Ass xam 7-9 +

Liang Company began operations on January 1, 2014. During its first two years, the company completed a number of transactions involving sales on credit, accounts receivable collections, and bad debts. These transactions are summarized as follows.

2014
a.	Sold $1,351,300 of merchandise (that had cost $981,500) on credit, terms n/30.
b.	Wrote off $20,900 of uncollectible accounts receivable.
c.	Received $669,100 cash in payment of accounts receivable.
d.	In adjusting the accounts on December 31, the company estimated that 3.00% of accounts receivable will be uncollectible.

2015
e.	Sold $1,529,300 of merchandise (that had cost $1,277,800) on credit, terms n/30.
f.	Wrote off $32,600 of uncollectible accounts receivable.
g.	Received $1,137,900 cash in payment of accounts receivable.
h.	In adjusting the accounts on December 31, the company estimated that 3.00% of accounts receivable will be uncollectible.

Required:

Prepare journal entries to record Liang’s 2014 summarized transactions and its year-end adjustments to record bad debts expense. (The company uses the perpetual inventory system and it applies the allowance method for its accounts receivable.) (Round your intermediate calculations to the nearest dollar amount.)

Transaction	General Journal	Debit	Credit
a(1)	Accounts receivable	1,351,300
	Sales		1,351,300

a(2)	Cost of good sold	981,500
	Merchandise inventory		981,500

b.	Allowance for doubtful accounts	20,900
	Accounts receivable		20,900

c.	Cash	669,100
	Accounts receivable		669,100

d.	Bad debts expense	40,739
	Allowance for doubtful accounts		40,739

Prepare journal entries to record Liang’s 2015 summarized transactions and its year-end adjustments to record bad debts expense. (The company uses the perpetual inventory system and it applies the allowance method for its accounts receivable.) (Round your intermediate calculations to the nearest dollar amount.)

Transaction	General Journal	Debit	Credit
e(1)	Accounts receivable	1,529,300
	Sales		1,529,300

e(2)	Cost of good sold	1,277,800
	Merchandise inventory		1,277,800

f.	Allowance for doubtful accounts	32,600
	Accounts receivable		32,600

g.	Cash	1,137,900
	Accounts receivable		1,137,900

h.	Bad debts expense	43,364
	Allowance for doubtful accounts		43,364

Explanation:

2014


Beginning receivables	$	0
Credit sales		1,351,300
Collections		(669,100)
Write-offs		(20,900)

Ending receivables		661,300
Percent uncollectible		× 3.00%

Required ending allowance		19,839**	Cr.
Unadjusted balance		20,900	Dr.

Adjustment to the allowance	$	40,739	Cr.

**rounded to nearest dollar

2015


Beginning receivables			$	661,300
Credit sales				1,529,300
Collections				(1,137,900)
Write-offs				(32,600)

Ending receivables				1,020,100
Percent uncollectible				× 3.00%

Required ending allowance				30,603**	Cr.
Unadjusted balance
Beginning (Cr.)	$	19,839
Write-offs (Dr.)		32,600		12,761	Dr.

Adjustment to the allowance			$	43,364	Cr.

**rounded to nearest dollar

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Questions 2-4

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

At December 31, 2015, Hawke Company reports the following results for its calendar year.


Cash sales	$	1,482,360
Credit sales		2,829,000

In addition, its unadjusted trial balance includes the following items.


Accounts receivable	$	857,187	debit
Allowance for doubtful accounts		22,910	debit

Required:
1.	Prepare the adjusting entry for this company to recognize bad debts under each of the following independent assumptions.

a.	Bad debts are estimated to be 3% of credit sales.
b.	Bad debts are estimated to be 2% of total sales.
c.	An aging analysis estimates that 6% of year-end accounts receivable are uncollectible.

Adjusting entries (all dated December 31, 2015). (Round your final answers to the nearest whole dollar.)

