Rolanda Marshall Company, organized in 2007, has set up a single account for all intangible assets

E12-6 (Recording and Amortization of Intangibles) Rolanda Marshall Company, organized in 2007, has set up a single account for all intangible assets. The following summary discloses the debit entries that been recorded during 2008.

1/2/08 Purchased patent (8 yr life) $350,000
4/1/08 Purchased goodwill (indefinite life) $360,000
7/1/08 Purchased franchise with 10 yr life; expires 7/1/18 $450,000
8/1/08 Payment of copyright (5 yr life) $156,00
9/1/08 Research and development costs $215,000
Total: $1,531,000

Instructions:
Prepare the necessary entries to clear the Intangible Assets account and to set up separate accounts for distinct types pf intangibles. Make the entries ad of 12/31/08 recording any necessary amortization and reflecting all balances accurately as of that date. (Use the straight line amortization)

Click here for the solution: Rolanda Marshall Company, organized in 2007, has set up a single account for all intangible assets

The Central Railroad allocates all central corporate overhead costs to its divisions

12-A3 Allocation of Central Costs

The Central Railroad allocates all central corporate overhead costs to its divisions. Some costs, such as specified internal auditing and legal costs are identified on the basis of time spent. However, other costs are harder to allocate so the revenue achieved by each division is used as an allocation base. Examples of such costs are executive salaries, travel, secretarial, utilities, rent, depreciation, donations, corporate planning, and general marketing costs.

Allocations on the basis of revenue for 20X7 were (in millions):
Division Revenue Allocated Costs
Northern $120 $ 6
Midwest 240 12
Texas-Oklahoma 240 12
Total $600 $30

In 20X8, Northern’s revenue remained unchanged. However, Texas-Oklahoma’s revenue soared to $280 million because of unusually large imports from Mexico. The latter are troublesome to forecast because of variations in world markets. Midwest had expected a sharp rise in revenue, but severe competitive conditions resulted in a decline to $200 million. The total cost allocated on the basis of revenue was again $30 million, despite rises in other costs. The president was pleased that central costs did not rise for the year.

1. Compute the allocations of costs to each division for 20X8.
2. How would each division manager probably feel about the cost allocation in 20X8 as compared with 20X7? What are the weaknesses of using revenue as a basis for cost allocation?
3. Suppose the budgeted revenues for 2002 were $120 million, $240, and $280, respectively, and the budgeted revenues were used as a cost driver for allocation. Compute the allocations of costs to each division for 20X8. Do you prefer this method to the one used in requirement 1? Why?
4. Many accountants and managers oppose allocating any central costs. Why?

Click here for the solution: The Central Railroad allocates all central corporate overhead costs to its divisions

Rocky Mountain Interiors deposits all cash receipts each Wednesday and Friday in a night depository, after banking hours

PR 8-5A Bank Reconciliation and entries

Rocky Mountain Interiors deposits all cash receipts each Wednesday and Friday in a night depository, after banking hours. The data required to reconcile the bank statement as of July 31 have been taken from various documents and records and are reproduced as follows. The sources of the data are printed in capital letters. All checks were written for payments on account.

BANK RECONCILIATION FOR PRECEDING MONTH (DATED JUNE 30):
Cash balance according to bank statement $9,422.80
Add: Deposit of June 30, not recorded by bank 780.80
$10,203.60
Deducting : Outstanding checks :
No. 580 $310.10
No. 602 85.50
No. 612 92.50
No. 613 137.50 625.60
Adjusted Balance $9,587.00
Cash balance according to company’s records $ 9,605.7
Deduct : Service Charges 27.70
Adjusted Balance $9,587.00

AND SO ON

1. Prepare a bank reconciliation as of July 31. If errors in recording deposits or checks are discovered, assume that the errors were made by the company. Assume that all deposits are from cash sales. All checks are written to satisfy accounts payable.
2. Journalize the necessary entries. The accounts have not been closed.
3. What is the amount of cash that should appear on the balance sheet as of July 31?
4. Assume that a canceled check for $125 has been incorrectly recorded by the bank as $125. Briefly explain how the error would be included in a bank reconciliation and how it should be corrected.

Check: 1. Adjusted Balance: $11,178.59

Click here for the solution: Rocky Mountain Interiors deposits all cash receipts each Wednesday and Friday in a night depository, after banking hours

Kipling Company deposits all receipts and makes all payments by check

Kipling Company deposits all receipts and makes all payments by check. The following information is available from the cash records.

