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Accounting Tools For Business Decision Making 3rd Edition Paul D. Kimmel - Solutions
On January 12, 2019, Mosley Company purchased a computer (cost, $6,500; expected life, five years; estimated salvage value, $500) and a lightweight van for delivery purposes (cost, $34,000; estimated life, seven years; estimated salvage value, $6,000). For financial accounting purposes, the company
On January 5, 2019, Williams Company purchased equipment for $310,000 that had an estimated useful life of five years or 147,500 units of product. The estimated salvage value was $15,000. Actual production data for the first three years were: 2019—25,000 units; 2020—33,000 units; and
On January 4, 2019, Columbus Company purchased new equipment for $300,000 that had a useful life of four years and a salvage value of $30,000.INSTRUCTIONSPrepare a schedule showing the annual depreciation and end-of-year accumulated depreciation for the first three years of the asset’s life under
On January 6, 2019, Baxter Company purchased a site for a new manufacturing plant for $6,800,000. At a cost of $42,000, it razed an existing facility (fair market value $600,000) and received $28,000 from its salvage. The company also paid $14,800 in attorney fees, $4,700 in inspection fees, and
On December 31, 2019, Warren Company’s Intangible Assets account reflects two assets1. Goodwill, $145,000. This amount was recorded in December 2018 as part of the cost of acquiring an existing business. It represents the excess of the total purchase price over the value of net identifiable
Heath Mining Company acquired a mine in 2019. Capitalized costs of the minerals were $5,460,000. The company mined 200,000 tons of ore in 2019 and on December 31, 2019, it is estimated that 2,200,000 tons of ore remained in the ground.Compute the amount of depletion expense for 2019.
At the beginning of the year, it became obvious that the truck purchased the year before was too small to handle many of Laurel’s jobs. On January 4, 2020, Laurel traded in the old truck on a new, larger lightweight truck. Its sale price (and fair market value) was $120,000. The dealer gave
On January 5, 2015, Mountain View Company purchased construction equipment for $710,500, with a useful life of six years and estimated salvage value of $100,000. The company uses the straight-line method of depreciation. On July 3, 2019, this equipment was traded for new similar construction
Sowell Company owns a truck that cost $102,000. Depreciation totaling $70,000 had been taken on the truck up to January 8, 2019, when it was sold for $28,300.1. Give the journal entry to record the sale.2. Assume, instead, that the truck is sold for $34,200. Give the journal entry to record the
On January 20, 2019, Laurel Transportation Company purchased a new lightweight truck for $100,000.1. Into which MACRS “class” is this asset classified?2. What would be the amount of cost recovery on the truck in 2019 and in 2020?
On January 10, 2019, Jackson Company purchased a machine to mold components for one of its products. Total cost of the machine was $430,000. It is expected to produce 450,000 units and to have a salvage value of $25,000. The company used the units-of-production method of depreciation.a. In 2019, it
Hightower Company acquired an asset on January 2, 2019, at a cost of $133,000. The asset’s useful life is four years and its salvage value is $38,000. Compute the depreciation expense for each of the first two years, using the straight-line method, the double-declining-balance method, and the
For the year ending December 31, 2019, Hogan Manufacturing Company had depreciation totaling $38,000 on its office equipment. Give the general journal entry to record the adjusting entry.
The International Shipping Company incurred the costs below related to a new packing machine:Invoice price of packing machine.................................$95,000Cash discount for prompt payment..................................3,700Transportation
The following costs were incurred by Imports Auto Parts in connection with the construction of a retail store building:Cost of land, including $9,500 of legal costs..................$200,000Cost to demolish old building...............................................9,375Costs of grading land for
What accounting treatment is given to most research costs?
Are gains and losses on trade-in transactions recognized and recorded under GAAP?
Explain how to measure the gain or loss when an old asset is traded in on a new one.
Explain how double-declining-balance depreciation is computed on an asset with a life of six years.
What is the name of the process by which costs of a natural resource deposit are removed from the asset account as the resources are produced?
Which, if any, of the depreciation methods discussed in this chapter ignore(s) salvage value?
