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Financial Accounting Tools for Business Decision Making 5th Edition Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso - Solutions

Sammy Baden incorporated Baden Consulting, an accounting practice, on May 1, 2010. During the first month of operations, these events and transactions occurred. May 1 Stockholders invested $50,000 cash in exchange for common stock of the corporation.2 Hired a secretary-receptionist at a salary of
The trial balance of Capaldo Dry Cleaners on June 30 is given here.The July transactions were as follows.July 8 Received $5,189 in cash on June 30 accounts receivable.9 Paid employee salaries $2,100.11 Received $6,100 in cash for services provided.14 Paid creditors $10,750 of accounts payable.17
This trial balance of Schumaker Company does not balance.Your review of the ledger reveals that each account has a normal balance. You also discover the following errors.1. The totals of the debit sides of Prepaid Insurance, Accounts Payable, and Property Tax Expense were each understated $100.2.
Granada Theater Inc. was recently formed. All facilities were completed on March 31. On April 1, the ledger showed: Cash $6,300; Land $10,000; Buildings (concession stand, projection room, ticket booth, and screen) $8,000; Equipment $6,000; Accounts Payable $2,300; Mortgage Payable $8,000; and
A first year co-op student working for UR Here.com recorded the transactions for the month. He wasn€™t exactly sure how to journalize and post, but he did the best he could. He had a few questions, however, about the following transactions.1. Cash received from a customer on account was
The financial statements of Tootsie Roll in Appendix A at the back of this book contain the following selected accounts, all in thousands of dollars.Common Stock ....................$ 24,586Accounts Payable .................. 11,572Accounts Receivable ............... 32,371Selling, Marketing, and
The financial statements of Hershey Foods appear in Appendix B, following the financial statements for Tootsie Roll in Appendix A.Instructions(a) Based on the information contained in these financial statements, determine the normal balance for:(b) Identify the other account ordinarily involved
Doman Industries Ltd., whose products are sold in 30 countries worldwide, is an integrated Canadian forest products company. Doman sells the majority of its lumber products in the United States, and a significant amount of its pulp products in Asia. Doman also has loans from other countries. For
Monica Geller is the assistant chief accountant at BIT Company, a manufacturer of computer chips and cellular phones. The company presently has total sales of $20 million. It is the end of the first quarter and Monica is hurriedly trying to prepare a general ledger trial balance so that quarterly
Mrs. Vangundy is uncertain about how the cost principle applies to plant assets. Explain the principle to Mrs. Vangundy.
How is the cost for a plant asset measured in a cash transaction? In a noncash transaction? Discuss.
Jasper Company acquires the land and building owned by Benz Company. What types of costs may be incurred to make the asset ready for its intended use if Jasper Company wants to use only the land? If it wants to use both the land and the building?
Pickert Inc. needs to upgrade its diagnostic equipment. At the time of purchase, Pickert had expected the equipment to last 8 years. Unfortunately, it was obsolete after only 4 years. Chuck Kellum, CFO of Pickert Inc., is considering leasing new equipment rather than buying it. What are the
In a recent newspaper release, the president of Fraley Company asserted that something has to be done about depreciation. The president said, “Depreciation does not come close to accumulating the cash needed to replace the asset at the end of its useful life.” What is your response to the
Megan is studying for the next accounting examination. She asks your help on two questions: (a) What is salvage value? (b) How is salvage value used in determining depreciable cost under the straight-line method? Answer Megan’s questions.
Kingery Corporation owns a machine that is fully depreciated but is still being used. How should Kingery account for this asset and report it in the financial statements?
During a recent management meeting, Ralph Dale, director of marketing, proposed that the company begin capitalizing its marketing expenditures as goodwill. In his words, “Marketing expenditures create goodwill for the company which benefits the company for multiple periods. Therefore it doesn’t
Alpha Company hires an accounting intern who says that intangible assets should always be amortized over their legal lives. Is the intern correct? Explain.
