ACC 171 Study Guide: Final
2. (LO 4) Henning Company, organized in 2022, has the following transactions related to intangible assets. 1/2/22 Purchased patent (7-year life) $840,000 4/1/22 Purchased a small company and as a result recorded goodwill (indefinite life) 450,000 7/1/22 10-year franchise; expiration date 7/1/2032 330,000 9/1/22 Research and development costs 210,000 Instructions Prepare the necessary entries to record these intangibles. All costs incurred were for cash. Make the adjusting entries as of December 31, 2022, recording any necessary amortization and reflecting all balances accurately as of that date.
1/2/22 Patents 840,000 Cash 840,000 4/1/22 Goodwill 450,000 Cash 450,000 (Part of the entry to record purchase of another company) 7/1/22 Franchises 330,000 Cash 330,000 9/1/22 Research and Development Expense 210,000 Cash 210,000 12/31/22 Amortization Expense ($840,000 ÷ 7) + [($330,000 ÷ 10) × 12 ] 136,500 Patents 120,000 Franchises 16,500 Ending balances, 12/31/22: Patents = $720,000 ($840,000 − $120,000) Goodwill = $450,000 Franchises = $313,500 ($330,000 − $16,500) R&D expense = $210,000
2. (LO 3) Sargeant Supply Co. has the following transactions related to notes receivable during the last 2 months of 2022. Nov. 1 Loaned $20,000 cash to Mary Hawkins on a 1-year, 12% note. Dec. 11 Sold goods to Eminem, Inc., receiving a $9,000, 90-day, 8% note. 16 Received a $8,000, 6-month, 9% note in exchange for Rick DeLong's outstanding accounts receivable. 31 Accrued interest revenue on all notes receivable. Instructions a. Journalize the transactions for Sargeant Supply Co. (Ignore cost of goods sold entries.) b. Record the collection of the Hawkins note at its maturity in 2023.
2022 a. Nov. 1 Notes Receivable 20,000 Cash 20,000 Dec. 11 Notes Receivable 9,000 Sales Revenue 9,000 16 Notes Receivable 8,000 Accounts Receivable 8,000 31 Interest Receivable 470 Interest Revenue 470 Calculation of interest revenue: Hawkins' note: $20,000 × 12% × 2/12 =$400 Eminem's note: 9,000 × 8% × 20/360 = 40 DeLong's note: 8,000 × 9% × 15/360 = 30 Total accrued interest $470 2023 b. Nov. 1 Cash22,400 Interest Receivable400 Interest Revenue**2,000 Notes Receivable20,000 **$20,000 x 12% x 10/12
Allowance method
A GAAP method of accounting for uncollectibles that involves estimating uncollectible accounts at the end of each period.
Franchise (license)
A contractual arrangement under which the franchisor grants the franchisee the right to sell certain products, perform specific services, or use certain trademarks or trade names, usually within a designated geographic area.
Employee earnings record
A cumulative record of each employee's gross earnings, deductions, and net pay during the year.
Statement of earnings
A document attached to a paycheck that indicates the employee's gross earnings, payroll deductions, and net pay.
Factor
A finance company or bank that buys receivables from businesses and then collects the payments directly from the customers.
Wage and Tax Statement (Form W-2)
A form showing gross earnings, FICA taxes withheld, and income taxes withheld, prepared annually by an employer for each employee.
Employee's Withholding Allowance Certificate (Form W-4)
A form that employees submit to their employers to indicate the number of allowances claimed.
Current ratio
A measure of a company's liquidity; computed as current assets divided by current liabilities.
Working capital
A measure of a company's liquidity; computed as current assets minus current liabilities.
Asset turnover
A measure of how efficiently a company uses its assets to generate sales; calculated as net sales divided by average total assets.
Accounts receivable turnover
A measure of the liquidity of accounts receivable; computed by dividing net credit sales by average net accounts receivable.
Percentage-of-receivables basis
A method by which management estimates what percentage of receivables will result in losses from uncollectible accounts.
Direct write-off method
A non-GAAP method of accounting for uncollectibles that involves expensing accounts at the time they are determined to be uncollectible.
Dishonored (defaulted) note
A note that is not paid in full at maturity.
Payroll register
A payroll record that accumulates the gross earnings, deductions, and net pay by employee for each pay period.
Defined-benefit plan
A pension plan in which the benefits that the employee will receive at retirement are defined by the terms of the plan.
Defined-contribution plan
A pension plan in which the employer's contribution to the plan is defined by the terms of the plan.
Impairment
A permanent decline in the fair value of an asset.
Contingent liability
A potential liability that may become an actual liability in the future.
Trademark (trade name)
A word, phrase, jingle, or symbol that identifies a particular enterprise or product.
Promissory note
A written promise to pay a specified amount of money on demand or at a definite time.
Receivables
Amounts due from individuals and other companies.
Accounts Receivable
Amounts owed by customers on account.
Wages
Amounts paid to employees based on a rate per hour or on a piecework basis.
Pension plan
An agreement whereby an employer provides benefits to employees after they retire.
Salvage value
An estimate of an asset's value at the end of its useful life.
Useful life
An estimate of the expected productive life, also called service life, of an asset.
Patent
An exclusive right issued by the U.S. Patent Office that enables the recipient to manufacture, sell, or otherwise control an invention for a period of 20 years from the date of the grant.