Name two accelerated depreciation methods.
What is meant by the term “personal property”?
Explain how straight-line depreciation is computed.
A company purchased some land on which an old building is located. The building has to be torn down to enable construction of a new building. Which, if any, of the following costs related to the old building should be capitalized as part of the land cost?a. Purchase price of the property.b. Permit
What is meant by “capitalized costs”?
Which of these, if any, is not “real property”?a. Landb. A buildingc. A motor home being used as an officed. Pavement for a parking lot
What information related to the company’s property, plant, and equipment must be presented in the financial statements and in the notes to the financial statements?
Under what circumstances is the units-of-production method of depreciation especially desirable?
What account is debited and what account is credited to record depreciation on trucks?
Is MACRS used for federal income tax rules acceptable under GAAP?
Suggest two situations where it may be necessary or desirable to estimate the inventory without a physical count.
In a period of rising prices, is the LIFO method or the FIFO method likely to yield the larger inventory cost?
Is the value of inventory likely to be lower if the cost or net realizable value rule is applied on an item-by-item basis, on a group basis, or to the inventory as a whole?
Explain how the lower of cost or net realizable value method is applied on a group basis.
What is meant by the term net realizable value as it is used in the lower of cost or net realizable value rule?
What is meant by the first-in, first-out assumption?
Explain briefly the average cost method.
Under what circumstances is the specific identification method for determining cost of inventory items logical?
Why is a perpetual inventory easier to maintain today than it would have been 50 years ago?
Does the maintenance of a perpetual inventory eliminate the need for taking physical inventory? Explain.
What impact does the ending inventory have on net income for the period covered by the financial statements?
What accounting principle or constraint underlies the lower of cost or net realizable value rule for inventory valuation.
Information about Vinzant Company€™s inventory of one item follows. Compute the cost of the ending inventory under(1) The average cost method (round unit cost to the nearest cent),(2) The FIFO method,(3) The LIFO method. Explanation Number of Units Unit Cost Beginning inventory, January 1
The following information concerns four items that Modern Woman Clothiers has in its ending inventory on December 31. Two of these items are in the accessories department, and two are in the women CEO department.1. What is the valuation of ending inventory if the firm uses the lower of cost or net
Use the following data to compute the estimated inventory cost for Sloan Company under the gross profit method:Average gross profit rate: 30% of salesInventory on January 1 (at cost): $460,000Purchases from January 1 to date of inventory estimate: $2,080,000Net sales for period: $2,600,000
Given the choice between average cost, FIFO, and LIFO, which method will give the lowest net income and which will give the highest net income in a period of rising prices?
The following excerpt was taken from The Home Depot, Inc., 2015 Annual Report (for the fiscal year ended January 31, 2016):Analyze:1. By what amount has merchandise inventory increased or decreased from February 1, 2015, to January 31, 2016?2. What percentage of current assets is attributable to
One of Wells Company€™s retail outlets was destroyed by fire on March 18. All merchandise was burned. The company has fire insurance on its merchandise inventory. It will therefore file a claim for recovery of the cost of the lost inventory. Clearly, a physical inventory cannot be taken because
Sadler Computer Supply Company has just been destroyed by fire. Fortunately, however, the computerized accounting records had been “backed up” and were in a remote computer location so that the records were not destroyed. The company does not use the retail method of accounting, so although
Beasley Realty Group had two completed unsold buildings on hand on January 1, 2019.Unit 06-92: Cost, $395,000; retail price, $482,000Unit 06-94: Cost, $436,500; retail price, $504,000During the period January 1 through March 31, the company completed the following construction jobs:All the units
Over the last two years, McAllister Company has averaged 35 percent gross profit. At the end of 2019, the auditor found the following data in the records of the company:Inquiry by the auditor revealed that employees of McAllister Company had estimated the inventory on December 31, 2019, instead of
Paulson Sailing Company sells boats as a supplement to its boat storage operations. Data for its boat sales for August 2019 are given below. The beginning inventory on August 1 was composed of the following items:INSTRUCTIONSSales during the month were the 30€² Holiday and the 20€² Lake King,
Over the past several years, Hyman Electronics has had an average gross profit of 30 percent. At the end of 2019, the income statement of the company included the following information:Investigation revealed that employees of the company had not taken an actual physical count of the inventory on
This data is for selected inventory items at Deluxe Supply Company:INSTRUCTIONSDetermine the amount to be reported as the inventory valuation at cost or net realizable value, whichever is lower, under each of these methods:1. Lower of cost or net realizable value for each item separately.2. Lower
Based on the following data, compute the estimated cost of the ending inventory at Cummings Company. Use the retail method. Retail Cost $ 678,000 Beginning inventory Purchases Freight in Sales $450,000 980,000 650,000 4,200 1,014,000
The balances of selected accounts of Spartan Sportswear Company on December 31, 2019, are given below. Credit sales totaled $19,240,000. The returns and allowances on these sales were $110,000.Accounts Receivable......................................................$ 1,810,000Allowance for Doubtful
How, if at all, does computation of the maturity value of an interest-bearing note receivable differ from that for an interest-bearing note payable?