Jane Farr, a business major, is working on a case problem for one of her classes. In this case problem, the company needs to raise cash to market a new product it developed. Lenny Gaston, an engineering major, takes one look at the company’s balance sheet and says, “This company has an awful
In 2007 Campbell Soup Company reported average total assets of $3,095 million, net sales of $7,867 million, and net income of $854 million. What was Campbell Soup’s return on assets ratio?
Andrea Reeble, a marketing executive for Fresh Views Inc., has proposed expanding its product line of framed graphic art by producing a line of lower-quality products. These would require less processing by the company and would provide a lower profit margin. Steve Hillmon, the company’s CFO, is
Aldrich Corporation and Benjamin Corporation operate in the same industry. Aldrich uses the straight-line method to account for depreciation, whereas Benjamin uses an accelerated method. Explain what complications might arise in trying to compare the results of these two companies.
Garza Corporation uses straight-line depreciation for financial reporting purposes but an accelerated method for tax purposes. Is it acceptable to use different methods for the two purposes? What is Garza Corporation’s motivation for doing this?
These expenditures were incurred by Sanler Company in purchasing land: cash price $60,000; accrued taxes $5,000; attorney’s fees $2,100; real estate broker’s commission $2,800; and clearing and grading $3,500. What is the cost of the land?
Denney Company incurs these expenditures in purchasing a truck: cash price $24,000; accident insurance (during use) $2,000; sales taxes $1,080; motor vehicle license $300; and painting and lettering $1,200. What is the cost of the truck?
Apex Chemicals Company acquires a delivery truck at a cost of $31,000 on January 1, 2010. The truck is expected to have a salvage value of $4,000 at the end of its 5-year useful life. Compute annual depreciation for the first and second years using the straight-line method.
On January 1, 2010, the Ewing Company ledger shows Equipment $36,000 and Accumulated Depreciation $14,000. The depreciation resulted from using the straightline method with a useful life of 10 years and a salvage value of $2,000. On this date the company concludes that the equipment has a remaining
Prepare journal entries to record these transactions: (a) Blaska Company retires its delivery equipment, which cost $41,000. Accumulated depreciation is also $41,000 on this delivery equipment. No salvage value is received.(b) Assume the same information as in part (a), except that accumulated
Carlton Company sells office equipment on September 30, 2010, for $21,000 cash. The office equipment originally cost $72,000 and as of January 1, 2010, had accumulated depreciation of $42,000. Depreciation for the first 9 months of 2010 is $6,000.Prepare the journal entries to (a) Update
In its 2006 annual report, McDonald’s Corporation reports beginning total assets of $30.0 billion; ending total assets of $29.0 billion; net sales of $21.6 billion, and net income of $3.5 billion.(a) Compute McDonald’s return on assets ratio.(b) Compute McDonald’s asset turnover ratio.
Jazz Company purchases a patent for $150,000 on January 2, 2010. Its estimated useful life is 5 years.(a) Prepare the journal entry to record amortization expense for the first year.(b) Show how this patent is reported on the balance sheet at the end of the first year.
Nike, Inc. reported the following plant assets and intangible assets for the year ended May 31, 2007 (in millions): other plant assets $767.2; land $193.8; patents and trademarks (at cost) $115.5; machinery and equipment $1,817.2; buildings $840.9; goodwill (at cost) $130.8; accumulated
Nichols Company reported net income of $157,000. It reported depreciation expense of $12,000 and accumulated depreciation of $47,000. Amortization expense was $6,000. Nichols purchased new equipment during the year for $50,000. Show how this information would be used to determine net cash provided
Depreciation information for Apex Chemicals Company is given in BE9-3. Assuming the declining-balance depreciation rate is double the straight-line rate, compute annual depreciation for the first and second years under the declining-balance method.
