Accounting Chapters 10 - 12

Sales taxes collected by a retailer are reported as

Current liabilities

The four subdivisions for plant assets are

land, land improvements, buildings, and equipment

The Salinas-Milliken partnership is terminated when creditor claims exceed partnership assets by $80,000. Salinas is a millionaire and Milliken has no personal assets. Milliken's partnership interest is 75% and Salinas's is 25%. Creditors

may collect the entire $80,000 from Salinas

FICA Taxes

Provide workers with retirement, employment disability, and medical benefits

The partner in a limited partnership that has unlimited liability is referred to as

a general partner

Mott Company uses the units-of-activity method in computing depreciation. A new plant asset is purchased for $48,000 that will produce an estimated 100,000 units over its useful life. Estimated salvage value at the end of its useful life is $4,000. What is the depreciation cost per unit?

$.44 ($48,000 - 4,000) ÷ 100,000 = $.44

The interest charged on a $100,000 note payable, at the rate of 6%, on a 2-month note would be

$1,000 $100,000 × .06 × 2/12 = $1,000

A company purchased factory equipment on April 1, 2017 for $160,000. It is estimated that the equipment will have a $20,000 salvage value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2017 is

$10,500 [($160,000 - $20,000) ÷ 10] × 9/12 = $10,500

In liquidation, balances prior to the distribution of cash to the partners are: Cash $240,000; Paley, Capital $112,000; Stengel, Capital $104,000, and King, Capital $24,000. The income ratio is 6:2:2, respectively. How much cash should be distributed to Paley?

$112,000

Assuming a FICA tax rate of 7.65% on the first $117,000 in wages, 1.45% on amounts in excess of $117,000, and a federal income tax rate of 20% on all wages, what would be an employee's net pay for the year if he earned $180,000 for the year?

$133,953 ($117,000 × .0765) + ($63,000 × .0145) + ($180,000 × .20) = $46,047; $180,000 - $46,047 = $133,953

Equipment costing $70,000 with a salvage value of $14,000 and an estimated life of 8 years has been depreciated using the straight-line method for 2 years. Assuming a revised estimated total life of 5 years and no change in the salvage value, the depreciation expense for year 3 would be

$14,000 [($70,000 - $14,000) ÷ 8] × 2 = $14,000; ($70,000 - $14,000 - $14,000) ÷ 3 = $14,000

A company purchased factory equipment for $700,000. It is estimated that the equipment will have a $70,000 salvage value at the end of its estimated 5-year useful life. If the company uses the double-declining-balance method of depreciation, the amount of annual depreciation recorded for the second year after purchase would be

$168,000 ($700,000 - 0) × .40 = $280,000; ($700,000 - $280,000) × .40 = $168,000

Mandy, Annie, and Tammy formed a partnership with income-sharing ratios of 50%, 30%, and 20%, respectively. Cash of $300,000 was available after the partnership's assets were liquidated. Prior to the final distribution of cash, Mandy's capital balance was $200,000, Annie's capital balance was $150,000, and Tammy had a capital deficiency of $50,000. Assuming Tammy contributes cash to match her capital deficiency, Mandy should receive

$200,000

Mary Jessica's capital statement reveals that her drawings during the year were $50,000. She made an additional capital investment of $25,000 and her share of the net loss for the year was $10,000. Her ending capital balance was $200,000. What was Jessica's beginning capital balance?

$235,000 X + $25,000 - $50,000 - $10,000 = $200,000; X = $235,000

Sargent Corporation bought equipment on January 1, 2017. The equipment cost $360,000 and had an expected salvage value of $60,000. The life of the equipment was estimated to be 6 years. Assuming straight-line deprecation, the book value of the equipment at the beginning of the third year would be

$260,000 ($360,000 - $60,000) ÷ 6 = $50,000; $360,000 - ($50,000 × 2) = $260,000

A factory machine was purchased for $375,000 on January 1, 2017. It was estimated that it would have a $75,000 salvage value at the end of its 5-year useful life. It was also estimated that the machine would be run 40,000 hours in the 5 years. The company ran the machine for 4,000 actual hours in 2017. If the company uses the units-of-activity method of depreciation, the amount of depreciation expense for 2017 would be

$30,000 [($375,000 - $75,000) ÷ 40,000] × 4,000 = $30,000

Angie's Blooms purchased a delivery van with a list price of $40,000. The company was given a $4,000 cash discount by the dealer, and paid $2,000 sales tax. Annual insurance on the van is $1,000. As a result of the purchase, by how much will Angie's Blooms increase its van account?

