The unadjusted pre-closing 12/31/15 account balances for the Mahoney company are listed below: During your audit, you
Question:
The unadjusted pre-closing 12/31/15 account balances for the Mahoney company are listed below:
During your audit, you discover the following five items that have yet to be recorded;
1. No depreciation on the building has been recorded in 2015. Depreciation on the building based on Double-Declining Balance. It was purchased on 1/1/14 and has an estimated useful life of 40 years. The estimated salvage value is $670,000.
2. Mahoney exchanged a machine for a similar machine on 12/31/15. The original machine cost $3,705,000 and had a book value of $2,470,000. The new machine had a fair value of $1,660,000; Mahoney also received $306,000 in cash. The exchange did not have commercial substance.
3. Mahoney also exchanged its only other machine for a different machine on 12/31/15. The original machine cost $2,719,000 and had a book value of $1,958,000. The fair value was $2,125,000. Mahoney paid cash of $487,000 as well. The exchange had commercial substance.
4. Mahoney uses the Balance Sheet approach to adjust Accounts Receivable to Net Realizable Value. At 12/31/15, uncollectible receivables are estimated to be 5% of Accounts Receivable.
5. Ending Inventory is to be estimated using the Gross Profit Method. The historic Gross Profit percentage is 20%.
Cornerstones of Financial and Managerial Accounting
ISBN: 978-1111879044
2nd edition
Authors: Rich, Jeff Jones, Dan Heitger, Maryanne Mowen, Don Hansen