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Ak - Keu (Problem)
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SOAL 1
P7-1 (Determine Proper Cash Balance) Francis Equipment Co. closes its books
regularly on December 31, but at the end of 2012 it held its cash book open so that a
more favorable balance sheet could be prepared for credit purposes. Cash receipts
and disbursements for the first 10 days of January were recorded as
December transactions. The information is given below.
1. January cash receipts recorded in the December cash book totaled $45,640,
of which $28,000 represents cash sales, and
a nd $17,640 represents collections
on account for which cash discounts of $360 were given.
2. January cash disbursements recorded in the December check register
liquidated accounts payable of $22,450 on which discounts of $250 were
taken.
3. The ledger has not been closed for 2012.
4. The amount shown as inventory was determined by physical count on
December 31, 2012.
PROBLEM 7-1
(a) December 31
Accounts Receivable ( €17,640 + €360)
360 ) .......
....... 18,000
Sale
Saless .................
.........................
...............
................
.................
.................
.................
............
.... 28,000
Cash
Cash ...............
........................
.................
.................
................
...............
............
.... 45,64
Sales Discounts ...................................... 36
December 31
Cash ....................................................................... 22,200
Purc
Purchas
hase
e Discou
Dis count
ntss ........
...........
.......
.......
.......
........
.......
.......
.......
.......
...... 250
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Current assets
Inve
In vent
ntor
orie
iess .................
.........................
.................
.................
................
..........
.. € 67,000 € 67,000
Receivables ( €42,000 + €18,000
18, 000)) ...........
............. 42,000 60,000
Cash ( €
€39,000 – €45,640 + €22,200)....... 39,000 15,560
Tota
To tall ............................
............................................
............................
............ (1)
(1 ) 148,
148,00
000
0 142,560
Current liabilities
Accounts payable
( €45,000 + €22,450)................................. 45,000 67,450
Other current
Other current liabilities............................. 14,200 14,200
Total ........................................................ (2) 59,200 81,650
Working capital .......................................... (1) – (2) €88,800 €60,910
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SOAL 2
3. Shore Co. provides for doubtful accounts based on o n 3% of credit sales. The following da
for 2012.
Credit sales during 2012 $2,400,000
Allowance for doubtful accounts 1/1/12
1/1/12 17,000
Collection of accounts written off in prior years
(customer credit was reestablished) 8,000
Customer accounts written off as uncollectible during 2012 30,000
What is the balance in Allowance for Doubtful Accounts at December 31, 2012?
4. At the end of its first year of operations, December 31, 2012, Darden Inc. reported the
4. At
information.
Accounts receivable, net of allowance
allowance for doubtful accounts $950,000
Customer accounts written off as uncollectible during 2012 24,000
Bad debt expense for 2012 84,000
What should be the balance in accounts receivable at December 31, 2012, before subtra
allowance for doubtful accounts?
5. The following accounts were taken from Bullock Inc.’s trial balance at December 31, 2
Debit Credit
Net credit sales $750,000
Allowance for doubtful accounts $ 14,000
Accounts receivable 310,000
If doubtful accounts are 3% of accounts receivable, determine the bad debt expense to
2012.
Instructions
Answer the questions relating to each of the five independent situations as requested.
requested.
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PROBLEM 7-2
1. Net sales................................................................................................
Perc
Pe rcen
enta
tage
ge ................
.......................
...............
.................
.................
................
................
................
................
...............
...........
....
Bad debt expense ..............................................................................
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SOAL 3
P7-3 (Bad-Debt Reporting—Aging) Manilow Corporation operates in an industry that has a high rate o
bad debts. Before any year-end
year-end adjustments, the balance in Manilow’s Accounts Receivable account w
$555,000 and the Allowance for Doubtful Accounts had a credit balance of $40,000. The year-end
balance reported in the balance sheet for Allowance for Doubtful Accounts will be based on the aging
schedule shown below.
Probability of
Days Account Outstanding Amount Collection
Less than 16 days $300,000 .98
Between 16 and 30 days 100,000 .90
Between 31 and 45 days 80,000 .85
Between 46 and 60 days 40,000 .80
Between 61 and 75 days 20,000 .55
Over 75 days 15,000 .00
Instructions
(a) What is the appropriate balance for Allowance for Doubtful Accounts at year-end?
