BYP 9-6 Robert Buey became Chief Executive Officer of Phelps Manufacturing two years ago. At the time, the company was reporting lagging profits, and Robert was brought in to "stir thing up." The company has three divisions, electronics, fiber optics, and plumbing supplies. Robert has no interest in plumbing supplies, and one of the first fixed costs away from the other two divisions to the plumbing division. This had the effect of causing the plumbing division to report losses during the last two years; in the past it had always reported low, but acceptable, net income. Robert felt that this reallocation would shine a favorable light on him in front of the board of directors because it meant that the electronics and fiber optics divisions would look like they were improving.
Given that these are "business of the future," he believed that the stock market would react favorably to these increase, while not penalizing the poor results of the plumbing division. Without this shift in the allocation of fixed costs, the profits of the electronics and fiber optics divisions would not have improved. But now the board of directors has suggested that the plumbing division be closed because it is reporting losses. This would mean that nearly 500 employees, many of whom have worked for Phelps their whole lives, would lose their jobs.
Instructions
(a) If a division is reporting losses, does that necessarily mean that it should be closed?
(b) Was the reallocation of fixed costs across division unethical?
(c)What should Robert do?
Click here for the solution: Robert Buey became Chief Executive Officer of Phelps Manufacturing two years ago
Showing posts with label years. Show all posts
Showing posts with label years. Show all posts
Monday, April 18, 2016
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
Peter M. Dell Co. purchased equipment for $510,000 which was estimated to have a useful life of 10 years with a salvage value of $10,000 at the end of that time
E22-11 (Change in Estimate—Depreciation) Peter M. Dell Co. purchased equipment for $510,000 which was estimated to have a useful life of 10 years with a salvage value of $10,000 at the end of that time. Depreciation has been entered for 7 years on a straight-line basis. In 2008, it is determined that the total estimated life should be 15 years with a salvage value of $5,000 at the end of that time.
Instructions
(a) Prepare the entry (if any) to correct the prior years’ depreciation.
(b) Prepare the entry to record depreciation for 2008.
Click here for the solution: Peter M. Dell Co. purchased equipment for $510,000 which was estimated to have a useful life of 10 years with a salvage value of $10,000 at the end of that time
Instructions
(a) Prepare the entry (if any) to correct the prior years’ depreciation.
(b) Prepare the entry to record depreciation for 2008.
Click here for the solution: Peter M. Dell Co. purchased equipment for $510,000 which was estimated to have a useful life of 10 years with a salvage value of $10,000 at the end of that time
On January 1, 2011, VKI Corporation awarded 12 million of its $1 par common shares to key personnel, subject to forfeiture if employment is terminated within three years
E 19-2 Restricted stock award plan
On January 1, 2011, VKI Corporation awarded 12 million of its $1 par common shares to key personnel, subject to forfeiture if employment is terminated within three years. On the grant date, the shares have a market price of $2.50 per share.
Required:
1. Determine the total compensation cost pertaining to the restricted shares.
2. Prepare the appropriate journal entry to record the award of restricted shares on January 1, 2011.
3. Prepare the appropriate journal entry to record compensation expense on December 31, 2011.
4. Prepare the appropriate journal entry to record compensation expense on December 31, 2012.
5. Prepare the appropriate journal entry to record compensation expense on December 31, 2013.
6. Prepare the appropriate journal entry to record the lifting of restrictions on the shares at December 31, 2013.
Click here for the solution: On January 1, 2011, VKI Corporation awarded 12 million of its $1 par common shares to key personnel, subject to forfeiture if employment is terminated within three years
On January 1, 2011, VKI Corporation awarded 12 million of its $1 par common shares to key personnel, subject to forfeiture if employment is terminated within three years. On the grant date, the shares have a market price of $2.50 per share.