Transaction	General Journal	Debit	Credit
a.	Bad debts expense	84,870
	Allowance for doubtful accounts		84,870

b.	Bad debts expense	86,227
	Allowance for doubtful accounts		86,227

c.	Bad debts expense	74,341
	Allowance for doubtful accounts		74,341

Explanation:

Dec 31, 2015
a.	Expense is 3% of credit sales:
	To record estimated bad debts [$2,829,000 × 0.03] = $84,870
b.	Expense is 2% of total sales:
	To record estimated bad debts [($1,482,360 + $2,829,000) × 0.02] = $86,227
c.	Allowance is 6% of accounts receivable:


Unadjusted balance	$	22,910	debit
Estimated balance ($857,187 × 6%)		51,431	credit

Required adjustment	$	74,341	credit

2.	Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its December 31, 2015, balance sheet given the facts in part 1a.


Current assets:
Accounts receivable	$857,187
Less: Allowance for doubtful accounts	(61,960)	$795,227

Explanation:

Dec 31
a.	Expense is 3% of credit sales:
	To record estimated bad debts [$2,829,000 × 0.03] = $84,870


Adjustment to the allowance	$	84,870	Credit
Unadjusted allowance balance		22,910	Debit

Adjusted balance	$	61,960	Credit

3.	Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its December 31, 2015, balance sheet given the facts in part 1c. (Round your intermediate and final answers to the nearest whole dollar.)


Current assets:
Accounts receivable	$857,187
Less: Allowance for doubtful accounts	(51,431)	$805,756

Explanation:

Allowance for doubtful accounts = ($857,187 × 6%) = $51,431

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Questions 5-6

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

Jarden Company has credit sales of $2.80 million for year 2015. On December 31, 2015, the company’s Allowance for Doubtful Accounts has an unadjusted credit balance of $22,260. Jarden prepares a schedule of its December 31, 2015, accounts receivable by age. On the basis of past experience, it estimates the percent of receivables in each age category that will become uncollectible. This information is summarized here.

December 31, 2015 Accounts Receivable		Age of Accounts Receivable	Expected Percent Uncollectible
$	560,000	Not yet due	1.35	%
	224,000	1 to 30 days past due	2.10
	44,800	31 to 60 days past due	6.60
	22,400	61 to 90 days past due	33.25
	4,480	Over 90 days past due	69.00

Required:
1.	Estimate the required balance of the Allowance for Doubtful Accounts at December 31, 2015, using the aging of accounts receivable method.

	Accounts Receivable		Percent Uncollectible (#.##%)			Estimated Uncollectible
Not due:	$560,000	x	1.35	%	=	$7,560
1 to 30:	224,000	x	2.10	%	=	4,704
31 to 60:	44,800	x	6.60	%	=	2,957
61 to 90:	22,400	x	33.25	%	=	7,448
Over 90:	4,480	x	69.00	%	=	3,091
Estimated balance of allowance for uncollectibles						$25,760	credit

2.	Prepare the adjusting entry to record bad debts expense at December 31, 2015. (Round your intermediate and final answers to the nearest whole dollar.)

Date	General Journal	Debit	Credit
Dec 31	Bad debts expense	3,500
	Allowance for doubtful accounts		3,500

Explanation:


Unadjusted balance	$	22,260	credit
Estimated balance		25,760	credit

Required adjustment	$	3,500	credit

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Timberly Construction negotiates a lump-sum purchase of several assets from a company that is going out of business. The purchase is completed on January 1, 2015, at a total cash price of $840,000 for a building, land, land improvements, and four vehicles. The estimated market values of the assets are building, $477,500; land, $286,500; land improvements, $47,750; and four vehicles, $143,250. The company’s fiscal year ends on December 31.

Required:
1.1	Prepare a table to allocate the lump-sum purchase price to the separate assets purchased.

Allocation of total cost	Appraised Value	Percent of Total Appraised Value	x	Total cost of Acquisition	Apportioned Cost
Building	$477,500	50%	x	$840,000	$420,000
Land	286,500	30%	x	$840,000	252,000
Land improvements	47,750	5%	x	$840,000	42,000
Vehicles	143,250	15%	x	$840,000	126,000
Total	$955,000	100%			$840,000

1.2

Prepare the journal entry to record the purchase.