Pack in Taxi Service uses the units-of-activity method in computing depreciation on its taxicabs. Each cab is expected to be driven 150,000 miles. Taxi 10 cost $27,500 and is expected to have a salvage value of $500. Taxi 10 was driven 28,000 miles in 2009 and 30,000 miles in 2010. Compute the
The following expenditures relating to plant assets were made by Bel Air Company during the first 2 months of 2010.1. Paid $7,000 of accrued taxes at the time the plant site was acquired.2. Paid $200 insurance to cover a possible accident loss on new factory machinery while the machinery was in
On March 1, 2010, Edington Company acquired real estate, on which it planned to construct a small office building, by paying $80,000 in cash. An old warehouse on the property was demolished at a cost of $8,200; the salvaged materials were sold for $1,700. Additional expenditures before construction
Downing Company purchased a new machine on September 1, 2010, at a cost of $90,000. The company estimated that the machine has a salvage value of $6,000. The machine is expected to be used for 70,000 working hours during its 8-year life.InstructionsCompute the depreciation expense under the
Jack Reese, the new controller of Muckenthaler Company, has reviewed the expected useful lives and salvage values of selected depreciable assets at the beginning of 2010. Here are his findings:All assets are depreciated by the straight-line method. Muckenthaler Company uses a calendar year in
Kobel Co. has delivery equipment that cost $50,000 and has been depreciated $20,000.InstructionsRecord entries for the disposal under the following assumptions.(a) It was scrapped as having no value.(b) It was sold for $37,000.(c) It was sold for $18,000.
Here are selected 2010 transactions of Falk Corporation.Jan. 1 Retired a piece of machinery that was purchased on January 1, 2000.The machine cost $62,000 and had a useful life of 10 years with no salvage value.June 30 Sold a computer that was purchased on January 1, 2008. The computer cost $39,000
During 2007 Federal Express reported the following information (in millions): net sales of $35,214 and net income of $2,016. Its balance sheet also showed total assets at the beginning of the year of $22,690 and total assets at the end of the year of $24,000.InstructionsCalculate the(a) Asset
Myler International is considering a significant expansion to its product line. The sales force is excited about the opportunities that the new products will bring. The new products are a significant step up in quality above the company€™s current offerings, but offer a complementary fit
Hopson Company reports the following information (in millions) during a recent year: net sales, $11,408.5; net earnings, $244.9; total assets, ending, $4,312.6; and total assets, beginning, $4,254.3.Instructions(a) Calculate the (1) Return on assets, (2) Asset turnover, and (3) Profit margin
These are selected 2010 transactions for Hammon Corporation:Jan. 1 Purchased a copyright for $120,000. The copyright has a useful life of 8 years and a remaining legal life of 30 years.May 1 Purchased a patent with an estimated useful life of 4 years and a legal life of 20 years for $54,000.Sept
Gladow Company, organized in 2010, has these transactions related to intangible assets in that year:Jan. 2 Purchased a patent (5-year life) $300,000.Apr. 1 Goodwill purchased (indefinite life) $360,000.July 1 Acquired a 9-year franchise; expiration date July 1, 2019, $540,000.Sept. 1 Research and
Raintree Corporation reported net income of $62,000. Depreciation expense for the year was $134,000. The company calculates depreciation expense using the straight-line method, with an average useful life of 10 years. Top management would like to switch to a 15-year useful life because depreciation
Jayhawk Bus Lines uses the units-of-activity method in depreciating its buses. One bus was purchased on January 1, 2010, at a cost of $136,000. Over its 4-year useful life, the bus is expected to be driven 160,000 miles. Salvage value is expected to be $8,000.Instructions(a) Compute the
Basic information relating to a new machine purchased by Downing Company is presented in E9-5.InstructionsUsing the facts presented in E9-5, compute depreciation using the following methods in the year indicated.(a) Declining-balance using double the straight-line rate for 2010 and 2011.(b)
Elbert Company was organized on January 1. During the first year of operations, the following plant asset expenditures and receipts were recorded in random order.Debits1. Cost of real estate purchased as a plant site (land $255,000 and building $25,000) ......... $ 280,0002. Installation cost
At December 31, 2010, Rijo Corporation reported the following plant assets.During 2011, the following selected cash transactions occurred.Apr. 1 Purchased land for $2,200,000.May 1 Sold equipment that cost $600,000 when purchased on January 1, 2004.The equipment was sold for $170,000.June 1 Sold
Presented here are selected transactions for Sager Company for 2010. Jan. 1 Retired a piece of machinery that was purchased on January 1, 2000. The machine cost $71,000 on that date and had a useful life of 10 years with no salvage value.June 30 Sold a computer that was purchased on January 1,