(b) Show how accounts receivable would be presented on the balance sheet.
(c) What is the dollar effect of the year-end bad debt adjustment on the before-tax income?
PROBLEM 7-3
(a) The Allowance for Doubtful Accounts should have a balance of $45,000
at year-end. The supporting calculations are shown below:
Expected
Days Account Percentage Estimated
Outstanding Amount Uncollectible Uncollectible
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(c) The year-end bad debt adjustment would decrease before-tax incom
$20,000 as computed below:
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SOAL 4
P7-4 (Bad-Debt Reporting) From inception of operations to December 31, 2012, Fortne
provided
for uncollectible accounts receivable under the allowance method: provisions were made
2% of credit sales; bad debts written off were charged to the allowance account; recover
previously written off were credited to the allowance account; and no year-end adjustmen
allowance
account were made. Fortner’s usual credit terms are net 30 days.
The balance in Allowance for Doubtful Accounts was $130,000 at January 1, 201
credit sales totaled $9,000,000, interim provisions for doubtful accounts were made at 2%
$90,000 of bad debts were written off, and recoveries of accounts previously written off a
$15,000.Fortner installed a computer system in November 2012, a nd an aging of accoun
prepared for the first time as of December 31, 2012. A summary of the aging is as follows
Classification by Balance in Estima
Month of Sale Each Category Uncolle
November –December 2012 $1,080,000 2%
July –October 650,000 10%
January –June 420,000 25%
Prior to 1/1/12 150,000 80%
$2,300,000
Based on the review of collectibility of the account balances in the “prior to 1/1/12” aging
additional receivables totaling $60,000 were written off as of December 31, 2012. The
estimate applies to the remaining $90,000 in the category. Effective with the year ended
2012, Fortner adopted a different method for estimating the allowance for doubtful accou
indicated by the year-end aging analysis of accounts receivable.
Instructions
(a) Prepare a schedule analyzing the changes in Allowance for Doubtful Accounts for the
December 31, 2012. Show supporting computations in good form. (Hint: In computing the
allowance, subtract the $60,000 write-off).
(b) Prepare the journal entry for the year-end adjustment to the Allowance for Doubtful A
as of December 31, 2012.
PROBLEM 7-4
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Schedule 1
Computation of Allowance for Doubtful Accounts
at December 31, 2010
Aging Doubtful
Category Balance % Accounts
Nov –Dec 2010 £1,080,000 2 £ 21,600
July –Oct 650,000 10 65,000
Jan –Jun 420,000 25 105,000
Prior to 1/1/10 90,000(a) 80 72,000
£263,600
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SOAL 5
P7-5 (Bad-Debt Reporting) Presented below is information related to the Accounts Rece
of Gulistan Inc. during the current year 2012.
1) An aging schedule of the accounts receivable as of December 31, 2012, is as follows.
% to Be Applied after
Age Net Debit Balance Correction Is Made
Under 60 days $172,342 1%
60 –90 days 136,490 3%
91 –120 days 39,924* 6%
Over 120 days 23,644 $3,700defi nitely unco
$372,400 estimated remainder
uncollectible is 25%
*The $3,240 write-off of receivables is related to the 91-to-120 day category.
2) The Accounts Receivable control account has a debit balance of $372,400 on Decemb
3) Two entries were made in the Bad Debt Expense account during the year: (1) a debit o
for the amount credited to Allowance for Doubtful Accounts, and (2) a credit for $3,240 on
3, 2012, and a debit to Allowance for Doubtful Accounts because of a bankruptcy.
PROBLEM 7-5
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Aging
Age Balance Schedule
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If the student did not make the entry to record the $3,700 write-off earlier
the following would change in the problem. After the adjusting entry
$7,279.64, an entry would have to be made to write off the $3,700.
Aging
Age Balance Schedule
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SOAL 6
PROBLEM 7-6
–1 –
Cash ........................................................................................ 136,80
Sales Discounts................................................................... 1,20
Accounts Receivable ..............................................
*[$138,000 – ($60,000 X 2%)]
–2 –
Accounts Receivable ......................................................... 5,30
Allowance for Doubtful Accounts.......................