Required:
1. Determine the total compensation cost pertaining to the restricted shares.
2. Prepare the appropriate journal entry to record the award of restricted shares on January 1, 2011.
3. Prepare the appropriate journal entry to record compensation expense on December 31, 2011.
4. Prepare the appropriate journal entry to record compensation expense on December 31, 2012.
5. Prepare the appropriate journal entry to record compensation expense on December 31, 2013.
6. Prepare the appropriate journal entry to record the lifting of restrictions on the shares at December 31, 2013.
Click here for the solution: On January 1, 2011, VKI Corporation awarded 12 million of its $1 par common shares to key personnel, subject to forfeiture if employment is terminated within three years
Sunday, October 4, 2015
Flint Tooling Company is considering replacing a machine that has been used in its factory for two years
PR 9-2A Flint Tooling Company is considering replacing a machine that has been used in its factory for two years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows:
OLD MACHINE
Cost of machine, eight year life $48,000
Annual depreciation (straight-line) 6,000
Annual manufacturing costs, excluding depreciation 14,500
Annual nonmanufacturing operating expenses 2,900
Annual revenue 29,600
Current estimated selling price of the machine 18,000
NEW MACHINE
Cost of the machine, six year life $58,500
Annual depreciation (straight-line) 9,750
Estimated annual manufacturing costs, exclusive of depreciation 5,200
Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine.
Instructions
1.Prepare a differential analysis report as of May 22, 2010, comparing operations utilizing the new machine with operations using the present equipment. The analysis should indicate the differential income that would result over the six-year period if the new machine is acquired.
2.List other factors that should be considered before a final decision is reached.
Click here for the solution: Flint Tooling Company is considering replacing a machine that has been used in its factory for two years
OLD MACHINE
Cost of machine, eight year life $48,000
Annual depreciation (straight-line) 6,000
Annual manufacturing costs, excluding depreciation 14,500
Annual nonmanufacturing operating expenses 2,900
Annual revenue 29,600
Current estimated selling price of the machine 18,000
NEW MACHINE
Cost of the machine, six year life $58,500
Annual depreciation (straight-line) 9,750
Estimated annual manufacturing costs, exclusive of depreciation 5,200
Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine.
Instructions
1.Prepare a differential analysis report as of May 22, 2010, comparing operations utilizing the new machine with operations using the present equipment. The analysis should indicate the differential income that would result over the six-year period if the new machine is acquired.
2.List other factors that should be considered before a final decision is reached.
Click here for the solution: Flint Tooling Company is considering replacing a machine that has been used in its factory for two years
Friday, September 25, 2015
For the past several years, Emily Page has operated a part-time consulting business from her home
PR 4-6A For the past several years, Emily Page has operated a part-time consulting business from her home. As of June 1, 2010, Emily decided to move to rented quarters and to operate the business, which was to be known as Bottom Line Consulting, on a full-time basis. Bottom Line Consulting entered into the following transactions during June:
June 1: The following assets were received from Emily Page: cash, $20,000; accounts receivable, $4,500, supplies, $2,000; and office equipment, $11,500. There were no liabilities received.
1. Paid three months rent on a lease rental contract, $6,000.
2. Paid the premiums on property casualty insurance policies, $2,400.
AND SO ON
Check: 8. Net Income $16,455
Click here for the solution: For the past several years, Emily Page has operated a part-time consulting business from her home
June 1: The following assets were received from Emily Page: cash, $20,000; accounts receivable, $4,500, supplies, $2,000; and office equipment, $11,500. There were no liabilities received.
1. Paid three months rent on a lease rental contract, $6,000.
2. Paid the premiums on property casualty insurance policies, $2,400.
AND SO ON
Check: 8. Net Income $16,455
Click here for the solution: For the past several years, Emily Page has operated a part-time consulting business from her home
Wednesday, September 23, 2015
The choice of eight years for straight-line depreciation of the company's trucks appears unreasonable
Audit Evidence and Conclusions for Various Fixed Asset Questions
Audit Conclusions or Situations
1. The choice of eight years for straight-line depreciation of the company's trucks appears unreasonable. I would suggest that the client change to a six-year life and use DDB depreciation.
2. Insurance coverage appears to be inadequate, because the client has chosen to carry only liability insurance on the cement trucks. There is no provision for collision or damage done to the trucks.
3. The client acquired a substantial piece of real estate from the town of Baraboo to build a warehouse in the town's new industrial complex. The land was donated to the company provided it maintains operations for a minimum of ten years and pays real estate taxes on its appraised value. The land is carried on the books at the fair market value at the time of donation of $250,000.
4. Several pieces of idle equipment were noted. It is recommended that the equipment be written down to the scrap value of $50,000 from the current net book value of $185,000.
