Accounting Hw: April 2019

Tuesday, April 30, 2019

Data related to the acquisition of timber rights and intangible assets during the current year ended December 31 are as follows:

a. On December 31, the company determined that $3,400,000 of goodwill was impaired.

b. Governmental and legal costs of $4,800,000 were incurred on September 30 in obtaining a patent with an estimated economic life of eight years. Amortization is to be for one-fourth of a year.

c. Timber rights on a tract of land were purchased for $2,975,000 on February 4. The stand of timber is estimated at 12,500,000 board feet. During the current year, 4,150,000 board feet of timber were cut and sold.

Instructions

1. Determine the amount of the amortization, depletion, or impairment for the current year for each of the foregoing items.

2. Journalize the adjusting entries to record the amortization, depletion, or impairment for each item.

Answer:

1 a. Loss from impaired goodwill, $3,400,000

b. $4,800,000 ÷ 8 years = $600,000;

1/4 of $600,000 = $150,000

c. $2,975,000 ÷ 12,500,000 board feet = $0.238 per board foot;

4,150,000 board feet × $0.238 per board foot = $987,700

2 a. Dec. 31 Loss from Impaired Goodwill 3,400,000

Goodwill3,400,000

Impaired goodwill.

b. Dec. 31 Amortization Expense—Patents 150,000

Patents150,000

Patent amortization.

c. Dec. 31 Depletion Expense987,700.

Accumulated Depletion987,700

Depletion of timber rights.

The following transactions and adjusting entries were completed by Robinson Furniture Co. during a three-year period

The following transactions and adjusting entries were completed by Robinson Furniture Co. during a three-year period. All are related to the use of delivery equipment. The double-declining-balance method of depreciation is used.

Year 1

Jan.

8. Purchased a used delivery truck for $24,000, paying cash.

Mar.

7. Paid garage $900 for changing the oil, replacing the oil filter, and tuning the engine on the delivery truck.

Dec.

31. Recorded depreciation on the truck for the fiscal year. The estimated useful life of the truck is four years, with a residual value of $4,000 for the truck.

Year 2

Jan.

9. Purchased a new truck for $50,000, paying cash.

Feb.

28. Paid garage $250 to tune the engine and make other minor repairs on the used truck.

Apr.

30. Sold the used truck for $9,500. (Record depreciation to date in Year 2 for the truck.)

Dec.

31. Record depreciation for the new truck. It has an estimated residual value of $12,000 and an estimated life of eight years.

Year 3

Sept.

1. Purchased a new truck for $58,500, paying cash.

4. Sold the truck purchased January 9, Year 2, for $36,000. (Record depreciation to date for Year 3 for the truck.)

Dec.

31. Recorded depreciation on the remaining truck. It has an estimated residual value of $16,000 and an estimated useful life of 10 years.

Instructions

Journalize the transactions and the adjusting entries.

Answer:

Year 1

Jan. 8 Delivery Truck24,000

Cash24,000

Mar. 7 Truck Repair Expense900

Cash900

Dec. 31 Depreciation Expense—Delivery Truck 12,000

Accum. Depreciation—Delivery Truck 12,000

Delivery truck depreciation

[$24,000 × (100% ÷ 4) × 2].

Year 2

Jan. 9 Delivery Truck50,000

Cash50,000

Feb. 28 Truck Repair Expense250

Cash250

Apr. 30 Depreciation Expense—Delivery Truck 2,000

Accum. Depreciation—Delivery Truck 2,000

Delivery truck depreciation

[($24,000 – $12,000) ×

(100% ÷ 4) × 2 × (4 ÷ 12)].

30 Accum. Depreciation—Delivery Truck 14,000

Cash9,500

Loss on Sale of Delivery Truck 500

Delivery Truck24,000

Dec. 31 Depreciation Expense—Delivery Truck 12,500

Accum. Depreciation—Delivery Truck 12,500

Delivery truck depreciation

[$50,000 × (100% ÷ 8) × 2].

1 Delivery Truck58,500

Cash58,500

4 Depreciation Expense—Delivery Truck 6,250

Accum. Depreciation—Delivery Truck 6,250

Delivery truck depreciation

[($50,000 – $12,500) ×

(100% ÷ 8) × 2 × (8 ÷ 12)].

4 Cash36,000

Accum. Depreciation—Delivery Truck 18,750

Delivery Truck50,000

Gain on Sale of Delivery Truck4,750

31 Depreciation Expense—Delivery Truck 3,900

Accum. Depreciation—Delivery Truck 3,900

Delivery truck depreciation

[$58,500 × (100% ÷ 10) × 2 × (4 ÷ 12)].