June 30 Bank Reconciliation
Balance per bank $ 7,000
Add: Deposits in transit 1,540
Deduct: Outstanding checks (2,000)
Balance per books $ 6,540
Month of July Results
Balance July 31 Per Bank $8,650 Per Books $9,250
July deposits Per bank 4,500 per books 5,810
July Checks per bank 4,000 per books 3,100
July note collected (not included in July deposits) per bank 1,500 per books—
July bank service charge per bank 15 per books—
July NSF check from a customer, returned by the per bank 335 per books —
(recorded by bank as a charge)

Instructions
(a) Prepare a bank reconciliation going from balance per bank and balance per book to correct cash balance.
(b) Prepare the general journal entry or entries to correct the Cash account

Click here for the solution: Kipling Company deposits all receipts and makes all payments by check

Gardner Company currently makes all sales on credit and offers no cash discount

Gardner Company currently makes all sales on credit and offers no cash discount. The firm is considering offering a 2% cash discount for payment within 15 days. The firm’s current average collection period is 60 days, sales are 40,000 units, selling price is $45 per unit, and variable cost per unit is $36. The firm expects that the change in credit terms will result in an increase in sales to 42,000 units, that 70% of the sales will take the discount, and that the average collection period will fall to 30 days. If the firm’s required rate of return on equal-risk investments is 25%, should the proposed discount be offered? (Note: Assume a 365-day year.)


Click here for the solution: Gardner Company currently makes all sales on credit and offers no cash discount

David deposits all receipts and makes all payments by check

David deposits all receipts and makes all payments by check. The following information is available from the cash records:

MARCH 31 BANK RECONCILIATION

Balance per bank $26,746
Add: Deposits in transit 2,100
Deduct: Outstanding checks (3,800)
Balance per books $25,046

Month of April Results

Per Bank Per Books

Balance April 30 $27,995 $24,355
April deposits 8,864 14,889
April checks 12,200 16,080
April note collected 3,000 -0-
(not included in April deposits)
April bank service charge 35 -0-
April NSF check of a customer 900 -0-
returned by the bank
(recorded by bank as a charge)

Instructions
Calculate the amount of the April 30:
1. Deposits in transit
2. Outstanding checks


Click here for the solution: David deposits all receipts and makes all payments by check

The PCAOB has the authority to set audit standards for all audits of public companies

2-60. (Audit Standards for NonPublic Companies, LO 5, 9, 10) The PCAOB has the authority to set audit standards for all audits of public companies. The AICPA continues to set audit standards for nonpublic companies through its auditing standards board.

Required:
a. What are the pros and cons of having the same audit standards for both public and nonpublic entities?
b. In what ways might you expect auditing standards for audits of nonpublic companies to differ from the standards for public companies? Identify three (there are not necessarily three right or wrong answers-this is an opinion and discussion question only). Identify the rationale for your answers.
c. A CPA is performing an audit of a local municipality. Where should the auditor look to determine audit standards that must be followed?
d. What role should an audit committee play in determining which standards an audit firm will use in auditing their company? Explain.


Click here for the solution: The PCAOB has the authority to set audit standards for all audits of public companies

The client has presented all required financial statements with the exception of the statement of cash flows

MULTIPLE CHOICE

Question 1
The client has presented all required financial statements with the exception of the statement of cash flows. The auditor has completed the audit and is satisfied that all other statements are presented fairly. The auditor:

Question 2
A CPA may wish to emphasize specific matters regarding the financial statements even though an unqualified opinion will be issued. Normally, such explanatory information is:

Question 3
Examples of unqualified opinions which contain modified wording (without adding an explanatory paragraph) include:

Question 4
When the auditor determines the financial statements are fairly stated and then determines that the auditor lacks independence, the auditor should issue:

Question 5
Which of the following is not a change that affects consistency and, therefore, does not
require an explanatory paragraph?

Question 6
The audit report date on a standard unqualified report indicates:

Question 7
GAAP requires that changes in accounting principles be to a:

Question 8
If the balance sheet of a company is dated December 31, 2009, the audit report is dated February 8, 2010, and both are released on February 15, 2010, this indicates that the auditor has searched for subsequent events that occurred up to:

Question 9
The purpose of the introductory paragraph in the standard unqualified report is:

Question 10
The introductory paragraph of the standard audit report states that the auditor is:


Click here for the solution: The client has presented all required financial statements with the exception of the statement of cash flows

An internal control system consists of all policies and procedures used to protect assets, ensure reliable accounting

ACC 225 Week 8

Quick Study Exercise 8-1

An internal control system consists of all policies and procedures used to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies.
1. What is the main objective of internal control procedures, and how is it achieved?
2. Why should recordkeeping for assets be separated from custody over the assets?
3. Why should the responsibility for a transaction be divided between two or more individuals or departments?