5. The company has self-constructed the warehouse located in the town of Baraboo. It has capitalized all payroll expense directly related to construction of the project. The adjusting entry debited Building for $73,000 and credited Payroll Expense for the same amount.
6. The company completely overhauled ten of its trucks at a significant cost. The overhaul should extend the life of the trucks by at least three years. Because the company performs similar overhauls each year, the cost has been properly charged to repairs and maintenance.
7. The company sold 15 of its old trucks to Virgin Distributors, a new company owned by the brother of the company's chief executive officer. The equipment was old, and a gain of $70,000 on the sale was credited to income.
Required
a. For each conclusion or situation listed, identify the type of audit evidence needed to support the auditor's conclusion.
b. Briefly indicate the audit implications if the auditor's conclusion is justified.
Click here for the solution: The choice of eight years for straight-line depreciation of the company's trucks appears unreasonable
Audit Conclusions or Situations
1. The choice of eight years for straight-line depreciation of the company's trucks appears unreasonable. I would suggest that the client change to a six-year life and use DDB depreciation.
2. Insurance coverage appears to be inadequate, because the client has chosen to carry only liability insurance on the cement trucks. There is no provision for collision or damage done to the trucks.
3. The client acquired a substantial piece of real estate from the town of Baraboo to build a warehouse in the town's new industrial complex. The land was donated to the company provided it maintains operations for a minimum of ten years and pays real estate taxes on its appraised value. The land is carried on the books at the fair market value at the time of donation of $250,000.
4. Several pieces of idle equipment were noted. It is recommended that the equipment be written down to the scrap value of $50,000 from the current net book value of $185,000.
5. The company has self-constructed the warehouse located in the town of Baraboo. It has capitalized all payroll expense directly related to construction of the project. The adjusting entry debited Building for $73,000 and credited Payroll Expense for the same amount.
6. The company completely overhauled ten of its trucks at a significant cost. The overhaul should extend the life of the trucks by at least three years. Because the company performs similar overhauls each year, the cost has been properly charged to repairs and maintenance.
7. The company sold 15 of its old trucks to Virgin Distributors, a new company owned by the brother of the company's chief executive officer. The equipment was old, and a gain of $70,000 on the sale was credited to income.
Required
a. For each conclusion or situation listed, identify the type of audit evidence needed to support the auditor's conclusion.
b. Briefly indicate the audit implications if the auditor's conclusion is justified.
Click here for the solution: The choice of eight years for straight-line depreciation of the company's trucks appears unreasonable
For several years, a number of Food Lion, Inc., grocery stores were unprofitable
For several years, a number of Food Lion, Inc., grocery stores were
unprofitable. The company closed, and continues to close, some of these
locations. It is apparent that the company will not be able to recover
the cost of the assets associated with the closed stores. Thus, the
current value of these impaired assets must be written down.
A recent Food Lion income statement reports a $9.5 million charge against income pertaining to the write-down of impaired assets.
Instructions
a. Explain why Food Lion must write down the current carrying value of its unprofitable stores.
b. Explain why the recent $9.5 million charge to write down these impaired assets is considered a noncash expense.
Click here for the solution: For several years, a number of Food Lion, Inc., grocery stores were unprofitable
A recent Food Lion income statement reports a $9.5 million charge against income pertaining to the write-down of impaired assets.
Instructions
a. Explain why Food Lion must write down the current carrying value of its unprofitable stores.
b. Explain why the recent $9.5 million charge to write down these impaired assets is considered a noncash expense.
Click here for the solution: For several years, a number of Food Lion, Inc., grocery stores were unprofitable
Sunday, September 20, 2015
Refer to Problem 4.2. Develop a forecast for years 2 through 12 using exponential smoothing with a= .4 and a forecast for year 1 of 6
Problem 4.3 Refer to Problem 4.2. Develop a forecast for years 2 through 12 using exponential smoothing with a= .4
and a forecast for year 1 of 6. Plot your new forecast on a graph with
the actual data and the naive forecast. Based on a visual inspection,
which forecast is better
Year 1 2 3 4 5 6 7 8 9 10 11
Demand 7 9 5 9 13 8 12 13 9 11 7
Click here for the solution: Refer to Problem 4.2. Develop a forecast for years 2 through 12 using exponential smoothing with a= .4 and a forecast for year 1 of 6
Year 1 2 3 4 5 6 7 8 9 10 11
Demand 7 9 5 9 13 8 12 13 9 11 7
Click here for the solution: Refer to Problem 4.2. Develop a forecast for years 2 through 12 using exponential smoothing with a= .4 and a forecast for year 1 of 6
The number of transistors (in millions) made at a plant in Japan during the past 5 years follows
Problem 4.33 The number of transistors (in millions) made at a plant in Japan during the past 5 years follows:
Year Transistors
1 140
2 160
3 190
4 200
5 210
a) Forecast the number of transistors to be made next year, using linear regression.
