Intermediate Financial Accounting
Intermediate Financial Accounting UGBA 120A
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Date Created: 10/22/15
UGBA 120A 3 ln Class Discussion Problems Chapter 4 February 3 2011 Problem 1 On December 1 2010 Rub a Dub Dubby Co sold a dock at the Port of San Francisco that cost 1250000 for 2500000 Rub a Dub Dubby appropriately uses the installment sale method of accounting for this transaction Terms called for a down payment of 500000 on December 1 2010 and payments of two equal installments of 1000000 payable on December 1 2011 and 2012 Ignore interest charges Rub a Dub Dubby has a December 31 year end Required 1 In 2010 2011 and 2012 Rub a Dub Dubby would recognize realized gross profit of what 2 1f Rub a Dub Dubby decided to use the cost recovery method to recognize realized gross profit what would be the triggering point for Rub a Dub to recognize any gross profit Problem 2 Manu Chao Construction entered into a fixed price contract with Santos Associates on April 1 2011 to construct an office building The total contract price for construction of the building is 5000000 The building was completed in 2013 Cost information for 2011 and 2012 were as follows 2011 2012 Costs incurred during the year 400000 2200000 Estimated costs to complete 3600000 2600000 Required 1 Compute the gross profit or loss to be recognized during 2011 and 2012 applying the completed contract method 2 Compute the gross profit or loss to be recognized during 2011 and 2012 applying the percentage of campletion method 3 Applying the percentage of completion method how much revenue and cost of construction would the company report in the 2012 income statement Practice Midterm 2 TrueFalse 1 The Dividends account is closed to the Income Summary account in order to properly determine net income or loss forthe period Ans F 30 2 Bloom K Dif culty Easy Min 1 AACSB None AlCPA BB LegalRegulatory AlCPA FN Measurement AlCPA PC Problem Solving IMA FSA lFRS No 2 To close net income to Retained Earnings Income Summary is debited and Retained Earnings is credited Ans T 50 2 Bloom K Dif culty Easy Min 1 AACSB None AlCPA BB LegalRegulatory AlCPA FN Measurement AlCPA PC Problem Solving IMA FSA ers No 3 If a company uses the FIFO cost assumption the cost of goods sold for the period will be the same under a perpetual or periodic inventory system Ans T 30 7 Bloom C Dif culty Easy Min 1 AACSB None AlCPA BB LegalRegulatory Perspective AlCPA FN Measurement AlCPA PC None IMA Business Economic 4 When the due date of a note is stated in months the time factor in computing interest is the number of months divided by 360 days Ans F 30 5 Bloom K Dif culty Easy Min 1 AACSB None AlCPA BB LegalRegulatory Perspective AlCPA FN Measurement AlCPA PC Non 39 s e IMA Buslness Economic 5 Additions and improvements to a plant asset that increase the asset39s operating efficiency productive capacity or expected useful life are generally expensed in the period incurred Ans F 30 5 Bloom K Dif culty Easy Min 1 AACSB None AlCPA BB LegalRegulatory Perspective AlCPA FN Measurement AlCPA PC None IMA FSA 6 A plant asset must be fully depreciated before it can be removed from the books Ans F 30 6 Bloom K Dif culty Easy Min 1 AACSB None AlCPA BB LegalRegulatory Perspective AlCPA FN Measurement AlCPA PC None IMA FSA 7 Management may choose any inventory costing method it desires as long as the cost flow assumption chosen is consistent with the physical movement of goods in the company Ans F 30 2 Bloom K Dif culty Easy Min 1 AACSB None AlCPA BB IndustrySector Perspec ive AlCPA FN Measurement AlCPA PC None IMA FSA Multiple Choice 1 The income statement and balance sheet columns of Reed Company39s worksheet reflect the following totals Income Statement Balance Sheet r r r r Totals 58000 48000 34000 44000 The net income or loss forthe period is a 48000 income b 10000 income c 10000loss d notdeterminable Ans C 30 1 Bloom AP Dif culty Medium Min 2 AACSB Analytic AICPA BB LegalRegulatory AICPA FN