accounts. This demonstration problem shows how
to calculate uncollectible accounts expense and record the transactions in the general journal.
Journal Entries for 2000

Oct. 1 Sold merchandise on credit for $64,000.
Nov. 4 $20,000 was collected from customers.
Dec. 31 Morton Precision Tools uses the percentage of sales method. The company
estimates that 4% of the sales will be uncollectible. The total sales for 2000 was $64,000.

Feb. 5 Sold merchandise on credit for $12,000.
Mar. 2 Wrote off the account of Brookfield Corporation. The balance in this account was $1,200.
Transaction DATE ACCOUNT DEBIT CREDIT

number
2000
1 Oct. 1 Accounts Receivable 64,000
Sales Revenue 64,000
2 Nov. 4 Cash 20,000
Accounts Receivable 20,000
3 Dec. 31 Uncollectible Accounts Expense 2,560
Allowance for Uncollectible Accounts 2,560
For transaction 3, Uncollectible Accounts Expense = .04 x 64,000 = $2,560

number T- accounts - 1998
2001
4 Feb. 5 Accounts Receivable 12,000
5 Mar. 2 Allowance for Uncollectible Accounts 1,200
140
Practice Problem 1
Edusoft Inc.
Edusoft Inc. completed a number of transactions involving credit sales, accounts receivable collection and
uncollectible accounts in 2000 and 2001. Edusoft Inc. uses the percentage of sales method for estimating
uncollectible accounts. This assignment requires you to calculate uncollectible accounts expense and
record the transactions in the general journal.
Sep. 25 Sold merchandise on credit for $4,400.

Oct. 15 $1,800 was collected from customers for goods sold previously.
Dec. 31 Edusoft Inc. uses the percentage of sales method. The company estimates that 3% of the
sales will be uncollectible. The total sales for 2000 was $4,400.
Feb. 11 Sold merchandise on credit for $2,300.

Apr. 30 Wrote off the account of Mark Turner. The balance in Turner's account was $46.

number
2000
1 Sept. 25 Accounts Receivable 4,400
Sales Revenue 4,400
2 Oct. 15 Cash 1,800
3 Dec. 31 Uncollectible Accounts Expense 132
Allowance for Uncollectible Accounts 132
For transaction 3, Uncollectible Accounts Expense = .03 x $4,400 = $132

number T- accounts - 1998
2001
4 Feb. 11 Accounts Receivable 2,300
Sales Revenue 2,300
5 Apr. 30 Allowance for Uncollectible Accounts 46
Accounts Receivable 46
141
Practice Problem 2
Safeco Security Systems
Safeco Security Systems completed a number of transactions involving credit sales, accounts receivable
collection and uncollectible accounts in 2000 and 2001. Safeco Security Systems uses the aging method
for estimating uncollectible accounts. This assignment requires you to calculate uncollectible accounts
expense and record the transactions in the general journal.
0-30 days 31-60 days 61-90 days Over 90 days
Central Alarm Systems $12,400 $1,600
Plymouth Security Co. $14,200 $3,500
Riverside Alarms $1,300
Estimated % uncollectible 1% 3% 8% 10%
Dec. 31 Safeco Alarm Systems uses the aging method. Assume that the Allowance for
Uncollectible Accounts had a debit balance of $150 prior to the adjustment for
uncollectible accounts expense. Review the aging report shown above and prepare the
journal entry to record Uncollectible Accounts Expense.
Feb. 12 Wrote off the account of Riverside Alarms. The balance in the account was $1,300.
Sept. 30 Sold merchandise on credit for $6,500.
Nov. 5 $1,800 was collected from customers for goods sold previously.

number
2000
1 Dec. 31 Uncollectible accounts Expense 1,238
For transaction 1, the required credit balance in the Allowance for Uncollectible
Accounts on Dec. 31, 2000 is
= (0.01 x $12,400) + (0.03 x $14,200) + [.08 x ($1,600+$3,500)] + (0.1 x
$1,300)
=$1,088
Since the Allowance account already has a debit balance of $150, Uncollectible
Accounts Expense = $1,238 ($1,088 + $150).
Note: The ending balance in Accounts Receivable is obtained from the balances in
various categories in the aging report.
142

number
2001
2 Feb. 12 Allowance for Uncollectible Accounts 1,300
3 Sep. 30 Accounts Receivable 6,500
Sales Revenue 6,500
4 Nov. 5 Cash 1,800
143
Homework Problem 1
Alden Industries
Alden Industries completed a number of transactions involving credit sales, accounts receivable collection
and uncollectible accounts in 2000 and 2001. Alden Industries uses the percentage of sales method for
estimating uncollectible accounts. This assignment requires you to calculate uncollectible accounts expense
and record the transactions in the general journal.
Transactions for 2000
Nov. 25 Sold merchandise on credit for $32,000.

Dec. 10 $12,000 was collected from customers for goods sold previously.
Dec. 31 Alden Industries uses the percentage of sales method. The company estimates
that 2% of the sales will be uncollectible. The total sales for 2000 was $32,000.
Mar. 31 Sold merchandise on credit for $2,500.

Jun. 30 Wrote off the account of Eric Lang. The balance in Lang's account was $350.

number
2000
1 Nov. 25 Accounts Receivable 32,000
2 Dec. 10 Cash 12,000
For transaction 3, Uncollectible Accounts Expense = .02 x $32,000 = $640

number
2001
4 Mar. 31 Accounts Receivable 2,500
Sales Revenue 2,500
5 Jun. 30 Allowance for Uncollectible Accounts 350
144
Homework Problem 2
Schmidt Office Supplies
Schmidt Office Supplies completed a number of transactions involving credit sales, accounts receivable
collection and uncollectible accounts in 2000 and 2001. Schmidt Office Supplies uses the aging method for
Aging Report
Customer 0-30 days 31-60 days 61-90 days Over 90 days
Computer Stop $4,400 $1,500

LaCroix office Supplies $600
Osborne Office Supplies$1,600 $2,500 $1,200

Dec. 31 Schmidt Office Supplies uses the aging method. Assume that the Allowance for
Uncollectible Accounts had a credit balance of $100 at the beginning of the period.
Review the aging report shown below and prepare the journal entry to record Uncollectible
Accounts Expense.

Mar. 25 Wrote off the account of LaCroix Office Supplies. The balance in the account was $600.
Dec. 15 Sold merchandise on credit for $5,500.
Dec. 30 $1,500 was collected from customers for goods sold previously.

number
2000
Accounts on Dec. 31, 2000, is:
= [0.01 x ($4,400 + $1,600)] + [0.05 x ($1,500 + $2,500)] + (.08 x $1,200)
+ (0.15 x $600)
=$446
Since the Allowance account already has a credit balance of $100, Uncollectible
Accounts Expense = $346 ($446-$100).
145
11,800
number
2001
2 Mar. 25 Allowance for Uncollectible Accounts 600
3 Dec. 15 Accounts Receivable 5,500
Sales Revenue 5,500
4 Dec. 30 Cash 1,500
T- accounts - 1998 Allowance for

Uncollectible Accounts
2. 600 bb. 446
154
146
Homework Problem 3
Bedford Windows
Bedford Windows completed a number of transactions involving credit sales, accounts receivable collection
and uncollectible accounts in 2000 and 2001. Bedford Windows uses the percentage of sales method for

Oct. 25 Sold merchandise on credit for $64,000.
Nov. 16 $20,000 was collected from customers for goods sold previously.
Dec. 31 Bedford Windows uses the percentage of sales method. The company estimates
that 3% of the sales will be uncollectible. The total sales for 2000 was $64,000.