b) Compute the mean squared error (MSE) when using linear regression.
c) Compute the mean absolute percent error (MAPE).
Click here for the solution: The number of transistors (in millions) made at a plant in Japan during the past 5 years follows
Year Transistors
1 140
2 160
3 190
4 200
5 210
a) Forecast the number of transistors to be made next year, using linear regression.
b) Compute the mean squared error (MSE) when using linear regression.
c) Compute the mean absolute percent error (MAPE).
Click here for the solution: The number of transistors (in millions) made at a plant in Japan during the past 5 years follows
A machine cost $500,000 on April 1, 2010. Its estimated salvage value is $50,000 and its expected life is eight years
A machine cost $500,000 on April 1, 2010. Its estimated salvage value is $50,000 and its expected life is eight years.
Instructions:
Calculate the depreciation expense (to the nearest dollar) by each of the following methods, showing the figures used
a) straight-line for 2010
b) Double-declining balance for 2011
c) Sum-of-the-years digits for 2011
Click here for the solution: A machine cost $500,000 on April 1, 2010
Instructions:
Calculate the depreciation expense (to the nearest dollar) by each of the following methods, showing the figures used
a) straight-line for 2010
b) Double-declining balance for 2011
c) Sum-of-the-years digits for 2011
Click here for the solution: A machine cost $500,000 on April 1, 2010
Greenwood Corporation has paid 60 consecutive quarterly cash dividends (15 years)
Greenwood Corporation has paid 60 consecutive quarterly cash dividends
(15 years). The last 6 months have been a real cash drain on the
company, however, as profit margins have been greatly narrowed by
increasing competition. With a cash balance sufficient to meet only
day-to-day operating needs, the president, Gil Mailor, has decided that a
stock dividend instead of a cash dividend should be declared. He tells
Greenwood’s financial vice-president, Vicki Lemke, to issue a press
release stating that the company is extending its consecutive dividend
record with the issuance of a 5% stock dividend. “Write the press
release convincing the stockholders that the stock dividend is just as
good as a cash dividend,” he orders. “Just watch our stock rise when we
announce the stock dividend; it must be a good thing if that happens.”
Instructions
(a) Who are the stakeholders in this situation?
(b) Is there anything unethical about president Mailor’s intentions or actions?
(c) What is the effect of a stock dividend on a corporation’s stockholders’ equity accounts? Which would you rather receive as a stockholder—a cash dividend or a stock dividend? Why?
Click here for the solution: Greenwood Corporation has paid 60 consecutive quarterly cash dividends (15 years)
Instructions
(a) Who are the stakeholders in this situation?
(b) Is there anything unethical about president Mailor’s intentions or actions?
(c) What is the effect of a stock dividend on a corporation’s stockholders’ equity accounts? Which would you rather receive as a stockholder—a cash dividend or a stock dividend? Why?
Click here for the solution: Greenwood Corporation has paid 60 consecutive quarterly cash dividends (15 years)
Sunday, September 13, 2015
Gorky-Park Corporation provides postretirement health care benefits to employees who provide at least 12 years of service and reach age 62 while in service
Gorky-Park Corporation provides postretirement health care benefits to employees who provide at least 12 years of service and reach age 62 while in service. On January 1, 2011, following plan-related data were available
Accumulated postretirement benefit obligation 130
Fair value of plan assets none
Average remaining service period to retirement 25 years (same in previous 10 yrs)
Average remaining service period to full eligibility 20 years (same in previous 10 yrs)
On January 1, 2011, Gorky-Park amends the plan to provide certain dental benefits in addition to previously provided medical benefits. The actuary determines that the cost of making the amendment retroactive increases service cost for 2011 is $34 million. The interest rate is 8%.