Reporting AICPA PC Problem Solving IMA Reporting IFRS No 2 A companyjust starting business made the following four inventory purchases in June June 1 150 units 520 June 10 200 units 780 June 15 200 units 840 June 28 150 units 660 2 800 A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand Using the LIFO inventory method the value of the ending inventory on June 30 IS a 715 b 870 0 1930 d 2085 Ans A 0 2 Bloom AP Dif culty Medium Min 3 AACSB Analytic AICPA BB LegalRegulatory Perspective AICPA FN Reporting AICPA PC Problem Solving IMA Reporting 3 Blosser Company39s goods in transit at December 31 include sales made purchases made 1 FOB destination 3 FOB destination 2 FOB shipping point 4 FOB shipping point Which items should be included in Blosser39s inventory at December 31 a 2 and 3 b 1 and 4 c 1 and 3 d 2 and 4 Ans B 30 1 Bloom C Dif culty Easy Min 2 AACSB Analytic AICPA BB LegalRegulatory Perspective AICPA FN Reporting AICPA PC None IMA Reporting 4 Lee Industries had the following inventory transactions occur during 2011 Units Costunit 211 1 Purchase 54 45 3141 1 Purchase 93 47 51 1 1 Purchase 66 49 The company sold 153 units at 63 each and has a tax rate of 30 Assuming that a periodic inventory system is used what is the company s aftertax income using FIFO rounded to whole dollars a 2316 b 2544 c 1781 d 1620 Ans C SO 3 Bloom AP Difficulty Hard Min 5 AACSB Analytic AICPA BB LegalRegulatory Perspective AICPA FN Measurement AICPA PC Problem Solving IMA Quantita ive Methods 5 Shandy Shutters has the following inventory information Nov 1 Inventory 15 units 600 Purchase 60 units 645 17 Purchase 30 units 630 25 Purchase 45 units 660 A physical count of merchandise inventory on November 30 reveals that there are 50 units on hand Assume a periodic inventory system is used Assuming that the specific identification method is used and that ending inventory consists of 15 units from each of the three purchases and 5 units from the November 1 inventory cost of goods sold is a 320 b 643 c 640 d 627 Ans B SO 2 Bloom AP Dif culty Hard Min 5 AACSB Analytic AICPA BB LegalRegulatory Perspective AICPA FN Measurement AICPA PC Problem Solving IMA Quantita ive Methods 6 The following information is available for Park Company at December 31 2011 beginning inventory 80000 ending inventory 120000 cost of goods sold 900000 and sales 1200000 Park s inventory turnover in 2011 is a 12 times b 113 times c 9 times d 75 times Ans C SO 6 Bloom AP Dif culty Medium Min 3 AACSB Analytic AICPA BB LegalRegulatory Perspective AICPA FN Reporting AICPA PC Problem Solving IMA Reporting 7 During July the following purchases and sales were made by James Company There was no beginning inventory James Company uses a perpetual inventory system Purcha a Sales July 3 20 units 212 July 13 25 units 11 20 units 213 22 10 units 20 10units215 Under the FIFO method the cost of goods sold for each sale is July 13 July 22 a 300 120 b 325 130 c 305 130 d 375 150 Ans C SO 7 Bloom AP Dif culty Medium Min 3 AACSB Analytic AlCPA BB LegalRegulatory Perspective AlCPA FN Reporting AlCPA PC Problem Solving lMA Reporting 8 An aging of a company39s accounts receivable indicates that 4000 are estimated to be uncollectible lf Allowance for Doubtful Accounts has a 1200 credit balance the adjustment to record bad debts for the period will require a a debit to Bad Debts Expense for 4000 b debit to Allowance for Doubtful Accounts for 2800 c debit to Bad Debts Expense for 2800 d credit to Allowance for Doubtful Accounts for 4000 Ans C SO 3 Bloom C Difficulty Medium Min 2 AACSB Analytic AlCPA BB LegalRegulatory Perspective AlCPA FN Reporting AlCPA PC Problem Solving lMA Reporting 9 In 2011 the Dugan Co had net credit sales of 375000 On January 1 2011 Allowance for Doubtful Accounts had a credit balance of 8000 During 2011 15000 of uncollectible accounts receivable were written off Past experience indicates that the allowance should be 10 of the balance in 39 39 39 a of 39 39 39 basis If the accounts receivable balance