E21-2 Lessee Accounting Issues
The Sax Company signs a lease agreement dated January 1, 2010 that provides for it to lease computers from the Appleton Company beginning January 1, 2010. The lease terms, provision, and related events are as follows:
a)The lease term is five years. The lease is non-cancelable and requires equal rental payments to be made at the end of each year.
b)The computers have an estimated life of five years, a fair value of $300,000, and a zero estimated residual value.
c) Sax Company agrees to pay all executor costs.
d) The lease contains no renewal or bargain purchase option.
e) The annual payment is set by Appleton at $83,222.92 to earn a rate of return of 12% on its net investment. The Sax Company is aware of this rate, which is equal to its borrowing rate.
f) Sax Company uses the straight-line method to record depreciation on similar equipment.
REQUIRED:
1. Determine what type of lease this is for Sax Company.
2. Calculate the amount of the asset and liability of the Sax Company at the inception of the lease (round to the nearest dollar).
Click here for the solution: The Sax Company signs a lease agreement dated January 1, 2010 that provides for it to lease computers from the Appleton Company beginning January 1, 2010
Showing posts with label beginning. Show all posts
Showing posts with label beginning. Show all posts
Tuesday, April 12, 2016
On January 1, 2010, the Alice Company leases equipment for five years, agreeing to pay $70,000 annually at the beginning of each year under the non-cancelable lease
P21-1 Determining Type of Lease and Subsequent Accounting
On January 1, 2010, the Alice Company leases equipment for five years, agreeing to pay $70,000 annually at the beginning of each year under the non-cancelable lease. Superior Equipment Company, the lessor, agrees to pay $70,000 annually at the beginning of each year under the non-cancelable lease. Superior Equipment Company, the lessor, agrees to pay all executor costs, estimated to be $3,450 per year. The cost and also fair value of the equipment is 305,000. Its estimated life is 10 years. The estimated residual value at the end of five years is $64,000 and is not guaranteed by Alice; at the end of 10 years, it is $5,000. There is no bargain purchase option in the lease or any agreement to transfer ownership at the end of the lease to the lessee. The implicit interest rate is 12%. During 2010, Superior Equipment pays property taxes of $650, maintenance costs of $1,600, and insurance of $1,200. There are no important uncertainties surrounding the amount of un-reimbursable costs yet to be incurred by the lessor. Straight-line depreciation is considered the appropriate method both companies.
REQUIRED:
1.Identify the type of lease involved for Alice Company and Superior Equipment Company and give reasons for your classifications.
2.Prepare appropriate journal entries for 2010 for the lessee and lessor.
3.If the residual value at the end of five years is guaranteed by Alice, identify the type of lease. Prepare journal entries for 2010 and 2011 for the lessee and lessor. Also prepare the journal entries for the lessee and the lessor when the lessee pays the guaranteed residual value.
Click here for the solution: On January 1, 2010, the Alice Company leases equipment for five years, agreeing to pay $70,000 annually at the beginning of each year under the non-cancelable lease
On January 1, 2010, the Alice Company leases equipment for five years, agreeing to pay $70,000 annually at the beginning of each year under the non-cancelable lease. Superior Equipment Company, the lessor, agrees to pay $70,000 annually at the beginning of each year under the non-cancelable lease. Superior Equipment Company, the lessor, agrees to pay all executor costs, estimated to be $3,450 per year. The cost and also fair value of the equipment is 305,000. Its estimated life is 10 years. The estimated residual value at the end of five years is $64,000 and is not guaranteed by Alice; at the end of 10 years, it is $5,000. There is no bargain purchase option in the lease or any agreement to transfer ownership at the end of the lease to the lessee. The implicit interest rate is 12%. During 2010, Superior Equipment pays property taxes of $650, maintenance costs of $1,600, and insurance of $1,200. There are no important uncertainties surrounding the amount of un-reimbursable costs yet to be incurred by the lessor. Straight-line depreciation is considered the appropriate method both companies.
REQUIRED:
1.Identify the type of lease involved for Alice Company and Superior Equipment Company and give reasons for your classifications.
2.Prepare appropriate journal entries for 2010 for the lessee and lessor.
3.If the residual value at the end of five years is guaranteed by Alice, identify the type of lease. Prepare journal entries for 2010 and 2011 for the lessee and lessor. Also prepare the journal entries for the lessee and the lessor when the lessee pays the guaranteed residual value.