Requirements
1. Calculate the postretirement benefit expense for 2011.
2. Prepare the journal entry to record the expense.
Click here for the solution: Gorky-Park Corporation provides postretirement health care benefits to employees who provide at least 12 years of service and reach age 62 while in service
Accumulated postretirement benefit obligation 130
Fair value of plan assets none
Average remaining service period to retirement 25 years (same in previous 10 yrs)
Average remaining service period to full eligibility 20 years (same in previous 10 yrs)
On January 1, 2011, Gorky-Park amends the plan to provide certain dental benefits in addition to previously provided medical benefits. The actuary determines that the cost of making the amendment retroactive increases service cost for 2011 is $34 million. The interest rate is 8%.
Requirements
1. Calculate the postretirement benefit expense for 2011.
2. Prepare the journal entry to record the expense.
Click here for the solution: Gorky-Park Corporation provides postretirement health care benefits to employees who provide at least 12 years of service and reach age 62 while in service
Fraser Company will need a new warehouse in five years
Fraser Company will need a new warehouse in five years. The warehouse will cost $500,000 to build.
Required:
What lump-sum amount should the company invest now to have the $500,000 available at the end of the five-year period? Assume that the company can invest money at:
1. Ten percent.
2. Fourteen percent.
Click here for the solution: Fraser Company will need a new warehouse in five years
Required:
What lump-sum amount should the company invest now to have the $500,000 available at the end of the five-year period? Assume that the company can invest money at:
1. Ten percent.
2. Fourteen percent.
Click here for the solution: Fraser Company will need a new warehouse in five years
Thursday, September 10, 2015
Sarah Robertson, CPA had been the auditor of Majestic Co. for several years
Auditing P 5-27 Sarah Robertson, CPA had been the auditor of Majestic Co. for several years. As she and her staff prepared for the audit for the year ended December 31, 2008, Herb Majestic told her that he needed a large bank loan to "tide him over" until sales picked up as expected late 2009. In the course of the audit, Robertson discovered that the financial situation at Majestic was worse than Majestic had revealed and that the company was technically bankrupt. She discussed the situation with Majestic, who pointed out that the bank loan will "be his solution"-he was sure he will get it as long as the financial statements don't look too bad. Robertson stated that she believed the statements will have to include a going concern explanatory paragraph, Majestic said that this wasn't needed because the bank loan was so certain and that inclusion of the going concern paragraph will certainly cause the management of the bank to change its mind about the loan. Robertson finally acquiesced and the audited statements were issued without a going concern paragraph. The company received the loan, but things did not improve as Majestic thought they would and the company filed for bankruptcy in August 2009. The bank sued Sarah Robertson for fraud. Required: Indicate whether or not you think the bank will succeed. Support your answer.
Click here for the solution: Sarah Robertson, CPA had been the auditor of Majestic Co. for several years
Click here for the solution: Sarah Robertson, CPA had been the auditor of Majestic Co. for several years
Tuesday, September 8, 2015
A few years ago, Largo Industries implemented an inventory auditing system at an installed cost of $175,000
A few years ago, Largo Industries implemented an inventory auditing system at an installed cost of $175,000. Since then, it has taken depreciation deductions totaling $124,250. What is the system's current book value? If Largo sold the system for $110,000 how much recaptured depreciation would result?
Click here for the solution: A few years ago, Largo Industries implemented an inventory auditing system at an installed cost of $175,000
Click here for the solution: A few years ago, Largo Industries implemented an inventory auditing system at an installed cost of $175,000
For the past several years, Sara Keith has operated a part-time consulting business from her home
ACC 1800 – Accounting Procedures
Fall 2011 - Comprehensive Problem
For the past several years, Sara Keith has operated a part-time consulting business from her home. As of June 1, 2011, Sara decided to move to rented quarters and to operate the business, which was to be known as S&K Consulting, on a full-time basis. S&K Consulting entered into the following transactions during June:
June 1 The following assets were received from Sara Keith: cash, $20,000; accounts receivable, $4,500; supplies, $2,000; and office equipment, $11,500. There were no liabilities received.
June 1 Paid three month’s rent on a lease contract, $6,000.