at December 31 was 100000 what is the required adjustment to the Allowance for Doubtful Accounts at December 31 2011 a 10000 b 17000 c 18000 d 15000 Ans B SO 3 Bloom AP Difficulty Medium Min 3 AACSB Analytic AlCPA BB LegalRegulatory Perspective AlCPA FN Measurement AlCPA PC Problem Solving MA FSA 10 Hahn Company uses the percentage of sales method for recording bad debts expense For the year cash sales are 300000 and credit sales are 1200000 Management estimates that 1 is the sales percentage to use What adjusting entry will Hahn Company make to record the bad debts expense a Bad Debts Expense 15000 Allowance for Doubtful Accounts 15000 b Bad Debts Expense 12000 Allowance for Doubtful Accounts 12000 c Bad Debts Expense 12000 Accounts 1quot 39 39 39 12000 d Bad Debts Expense 15000 Accountsquot 39 quot 15000 Ans B SO 3 Bloom AN Dif culty Medium Min 3 AACSB Analytic AlCPA BB LegalRegulatory Perspective AlCPA FN Measurement AlCPA PC Problem Solving MA FSA 11 On October 1 2011 Brosnan Company sells factors 400000 of receivables to Nation Factors Inc Nation assesses a service charge of 3 of the amount of receivables sold The journal entry to record the sale by Brosnan will include a a debit of 400000 to Accounts Receivable b a credit of 412000 to Cash c a debit of 412000 to Cash d a debit of 12000 to Service Charge Expense Ans D SO 4 Bloom AP Dif culty Medium Min 3 AACSB Analytic AlCPA BB LegalRegulatory Perspective AlCPA FN Measurement AlCPA PC Problem Solving MA FSA 12 A 60day note receivable dated June 13 has a maturity date of a August13 b August12 c August11 d August10 Ans B SO 5 Bloom AP Difficulty Easy Min 1 AACSB Analytic AlCPA BB LegalRegulatory Perspective AlCPA FN Measurement AlCPA PC Problem Solving lMA Business Economics 13 The maturity value of a 60000 10 60day note receivable dated July 3 is a 60000 b 66000 c 70000 d 61000 Ans D SO 5 Bloom AP Dif culty Medium Min 3 AACSB Analytic AlCPA BB LegalRegulatory Perspective AlCPA FN Measurement AlCPA PC Problem Solving MA Business Economics 14 A company purchased factory equipment for 350000 It is estimated that the equipment will have a 35000 salvage value at the end of its estimated 5year useful life If the company uses the doubledecliningbalance method of depreciation the amount of annual depreciation recorded for the second year after purchase would be a 140000 b 84000 c 126000 d 60480 Ans B SO 3 Bloom AP Difficulty Medium Min 3 AACSB Analytic AlCPA BB LegalRegulatory Perspective AlCPA FN Measurement AlCPA PC Problem Solving MA FSA 15 On October 1 2011 Holt Company places a new asset into service The cost of the asset is 80000 with an estimated 5year life and 20000 salvage value at the end of its useful life What is the book value of the plant asset on the December 31 2011 balance sheet assuming that Holt Company uses the doubledecliningbalance method of depreciation a 52000 b 60000 c 72000 d 76000 Ans C SO 3 Bloom AP Dif culty Medium Min 3 AACSB Analytic AlCPA BB LegalRegulatory Perspective AlCPA FN Reporting AlCPA PC Problem Solving lMA Reporting 16 Grimwood Trucking purchased a tractortrailer for 147000 Grimwood uses the units ofactivity method for depreciating its trucks and expects to drive the truck 1000000 miles over its 12year useful life Salvage value is estimated to be 21000 If the truck is driven 90000 miles in its first year how much depreciation expense should Grimwood record a 10500 b 13230 c 11340 d 12250 Ans C SO 3 Bloom AP Dif culty Medium Min 5 AACSB Analytic AICPA BB LegalRegulatory Perspective AICPA FN Reporting AICPA PC Problem Solving IMA Reporting 17 Nicklaus Company has decided to sell one of its old machines on June 30 2011 The machine was purchased for 120000 on January 1 2007 and was depreciated on a straightline basis for 10 years with no salvage value If the machine was sold for 39000 what was the amount of the gain or loss recorded at the time of the sale a 27000 b 81000 c 33000 d 69000 Ans A SO 6 Bloom AP Dif culty Medium Min 3 AACSB Analytic AICPA BB LegalRegulatory