Aug. 22 Sold merchandise on credit for $12,000.
Sep. 12 Wrote off the account of Doyle Windows. The balance in this account was $1,200.

number
2000
1 Oct. 25 Accounts Receivable 64,000
2 Nov. 16 Cash 20,000
3 Dec. 31 Uncollectible Accounts Expense 1,920
For transaction 3, uncollectible accounts expense = .03 x $64,000 = $1,920

T- accounts - 1998
number
2001
4 Aug. 22 Accounts Receivable 12,000
5 Sep. 12 Allowance for Uncollectible Accounts 1,200
T- accounts - 1998
147
Homework Problem 4
McCoy Company
McCoy Company completed a number of transactions involving credit sales, accounts receivable collection
and uncollectible accounts in 2000 and 2001. McCoy Company uses the aging method for estimating
uncollectible accounts. This assignment requires you to calculate uncollectible accounts expense and
record the transactions in the general journal.
Customer 0-30 days 31-60 days 61-90 days Over 90 days
B. Johnson $280
R. Soares $360 $450
M. Sylvia $140
Dec. 31 McCoy Company uses the aging method. Assume that the Allowance for Uncollectible
Accounts had a debit balance of $90 at the beginning of the period. Review the aging
report shown above and prepare the journal entry to record Uncollectible Accounts
Expense.

Mar. 25 Wrote off the account of M. Sylvia. The balance in this account was $140.
Dec. 15 Sold merchandise on credit for $2,200.
Dec. 30 $700 was collected from customers for goods sold previously.

number
2000
1 Dec. 31 Uncollectible accounts Expense 157
Accounts on Dec. 31, 2000, is:
= (0.01 x $280) + (0.02 x $360) + (.08 x $450) + (0.15 x $140)
= $67
Since the Allowance account already has a debit balance of $90, Uncollectible
Accounts Expense = $157 ($67+ $90).
T- accounts - 1998
148

number
2001
2 Mar. 25 Allowance for Uncollectible Accounts 140
3 Dec. 15 Accounts Receivable 2,200
Sales Revenue 2,200
4 Dec. 30 Cash 700
T- accounts - 1999
Allowance for
Uncollectible Accounts
2. 140 bb. 67
73
149
Homework Quiz
Accounts Receivable
1. When using the allowance method for Uncollectible Receivables, the two ways of estimating the
amount of uncollectibles are the Percentage of Sales Method and:
a. Aging of Purchases
b. Aging of Receivables
c. Aging of Payables
d. Aging of Sales
2. Which of the following estimation methods emphasizes the matching principle?

a. Percentage of Sales
b. Percentage of Accounts Receivables
c. Aging of Inventory
d. Direct write-off
3. The method for estimating Uncollectible Accounts Expense that focuses on the balance sheet rather
than the income statement is:
a. Direct write-off
b. Accounts Receivable Aging
c. Percentage of Sales
d. Specific Account
4. Which of the following pairs correctly describe the account, Allowance for Uncollectible Accounts?
a. Account Classification: Contra Account; Normal Account Balance: Credit
b. Account Classification: Asset; Normal Account Balance: Debit
c. Account Classification: Asset; Normal Account Balance: Credit
d. Account Classification: Contra Account; Normal Account Balance: Debit
5. The existing balance in Allowance for Uncollectible Accounts is not considered when which of the
following estimating models is employed?
a. Percentage of Receivables method
b. Percentage of Sales method
c. Aging of Accounts Receivable method
d. None of the above
6. Laura's Window Works employs the Allowance for Uncollectible Accounts method to account for
her receivables. When the write-off of a specific uncollectible account occurs:
a. The Allowance for Uncollectible Accounts is debited.
b. Net income is reduced.
c. The net realizable value of Accounts Receivable decreases.
d. Accounts Receivable is debited.
7. Laura's Window Works employs the Allowance for Uncollectible Accounts method to account for
her receivables. When the write-off of a specific uncollectible account occurs:
a. The net realizable value of Accounts Receivable increases.
b. Net income is reduced.
c. The net realizable value of Accounts Receivable decreases.
150
d. The net realizable value of Accounts Receivable does not change.
8. When a specific customer's account is written off by a company using the Allowance for
Uncollectible Accounts method, what is the impact on Net Income and the Net Realizable Value of
Accounts Receivable?
a. Net Income: Decrease; Net Realizable Value of Accounts Receivable: Decrease
b. Net Income: None; Net Realizable Value of Accounts Receivable: None
c. Net Income: Increase; Net Realizable Value of Accounts Receivable: Increase
d. Net Income: Decrease; Net Realizable Value of Accounts Receivable: None
9. Hilltop Cleaners December 31, 2001 trial balance includes the following accounts:
Accounts Receivable ............................. $ 20,000

Allowance for Uncollectible Accounts............. 1,600 (cr.)
Sales Revenue ................................... 250,000
Hilltop estimates 2 percent of sales will prove uncollectible. The entry to record Uncollectible
Accounts Expense will include:
a. Debit to Allowance of Uncollectible Accounts; credit to Accounts Receivable.
b. Debit to Accounts Receivable; credit to Allowance of Uncollectible Accounts.
c. Debit to Uncollectible Account Expense; credit to Accounts Receivable.
d. Debit to Uncollectible Account Expense; credit to Allowance of Uncollectible
Accounts.
Accounts Receivable ............................. $ 20,000<BR>

Allowance for Uncollectible Accounts ............ 1,600 (cr.)
Sales Revenue ................................... 250,000
Hilltop estimates 2 percent of sales will prove uncollectible. The amount of the entry to record
Uncollectible Accounts Expense will be:
a. $ 500
b. $2,500
c. $5,000
d. $5,400

Sales Revenue ................................... 250,000
Hilltop estimates 2 percent of sales will prove uncollectible. After the entry to record Uncollectible
Accounts Expense is made, the balance in the Allowance for Uncollectible Accounts will be:
a. $6,500 credit
b. $5,000 credit
c. $3,500 debit
d. $1,500 credit
151
Sales Revenue ................................... 250,000
Hilltop estimates 2 percent of sales will prove uncollectible. After the entry to record Uncollectible
Accounts Expense is made, the net realizable value of Accounts Receivable will be:
a. $20,000
b. $18,500
c. $15,000
d. $13,500
13. Acme, Inc. employs the allowance method to estimate losses from uncollectible receivables. Net
sales for the year are $480,000, and the company estimates its bad debts as 1 percent of net sales.
If there is already a $2,400 credit balance in Allowance for Uncollectible Accounts, how much
should be recorded as Uncollectible Accounts Expense?
a. $ 2,400
b. $ 4,800
c. $48,000
d. Some other amount
There is already a $2,400 credit balance in Allowance for Uncollectible Accounts. What will the
balance in Allowance for Uncollectible Accounts be after this adjustment is recorded?
a. $ 2,400 credit
b. $ 4,800 credit
c. $ 7,200 credit
d. Some other amount
There is already a $2,400 credit balance in Allowance for Uncollectible Accounts and Accounts
Receivable total $375,000. What will the net realizable value of Accounts Receivable be after this
adjustment is recorded?
a. $ 375,000
b. $ 372,600
c. $ 367,800
d. $ 472,800
16. Martin, Inc. has sales of $800,000 during 2001. On December 31, 2001, Accounts Receivable
total $80,000 and Allowance for Bad Debts has a debit balance of $1,200. Uncollectible
receivables are estimated to be 3 percent of 12/31/01 Accounts Receivable balance. The December
31, 2001 adjusting entry to record Uncollectible Accounts Expense will include a:
a. Debit to Uncollectible Accounts Expense for $3,600
b. Debit to Uncollectible Accounts Expense for $2,400
c. Debit to Uncollectible Accounts Expense for $1,200
d. Credit to Allowance for Uncollectible Accounts for $2,400
152
17. Based on the aging of its accounts receivable at December 31, 2001 Winter Enterprises determines
the net realizable value of the receivables is $608,000. Additional information is as follows:
Accounts receivable at December 31, 2001.......... $704,000