Bad Debt Expense
An expense account to record uncollectible receivables.
Natural resources
Assets that consist of standing timber and underground deposits of oil, gas, and minerals.
2. (LO 2) Sanchez Co. uses the percentage-of-receivables basis in 2022 to record bad debt expense. It estimates that 3% of accounts receivable will become uncollectible. Sales revenues are $900,000 for 2022, and sales returns and allowances are $50,000 at December 31, 2022. Accounts receivable has a balance of $139,000, and the allowance for doubtful accounts has a credit balance of $3,000. Prepare the adjusting entry to record bad debt expense in 2022.
Bad Debt Expense [($139,000 × 3%) − $3,000] 1,170 Allowance for Doubtful Accounts 1,170
Bonus
Compensation to management and other personnel, based on factors such as increased sales or the amount of net income.
Additions and improvements
Costs incurred to increase the operating efficiency, productive capacity, or useful life of a plant asset.
2. (LO 2) On October 1, Clara Oswald Company introduces a new product that includes a one-year warranty on parts. By December 31, 2022, 3,000 units are sold. Management believes that 6% of the units will be defective and that the average warranty costs will be $120 per unit. Prepare the adjusting entry at December 31 to accrue the estimated warranty cost, assuming no warranty claims are honored in 2022.
Dec. 31 Warranty Expense 21,600 Warranty Liability [(3,000 × 6%) × $120] 21,600
Payroll deductions
Deductions from gross earnings to determine the amount of a paycheck.
Straight-line method
Depreciation method in which periodic depreciation is the same for each year of the asset's useful life.
Units-of-activity method
Depreciation method in which useful life is expressed in terms of the total units of production or use expected from an asset.
Declining-balance method
Depreciation method that applies a constant rate to the declining book value of the asset and produces a decreasing annual depreciation expense over the useful life of the asset.
Accelerated-depreciation method
Depreciation method that produces higher depreciation expense in the early years than in the later years.
Salaries
Employee pay based on a specified amount rather than an hourly rate.
Copyrights
Exclusive grant from the federal government that allows the owner to reproduce and sell an artistic or published work.
Revenue expenditures
Expenditures that are immediately charged against revenues as an expense.
Capital expenditures
Expenditures that increase the company's investment in productive facilities.
Research and development (R&D) costs
Expenditures that may lead to patents, copyrights, new processes, or new products. These costs are expensed as incurred.
Ordinary repairs
Expenditures to maintain the operating efficiency and productive life of the long-lived asset.
Net pay
Gross earnings less payroll deductions.
3. (LO 3) Ben Borke's regular hourly wage rate is $20, and he receives an hourly rate of $30 for work in excess of 40 hours. During a January pay period, Ben works 46 hours. Ben's federal income tax withholding is $123, he has no voluntary deductions, and the FICA tax rate is 7.65%. Compute Ben's gross earnings and net pay for the pay period.
Gross earnings: Regular pay (40 × $20). $800.00 Overtime pay (6 × $30) 180.00 $980.00 Gross earnings $980.00 Less: FICA taxes payable ($980 × 7.65%) $ 74.97 Federal income taxes payable 123.00 197.97 Net pay $782.03
Materiality concept
If an item would not make a difference in decision-making, a company does not have to follow GAAP in reporting it.
3. (LO 3) On January 20, 2022, Carlos Co. sold merchandise on account to Carson Co. for $20,000, n/30. On February 19, Carson Co. gave Carlos Co. an 8% promissory note in settlement of this account. Prepare the journal entry to record the sale and the settlement of the account receivable.
Jan. 20 Accounts Receivable 20,000 Sales Revenue 20,000 Feb. 19 Notes Receivable 20,000 Accounts Receivable 20,000
(LO 1, 2, 3) The following selected transactions relate to Dylan Company. Mar. 1 Sold $20,000 of merchandise to Potter Company, terms 2/10, n/30. 11 Received payment in full from Potter Company for the balance related to the March 1 sale. 12 Accepted Juno Company's $20,000, 6-month, 12% note for balance due on outstanding accounts receivable. 13 Made Dylan Company credit card sales for $13,200. 15 Made Visa credit card sales totaling $6,700. A 3% service fee is charged by Visa. Apr. 11 Sold accounts receivable of $8,000 to Harcot Factor. Harcot Factor assesses a service charge of 2% of the amount of receivables sold. 13 Received collections of $8,200 on Dylan Company credit card sales and added finance charges of 1.5% to the remaining balances. May. 10 Wrote off as uncollectible $16,000 of accounts receivable. (Dylan uses the percentage-of-receivables basis to estimate uncollectibles.) June. 30 Accounts receivable total $2,000,000. The bad debt percentage is 1% of accounts receivable. At June 30, the credit balance in the allowance account is $3,500 before adjustment. July. 16 One of the accounts receivable written off in May was from J. Simon, who pays the amount due, $4,000, in full. Instructions Prepare the journal entries for the transactions. (Ignore entries for cost of goods sold.)