Date	General Journal	Debit	Credit
Jan 01	Building	420,000
	Land	252,000
	Land improvements	42,000
	Vehicles	126,000
	Cash		840,000

2.	Compute the depreciation expense for year 2015 on the building using the straight-line method, assuming a 15-year life and a $28,000 salvage value. (Round your answers to the nearest whole dollar.)

Depreciation expense on building

$26,133

3.	Compute the depreciation expense for year 2015 on the land improvements assuming a five-year life and double-declining-balance depreciation.

Depreciation expense on land improvements

$16,800

Explanation:

(2) Year 2015 straight-line depreciation on building

[($420,000 – $28,000) / 15 years] = $26,133

(3) Year 2015 double-declining-balance depreciation on land improvements (100% / 5 years) × 2 = 40% rate

$42,000 × 40% = $16,800

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

*2014*
Jan.	1	Paid $290,000 cash plus $11,600 in sales tax and $1,900 in transportation (FOB shipping point) for a new loader. The loader is estimated to have a four-year life and a $29,000 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 $4,300 to overhaul the loader’s engine, which increased the loader’s estimated useful life by two years.
Feb.	17	Paid $1,075 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	303,500
	Cash		303,500

Jan 03, 2014	Equipment	6,000
	Cash		6,000

Dec 31, 2014	Depreciation expense—Equipment	69,675
	Accumulated depreciation—Equipment		69,675

Jan 01, 2015	Equipment	4,300
	Cash		4,300

Feb 17, 2015	Repairs expense—Equipment	1,075
	Cash		1,075

Dec 31, 2015	Depreciation expense—Equipment	42,665
	Accumulated depreciation—Equipment		42,665

Explanation:

Jan. 1, 2014:

To record loader costs ($290,000 + $11,600 + $1,900) = $303,500

Dec. 31, 2014:

2014 depreciation after January 3^rd betterment
Total original cost	$	303,500
Plus cost of betterment		6,000

Revised cost of equipment		309,500
Less revised salvage ($29,000 + $1,800)		30,800

Cost to be depreciated		278,700

Annual depreciation ($278,700 / 4 years)	$	69,675

Dec. 31, 2015:

2015 depreciation after January 1^st extraordinary repair
Total cost ($309,500 + $4,300)	$	313,800
Less accumulated depreciation		69,675

Book value		244,125
Less salvage		30,800

Remaining cost to be depreciated	$	213,325

Revised remaining useful life (Original 4 years – 1yr. + 2yrs.)		5.0	yrs.

Revised annual depreciation ($213,325 / 5 yrs)	$	42,665

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On January 8, the end of the first weekly pay period of the year, Regis Company's payroll register showed that its employees earned $27,760 of office salaries and $60,840 of sales salaries. Withholdings from the employees' salaries include FICA Social Security taxes at the rate of 6.20%, FICA Medicare taxes at the rate of 1.45%, $13,260 of federal income taxes, $1,350 of medical insurance deductions, and $820 of union dues. No employee earned more than $7,000 in this first period.

Required:
1.1	Calculate below the amounts for each of these four taxes of Regis Company. Regis’s merit rating reduces its state unemployment tax rate to 4% of the first $7,000 paid each employee. The federal unemployment tax rate is 0.60%. (Round your answers to 2 decimal places.)

Regis Company’s:
Tax	January 8 earnings subject to tax	Tax Rate	Tax Amount
FICA-Social Security	$88,600	6.20%	5,493.20
FICA-Medicare	88,600	1.45%	1,284.70
FUTA	88,600	0.60%	531.60
SUTA	88,600	4.00%	3,544.00

1.2

Prepare the journal entry to record Regis Company's January 8 (employee) payroll expenses and liabilities. (Round your answers to 2 decimal places.)

