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intermediate accounting volume 1
Accounting Volume 1 8th Canadian Edition Charles T. Horngren, Walter T. Harrison, M. Suzanne Oliver, Peter R. Norwood, Jo-Ann L. Johnston - Solutions
18. Why is the cost of patents and other intangible assets often expensed over a shorter period than the legal life of the asset?
17. How do intangible assets differ from most other assets?Why are they assets at all? What expense applies to intangible assets?
16. What expense applies to natural resources? By which amortization method is this expense computed?
15. Describe how to determine whether a company experiences a gain or a loss when an existing piece of equipment is exchanged for a new piece of equipment.
14. When a company sells property, plant, and equipment before the year’s end, what must it record before accounting for the sale?
13. Hudson Company paid $25,000 for office furniture. The company expected it to remain in service for six years and to have a $1,000 residual value. After two years’use, company accountants believe the furniture will last for the next seven years. How much amortization will Hudson record for
12. Describe how to compute amortization for less than a full year, and how to account for amortization for less than a full month.
11. Which amortization method does not consider estimated residual value in computing amortization during the early years of the asset’s life?
10. Felix Data Centre uses the most advanced computers available to keep a competitive edge over other data service centres. To maintain this advantage, the company usually replaces its computers before they are worn out.Describe the major factors affecting the useful life of a property, plant, and
9. The level of business activity fluctuates widely for Milton Schoolbus Co., reaching its slowest time in June through August each year. At other times, business is brisk. What amortization method is most appropriate for the company’s fleet of school buses? Why?
8. Explain the concept of accelerated amortization. Which of the three amortization methods results in the most amortization in the first year of the asset’s life?
7. Which amortization method does each of the graphs at the bottom of the page characterize: straight-line, UOP, or DDB?
6. To what types of property, plant, and equipment assets does amortization expense apply?
5. Define amortization. What are common misconceptions about amortization?
4. Distinguish a betterment from a repair. Why are they treated differently for accounting purposes?
3. When assets are purchased as a group for a single price and no individual asset cost is given, how is each asset’s cost determined?
2. Suppose land with a building on it is purchased for$1,050,000. How do you account for the $75,000 cost of removing this unwanted building?
1. Describe how to measure the cost of property, plant, and equipment. Would an ordinary cost of repairing the asset after it is placed in service be included in the asset’s cost?
10. Lacy Company paid $1,100,000 to acquire Gentech Systems.Gentech’s assets had a market value of $1,800,000 and its liabilities were $800,000. In recording the acquisition, Lacy will record goodwill of (pp. 522–523)a. $100,000c. $1,100,000b. $1,000,000d. $0
9. Amortization of a natural resource is computed in the same manner as which amortization method? (p. 519)a. Straight-lineb. UOPc. Declining-balance
8. Labrador Stores scrapped an automobile that cost$28,000 and had a book value of $2,500. The entry to record this disposal is (p. 515)a. Loss on Disposal of Automobile 2,500 Automobile .................................. 2,500b. Accumulated Amortization 28,000 Automobile
7. Acompany paid $900,000 for a building and was amortizing it by the straight-line method over a 40-year life, with estimated residual value of $60,000. After 10 years, it became evident that the building’s remaining useful life would be 40 years with a residual value of $50,000.Amortization for
6. Which amortization method gives the greatest amount of expense in the early years of using the asset? (pp. 510–511)a. Straight-linec. DDBb. UOPd. All are equal
5. Which amortization method’s amounts are not computed based on time? (p. 509)a. Straight-lineb. Units-of-production (UOP)c. DDBd. All are based on time
4. Which of the following definitions fits amortization?(p. 506)a. Allocation of the asset’s market value to expense over its useful lifeb. Allocation of the asset’s cost to expense over its useful lifec. Decreases in the asset’s market value over its useful lifed. Increases in the fund set