Click here for the solution: On January 1, 2010, the Alice Company leases equipment for five years, agreeing to pay $70,000 annually at the beginning of each year under the non-cancelable lease
Tuesday, November 10, 2015
The beginning inventory for Waldo Co and data on purchases and sales for a three-month period are shown in Problem 7-1A
PR 7-2A LIFO Perpetual Inventory
The beginning inventory for Waldo Co and data on purchases and sales for a three-month period are shown in Problem 7-1A.
Instructions
1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 4, using the last-in, first-out method.
2. Determine the total sales, the total cost of merchandise sold, and the gross profit from sales for the period.
3. Determine the ending inventory cost.
Click here for the solution: The beginning inventory for Waldo Co and data on purchases and sales for a three-month period are shown in Problem 7-1A
The beginning inventory for Waldo Co and data on purchases and sales for a three-month period are shown in Problem 7-1A.
Instructions
1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 4, using the last-in, first-out method.
2. Determine the total sales, the total cost of merchandise sold, and the gross profit from sales for the period.
3. Determine the ending inventory cost.
Click here for the solution: The beginning inventory for Waldo Co and data on purchases and sales for a three-month period are shown in Problem 7-1A
Sunday, September 27, 2015
Jones Company had 100 units in beginning inventory at a total cost of $10,000
E6-7 Jones Company had 100 units in beginning inventory at a total cost of $10,000. The company purchased 200 units at a total cost of $26,000. At the end of the year, Jones had 80 units in ending inventory.
Instructions
(a) Compute the cost of the ending inventory and the cost of goods sold under (1) FIFO, (2) LIFO, and (3) average-cost.
(b) Which cost flow method would result in the highest net income?
(c) Which cost flow method would result in inventories approximating current cost in the balance sheet?
(d) Which cost flow method would result in Jones paying the least taxes in the first year?
Click here for the solution: Jones Company had 100 units in beginning inventory at a total cost of $10,000
Instructions
(a) Compute the cost of the ending inventory and the cost of goods sold under (1) FIFO, (2) LIFO, and (3) average-cost.
(b) Which cost flow method would result in the highest net income?
(c) Which cost flow method would result in inventories approximating current cost in the balance sheet?
(d) Which cost flow method would result in Jones paying the least taxes in the first year?
Click here for the solution: Jones Company had 100 units in beginning inventory at a total cost of $10,000
Friday, September 25, 2015
At the beginning of 2012, the Jeater Company had the following balances in its accounts
Problem 3-25 Comprehensive Cycle Problem
At the beginning of 2012, the Jeater Company had the following balances in its accounts:
Cash $4,300
Inventory 9,000
Common Stock 10,000
Retained Earnings 3,300
During 2012, the economy experienced the following events:
1. Purchased inventory that cost $2,200 on account from Blue Company under terms 1/10, n/30. The merchandise was delivered FOB shipping point . Freight costs of $110 were paid in cash.
2. Returned $200 of the inventory that it had purchased because the inventory was damaged in transit. The freight company agreed to pay the return freight cost.
3. Paid the amount due on its accounts payable to blue company within the cash discount period.
4. Sold inventory that had cost $3,000 for $5,500 on account under terms 2/10 n/45
5. Received merchandise returned from a customer . The merchandise originally cost $400 and was sold to the customer for $710 cash during the previous accounting period. the coustomer was paid $710 cash for the returned merchandise.
6. Delivered goods FOB destination in event 4. Freight cost of $60 were paid in cash.
7. Collected the amount due on the account receivable within the discount period.
8. Took a physical count indicating that $7,970 of inventory was on hand at the end of the accounting period.
A. Identify these events as asset source (as) asset use (ua) asset exchange (ae) or claims exchange (ce)
B. Record each event in a statements model like the following one.
balance sheet income statement
[event] assets = liab. = equity rev.-exp.= net inc. [statement of cash flows]
cash +accts. rec + mdse.inv = accts pay. + ret earn.
c. Prepare an income statement, a statement of changes in stockholders equity, a balance sheet and a statement of cash flows.
Click here for the solution: At the beginning of 2012, the Jeater Company had the following balances in its accounts
At the beginning of 2012, the Jeater Company had the following balances in its accounts:
Cash $4,300
Inventory 9,000
Common Stock 10,000
Retained Earnings 3,300
During 2012, the economy experienced the following events:
1. Purchased inventory that cost $2,200 on account from Blue Company under terms 1/10, n/30. The merchandise was delivered FOB shipping point . Freight costs of $110 were paid in cash.
2. Returned $200 of the inventory that it had purchased because the inventory was damaged in transit. The freight company agreed to pay the return freight cost.
