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financial accounting for decision makers

Questions and Answers of Financial Accounting For Decision Makers

Jerry Englehart Taxi Service uses the units-of-activity method in computing depreciation on its taxicabs. Each cab is expected to be driven 120,000 miles. Taxi 10 cost \(\$ 24,500\) and is expected
The following expenditures relating to plant assets were made by John Kosinki Company during the first 2 months of 1998:1. Paid \(\$ 250\) to have company name and advertising slogan painted on new
On March 1, 1998, Roy Orbis Company acquired real estate, on which it planned to construct a small office building, by paying \(\$ 100,000\) in cash. An old warehouse on the property was razed at a
Elvis Costello Company purchased a new machine on October 1, 1998, at a cost of \(\$ 96,000\). The company estimated that the machine has a salvage value of \(\$ 12,000\). The machine is expected to
Lindy Weink, the new controller of Waterloo Company, has reviewed the expected useful lives and salvage values of selected depreciable assets at the beginning of 1998 .Determine acquisition costs
Presented here are selected transactions for Beck Company for 1998:\section*{Instructions}Journalize all entries required on the above dates, including entries to update depreciation, where
During 1998 Kettle Corporation reported net sales of \(\$ 2,500,000\), net income of \(\$ 1,500,000\), and depreciation expense of \(\$ 150,000\). Its balance sheet reported total assets of \(\$
These are selected 1998 transactions for Graf Corporation:Jan. 1 Purchased a small company and recorded goodwill of \(\$ 120,000\). The goodwill has a useful life of 55 years.May 1 Purchased a patent
Collins Company, organized in 1998, has these transactions related to intangible assets in that year:Jan. 2 Purchased patent (7-year life), \(\$ 350,000\).Apr. 1 Goodwill purchased (indefinite life),
The questions listed below are independent of one another.\section*{Instructions}Provide a brief answer to each question:(a) Why should a company depreciate its buildings?(b) How can a company have a
Interstate Bus Lines uses the units-of-activity method in depreciating its buses One bus was purchased on January 1, 1998, at a cost of \(\$ 108,000\). Over its 4 -year useful life, the bus is
Basic information relating to a new machine purchased by Elvis Costello Company is presented in E9-3.\section*{Instructions}Using the facts presented in E9-3, compute depreciation using the following
Jay Weiseman Company was organized on January 1. During the first year of operations, the following plant asset expenditures and receipts were recorded in random order:\section*{Instructions}Analyze
At December 31, 1997, Jerry Hamsmith Corporation reported these plant assets:\section*{Instructions}(a) Journalize the transactions. [Hint: You may wish to set up T accounts, post begin ning
Express Co. has delivery equipment that cost \(\$ 48,000\) and has been depreciated \(\$ 20,000\)\section*{Instructions}Record entries for the disposal under the following assumptions:(a) It was
The intangible asset section of Roberts Corporation's balance sheet at December 31,1997 , is presented here:The patent was acquired in January 1997 and has a useful life of 10 years. The copyright
Due to rapid employee turnover in the accounting department, the following transactions involving intangible assets were improperly recorded by Riley Corporation in 1998:1. Riley developed a new
Croix Corporation and Rye Corporation, two corporations of roughly the same size, are both involved in the manufacture of canoes and sea kayaks. Each company depreciates its plant assets using the
In recent years Wind Company has purchased three machines. Because of frequent employee turnover in the accounting department, a different accountant was in charge of selecting the depreciation
Keith Whitley Corporation purchased machinery on January 1, 1998, at a cost of \(\$ 100,000\). The estimated useful life of the machinery is 4 years, with an estimated residual value at the end of
Jule Kadlec Company was organized on January 1. During the first year of operations, the following plant asset expenditures and receipts were recorded in random order:\section*{Instructions}Analyze
At December 31, 1997, Yount Corporation reported these plant assets:During 1998, the following selected cash transactions occurred:\section*{Instructions}(a) Journalize the transactions. [Hint: You
Walker Co. has office furniture that cost \(\$ 80,000\) and has been depreciated \(\$ 47,000\).\section*{Instructions}Record entries for the disposal under these assumptions:(a) It was scrapped as
The intangible asset section of the balance sheet for Eikel Company at December 31, 1997, is presented here:The patent was acquired in January 1997 and has a useful life of 10 years. The copyright
Due to rapid employee turnover in the accounting department, the following transactions involving intangible assets were improperly recorded by the Glover Company in 1998:1. Glover developed a new