3. Which of the following items is a repair? (p. 505)a. New brakes for delivery truckb. Paving of a company parking lotc. Cost of a new engine for a truckd. Building permit paid to construct an addition to an existing building
2. Roche Products paid $150,000 for two machines valued at $120,000 and $60,000. Roche will record these machines at costs of (p. 504)a. $120,000 and $60,000c. $100,000 and $50,000b. $75,000 eachd. $90,000 and $60,000
1. Which of the following payments is not included in the cost of land? (p. 501)a. Removal of old buildingb. Legal feesc. Property taxes in arrears paid at acquisitiond. Cost of fencing and lighting
Financial Statement Case 2 Answer the following questions using the financial statements for Sun-Rype Products Ltd.in Appendix B at the end of this book.1. Analyze the Accounts Receivable accounts at December 31, 2008. What is the total receivable? What was the total receivable at December 31,
Financial Statement Case 1 Canadian Western Bank (CWB)—like all other businesses—makes adjusting entries prior to year end to measure assets, liabilities, revenues, and expenses properly.Examine CWB’s balance sheet in Appendix A at the back of this book. A bank lends money and collects
Decision Problem 2 Garneau Camping Products sells its products either for cash or on notes receivable that earn interest. The business uses the direct write-off method to account for uncollectible accounts. Paul Garneau, the owner, has prepared Garneau Camping Products’ financial statements. The
Decision Problem 1 Otto Jacina Advertising has always used the direct write-off method to account for uncollectibles.The company’s revenues, bad-debt write-offs, and year-end receivables for the most recent year follow.Year Revenues Write-Offs Receivables at Year End 2010 $187,000 $3,300 $44,000
Problem 9–1C Kitchener Builders Supply is a six-store chain of retail stores selling home renovation materials and supplies mainly on credit; the company has its own credit card and does not accept other cards. Kitchener Builders Supply had a tendency to institute policies that conflicted with
*Problem 9–11B A company received the following notes during 2010. The notes were discounted on the dates and at the rates indicated.Principal Interest Date Discount Note Date Amount Rate Term Discounted Rate(a) Aug. 18 $10,000 11% 6 months Nov. 18 13%(b) Jul. 15 9,000 9 90 days Jul. 26 12(c)
Problem 9–10B Barrie Supplies uses the allowance method for accounting for uncollectible accounts with the estimate based on an aging of accounts receivable. The company had the following account balances on September 30, 2010:Accounts Receivable
Problem 9–9B Airdrie Services Inc. started business on March 1, 2009. The company produces monthly financial statements and had total sales of $600,000 (of which $570,000 were on credit) during the first four months.On June 30, the Accounts Receivable account had a balance of $210,000 (no
Problem 9–7B Mercury Food Products completed the following selected transactions:2009 Nov. 1 Sold goods to Buy Low Foods, receiving a $300,000, six-month, 5 percent note. Ignore cost of goods sold.Dec. 5 Recorded VISA credit-card sale of $30,000. VISA charges a 2.5 percent fee.31 Made an
Problem 9–6B Record the following selected transactions in the general journal of Quick Couriers. Explanations are not required.2009 Dec. 12 Received a $5,775, 120-day, 8 percent note from Jacques Alard to settle his$5,775 account receivable balance.31 Made an adjusting entry to accrue interest
Problem 9–3B The November 30, 2010, balance sheet of Sage Company reports the following:Accounts Receivable ..................................................................................... $358,000 Allowance for Doubtful Accounts (credit balance).................................. 7,700 At
Problem 9–2B On June 30, 2010, Alberta Wireless had a $1,013,100 debit balance in Accounts Receivable.During July, the company had sales revenue of $1,430,000, which included $1,415,700 in credit sales. Other data for July include:a. Collections of accounts receivable, $1,099,945.b. Write-offs of
Problem 9–1B North York Laboratories provides laboratory testing for samples that veterinarians send in.All work is performed on account, with regular monthly billing to participating veterinarians.Pete Wilson, accountant for North York Laboratories, receives and opens the mail. Company procedure
*Problem 9–11A A company received the following notes during 2010. The notes were discounted on the dates and at the rates indicated.Principal Interest Date Discount Note Date Amount Rate Term Discounted Rate(a) Jun. 15 $10,000 8% 60 days July 15 12%(b) Aug. 1 4,500 10 90 days Aug. 27 12(c) Nov.