Date	General Journal	Debit	Credit
Jan 08	Office salaries expense	27,760.00
	Sales salaries expense	60,840.00
	FICA—Social sec. taxes payable		5,493.20
	FICA—Medicare taxes payable		1,284.70
	Employee fed. inc. taxes payable		13,260.00
	Employee medical insurance payable		1,350.00
	Employee union dues payable		820.00
	Salaries payable		66,392.10

Prepare the journal entry to record Regis’s (employer) payroll taxes resulting from the January 8 payroll. Regis’s merit rating reduces its state unemployment tax rate to 4% of the first $7,000 paid each employee. The federal unemployment tax rate is 0.60%. (Round your answers to 2 decimal places.)

Date	General Journal	Debit	Credit
Jan 08	Payroll taxes expense	10,853.50
	FICA—Social sec. taxes payable		5,493.20
	FICA—Medicare taxes payable		1,284.70
	State unemployment taxes payable		3,544.00
	Federal unemployment taxes payable		531.60

Explanation:

1.2

To record payroll for period.

FICA—Social sec. taxes payable = $88,600 × 6.20% = $5,493.20

FICA—Medicare taxes payable = $88,600 × 1.45% = $1,284.70

To record employer payroll taxes.

State unemployment taxes payable = $88,600 × 0.04 = $3,544.00

Federal unemployment taxes payable = $88,600 × 0.006 = $531.60

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Questions 10-11

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

On October 29, 2014, Lobo Co. began operations by purchasing razors for resale. Lobo uses the perpetual inventory method. The razors have a 90-day warranty that requires the company to replace any nonworking razor. When a razor is returned, the company discards it and mails a new one from Merchandise Inventory to the customer. The company's cost per new razor is $13 and its retail selling price is $70 in both 2014 and 2015. The manufacturer has advised the company to expect warranty costs to equal 7% of dollar sales. The following transactions and events occurred.

2014

Nov.	11	Sold 70 razors for $4,900 cash.
	30	Recognized warranty expense related to November sales with an adjusting entry.
Dec.	9	Replaced 14 razors that were returned under the warranty.
	16	Sold 210 razors for $14,700 cash.
	29	Replaced 28 razors that were returned under the warranty.
	31	Recognized warranty expense related to December sales with an adjusting entry.

2015

Jan.	5	Sold 140 razors for $9,800 cash.
	17	Replaced 33 razors that were returned under the warranty.
	31	Recognized warranty expense related to January sales with an adjusting entry.

10.

1.1

Prepare journal entries to record these transactions and adjustments for 2014.

Date	General Journal	Debit	Credit
Nov 11	Cash	4,900
	Sales		4,900

Nov 11	Cost of goods sold	910
	Merchandise inventory		910

Nov 30	Warranty expense	343
	Estimated warranty liability		343

Dec 09	Estimated warranty liability	182
	Merchandise inventory		182

Dec 16	Cash	14,700
	Sales		14,700

Dec 16	Cost of goods sold	2,730
	Merchandise inventory		2,730

Dec 29	Estimated warranty liability	364
	Merchandise inventory		364

Dec 31	Warranty expense	1,029
	Estimated warranty liability		1,029

Nov. 11, 2014

To record cost of November 11 sale (70 × $13) = $910

Nov. 30, 2014

To record razor warranty expense and liability at 7% of selling price = $343

Dec. 9, 2014

To record cost of razor warranty replacements (14 × $13) = $182

Dec. 16, 2014

To record cost of December 16 sale (210 × $13) = $2,730

Dec. 29, 2014

To record cost of razor warranty replacements (28 × $13) = $364

Dec. 31, 2014

To record razor warranty expense and liability at 7% of selling price = $1,029

1.2

Prepare journal entries to record these transactions and adjustments for 2015.

Date	General Journal	Debit	Credit
Jan 05	Cash	9,800
	Sales		9,800

Jan 05	Cost of goods sold	1,820
	Merchandise inventory		1,820

Jan 17	Estimated warranty liability	429
	Merchandise inventory		429

Jan 31	Warranty expense	686
	Estimated warranty liability		686

Jan. 5, 2015

To record cost of January 5 sale (140 × $13) = $1,820

Jan. 17, 2015

To record cost of razor warranty replacements (33 × $13) = $429

Jan. 31, 2015

To record razor warranty expense and liability at 7% of selling price = $686

11.

