Ass xam 7-9

Questions 1-2

[The following information applies to the questions displayed below.]

Vail Company recorded the following selected transactions during November 2015.

Date	General Journal	Debit	Credit
Nov. 5	Accounts Receivable—Ski Shop	5,896
	Sales		5,896
10	Accounts Receivable—Welcome Enterprises	2,849
	Sales		2,849
13	Accounts Receivable—Zia Natara	1,671
	Sales		1,671
21	Sales Returns and Allowances	431
	Accounts Receivable—Zia Natara		431
30	Accounts Receivable—Ski Shop	5,940
	Sales		5,940

1.

1.	Prepare a general ledger having T-accounts for Accounts Receivable, Sales, and Sales Returns and Allowances. Post these entries to both the general ledger and the accounts receivable ledger.

2.

2.	Prepare a schedule of accounts receivable.

	VAIL COMPANY Schedule of Accounts Receivable November 30, 2015 Ski Shop $11,836 Welcome Enterprises 2,849 Zia Natara 1,240 Total $15,925

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3.

At year-end (December 31), Chan Company estimates its bad debts as 0.80% of its annual credit sales of $652,000. Chan records its Bad Debts Expense for that estimate. On the following February 1, Chan decides that the $326 account of P. Park is uncollectible and writes it off as a bad debt. On June 5, Park unexpectedly pays the amount previously written off.

        

Prepare the journal entries for these transactions.

Date	General Journal	Debit	Credit
Dec 31	Bad debts expense	5,216
	Allowance for doubtful accounts		5,216
Feb 01	Allowance for doubtful accounts	326
	Accounts receivable—P. Park		326
Jun 05	Accounts receivable—P. Park	326
	Allowance for doubtful accounts		326
Jun 05	Cash	326
	Accounts receivable—P. Park		326

Explanation:

Dec 31

To record estimated bad debts expense (0.008 × $652,000) = $5,216

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4.

At each calendar year-end, Mazie Supply Co. uses the percent of accounts receivable method to estimate bad debts. On December 31, 2015, it has outstanding accounts receivable of $93,000, and it estimates that 6% will be uncollectible.

  

Prepare the adjusting entry to record bad debts expense for year 2015 under the assumption that the Allowance for Doubtful Accounts has:
(a)	a $1,581 credit balance before the adjustment.
(b)	a $465 debit balance before the adjustment.

Transaction	General Journal	Debit	Credit
(a)	Bad debts expense	3,999
	Allowance for doubtful accounts		3,999
(b)	Bad debts expense	6,045
	Allowance for doubtful accounts		6,045

Explanation:

(a)

Unadjusted balance	$	1,581	credit
Estimated balance ($93,000 × 0.06)		5,580	credit
Required adjustment	$	3,999	credit

  

(b)

Unadjusted balance	$	465	debit
Estimated balance ($93,000 × 0.06)		5,580	credit
Required adjustment	$	6,045	credit

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5.

Following are selected transactions for Ridge Company.

Mar.	21	Accepted a $13,600, 180-day, 8% note dated March 21 from Tamara Jackson in granting a time extension on her past-due account receivable.
Sept.	17	Jackson dishonors her note when it is presented for payment.
Dec.	31	After exhausting all legal means of collection, Ridge Company writes off Jackson’s account against the Allowance for Doubtful Accounts.

First, complete the table below to calculate the interest amounts at September 17. (Use 360 days a year.)

	Total Through Maturity Principal $13,600 Rate (%) 8 % Time 180/360 Total interest $544

Use the calculated value to prepare your journal entries.

Date	General Journal	Debit	Credit
Mar 21	Notes receivable—T. Jackson	13,600
	Accounts receivable—T. Jackson		13,600
Sept 17	Accounts receivable—T. Jackson	14,144
	Interest revenue		544
	Notes receivable—T. Jackson		13,600
Dec 31	Allowance for doubtful accounts	14,144
	Accounts receivable—T. Jackson		14,144

Explanation:

Sept.

17

Interest revenue = $13,600 × 0.08 × 180 / 360 = $544

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6.

The following information is from the annual financial statements of Raheem Company.

		2015			2014			2013
Net sales		$	317,000		$	248,000		$	289,000
Accounts receivable, net (year-end)			36,500			34,300			31,000

Compute its accounts receivable turnover for 2014 and 2015.