The intangible assets section of Salmiento Corporation’s balance sheet at December 31, 2010, is presented here.Patents ($60,000 cost less $6,000 amortization) ...... $54,000Copyrights ($36,000 cost less $25,200 amortization) .... 10,800Total ...................... $64,800The patent was acquired
Due to rapid employee turnover in the accounting department, the following transactions involving intangible assets were improperly recorded by Garcia Corporation in 2010.1. Garcia developed a new manufacturing process, incurring research and development costs of $150,000. The company also
Titus Corporation and Vane Corporation, two companies of roughly the same size, are both involved in the manufacture of shoe-tracing devices. Each company depreciates its plant assets using the straight-line approach. An investigation of their financial statements reveals the information shown
In recent years Wang Company has purchased three machines. Because of frequent employee turnover in the accounting department, a different accountant was in charge of selecting the depreciation method for each machine, and various methods have been used. Information concerning the machines is
Roblez Corporation purchased machinery on January 1, 2010, at a cost of $250,000. The estimated useful life of the machinery is 4 years, with an estimated residual value at the end of that period of $10,000. The company is considering different depreciation methods that could be used for financial
Fitch Company was organized on January 1. During the first year of operations, the following plant asset expenditures and receipts were recorded in random order.Debits1. Cost of real estate purchased as a plant site (land $180,000 andbuilding $70,000) .................... $ 250,0002. Accrued real
At December 31, 2010, Kretsinger Corporation reported these plant assets.During 2011, the following selected cash transactions occurred.Apr. 1 Purchased land for $2,630,000.May 1 Sold equipment that cost $750,000 when purchased on January 1, 2006.The equipment was sold for $370,000.June 1 Sold land
Here are selected transactions for Cagle Corporation for 2010.Jan. 1 Retired a piece of machinery that was purchased on January 1, 2000.The machine cost $52,000 and had a useful life of 10 years with no salvage value.June 30 Sold a computer that was purchased on January 1, 2007. The computer cost
The intangible assets section of the balance sheet for Gore Company at December 31, 2010, is presented here.Patents ($70,000 cost less $7,000 amortization) ...... $63,000Copyrights ($48,000 cost less $18,000 amortization) ..... 30,000Total ....................... $93,000The patent was acquired in
Due to rapid employee turnover in the accounting department, the following transactions involving intangible assets were improperly recorded by the Hamlin Company in 2010.1. Hamlin developed a new manufacturing process, incurring research and development costs of $120,000. The company also
Riverton Corporation and Salina Corporation, two corporations of roughly the same size, are both involved in the manufacture of umbrellas. Each company depreciates its plant assets using the straight-line approach. An investigation of their financial statements reveals the following
In recent years Dobbs Transportation purchased three used buses. Because of frequent employee turnover in the accounting department, a different accountant selected the depreciation method for each bus, and various methods have been used. Information concerning the buses is summarized in the table
Navarro Corporation purchased machinery on January 1, 2010, at a cost of $330,000. The estimated useful life of the machinery is 5 years, with an estimated salvage value at the end of that period of $30,000. The company is considering different depreciation methods that could be used for financial
The financial statements of Hershey Foods are presented in Appendix B, following the financial statements for Tootsie Roll Industries in Appendix A.Instructions(a) Based on the information in these financial statements and the accompanying notes and schedules, compute the following values for
Bob Evans Farms, Inc. operates 579 restaurants in 18 states and produces fresh and fully cooked sausage products, fresh salads, and related products distributed to grocery stores in the Midwest, Southwest, and Southeast. For a recent 3-year period Bob Evans Farms reported the following selected
The accounting for goodwill differs in countries around the world. The discussion of a change in goodwill accounting practices shown below was taken from the notes to the financial statements of J Sainsbury Plc, one of the world’s leading retailers. Headquartered in the United Kingdom, it serves
Percival Furniture Corp. is nationally recognized for making high-quality products. Management is concerned that it is not fully exploiting its brand power. Percival's production managers are also concerned because their plants are not operating at anywhere near full capacity. Management is
Pinkerton Corporation€™s trial balance at December 31, 2010, is presented below. All 2010 transactions have been recorded except for the items described after the trial balance.Unrecorded transactions1. On May 1, 2010, Pinkerton purchased equipment for $16,000 plus sales taxes of $800
Kristi Bolinger cannot understand why the cash realizable value does not decrease when an uncollectible account is written off under the allowance method. Clarify this point for Kristi.