Allowance for bad debts at January 1, 2001 ....... 102,400(cr.)
Accounts written off as uncollectible
during the year ............................... 70,400
Winter's Uncollectible Account Expense for the year ended December 31, 2001 is:
a. $ 64,000
b. $ 76,800
c. $ 96,000
d. $128,000
18. Analysis and aging of Scalon Company's Accounts Receivable balances at December 31, 2001
reveal the following:
Accounts receivable ................... $900,000

Allowance for Uncollectible Accounts (before adjustment) .................50,000 (cr.)
Accounts estimated to be uncollectible. 64,000
The entry to record Uncollectible Accounts Expense will total: <br>

a. $ 14,000
b. $ 60,000
c. $ 64,000
d. $114,000
19. Analysis and aging of Scalon Company's Accounts Receivable balances at December 31, 2001
reveal the following:
Accounts receivable ................... $900,000

Allowance for Uncollectible Accounts (before adjustment) .................50,000 (cr.)
Accounts estimated to be uncollectible. 64,000
The net realizable value of Accounts Receivable at December 31, 2001 will be:<br>
a. $900,000
b. $886,000
c. $850,000
d. $836,000
20. After analyzing Accounts Receivable through an "aging" process, you determined that $6,000 will
likely prove uncollectible. Your trial balance shows an Allowance for Uncollectible Accounts
balance of $200 debit, what is the correct adjusting entry?
a. Uncollectible Accounts Expense ............ 6,200
Allowance for Uncollectible Accounts .... 6,200
b. Allowance for Uncollectible Accounts....... 6,200
Uncollectible Accounts Expense........... 6,200
c. Allowance for Uncollectible Accounts....... 6,000
Uncollectible Accounts Expense .......... 6,000
d. Uncollectible Accounts Expense ............ 6,000
Allowance for Uncollectible Accounts..... 6,000
153
21. Burton Precision Tools estimates uncollectible accounts using the percentage of sales method. The
credit sales for 2000 is $8,000. The company expects 2% of sales to be uncollectible. The
Allowance for Uncollectible Accounts has a credit balance of $60 at the beginning of the year. The
uncollectible accounts expense for 2000 is:
a. $ 60
b. $100
c. $160
d. $220
credit sales for 2000 is $8,000. The company expects 2% of sales to be uncollectible. The
balance in the Allowance for Uncollectible Accounts on Dec. 31, 2000, is:
a. $100
b. $220
c. $160
d. $ 40
credit sales for 2000 is $8,000. The accounts receivable balance on December 31, 2000, is
$6,800. The company expects 2% of sales to be uncollectible. The Allowance for Uncollectible
Accounts has a credit balance of $60 at the beginning of the year. The net realizable value of
accounts receivable on Dec. 31, 2000, is:
a. $6,580
b. $6,700
c. $6,640
e. $6,740
Note: If the student gets number 22 wrong, they will also get number 23 wrong.
24. Burton Precision Tools estimates uncollectible accounts using the allowance method. On June 15,
2000, the business decided to write-off the account of L. Smith. The balance in this account was
$130. The Allowance for Uncollectible Accounts has a credit balance of $220 just before the
write-off. The balance in the Allowance for Uncollectible Accounts accounts after the write-off is:
a. $350
b. $ 90
c. $220
d. $130
25. Stanley Company estimates uncollectible accounts using the aging method. On December 31,
2000, $7,500 of accounts receivable was outstanding for less than 30 days and $2,400 of accounts
receivable was outstanding for more than 30 days and less than 60 days. The company expects
that 1% and 5% of these accounts receivable balances respectively to be uncollectible. The
a. $195
b. $255
c. $135
154
d. $ 99
a. $195
b. $255
c. $135
d. $ 99
Note: If the student gets number 26 wrong, they will also get number 27 wrong.
net realizable value of accounts receivable on Dec. 31, 2000, is:
a. $9,765
b. $9,801
c. $9,645
d. $9,705
28. Smith Company estimates uncollectible accounts using the aging method. On December 31, 2000,
$7,500 of accounts receivable was outstanding for less than 30 days and $2,400 of accounts
Allowance for Uncollectible Accounts has a debit balance of $60 at the beginning of the year. The
a. $195
b. $255
c. $135
d. $ 99
a. $195
b. $255
c. $135
d. $ 99
155
Note: If the student gets number 29 wrong, they will get number 30 wrong
net realizable value of accounts receivable on Dec. 31, 2000, is:
a. $9,765
b. $9,801
c. $9,645
d. $9,705
156
MODULE 5
ACCOUNTING FOR ASSETS - Merchandise Inventory
Melody Music Shop
Periodic System
Melody Music Shop sells a variety of keyboards, guitars etc. Information about the beginning inventory
and purchases of one type of keyboard for the year 2000 is given below. A physical count on December 31,
2000, indicates that there are 7 keyboards in ending inventory. Calculate the ending inventory and cost of
goods sold using (1) Periodic LIFO, (2) Periodic FIFO, (3) Periodic Weighted Average methods.
Date Description Units Price

Jan. 1 Beginning Inventory 10 $105
Mar. 15 Purchases 5 $107
Jul. 18 Purchases 4 $108
Aug. 7 Purchases 2 $109
LIFO method - Periodic System

Under LIFO the goods purchased last are assumed to be sold first. Thus the 7 units in ending inventory are
the earliest 7 units purchased - which are included in the beginning inventory.
Ending Inventory
7 units @ $105 (from beginning inventory) $ 735
Ending Inventory $735
The total units in inventory is 21 (10 + 5 + 4 + 2). Since there are 7 units in ending inventory, the number
of units sold is 14 (21 - 7).
Cost of Goods Sold
2 units @ $109 (from the Aug. 7 purchase) $218
4 units @ $108 (from the Jul. 18 purchase) 432
5 units @ $107 (from the Mar. 15 purchase) 535
3 units @ $105 (from beginning inventory) 315
Cost of Goods Sold $1,500
FIFO method - Periodic System
Under FIFO, the goods purchased first are assumed to be sold first. Thus the 7 keyboards in ending
inventory are the units purchased last. The ending inventory includes the one remaining keyboard from the
March 15 purchase, the 4 keyboards from the Jul. 18 purchase and the 2 keyboards from the Aug. 7
purchase.
Ending Inventory
157
The total units in inventory is 21 (10 + 5+ 4 + 2). Since there are 7 units in ending inventory, the number
of units sold is 14 (21 - 7).
Cost of Goods Sold

10 units @ $105 (from beginning inventory) 1,050
Weighted-average Cost Method -Periodic System
Cost of goods available for sale = (10 x $105) + (5 x $107) + (4 x $108) + (2 x $109) = $2,235
Weighted-average cost per unit = Cost of goods available for sale/ number of units in inventory
= $2,235/21
=$106.43
Cost of goods sold (rounded to the dollar) = $106.43 x 14 = $1,490
Ending inventory (rounded to the dollar) = $106.43 x 7 = $745
Perpetual System
Melody Music Shop sells a variety of keyboards, guitars etc. Information about the beginning
inventory and purchases of one type of keyboard for the year 2000 is given below. Calculate the
ending inventory and cost of goods sold using the perpetual LIFO and perpetual FIFO methods.