3. Paid the amount due on its accounts payable to blue company within the cash discount period.
4. Sold inventory that had cost $3,000 for $5,500 on account under terms 2/10 n/45
5. Received merchandise returned from a customer . The merchandise originally cost $400 and was sold to the customer for $710 cash during the previous accounting period. the coustomer was paid $710 cash for the returned merchandise.
6. Delivered goods FOB destination in event 4. Freight cost of $60 were paid in cash.
7. Collected the amount due on the account receivable within the discount period.
8. Took a physical count indicating that $7,970 of inventory was on hand at the end of the accounting period.
A. Identify these events as asset source (as) asset use (ua) asset exchange (ae) or claims exchange (ce)
B. Record each event in a statements model like the following one.
balance sheet income statement
[event] assets = liab. = equity rev.-exp.= net inc. [statement of cash flows]
cash +accts. rec + mdse.inv = accts pay. + ret earn.
c. Prepare an income statement, a statement of changes in stockholders equity, a balance sheet and a statement of cash flows.
Click here for the solution: At the beginning of 2012, the Jeater Company had the following balances in its accounts
Friday, September 18, 2015
Rick Company’s beginning inventory and purchases during the fiscal year ended December 31, 2012, were as follows
7. Rick Company’s beginning inventory and purchases during the fiscal
year ended December 31, 2012, were as follows: (Note: The company uses a
perpetual system of inventory.)
Units Unit Price Total Cost
January 1—Beginning inventory 18 $24 $432
March 12—Sold 13
April 11—Purchase 45 $29 $1,305
June 20—Sold 33
Aug 16—Purchase 35 $27 $945
Sept 11—Sold 29
Total Cost of Inventory
Ending inventory is 23 units. $2,682
What is the cost of goods sold for Rick Company for 2012 using LIFO?
Click here for the solution: Rick Company’s beginning inventory and purchases during the fiscal year ended December 31, 2012, were as follows
Units Unit Price Total Cost
January 1—Beginning inventory 18 $24 $432
March 12—Sold 13
April 11—Purchase 45 $29 $1,305
June 20—Sold 33
Aug 16—Purchase 35 $27 $945
Sept 11—Sold 29
Total Cost of Inventory
Ending inventory is 23 units. $2,682
What is the cost of goods sold for Rick Company for 2012 using LIFO?
Click here for the solution: Rick Company’s beginning inventory and purchases during the fiscal year ended December 31, 2012, were as follows
Sunday, September 13, 2015
The following trial balance was taken from the records of Wheaton Manufacturing Company at the beginning of 2012
11-18A The following trial balance was taken from the records of Wheaton Manufacturing Company at the beginning of 2012.
Cash 9,400
Raw Material inventory $750
Work in process inventory $1,200
Finished goods inventory $2,100
Property, plant, and equip.$7,500
Accumulated depreciation $3,000
Common Stocks $7,800
Retained earnings $10,150
Total $20,950 $20,950
a. Open T-accounts with the beginning balance shown from the list above and record all transactions for the year including closing entries in the t-account
b. Prepare a schedule of cost of goods manufactured and sold, and income statement, and balance sheet.
1. Wheaton Purchased $5,700 of direct raw materials and $300 of indirect raw material on account. The indirect materials are capitalized in the Production Supplies account. Materials requisitions showed that $5,400 of direct raw materials had been used for production during the period. The use of indirect materials is determined at the end of the year by physically counting the supplies on hand.
2. By the end of the year, $5,250 of the accounts payable had been paid in cash
3. During the year. direct labor amounted to 950 hours recorded in the wages payable account at $10.50 per hour
4. By the end of the year $9,000 of wages payable had been in cash
5. At the beginning of the year, the company expected overhead cost for the period to be $6,300 and 1,000 direct labor hours to be worked. Overhead is allocated based on direct labor hours, which as indicated in event 3 amounted to 950 for the year.
6. Selling and administrative expense for the year amounted to $900 paid in cash
7. Utilities and rent for production facilities amounted to $4,650 paid in cash
8. Depreciation on the plant and equip. used in production amounted to $1,500
9. There was $12,000 of goods completed during the year
10. There was $12,750 of finished goods inventory sold for $18,000 cash
11. A count of the production supplies revealed a balance of $89 on hand at the end of the year
12. Any over or under-applied overhead is considered to be insignificant.
Click here for the solution: The following trial balance was taken from the records of Wheaton Manufacturing Company at the beginning of 2012
Cash 9,400
Raw Material inventory $750
Work in process inventory $1,200
Finished goods inventory $2,100
Property, plant, and equip.$7,500
Accumulated depreciation $3,000
Common Stocks $7,800
Retained earnings $10,150
Total $20,950 $20,950
a. Open T-accounts with the beginning balance shown from the list above and record all transactions for the year including closing entries in the t-account
b. Prepare a schedule of cost of goods manufactured and sold, and income statement, and balance sheet.