–3 –
Allowance for Doubtful Accounts ................................. 17,500
Accounts Receivable ..............................................
–4 –
Bad Debt Expense .............................................................. 14,9
Allowance for Doubtful Accounts.......................
*($17,300 + $5,300 – $17,500 = $5,100;
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P7-7 (Assigned Accounts Receivable —Journal Entries) Salen Company finances some of its curren
operations by assigning accounts receivable to a finance company. On July 1, 2012, it assigned, under
guarantee, specific accounts amounting to $150,000. The finance company advanced to Salen 80% of t
accounts assigned (20% of the total to be withheld until the finance company has made its full recovery)
less a finance charge of ½% of the total accounts assigned.
On July 31, Salen Company received a statement that the finance company had collected $80,0
of these accounts and had made an additional charge of ½% of the total accounts outstanding as of July
31. This charge is to be deducted at the time of the first remittance due Salen Company from the finance
company. (Hint: Make entries at this time.) On August 31, 2012, Salen Company received a second
statement from the finance company,together with a check for the amount due. The statement indicated
that the finance company had collected an additional $50,000 and had made a further charge of ½% of t
balance outstanding as of August 31.
Instructions
Make all entries on the books of Salen Company that are involved in the transactions above.
PROBLEM 7-7
(000’s omitted)
July 1, 2010
Cash .................................................................................................. 119,250
Finance Charge (.005 X ¥150,000)........................................... 750
Notes Payable (80% X ¥150,000)................................... 120,00
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SOAL 8
P7-8 (Notes Receivable with Realistic Interest Rate) On October 1, 2012, Arden Farm
Company sold a pecan-harvesting machine to Valco Brothers Farm, Inc. In lieu of a cash
Brothers Farm gave Arden a 2-year, $120,000, 8% note (a realistic rate of interest for a n
The note required interest to be paid annually on October 1. Arden’s financial statements
a calendar-year basis.
Instructions
Assuming Valco Brothers Farm fulfills all the terms of the note, prepare the necessary jou
Arden Farm Equipment Company for the entire term of the note.
PROBLEM 7-8
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SOAL 9
P7-9 (Notes Receivable Journal Entries) On December 31, 2012, Oakbrook Inc. rendered services to Begin
Corporation at an agreed price of $102,049, accepting $40,000 down and agreeing to accept the balance in four
equal installments of $20,000 receivable each December 31. An assumed interest rate of 11% is imputed.
Instructions
Prepare the entries that would be recorded by Oakbrook Inc. for the sale and for the receipts and interest
on the following dates. (Assume that the effective-interest method is used for amortization purposes.)
(a) December 31, 2012. (c) December 31, 2014. (e) December 31, 2016.
(b) December 31, 2013. (d) December 31, 2015.
PROBLEM 7-9
12/31/10 — — $62,049
a b
12/31/11 $20,000 $6,825 48,874
12/31/12 20,000 5,376 34,250
12/31/13 20,000 3,768 18,018
12/31/14 20,000 1,982 —
a$6,825 = $62,049 X 11%
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SOAL 10
P7-11 (Income Effects of Receivables Transactions) Sandburg Company requires additional cash fo
its
business. Sandburg has decided to use its accounts receivable to raise the additional cash and has ask
you to determine the income statement effects of the fo llowing contemplated transactions.
1. On July 1, 2012, Sandburg assigned $400,000 of accounts receivable to Keller Finance Company.
Sandburg received an advance from Keller of 80% of the assigned accounts receivable less a
commission of 3% on the advance. Prior to December 31, 2012, Sandburg collected $220,000 on th
assigned accounts receivable, and remitted $232,720 to Keller, $12,720 of which represented intere
on the advance from Keller.
2. On December 1, 2012, Sandburg sold $300,000 of net accounts receivable to Wunsch Company fo
$270,000. The receivables were sold outright on a without-recourse basis.
3. On December 31, 2012, an advance of $120,000 was received from First Bank by pledging $160,00
of Sandburg’s accounts receivable. Sandburg’s first payment to First Bank is due on January 30,
2013.
Instructions
Prepare a schedule showing the income statement effects for the year ended December 31, 2012, as a
result of the above facts.