Mar. 1 Accounts Receivable 20,000 Sales Revenue 20,000 (To record sales on account) 11 Cash 19,600 Sales Discounts (2% × $20,000) 400 Accounts Receivable 20,000 (To record collection of accounts receivable) 12 Notes Receivable 20,000 Accounts Receivable 20,000 (To record acceptance of Juno Company note) 13 Accounts Receivable 13,200 Sales Revenue 13,200 (To record company credit card sales) 15 Cash 6,499 Service Charge Expense (3% × $6,700) 201 Sales Revenue 6,700 (To record credit card sales) Apr. 11 Cash 7,840 Service Charge Expense (2% × $8,000) 160 Accounts Receivable 8,000 (To record sale of receivables to factor) 13 Cash 8,200 Accounts Receivable 8,200 (To record collection of accounts receivable) Accounts Receivable [($13,200 − $8,200) × 1.5%] 75 Interest Revenue 75 (To record interest on amount due) May 10 Allowance for Doubtful Accounts 16,000 Accounts Receivable 16,000 (To record write-off of accounts receivable) June 30 Bad Debt Expense [($2,000,000 × 1%) − $3,500] 16,500 Allowance for Doubtful Accounts 16,500 (To record estimate of uncollectible accounts) July 16 Accounts Receivable 4,000 Allowance for Doubtful Accounts 4,000 (To reverse write-off of accounts receivable) Cash 4,000 Accounts Receivable 4,000 (To record collection of accounts receivable)
Trade receivables
Notes and accounts receivable that result from sales transactions.
Notes payable
Obligations in the form of written notes.
Postretirement benefits
Payments by employers to retired employees for healthcare, life insurance, and pensions
Fees
Payments made for the services of professionals.
Intangible assets
Rights, privileges, and competitive advantages that result from the ownership of long-lived assets that do not possess physical substance.
1. (LO 1) Amy Pond Discounts does not segregate sales and sales taxes at the time of sale. The register total for March 17 is $19,928. All sales are subject to a 6% sales tax. Compute sales taxes payable, and make the entry to record sales taxes payable and sales revenue.
Sales tax payable 1. Sales = $18,800 ($19,928 ÷ 1.06) 2. Sales taxes payable = $1,128 ($18,800 × 6%) Mar. 17 Cash 19,928 Sales Revenue 18,800 Sales Taxes Payable. 1,128
Plant assets
Tangible resources that are used in the operations of the business and are not intended for sale to customers.
FICA taxes
Taxes designed to provide workers with supplemental retirement, employment disability, and medical benefits.
State unemployment taxes
Taxes imposed on the employer by states that provide benefits to employees who lose their jobs.
Federal unemployment taxes
Taxes imposed on the employer by the federal government that provide benefits for a limited time period to employees who lose their jobs through no fault of their own.
Depletion
The allocation of the cost of a natural resource in a rational and systematic manner over the resource's useful life.
Amortization
The allocation of the cost of an intangible asset to expense over its useful life in a systematic and rational manner.
Aging the accounts receivable
The analysis of receivable balances by the length of time they have been unpaid.
Average collection period
The average amount of time that a receivable is outstanding; calculated by dividing 365 days by the accounts receivable turnover.
Going concern assumption
The company will continue in operation for the foreseeable future.
Depreciable cost
The cost of a plant asset less its salvage value.
Cash equivalent price
The fair value of the asset given up or the fair value of the asset received, whichever is more clearly determinable.
Cash (net) realizable value
The net amount a company expects to receive in cash.
Maker
The party in a promissory note who is making the promise to pay.
Payee
The party to whom payment of a promissory note is to be made.
Depreciation
The process of allocating to expense the cost of a plant asset over its useful (service) life in a rational and systematic manner.
Goodwill
The value of all favorable attributes that relate to a company that is not attributable to any other specific asset.
Gross earnings
Total compensation earned by an employee.
Other receivables
Various forms of nontrade receivables, such as interest receivable and income taxes refundable.
Notes receivable
Written promise (as evidenced by a formal instrument) for amounts to be received.
9. (LO 3) Bennie Razor Company has decided to sell one of its old manufacturing machines on June 30, 2022. The machine was purchased for $80,000 on January 1, 2018, and was depreciated on a straight-line basis for 10 years assuming no salvage value. If the machine was sold for $26,000, what was the amount of the gain or loss recorded at the time of the sale? a. $18,000. b. $54,000. c. $22,000. d. $46,000.
a. $18,000.
15. (LO 6) Schopenhauer Company exchanged an old machine, with a book value of $39,000 and a fair value of $35,000, and paid $10,000 cash for a similar new machine. The transaction has commercial substance. At what amount should the machine acquired in the exchange be recorded on Schopenhauer's books? a. $45,000. b. $46,000. c. $49,000. d. $50,000.
a. $45,000.
3. (LO 3) Erin Berge's regular hourly wage rate is $18, and she receives a wage of 1(1/2) times the regular hourly rate for work in excess of 40 hours. During a March weekly pay period, Erin worked 42 hours. Her gross earnings prior to the current week were $6,000. Erin is married and claims three withholding allowances. Her only voluntary deduction is for group hospitalization insurance at $20 per week. Assume federal income tax withheld is $76. Instructions a. Compute the following amounts for Erin's wages for the current week. 1. Gross earnings. 2. FICA taxes (based on a 7.65% rate). 3. State income taxes withheld (based on a 3% rate). 4. Net pay. b. Record Erin's pay.