What is meant by “discounting a note receivable”?
Explain a cashier’s check.
Explain a sight draft.
What are the requirements that must be met in order for a document to be negotiable?
Find the due date of each of the following notes:1. A note dated June 12, 2019, due in 120 days.2. A note dated November 1, 2019, due two years from 6that date.3. A note dated April 10, 2019, due six months from that date.
Compute the maturity value for each of the following notes:1. A note payable with a face amount of $25,000, dated June 15, 2019, due in three months, bearing interest at 7 percent.2. A note payable with a face amount of $22,000, dated May 5, 2019, due in 45 days, bearing interest at 8 percent.
Find the maturity value of each of the following notes payable:1. A 60-day note, dated February 15, 2019, with a face value of $26,000, bearing interest at 8 percent.2. A six-month note, dated March 10, 2019, with a face value of $10,800, bearing interest at 11 percent.
Wrigley Company issued the following notes during 2019. Find the interest due on each of the notes, using the interest formula method. Show all calculations.1. A $15,000 note at 9 percent for 180 days, issued February 15.2. A $14,000 note at 12 percent for four months, issued October 3.3. A $20,000
The following notes were received by Miller Company during 2019:Compute the maturity value of each note.Analyze: What is the total interest expense on these notes for the year? Note No. Date Jan. 5 Face Amount Perlod Interest Ra 8% 21 3 months $60,000 30,000 10,000 90 days 3 months 22 10% June 3 23
The notes receivable held by the Tuttle Company on August 3, 2019, are summarized below. On August 4, 2019, Tuttle discounted all of these notes at Community Bank and Trust at a discount rate of 10 percent. Compute the net proceeds received from discounting each note.Analyze: What is the net
The notes listed below were issued by Carter Company during 2019:1. A $15,000 note at 10 percent for 90 days, issued on June 15.2. A $30,000 note at 6 percent for 30 days, issued on August 21.3. A $40,000 note at 7.5 percent for 6 months, issued on September 28.Compute the interest due on each of
Marlowe Company received the notes listed below in 2019. Compute the interest to be paid and the maturity value of each note. Show all computations.Analyze: Assuming all notes are paid when due, what would be the balance in Notes Receivable on July 31? Face Amount $25,000 20,000 30,000 Perlod 60
The following notes receivable are held by the Rodriguez Company on January 1, 2019. On January 2, 2019, Rodriguez discounted all of these notes at First National Bank at a discount rate of 10 percent. Compute the net proceeds the firm received from discounting each note.Analyze: How would Notes
A business manager should know how one company’s transaction will affect another company. In teams of two students, assign one student to be the notes receivable clerk of Heavenly Baths and another to be the notes payable clerk for Relax Haven, the borrowing company. Relax Haven cannot make the
McCormick & Company, Incorporated, reported the following in its 2015 Annual Report:Analyze:1. What were total trade accounts receivable at November 30, 2015, before the allowance was deducted?2. Compute the percentage increase or decrease in net trade accounts receivable from 2014 to 2015
How are notes payable maturing less than one year from the balance sheet date shown on the balance sheet?