Perspective AICPA FN Reporting AICPA PC Problem Solving IMA Reporting 18 Ron39s Quik Shop bought machinery for 25000 on January 1 2010 Ron estimated the useful life to be 5 years with no salvage value and the straightline method of depreciation will be used On January 1 2011 Ron decides that the business will use the machinery for a total of 6 years What is the revised depreciation expense for 2011 a 4000 b 2000 c 3333 d 5000 Ans A SO 4 Bloom AP Dif culty Hard Min 5 AACSB Analyic AICPA BB LegalRegulatory Perspective AICPA FN Reporting AICPA PC Problem Solving IMA Reporting Brief Exercise Guardado Company purchased a new machine for 400000 It is estimated that the machine will have a 40000 salvage value at the end of its 5year useful service life The double decliningbalance method of depreciation will be used Instructions Prepare a depreciation schedule which shows the annual depreciation expense on the machine for its 5year life Ans WA 30 3 Bloom AP Dif culty Medium Min 10 AACSB Analytic AICPA BB LegalRegulatory Perspective AICPA FN Measurement AICPA PC Problem Solving MA Business Economics Solution 236 10 min Decliningbalance rate 2 5 40 Book Value Annual End of Year Beginning Depreciation Depreciation Accumulated Book Value M of Year x Rate Expense Depreciation End of Year 1 400000 x 40 160000 160000 240000 2 240000 x 40 96000 256000 144000 3 144000 x 40 57600 313600 86400 4 86400 x 40 34560 348160 51 840 5 51 840 x 40 1 1 840 360000 40000 Adjusted to 11840 because ending book value should not be less than expected salvage value UGBA 102A FINANCIAL ACCOUNTING MIDTERM 2 REVIEW SESSION 110310 STUDY GUIDE The best way to prepare Midterm with this guide is to first take about 12 hours going through the student version without part of the answers can be downloaded on bspace as well This will include some conceptual check and 15 problems Then take another 12 hours coming back to check the solution and understand it In the problem section we included some textbook problems which you might have seen before Those problems are highly recommended since they are very good examples of the essential materials Coming to the midterm review session or the office hour review session will help you if you have doubts and con lsions Do not hesitate to contact either one of the GSIs for clari cations iUGBA 102A GSI TEAM Conceptual Check What s the difference between temporary and permanent accounts Examples I Period or Time Point I Carry Balance I Pvamnles I I Temp Accounts I P I N I revenue expense dividend I I Perm Accounts I TP I Y I assets liabilities SE I What is the normal balance of income summary Same as revenue credit How do we close temporary accounts closing revenue expense accounts and dividend Notice that income summary has the same normal balance as revenue transfer your revenue debit to income summary credit transfer your expense credit to income summary debit transfer your income summary debit the net income summary to retained earnings credit Not always true since it can be a loss transfer your dividend credit to retained earnings debit if you have beginning balance for the retained earnings calculate the ending balance and put that on your postclosing trial balance LAN 94gt What are the two ways for companies to track inventory Perpetual continuous record of the inventories and COGS record whenever sales and purchases occur Purchase inv record sell inv revenue and COGS computed Periodic record COGS at the end of an accounting period taking physical count of inv Purchase inv record sell inv revenue COGS and ending inventory computed at the end of the accounting period What s the formula to compute COGS COG ending COG beginning COG purchased 7 COGS What does FOB mean Goods in transit FOB free on board shipping point ownership passes once it s in transit FOB destinations ownership passes once it arrives at the destination Consigned goods ownership does not pass until sold to customers What does lower of cost or market mean Value of the inventory