	Accounts Receivable Turnover Choose Numerator: / Choose Denominator: = Accounts Receivable Turnover Net sales / Average accounts receivable, net = Accounts receivable turnover 2014: $248,000 / $32,650 = 7.6 times 2015: $317,000 / $35,400 = 9.0 times

Explanation:

2014: 32,650= ($34,300 + $31,000) / 2

2015: 35,400= ($36,500 + $34,300) / 2

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Questions 7-8

[The following information applies to the questions displayed below.]

Rodriguez Company pays $320,000 for real estate plus $16,960 in closing costs. The real estate consists of land appraised at $184,000; land improvements appraised at $64,000; and a building appraised at $152,000.

7.

Allocate the total cost among the three purchased assets. (Round your "Apportioned Cost" answers to 2 decimal places.)

	Appraised Value Percent of Total Appraised Value x Total Cost of Acquisition = Apportioned Cost Land $184,000 46% × 336960 $155,001.60 Land improvements 64,000 16% × 336960 53,913.60 Building 152,000 38% × 336960 128,044.80 Totals $400,000 100% $336,960.00

Explanation: 

Total Cost of Acquisition = Purchase price 320,000 + Closing costs 16,960

8.

Prepare the journal entry to record the purchase. (Round your answers to 2 decimal places.)

Transaction	General Journal	Debit	Credit
01	Land	155,001.60
	Land improvements	53,913.60
	Building	128,044.80
	Cash		336,960.00

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9.

Apex Fitness Club uses straight-line depreciation for a machine costing $20,550, with an estimated four year life and a $2,600 salvage value. At the beginning of the third year, Apex determines that the machine has three more years of remaining useful life, after which it will have an estimated $2,150 salvage value.

(1)	Compute the machine’s book value at the end of its second year. (Do not round your intermediate calculations.)

	Book Value at the End of Year 2: Cost $20,550 Accumulated depreciation (8,975) Book value at point of revision 11,575

(2)	Compute the amount of depreciation for each of the final three years given the revised estimates. (Do not round your intermediate calculations. Round your answers to the nearest whole dollar.)

	Revised Annual Depreciation (Years 3-5) Book value at point of revision 11,575 Revised salvage value (2,150) Remaining depreciable cost 9,425 Years of life remaining 3 Revised annual depreciation years (3-5) $3,142

Explanation: 

(1) Two years' accumulated depreciation [($20,550 – $2,600) / 4 years] × 2 years = $8,975

(2) Revised annual depreciation = $9,425 / 3 years = $3,142

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10.

Rayya Co. purchases and installs a machine on January 1, 2015, at a total cost of $201,600. Straight-line depreciation is taken each year for four years assuming a eight-year life and no salvage value. The machine is disposed of on July 1, 2019, during its fifth year of service.

Prepare entries to record the partial year’s depreciation on July 1, 2019. (Round your intermediate calculations, and final answer to the nearest whole dollar.)

Date	General Journal	Debit	Credit
July 01, 2019	Depreciation expense	12,600
	Accumulated depreciation—Machinery		12,600

Prepare entries to record the disposal under the following separate assumptions:

The machine is sold for $100,800 cash.

Date	General Journal	Debit	Credit
July 01, 2019	Cash	100,800
	Accumulated depreciation—Machinery	113,400
	Gain on sale of machinery		12,600
	Machinery		201,600

An insurance settlement of $84,672 is received due to the machine’s total destruction in a fire.

Date	General Journal	Debit	Credit
July 01, 2019	Cash	84,672
	Loss from fire	3,528
	Accumulated depreciation—Machinery	113,400
	Machinery		201,600

Explanation:

Annual depreciation = $201,600 / 8 years = $25,200

Depreciation for 6 months in 2019 = $25,200 × 6/12 = $12,600

1 & 2.
Total accumulated depreciation at date of disposal:

Four years 2015-2018 (4 × $25,200)	$	100,800
Partial year 2019 (6/12 × $25,200)		12,600
Total accumulated depreciation	$	113,400

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11.

On April 2, 2015, Montana Mining Co. pays $3,302,510 for an ore deposit containing 1,522,000 tons. The company installs machinery in the mine costing $153,500, with an estimated seven-year life and no salvage value. The machinery will be abandoned when the ore is completely mined. Montana begins mining on May 1, 2015, and mines and sells 155,000 tons of ore during the remaining eight months of 2015.