Reggie Corporation and Newman Corporation, two corporations of roughly the same size, are both involved in the manufacture of in-line skates. Each company depreciates its plant assets using the
In recent years Rapid Transportation purchased three used buses. Because of frequent employee turnover in the accounting department, a different accountant selected the depreciation method for each
Scott Piper Corporation purchased machinery on January 1, 1998, at a cost of \(\$ 243,000\). The estimated useful life of the machinery is 5 years, with an estimated residual value at the end of that
Segal Office Supply Company recently changed its system of internal control over cash disbursements. The system includes the following features:Instead of being unnumbered and manually prepared, all
On May 31, 1998, Maloney Company had a cash balance per books of \(\$ 5,781.50\). The bank statement from Community Bank on that date showed a balance of \(\$ 6,804.60\). A comparison of the
The bank portion of the bank reconciliation for Sandra Company at November 30,1998 , is shown here: The adjusted cash balance per bank agreed with the cash balance per books at November 30. The
Palmeiro Company maintains a checking account at Marine City Bank. At July 31 selected data from the ledger balance and the bank statement are as follows:Analysis of the bank data reveals that the
Badger Company prepares monthly cash budgets. Here are relevant data from operating budgets for 1998 :All sales are on account. Collections are expected to be \(50 \%\) in the month of sale, \(40
P7-6A Dockers Company maintains a petty cash fund for small expenditures. The fol-Journalize and post petty lowing transactions occurred over a 2 -month period:July 1 Established the petty cash fund
The financial statements of Starbucks are presented in Appendix A of this book, together with two reports: (1) a management report, Management's Responsibility for Financial Statements, and (2) an
The financial statements of Green Mountain Coffee are presented in Appendix B, following the financial statements for Starbucks in Appendix A.\section*{Instructions}(a) Based on the information
The "Fortune 500" issue of Fortune magazine can serve as a useful reference. This annual issue of Fortune, which generally appears in late April or early May, contains a great deal of information
Minicase Microsoft, Inc.}Microsoft is the leading developer of software in the world. To continue to be successful Microsoft must generate new products, and generating new products requires
Alternative Distributor Corp., a distributor of groceries and related products, is headquartered in Medford, Massachusetts. It was founded in 1980 and today has seven employees and total sales of
From your employment or personal experiences, think of situations in which cash has been received or disbursed.\section*{Instructions}Form groups of five or six students.(a) Identify the internal
As a new auditor for the CPA firm of Rawls, Keoto, and Landry, you have been assigned to review the internal controls over mail cash receipts of Adirondack Company. Your review reveals that checks
You are the assistant controller in charge of general ledger accounting at Lemon Twist Bottling Company. Your company has a large loan from an insurance company. The loan agreement requires that the
Purpose: The Financial Accounting Standards Board (FASB) is a private organization established to improve accounting standards and financial reporting. The FASB conducts extensive research before
Jones Company on June 15 sells merchandise on account to Bullock Co. for \(\$ 1,000\), terms \(2 / 10, \mathrm{n} / 30\). On June 20 Bullock Co. returns merchandise worth \(\$ 300\) to Jones Company.
In 1998 D. H. Lawrence Company had net credit sales of \(\$ 750,000\). On January 1, 1998, Allowance for Doubtful Accounts had a credit balance of \(\$ 18,000\). During \(1998, \$ 30,000\) of
An analysis and aging of the accounts receivreveal these data:What is the cash realizable value of the accounts receivable at December 31, after adjustment?(a) \(\$ 685,000\)(c) \(\$ 800,000\)(b)
Morgan Retailers accepted \(\$ 50,000\) of Citibank VISA credit card charges for merchandise sold on July 1. Citibank charges \(4 \%\) for its credit card use. The entry to record this transaction by
Sorenson Co. accepts a \(\$ 1,000,3\)-month, \(12 \%\) promissory note in settlement of an account with Parton Co. The entry to record this transaction is: (a) Notes Receivable Accounts 1,030
Schlicht Co. holds Osgrove Inc.'s \(\$ 10,000,120\) day, \(9 \%\) note. The entry made by Schlicht Co. when the note is collected, assuming no interest has been accrued, is: (a) Cash 10,300 Notes
Moore Corporation had net credit sales during the year of $800,000 and cost of goods sold of $500,000. The balance in receiv- ables at the beginning of the year was $100,000 and at the end of the
Hoffman Corporation sells its goods on terms of 2/10, n/30. It has a receivables. turnover ratio of 7. What is its average collec- tion period (days)?(a) 2,555 (b) 30 (c) 52 (d) 210
Soo Eng cannot understand why the cash realizable value does not decrease when an uncollectible account is written off under the allowance method. Clarify this point for Soo Eng.