likely to drop over time for hightech products If the value of the inventory drops below the cost a company must value inventory as its cost or the market price whichever is lower Explain what the following accounts mean Sales RetumAllowance Used for return or defective goods contrarevenue account so it has a debit balance do close at the end of the year together used with REVENUE Bad Debt Expense Expense account so debit is the normal balance Allowance for Doubt ll Accounts contraasset estimated uncollectable bucket Instead of crediting AR credit this bucket Credit is the normal balance do not close at the end of the year It can have a debit in balance if too much write offs happens Specify the account changes under the following scenarios Assume for Periodic Inventory Systema If the customers pay on account debit AR and credit sales revenue no entry on COGS or 111V until the end of the accounting period If a company received a sales return debit sales returnallowances and credit NR no entry on COGS or Inv until the end of the accounting period If a product is defective or damaged Debit sales retumallowances reduction of the price and credit A R If an interest is charged as the revenue to the company Debit AR and credit interest revenue ACCRUED REVENUE What if some customers aren t able to pay for the receivable 1 Direct Writeoff Method debit bad debts expenses and credit NR 2 Allowance Method estimate the bad debt at the end of the end of each accounting period debit bad debts expense and credit allowance for doubtful accounts Operating Expenses by adjusting entries On the balance sheet it s just Cash NR 7 Accounts for doubt ll accounts What would the company do if they decided the account is indeed uncollectible Write off Already done before the writeoff debit bad debts expenses and credit allowance for doubtful accounts Now we need to debit allowance for doubtful accounts and credit AR How do we recover a Write off Reversing the entries normal A R procedures Debit NR and credit ALLOWANCE Debit Cash and Credit A R How do we record the selling of the receivables ie factors buy receivables Make money by charging commissions Debit cash and debit service charge expense and credit AR sale to factor How do we handle credit card sales Credit card companies charge 2 00 of the sales Same as factors On Notes Receivables Interest Rate Computations Face value of note Annual interest rate time in terms of year interest use 360 ifby days Making entries different scenarios Excersise E811 and 812 On DEPRECIATION 1 LAND no depreciation 1 purchasing price 2 closing cost title and attomey s fees 3 real estate commissions 4 property taxes 5 makeready costs clearingdrainingdemolitionremoval 2 LAND IMPROVEMENTS limited life depreciation structural additions drivewaysparking lots landscaping 3 BUILDINGS depreciation 1 acquisition purchasing price closing costs broker s commissions makeready costs 2 construction contractor s fees architect s fees building permits interest costs nancing on the building projects 4 EQUIPMENT depreciation 1 purchasing price 2 sales taxes 3 freight charges 4 insurance only during the transit time 5 assembling installing and testing What methods have we seen 1 Straightline Method 2 UnitsofActivity ABC 3 Declining Balance Accelerated Depreciation Method WARNINGS for DB method 7 SALVAGE VALUE IS IGNORED in the computations depreciation stops when the asset s book value salvage value On DISPOSAL 1 retire llly depreciated NOT REQUIRED 2 sell DOES NOT HAVE TO BE the salvage value 3 exchange How do we determine a gain or a loss in terms of sale of the asset 7 Price gt Book Value ofthe time ofsale gain ow it s a loss Some Concepts A R Turnover Net Credit SalesBeg NR End NR 2 Average Collection In Days 365 ART Net Sales sales 7 sales return allowances Gross Pro t Sales 7 COGS Gross Pro t Rate gross pro tsales Pretax income GROSS PROFIT 7 OPERATING EXPENSES Inventory Turnover COGSAverage Inventory Average Inventory beginning ending392 Days in Inventory 