1. Wheaton Purchased $5,700 of direct raw materials and $300 of indirect raw material on account. The indirect materials are capitalized in the Production Supplies account. Materials requisitions showed that $5,400 of direct raw materials had been used for production during the period. The use of indirect materials is determined at the end of the year by physically counting the supplies on hand.
2. By the end of the year, $5,250 of the accounts payable had been paid in cash
3. During the year. direct labor amounted to 950 hours recorded in the wages payable account at $10.50 per hour
4. By the end of the year $9,000 of wages payable had been in cash
5. At the beginning of the year, the company expected overhead cost for the period to be $6,300 and 1,000 direct labor hours to be worked. Overhead is allocated based on direct labor hours, which as indicated in event 3 amounted to 950 for the year.
6. Selling and administrative expense for the year amounted to $900 paid in cash
7. Utilities and rent for production facilities amounted to $4,650 paid in cash
8. Depreciation on the plant and equip. used in production amounted to $1,500
9. There was $12,000 of goods completed during the year
10. There was $12,750 of finished goods inventory sold for $18,000 cash
11. A count of the production supplies revealed a balance of $89 on hand at the end of the year
12. Any over or under-applied overhead is considered to be insignificant.
Click here for the solution: The following trial balance was taken from the records of Wheaton Manufacturing Company at the beginning of 2012
Tuesday, September 8, 2015
At the beginning of the current season on April 1, the ledger of Wichita Pro Shop showed Cash $2,500
P5-9A At the beginning of the current season on April 1, the ledger of Wichita Pro Shop showed Cash $2,500; Merchandise Inventory $3,500; and Common Stock $6,000. These transactions occurred during April, 2010.
Apr. 5 Purchased golf bags, clubs and balls on account from Roland Co. $1,500, terms 3/10, n/60.
7 Paid freight on Roland Co. purchases $80.
9 Received credit from Roland Co. for merchandise returned $200.
10 Sold merchandise on account to members $910, terms n/30.
12 Purchased golf shoes, sweaters, and other accessories on account from Eagle Sportswear $830, terms 1/10, n/30.
14 Paid Roland Co. in full.
17 Received credit from Eagle Sportswear for merchandise returned $30.
20 Made sales on account to members $810, terms n/30.
21 Paid Eagle Sportswear in full.
27 Granted credit to members for clothing that did not fit $60.
30 Received payments on account from members $1,100.
Instructions
(a) Journalize the April transactions using a periodic inventory system.
(b) Using T-accounts, enter the beginning balances in the ledger accounts and post the April transactions
(c) Prepare a trial balance on April 30, 2010.
(d) Prepare an income statement through gross profit.
Click here for the solution: At the beginning of the current season on April 1, the ledger of Wichita Pro Shop showed Cash $2,500
Apr. 5 Purchased golf bags, clubs and balls on account from Roland Co. $1,500, terms 3/10, n/60.
7 Paid freight on Roland Co. purchases $80.
9 Received credit from Roland Co. for merchandise returned $200.
10 Sold merchandise on account to members $910, terms n/30.
12 Purchased golf shoes, sweaters, and other accessories on account from Eagle Sportswear $830, terms 1/10, n/30.
14 Paid Roland Co. in full.
17 Received credit from Eagle Sportswear for merchandise returned $30.
20 Made sales on account to members $810, terms n/30.
21 Paid Eagle Sportswear in full.
27 Granted credit to members for clothing that did not fit $60.
30 Received payments on account from members $1,100.
Instructions
(a) Journalize the April transactions using a periodic inventory system.
(b) Using T-accounts, enter the beginning balances in the ledger accounts and post the April transactions
(c) Prepare a trial balance on April 30, 2010.
(d) Prepare an income statement through gross profit.
Click here for the solution: At the beginning of the current season on April 1, the ledger of Wichita Pro Shop showed Cash $2,500
Saturday, August 22, 2015
At the beginning of 2009, Metatec Inc. acquired Ellison Technology Corporation for $600 million
P11-12 Depreciation and amortization; impairment
At the beginning of 2009, Metatec Inc. acquired Ellison Technology Corporation for $600 million. In addition to cash, receivables, and inventory, the following assets and their fair values were also acquired:
AND SO ON
The plant and equipment are depreciated over a 10-year useful life on a straight-line basis. There is no estimated residual value. The patent is estimated to have a 5-year useful life, no residual value, and is amortized using the straight-line method.