a. 1. Regular 40 hours × $18 = $720 Overtime 2 hours × $27 = 54 Gross earnings $774 2. FICA taxes: ($774 × 7.65%) = $59.21 3. State income taxes: ($774 × 3%) = $23.22 4. Net Pay: ($774.00 − $59.21 − $76.00 − $23.22 − $20.00) = $595.57 b. Salaries and Wages Expense 774.00 FICA Taxes Payable 59.21 Federal Income Taxes Payable 76.00 State Income Taxes Payable 23.22 Health Insurance Payable 20.00 Salaries and Wages Payable 595.57
2. (LO 3) On January 1, 2019, Skyline Limousine Co. purchased a limo at an acquisition cost of $28,000. The vehicle has been depreciated by the straight-line method using a 4-year service life and a $4,000 salvage value. The company's fiscal year ends on December 31. Instructions Prepare the journal entry or entries to record the disposal of the limousine assuming that it was: a. Retired and scrapped on January 1, 2023. b. Sold for $5,000 on July 1, 2022.
a. 1/1/23 Accumulated Depreciation—Equipment 24,000 Loss on Disposal of Plant Assets 4,000 Equipment 28,000 (To record retirement of limousine) b. 7/1/22 Depreciation Expense*. 3,000 Accumulated Depreciation—Equipment 3,000 (To record depreciation to date of disposal) Cash 5,000 Accumulated Depreciation— Equipment** 21,000 Loss on Disposal of Plant Assets 2,000 Equipment 28,000 (To record sale of limousine) *[($28,000 - $4,000) ÷ 4] × 1/2 . **[($28,000 - $4,000) ÷ 4] × 3 = $18,000; $18,000 + $3,000.
1. (LO 1) Record the following transactions on the books of Gonzalez Co. a. On August 1, Gonzalez Co. sold merchandise on account to Miguel Inc. for $15,500, terms 1/10, n/30. b. On August 8, Miguel Inc. returned merchandise worth $3,100 to Gonzalez Co. c. On August 11, Miguel Inc. paid for the merchandise.
a. Accounts Receivable 15,500 Sales Revenue 15,500 b. Sales Returns and Allowances 3,100 Accounts Receivable 3,100 c. Cash ($12,400 − $124) 12,276 Sales Discounts ($12,400 × 1%) 124 Accounts Receivable ($15,500 − $3,100) 12,400
3. (LO 4) Lucas Company acquires a limited-life franchise for $200,000 on January 2, 2022. Its estimated useful life is 10 years. (a) Prepare the journal entry to record amortization expense for the first year. (b) Show how this franchise is reported on the balance sheet at the end of the first year.
a. Amortization Expense ($200,000 ÷ 10) 20,000 Franchises 20,000 b. Intangible assetsFranchises $180,000
9. (LO 2) Blinka Retailers accepted $50,000 of Citibank Visa credit card charges for merchandise sold on July 1. Citibank charges 4% for its credit card use. The entry to record this transaction by Blinka Retailers will include a credit to Sales Revenue of $50,000 and a debit(s) to: a. Cash $48,000 and Service Charge Expense $2,000 b. Accounts Receivable $48,000 and Service Charge Expense $2,000 c. Cash $50,000 d. Accounts Receivable $50,000
a. Cash $48,000 and Service Charge Expense $2,000
2. (LO 2) Fun App Company has the following liability accounts after posting adjusting entries: Accounts Payable $77,000, Unearned Ticket Revenue $36,000, Warranty Liability $25,000, Interest Payable $10,000, Mortgage Payable $150,000, Notes Payable $100,000, and Sales Taxes Payable $14,000. Assume the company's operating cycle is less than 1 year, ticket revenue will be recognized within 1 year, warranty costs are expected to be incurred within 1 year, and the notes mature in 3 years. Instructions a. Prepare the current liabilities section of the balance sheet, assuming $40,000 of the mortgage is payable next year. b. Comment on Fun App Company's liquidity, assuming total current assets are $350,000.
a. Current liabilities Accounts payable $ 77,000 Long-term debt due within one year 40,000 Unearned ticket revenue 36,000 Warranty liability 25,000 Sales taxes payable 14,000 Interest payable 10,000 Total current liabilities $202,000 b. Fun App Company's working capital is $148,000 ($350,000 − $202,000), and its current ratio is 1.73:1 ($350,000 ÷ $202,000). Although a current ratio of 2:1 has been considered the standard for a good credit rating, many companies operate successfully with a current ratio well below 2:1.
1. (LO 2) The ledger of Nuro Company at the end of the current year shows Accounts Receivable $180,000, Sales Revenue $1,800,000, and Sales Returns and Allowances $60,000. Instructions a. If Nuro uses the direct write-off method to account for uncollectible accounts, journalize the adjusting entry at December 31, assuming Nuro determines that $2,900 of the Accounts Receivable balance is uncollectible. b. If Allowance for Doubtful Accounts has a credit balance of $4,300 in the trial balance, journalize the adjusting entry at December 31, assuming uncollectibles are expected to be 10% of accounts receivable. c. If Allowance for Doubtful Accounts has a debit balance of $410 in the trial balance, journalize the adjusting entry at December 31, assuming uncollectibles are expected to be 6% of accounts receivable.
a. Dec. 31 Bad Debt Expense 2,900 Accounts Receivable 2,900 b. Dec. 31 Bad Debt Expense 13,700 Allowance for DoubtfulAccounts [($180,000 × 10%) − $4,300] 13,700 c. Dec. 31 Bad Debt Expense 11,210 Allowance for DoubtfulAccounts [($180,000 × 6%) + $410] 11,210
1. (LO 2) Fulmer Company acquires a delivery truck at a cost of $50,000. The truck is expected to have a salvage value of $5,000 at the end of its 5-year useful life. a. Compute annual depreciation expense for the first and second years using the straight-line method. b. Compute annual depreciation for the first and second years using double-declining balance.