365IT Book Value Cost Less Accumulated Depreciation Problem Set Problem 1 Assume the inventory purchasing price keeps increasing Compare FIFO to LIFO COGS value will be lowerhigher Net Income value will be lowerhigher Ending Inv will be lowerhigher Tax will be lowerhigher Problem 2 If we do write off will our net A R AR 7 Allowance or net income change No Net z VR won t change and our netincome does not change either since our write off doesn t involve any changes in the income statement Problem 3 TF The amount calculated from percentageofsales method was the amount of bad debt expenses is the ending balance of that expense F TF The amount 39 39 t J from per th f 39 method was the amount of allowance for doubt ll accounts at the end of the accounting period is the ending balance that year T TF All depreciation methods we ve seen will lead to the same salvage value T TF Recording depreciation each period is an application of the matching principle T I I Problem 4 PT Ellison Company had the following income statement at December 31 2011 P T Ellison Company Income Statement For the Year Ended Dec 31 2011 Service Revenue 10900 Expenses Supplies Expense 2300 Automobile Expense 2000 Utilities Expense 800 Total expenses 5 100 Net income 5800 No dividends were paid during the year Prepare the closing entries at December 31 2011 1 Close revenue account Service Revenue 10900 Income Summary 10900 2 Close expense accounts Income Summary 5100 Supplies Expense 2300 Automobile Expense 2000 Utilities Expense 800 3 Close Income Summary Income Summary 5800 Retained Earnings 5800 Problem 5 D Credit terms of 210 n30 mean that a a 10 cash discount may be taken if payment is made immediately a 2 discount if paid within 30 days b a 2 cash discount may be taken if payment is made within 10 days of the invoice date otherwise the full amount is due at the end of the month c an additional amount equal to 2 of the invoice price must be paid if payment is not received within 10 days the account is overdue a er 30 days d a 2 cash discount may be taken if payment is made within 10 days of the invoice date otherwise the full amount is due within 30 days Problem 6 E4 8 Problem 7 Vaughn Company which uses a periodic inventory system had a beginning inventory on May 1 of 400 units of Product A at a cost of 7 per unit During May the following purchases and sales were made Purchases Sales May 6 375 units at 9 May 4 275 units 14 250 units at 10 8 300 units 21 300 units at 11 22 450 units 28 units at 13 24 units Li LE Compute the May 31 ending inventory and May cost of goods sold under a Average Cost b FIFO and c LIFO Provide appropriate supporting calculations Challenge Use perpetual system a Average ending inventory 500 X 10 5000 Average cost 17500 1750 10 b FIFO ending inventory 425 X 13 5525 75 X 11 825 6 350 c LIFO ending inventory 400 X 7 2800 100 X 9 900 3 700 Problem 8 C Average cost of goods sold Cost of goods available for sale17500 Less Ending inventory 5 000 Cost of goods sold 12500 FIFO cost of goods sold Cost of goods available for sa1e17500 Less Ending inventory 6350 Cost of goods sold 11 150 LIFO cost of goods sold Cost of goods available for sale17500 Less Ending inventory 3700 Cost of goods sold 13 800 An aging of a company s accounts receivable indicates that 9000 are estimated to be uncollectible If Allowance for Doubt ll Accounts has a 1100 credit balance the adjustment to record bad debts for the period will require a debit to Bad Debts Expense for 9000 debit to Bad Debts Expense for 7900 a b debit to Allowance for Doubt ll Accounts for 7900 c d credit to Allowance for Doubt ll Accounts for 9000 Problem 9 The trial balance of Gannon Company at December 31 2010 includes the following Accounts 39 Allowance for Doubt ll Accounts Sales all on credit Sales Returns and Aquot Debits Credits 100000 500 900000 30000 1 If Gannon uses the aging method and estimates that 5000 of receivables will be uncollectible prepare the adjusting entry Bad Debts Expense 5500 Allowance for