At the end of 2011, a change in business climate indicated to management that the assets of Ellison might be impaired. The following amounts have been determined:
*After first recording any impairment losses on plant and equipment and the patent.
Click here for the solution: At the beginning of 2009, Metatec Inc. acquired Ellison Technology Corporation for $600 million
At the beginning of 2009, Metatec Inc. acquired Ellison Technology Corporation for $600 million. In addition to cash, receivables, and inventory, the following assets and their fair values were also acquired:
AND SO ON
The plant and equipment are depreciated over a 10-year useful life on a straight-line basis. There is no estimated residual value. The patent is estimated to have a 5-year useful life, no residual value, and is amortized using the straight-line method.
At the end of 2011, a change in business climate indicated to management that the assets of Ellison might be impaired. The following amounts have been determined:
*After first recording any impairment losses on plant and equipment and the patent.
Click here for the solution: At the beginning of 2009, Metatec Inc. acquired Ellison Technology Corporation for $600 million
Monday, August 17, 2015
Lobster Company had a beginning inventory on January 1 of 150 units of Product BU-54 at a cost of $20 per unit
P6-3B Lobster Company had a beginning inventory on January 1 of 150 units of Product BU-54 at a cost of $20 per unit. During the year, the following purchases were made. Mar. 15, 400 units at $23 Sept. 4, 350 units at $26 July 20, 250 units at $24 Dec. 2, 100 units at $29 1,000 units were sold. Lobster Company uses a periodic inventory system.
Instructions
(a) Determine the cost of goods available for sale.
(b) Determine (1) the ending inventory, and (2) the cost of goods sold under each of the assumed cost flow methods (FIFO, LIFO, and average-cost). Prove the accuracy of the cost of goods sold under the FIFO and LIFO methods.
(c) Which cost flow method results in (1) the highest inventory amount for the balance sheet, and (2) the highest cost of goods sold for the income statement?
Click here for the solution: Lobster Company had a beginning inventory on January 1 of 150 units of Product BU-54 at a cost of $20 per unit
Instructions
(a) Determine the cost of goods available for sale.
(b) Determine (1) the ending inventory, and (2) the cost of goods sold under each of the assumed cost flow methods (FIFO, LIFO, and average-cost). Prove the accuracy of the cost of goods sold under the FIFO and LIFO methods.
(c) Which cost flow method results in (1) the highest inventory amount for the balance sheet, and (2) the highest cost of goods sold for the income statement?
Click here for the solution: Lobster Company had a beginning inventory on January 1 of 150 units of Product BU-54 at a cost of $20 per unit
Thursday, August 13, 2015
At the beginning of the 2010 school year, Britney Logan decided to prepare a cash budget for the months of September, October, November, and December
At the beginning of the 2010 school year, Britney Logan decided to prepare a cash budget for the months of September, October, November, and December. The budget must plan for enough cash on December 31 to pay the soring semester tuition, which is the same as the fall tuition. The following information relates to the budget:
Cash balance, September 1(from a summer job) $7,000
Purchase season football tickets in September 100
Additional entertainment for each month 250
Pay fall semester tuition on September 3 3,800
Pay rent at the beginning of each month 350
Pay for food each month 200
Pay apartment deposit on September 2(to be returned Dec 15) 500
Part-time job earnings each month (net of taxes) 900
a. Prepare a cash budget for September, October, November, and December.
b. Are the four monthly budgets that are presented prepared as static budgets or flexible budgets?
c. What are the budget implications for Britney Logan?
Click here for the solution: At the beginning of the 2010 school year, Britney Logan decided to prepare a cash budget for the months of September, October, November, and December
Cash balance, September 1(from a summer job) $7,000
Purchase season football tickets in September 100
Additional entertainment for each month 250
Pay fall semester tuition on September 3 3,800
Pay rent at the beginning of each month 350
Pay for food each month 200
Pay apartment deposit on September 2(to be returned Dec 15) 500
Part-time job earnings each month (net of taxes) 900
a. Prepare a cash budget for September, October, November, and December.
b. Are the four monthly budgets that are presented prepared as static budgets or flexible budgets?
c. What are the budget implications for Britney Logan?