2.	How much warranty expense is reported for November 2014 and for December 2014?


Warranty expense for November 2014	$343
Warranty expense for December 2014	$1,029

3.	How much warranty expense is reported for January 2015?

Warranty expense

$686

4.	What is the balance of the Estimated Warranty Liability account as of December 31, 2014?

Estimated warranty liability balance

$826

5.	What is the balance of the Estimated Warranty Liability account as of January 31, 2015?

Estimated warranty liability balance

$1,083

Explanation:

(4)


Warranty expense for November	$	343		credit
Warranty expense for December		1,029		credit
Cost of replacing items in December (42 × $13)		(546	)	debit

Estimated warranty liability balance	$	826		credit

(5)


Beginning balance	$	826		credit
Warranty expense for January		686		credit
Cost of replacing items in January (33 × $13)		(429	)	debit

Estimated warranty liability balance	$	1,083		credit

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Axle Co.'s accounts receivable turnover was 9.9 for this year and 11.0 for last year. Betterman's turnover was 9.3 for this year and 9.3 for last year. These results imply that:

Axle has the better turnover for both years.

The total cost of an asset less its accumulated depreciation is called:

Book value.

The depreciation method that charges the same amount of expense to each period of the asset's useful life is called:

Straight-line depreciation.

In the accounting records of a defendant, lawsuits:

Should be recorded if payment for damages is probable and the amount can be reasonably estimated.

Obligations to be paid within one year or the company's operating cycle, whichever is longer, are:

Current liabilities.

All of the following are true of known liabilities except:

May depend on some future event occurring.

Amortization is:

The systematic allocation of the cost of an intangible asset to expense over its estimated useful life.

The interest accrued on $7,500 at 6% for 90 days is:

$112.50

$7,500 * 0.06 * 90/360 = $112.50

The straight-line depreciation method and the double-declining-balance depreciation method:

Produce the same total depreciation over an asset's useful life.

Gross pay is:

Total compensation earned by an employee before any deductions.

Honoring a note receivable indicates that the maker has:

Paid in full.

FICA taxes include:

Social Security and Medicare taxes.

All of the following statements regarding recognition of receivables under U.S. GAAP and IFRS are true except:

GAAP refers to the earnings process and IFRS refers to risk transfer and ownership reward.

The difference between the amount received from issuing a note payable and the amount repaid at maturity is referred to as:

Interest.

All of the following statements regarding uncertainty in liabilities are true except:

A company only records liabilities when it knows whom to pay, when to pay, and how much to pay.

Which of the following are not classified as plant assets?

Patent.

A company had total sales of $600,000, net sales of $550,000, and an average accounts receivable of $90,000. Its accounts receivable turnover equals:

5.8

Which of the following do not apply to unearned revenues?

Amounts to be received in the future from customers for delivery of products or services in the current period.

Sellers allow customers to use credit cards for all of the following reasons except:

To be able to charge more due to fees and interest.

The formula to compute annual straight-line depreciation is:

(Cost minus salvage value) divided by the useful life in years.

If the times interest earned ratio:

Increases, then risk decreases.

Which of the following is not true regarding a credit card expense?

Credit card expense is not recorded by the seller.

An estimated liability:

Is a known obligation of an uncertain amount that can be reasonably estimated.

The maturity date of a note receivable:

Is the day the note is due to be repaid.

A company's income before interest expense and income taxes is $350,000 and its interest expense is $100,000. Its times interest earned ratio is:

3.50

The employer should record deductions from employee pay as:

Current liabilities.

Pepperdine reported net sales of $8,600 million, net income of $126 million and average accounts receivable of $890 million. Its accounts receivable turnover is:

9.7

Betterments are:

Expenditures making a plant asset more efficient or productive.

The times interest earned ratio reflects:

A company's ability to pay interest even if sales decline.

All of the following are employer payroll taxes except:

Federal income tax equal to that withheld from employees.

The materiality constraint, as applied to bad debts:

Permits the use of the direct write-off method when bad debts expenses are relatively small.