Doubt ll Accounts 5000 500 5500 2 If Gannon estimates uncollectibles at 1 of net credit sa1es prepare the appropriate adjusting entry Bad Debts Expense 1 X 870000 8700 Allowance for Doubt ll Accounts 8700 3 Assume that on February 10 2011 the specific account of Mark Tresh with a balance of 600 is deemed uncollectible Record the writeoff Allowance for Doubtful Accounts 600 Accounts 39 39 39 600 4 Assume that on May 12 2011 Tresh pays onehalf of the above balance in full and is expected to pay the remainder within 30 days Record the appropriate entries Accounts 39 39 39 600 Allowance for Doubt ll Accounts 600 Cash 300 Accounts 39 39 39 300 Problem 10 Present the journal entries speci ed below 1 Price Company sells 600000 of accounts receivable to National Factors Inc for cash less a 25 service charge Record the sale th 585000 Service Charge Expense 15000 Accounts 39 39 39 600000 2 Made Visa credit card sales totaling 9500 A 2 service fee is charged by Visa Record the sale on the books of Price Company nsh 93 10 Service Charge Expense 190 Sales 9500 Problem 10 Prepare journal entries to record the following events July 1 Howell Company received an 8 4month 60000 note dated July 1 from a customer in exchange for an outstanding account Nov The note is honored and no interest has been accrued Nov 1 Assume instead that the note is dishonored by its maker and there is hope of future collection Nov 1 Assume instead of collection possible in the lture upon maturity that the note is dishonored and there is no hope of lture collection July 1 Notes 39 39 39 60000 Accounts 39 39 39 60000 Nov 1 Cash 61600 Notes 39 39 39 60000 Interest Revenue 1600 Nov 1 Accounts 39 39 39 61600 Notes 39 39 39 60000 Interest Revenue 1600 Nov 1 Allowance for Doubt ll Accounts 60000 Notes 39 quot 60000 Problem 11 ES 12 Problem 12 A Kotsch Textile purchased machinery for 60000 eight years ago It was expected to have a useful life of ten years no salvage value and was depreciated using the straightline method At the end of its eighth year of use it was retired from service and given to a junk dealer The entry to record the retirement includes a debit to Loss on Disposal for 12000 credit to Depreciation Expense for 6000 debit to Machinery for 60000 credit to Accumulated Depreciation7Machinery for 48000 51 9quot Problem 13 Schilling Corporation purchased a machine on January 1 2010 at a total cost of 1200000 The machine has an estimated use ll life of 10 years or 1000000 units of output and a salvage value of 200000 Calculate the annual depreciation expense for the years 2010 and 2011 under the indicated depreciation methods 3 methods Assume actual activity in terms of units of output was 2010760000 units and 20117120000 units 2010 2011 Straightline 1200000 7 200000 10 100000 100 000 Doubledecliningbalance 10 X 2 20 2010 1200000 X 20 240 000 2011 1200000 7 240000 X 20 192 000 Unitsofactivity 1200 000 7 200000 1000000 100unit 2010 60000 X 100 60000 2011 120000 X 100 120 000 Problem 14 Complete the requirements speci ed for each of the following independent situations A Milan Company purchased land and an office building on March 1 for a combined cash price of 1600000 The land had a cost of 940000 and the building had a book value of 200000 on the seller39s books The land and building had fair market values of 1040000 and 560000 respectively on March 1 Milan made the following entry at acquisition Land 940000 Building 1000000 Gain on Purchase 140000 Accumulated Depreciation 200000 Cash 1600000 Prepare the correct entry for the acquisition 1040000 Land 560000 Rnildino nsl l 1600000 B Farley Company bought equipment on July 1 2010 at a total cost of 500000 The equipment has an estimated use ll life of 5 years and salvage value of 100000 Farley uses the doubledecliningbalance method of depreciation Compute depreciation for 2010 and 2011 2010 depreciation 500000 X 40 X 12 100000 2011 depreciation 500000 7 100000 X 40 160 000 Problem 15 E9 9
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