Prepare the December 31, 2015, entries to record both the ore deposit depletion and the mining machinery depreciation. Mining machinery depreciation should be in proportion to the mine’s depletion. (Do not round intermediate calculations. Round your final answers to the nearest whole number.)

Date	General Journal	Debit	Credit
Dec 31	Depletion expense—Mineral deposit	336,327
	Accumulated depletion—Mineral deposit		336,327
Dec 31	Depreciation expense—Machinery	15,632
	Accumulated depreciation—Machinery		15,632

Explanation:

To record depletion: [$3,302,510 / 1,522,000 tons = $2.169849 per ton; 155,000 tons × $2.169849 = $336,327]

To record depreciation: [$153,500 / 1,522,000 tons = $0.100854 per ton; 155,000 tons × $0.100854 = $15,632]

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12.

Champion Contractors completed the following transactions and events involving the purchase and operation of equipment in its business.

2014
Jan.	1	Paid $318,000 cash plus $12,720 in sales tax and $1,500 in transportation (FOB shipping point) for a new loader. The loader is estimated to have a four-year life and a $31,800 salvage value. Loader costs are recorded in the Equipment account.
Jan.	3	Paid $6,000 to enclose the cab and install air-conditioning in the loader to enable operations under harsher conditions. This increased the estimated salvage value of the loader by another $1,800.
Dec.	31	Recorded annual straight-line depreciation on the loader.

2015
Jan.	1	Paid $4,500 to overhaul the loader’s engine, which increased the loader’s estimated useful life by two years.
Feb.	17	Paid $1,125 to repair the loader after the operator backed it into a tree.
Dec.	31	Recorded annual straight-line depreciation on the loader.

Required:

Prepare journal entries to record these transactions and events.

Date	General Journal	Debit	Credit
Jan 01, 2014	Equipment	332,220
	Cash		332,220
Jan 03, 2014	Equipment	6,000
	Cash		6,000
Dec 31, 2014	Depreciation expense—Equipment	76,155
	Accumulated depreciation—Equipment		76,155
Jan 01, 2015	Equipment	4,500
	Cash		4,500
Feb 17, 2015	Repairs expense—Equipment	1,125
	Cash		1,125
Dec 31, 2015	Depreciation expense—Equipment	46,593
	Accumulated depreciation—Equipment		46,593

Explanation:

Jan. 1, 2014:

To record loader costs ($318,000 + $12,720 + $1,500) = $332,220

Dec. 31, 2014:

2014 depreciation after January 3rd betterment
Total original cost	$	332,220
Plus cost of betterment		6,000
Revised cost of equipment		338,220
Less revised salvage ($31,800 + $1,800)		33,600
Cost to be depreciated		304,620
Annual depreciation ($304,620 / 4 years)	$	76,155

Dec. 31, 2015:

2015 depreciation after January 1st extraordinary repair
Total cost ($338,220 + $4,500)	$	342,720
Less accumulated depreciation		76,155
Book value		266,565
Less salvage		33,600
Remaining cost to be depreciated	$	232,965
Revised remaining useful life (Original 4 years – 1yr. + 2yrs.)		5.0	yrs.
Revised annual depreciation ($232,965 / 5 yrs)	$	46,593

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13.

Keesha Co. borrows $180,000 cash on November 1, 2015, by signing a 120-day, 7% note with a face value of $180,000.

1.	On what date does this note mature? Assume a 365 day year.
	March 01, 2016.

2-3.	What is the amount of interest expense in 2015 and 2016 from this note? (Use 360 days a year. Do not round intermediate calculations.)

	Total through maturity Interest Expense 2015 Interest Expense 2016 Principal $180,000 $180,000 $180,000 Rate (%) 7% 7% 7% Time 120/360 60/360 60/360 Total interest $4,200 $2,100 $2,100

4.	Prepare journal entries to record (a) issuance of the note, (b) accrual of interest at the end of 2015, and (c) payment of the note at maturity. (Use 360 days a year. Do not round intermediate calculations.)

Transaction	General Journal	Debit	Credit
(a)	Cash	180,000
	Notes payable		180,000
(b)	Interest expense	2,100
	Interest payable		2,100
(c)	Interest expense	2,100
	Interest payable	2,100
	Notes payable	180,000
	Cash		184,200

Explanation:

(1) Maturity date = November 1 + 120 days = March 01, 2016.