a. Depreciable cost of $45,000, ($50,000 − $5,000). With a 5-year useful life, annual depreciation is $9,000, ($45,000 ÷ 5). Under the straight-line method, depreciation is the same each year. Thus, depreciation is $9,000 for both the first and second years. b. The declining-balance rate is 40% (20% × 2), which is applied to book value at the beginning of the year. The computations are: Book Value × Rate = Depreciation Year 1 $50,000 x 40% = $20,000 Year 2 ($50,000 − $20,000) x 40% = $12,000
2. (LO 3) Giolito Company sells equipment on August 31, 2022, for $20,000 cash. The equipment originally cost $60,000 and as of January 1, 2022, had accumulated depreciation of $38,000. Depreciation for the first 8 months of 2022 is $6,000. Prepare the journal entries to (a) update depreciation to August 31, 2022 and (b) record the sale of the equipment.
a. Depreciation Expense 6,000 Accumulated Depreciation—Equipment 6,000 b. Cash 20,000 Accumulated Depreciation—Equipment 44,000 Equipment 60,000 Gain on Disposal of Plant Assets 4,000 Cost of equipment $60,000 Less: Accumulated depreciation 44,000 *Book value at date of disposal. 16,000 Proceeds from sale 20,000 Gain on disposal $4,000 *$38,000 + $6,000
Indiana Jones Company had these selected transactions. Feb. 1 Signs a $50,000, 6-month, 9%-interest-bearing note payable to CitiBank and receives $50,000 in cash. Feb. 10 Cash register sales total $43,200, which includes an 8% sales tax. 28 The payroll for the month consists of salaries and wages of $50,000. All wages are subject to 7.65% FICA taxes. A total of $8,900 federal income taxes are withheld. The salaries are paid on March 1. 28 The company develops the following adjustment data. 1. Interest expense of $375 has been incurred on the note. 2. Employer payroll taxes include 7.65% FICA taxes, a 5.4% state unemployment tax, and a 0.6% federal unemployment tax. 3. Some sales were made under warranty. Of the units sold under warranty, 350 are expected to become defective. Repair costs are estimated to be $40 per unit. Instructions a. Journalize the February transactions. b. Journalize the adjusting entries at February 28.
a. Feb. 1 Cash 50,000 Notes Payable 50,000 (Issued 6-month, 9%-interest-bearing note to CitiBank) 10 Cash 43,200 Sales Revenue ($43,200 ÷ 1.08) 40,000 Sales Taxes Payable ($40,000 × 8%) 3,200 (To record sales revenue and sales taxes payable) 28 Salaries and Wages Expense 50,000 FICA Taxes Payable (7.65% × $50,000) 3,825 Federal Income Taxes Payable 8,900 Salaries and Wages Payable 37,275 (To record February salaries) b. Feb. 28 Interest Expense 375 Interest Payable 375 (To record accrued interest for February) 28 Payroll Tax Expense 6,825 FICA Taxes Payable 3,825 Federal Unemployment Taxes Payable 300(0.6% × $50,000) State Unemployment Taxes Payable 2,700 (5.4% × $50,000) (To record employer's payroll taxes on February payroll) 28 Warranty Expense (350 × $40) 14,000 Warranty Liability 14,000 (To record estimated warranty liability)
1. (LO 1) On June 1, Streamsong Company borrows $150,000 from First Bank on a 6-month, $150,000, 8% note. Instructions a. Prepare the entry on June 1. b. Prepare the adjusting entry on June 30. c. Prepare the entry at maturity (December 1), assuming monthly adjusting entries have been made through November 30. d. What was the total financing cost (interest expense)?
a. June 1 Cash 150,000 Notes Payable 150,000 b. June 30 Interest Expense 1,000 Interest Payable($150,000 × 8% × 1/2) 1,000 c. Dec. 1 Notes Payable150,000 Interest Payable($150,000 × 8% × 6/12) 6,000 Cash 156,000 d. $6,000
1. (LO 2) DuPage Company purchases a factory machine at a cost of $18,000 on January 1, 2022. DuPage expects the machine to have a salvage value of $2,000 at the end of its 4-year useful life. During its useful life, the machine is expected to be used 160,000 hours. Actual annual hourly use was 2022, 40,000; 2023, 60,000; 2024, 35,000; and 2025, 25,000. Instructions Prepare depreciation schedules for the following methods: (a) straight-line, (b) units-of-activity, and (c) declining-balance using double the straight-line rate.
a. Straight-Line Method Computation End of Year Year DepreciableCost* × DepreciationRate = Annual Depreciation Expense Accumulated Depreciation Book Value 2022 $16,000 25% $4,000 $4,000 $14,000** 2023 16,000 25% 4,000 8,000 10,000 2024 16,000 25% 4,000 12,000 6,000 2025 16,000 25% 4,000 16,000 2,000 * $18,000 − $2,000. **$18,000 − $4,000. b. Units-of-Activity Method Computation End of Year Year Units ofActivity × Depreciation Cost/Unit = Annual Depreciation Expense Accumulated Depreciation Book Value 2022 40,000 $0.10* $4,000 $4,000 $14,000 2023 60,000 0.10 6,000 10,000 8,000 2024 35,000 0.10 3,500 13,500 4,500 2025 25,000 0.10 2,500 16,000 2,000 *($18,000 − $2,000) ÷ 160,000. c. Declining-Balance Method Computation End of Year Year Book Value Beginning ofYear × DepreciationRate* = Annual Depreciation Expense Accumulated Depreciation Book Value 2022 $18,000 50% $9,000 $9,000 $9,000 2023 9,000 50% 4,500 13,500 4,500 2024 4,500 50% 2,250 15,750 2,250 2025 2,250 50% 250**16,000 2,000 *1/4 × 2. **Adjusted to $250 because ending book value should not be less than expected salvage value.