PROBLEM 7-11
SANDBURG COMPANY
Income Statement
Effects
For the Year Ended December 31, 2010
Schedule 1
Computation of Expense
for Accounts Receivable Assigned
Assignment expense:
Accounts receivable assigned ............................ €400,000
X 80%
Advance by Keller Finance Company............... 320,000
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SOAL 11
P7-12 (Petty Cash, Bank Reconciliation) Bill Jovi is reviewing the cash accounting for Nottleman, Inc.
local mailing service. Jovi’s review will focus on the petty cash account and the bank reconciliation for th
month ended May 31, 2012. He has collected the following information from Nottleman’s bookkeeper fo
this task.
Petty Cash
1. The petty cash fund was established on May 10, 2012, in the amount of $250.
2. Expenditures from the fund by the custodian as of May 31, 2012, were evidenced by approved
receipts for the following.
Postage expense $33.00
Mailing labels and other supplies 65.00
I.O.U. from employees 30.00
Shipping charges 57.45
Newspaper advertising 22.80
Miscellaneous expense 15.35
On May 31, 2012, the petty cash fund was replenished and increased to $300; currency and coin in the
fund at that time totaled $26.40.
Instructions
(a) Prepare the journal entries to record the transactions related to the petty cash fund for May.
(b) Prepare a bank reconciliation dated May 31, 2012, proceeding to a correct cash balance, and
prepare the journal entries necessary to make the books correct and complete.
(c) What amount of cash should be reported in the May 31, 2012, balance sheet?
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*PROBLEM 7-12
Cash........................................................................................ 930
Note Receivable ....................................................... 900
Interest Revenue......................................................
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SOAL 12
P7-13 (Bank Reconciliation and Adjusting Entries) The cash account of Aguilar Co. showed a ledge
balance of $3,969.85 on June 30, 2012. The bank statement as of that date showed a balance of $4,15
Upon comparing the statement with the cash records, the following facts were determined.
1. There were bank service charges for June of $25.
2. A bank memo stated that Bao Dai’s note for $1,200 and interest of $36 had been collected on June
29, and the bank had made a charge of $5.50 on the collection. (No entry had been made on Aguila
books when Bao Dai’s note was sent to the bank for collection.)
3. Receipts for June 30 for $3,390 were not deposited until July 2.
4. Checks outstanding on June 30 totaled $2,136.05.
5. The bank had charged the Aguilar Co.’s account for a customer’s uncollectible check amounting to
$253.20 on June 29.
6. A customer’s check for $90 had been entered as $60 in the cash receipts journal by Aguilar on June
15.
7. Check no. 742 in the amount of $491 had been entered in the cash journal as $4 19, and check no.
747 in the amount of $58.20 had been entered as $582. Both checks had been issued to p ay for
purchases of equipment.
Instructions
(a) Prepare a bank reconciliation dated June 30, 2012, proceeding to a correct cash balance.
(b) Prepare any entries necessary to make the books correct and complete.
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*PROBLEM 7-13
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SOAL 13
P 7-14 (Bank Reconciliation and Adjusting Entries) Presented below is information related to Haselh
Inc.
Balance per books at October 31, $41,847.85; receipts $173,523.91; disbursements $164,893.5
Balance per bank statement November 30, $56,274.20.
The following checks were outstanding at November 30.
1224 $1,635.29
1230 2,468.30
1232 2,125.15
1233 482.17
Included with the November bank statement and not recorded by the company were a bank deb
memo for $27.40 covering bank charges for the month, a debit memo for $372.13 for a customer’s chec
returned and marked NSF, and a credit memo for $1,400 representing bond interest collected by the ba
in the name of Haselhof Inc. Cash on hand at November 30 recorded and awaiting deposit amounted to
$1,915.40.
Instructions
(a) Prepare a bank reconciliation (to the correct balance) at November 30, for Haselhof Inc. from the
information above.
(b) Prepare any journal entries required to adjust the cash account at November 30.
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*PROBLEM 7-14
Deduct:
Outstanding checks
#1224 ................................................................... $1,635.29
#1230 ................................................................... 2,468.30
#1232 ................................................................... 2,125.15
#1233 ................................................................... 482.17 6,710.91
Correct cash balance, Nov. 30.................................. $51,478.69
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(b) November 30
Cash .............................................................................. 1,400.