Click here for the solution: An internal control system consists of all policies and procedures used to protect assets, ensure reliable accounting

Garber, Inc. accounts for all sales of its merchandise on the installment basis

Garber, Inc. accounts for all sales of its merchandise on the installment basis. Following is the unadjusted trial balance at 12/31/12:

Cash $ 90,200
Installment Accounts Receivable—2010 170,000
Installment Accounts Receivable—2011 400,000
Installment Accounts Receivable—2012 750,000
Inventory, 1/1/12 78,000
Repossessed Merchandise 22,000
Accounts Payable $ 136,000
Deferred Gross Profit—2010 84,000
Deferred Gross Profit—2011 195,000
Capital Stock 600,000
Retained Earnings 406,200
Installment Sales 1,000,000
Purchases 758,000
Loss on Repossession 3,000
Operating Expenses 150,000
$2,421,200 $2,421,200

Additional Data: 2010 Gross Profit Rate = 30%; Inventory 12/31/12 = $158,000;
Repossessed merchandise 12/31/12 = $15,000;
Merchandise sold in 2011 was repossessed in 2012 and the following entry was prepared (assume correctly):
Deferred Gross Profit—2011 15,000
Repossessed Merchandise 22,000
Loss on Repossession 3,000
Installment Accounts Receivable—2011 40,000

Instructions
(a) Determine collections during 2012 on Installment A/R for each of the years 2010, 2011, and 2012.

(b) Without prejudice to your answer in Part (a), assume that total collections on Installment Accounts Receivable during 2012 were $1,060,000; $220,000 from 2010, $300,000 from 2011, and $540,000 from 2012. Prepare all necessary adjusting and closing entries at 12/31/12.


Click here for the solution: Garber, Inc. accounts for all sales of its merchandise on the installment basis

Goldenrod Warehouse distributes hardback books to retail stores and extends credit terms of 2/10, n/30 to all of its customers

P5-2A Goldenrod Warehouse distributes hardback books to retail stores and extends credit terms of 2/10, n/30 to all of its customers. During the month of June the following merchandising transactions occurred.

June 1 Purchased books on account for $960 (including freight) from Barnum Publishers, terms 2/10, n/30.
3 Sold books on account to the Flint Hills bookstore for $1,200 each. The cost of the merchandise sold was $720.
6 Received $60 credit for books returned to Barnum Publishers.
9 Paid Barnum Publishers in full.
15 Received payment in full from the Flint Hills bookstore.
17 Sold books on account to Town Crier Bookstore for $1,400. The cost of the merchandise sold was $840.
20 Purchased books on account for $720 from Good Book Publishers, terms 1/15, n/30.
24 Received payment in full from Town Crier Bookstore.
26 Paid Good Book Publishers in full.
28 Sold books on account to HomeTown Bookstore for $1,300. The cost of the merchandise sold was $780.
30 Granted HomeTown Bookstore $150 credit for books returned costing $90.

Instructions
Journalize the transactions for the month of June for Goldenrod Warehouse, using a perpetual inventory system.


Click here for the solution: Goldenrod Warehouse distributes hardback books to retail stores and extends credit terms of 2/10, n/30 to all of its customers

Dillon, a U.S. citizen, resides in Country K for all of 2010

C:16-44 Foreign-Earned Income Exclusion. Dillon, a U.S. citizen, resides in Country K for all of 2010. Dillon is married, files a joint return and claims two personal exemptions. The following items pertain to his 2010 activities:

Salary and allowances (other than for housing) a $175,000
Housing allowance 28,000
Employment-related expenses b 7,500
Housing costs 30,000
Other itemized deductions 4,000
Country K income taxes 12,000

a) All of Dillon’s salary and allowances are attributable to services performed in Country K.
b) Dillon claims the employment-related expenses as itemized deductions.
What is Dillon’s net U.S. tax liability for 2010 (assume that Dillon excludes his earned income and housing cost amount)?


Click here for the solution: Dillon, a U.S. citizen, resides in Country K for all of 2010

Wilmington Chemical Company manufactures specialty chemicals by a series of three processes, all materials being introduced in the Distilling Department

PR 20-3A Wilmington Chemical Company manufactures specialty chemicals by a series of three processes, all materials being introduced in the Distilling Department. From the Distilling Department, the materials pass through the Reaction and Filling Departments, emerging as finished chemicals. The balance in the account Work in Process - Filling was as follows on December 1, 2010:

AND SO ON

INSTRUCTIONS:
1. Prepare a cost of production report for the Filling department for December.
2. Journalize the entries for costs transferred from Reaction to Filling and the cost transferred from filling to finished goods.
3. Determine the increase or decrease in the cost per equivalent unit from November to December for direct materials and conversion costs.
4. Discuss the uses of the cost of production report and the results of part (3).