Problem 9–10A Eastern Supply uses the allowance method in accounting for uncollectible accounts with the estimate based on the aging-of-accounts-receivable method. The company had the following account balances on August 31, 2010:Accounts Receivable
Problem 9–9A Temporary Personnel started business on January 1, 2009. The company produced monthly financial statements and had total sales of $500,000 (of which $400,000 was on credit) during the first four months.On April 30, Accounts Receivable had a balance of $236,400 (no accounts have been
Problem 9–8A The comparative financial statements of Crane River Company for 2010, 2009, and 2008 included the following selected data:2010 2009 2008(In thousands)Balance Sheet Current assets:Cash.................................................................... $ 40 $ 40 $ 20 Short-term
Problem 9–7A Assume that Ponoka Tire, a large tire distributor, completed the following selected transactions:2009 Dec. 1 Sold tires to Select Movers Inc., receiving a $20,000, six-month, 5 percent note. Ignore cost of goods sold.31 Made an adjusting entry to accrue interest on the Select Movers
Problem 9–6A Record the following selected transactions in the general journal of Fraser Paper Products.Explanations are not required.2009 Nov. 21 Received an $18,000, 60-day, 4 percent note from Mary Fisher on account.30 Recorded VISA credit card sales of $26,000. VISA charges 2.5 percent of
Problem 9–5A A company received the following notes during 2009:Note Date Principal Amount Interest Rate Term(a) Sept. 30 $ 9,000 4% 3 months(b) Nov. 19 12,000 3 60 days(c) Dec. 1 15,000 5 1 year(d) Dec. 15 20,000 6 2 years Required 1. Determine the due date and maturity value of each note.
Problem 9–4A Rosehill Co. completed the following transactions during 2009 and 2010:2009 Dec. 31 Estimated that bad-debt expense for the year was 2 percent of credit sales of $385,000 and recorded that amount as expense.31 Made the closing entry for bad-debt expense.2010 Mar. 26 Sold inventory to
Problem 9–3A The September 30, 2010, balance sheet of Kaslo Products reports the following:Accounts Receivable ..................................................................................... $310,000 Allowance for Doubtful Accounts (credit balance).................................. 9,000
Problem 9–2A On March 31, 2010, Summitt Manufacturing had a $145,000 debit balance in Accounts Receivable.During April, the business had sales revenue of $525,000, which included $495,000 in credit sales. Other data for April includea. Collections on accounts receivable, $455,000.b. Write-offs of
Problem 9–1A Lincoln Hockey distributes merchandise to sporting goods stores and hockey shops. All sales are on credit, so virtually all cash receipts arrive in the mail. Business has tripled in the last year, and the owner, Frank Lincoln, has hired an accountant to manage the financial aspect of
Beyond the Numbers 9–1 Beacon Communications’ cash flow statement reported the following cash receipts and cash payments (the amount in brackets) for the year ended August 31, 2010:BEACON COMMUNICATIONS Cash Flow Statement For the Year Ended August 31, 2010 Cash flows from operating
Exercise 9–16 Current Fashions provides store credit and manages its own receivables. Average experience for the past three years has been as follows:Cash Credit Total Sales $1,040,000 $700,000 $1,740,000 Cost of Goods Sold 624,000 420,000 1,044,000 Bad-Debt Expense — 38,000 38,000 Other
Exercise 9–15 It is February 1, 2011. Carl Haupt, owner of Haupt Consulting, has reviewed the receivables list from the January transactions (from Chapter 6, page 328). He has identified that Gene was not going to pay his receivable from January 19. Haupt Consulting uses the allowance method for
*Exercise 9–14 Gander Outdoors Store sells on account. When a customer account becomes three months old, Gander Outdoors Store converts the account to a note receivable and immediately discounts the note to a bank. During 2010, Gander Outdoors Store completed these transactions:May 29 Sold goods