Interest Revenue.............................................
November 30
Office Expense—Bank Charges........................... 27.
Cash....................................................................
November 30
Accounts Receivable ............................................... 372.13
Cash....................................................................
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SOAL 14
P10-1 (Classification of Acquisition and Other Asset Costs) At December 31, 2011, c
included in the property, plant, and equipment section of Reagan Company’s balance she
following balances.
Land $230,000
Buildings 890,000
Leasehold improvements 660,000
Equipment 875,000
During 2012, the following transactions occurred.
1. Land site number 621 was acquired for $850,000. In addition, to acquire the land
$51,000 commission to a real estate agent. Costs of $35,000 were incurred to cle
During the course of clearing the land, timber and gravel were recovered and sold
2. A second tract of land (site number 622) with a building was acquired for $420,00
statement indicated that the land value was $300,000 and the building value was
after acquisition, the building was demolished at a cost of $41,000. A new building
for $330,000 plus the following costs.
Excavation fees $38,000
Architectural design fees 11,000
Building permit fee 2,500
Imputed interest on funds used
during construction (stock fi nancing) 8,500
The building was completed and occupied on September 30, 2012.
3. A third tract of land (site number 623) was acquired for $650,000 and was put on
resale.
4. During December 2012, costs of $89,000 were incurred to improve leased office s
lease will terminate on December 31, 2014, and is not expected to be renewed. (
improvements should be handled in the same manner as land improvements.)
5. A group of new machines was purchased under a royalty agreement that provides
royalties based on units of production for the machines. The invoice price of the m
$87,000, freight costs were $3,300, installation costs were $2,400, and royalty pay
were $17,500.
Instructions
(a) Prepare a detailed analysis of the changes in each of the following balance sheet
2012.
Land Leasehold improvements
Buildings Equipment
Disregard the related accumulated depreciation accounts.
(b) List the items in the situation that were not used to determine the answer to (a) ab
where, or if, these items should be included in Reagan’s financial statements.
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PROBLEM 10-1
REAGAN COMPANY
Analysis of Buildings Account
for 2010
Balance at January 1, 2010 .................................
Cost of new building constructed
on land site number 622
Construction costs...................................... £330,000
Excavation fees ............................................ 38,000
Architectural design fees.......................... 11,000
Building permit fee...................................... 2,500
Balance at December 31, 2010...........................
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REAGAN COMPANY
Analysis of Leasehold Improvements Account
for 2010
Balance at January 1, 2010........................................
Office space....................................................................
Balance at December 31, 2010 .................................
REAGAN COMPANY
Analysis of Machinery and Equipment Account
for 2010
Balance at January 1, 2010........................................
Cost of the new machines acquired
Invoice price....................................................... £87,000
Freight costs ...................................................... 3,300
Installation costs .............................................. 2,400
Balance at December 31, 2010 .................................
(a) Items in the fact situation which were not used to determi
answer to (a) above are as follows:
• Interest imputed on equity financing is not permitted b
thus does not appear in any financial statement.
• Land site number 623, which was acquired for £650,0
be included in Reagan’s statement of financial posit
held for resale (investment section).
• Royalty payments of £17,500 should be included a
operating expense in Reagan’s income statement.
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SOAL 15
P10-3 (Classification of Land and Building Costs) Spitfire Company was incorporated
2013, but was unable to begin manufacturing activities until July 1, 2013, because new fa
were not completed until that date.
The Land and Building account reported the following items during 2013.