New tire retreading equipment, acquired at a cost of $110,000 on September 1 of Year 1 (beginning of the fiscal year)

New tire retreading equipment, acquired at a cost of $110,000 on September 1 of Year 1 (beginning of the fiscal year), has an estimated useful life of four years and an estimated residual value of $7,500. The manager requested information regarding the effect of alternative methods on the amount of depreciation expense each year. On the basis of the data presented to the manager, the double-declining-balance method was selected. On September 6 of Year 4, the equipment was sold for $18,000.

Instructions

1. Determine the annual depreciation expense for each of the estimated four years of use, the accumulated depreciation at the end of each year, and the book value of the equipment at the end of each year by (a) the straight-line method and (b) the double-declining-balance method. The following columnar headings are suggested for each schedule:

Year Depreciation Expense Accumulated Depreciation, End of Year Book Value, End of Year

2. Journalize the entry to record the sale.

3. Journalize the entry to record the sale, assuming that the equipment sold for $10,500 instead of $18,000.

Answer:

Depreciation Book Value,

Expense End of Year

a. 1......................................................... $25,625 $84,375

2......................................................... 25,625 58,750

3......................................................... 25,625 33,125

4......................................................... 25,625 7,500

Yearly depreciation = [($110,000 – $7,500) ÷ 4] = $25,625

b. 1 [$110,000 × (100% ÷ 4) × 2]............ $55,000 $55,000

2 [$55,000 × (100% ÷ 4) × 2]............... 27,500 27,500

3 [$27,500 × (100% ÷ 4) × 2]............... 13,750 13,750

4 ($110,000 – $96,250 – $7,500)......... 6,250 7,500

Note: Book value should not be reduced below $7,500, the residual value.

2. Sept. 6 Cash

Accumulated Depreciation—Equipment

Equipment

Gain on Sale of Equipment

Gain on sale of equipment = $18,000 – ($110,000 – $96,250) = $4,250

3. Sept. 6 Cash

Accumulated Depreciation—Equipment

Loss on Sale of Equipment

Equipment

Loss on sale of equipment = $10,500 – ($110,000 – $96,250) = –$3,250

Layton Company purchased tool sharpening equipment on October 1 for $108,000

Layton Company purchased tool sharpening equipment on October 1 for $108,000.The equipment was expected to havea useful life ofthree years, or 12,000 operating hours, and a residual value of $7,200. The equipment was used for 1,350 hours during Year 1, 4,200 hours in Year 2, 3,650 hours in Year 3, and 2,800 hours in Year 4.

Instructions

Determine the amount of depreciation expense for the years ended December 31, Year 1, Year 2, Year 3, and Year 4, by (a) the straight-line method, (b) the units-of-activity method, and (c) the double-declining-balance method.

Answer:

a. Straight-line method:

Year 1: [($108,000 – $7,200) ÷ 3] × 3 ÷ 12....................................... $ 8,400

Year 2: [($108,000 – $7,200) ÷ 3]................................................... 33,600

Year 3: [($108,000 – $7,200) ÷ 3]................................................... 33,600

Year 4: [($108,000 – $7,200) ÷ 3] × 9 ÷ 12....................................... 25,200

b. Units-of-activity method:

Activity rate = ($108,000 – $7,200) ÷ 12,000 hours = $8.40 per hour

Year 1: 1,350 hours × $8.40......................................................... $11,340

Year 2: 4,200 hours × $8.40......................................................... 35,280

Year 3: 3,650 hours × $8.40......................................................... 30,660

Year 4: 2,800 hours × $8.40......................................................... 23,520

c. Double-declining-balance method:

Year 1: $108,000 × 2 ÷ 3 × 3 ÷ 12................................................... $18,000

Year 2: ($108,000 – $18,000) × 2 ÷ 3............................................. 60,000

Year 3: ($108,000 – $18,000 – $60,000) × 2 ÷ 3................................. 20,000

Year 4: ($108,000 – $18,000 – $60,000 – $20,000 – $7,200)............... 2,800

Note: Book value should not be reduced below $7,200, the residual value.

Waylander Coatings Company purchased waterproofing equipment on January 6 for $320,000

Waylander Coatings Company purchased waterproofing equipment on January 6 for $320,000. The equipment was expected to have a useful life of four years, or 20,000 operating hours, and a residual value of $35,000. The equipment was used for 7,200 hours during Year 1, 6,400 hours in Year 2, 4,400 hours in Year 3, and 2,000 hours in Year 4.