June 2 Paid the annual premiums on property and casualty insurance policies, $2,400.
June 4 Received cash from clients as an advance payment for services to be provided and recorded it as unearned fees, $2,700.
June 5 Purchased additional office equipment on account, $3,500.
June 6 Received cash from clients on account, $3,000.
June 10 Paid cash for a newspaper advertisement, $200.
June 12 Paid for part of the debt incurred on June 5, $750.
June 12 Recorded services provided on account for the period June 1-12, $5,100.
June 14 Paid part-time receptionist for two weeks’ salary, $1,100.
June 17 Recorded cash from clients for fees earned for the period June 1-16, $6,500.
June 18 Paid cash for supplies, $750.
June 20 Recorded services provided on account for the period June 13-20, $3,100.
June 24 Recorded cash from cash clients for fees earned for the period June 17-24, $5,150.
June 26 Received cash from clients on account, $6,900.
June 27 Paid part-time receptionist for two weeks’ salary, $1,100.
June 29 Paid telephone bill for June, $150.
June 29 Paid electricity bill for June, $400.
June 30 Recorded cash from cash clients for fees earned for the period June 25-30, $2,500.
June 30 Recorded services provided on account for the remainder of June, $1,100.
June 30 Sara withdrew $5,000 for personal use.
Instructions:
1. Journalize each transaction in a two-column journal, referring to the following chart of accounts in selecting the accounts to be debited and credited.
11 Cash 31 Sara Keith, Capital
12 Accounts Receivable 32 Sara Keith, Withdrawals
14 Supplies 41 Service Revenue
15 Prepaid Rent 51 Salary Expense
16 Prepaid Insurance 52 Rent Expense
18 Office Equipment 53 Supplies Expense
19 Accumulated Depreciation 54 Depreciation Expense
21 Accounts Payable 55 Insurance Expense
22 Salaries Payable 59 Miscellaneous Expense
23 Unearned Service Revenue
2. Open T-accounts and post the journal entries to the T-accounts.
3. Complete a worksheet at end of June using the following adjustment data:
a. Insurance expired during June is $200.
b. Supplies on hand on June 30 are $650.
c. Depreciation of office equipment for June is $250.
d. Accrued receptionist salary on June 30 is $220.
e. Rent expired during June is $2,000.
f. Unearned service revenue on June 30 is $1,875.
4. Prepare an income statement, a statement of owner’s equity and a balance sheet.
5. Journalize and post the adjusting entries.
6. Journalize and post the closing entries.
7. Compute final balances in each T-account.
8. Prepare the post-closing trial balance.
Click here for the solution: For the past several years, Sara Keith has operated a part-time consulting business from her home
Fall 2011 - Comprehensive Problem
For the past several years, Sara Keith has operated a part-time consulting business from her home. As of June 1, 2011, Sara decided to move to rented quarters and to operate the business, which was to be known as S&K Consulting, on a full-time basis. S&K Consulting entered into the following transactions during June:
June 1 The following assets were received from Sara Keith: cash, $20,000; accounts receivable, $4,500; supplies, $2,000; and office equipment, $11,500. There were no liabilities received.
June 1 Paid three month’s rent on a lease contract, $6,000.
June 2 Paid the annual premiums on property and casualty insurance policies, $2,400.
June 4 Received cash from clients as an advance payment for services to be provided and recorded it as unearned fees, $2,700.
June 5 Purchased additional office equipment on account, $3,500.
June 6 Received cash from clients on account, $3,000.
June 10 Paid cash for a newspaper advertisement, $200.
June 12 Paid for part of the debt incurred on June 5, $750.
June 12 Recorded services provided on account for the period June 1-12, $5,100.
June 14 Paid part-time receptionist for two weeks’ salary, $1,100.
June 17 Recorded cash from clients for fees earned for the period June 1-16, $6,500.
June 18 Paid cash for supplies, $750.
June 20 Recorded services provided on account for the period June 13-20, $3,100.
June 24 Recorded cash from cash clients for fees earned for the period June 17-24, $5,150.
June 26 Received cash from clients on account, $6,900.
June 27 Paid part-time receptionist for two weeks’ salary, $1,100.
June 29 Paid telephone bill for June, $150.
June 29 Paid electricity bill for June, $400.