January 31 Land and building $160,00
February 28 Cost of removal of building 9,800
May 1 Partial payment of new construction 60,000
May 1 Legal fees paid 3,770
June 1 Second payment on new construction 40,000
June 1 Insurance premium 2,280
June 1 Special tax assessment 4,000
June 30 General expenses 36,300
July 1 Final payment on new construction 30,000
December 31 Asset write-up 53,800
399,950
December 31 Depreciation—2013 at 1% 4,000
December 31, 2013 Account balance $395,95
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PROBLEM 10-3
Schedule A
Amount Consists of:
Acquisition Cost
Schedule B
Amount Consists of:
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Schedule C
Depreciation taken ....................................... $ 4,000
Depreciation that should be taken
(1% X $136,250) ......................................... (1,363
Depreciation adjustment............................ $ 2,637
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SOAL 16
P10-5 (Classification of Costs and Interest Capitalization) On January 1, 2012, Blair Corporation
purchased for $500,000 a tract of land (site number 101) with a building. Blair paid a real estate broker’s
commission of $36,000, legal fees of $6,000, and title guarantee insurance of $18,000. The closing
statement indicated that the land value was $500,000 and the building value was $100,000. Shortly afte
acquisition, the building was razed at a cost of $54,000.
Blair entered into a $3,000,000 fixed-price contract with Slatkin Builders, Inc. on March 1, 2012, f
the construction of an office building on land site number 101. The building was completed and occupied
on September 30, 2013. Additional construction costs were incurred as follows.
Plans, specifications, and blueprints $21,000
Architects’ fees for design and supervision 82,000
The building is estimated to have a 40-year life from date of completion and will be depreciated using the
150% declining-balance method.
To finance construction costs, Blair borrowed $3,000,000 on March 1, 2012. The loan is payable
10 annual installments of $300,000 plus interest at the rate of 10%. Blair’s weighted-average amounts o
accumulated building construction expenditures were as follows.
For the period March 1 to December 31, 2012 $1,300,000
For the period January 1 to September 30, 2013 1,900,000
Instructions
(a) Prepare a schedule that discloses the individual costs making up the balance in the land accoun
respect of land site number 101 as of September 30, 2013.
(b) Prepare a schedule that discloses the individual costs that should be capitalized in the office
building account as of September 30, 2013. Show supporting computations in good form.
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PROBLEM 10-5
Schedule
Weighted-Average
Accumulated Construction Interest to be
Expenditures X Interest Rate = Capitalized
2010: $1,300,000 X 10% = $130,000
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SOAL 17
P10-7 (Capitalization of Interest) Laserwords Inc. is a book distributor that had been operating in its
original facility since 1985. The increase in certification programs and continuing education requirements
several professions has contributed to an annual growth rate of 15% for Laserwords since 2007.
Laserwords’original facility became obsolete by early 2012 because of the increased sales volume and t
fact that Laserwords now carries CDs in addition to books.
On June 1, 2012, Laserwords contracted with Black Construction to have a new building
constructed for $4,000,000 on land owned by Laserwords. The payments made by Laserwords to Black
Construction are shown in the schedule below.
Date Amount
July 30, 2012 $ 900,000
January 30, 2013 1,500,000
May 30, 2013 1,600,000
Total payments $4,000,000
Construction was completed and the building was ready for occupancy on May 27, 2013.
Laserwords had no new borrowings directly associated with the new building but had the following debt
outstanding at May 31, 2013, the end of its fiscal year.
10%, 5-year note payable of $2,000,000, dated April 1, 2009, with interest payable annually on
April 1.
12%, 10-year bond issue of $3,000,000 sold at par on June 30, 2005, with interest payable
annually on June 30.
The new building qualifies for interest capitalization. The effect of capitalizing the interest on th
new building, compared with the effect of expensing the interest, is material.
Instructions
(a) Compute the weighted-average accumulated expenditures on Laserwords’ new building during t
capitalization period.
(b) Compute the avoidable interest on Laserwords’ new building.
(c) Some interest cost of Laserwords Inc. is capitalized for the year ended May 31, 2013.
(1) Identify the items relating to interest costs that must be disclosed in Laserwords’ financial
statements.
(2) Compute the amount of each of the items that must be disclosed.
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PROBLEM 10-7
Expenditures
Capitalization Weighted-Average
Date Amount X Period = Accumulated Expenditures
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SOAL 18
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PROBLEM 10-9
Hyde, Inc.’s Books
Wiggins, Inc.’s Books
Hyde, Inc.’s Books
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Wiggins, Inc.’s Books
Cash................................................................................... 15,000
Asset A ($60,000 – $12,000*) ..................................... 48,000
Accumulated Depreciation —Asset B ..................... 47,000
Asset B ....................................................................