$38,000 $40,000 - $4,000 + $2,000 = $38,000

Powell's Courier Service recorded a loss of $9,000 when it sold a van that originally cost $84,000 for $15,000. Accumulated depreciation on the van must have been

$60,000 $15,000 - ($84,000 - x) = ($9,000); x = $60,000

A computer company has $2,800,000 in research and development costs. Before accounting for these costs, the net income of the company is $2,000,000. What is the amount of net income or loss after these R & D costs are accounted for?

$800,000 loss $2,000,000 - $2,800,000 = -$800,000

Equipment with a cost of $400,000 has an estimated salvage value of $25,000 and an estimated life of 4 years or 15,000 hours. It is to be depreciated using the units-of-activity method. What is the amount of depreciation for the first full year, during which the equipment was used 3,300 hours

$82,500 ($400,000 - $25,000) ÷ 15,000 = $25; $3,300 × $25 = $82,50

Income Taxes - 3 variables

1) employees' gross earnings 2) number of allowances claimed by employee 3) length of the pay period

The partnership agreement of Alix, Gise, and Bosco provides for the following income ratio: (a) Alix, the managing partner, receives a salary allowance of $108,000, (b) each partner receives 15% interest on average capital investment, and (c) remaining net income or loss is divided equally. The average capital investments for the year were: Alix $600,000, Gise $1,200,000, and Bosco $1,800,000. If partnership net income is $540,000, the amount distributed to Alix should be

162,000 $540,000 - $108,000 - (.15) ($600,000 + $1,200,000 + $1,800,000) = - $108,000; $108,000 + (.15) ($600,000) + (- 108,000 ÷ 3) = + 162,000

The amortization period for a patent cannot exceed

20 years

A truck was purchased for $180,000 and it was estimated to have a $36,000 salvage value at the end of its useful life. Monthly depreciation expense of $3,000 was recorded using the straight-line method. The Annual Depreciation Rate is

25%. ($3,000 × 12) ÷ ($180,000 - $36,000

A plant asset was purchased on January 1 for $60,000 with an estimated salvage value of $12,000 at the end of its useful life. The current year's Depreciation Expense is $6,000 calculated on the straight-line basis and the balance of the Accumulated Depreciation account at the end of the year is $30,000. The remaining useful life of the

3 years ($60,000 - $12,000) ÷ 6,000 = 8; 8 - ($30,000 ÷ $6,000) = 3

Current Liability Definition

A current liability is a debt that a company expects to pay within one year or the operating cycle.

Unearned Revenues

Advances from Customers When unearned: Debit to Cash, Credit to a current liability account When earned: Debit to Unearned Revenue, Credit to a revenue account

The balance in the Accumulated Depreciation account represents the

Amount charged to expense since the acquisition of the plant asset

Current Ratio

Current Assets / Current Liabilities

All of the following are characteristics of partnerships except mutual agency. B. co-ownership of property. C. unlimited life. D. association of individuals

C. Unlimited Life

Which of the following is not a necessary action that the partnership must take upon the death of a partner? A. Close the books. B. Prepare financial statements. C. Determine the net income or net loss for the year to date. D. Discontinue business operations.

D. Discontinue business operations.

An entry is not required in the liquidation of a partnership to record the A. distribution of cash to the partners. B. payment of cash to creditors. C. sale of noncash assets. D. allocation of a capital deficiency to partners with credit balances when the deficient partner is expected to pay the deficiency.

D. allocation of a capital deficiency to partners with credit balances when the deficient partner is expected to pay the deficiency.