Instructions

1. Determine the amount of depreciation expense for the years ended December 31, Year 1, Year 2, Year 3, and Year 4, by (a) the straight-line method, (b) the units-of-activity method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the four years by each method. The following columnar headings are suggested for recording the depreciation expense amounts:

Depreciation Expense Year Straight-Line Method Units-of-Activity Method Double-Declining-Balance Method

2. What method yields the highest depreciation expense for Year 1?

3. What method yields the most depreciation over the four-year life of the equipment?

Answer:

a. Straight- b. Units-of- c. Double-

Line Activity Declining-Balance

Year Method Method Method

Year 1 $ 71,250 $102,600 $160,000

Year 2 71,250 91,200 80,000

Year 3 71,250 62,700 40,000

Year 4 71,250 28,500 5,000

Total $285,000 $285,000 $285,000

Calculations:

Straight-line method:

($320,000 – $35,000) ÷ 4 = $71,250 each year

Units-of-activity method:

($320,000 – $35,000) ÷ 20,000 hours = $14.25 per hour

Year 1: 7,200 hours × $14.25 = $102,600

Year 2: 6,400 hours × $14.25 = $91,200

Year 3: 4,400 hours × $14.25 = $62,700

Year 4: 2,000 hours × $14.25 = $28,500

Double-declining-balance method:

Year 1: $320,000 × [(1 ÷ 4) × 2] = $160,000

Year 2: ($320,000 – $160,000) × [(1 ÷ 4) × 2] = $80,000

Year 3: ($320,000 – $160,000 – $80,000) × [(1 ÷ 4) × 2] = $40,000

Year 4: ($320,000 – $160,000 – $80,000 – $40,000 – $35,000) = $5,000

Note: Book value should not be reduced below the residual value of $35,000.

2. The double-declining-balance method yields the most depreciation expense in

Year 1 of $160,000.

3. Over the four-year life of the equipment, all three depreciation methods yield

the same total depreciation, $285,000, which is the cost of the equipment of

$320,000 less the residual value of $35,000.

The following payments and receipts are related to land, land improvements, and buildings acquired for use in a wholesale apparel business

The following payments and receipts are related to land, land improvements, and buildings acquired for use in a wholesale apparel business. The receipts are identified by an asterisk.

a. Fee paid to attorney for title search . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,600 b. Cost of real estate acquired as a plant site: Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 720,000 Building (to be demolished). . . . . . . . . . . 60,000 c. Finder’s fee paid to real estate agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,400 d. Delinquent real estate taxes on property, assumed by purchaser . . . . . . . . . . . . . . . . . 15,000 e. Architect’s and engineer’s fees for plans for new building . . . . . . . . . . . . . . . . . . . . . . . 75,000 f. Cost of removing building purchased with land in (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 g. Proceeds from sale of salvage materials from old building . . . . . . . . . . . . . . . . . . . . . . . 3,400* h. Cost of filling and grading land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000 i. Premium on one-year insurance policy during construction. . . . . . . . . . . . . . . . . . . . . . 8,400 j. Money borrowed to pay building contractor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800,000* k. Special assessment paid to city for extension of water main to the property. . . . . . . 13,400 l. Cost of repairing windstorm damage during construction . . . . . . . . . . . . . . . . . . . . . . . 3,000 m. Cost of repairing vandalism damage during construction . . . . . . . . . . . . . . . . . . . . . . . . 2,000 n. Cost of trees and shrubbery planted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,000 o. Cost of paving parking lot to be used by customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,600 p. Interest incurred on building loan during construction . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000 q. Proceeds from insurance company for windstorm and vandalism damage . . . . . . . . 4,500* r. Payment to building contractor for new building. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800,000 s. Refund of premium on insurance policy (i) canceled after 10 months . . . . . . . . . . . . . 1,400*

Instructions

1. Assign each payment and receipt to Land (unlimited life), Land Improvements (limited life), Building, or Other Accounts. Indicate receipts by an asterisk. Identify each item by letter and list the amounts in columnar form, as follows:

Item Land Land Improvements Building Other Accounts

2. Determine the amount debited to Land, Land Improvements, and Building.

3. The costs assigned to the land, which is used as a plant site, will not be depreciated, while the costs assigned to land improvements will be depreciated. Explain this seemingly contradictory application of the concept of depreciation.

4. What would be the effect on the current year’s income statement and balance sheet if the cost of paving the parking lot of $21,600 [payment (o)] was incorrectly classified as Land rather than Land Improvements? Assume that Land Improvements are depreciated over a 10-year life using the double-declining-balance method.