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SOAL 19
P11-1 (Depreciation for Partial Period—SL, SYD, and DDB) Alladin Company purchas
#201 on May 1, 2012. The following information relating to Machine #201 was gathered a
Price $85,000
Credit terms 2/10, n/30
Freight-in costs $ 800
Preparation and installation costs $ 3,800
Labor costs during regular production operations $10,500
It was expected that the machine could be used for 10 years, after which the salvage val
zero. Alladin intends to use the machine for only 8 years, however, after which it expects
it for $1,500. The invoice for Machine #201 was paid May 5, 2012. Alladin uses the calen
basis for the preparation of financial statements.
Instructions
(a) Compute the depreciation expense for the years indicated using the following method
the nearest dollar.)
(1) Straight-line method for 2012.
(2) Sum-of-the-years’-digits method for 2013.
(3) Double-declining-balance method for 2012.
(b) Suppose Kate Crow, the president of Alladin, tells you that because the company is a
organization, she expects it will be several years before production and sales reach optim
asks you to recommend a depreciation method that will allocate less of the company’s de
expense to the early years and more to later years of the assets’ lives. What method wou
recommend?
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PROBLEM 11-1
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SOAL 20
P11-2 (Depreciation for Partial Periods —SL, Act., SYD, and DDB) The cost of equipm
by Charleston, Inc., on June 1, 2012, is $89,000. It is estimated that the machine will hav
salvage value at the end of its service life. Its service life is estimated at 7 years; its total
are estimated at 42,000; and its total production is estimated at 525,000 units. During 20
was operated 6,000 hours and produced 55,000 units. During 2013, the machine was op
hours and produced 48,000 units.
Instructions
Compute depreciation expense on the machine for the year ending December 31, 2012,
ending December 31, 2013, using the following methods.
(a) Straight-line.
(b) Units-of-output.
(c) Working hours.
(d) Sum-of-the-years’-digits.
(e) Declining-balance (twice the straight-line rate).
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PROBLEM 11-2
Depreciatio
2010
(a) Straight-line:
(€89,000 – €5,000) ÷ 7 =€12,000/yr.
(b) Units-of-output:
(€89,000 – €5,000) ÷ 525,000 units = €.16/unit
2010: €.16 X 55,000 8,800
2011: €.16 X 48,000
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SOAL 21
P11-3 (Depreciation—SYD, Act., SL, and DDB) The following data relate to the Machin
account of Eshkol, Inc. at December 31, 2012.
Machinery
A B C D
Original cost $46,000 $51,000 $80,000 $80,000
Year purchased 2007 2008 2009 2011
Useful life 10 years 15,000 hours 15 years 10 years
Salvage value $ 3,100 $ 3,000 $ 5,000 $ 5,000
Depreciation Sum-of-the- Double-declin
Method years’-digits Activity Straight-line balance
Accum. depr.
through 2012* $31,200 $35,200 $15,000 $16,000
*In the year an asset is purchased, Eshkol, Inc. does not record any depreciation expens
on the asset.
In the year an asset is retired or traded in, Eshkol, Inc. takes a full year’s depreciation on
asset.
PROBLEM 11-3
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*(£28,000 X .20)
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SOAL 22
P11-9 (Impairment) Roland Company uses special strapping equipment in its packagin
business. The equipment was purchased in January 2011 for $10,000,000 and had an
estimated useful life of 8 years with no salvage value. At December 31, 2012, new
technology was introduced that would accelerate the obsolescence of Roland’s equipme
Roland’s controller estimates that expected future net cash flows on the equipment will b
$6,300,000 and that the fair value of the equipment is $5,600,000. Roland intends to
continue using the equipment, but it is estimated that the remaining useful life is 4 years
Roland uses straightline depreciation.
Instructions
(a) Prepare the journal entry (if any) to record the impairment at December 31, 2012.
(b) Prepare any journal entries for the equipment at December 31, 2013. The fair value
the equipment at December 31, 2013, is estimated to be $5,900,000.
(c) Repeat the requirements for (a) and (b), assuming that Roland intends to dispose of
equipment and that it has not been disposed of as of December 31, 2013.
PROBLEM 11-9
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SOAL 23
P12-1 (Correct Intangible Asset Account) Reichenbach Co., organized in 2011, has s
up a single account for all intangible assets. The following summary discloses the debit
entries that have been recorded during 2012 and 2013.