1. (LO 2) Numo Company purchased a new machine on October 1, 2022, at a cost of $145,000. The company estimated that the machine will have a salvage value of $25,000. The machine is expected to be used for 20,000 working hours during its 5-year life. Instructions Compute the depreciation expense under the following methods for the year indicated. a. Straight-line for 2022. b. Units-of-activity for 2022, assuming machine usage was 3,400 hours. c. Declining-balance using double the straight-line rate for 2022 and 2023.
a. Straight-line method: $145,000 − $25,000/5 = $24,000 per year 2022 depreciation = $24,000 × 3/12 = $6,000 b. Units-of-activity method: $145,000 − $25,000/20,000 = $6.00 per hour 2022 depreciation = 3,400 hours × $6.00 = $20,400 c. Declining-balance method: 2022 depreciation = $145,000 × 40% × 3/12 = $14,500 Book value January 1, 2023 = $145,000 − $14,500 = $130,500 2023 depreciation = $130,500 × 40% = $52,200
13. (LO 4) Accounts and notes receivable are reported in the current assets section of the balance sheet at: a. cash (net) realizable value. b. net book value. c. lower-of-cost-or-net realizable value. d. invoice cost.
a. cash (net) realizable value.
7. (LO 2) Working capital is calculated as: a. current assets minus current liabilities. b. total assets minus total liabilities. c. long-term liabilities minus current liabilities. d. Both total assets minus total liabilities, and long-term liabilities minus current liabilities, are correct.
a. current assets minus current liabilities.
1. (LO 1) The time period for classifying a liability as current is one year or the operating cycle, whichever is: a. longer. b. shorter. c. probable. d. possible.
a. longer.
6. (LO 2) Jefferson Company purchased a piece of equipment on January 1, 2022. The equipment cost $60,000 and has an estimated life of 8 years and a salvage value of $8,000. What was the depreciation expense for the asset for 2023 under the double-declining-balance method? a. $6,500. b. $11,250. c. $15,000. d. $6,562.
b. $11,250.
3. (LO 1) Maggie Sharrer Company borrows $88,500 on September 1, 2022, from Sandwich State Bank by signing an $88,500, 12%, one-year note. What is the accrued interest at December 31, 2022? a. $2,655. b. $3,540. c. $4,425. d. $10,620.
b. $3,540.
12. (LO 4) Martha Beyerlein Company incurred $150,000 of research and development costs in its laboratory to develop a patent granted on January 2, 2022. On July 31, 2022, Beyerlein paid $35,000 for legal fees in a successful defense of the patent. The total amount debited to Patents through July 31, 2022, should be: a. $150,000. b. $35,000. c. $185,000. d. $170,000.
b. $35,000.
5. (LO 1) Becky Sherrick Company has total proceeds from sales of $4,515. If the proceeds include sales taxes of 5%, the amount to be credited to Sales Revenue is: a. $4,000. b. $4,300. c. $4,289.25. d. None of the answer choices is correct.
b. $4,300.
6. (LO 1) Sensible Insurance Company collected a premium of $18,000 for a 1-year insurance policy on April 1. What amount should Sensible report as a current liability for Unearned Service Revenue at December 31? a. $0. b. $4,500. c. $13,500. d. $18,000.
b. $4,500.
3. (LO 2) Hughes Company has a credit balance of $5,000 in its Allowance for Doubtful Accounts before any adjustments are made at the end of the year. Based on review and aging of its accounts receivable at the end of the year, Hughes estimates that $60,000 of its receivables are uncollectible. The amount of bad debt expense which should be reported for the year is: a. $5,000. b. $55,000. c. $60,000. d. $65,000.
b. $55,000.
14. (LO 3) FICA Taxes Payable was credited for $7,500 in the entry when Antonio Company recorded payroll. When Antonio Company records employer's payroll taxes, FICA Taxes Payable should be credited for: a. $0. b. $7,500. c. $15,000. d. Some other amount.
b. $7,500.
11. (LO 3) Foti Co. accepts a $1,000, 3-month, 6% promissory note in settlement of an account with Bartelt Co. The entry to record this transaction is as follows. a. Notes Receivable 1,015 Accounts Receivable 1,015 b. Notes Receivable 1,000 Accounts Receivable 1,000 c. Notes Receivable 1,000 Sales Revenue 1,000 d. Notes Receivable 1,030 Accounts Receivable 1,030
b. Notes Receivable 1,000 Accounts Receivable 1,000
10. (LO 1) At December 31, Hanes Company prepares an adjusting entry for a product warranty contract. Which of the following accounts is/are included in the entry? a. Miscellaneous Expense. b. Warranty Liability. c. Repair Parts. d. Both Miscellaneous Expense and Warranty Liability.
b. Warranty Liability.