Mar. 15 Purchases 5 $107
Apr. 8 Sale 9 $120
Jul. 18 Purchases 4 $108
Nov. 1 Sale 5 $120
LIFO method - Perpetual System
Under LIFO, the goods purchased last are assumed to be sold first. Under the perpetual system cost of
goods sold is calculated as sales are made. Thus the phrase “last units” refer to the last units in inventory at
the time of the sale, not the last units at the end of the period.
Cost of Goods Sold

Sale on Apr. 8
5 units @ $107 (from the Mar. 15 purchase) $535
Sale on Nov. 1
2 units @ $109 (from the Aug. 7 purchase) 218
$1,497
Ending Inventory is
6 units @ $105 (from beginning inventory) $630
158
1 unit @ $108 (from the July 18 purchase) 108
FIFO method - Perpetual System
Under FIFO, the goods purchased first are assumed to be sold first. Under the perpetual system cost of
goods sold is calculated as sales are made. Thus, the phrase "first units" refer to the first units in inventory
at the time of the sale, not the first units at the end of the period.
Cost of Goods Sold

Sale on Apr. 8
Sale on Nov. 1
4 units @ $107 (from the Mar. 15 purchase) $428
$1,478
Ending Inventory
159
Practice Problem 1
Candyland
Information about the beginning inventory and purchases of one product sold by Candyland for 2000 is
given below. This assignment requires you to compute the cost of goods sold and ending inventory for
2000 using periodic LIFO and periodic FIFO. A physical count on December 31, 2000, indicates that there
are 14 boxes units in ending inventory.
Periodic System

Mar. 15 Purchases 16 $5.25
Jul. 18 Purchases 10 $5.50
Nov. 30 Purchases 12 $6
Under LIFO, the last goods purchased are assumed to be sold first. Thus the 14 boxes in ending inventory
are the earliest units purchased. The ending inventory includes 6 boxes from the beginning inventory and 8
boxes from the purchase on Mar. 15.
The total number of boxes available for sale is 44. The boxes sold are the 30 (44-14) boxes purchased last.
Ending Inventory
8 units @ $5.25 (from the Mar. 15 purchase) 42
Cost of Goods Sold

8 units @ $5.25 (from the Mar. 15 purchase) $42
10 units @ $5.50 (from the Jul. 18 purchase) 55
12 units @ $6 (from the Nov. 30 purchase) 72
Cost of Goods Sold $169
160
Under FIFO, the goods purchased first are assumed to be sold first. Thus the 14 boxes in ending inventory
are the units purchased last. The ending inventory includes 12 boxes from the purchase on Nov. 30 and 2
boxes from the purchase on Jul. 18.
The total number of boxes available for sale is 44. The boxes sold are the 30 (44-14) boxes purchased first.
Ending Inventory
2 units @ $5.50 (from the Jul. 18 purchase) $11
Cost of Goods Sold

16 units @ $5.25 (from the Mar. 15 purchase) 84
8 units @ $5.50 (from the Jul. 18 purchase) 44
161
Practice Problem 2
Jensen Windows
Information about the beginning inventory and purchases of one type of window sold by Jensen Windows
for 2000 is given below. This assignment requires you to compute the cost of goods sold and ending
inventory for 2000 using the perpetual LIFO and perpetual FIFO methods.

Apr. 17 Sale 5 $200
Jun. 15 Purchases 12 $125
Oct. 12 Sale 9 $200
Dec. 20 Sale 8 $200
LIFO method - Perpetual Inventory System

Under LIFO, the last goods purchased are assumed to be sold first.
Cost of Goods Sold
Sale on Apr. 17
Sale on Oct. 12
9 units @ $125 (from the Jun. 15 purchase) 1,125
Sale on Dec. 20
8 units @ $140 (from the Nov. 18 purchase) 1,120
Ending Inventory
3 units @ $125 (from the Jun. 15 purchase) 375
Ending inventory $495
FIFO method - Perpetual System
Under FIFO, the goods purchased first are assumed to be sold first.
Cost of Goods Sold
Sale on Apr. 17
Sale on Oct. 12
8 units @ $125 (from the Jun. 15 purchase) 1,000
Sale on Dec. 20
4 units @ $125 (from the Jun. 15 purchase) 500
Cost of goods sold $2,780
Ending Inventory
4 units @ $140 (from the Nov. 18 purchase) $ 560
Homework Problem 1
Sullivan Sporting Goods
162
Sullivan Sporting Goods sells a variety of sporting goods and equipment. Information about the beginning
inventory and purchases of one type of tennis racquets for 2000 is given below. This assignment requires
you to compute the cost of goods sold and ending inventory of tennis racquets for Sullivan Sporting Goods
for 2000 using the periodic LIFO, periodic FIFO, and periodic weighted-average cost methods. A physical
count on December 31, 2000, indicates that there are 7 tennis racquets in ending inventory.

Apr. 15 Purchases 8 $32
LIFO method - Periodic System Under LIFO, the last goods purchased are assumed to be sold first.
Thus the 7 racquets in ending inventory are the earliest units purchased.
Ending Inventory
5 units @ $32 (from the Apr. 15 purchase) $160
Cost of Goods Sold

5 units @ $35 (from the Nov. 30 purchase) $175
3 units @ $32 (from the Apr. 15 purchase) 96
FIFO method - Periodic System Under FIFO, the goods purchased first are assumed to be sold first.
Thus the 7 racquets in ending inventory are the last units purchased.
Ending Inventory
2 units @ $33 (from the Aug. 18 purchase) $ 66
Cost of Goods Sold

8 units @ $32 (from the Apr. 15 purchase) 256
Weighted-average Cost method - Periodic System

Cost of goods available for sale = 2 x $29 + 8 x $32 + 4 x $33 + 5 x $35 = $621
Weighted-average cost per unit = Cost of goods available for sale/total units in inventory
= $621 / 19 = $32.68
Cost of goods sold = 12 x $32.68 = $392.16 or $392 (rounded to nearest dollar)
Ending Inventory = 7 x $32.68 = $228.76 or $229 (rounded to nearest dollar)
Homework Problem 2
Slumberland, Inc.
163
Slumberland, Inc. sells a variety of mattresses. Information about the beginning inventory and purchases
of one type of mattress for 2000 is given below. This assignment requires you to compute the cost of goods
sold and ending inventory of mattresses for Slumberland, Inc. for 2000 using the periodic LIFO, periodic
FIFO, and periodic weighted-average cost method. A physical count on December 31, 2000, indicates that
there are 4 mattresses in ending inventory.

May 15 Purchases 8 $205

Under LIFO, the last goods purchased are assumed to be sold first. Thus the 4 mattresses in ending
inventory are the earliest units purchased.
Ending Inventory
4 mattresses @ $200 (from beginning inventory) $800
Cost of Goods sold

6 mattresses @ $207 ( from purchase on Nov. 18) $1,242
8 mattresses @ $205 (from purchase on May 15) 1,640
1 mattress @ $200 (from beginning inventory) 200

Under FIFO, the goods purchased first are assumed to be sold first. Thus the 4 mattresses in ending
inventory are the last units purchased.
Ending Inventory
4 mattresses @ $207 ( from purchase on Nov. 18) $ 828
Cost of Goods Sold

5 mattress @ $200 (from beginning inventory) $1,000
8 mattresses @ $205 (from purchase on May 15) 1,640
2 mattresses @ $207 ( from purchase on Nov. 18) 414
Weighted-average Cost Method - Periodic System
Cost of goods available for sale = (5 x $200) + (8 x $205) + (6 x $207) = $3,882

Weighted-average cost per unit = Cost of goods available for sale/total units in inventory
= $3,882/19 = $204.32
Cost of goods sold = 15 x $204.32 = $3,064.80 or $3,065 (rounded to nearest dollar)
Ending Inventory = 4 x $204.32 = $817.28 or $817 (rounded to nearest dollar)
Homework 3
Casualwear, Inc.
164
Information about the beginning inventory and purchases of one type of T-shirts for Casualwear, Inc. for
2000 is given below. This assignment requires you to compute the cost of goods sold and ending inventory
of T-shirts for Casualwear, Inc. for 2000 using the perpetual LIFO and perpetual FIFO methods.