Click here for the solution: At the beginning of the 2010 school year, Britney Logan decided to prepare a cash budget for the months of September, October, November, and December
At the beginning of 2009, the Healthy Life Food Company purchased equipment for $42 million to be used in the manufacture of a new line of gourmet frozen foods
Ethics Case 11-10; Asset impairment
At the beginning of 2009, the Healthy Life Food Company purchased equipment for $42 million to be used in the manufacture of a new line of gourmet frozen foods. The equipment was estimated to have a 10-year service life and no residual value. The straight-line depreciation method was used to measure depreciation for 2009 and 2010.
Late in 2011, it became apparent that sales of the new frozen food line were significantly below expectations. The company decided to continue production for two more years (2012 and 2013) and then discontinue the line. At that time, the equipment will be sold for minimal scrap values.
The controller, Heather Meyer, was asked by Harvey Dent, the company's chief executive officer (CEO), to determine the appropriate treatment of the change in service life of the equipment. Heather determined that there has been impairment of valued requiring an immediate write-down of the equipment of $12,900,000. The remaining book value would then be depreciate over the equipment's revised service life.
The CEO does not like Heather's conclusion because of the effect it would have on 2011 income. "Looks like a simple revision in service life from 10 years to 5 years." Dent concluded. "let's go with it that way, Heather."
Required:
1. What is the difference in before-tax income between the CEO's and Heather's treatment of the situation?
2. Discuss Heather Meyer's ethical dilemma.
Click here for the solution: At the beginning of 2009, the Healthy Life Food Company purchased equipment for $42 million to be used in the manufacture of a new line of gourmet frozen foods
At the beginning of 2009, the Healthy Life Food Company purchased equipment for $42 million to be used in the manufacture of a new line of gourmet frozen foods. The equipment was estimated to have a 10-year service life and no residual value. The straight-line depreciation method was used to measure depreciation for 2009 and 2010.
Late in 2011, it became apparent that sales of the new frozen food line were significantly below expectations. The company decided to continue production for two more years (2012 and 2013) and then discontinue the line. At that time, the equipment will be sold for minimal scrap values.
The controller, Heather Meyer, was asked by Harvey Dent, the company's chief executive officer (CEO), to determine the appropriate treatment of the change in service life of the equipment. Heather determined that there has been impairment of valued requiring an immediate write-down of the equipment of $12,900,000. The remaining book value would then be depreciate over the equipment's revised service life.
The CEO does not like Heather's conclusion because of the effect it would have on 2011 income. "Looks like a simple revision in service life from 10 years to 5 years." Dent concluded. "let's go with it that way, Heather."
Required:
1. What is the difference in before-tax income between the CEO's and Heather's treatment of the situation?
2. Discuss Heather Meyer's ethical dilemma.
Click here for the solution: At the beginning of 2009, the Healthy Life Food Company purchased equipment for $42 million to be used in the manufacture of a new line of gourmet frozen foods
Sunday, July 26, 2015
R&J Associates leased certain commercial real estate from T&C Associates, Inc., for a one-year period beginning May 1
R&J Associates leased certain commercial real estate from T&C
Associates, Inc., for a one-year period beginning May 1. The lease
required that T&C give R&J 10 days’ notice before canceling the
lease. R&J operated the leased premises as a bar that featured
seminude dancers but discontinued the business during the following
March when it lost a necessary dance permit. In late March and early
April, T&C noticed that the bar was not open and learned that
R&J had lost its permit. R&J was behind on its rent at this
time. Utility companies were seeking to shut off service to the premises
because R&J was also behind on its utility bills. When T&C
informed R&J that its monthly rent would be higher if it renewed the
lease, R&J said it had no interest in renewing. For the above
reasons, T&C took possession of the premises in April. T&C,
however, did not give R&J the 10 days’ notice referred to in the
lease. T&C leased the premises to a new tenant later that month. At
approximately the same time, R&J demanded the return of certain
personal property items it had left on the premises. T&C told
R&J to contact the new tenant, adding that there should be no
problem with the return of the items of personal property. R&J
contacted the new tenant, who told R&J to submit a list of its
personal property because other parties were also claiming rights to
what had been left on the premises. R&J did not submit this list and
did not contact T&C again about the personal property items. Later,
R&J sued T&C for conversion of the personal property. Did
R&J have a valid conversion claim?