*Exercise 9–13 Use your answers to Exercise 9–12 to journalize Major Corporation’s transactions as follows(round to the nearest dollar):May 31 Sold a telecommunications system, receiving a 9-month, 10 percent,$400,000 note from the city of Brandon. Major Corporation’s cost of the system was
*Exercise 9–12 Major Corporation installs switching systems and receives its pay in the form of notes receivable. It installed a system for the city of Brandon, Manitoba, receiving a nine-month, 10 percent, $400,000 note receivable on May 31, 2010. To obtain cash quickly, Major discounted the
Exercise 9–11 Swift Media Sign Company sells on account. Recently, Swift reported these figures:2010 2009 Net sales $1,200,120 $1,140,000 Receivables at year end 85,600 76,400 Required 1. Compute Swift Media Sign Company’s days’ sales in average receivables for 2010.2. Suppose Swift’s
Exercise 9–10 Franklin Ltd., a gift store, reported the following amounts in its 2010 financial statements.The 2009 figures are given for comparison.2010 2009 Current assets:Cash................................................ $ 6,000 $ 20,000 Short-term investments ............... 46,000 22,000
Exercise 9–9 Record the following transactions in the general journal of Joe’s Plumbing Store. Assume Scotiabank charges merchants $0.50 per debit-card transaction and MasterCard charges 3 percent of sales as service fees.2009 Mar. 31 Recorded Scotiabank debit-card sales of $22,000, consisting
Exercise 9–8 Record the following transactions in the journal of Seaview Properties, which ends its accounting year on November 30:Oct. 1 Lent $44,000 cash to Joe Lazarus on a one-year, 2 percent note.Nov. 3 Sold goods to Highwater Inc., receiving a 100-day, 4 percent note for$3,162.50.16
Exercise 9–7 Return to the example of accounting for uncollectibles that begins under the heading “Writing Off Uncollectible Accounts” on page 459. Suppose past experience indicates that the company will fail to collect 2 percent of net credit sales, which totalled $300,000 during the
Exercise 9–6 Refer to the situation of Exercise 9–2.Required 1. Record bad-debt expense for February by the direct write-off method.2. What amount of net Accounts Receivable would Big Mountain Ski Equipment report on its February 28 balance sheet under the direct write-off method? Does Big
Exercise 9–5 High Performance Cell Phones sold $40,000 of merchandise to Brodie Trucking Company on account. Brodie paid only $28,000 of the account receivable. After repeated attempts to collect, High Performance finally wrote off its accounts receivable from Brodie. Six months later, High
Exercise 9–4 Alliksaar Landscaping Services started the year 2010 with an Accounts Receivable balance of$38,500 and an Allowance for Doubtful Accounts balance of $2,310. During the year, $4,290 of accounts receivable were identified as uncollectible. Sales Revenue for 2010 was $429,000, including
Exercise 9–3 At December 31, 2010, the Accounts Receivable balance of Stenner’s Electronics is $600,000.The allowance for doubtful accounts has a $17,800 credit balance. Accountants for Stenner’s Electronics prepare the following aging schedule for its accounts receivable:Age of Accounts
Exercise 9–2 On February 28, Big Mountain Ski Equipment had a $25,500 debit balance in Accounts Receivable. During March, the company had sales of $65,500, which included $58,000 in credit sales. March collections were $53,000, and write-offs of uncollectible receivables totalled $1,250. Other
Exercise 9–1 Suppose McCain Foods, the Canadian food products company, is opening a district office in Fredericton, New Brunswick. Sylvester Heath, the office manager, is designing the internal control system for the office. Heath proposes the following procedures for credit checks on new