Jan. 1 Beginning Inventory 16 $7.50
Feb. 15 Sale 12 $12
May. 15 Purchases 10 $8
Aug. 12 Sale 11 $12
Oct. 18 Purchases 12 $8.50
Oct. 28 Sale 9 $12
LIFO method - Perpetual System Under LIFO, the last goods purchased are assumed to be sold first.
Cost of Goods Sold
Sale on Feb. 15
12 units @ $7.50 (from beginning inventory) $ 90.00
Sale on Aug. 12
10 units @ $8 (from purchase on May 15) 80.00
1 unit @ $7.50 (from beginning inventory) 7.50
Sale on Oct. 28
9 units @ $8.50 (from purchase on Oct. 18) 76.50
Cost of Goods Sold $254.00
Ending Inventory
3 units @ $7.50 (from beginning inventory) $22.50
3 units @ $8.50 (from purchase on Oct. 18) 25.50
8 units @ $9 (from purchase on Nov. 30) 72.00
Ending Inventory $120.00
FIFO method - Perpetual System Under FIFO, the goods purchased first are assumed to be sold first.
Cost of Goods Sold
Sale on Feb. 15
12 units @ $7.50 (from beginning inventory) $ 90
Sale on Aug. 12
4 units @ $7.50 (from beginning inventory) 30
7 units @ $8 (from purchase on May 15) 56
Sale on Oct. 28
3 units @ $8 (from purchase on May 15) 24
6 units @ $8.50 (from purchase on Oct. 18) 51
Ending Inventory
6 units @ $8.50 (from purchase on Oct. 18) $51
8 units @ $9 (from purchase on Nov. 30) 72
Homework 4
Joe's Appliance Store
165
Joe's Appliance Store sells a variety of household appliances. Information about the beginning inventory
and purchases of one type of washing machines for 2000 is given below. This assignment requires you to
compute the cost of goods sold and ending inventory of washing machines for Joe's Appliance Store using
the perpetual LIFO and perpetual FIFO methods.

Mar. 3 Sale 4 $500
Jul. 12 Sale 7 $500
Nov. 18 Sale 11 $500
LIFO method - Perpetual System Under LIFO, the last goods purchased are assumed to be sold first.
Under LIFO, the last goods purchased are assumed to be sold first.
Cost of Goods Sold

Sale on Mar. 3
4 units @ $440 (from beginning inventory) $1,760
Sale on Jul. 12
Sale on Nov. 18
10 units @ $465 (from purchase on Nov. 4) 4,650
1 unit @ $450 (from purchase on Aug. 15) 450
Ending Inventory
7 units @ $450 (from purchase on Aug. 15) 3,150
$3,590
FIFO method - Perpetual System Under FIFO, the goods purchased first are assumed to be sold first.
Cost of Goods Sold

Sale on Mar. 3
4 units @ $440 (from beginning inventory) $1,760
Sale on Jul. 12
Sale on Nov. 18
1 unit @ $440 (from beginning inventory) 440
8 units @ $450 (from purchase on Aug. 15) 3,600
2 units @ $465 (from purchase on Nov. 4) 930
Cost of Goods sold $9,810
Ending Inventory
8 units @ $465 (from purchase on Nov. 4) $3,720
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Homework Quiz
Merchandise Inventory
1. The inventory method, which considers that Ending Inventory consists of units acquired earliest, is:
a. LIFO
b. FIFO
c. Weighted Average Cost
d. NIFO
2. The inventory method, which considers that merchandise is sold in the order in which acquisitions
are made, is:
a. FILO
b. LIFO
c. FIFO
d. Weighted Average Cost
3. The inventory method, which considers that Ending Inventory consists of the most recent
acquisitions, is:
a. Weighted Average Cost
b. LIFO
c. FIFO
d. NIFO
4. Weighted Average Costing under the Periodic Method:

a. Computes average cost only at the end of the accounting period.
b. Computes average cost ignoring the Beginning Inventory amount.
c. Computes average cost using a series of computations throughout the accounting period.
d. Computes a new average cost after each inventory acquisition is made.
5. Which of the following methods does NOT require a year-end physical inventory?
a. Periodic Weighted Average Cost
b. Periodic LIFO
c. Perpetual LIFO
d. Periodic FIFO
6. A Perpetual Inventory System:

a. Continuously discloses the amount of inventory in the accounting records.
b. Shows increases in inventory resulting from purchases as debits to Purchases
c. Does NOT require a year-end physical inventory.
d. None of the above correctly describes a Perpetual Inventory System.
7. A Periodic Inventory System:

a. Continuously discloses the amount of inventory in the accounting records.
b. Maintains a separate account for each type of merchandise acquired in a subsidiary ledger.
c. Requires a physical inventory be taken at the end of the period to determine Ending
Inventory.
d. Debits Inventory when goods are returned to vendors.
8. Which method of inventory cost flows assumes that goods are sold in reverse order of acquisitions?
a. Weighted Average Costing
b. LIFO
167
c. FIFO
d. LILO
9. A company using LIFO reports Cost of Goods Sold of $390,000, and Ending Inventory of
$90,000. If FIFO ending inventory is $130,000, how much is FIFO cost of goods sold?
a. $430,000
b. $390,000
c. $350,000
d. $130,000
10. A company using FIFO reports Cost of Goods Sold of $585,000, and Ending Inventory of
$135,000. If LIFO ending inventory is $195,000, how much is LIFO cost of goods sold?
a. $565,450
b. $585,000
c. $525,000
d. $195,000
11. Sam's Grocery employs a Periodic Inventory System. Sam provides you with the following
information:
 Beginning Inventory $ 60,000
 Purchases $250,000
A count of the goods currently on hand indicates a total of $45,000. Sam's Cost of Goods Sold is:
a. $355,000
b. $310,000
c. $295,000
d. $265,000
12. Sam's Grocery opened his business at the beginning of this year. He employs a Periodic Inventory
System. Sam provides you with the following information:
 Ending Inventory $ 60,000
 Purchases $250,000
Sam's Cost of Goods Sold is:

a. $355,000
b. $250,000
c. $190,000
d. $ 90,000
13. Al's Specialty Goods, a Sole Proprietorship, maintains a Periodic Inventory System. He offers the
following information:
Beginning inventory................. 10 units at $60
First purchase...................... 25 units at $63
Second purchase..................... 30 units at $64
Third purchase...................... 15 units at $70
Al also relays that 20 units of inventory are currently on hand. Ending Inventory under FIFO is:
a. $1,200
168
b. $1,230
c. $1,370
d. $1,400
Al also relays that 20 units of inventory are currently on hand. Ending Inventory under LIFO is:
a. $1,200
b. $1,230
c. $1,370
d. $1,400
Al also relays that 20 units of inventory are currently on hand. Ending Inventory under Weighted
Average Cost (rounded to the nearest dollar) is:
a. $1,143
b. $1,286
c. $1,386
d. $1,822
16. Joe's Car Repair, Inc., a Corporation, reports the following inventory data for November, 2001:
Nov. 1 Beg. Inventory 20 units at $20