Click here for the solution: R&J Associates leased certain commercial real estate from T&C Associates, Inc., for a one-year period beginning May 1
Click here for the solution: R&J Associates leased certain commercial real estate from T&C Associates, Inc., for a one-year period beginning May 1
Sunday, July 12, 2015
Eddings Company had a beginning inventory of 400 units of Product XNA at a cost of $8.00 per unit
P6-3A Eddings Company had a beginning inventory of 400 units of Product XNA at a cost of $8.00 per unit. During the year, purchases were:
Feb. 20 600 units at $9 Aug 12 300 units at $11
May 5 500 units at $10 Dec 8 200 units at $12
Instructions
a. Determine the cost of goods available for sale
b. Determine (1) the ending inventory, and (2) the cost of goods sold under each of the assumed cost flow methods (FIFO, LIFO, and average). Prove the accuracy of the cost of goods sold under the FIFO and LIFO methods.
c. Which cost flow method results in (1) the lowest inventory amount for the balance sheet, and (2) the lowest cost of goods sold for the income statement.
Click here for the solution: Eddings Company had a beginning inventory of 400 units of Product XNA at a cost of $8.00 per unit
Feb. 20 600 units at $9 Aug 12 300 units at $11
May 5 500 units at $10 Dec 8 200 units at $12
Instructions
a. Determine the cost of goods available for sale
b. Determine (1) the ending inventory, and (2) the cost of goods sold under each of the assumed cost flow methods (FIFO, LIFO, and average). Prove the accuracy of the cost of goods sold under the FIFO and LIFO methods.
c. Which cost flow method results in (1) the lowest inventory amount for the balance sheet, and (2) the lowest cost of goods sold for the income statement.
Click here for the solution: Eddings Company had a beginning inventory of 400 units of Product XNA at a cost of $8.00 per unit
At the beginning of the current season, the ledger of Village Tennis Shop showed Cash $2,500; Merchandise Inventory $1,700; and Common Stock $4,200
P5-7A At the beginning of the current season, the ledger of Village Tennis Shop showed Cash $2,500; Merchandise Inventory $1,700; and Common Stock $4,200. The following transactions were completed during April.
Apr. 4 Purchased racquets and balls from Denton Co. $740, terms 3/10, n/30.
6 Paid freight on Denton Co. purchase $60.
8 Sold merchandise to members $900, terms n/30.
10 Received credit of $40 from Denton Co. for a damaged racquet that was returned.
11 Purchased tennis shoes from Newbee Sports for cash $300.
13 Paid Denton Co. in full.
14 Purchased tennis shirts and shorts from Venus's Sportswear $600, terms 2/10, n/60.
15 Received cash refund of $50 from Newbee Sports for damaged merchandise that was returned.
17 Paid freight on Venus's Sportswear purchase $30.
18 Sold merchandise to members $1,000, terms n/30.
20 Received $500 in cash from members in settlement of their accounts.
21 Paid Venus's Sportswear in full.
27 Granted an allowance of $30 to members for tennis clothing that did not fit properly.
30 Received cash payments on account from members $500.
The chart of accounts for the tennis shop includes Cash; Accounts Receivable; Merchandise Inventory; Accounts Payable; Common Stock; Sales; Sales Returns and Allowances; Purchases; Purchase Returns and Allowances; Purchase Discounts; and Freight-in.
Instructions
(a) Journalize the April transactions using a periodic inventory system.
(b) Using T accounts, enter the beginning balances in the ledger accounts and post the April Transactions.
(c) Prepare a trial balance on April 30, 2008.
(d) Prepare an income statement through gross profit, assuming merchandise inventory on hand at April 30 is $2,296.
Click here for the solution: At the beginning of the current season, the ledger of Village Tennis Shop showed Cash $2,500; Merchandise Inventory $1,700; and Common Stock $4,200
Apr. 4 Purchased racquets and balls from Denton Co. $740, terms 3/10, n/30.
6 Paid freight on Denton Co. purchase $60.
8 Sold merchandise to members $900, terms n/30.
10 Received credit of $40 from Denton Co. for a damaged racquet that was returned.
11 Purchased tennis shoes from Newbee Sports for cash $300.
13 Paid Denton Co. in full.
14 Purchased tennis shirts and shorts from Venus's Sportswear $600, terms 2/10, n/60.
15 Received cash refund of $50 from Newbee Sports for damaged merchandise that was returned.
17 Paid freight on Venus's Sportswear purchase $30.
18 Sold merchandise to members $1,000, terms n/30.
20 Received $500 in cash from members in settlement of their accounts.
21 Paid Venus's Sportswear in full.
27 Granted an allowance of $30 to members for tennis clothing that did not fit properly.
30 Received cash payments on account from members $500.
The chart of accounts for the tennis shop includes Cash; Accounts Receivable; Merchandise Inventory; Accounts Payable; Common Stock; Sales; Sales Returns and Allowances; Purchases; Purchase Returns and Allowances; Purchase Discounts; and Freight-in.