What is meant by “discounting a note payable”?
What is the maturity value of a $9,000 note, bearing interest at 9 percent, and due 105 days after date of issue of the note?
If a note dated February 28 has a three-month term, on what date must the note be paid?
Pittman Company records uncollectible accounts expense as they occur. Selected transactions for 2019 and 2020 are described below. The accounts involved in these transactions are Notes Receivable, Accounts Receivable, and Uncollectible Accounts Expense. Record each transaction in general journal
The balances of selected accounts of the Dexter Company on December 31, 2019, are given below:Accounts Receivable..........................................................................$ 425,000Allowance for Doubtful Accounts (credit)...............................................2,000Total
Wilson Leather Products sells leather clothing at both wholesale and retail. The company has found that there is a higher rate of uncollectible accounts from retail credit sales than from wholesale credit sales. Wilson computes its estimated loss from uncollectible accounts at the end of each year.
Use the information given in Exercise 15.8, except assume that Electric Utilities received the check for $840 on January 28, 2020 (instead of on December 8, 2019). Give the general journal entry necessary. The cash receipt has already been entered in the cash receipts journal.In Exercise 15.8On
On December 8, 2019, Electric Utilities Services Company received a check for $840 from Alexander Sanders, whose $1,680 account was written off on September 10 (Exercise 15.7). In the accompanying letter, Sanders apologized and said he probably would be unable to pay any of the remaining balance.
Assume the same facts as in Exercise 15.5, except that the recovery of the $7,400 from Ashley Madison was received on February 28, 2020. Give the entry in general journal form to record the reinstatement of Madison’s account and to record the receipt of her check.In Exercise 15.5On December 8,
Electric Utilities Services Company uses the direct charge-off method to record uncollectible accounts. On September 10, 2019, the company learned that Alexander Sanders, a customer who owed $1,680, had moved and left no forwarding address. Electric Utilities concluded that no part of the debt was
On December 8, 2019, after a threatened lawsuit by Alonzo Plumbing, Ashley Madison paid the $7,400 account charged off on April 30, 2019 (Exercise 15.4). Give the entries in general journal form to reinstate Madison’s account and to record the receipt of her check.In Exercise 15.4On April 30,
On April 30, 2019, Alonzo Plumbing, which uses the allowance method, decided that the $7,400 account of Ashley Madison was worthless and should be written off. Give the general journal entry to record the write-off.
On December 31, 2019, before adjusting entries, the balances of selected accounts of the Battlefield Equipment Company were as follows:Accounts Receivable..................................................................$465,000Allowance for Uncollectible Accounts (debit
On December 31, 2019, certain account balances at Galaxy Company were as follows before year-end adjustments:Accounts Receivable...................................................$ 941,500Allowance for Uncollectible Accounts
At December 31, 2019, Gerald Company had accounts receivable of $1,500,000 and an allowance for doubtful accounts of $8,250. On January 1, 2020, Gerald Company wrote off a $1,500 bad debt against the allowance for doubtful accounts. There were no other accounts receivable transactions on January
List some common internal controls for accounts receivable.
List some duties that should routinely be separated as part of the internal control procedures for accounts receivable.
Under the direct charge-off method, what entry is made when a firm collects an account that was charged off in a prior year?
What entry is made to record an uncollectible account under the direct charge-off method?
What are the major weaknesses of the direct charge-off method?
Under the allowance method, what account is credited in the adjusting entry to record estimated uncollectible accounts?
For each of the following cases, respond to the question asked and indicate the accounting principle or concept that applies.1. Baxter Company charges off the cost of all magazine advertising in the year it is incurred even though the advertising probably results in some sales in later years.
Explain the direct charge-off method for recording uncollectible accounts expense.
How is Allowance for Doubtful Accounts shown in the balance sheet?
Explain how to record the collection of an account receivable in the same year in which it was previously written off if the allowance method of recording estimated doubtful accounts is used.
What basic accounting concepts, assumptions, principles, or constraints support the allowance method?
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