Criss Company has a credit balance of $2,200 in Allowance for Doubtful Accounts before adjustment. The estimated un-collectibles under the percentage of receivables basis is $5,800. Prepare the adjusting entry.
Alice Hamm, the vice president of sales for Holiday Pools and Spas, wants the company’s credit department to be less restrictive in granting credit. “How can we sell anything when you guys won’t approve anybody?” she asks. Discuss the pros and cons of “easy credit.” What are the
Compute the missing amounts for each of the followingnotes
Dotson Company dishonors a note at maturity. What are the options available to the lender?
The President of Grider Inc. proudly announces her company’s improved liquidity since its current ratio has increased substantially from one year to the next. Does an increase in the current ratio always indicate improved liquidity? What other ratio or ratios might you review to determine whether
Since hiring a new sales director, Percy Inc. has enjoyed a 50% increase in sales. The CEO has also noticed, however, that the company’s average collection period has increased from 17 days to 38 days. What might be the cause of this increase? What are the implications to management of this
The Coca-Cola Company’s receivables turnover ratio was 9.90 in 2006, and its average amount of net receivables during the period was $2,434 million. What is the amount of its net credit sales for the period? What is the average collection period in days?
Calico Corners decides to sell $430,000 of its accounts receivable to First Central Factors Inc. First Central Factors assesses a service charge of 3% of the amount of receivables sold. Prepare the journal entry that Calico Corners makes to record this sale.
Ranier Corp. has experienced tremendous sales growth this year, but it is always short of cash. What is one explanation for this occurrence?
Record the following transactions on the books of Kenney Co.(a) On July 1 Kenney Co. sold merchandise on account to Fife Inc. for $19,000, terms 2/10, n/30.(b) On July 8 Fife Inc. returned merchandise worth $2,400 to Kenney Co.(c) On July 11 Fife Inc. paid for the merchandise.
At the end of 2009, Tatum Co. has accounts receivable of $700,000 and an allowance for doubtful accounts of $28,000. On January 24, 2010, it is learned that the company’s receivable from Novinger Inc. is not collectible and therefore management authorizes a write-off of $2,000.(a) Prepare the
Assume the same information as BE8-3 and that on March 4, 2010, Tatum Co. receives payment of $2,000 in full from Novinger Inc. Prepare the journal entries to record this transaction.
Lang Co. uses the percentage of receivables basis to record bad debts expense and concludes that 2% of accounts receivable will become uncollectible. Accounts receivable are $400,000 at the end of the year, and the allowance for doubtful accounts has a credit balance of $1,500.(a) Prepare the
Presented below are three promissory notes. Determine the missingamounts.