Instructions
(a) Journalize the April transactions using a periodic inventory system.
(b) Using T accounts, enter the beginning balances in the ledger accounts and post the April Transactions.
(c) Prepare a trial balance on April 30, 2008.
(d) Prepare an income statement through gross profit, assuming merchandise inventory on hand at April 30 is $2,296.
Click here for the solution: At the beginning of the current season, the ledger of Village Tennis Shop showed Cash $2,500; Merchandise Inventory $1,700; and Common Stock $4,200
Tuesday, July 7, 2015
Blythe Industries Inc. expects to maintain the same inventories at the end of 2012 as at the beginning of the year
Blythe Industries Inc. expects to maintain the same inventories at the end of 2012 as at the beginning of the year. The total of all production costs for the year is therefore as, summed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates is as follows:
Estimated Estimated Variable Cost
Fixed Cost (per unit sold)
Production costs
Direct materials…………………………………… − $30
Direct Labor………………………………………. − 20
Factory overhead…………………………………. $340,000 11
Selling expenses:
Sales salaries and commissions ………………… 80,000 5
Advertising …………………………………….. 32,000 −
Travel …………………………………………… 8,000 −
Miscellaneous selling expense …………………. 7,000 5
Administrative expenses:
Office and officers’ salaries……………………... 120,000 −
Supplies ………………………………………… 8,000 2
Miscellaneous administrative expense ………… 4,400 2
Total ……………………………………………. $600,000 $75
It is expected that 8,000 units will be sold at a price of $200 a unit. Maximum sales within the relevant range are 9,000 units.
Instructions
1. Prepare an estimated income statement for 2012.
2. What is the expected contribution margin ratio?
3. Determine the break-even sales in units and dollars.
4. Construct a cost-volume-profit chart indicating the break-even Sales.
5. What is the expected margin of safety in dollars and as a percentage of sales?
6. Determine the operating leverage.
Click here for the solution: Blythe Industries Inc. expects to maintain the same inventories at the end of 2012 as at the beginning of the year
Estimated Estimated Variable Cost
Fixed Cost (per unit sold)
Production costs
Direct materials…………………………………… − $30
Direct Labor………………………………………. − 20
Factory overhead…………………………………. $340,000 11
Selling expenses:
Sales salaries and commissions ………………… 80,000 5
Advertising …………………………………….. 32,000 −
Travel …………………………………………… 8,000 −
Miscellaneous selling expense …………………. 7,000 5
Administrative expenses:
Office and officers’ salaries……………………... 120,000 −
Supplies ………………………………………… 8,000 2
Miscellaneous administrative expense ………… 4,400 2
Total ……………………………………………. $600,000 $75
It is expected that 8,000 units will be sold at a price of $200 a unit. Maximum sales within the relevant range are 9,000 units.
Instructions
1. Prepare an estimated income statement for 2012.
2. What is the expected contribution margin ratio?
3. Determine the break-even sales in units and dollars.
4. Construct a cost-volume-profit chart indicating the break-even Sales.
5. What is the expected margin of safety in dollars and as a percentage of sales?
6. Determine the operating leverage.
Click here for the solution: Blythe Industries Inc. expects to maintain the same inventories at the end of 2012 as at the beginning of the year
Wednesday, June 24, 2015
At the beginning of 2008, Lehman Company acquired equipment costing $90,000
Problem 10-4A (P10-4A) At the beginning
of 2008, Lehman Company acquired equipment costing $90,000. It was
estimated that this equipment would have a useful life of 6 years and a
residual value of $9,000 at the time. The straight-line method of
depreciation was considered the most appropriate to use with this type
of equipment. Depreciation is to be recorded at the end of each year.
Click here for the solution: At the beginning of 2008, Lehman Company acquired equipment costing $90,000
During 2010 (the third year of the equipment's life), the company's
engineers reconsidered their expectations, and estimated that the
equipment's useful life would probably be 7 years (in total) instead of 6
years. The estimated residual value was not changed at that time.
However, during the estimated 2013 the estimated residual Value was
reduced to $5,000.
Instructions:
Indicate how much depreciation expense should be recorded each year for this equipment, by completing the following table.
Instructions:
Indicate how much depreciation expense should be recorded each year for this equipment, by completing the following table.
Click here for the solution: At the beginning of 2008, Lehman Company acquired equipment costing $90,000
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