June 30 Recorded cash from cash clients for fees earned for the period June 25-30, $2,500.
June 30 Recorded services provided on account for the remainder of June, $1,100.
June 30 Sara withdrew $5,000 for personal use.
Instructions:
1. Journalize each transaction in a two-column journal, referring to the following chart of accounts in selecting the accounts to be debited and credited.
11 Cash 31 Sara Keith, Capital
12 Accounts Receivable 32 Sara Keith, Withdrawals
14 Supplies 41 Service Revenue
15 Prepaid Rent 51 Salary Expense
16 Prepaid Insurance 52 Rent Expense
18 Office Equipment 53 Supplies Expense
19 Accumulated Depreciation 54 Depreciation Expense
21 Accounts Payable 55 Insurance Expense
22 Salaries Payable 59 Miscellaneous Expense
23 Unearned Service Revenue
2. Open T-accounts and post the journal entries to the T-accounts.
3. Complete a worksheet at end of June using the following adjustment data:
a. Insurance expired during June is $200.
b. Supplies on hand on June 30 are $650.
c. Depreciation of office equipment for June is $250.
d. Accrued receptionist salary on June 30 is $220.
e. Rent expired during June is $2,000.
f. Unearned service revenue on June 30 is $1,875.
4. Prepare an income statement, a statement of owner’s equity and a balance sheet.
5. Journalize and post the adjusting entries.
6. Journalize and post the closing entries.
7. Compute final balances in each T-account.
8. Prepare the post-closing trial balance.
Click here for the solution: For the past several years, Sara Keith has operated a part-time consulting business from her home
Sunday, September 6, 2015
Two years ago your corporate treasurer purchased for the firm a 20-year bond at its par value of $1,000
16.9. (Interest rate risk) Two years ago your corporate treasurer purchased for the firm a 20-year bond at its par value of $1,000. The coupon rate on this security is 8 percent. Interest payments are made to bond holders once a year. Currently, bonds of this particular risk class are yielding investors 9 percent. A cash shortage has forced you to instruct your treasurer to liquidate the bond.
a. At what price will your bond be sold? Assume annual compounding.
b. What will be the amount of your gain or loss over the original purchase price?
c. What would be the amount of your gain or loss had the treasurer originally purchased a bond with a 4-year rather than a 20-year maturity?(Assume all the characteristics of the bonds are identical except their maturity periods.)
d. What do we call this type of risk assumed by your corporate treasurer?
Click here for the solution: Two years ago your corporate treasurer purchased for the firm a 20-year bond at its par value of $1,000
a. At what price will your bond be sold? Assume annual compounding.
b. What will be the amount of your gain or loss over the original purchase price?
c. What would be the amount of your gain or loss had the treasurer originally purchased a bond with a 4-year rather than a 20-year maturity?(Assume all the characteristics of the bonds are identical except their maturity periods.)
d. What do we call this type of risk assumed by your corporate treasurer?
Click here for the solution: Two years ago your corporate treasurer purchased for the firm a 20-year bond at its par value of $1,000
Monday, August 31, 2015
A machine was purchased two years ago for $120,000 and can be sold for $50,000 today
A machine was purchased two years ago for $120,000 and can be sold for $50,000 today. The machine has been depreciated using the MACRS 5-year recovery period and the firm pays 40 percent taxes on both ordinary income and capital gains. Find the firm's tax liability (benefit), if any.
Click here for the solution: A machine was purchased two years ago for $120,000 and can be sold for $50,000 today
Click here for the solution: A machine was purchased two years ago for $120,000 and can be sold for $50,000 today
Steinar loaned a friend $9,500 to buy some stock 3 years ago
Steinar loaned a friend $9,500 to buy some stock 3 years ago. In the current year the debt became worthless.
a. How much is Steinar's deduction for the bad debt for this year? (Assume he has no other capital gains or losses.)
b. What can Steinar do with the deduction not used this year?
Click here for the solution: Steinar loaned a friend $9,500 to buy some stock 3 years ago
a. How much is Steinar's deduction for the bad debt for this year? (Assume he has no other capital gains or losses.)
b. What can Steinar do with the deduction not used this year?
Click here for the solution: Steinar loaned a friend $9,500 to buy some stock 3 years ago
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