Click here for the solution: Wilmington Chemical Company manufactures specialty chemicals by a series of three processes, all materials being introduced in the Distilling Department

Blue & Noble is a small law firm that does all of its business through billings (no cash sales)

Blue & Noble is a small law firm that does all of its business through billings (no cash sales). Historically, the firm has collected 40% of its revenue in the month of billing, 50% during the first month after billing, and 8% during the second month after billing. Two percent typically remains uncollectible. Revenue projections for the coming year are $47,500 for January and $50,000 for February. Cash receipts of $50,600 are expected in March. What revenues are projected for March?


Click here for the solution: Blue & Noble is a small law firm that does all of its business through billings (no cash sales)

Jerry transfers property having a $32,000 adjusted basis and a $50,000 FMV to Emerald Corporation in exchange for all of Emerald’s stock

C:2-44. Jerry transfers property having a $32,000 adjusted basis and a $50,000 FMV to Emerald Corporation in exchange for all of Emerald’s stock worth $15,000 and Emerald’s assumption of a $35,000 mortgage on the property.

a. What is the amount of Jerry’s recognized gain or loss?
b. What is Jerry’s basis in the Emerald stock?
c. What is Emerald’s basis in the property?
d. How would your answers to Parts a through c change if the mortgage assumed by Emerald were $15,000 and the Emerald stock were worth $35,000?


Click here for the solution: Jerry transfers property having a $32,000 adjusted basis and a $50,000 FMV to Emerald Corporation in exchange for all of Emerald’s stock

The cost of inventory reported on the balance sheet may include the cost of all the following EXCEPT

MULTIPLE CHOICE

1. The cost of inventory reported on the balance sheet may include the cost of all the following EXCEPT: (Points : 2)

2. The one cost that would be classified as part of both prime cost and conversion cost would be: (Points : 2)

3. Which of the following is NOT one of the three major customer value propositions discussed in the text? (Points : 2)

4. Which of the following is NOT a period cost? (Points : 2)

5. A plant manufactures several different products. The wages of the maintenance staff in the plant can be classified as a (an): (Points : 2)

6. Consider the following costs incurred in a recent period:
Direct materials $33,000
Depreciation on factory equipment $12,000
Factory janitor's salary $23,000
Direct labor $28,000
Utilities for factory $9,000
Selling expense $16,000
Production supervisor's salary $34,000
Administrative expenses $21,000
What was the total amount of the period costs listed above for the period?
(Points : 2)

7. Which of the following statements refers to management accounting information? (Points : 2)

8. The Institute of Management Accountants (IMA): (Points : 2)

9. Financial accounting: (Points : 2)

10. All of the following are characteristics of a pull production system EXCEPT: (Points : 2)

11. Conversion costs consist of: (Points : 2)

12. ____________ is an example of a line position. (Points : 2)

13. The accounting process is constrained by mandated reporting requirements by all of the following organizations EXCEPT the: (Points : 2)

14. The person MOST likely to use management accounting information is a(n): (Points : 2)

15. Which of the following types of information are used in management accounting? (Points : 2)

16. The Institute of Management Accountants' Standards of Ethical Conduct contains a policy regarding confidentiality that requires that management accountants: (Points : 2)

17. Manufacturing costs include: (Points : 2)

18. Which of the following groups would be LEAST likely to receive detailed management accounting reports? (Points : 2)

19. Which of the following is NOT one of the Institute of Management Accountants' five Standards of Ethical Conduct? (Points : 2)

20. Management accounting information can be used for all of the following except: (Points : 2)


Click here for the solution: The cost of inventory reported on the balance sheet may include the cost of all the following EXCEPT

The Sarbanes-Oxley Act requires that all US corporations under the jurisdiction of the Securities and Exchange Commission

MULTIPLE CHOICE

1. The Sarbanes-Oxley Act requires that all US corporations under the jurisdiction of the Securities and Exchange Commission

2. The control principle related to NOT having the same person authorize and pay for goods is known as

3. Maximum benefit from independent internal verification is obtained when

4. Allowing only designated personnel to handle cash receipts is an example of

5. Storing cash in a company safe is an application of which internal control principle?

6. Reconciling the bank statement monthly is an example of

7. A voucher system is a series of prescribed control procedures

8. The size of the petty cash fund is dependent on

9. A $100 petty cash fund has cash of $18 and receipts of $86. The journal entry to replenish the account would include a