Intangible Assets
7/1/12 8-year franchise; expiration date 6/30/19 $ 48,0
10/1/12 Advance payment on laboratory space (2-year lease) 24,000
12/31/12 Net loss for 2011 including state incorporation fee, $1,000,
and related legal fees of organizing, $5,000 (all fees
incurred in 2011) 16,000
1/2/13 Patent purchased (10-year life) 84,000
3/1/13 Cost of developing a secret formula (indefinite life) 75,000
4/1/13 Goodwill purchased (indefinite life) 278,40
6/1/13 Legal fee for successful defense of patent purchased above 12,650
9/1/13 Research and development costs 160,00
Instructions
Prepare the necessary entries to clear the Intangible Assets account and to set up sepa
accounts for distinct types of intangibles. Make the entries as of December 31, 2013,
recording any necessary amortization and reflecting all balances accurately as of that da
(Ignore income tax effects.)
PROBLEM 12-1
Franchises................................................................................. 48,000
Prepaid Rent ............................................................................. 24,000
Retained Earnings (Organization Costs of
$6,000 in 2009) ...................................................................... 6,000
Retained Earnings ($16,000 – $6,000) .............................. 10,000
Patents ($84,000 + $12,650 + $45,000).............................. 141,650
Research and Development Expense
($75,000 + $160,000 – $45,000) ........................................ 190,000
Goodwill ..................................................................................... 278,400
Intangible Assets..........................................................
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SOAL 24
P12-2 (Accounting for Patents) Fields Laboratories holds a valuable patent (No. 758-6
1A) on a precipitator that prevents certain types of air pollution. Fields does not manufac
or sell the products and processes it develops. Instead, it conducts research and develo
products and processes which it patents, and then assigns the patents to manufacturers
a royalty basis. Occasionally it sells a patent. The history of Fields patent number 758-60
1A is as follows.
Instructions
Compute the carrying value of patent No. 758-6002-1A on each of the following dates:
(a) December 31, 2006.
(b) December 31, 2010.
(c) December 31, 2013.
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PROBLEM 12-2
All costs incurred prior to January 2004 are related to research and developm
activities and were expensed as incurred in accordance with IFRS.
The costs incurred in 2005 are related to research and development activities
and are expensed as incurred.
The legal costs in 2011 were expensed because the suit was unsuccessful.
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SOAL 25
P12-5 (Goodwill, Impairment) On July 31, 2012, Mexico Company paid $3,000,000 to
acquire all of the common stock of Conchita Incorporated, which became a division of
Mexico. Conchita reported the following balance sheet at the time of the acquisition.
Current assets $ 800,000 Current liabilities $ 600,000
Noncurrent assets 2,700,000 Long-term liabilities 500,000
Total assets $3,500,000 Stockholders’ equity 2,400,000
Total liabilities and
stockholders’ equity $3,500,000
It was determined at the date of the purchase that the fair value of the identifiable net as
of Conchita was $2,750,000. Over the next 6 months of operations, the newly purchase
division experienced operating losses. In addition, it now appears that it will generate
substantial losses for the foreseeable future. At December 31, 2012, Conchita reports th
following balance sheet information.
Current assets $ 450,000
Noncurrent assets (including goodwill recognized in purchase) 2,400,000
Current liabilities (700,000)
Long-term liabilities (500,000)
Net assets $1,650,000
It is determined that the fair value of the Conchita Division is $1,850,000. The recorded
amount for Conchita’s net assets (excluding goodwill) is the same as fair value, except fo
property, plant, and equipment, which has a fair value $150,000 above the carrying valu
Instructions
(a) Compute the amount of goodwill recognized, if any, on July 31, 2012.
(b) Determine the impairment loss, if any, to be recorded on December 31, 2012.
(c) Assume that fair value of the Conchita Division is $1,600,00 0 instead of $1,850,00
Determine the impairment loss, if any, to be recorded on December 31, 2012.
(d) Prepare the journal entry to record the impairment loss, if any, and indicate where
loss would be reported in the income statement.
PROBLEM 12-5
$3,000,000 – $2,750,000 = $250,000