4 Sold 10 units
10 Purchased 30 units at $21
17 Sold 20 units
Joe's utilizes a Perpetual Inventory System and FIFO costing. What is the cost of the 30 units in
Ending Inventory on November 30, 2001?
a. $640
b. $610
c. $620
d. $630
17. Joe's Car Repair, Inc., a Corporation, reports the following inventory data for November, 2001:
Nov. 1 Beg. Inventory 20 units at $20
169
4 Sold 10 units
17 Sold 20 units
Joe's utilizes a Perpetual Inventory System and LIFO costing. What is the cost of the 30 units in
Ending Inventory on November 30, 2001?
a. $640
b. $610
c. $620
d. $630
18. Hartland, Inc.'s purchase and sale records for a recent period are shown below:
Purchases Sales
1st purchase 1,000 units @ $2 1st sale 1,200 units @ $7
2nd purchase 2,000 units @ $3 2nd sale 1,500 units @ $8
3rd purchase 1,000 units @ $4 3rd sale 1,000 units @ $9
4th purchase 1,000 units @ $5 4th sale 1,000 units @ $10
5,000 units 4,700 units
Beginning inventory was 200 units at $1 each. What is Hartland's Ending Inventory assuming
periodic, FIFO Costing is employed?
a. $ 800
b. $1,000
c. $2,500
d. $6,200
Purchases Sales
periodic, LIFO Costing is employed?
a. $ 800
b. $1,000
c. $2,500
d. $6,200
Purchases Sales
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periodic, Weighted Average Costing is employed?
a. $ 800
b. $1,655
c. $1,750
d. $2,048
21. Under which of the following methods are earliest goods purchased included in the ending
inventory?
a. Periodic method
b. LIFO method
c. FIFO method
d. Weighted-average cost method
22. Bright Lights inc. uses a periodic inventory system. The company had 6 units of a lamp costing
$30 on January 1, 2000. Purchases during 2000 include: 4 units for $31 on March 21, 5 units for
$32 on July 1 and 8 units for $33 on November 10. 16 units were sold for $35 each in 2000. The
cost of goods sold using LIFO is:
a. $211
b. $517
c. $231
d. $497
ending inventory under LIFO is:
a. $211
b. $517
c. $231
d. $497
cost of goods sold under FIFO is:
a. $211
b. $517
c. $231
d. $497
171
ending inventory using FIFO is:
a. $211
b. $517
c. $231
d. $497
average cost per unit using the weighted average cost method is:
a. $31.65
b. $32.00
c. $31.00
d. $31.50
27. Globe Luggage Company uses a perpetual inventory system. The company had 6 units of an item
costing $60 each on January 1, 2000. 4 units were purchased for $61 on March 21. 6 units were
sold for $75 each in April. 5 units were purchased for $64 each on November 10. 3 units were
sold for $75 each in December. The cost of goods sold using perpetual LIFO is:
a. $368
b. $556
c. $543
d. $381
sold for $75 each in December. The ending inventory using perpetual LIFO is:
a. $368
b. $556
c. $543
d. $381
sold for $75 each in December. The cost of goods sold using perpetual FIFO is:
a. $368
b. $556
c. $543
d. $381
172
sold for $75 each in December. The ending inventory using perpetual FIFO is:
a. $368
b. $556
c. $543
d. $381
173
Module 5
Plant Assets
Star Interior Designs
Star Interior Designs purchased a van for $21,000 on Jan. 1, 2000. The salvage value of the van is $3,000
and its useful life is 4 years.
(1) Assume that Star Interior Designs uses the straight-line method of depreciation. Calculate the
depreciation expense, accumulated depreciation at the end of the year and the book value at the end of the
year for each year of the useful life of the asset.
(2) Assume that Star Interior Designs uses the double-declining-balance method of depreciation. Calculate
the depreciation expense, accumulated depreciation at the end of the year and the book value at the end of
the year for each year of the useful life of the asset.
Straight-line method
Year Depreciation Depreciation Expense Accumulated Book Value

Rate Depreciation
2000 0.25 $4,500 $ 4,500 $16,500
2001 0.25 $4,500 $ 9,000 $12,000
2002 0.25 $4,500 $13,500 $ 7,500
2003 0.25 $4,500 $18,000 $ 3,000
Depreciation expense is calculated by multiplying the depreciation rate (column A) by depreciable cost
(cost - salvage value). The depreciable cost is $18,000 ($21,000 - $3,000). Note that accumulated
depreciation is calculated by adding the accumulated depreciation at the end of the previous year with the
depreciation expense for the current year. Column D shows the book value at the end of the period. Book
value is the cost less the accumulated depreciation.
Double-declining-balance method

Rate Depreciation
2000 0.50 $10,500 $10,500 $10,500
2001 0.50 $ 5,250 $15,750 $ 5,250
2002 0.50 $ 2,250 $18,000 $ 3,000
2003 0.50 0 $18,000 $ 3,000
Note that the book value at the beginning of the period is used in calculating the depreciation expense. For
the first year, the book value equals the cost of the asset. For the remaining periods, the book value of the
asset at the end of the previous period is taken from the last column of the table. Also, the depreciation
expense in year 2002 is not equal to the amount given by multiplying the double-declining-balance rate by
book value since this amount will reduce book value to below salvage value. It is the amount required to
bring book value down to salvage value of $3,000.
174
Practice Problem 1
Law Firm of Maxwell and King
The law firm of Maxwell and King purchased office furniture for $4,600 on January 1, 1999. The salvage
value of the furniture is $600 and its useful life is 5 years.
Assume that law firm of Maxwell and King uses the straight-line method of depreciation. Compute the (1)
depreciation rate (2) depreciation expense for the year (3) accumulated depreciation at the end of the year
and (4) book value at the end of the year for each year of the useful life of the furniture.

Rate Depreciation
1999 0.2 $800 $ 800 $3,800
2000 0.2 $800 $1,600 $3,000
2001 0.2 $800 $2,400 $2,200
2002 0.2 $800 $3,200 $1,400
2003 0.2 $800 $4,000 $ 600
Depreciable cost = cost - salvage value

Depreciation expense = depreciable cost / useful life
Accumulated depreciation = accumulated depreciation at the beginning of the period +
depreciation expense
Book value = cost - accumulated depreciation
175
Practice Problem 2
Loeb Precision Tools
Loeb Precision Tools purchased equipment for $24,000 on January 1, 1999. The salvage value of the asset
is $4,000. The useful life of the asset is 5 years.
(1) Assume that Loeb Precision Tools uses the straight-line method of depreciation. Compute the (1)
depreciation rate (2) depreciation expense for the year (3) accumulated depreciation at the end of the year
and (4) book value at the end of the year for each year of the useful life of the furniture.
Year Depreciable Rate Depreciation Expense Accumulated Book Value

Depreciation
1999 0.2 $4,000 $4,000 $20,000

2000 0.2 $4,000 $8,000 $16,000
2001 0.2 $4,000 $12,000 $12,000
2002 0.2 $4,000 $16,000 $ 8,000
2003 0.2 $4,000 $20,000 $ 4,000

