Practice Problems for Chapter 8: SGA, Depreciation and Tax A. SGA-GCC Revisited. Consider these journal entries for Green-Car-Co. in a three-day accounting period a. Buys a car to refurbish for S18,000 plus $100 for delivery to GCC's shop. (All of this is inventory). GCC pays for the car on a credit card and pays the transportation fee in cash. Dr Inventory$18,100 (A) Cr Cash Cr A/P $100 (A) $18,000 (L) Or Dr Inventory $18,000 (A) Cr A/P Dr Inventory S100 (A) Cr Cash S18,000 (L) $100 (A) b. Works on the car (in its one-bay, one-worker shop) for 3 days, during which time no expenses are paid (except as explicitly stated otherwise), and: i) Its refurbishing worker's daily salary is $200 ii) The CFO's daily salary is $400 ii) The accounting staff daily salary is $220 iv) There are two people in the sales team with a daily salary of $80/person. v) GCC's shop rent and utilities cost is $40/day. vi) The car's AC unit is broken by accident, making it completely worthless. The estimated cost of the unit is $500 vii) A new AC unit for the car is purchased for S500 on account. (IE: GCC is invoiced for the purchase). $600 (A) S600 (L) i) Dr Inventory CrAccrued Salary (Inventory) ii) DrSalary Expense(SGA) Cr Accrued Salary $1,200 (E) $1,200 (L) iii) DrSalary Expense(SGA) Cr Accrued Salary S660 (E) S660 (L) iv) DrSalary Expense(SGA) $480 (E) $480 (L) CrAccrued Salary S120 (A) S120 (A) v) Dr Inventory Cr Accrued rent and utilities vi) Dr Cr Inventory Inventory write off expense $500 (E) $500 (A) vii Dr Inventory S500 (A) S500 (L) Cr Account Payable c. At the end of the third day, GCC sells the car for $30,000, receiving $20,000 in cash and an interest-free note for the remaining $10,000 Dr Cash S20,000 (A) S30,000 (E) S18,820 (E) Dr Note Receivable S10,000 (A) Cr Revenue Dr COGS Cr Inventory S18,820 (A) Find An Income Statement for the period, aggregating everything you can into SGA B. Depreciation Revisited-Worth Co. Consider the following Balance Sheet for Worth Co Assets (S000) Cash And Cash Equivalents Net Receivables Other Current Assets 2,000 4,000 500 Oil Reserves (Accrual Accounting Basis) Net Total Assets 320,000 6,000 332,500 Plant and Equipment (Net PPE Liabilities (S000) Accounts Payable Other Current Liabilities Long Term Debt Total Liabilities 80,000 7,000 240,000 327,000 Stockholders' Equity (S000) Liabilities+ Equity 5,500 332,500 If the company bought all its PPE five years ago for $12,000K, and assumed the PPE had S1,200K salvage value: a) What is the average useful life of its PPE? (Hint: for how many years wi it be represented on the balance sheet?) b) What is the accumulated depreciation of at the time of the above balance sheet? c) What are the journal entries for recognizing one year's worth of PPE wear? d) Create a new balance sheet for the company, showing PPE the way that accountants expect to see it (as opposed to the finance-practitioner, short-cut-representation given above)