10. A check returned by the bank marked “NSF” means

11. A bank reconciliation should be prepared

12. Deposits in transit

13. When making a payment from the petty cash fund for postage stamps, the following journal entry is made

14. A bank may issue a credit memorandum for

15. Cash equivalents are highly liquid investments that can be converted into a specific amount of cash with maturities of

16. Interest is usually associated with

17. Which of the following would require a compound journal entry?

18. If a company fails to record estimated bad debts expense

19. The existing balance in Allowance for Doubtful Accounts is considered in computing bad debts expense in the

20. An aging of a company’s accounts receivables indicates that $9,000 are estimated to be uncollectable. If Allowance for Doubtful Accounts has a $1,100 credit balance, the adjustment to record bad debts for the period will require a

21. A reasonable amount of uncollectible accounts is evidence

22. Bad debt Expense is reported on the income statement as

23. Two bases for estimating uncollectible accounts are

24. Using the percentage of receivables method for recording bad debt expense, estimated uncollectible accounts are $25,000. If the balance of the Allowance for Doubtful Accounts is $8000 debit before adjustment, what is the amount of bad debts expense for that period?

25. The sale of receivables by a business

26. A company regularly sales its receivables to a factor who assesses a 2% service charge on the amount of receivables purchased. Which of the following statements is true for the seller of the receivables

27. The interest on a $2,000, 6%, 90 day note receivable is

28. A note receivable is a negotiable instrument which

29. When a note is accepted to settle an open account, Notes receivables is debited for the note’s

30. Which of the following are also called trade receivables?


Click here for the solution: The Sarbanes-Oxley Act requires that all US corporations under the jurisdiction of the Securities and Exchange Commission

Corporations invest in other companies for all of the following reasons except to

1) Corporations invest in other companies for all of the following reasons except to

2) A typical investment to house excess cash until needed is

3) Pension funds and mutual funds regularly invest in debt and stock securities to

4) On January 1, 2008, Turner Company purchased at face value, a $1,000, 7% bond that pays interest on January 1 and July 1. Turner Company has a calendar year end.
The entry for the receipt of interest on July 1, 2008, is

5) If a short-term debt investment is sold, the Investment account is

6) Steven Co. purchased 30, 6% Johnston Company bonds for $30,000 cash plus brokerage fees of $300. Interest is payable semiannually on July 1 and January 1. The entry to record the December 31 interest accrual would include a

7) If an investor owns less than 20% of the common stock of another corporation as a long-term investment,

8) If the equity method is being used, cash dividends received

9) If one company owns more than 50% of the common stock of another company,

10) The contra-account, Market Adjustment, is also called a(n)

11) The balance in the Unrealized Loss—Equity account will

12) If the cost of an available-for-sale security exceeds its fair value by $40,000, the entry to recognize the loss

13) Which of the following is a major difference when accounting for long-term debt investments versus short-term debt investments?

14) A company that acquires less than 20% ownership interest in another company should account for the stock investment in that company using

15) Securities bought and held primarily for sale in the near term to generate income on short-term price differences are

Click here for the solution: Corporations invest in other companies for all of the following reasons except to

Use the assets and partners’ bases from Problem 28. Assume the partnership distributes all its assets in a liquidating distribution

Use the assets and partners’ bases from Problem 28. Assume the partnership distributes all its assets in a liquidating distribution. In deciding the allocation of assets, what issues should the partnership consider to minimize each partner’s taxable gains?

Click here for the solution: Use the assets and partners’ bases from Problem 28. Assume the partnership distributes all its assets in a liquidating distribution

(Bank reconciliation and entries) Oneida Furniture Company deposits all cash receipts each Wednesday and Friday in a night depository, after banking hours

PR 8-5A Bank reconciliation and entries

Oneida Furniture Company deposits all cash receipts each Wednesday and Friday in a night depository, after banking hours. The data required to reconcile the bank statement as of June 30 have been taken from various documents and records and are reproduced as follows. The sources of the data are printed in capital letters. All checks were written for payments on account.

AND SO ON

Instructions
1. Prepare a bank reconciliation as of June 30. If errors in recording deposits or checks are discovered, assume that the errors were made by the company. Assume that all deposits are from cash sales. All checks are written to satisfy accounts payable.
2. Journalize the necessary entries. The accounts have not been closed.
3. What is the amount of Cash that should appear on the balance sheet as of June 30?
4. Assume that a canceled check for $270 has been incorrectly recorded by the bank as $720. Briefly explain how the error would be included in a bank reconciliation and how it should be corrected.

Check: 1. Adjusted Balance: $13,900.50

Click here for the solution: (Bank reconciliation and entries) Oneida Furniture Company deposits all cash receipts each Wednesday and Friday in a night depository, after banking hours