Answer:

1.Land Other

Item Land Improvements Building Accounts

a. $ 3,600

b. 780,000

c. 23,400

d. 15,000

e.$ 75,000

f. 10,000

g. (3,400)

h. 18,000

i.8,400

j.$(800,000)

k. 13,400

l.3,000

m.2,000

n.$14,000

o.21,600

p.40,000

q.(4,500)

r.800,000

s.(1,400)

2. $860,000 $35,600 $922,000

* Received cash.

3. Land used as a plant site does not lose its ability to provide services; thus, it is

not depreciated. However, land improvements do lose their ability to provide

services as time passes and are, therefore, depreciated.

4. Because land improvements are depreciated, depreciation expense of $4,320

[$21,600 × (100% ÷ 10) × 2] would be understated and net income would be

overstated by $4,320 on the income statement. On the balance sheet, Land would

be overstated by $21,600, Land Improvements would be understated by $17,280

($21,600 – $4,320), and Retained Earnings would be overstated by $4,320.

The following were selected from among the transactions completed during the current year by Danix Co., an appliance wholesale company:

Jan.

21. Sold merchandise on account to Black Tie Co., $28,000. The cost of merchandise sold was $16,800.

Mar.

18. Accepted a 60-day, 6% note for $28,000 from Black Tie Co. on account.

May

17. Received from Black Tie Co. the amount due on the note of March 18.

June

15. Sold merchandise on account to Pioneer Co. for $17,700. The cost of merchandise sold was $10,600.

21. Loaned $18,000 cash to JR Stutts, receiving a 30-day, 8% note.

25. Received from Pioneer Co. the amount due on the invoice of June 15.

July

21. Received the interest due from JR Stutts and a new 60-day, 9% note as a renewal of the loan of June 21. (Record both the debit and the credit to the notes receivable account.)

Sept.

19. Received from JR Stutts the amount due on her note of July 21.

22. Sold merchandise on account to Wycoff Co., $20,000. The cost of merchandise sold was $12,000.

Oct.

14. Accepted a 30-day, 6% note for $20,000 from Wycoff Co. on account.

Nov.

13. Wycoff Co. dishonored the note dated October 14.

Dec.

28. Received from Wycoff Co. the amount owed on the dishonored note, plus interest for 45 days at 8% computed on the maturity value of the note.

Instructions

Journalize the entries to record the transactions.

Answer:

Jan. 21 Accounts Receivable—Black Tie Co. 28,000

Sales28,000

21 Cost of Merchandise Sold 16,800

Merchandise Inventory16,800

Mar. 18 Notes Receivable28,000

Accounts Receivable—Black Tie Co. 28,000

May 17 Cash28,280

Notes Receivable28,000

Interest Revenue280

($28,000 × 6% × 60 ÷ 360).

June 15 Accounts Receivable—Pioneer Co. 17,700

Sales17,700

15 Cost of Merchandise Sold 10,600

Merchandise Inventory10,600

21 Notes Receivable18,000

Cash18,000

25 Cash17,700

Accounts Receivable—Pioneer Co. 17,700

July 21 Notes Receivable18,000

Cash120

Notes Receivable18,000

Interest Revenue120

($18,000 × 8% × 30 ÷ 360).

Sept. 19 Cash18,270

Notes Receivable18,000

Interest Revenue270

($18,000 × 9% × 60 ÷ 360).

22 Accounts Receivable—Wycoff Co. 20,000

Sales20,000

Sept. 22 Cost of Merchandise Sold 12,000

Merchandise Inventory12,000

Oct. 14 Notes Receivable20,000

Accounts Receivable—Wycoff Co. 20,000

Nov. 13 Accounts Receivable—Wycoff Co. 20,100

Notes Receivable20,000

Interest Revenue100

($20,000 × 6% × 30 ÷ 360).

Dec. 28 Cash20,301

Accounts Receivable—Wycoff Co. 20,100

Interest Revenue201

($20,100 × 8% × 45 ÷ 360).

The following data relate to notes receivable and interest for Owens Co., a financial services company.

The following data relate to notes receivable and interest for Owens Co., a financial services company.(All notes are dated as of the day they are received.)

Mar.

8. Received a $33,000, 5%, 60-day note on account.

31. Received an $80,000, 7%, 90-day note on account.

May

7. Received $33,275 on note of March 8.

16. Received a $72,000, 7%, 90-day note on account.

June

11. Received a $36,000, 6%, 45-day note on account.

29. Received $81,400 on note of March 31.

July

26. Received $36,270 on note of June 11.

Aug.

4. Received a $48,000, 9%, 120-day note on account.

14. Received $73,260 on note of May 16.

Dec.

2. Received $49,440 on note of August 4.

Instructions

Journalize the entries to record the transactions.