On January 10, 2010, Gonzalez Co. sold merchandise on account to Ernst for $6,000, terms n/30. On February 9 Ernst gave Gonzalez Co. a 7% promissory note in settlement of this account. Prepare the journal entry to record the sale and the settlement of the accounts receivable.
During its first year of operations, Morales Company had credit sales of $3,000,000, of which $600,000 remained uncollected at year-end. The credit manager estimates that $18,000 of these receivables will become uncollectible.(a) Prepare the journal entry to record the estimated un-collectibles.(b)
The 2006 financial statements of 3M Company report net sales of $22.9 billion. Accounts receivable (net) are $2.8 billion at the beginning of the year and $3.1 billion at the end of the year. Compute 3M’s receivables turnover ratio. Compute 3M’s average collection period for accounts
Consider these transactions:(a) Espinosa Restaurant accepted a Visa card in payment of a $100 lunch bill. The bank charges a 3% fee. What entry should Espinosa make?(b) Guthrie Company sold its accounts receivable of $65,000. What entry should Guthrie make, given a service charge of 3% on the
Ranger Corp. had a beginning balance in accounts receivable of $70,000 and an ending balance of $91,000. Sales during the period were $483,000. Determine cash collections.
Ronald Distributors is a growing company whose ability to raise capital has not been growing as quickly as its expanding assets and sales. Ronald’s local banker has indicated that the company cannot increase its borrowing for the foreseeable future. Ronald’s suppliers are demanding payment for
On January 6 Gramke Co. sells merchandise on account to Colt Inc. for $8,000, terms 1/10, n/30. On January 16 Colt pays the amount due.InstructionsPrepare the entries on Gramke Co.’s books to record the sale and related collection.
On January 10 Bette Eaton uses her Stage Co. credit card to purchase merchandise from Stage Co. for $1,400. On February 10 Eaton is billed for the amount due of $1,400. On February 12 Eaton pays $1,100 on the balance due. On March 10 Eaton is billed for the amount due, including interest at 1% per
At the beginning of the current period, Emler Corp. had balances in Accounts Receivable of $200,000 and in Allowance for Doubtful Accounts of $9,000 (credit). During the period, it had net credit sales of $800,000 and collections of $763,000. It wrote off as uncollectible accounts receivable of
The ledger of Molina Company at the end of the current year shows Accounts Receivable $86,000; Credit Sales $780,000; and Sales Returns and Allowances $40,000. Instructions(a) If Molina uses the direct write-off method to account for uncollectible accounts, journalize the adjusting entry at
Proehl Company has accounts receivable of $95,100 at March 31, 2010. An analysis of the accounts shows these amounts.Credit terms are 2/10, n/30. At March 31, 2010, there is a $2,400 credit balance in Allowance for Doubtful Accounts prior to adjustment. The company uses the percentage of
On December 31, 2009, when its Allowance for Doubtful Accounts had a debit balance of $1,000, Brite Star Co. estimates that 9% of its accounts receivable balance of $90,000 will become uncollectible and records the necessary adjustment to the Allowance for Doubtful Accounts. On May 11, 2010, Brite
Green Plains Supply Co. has the following transactions related to notes receivable during the last 2 months of the year.Nov. 1 Loaned $60,000 cash to B. Younger on a 1-year, 8% note.Dec. 11 Sold goods to R. P. Meier, Inc., receiving a $3,600, 90-day, 7% note.16 Received a $12,000, 6-month, 9% note
These transactions took place for Ralston Co.2009May 1 Received a $6,000, 1-year, 9% note in exchange for an outstanding account receivable from S. Dolan.Dec 31Accrued interest revenue on the S. Dolan note.2010May 1 Received principal plus interest on the S. Dolan note. (No interest has been
Kiner Corp. had the following balances in receivable accounts at October 31, 2010 (in thousands): Allowance for Doubtful Accounts $56; Accounts Receivable $2,870; Other Receivables $189; Notes Receivable $1,353.InstructionsPrepare the balance sheet presentation of Kiner Corp.’s receivables in

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