Kersee Company has a credit balance of \(\$ 3,200\) in Allowance for Doubtful Accounts. The total estimated uncollectibles under the percentage of receivables basis is \(\$ 5,800\). Prepare the
May Company dishonors a note at maturity. What actions by May may occur with the dishonoring of the note?
Paula Company has accounts receivable and notes receivable. How should the receivables be reported on the balance sheet?
If the receivables turnover ratio is 7.15 and average net receivables during the period is \(\$ 210,000\), what is the amount of net credit sales for the period?
Allmar Company accepts both its own credit cards and national credit cards. What are the advantages of accepting both types of cards?
Southern Textiles decides to sell \(\$ 700,000\) of its accounts receivable to First Central Factors Inc. First Central Factors assesses a service charge of \(2 \%\) of the amount of receivables
Record the following transactions on the books of Essex Co.:(a) On July 1 Essex Co. sold merchandise on account to Cambridge Inc. for \(\$ 14,000\), terms \(2 / 10, n / 30\).(b) On July 8 Cambridge
During its first year of operations, Wendy Company had credit sales of \(\$ 3,000,000\), of which \(\$ 600,000\) remained uncollected at year-end. The credit manager estimates that \(\$ 40,000\) of
At the end of 1998, Searcy Co. has accounts receivable of \(\$ 700,000\) and an allowance for doubtful accounts of \(\$ 54,000\). On January 24,1999 , it is learned that the company's receivable from
Assume the same information as BE8-4 and that on March 4, 1999, Searcy Co. receives payment of \(\$ 8,000\) in full from Hutley Co. Prepare the journal entries to record Prepare entries for
Massey Co. uses the percentage of receivables basis to record bad debts expense and concludes that \(1 \%\) of accounts receivable will become uncollectible. Accounts receivable are \(\$ 500,000\) at
On January 10, 1998, Raja Co. sold merchandise on account to R. Opal for \(\$ 12,000\), terms n/30. On February 9 R. Opal gave Raja Co. a \(10 \%\) promissory note in settlement of this account.
The financial statements of Minnesota Mining and Manufacturing Company (3M) report net sales of \(\$ 9.4\) billion. Accounts receivable are \(\$ 1.6\) billion at the beginning of the year and \(\$
Consider these transactions:(a) St. Pierre Restaurant accepted a VISA card in payment of a \(\$ 100\) lunch bill. The bank charges a 3\% fee. What entry should St. Pierre make?(b) Mayfield Company
On January 6 Nicklaus Co. sells merchandise on account to Watson Inc. for \(\$ 4,000\), terms \(2 / 10, n / 30\). On January 16 Watson pays the amount due.\section*{Instructions}Prepare the entries
On January 10 Margaret Giger uses her Salizar Co. credit card to purchase merchandise from Salizar Co. for \(\$ 11,000\). On February 10 Giger is billed for the amount due of \(\$ 11,000\). On
The ledger of the Patillo Company at the end of the current year shows Accounts Receivable \(\$ 80,000\); Credit Sales \(\$ 940,000\); and Sales Returns and Allowances \(\$
Grevina Company has accounts receivable of \$92,500 at March 31, 1998. An analysis of the accounts shows these amounts:Credit terms are \(2 / 10, \mathrm{n} / 30\). At March 31, 1998, there is a \(\$
On December 31, 1998, when its Allowance for Doubtful Accounts had a debit balance of \(\$ 1,000\), Lisa Ceja Co. estimates that \(12 \%\) of its accounts receivable balance of \(\$ 60,000\) will
On March 3 Soyka Appliances sells \(\$ 900,000\) of its receivables to Potter Factors Inc. Potter Factors Inc. assesses a finance charge of \(3 \%\) of the amount of receivables
On May 10 Monee Company sold merchandise for \(\$ 3,000\) and accepted the customer's First Business Bank MasterCard. At the end of the day, the First Business Bank MasterCard receipts were deposited
Prepare the journal entries to record these transactions on H. Hunt Company's books using a periodic inventory system.(a) On March \(2 \mathrm{H}\). Hunt Company purchased \(\$ 900,000\) of
On July 4 Robyn's Restaurant accepts a VISA card for a \(\$ 300\) dinner bill. VIS: charges a \(3 \%\) service fee.\section*{Instructions}Prepare entry for sale of accounts receivable.Prepare entry
Assume that K. Bassing Company uses a periodic inventory system and has these account balances: Purchases \(\$ 400,000\); Purchase Returns and Allowances \(\$ 11,000\); Purchase Discounts \(\$
Indiana Supply Co. has the following transactions related to notes receivable during the last 2 months of the year:Nov. 1 Loaned \(\$ 24,000\) cash to A. Gomez on a 1 -year, \(10 \%\) note ceivable
Assume the same information as in BE6-2 and also that K. Bassing Company has beginning inventory of \(\$ 60,000\), ending inventory of \(\$ 90,000\), and net sales of \(\$ 630,000\). Determine the
These transactions took place for Rather Co.:\section*{Instructions}Record the transactions in the general journal. 1998 May 1 Dec. 31 Received a $6,000, 1-year, 10% note on account from T. Jones.