Answer:

Mar. 8 Notes Receivable33,000

Accounts Receivable33,000

31 Notes Receivable80,000

Accounts Receivable80,000

May 7 Cash33,275

Notes Receivable33,000

Interest Revenue275

16 Notes Receivable72,000

Accounts Receivable72,000

June 11 Notes Receivable36,000

Accounts Receivable36,000

29 Cash81,400

Notes Receivable80,000

Interest Revenue1,400

July 26 Cash36,270

Notes Receivable36,000

Interest Revenue270

Aug. 4 Notes Receivable48,000

Accounts Receivable48,000

14 Cash73,260

Notes Receivable72,000

Interest Revenue1,260

Dec. 2 Cash49,440

Notes Receivable48,000

Interest Revenue1,440

Gen-X Ads Co. produces advertising videos. During the current fiscal year, Gen-X Ads Co. received the following notes:

Date Face Amount Interest Rate Term 1. Jan. 14 $33,000 4% 30 days 2. Mar. 9 60,000 7 45 days 3. July 12 48,000 5 90 days 4. Aug. 23 16,000 6 75 days 5. Nov. 15 36,000 8 60 days 6. Dec. 10 24,000 6 60 days

Instructions

1. Determine for each note (a) the due date and (b) the amount of interest due at maturity, identifying each note by number.

2. Journalize the entry to record the dishonor of Note (3) on its due date.

3. Journalize the adjusting entry to record the accrued interest on Notes (5) and (6) on December 31.

4. Journalize the entries to record the receipt of the amounts due on Notes (5) and (6) in January and February.

Answer:

Note

1. $110

2. 525

3. 600

4. 200

5. 480

6. Feb. 8 240

2. Oct. 10 Accounts Receivable48,600

Notes Receivable48,000

Interest Revenue600

3. Dec. 31 Interest Receivable452

Interest Revenue452

Accrued interest.

$36,000 × 8% × 46 ÷ 360 = $368

$24,000 × 6% × 21 ÷ 360 = 84

Total $452

4. Jan. 14 Cash36,480

Notes Receivable36,000

Interest Receivable368

Interest Revenue112

($36,000 × 8% × 14 ÷ 360).

Feb. 8 Cash24,240

Notes Receivable24,000

Interest Receivable84

Interest Revenue156

($24,000 × 6% × 39 ÷ 360).

Digital Depot Company, which operates a chain of 40 electronics supply stores, has just completed its fourth year of operations

Digital Depot Company, which operates a chain of 40 electronics supply stores, has just completed its fourth year of operations. The direct write-off method of recording bad debt expense has been used during the entire period. Because of substantial increases in sales volume and the amount of uncollectible accounts, the firm is considering changing to the allowance method. Information is requested as to the effect that an annual provision of 1⁄4% of sales would have had on the amount of bad debt expense reported for each of the past four years. It is also considered desirable to know what the balance of Allowance for Doubtful Accounts would have been at the end of each year. The following data have been obtained from the accounts:

Year of Origin of Accounts Receivable Written Off as Uncollectible Year Sales Uncollectible Accounts Written Off 1st 2nd 3rd 4th 1st $12,500,000 $18,000 $18,000 2nd 14,800,000 30,200 9,000 $21,200 3rd 18,000,000 39,900 3,600 9,300 $27,000 4th 24,000,000 52,6005,100 12,500 $35,000

Instructions

1. Assemble the desired data, using the following column headings:

Bad Debt Expense Year Expense Actually Reported Expense Based on Estimate Increase (Decrease) in Amount of Expense Balance of Allowance Account, End of Year

2. Experience during the first four years of operations indicated that the receivables either were collected within two years or had to be written off as uncollectible. Does the estimate of 1⁄4% of sales appear to be reasonably close to the actual experience with uncollectible accounts originating during the first two years? Explain.

Answer:

Increase Balance of

Expense Expense (Decrease) Allowance

Actually Based on in Amount Account,

Reported Estimate of Expense End of Year

$18,000 $31,250 $13,250 $13,250

30,200 37,000 6,800 20,050

39,900 45,000 5,100 25,150

52,600 60,000 7,400 32,550

2. Yes. The actual write-offs of accounts originating in the first two years are

reasonably close to the expense that would have been charged to those years on

the basis of 1/4% of sales. The total write-off of receivables originating in the first

year amounted to $30,600 ($18,000 + $9,000 + $3,600), as compared to bad debt

expense, based on the percentage of sales of $31,250 ($12,500,000 × 0.0025). For the

second year, the comparable amounts were write-offs of $35,600 ($21,200 + $9,300 +

$5,100) and bad debt expense of $37,000 ($14,800,000 × 0.0025).