The following assets decline in service potential over the course of its useful life

Equipment Fixtures Furnishings

Employer payroll taxes include all of the following

FICA taxes. State unemployment taxes Federal unemployment taxes

The accounting for warranty cost is based on the expense recognition principle, which requires that the estimated cost of honoring warranty contracts should be recognized as an expense

In the period in which the product was sold

The following statements concerning financial statement presentation are true

Intangibles are reported separately under Intangible Assets The balances of the accumulated depreciation of major classes of assets may be disclosed in the footnotes The balances of major classes of assets may be disclosed in the footnotes.

On October 1, Eli's Carpet Service borrows $125,000 from First District Bank on a 3-month, $125,000, 8% note. What entry must Eli's Carpet Service make on December 31 before financial statements are prepared?

Interest Expense 2,500 Notes Payable 2,500 $125,000 × .08 × 3/12 = $2,500

The amount of income taxes withheld from employees is dependent on each of the following

Length of the pay period Number of allowances claimed by the employee Employee's gross earnings

Current Liabilities Include:

Notes Payable Accounts Payable Unearned Revenues Accrued Liabilities

On October 1, Eli's Carpet Service borrows $125,000 from First National Bank on a 3-month, $125,000, 8% note. The entry by Eli's Carpet Service to record payment of the note and accrued interest on January 1 is

Notes Payable 125,000 Interest Payable 2,500 Cash 127,500

Notes Payable Definition

Obligations in the form on written notes that usually require the borrower to pay interest At maturity, Notes Payable is debited for the face value and Interest Payable is debited for accrued interest

Sales taxes collected by a retailer are expenses

Of the customers

The owner's equity statement for partnership is called the

Partner's capital statement

Payroll

Pertains to both salaries and wages of employees

Sales Taxes Payable

Sales tax is expressed as a percentage. Cash..................XXXX Sales Revenue............XXXX Sales Taxes Payble.....XXXX

The treasurer's department is responsible for

Signing payroll checks

Net Pay

Subtract payroll deductions from gross earnings

Julie contributes, as part of her initial investment, accounts receivable with an allowance for doubtful accounts. Which of the following reflects a proper treatment?

The allowance account may be set up on the books of the partnership because it relates to the existing accounts that are being contributed

True or False Neither salaries to partners nor interest on partners' capital are expenses of the partnership

True

True or False The liquidation of a partnership may result from the retirement of a partner

True

Rogers and Wissinger have partnership capital balances of $576,000 and $432,000, respectively. Wissinger negotiates to sell his partnership interest to Mergenthaler for $504,000. Rogers agrees to accept Mergenthaler as a new partner. The partnership entry to record this transaction is

Wissinger, Capital 432,000 Mergenthaler, Capital 432,000

Current maturities of long-term debt

can be properly classified during balance sheet preparation, with no adjusting entry required

Depreciation is a process of

cost allocation

Nate is investing in a partnership with Deidre. Nate contributes as part of his initial investment, Accounts Receivable of $60,000; an Allowance for Doubtful Accounts of $9,000; and $6,000 cash. The entry that the partnership makes to record Nate's initial contribution includes a

credit to Nate, Capital for $57,000 $60,000 - $9,000 + $6,000 = $57,000

A bonus to a new partner will

decrease the capital balances of existing partners based on their income ratios before the admission of the new partner

An asset that cannot be sold individually in the market place is

goodwill.

The partnership agreement of Ashford and Cohen provides for salary allowances of $90,000 to Ashford and $70,000 to Cohen, with the remaining income or loss to be divided equally. During the year, Ashford and Cohen each withdraw cash equal to 80% of their salary allowances. If partnership net income is $200,000, Ashford's equity in the partnership would

increase more than Cohen's

When admitting a new partner by investment, a bonus to old partners

is sometimes justified because goodwill may exist and it is not reflected in the accounts

If disposal of a plant asset occurs during the year, depreciation is

recorded for the fraction of the year to the date of the disposal

A change in the estimated useful life of equipment requires

that the amount of periodic depreciation be changed in the current year and in future years