3. (LO 2) Depreciation is a process of: a. valuation. b. cost allocation. c. cash accumulation. d. appraisal.
b. cost allocation.
7. (LO 2) When there is a change in estimated depreciation: a. previous depreciation should be corrected. b. current and future years' depreciation should be revised. c. only future years' depreciation should be revised. d. None of the answer choices is correct.
b. current and future years' depreciation should be revised.
5. (LO 2) Accounts receivable at the end of the month are $800,000. Bad debts are expected to be 1.5% of accounts receivable. If Allowance for Doubtful Accounts has a credit balance of $1,000 before adjustment, what is the balance after adjustment? a. $7,000. b. $11,000. c. $12,000. d. $13,000.
c. $12,000.
2. (LO 1) Buehler Company on June 15 sells merchandise on account to Chaz Co. for $1,000, terms 2/10, n/30. On June 20, Chaz Co. returns merchandise worth $300 to Buehler Company. On June 24, payment is received from Chaz Co. for the balance due. What is the amount of cash received? a. $700. b. $680. c. $686. d. None of the answer choices is correct.
c. $686.
14. (LO 5) Lake Coffee Company reported net sales of $180,000, net income of $54,000, beginning total assets of $200,000, and ending total assets of $300,000. What was the company's asset turnover? a. 0.90. b. 0.20. c. 0.72. d. 1.39.
c. 0.72.
14. (LO 4) Oliveras Company had net credit sales during the year of $800,000 and cost of goods sold of $500,000. The balance in accounts receivable at the beginning of the year was $100,000, and the end of the year it was $150,000. What were the accounts receivable turnover and the average collection period in days? a. 4.0 and 91.3 days. b. 5.3 and 68.9 days. c. 6.4 and 57 days. d. 8.0 and 45.6 days.
c. 6.4 and 57 days.
10. (LO 3) One of the following statements about promissory notes is incorrect. The incorrect statement is: a. The party making the promise to pay is called the maker. b. The party to whom payment is to be made is called the payee. c. A promissory note is not a negotiable instrument. d. A promissory note is often required from high-risk customers.
c. A promissory note is not a negotiable instrument.
13. (LO 5) Indicate which of the following statements is true. a. Since intangible assets lack physical substance, they need be disclosed only in the notes to the financial statements. b. Goodwill should be reported as a contra account in the stockholders' equity section. c. Totals of major classes of assets can be shown in the balance sheet, with asset details disclosed in the notes to the financial statements. d. Intangible assets are typically combined with plant assets and natural resources, and shown in the property, plant, and equipment section.
c. Totals of major classes of assets can be shown in the balance sheet, with asset details disclosed in the notes to the financial statements.
8. (LO 2) Which of the following statements about Visa credit card sales is incorrect? a. The credit card issuer makes the credit investigation of the customer. b. The retailer is not involved in the collection process. c. Two parties are involved. d. The retailer receives cash more quickly than it would from individual customers on account.
c. Two parties are involved.
10. (LO 4) Maggie Sharrer Company expects to extract 20 million tons of coal from a mine that cost $12 million. If no salvage value is expected and 2 million tons are mined in the first year, the entry to record depletion will include a: a. debit to Accumulated Depletion of $2,000,000. b. credit to Depletion Expense of $1,200,000. c. debit to Inventory of $1,200,000. d. credit to Accumulated Depletion of $2,000,000.
c. debit to Inventory of $1,200,000.
13. (LO 3) Employer payroll taxes do not include: a. federal unemployment taxes. b. state unemployment taxes. c. federal income taxes. d. FICA taxes.
c. federal income taxes.
9. (LO 2) A contingent liability should be recorded in the accounts when: a. it is probable the contingency will happen, but the amount cannot be reasonably estimated. b. it is reasonably possible the contingency will happen, and the amount can be reasonably estimated. c. it is probable the contingency will happen, and the amount can be reasonably estimated. d. it is reasonably possible the contingency will happen, but the amount cannot be reasonably estimated.
c. it is probable the contingency will happen, and the amount can be reasonably estimated.
12. (LO 3) When recording payroll: a. gross earnings are recorded as salaries and wages payable. b. net pay is recorded as salaries and wages expense. c. payroll deductions are recorded as liabilities. d. There is more than one correct answer given.
c. payroll deductions are recorded as liabilities.
8. (LO 2) Able Towing Company purchased a tow truck for $60,000 on January 1, 2022. It was originally depreciated on a straight-line basis over 10 years with an assumed salvage value of $12,000. On December 31, 2024, before adjusting entries had been made, the company decided to change the remaining estimated life to 4 years (including 2024) and the salvage value to $2,000. What was the depreciation expense for 2024? a. $6,000. b. $4,800. c. $15,000. d. $12,100.
d. $12,100.
4. (LO 2) Cuso Company purchased equipment on January 1, 2021, at a total cost of $400,000. The equipment has an estimated salvage value of $10,000 and an estimated useful life of 5 years. The amount of accumulated depreciation at December 31, 2022, if the straight-line method of depreciation is used, is: a. $80,000. b. $160,000. c. $78,000. d. $156,000.
d. $156,000.