Accumulated Depreciation = accumulated depreciation at the beginning of the period +
(2) Assume that Loeb Precision Tools uses the double-declining-balance method of depreciation. Compute
the (1) depreciation rate (2) depreciation expense for the year (3) accumulated depreciation at the end of the
year and (4) book value at the end of the year for each year of the useful life of the furniture.
Year DDB Rate Depreciation Expense Accumulated Book Value

Depreciation (end of year)
1999 0.4 $9,600 $ 9,600 $14,400

2000 0.4 $5,760 $15,360 $ 8,640
2001 0.4 $3,456 $18,816 $ 5,184
2002 0.4 $1,184 $20,000 $ 4,000
2003 0.4 $ 0 $20,000 $ 4,000
Book value at the beginning of period = book value at the end of the previous period
Depreciation expense = book value x double-declining rate = book value x (2 / useful life)
Note: For years 4 and 5 the depreciation expense has to be adjusted so that the book value at the end of the
useful life is $4,000.
176
Homework Problem 1
Morgan Manufacturing Co.
Morgan Manufacturing Co. purchased an equipment for $45,000 on January 1, 1999. The salvage value
of the asset is $5,000. The useful life of the asset is 5 years. This assignment requires you to calculate the
depreciation expense, accumulated depreciation and the book value at the end of the year, for each year of
the useful life of the asset using (1) the straight-line method and (2) the double-declining balance method.

Rate Depreciation
1999 0.2 $8,000 $ 8,000 $37,000

2000 0.2 $8,000 $16,000 $29,000
2001 0.2 $8,000 $24,000 $21,000
2002 0.2 $8,000 $32,000 $13,000
2003 0.2 $8,000 $40,000 $ 5,000

Accumulated Depreciation = accumulated depreciation at the beginning of the period +
Double-declining balance method

1999 0.4 $18,000 $18,000 $27,000
2000 0.4 $10,800 $28,800 $16,200
2001 0.4 $ 6,480 $35,280 $ 9,720
2002 0.4 $ 3,888 $39,168 $ 5,832
2003 0.4 $ 832 $40,000 $ 5,000
Note: For year 5 the depreciation expense has to be adjusted so that the book value at the end of the useful
life is $5,000.
177
Homework Problem 2
McKay Company
McKay Company purchased furniture for $5,400 on January 1, 1999. The useful life of the furniture is
four years and the salvage value is $1,200. This assignment requires you to calculate the depreciation
expense, accumulated depreciation and the book value at the end of the year, for each year of the useful life
of the asset using (1) the straight-line method and (2) the double-declining balance method.

Rate Depreciation
1999 0.25 $1,050 $1,050 $4,350

2000 0.25 $1,050 $2,100 $3,300
2001 0.25 $1,050 $3,150 $2,250
2002 0.25 $1,050 $4,200 $1,200

1999 0.5 $2,700 $2,700 $2,700
2000 0.5 $1,350 $4,050 $1,350
2001 0.5 $ 150 $4,200 $1,200
2002 0.5 $ 0 $4,200 $1,200
Depreciation expense = book value at the beginning of period x double-declining rate
= book value x (2 / useful life)
178
Homework Problem 3
Downtown Fitness Center
Downtown Fitness Center purchased exercise equipment for $8,400 on January 1, 1999. The useful life of
the equipment is 4 years and the salvage value is $1,400. This assignment requires you to calculate the
depreciation expense, accumulated depreciation and the book value at the end of the year, for each year of
the useful life of the asset using (1) the straight-line method and (2) the double-declining balance method.

Rate Depreciation
1999 0.25 $1,750 $1,750 $6,650
2000 0.25 $1,750 $3,500 $4,900
2001 0.25 $1,750 $5,250 $3,150
2002 0.25 $1,750 $7,000 $1,400

1999 0.5 $4,200 $4,200 $4,200
2000 0.5 $2,100 $6,300 $2,100
2001 0.5 $ 700 $7,000 $1,400
2002 0.5 $ 0 $7,000 $1,400
179
Homework Problem 4
McDermott Associates
McDermott Associates purchased a computer on January 1, 2000, for $2,800. The useful life of the asset
is 4 years and the salvage value is $400. This assignment requires you to calculate the depreciation
expense, accumulated depreciation and the book value at the end of the year, for each year of the useful life
of the asset using (1) the straight-line method and (2) the double-declining balance method.

Rate Depreciation
2000 0.25 $600 $ 600 $2,200
2001 0.25 $600 $1,200 $1,600
2002 0.25 $600 $1,800 $1,000
2003 0.25 $600 $2,400 $ 400
Double-declining balance method

2000 0.5 $1,400 $1,400 $1,400
2001 0.5 $ 700 $2,100 $ 700
2002 0.5 $ 300 $2,400 $ 400
2003 0.5 $ 0 $2,400 $ 400
180
Homework Quiz
Plant Assets
1. Salvage Value is also referred to as:

a. Book value
b. Carrying value
c. Residual value
d. Current value
2. A plant asset's Book Value is:

a. Its original cost.
b. Its Market value.
c. The total of all expenses associated with it.
d. Its acquisition cost less any accumulated depreciation.
3. The Accumulated Depreciation account is credited when:

a. An asset is traded for a similar asset
b. A new asset is purchased
c. The depreciation expense for the year is recorded
d. An asset is traded for a dissimilar asset
4. Depreciation can best be defined as:

a. A method of accumulating funds for the asset replacement.
b. A procedure for reducing the carrying cost of a Plant Asset to current market value.
c. A plan for deriving tax benefits
d. A mechanism for allocating a Plant Asset's cost over its useful life.
5. To properly calculate Depreciation Expense, which of the following is NOT required?

a. The Plant Asset's acquisition cost.
b. The Plant Asset's estimated salvage value.
c. The dollar amount of the cash down payment made on the Plant Asset.
d. The Plant Asset's estimated useful life.
6. Which of the following items is required when recording an entry for the sale of a Plant Asset?
a. Record depreciation expense on the Plant Asset up to the date of sale.
b. Remove the Plant Asset and related Accumulated Depreciation from the accounting
records.
c. Record any gain or loss on the sale of the Plant Asset.
d. All the above are necessary
7. Dividing a Plant Asset's cost by its estimated useful life yields:

a. Its Book value
b. Its Accumulated depreciation
c. Its Carrying value
d. None of the above
181
8. On January 1, 2001, Mark's Printing purchases equipment for $12,600. The equipment has an
estimated useful life of 3 years. The equipment will have a $1,200 salvage value at the end of its
life. The depreciation expense for the year ending December 31, 2001, using the straight-line
depreciation will be:
a. $4,200
b. $3,800
c. $1,900
d. $ 950
9. On January 1, 2001, Mark's Printing purchases equipment for $12,600. The equipment has an
estimated useful life of 3 years. The equipment will have a $1,200 salvage value at the end of its
life. The depreciation expense for the year ending December 31, 2003, using the straight-line
depreciation will be:
a. $4,200
b. $3,800
c. $1,900
d. $ 950
10. Werner Company purchased a machine on January 1, 2001, for $48,000 cash. The estimated
useful life of the machine is 4 years, after which time it is expected to have a salvage value of
$8,000. Assuming that the straight-line depreciation method is used, what will be the machine's
book value on December 31, 2002?
a. $16,000
b. $24,000
c. $30,000
d. $28,000
11. What is the gain or loss on the sale of a Plant Asset originally costing $12,000, with Accumulated
Depreciation of $5,000 that is sold for $4,000?
a. $1,000 loss
b. $3,000 loss
c. $3,000 gain
d. $8,000 loss
12. On January 1, 2002, Langley, Inc. purchases equipment for $40,000. The equipment has an
estimated useful life of 5 years and a salvage value of $4,000. Langley Company uses the straight-
line depreciation method for all its assets. If Langley sells the equipment for $24,000 on December
31, 2003, it will have:
a. A $4,000 loss
b. A $4,000 gain
c. A $1,600 loss
d. A $1,600 gain
13. A Plant Asset costing $32,000 with an estimated life of 4 years is scrapped after 3 years. Straight-
Line depreciation (with no salvage value) is employed. The loss recognized on disposal is:
a. $ 4,000
b. $ 8,000
c. $10,000
182
d. $16,000
14. On January 1, 2002, Langley, Inc. purchases equipment for $40,000. The equipment has an
estimated useful life of 5 years and a salvage value of $4,000. Langley Company uses the straight-
line depreciation method for all its assets. If Langley scraps the equipment on December 31, 2003,
it will have:
a. A $25,600 loss
b. A $21,600 gain
c. A $21,600 loss
d. A $25,600 gain
15. A machine with a cost of $130,000 has an estimated residual value of $10,000 and an estimated
life of 4 years. What is the amount of depreciation for the first full year, using the Double
Declining Balance method?
a. $16,250
b. $60,000
c. $32,500
d. $65,000
life of 4 years. What is the amount of depreciation for the third full year, using the Double
a. $16,250
b. $60,000
c. $32,500
d. $65,000
life of 4 years. What is the Book Value at the end of the fourth full year, using the Double
a. $ 6,250
b. $ 8,125
c. $10,000
d. $16,250
18. A Plant Asset costing $320,000 has a Salvage Value of $20,000 and an estimated life of 5 years.
Double-Declining Balance depreciation is employed. What is the amount of depreciation for the
first full year?
a. $120,000
b. $128,000
c. $150,000
d. $160,000
Double-Declining Balance depreciation is employed. What is the amount of depreciation for the
third full year?
a. $ 37,500
b. $ 40,000
c. $ 43,200
d. $ 46,080
183
Double-Declining Balance depreciation is employed. What is the Plant Asset's Book Value at the
end of the second full year?
a. $ 108,000
b. $ 115,200
c. $ 75,000
d. $ 80,000
21. Parker Company purchased furniture for $6,400 on January 1, 2000. The salvage value of the
furniture is $800 and it's useful life is eight years. Parker Company uses the straight-line
depreciation method. The depreciation expense for 2000 is:
a. $800
b. $700
c. $1,400
d. $1,600
depreciation method. The depreciable cost of the asset is:
a. $6,400
b. $800
c. $5,600
d. $4,800
depreciation method. The accumulated depreciation on December 31, 2003, is:
a. $2,800
b. $3,200
c. $2,100
d. $2,400
Note: If students get number 21 wrong, they will get number 23, plus number 24 wrong.
24. Parker Company purchased furniture for $6,400 on January 1, 2000. Parker Company uses the
straight-line depreciation method. The salvage value of the furniture is $800 and it's useful life is
eight years. The book value on December 31, 2003, is:
a. $5,600
b. $3,600
c. $4,300
d. $4,000
25. Long Corporation purchased equipment for $5,000 on January 1, 2000. The useful life of the
equipment is 5 years and its salvage value is $1,000. Long Corporation uses the double-declining
balance method. The double-declining balance rate of depreciation is:
a. 0.10
b. 0.20
c. 0.25
d. 0.40
184
balance method. The depreciation expense for 2001 is:
a. $1,400
b. $1,360
c. $1,200
d. $1,600
balance method. The accumulated depreciation on December 31, 2001, is:
a. $3,200
b. $2,800
c. $2,400
d. $200
Note: If students get number 26 wrong they will get number 27 and 28 wrong.
balance method. The book value on December 31, 2001, is:
a. $800
b. $2,100
c. $1,800
d. $3,000
29. Suppose a business sells equipment on January 1, 2004 for $2,400. The furniture was purchased
on January 1, 2000, for $8,000. Its useful life is 8 years and salvage value is $1,600. Assume that
the business uses the straight-line method for calculating depreciation. At the time of the sale of
the asset, the business recognizes:
a. a loss of 5,600
b. a loss of $4,000
c. a loss of $2,400
d. a loss of $1,600
30. Suppose a business sells equipment on January 1, 2004 for $5,200. The furniture was purchased
on January 1, 2000, for $8,000. Its useful life is 8 years and salvage value is $1,600. Assume that
the business uses the straight-line method for calculating depreciation. At the time of the sale of
the asset, the business recognizes:
a. a gain of $400
b. a loss of $2,800
c. a loss of $1,200
d. no gain or loss is recognized
185

ACCOUNTING FOR ASSETS - Accounts Receivable Demonstration Problem

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ACCOUNTING FOR ASSETS - Accounts Receivable Demonstration Problem

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MODULE 5

ACCOUNTING FOR ASSETS - Accounts Receivable

Journal Entries for 2000

Journal Entries for 2001

Journal Entries for 2000

Transaction DATE ACCOUNT DEBIT CREDIT

For transaction 3, Uncollectible Accounts Expense = .04 x 64,000 = $2,560

Journal Entries for 2001

Transaction DATE ACCOUNT DEBIT CREDIT

Journal Entries for 2000

Sep. 25 Sold merchandise on credit for $4,400.

Journal Entries for 2001

Feb. 11 Sold merchandise on credit for $2,300.

Journal Entries for 2000

Transaction DATE ACCOUNT DEBIT CREDIT

For transaction 3, Uncollectible Accounts Expense = .03 x $4,400 = $132

Journal Entries for 2001

Transaction DATE ACCOUNT DEBIT CREDIT

Estimated % uncollectible 1% 3% 8% 10%

Journal Entries for 2000

Journal Entries for 2001

Journal Entries for 2000

Transaction DATE ACCOUNT DEBIT CREDIT

Transaction DATE ACCOUNT DEBIT CREDIT

Transactions for 2000

Nov. 25 Sold merchandise on credit for $32,000.

Transactions for 2001

Mar. 31 Sold merchandise on credit for $2,500.

Journal Entries for 2000

Transaction DATE ACCOUNT DEBIT CREDIT

For transaction 3, Uncollectible Accounts Expense = .02 x $32,000 = $640

Journal Entries for 2001

Transaction DATE ACCOUNT DEBIT CREDIT

Customer 0-30 days 31-60 days 61-90 days Over 90 days

Computer Stop $4,400 $1,500

Estimated % uncollectible 1% 5% 8% 15%

Transactions for 2000

Transactions for 2001

Journal Entries for 2000

Transaction DATE ACCOUNT DEBIT CREDIT

Journal Entries for 2001

T- accounts - 1998 Allowance for

2. 600 bb. 446

Transactions for 2000

Transactions for 2001

Journal Entries for 2000

Transaction DATE ACCOUNT DEBIT CREDIT

For transaction 3, uncollectible accounts expense = .03 x $64,000 = $1,920

Journal Entries for 2001

Customer 0-30 days 31-60 days 61-90 days Over 90 days

Estimated % uncollectible 1% 2% 8% 15%

Transactions for 2000

Transactions for 2001

Journal Entries for 2000

Transaction DATE ACCOUNT DEBIT CREDIT

Transaction DATE ACCOUNT DEBIT CREDIT

2. Which of the following estimation methods emphasizes the matching principle?

Accounts Receivable ............................. $ 20,000

Accounts Receivable ............................. $ 20,000<BR>

Accounts Receivable ............................. $ 20,000

Accounts receivable at December 31, 2001.......... $704,000

Accounts receivable ................... $900,000