Ginger Helgeson Company identifies the following items for possible inclusion in the physical inventory. Indicate whether each item should be included or excluded from the inventory taking.(a) Goods
On May 2 P. Brey Company lends \(\$ 4,000\) to Feingold Inc., issuing a 6-month \(10 \%\) note. At the maturity date, November 2, Feingold indicates that it cannot pay.\section*{Instructions}(a)
The ledger of Wharton Company includes these items: Freight-in, Purchase Returns and Allowances, Purchases, Sales Discounts, and Purchase Discounts. Identify which items are included in calculating
At December 31, 1998, Trisha Underwood Imports reported this information on its balance sheet:During 1999 the company had the following transactions related to receivables:\section*{Instructions}(a)
In its first month of operations, Quilt Company made three purchases of merchandise in the following sequence: (1) 300 units at \(\$ 6\), (2) 400 units at \(\$ 7\), and (3) 300 units at \(\$ 8\).
Data for Quilt Company are presented in BE6-6. Compute the cost of the ending inventory under the average cost method, assuming there are 400 units on hand.
Here is information related to Aris Company for 1998:\section*{Instructions}(a) What amount of bad debts expense will Aris Company report if it uses the direct write-off method of accounting for bad
Hawkeye Appliance Center accumulates the following cost and market data at December 31:Compute the lower of cost or market valuation for Hawkeye's total inventory. Inventory Categories Cost Market
At December 31, 1998, the following information was available for Sauk Company: ending inventory \(\$ 80,000\); beginning inventory \(\$ 60,000\); cost of goods sold \(\$ 210,000\); and sales revenue
This is an aging schedule for Boitano Company:At December 31, 1998, the unadjusted balance in Allowance for Doubtful Accounts is a credit of \(\$ 9,000\).\section*{Instructions}(a) Journalize and
Harbor Company reported ending inventory at December 31, 1998, of \(\$ 3,000,000\) under the LIFO inventory method. In the notes to its financial statements, Harbor reported a LIFO reserve of \(\$
Creole Company reports net income of \(\$ 90,000\) in 1998. However, ending inventory was understated by \(\$ 7,000\). What is the correct net income for 1998? What effect, if any, will this error
Carlo Fassi Co. uses 8\% of the accounts receivable balance to determine its allowance for bad debts for the period. At the beginning of the current period, Fassi had Allowance for Doubtful Accounts
This information relates to Hans Olaf Co.:1. On April 5 purchased merchandise from D. DeVito Company for \(\$ 18,000\), terms \(2 / 10\), net \(/ 30\), FOB shipping point.2. On April 6 paid freight
The Bon Ton Company closes its books on July 31. On June 30 the Notes Receivable account balance is \(\$ 19,800\). Notes Receivable include the following:During July the following transactions were
The trial balance of G. Garbo Company at the end of its fiscal year, August 31, 1998, includes these accounts: Merchandise Inventory \(\$ 17,200\); Purchases \(\$ 142,400\); Sales \(\$ 190,000\);
On January 1, 1998, Comaneci Company had Accounts Receivable \(\$ 54,200\) and Allowance for Doubtful Accounts \(\$ 4,700\). Comaneci Company prepares financial statements annually. During the year
Presented here is information related to Baja Co. for the month of January 1998:Beginning merchandise inventory was \(\$ 42,000\), and ending inventory was \(\$
First Bank and Trust is considering giving Novotna Company a loan. Before doing so, they decide that further discussions with Novotna's accountant may be desirable. One area of particular concern is
Presented here is basic financial information (in thousands) from the 1995 annual Calculate and interpret reports of Nike and Reebok:\section*{Instructions}(a) Calculate the receivables turnover
At December 31, 1998, Bordeaux Inc. reported this information on its balance sheet:\section*{Instructions}(a) Prepare the journal entries to record each of these five transactions. Assume that no

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