1. (LO 1) Corrieten Company purchased equipment and incurred the following costs. Cash price$24,000Sales taxes1,200Insurance during transit200Installation and testing400Total costs$25,800 What amount should be recorded as the cost of the equipment? a. $24,000. b. $25,200. c. $25,400. d. $25,800.
d. $25,800.
6. (LO 2) At December 31, 2022, Roso Carlson Company had accounts receivable of $750,000. On January 1, 2022, Allowance for Doubtful Accounts had a credit balance of $18,000. During 2022, $30,000 of uncollectible accounts receivable were written off. Past experience indicates that 3% of accounts receivable become uncollectible. What should be the bad debt expense for 2022? a. $10,500. b. $22,500. c. $30,000. d. $34,500.
d. $34,500.
4. (LO 2) Hughes Company has a debit balance of $5,000 in its Allowance for Doubtful Accounts before any adjustments are made at the end of the year. Based on review and aging of its accounts receivable at the end of the year, Hughes estimates that $60,000 of its receivables are uncollectible. The amount of bad debt expense that should be reported for the year is: a. $5,000. b. $55,000. c. $60,000. d. $65,000.
d. $65,000.
11. (LO 3) Andy Manion earns $14 per hour for a 40-hour week and $21 per hour for any overtime work. If Manion works 45 hours in a week, gross earnings are: a. $560. b. $630. c. $650. d. $665.
d. $665.
7. (LO 2) An analysis and aging of the accounts receivable of Prince Company at December 31 reveals the following data. Accounts receivable $800,000 Allowance for doubtful accounts per books before adjustment 50,000 Amounts expected to become uncollectible 65,000 The cash realizable value of the accounts receivable at December 31, after adjustment, is: a. $685,000. b. $750,000. c. $800,000. d. $735,000.
d. $735,000.
5. (LO 2) Kant Enterprises purchased a truck for $11,000 on January 1, 2021. The truck has an estimated salvage value of $1,000 at the end of 5 years. Using the units-of-activity method, the balance in accumulated depreciation at December 31, 2022, can be computed by the following formula: a. ($11,000 ÷ Total estimated activity) × Units of activity for 2022. b. ($10,000 ÷ Total estimated activity) × Units of activity for 2022. c. ($11,000 ÷ Total estimated activity) × Units of activity for 2021 and 2022. d. ($10,000 ÷ Total estimated activity) × Units of activity for 2021 and 2022.
d. ($10,000 ÷ Total estimated activity) × Units of activity for 2021 and 2022.
2. (LO 1) To be classified as a current liability, a debt must be expected to be paid within: a. one year. b. the operating cycle. c. 2 years. d. one year or the operating cycle, whichever is longer.
d. . one year or the operating cycle, whichever is longer.
12. (LO 3) Ginter Co. holds Kolar Inc.'s $10,000, 120-day, 9% note. The entry made by Ginter Co. when the note is collected, assuming no interest has been previously accrued, is: a. Cash 10,300 Notes Receivable 10,300 b. Cash 10,000 Notes Receivable 10,000 c. Accounts Receivable 10,300 Notes Receivable 10,000 Interest Revenue 300 d. Cash 10,300 Notes Receivable 10,000 Interest Revenue 300
d. Cash 10,300 Notes Receivable 10,000 Interest Revenue 300
11. (LO 4) Which of the following statements is false? a. If an intangible asset has a finite life, it should be amortized. b. The amortization period of an intangible asset can exceed 20 years. c. Goodwill is recorded only when a business is purchased. d. Research and development costs are expensed when incurred, except when the research and development expenditures result in a successful patent.
d. Research and development costs are expensed when incurred, except when the research and development expenditures result in a successful patent.
16. (LO 4) Which of the following is not an additional fringe benefit? a. Postretirement pensions. b. Paid absences. c. Paid vacations. d. Salaries.
d. Salaries.
1. (LO 1) Receivables are frequently classified as: a. accounts receivable, company receivables, and other receivables. b. accounts receivable, notes receivable, and employee receivables. c. accounts receivable and general receivables. d. accounts receivable, notes receivable, and other receivables.
d. accounts receivable, notes receivable, and other receivables.
16. (LO 6) In exchanges of assets in which the exchange has commercial substance: a. neither gains nor losses are recognized immediately. b. gains, but not losses, are recognized immediately. c. losses, but not gains, are recognized immediately. d. both gains and losses are recognized immediately.
d. both gains and losses are recognized immediately.
4. (LO 1) RS Company borrowed $70,000 on December 1 on a 6-month, 6% note. At December 31: a. neither the note payable nor the interest payable is a current liability. b. the note payable is a current liability, but the interest payable is not. c. the interest payable is a current liability but the note payable is not. d. both the note payable and the interest payable are current liabilities.
d. both the note payable and the interest payable are current liabilities.
2. (LO 1) Additions to plant assets are: a. revenue expenditures. b. debited to the Maintenance and Repairs Expense account. c. debited to the Purchases account. d. capital expenditures.
d. capital expenditures.
8. (LO 2) The current ratio is computed as: a. total assets divided by total liabilities. b. total assets divided by current liabilities. c. current assets divided by total liabilities. d. current assets divided by current liabilities.
d. current assets divided by current liabilities.
15. (LO 3) The department that should pay the payroll is the: a. timekeeping department. b. human resources department. c. payroll department. d. treasurer's department.
d. treasurer's department.