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14.

BMX Company has one employee. FICA Social Security taxes are 6.20% of the first $117,000 paid to its employee, and FICA Medicare taxes are 1.45% of gross pay. For BMX, its FUTA taxes are 0.60% and SUTA taxes are 2.90% of the first $7,000 paid to its employee.

	Gross Pay through August					Gross Pay for September
a.		$	5,600				$	2,800
b.			16,800					3,300
c.			104,000					20,700

Compute BMX’s amounts for each of these four taxes as applied to the employee’s gross earnings for September under each of three separate situations (a), (b), and (c). (Round your answers to 2 decimal places.)

a) Tax September Earnings Subject to Tax Tax Rate Tax Amount FICA—Social Security $2,800.00 6.20% $173.60 FICA—Medicare 2,800.00 1.45% 40.60 FUTA 1,400.00 0.60% 8.40 SUTA 1,400.00 2.90% 40.60 b) Tax September Earnings Subject to Tax Tax Rate Tax Amount FICA—Social Security $3,300.00 6.20% $204.60 FICA—Medicare 3,300.00 1.45% 47.85 FUTA 0.00 SUTA 0.00 c) Tax September Earnings Subject to Tax Tax Rate Tax Amount FICA—Social Security $13,000.00 6.20% $806.00 FICA—Medicare 20,700.00 1.45% 300.15 FUTA 0.00 SUTA 0.00

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15.

BMX Company has one employee. FICA Social Security taxes are 6.20% of the first $117,000 paid to its employee, and FICA Medicare taxes are 1.45% of gross pay. For BMX, its FUTA taxes are 0.60% and SUTA taxes are 2.90% of the first $7,000 paid to its employee.

	Gross Pay through August		Gross Pay for September
a.	$	5,600	$	2,700

Prepare the employer’s September 30 journal entries to record salary expense and its related payroll liabilities for this employee. The employee’s federal income taxes withheld by the employer are $418.50 for this pay period. (Round your answers to 2 decimal places.)

	Taxes to be Withheld From Gross Pay (Employee-Paid Taxes) September Earnings Subject to Tax Tax Rate Tax Amount Federal income tax $418.50 FICA—Social Security $2,700.00 6.20% 167.40 FICA—Medicare 2,700.00 1.45% 39.15 Total taxes withheld $625.05

Date	General Journal	Debit	Credit
Sep 30	Salaries expense	2,700.00
	FICA—Social sec. taxes payable		167.40
	FICA—Medicare taxes payable		39.15
	Employee fed. inc. taxes payable		418.50
	Salaries payable		2,074.95

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16.

Hitzu Co. sold a copier costing $4,500 with a two-year parts warranty to a customer on August 16, 2015, for $9,000 cash. Hitzu uses the perpetual inventory system. On November 22, 2016, the copier requires on-site repairs that are completed the same day. The repairs cost $133 for materials taken from the Repair Parts Inventory. These are the only repairs required in 2016 for this copier. Based on experience, Hitzu expects to incur warranty costs equal to 4% of dollar sales. It records warranty expense with an adjusting entry at the end of each year.

1.	How much warranty expense does the company report in 2015 for this copier?

	Warranty expense $360

2.	How much is the estimated warranty liability for this copier as of December 31, 2015?

	Estimated warranty liability $360

3.	How much warranty expense does the company report in 2016 for this copier?

	Warranty expense $0

4.	How much is the estimated warranty liability for this copier as of December 31, 2016?

	Estimated warranty liability $227

5.	Prepare journal entries to record (a) the copier’s sale; (b) the adjustment on December 31, 2015, to recognize the warranty expense; and (c) the repairs that occur in November 2016.

Date	General Journal	Debit	Credit
Aug. 16, 2015	Cash	9,000
	Sales		9,000
Aug. 16, 2015	Cost of goods sold	4,500
	Merchandise inventory		4,500
Dec. 31, 2015	Warranty expense	360
	Estimated warranty liability		360
Nov. 22, 2016	Estimated warranty liability	133
	Repair parts inventory		133

Explanation:
(1) Warranty expense = 4% of dollar sales = 4% × $9,000 = $360.

(4) 

Beginning 2016 balance	$	360
Less parts cost		(133)
Ending 2016 balance	$	227