Starter 9–10 Use the data in Starter 9–9 to compute the following 2010 ratios for Vision Electronics:a. Current ratioc. Gross margin percentageb. Debt ratiod. Rate of inventory turnover
Starter 9–9 Vision Electronics, which makes DVD players, reported the following items at February 28, 2010 (amounts in thousands, with last year’s—2009—amounts also given as needed):Accounts Payable.................... $ 898 Accounts Receivable,
Starter 9–8 Royal Bank lent $200,000 to Johann Schroeder on a 90-day, 8 percent note.Record the following transactions for Royal Bank, rounding to the nearest dollar (explanations are not required):a. Lending the money on May 6.b. Collecting the principal and interest at maturity. Specify the
Starter 9–7 For each of the following notes receivable, compute the amount of interest revenue earned during 2010. Use a 365-day year where applicable, and round to the nearest dollar.Principal Interest Rate Interest Period During 2010 Note 1 $200,000 8% 6 months Note 2 30,000 12 75 days Note 3
Starter 9–6 Gas stations do a large volume of business by customer credit cards and debit cards. Suppose a Petro-Canada station had these transactions on a Saturday in July:VISA credit-card sales ........................................ $20,000 Non-bank credit-card
Starter 9–5 University Cycle Shop had trouble collecting its account receivable from Matt Wilson. On January 19, University finally wrote off Wilson’s $1,200 account receivable. University turned the account over to a lawyer, who pursued Wilson for payment for the rest of the year. On December
Starter 9–4 Diane Libbey is a lawyer in Vancouver. She uses the direct write-off method to account for uncollectible receivables.At May 31, Libbey’s accounts receivable totalled $28,000. During June, she earned revenue of $40,000 on account and collected $38,000 on account.She also wrote off
Starter 9–3 Granite Importers Inc. had the following balances at December 31, 2010, before the year-end adjustments:Allowance for Accounts Receivable Doubtful Accounts 148,000 4,000 The aging of accounts receivable yields these data:Age of Accounts Receivable 0–60 Days Over 60 Days Total
Starter 9–2 This exercise continues the situation of Starter 9–1, in which Spring Break Travel ended 2009 with Accounts Receivable at $80,000 and Allowance for Doubtful Accounts at $14,000.During 2010, Spring Break Travel completed these transactions:1. Service revenue on account, $800,000
Starter 9–1 During its first year of operations, Spring Break Travel earned revenue of$700,000 on account. Industry experience suggests that Spring Break’s bad debts will amount to 2 percent of revenues. At December 31, 2009, accounts receivable total $80,000. The company uses the allowance
*23. Why would a payee sell a note receivable before its maturity date?
22. Which measure of days’ sales in receivables is preferable, 30 or 40? Give your reason.
21. Why is the acid-test ratio a more stringent measure of the ability to pay current liabilities than is the current ratio?
20. Whitehorse Hardware has a policy of charging 2 percent interest on overdue (past 60 days) accounts receivable. Northern Cabinets has declared bankruptcy, and it is unlikely that full payment on this account will be collected. Should Whitehorse charge additional interest on the Northern Cabinets
19. Why does the payee of a note receivable usually need to make adjusting entries for interest at the end of the accounting period?
18. When the maker of a note dishonours the note at maturity, what accounts does the payee debit and credit?
17. For each of the following notes receivable, compute the amount of interest revenue earned during 2009:Interest Interest Maturity Principal rate period datea. Note #1 $ 10,000 3% 60 days Nov. 30, 2009b. Note #2 50,000 7 3 months Sept. 30, 2009c. Note #3 100,000 5 1⁄2 year Dec. 31, 2009d. Note
16. Name three situations in which a company might receive a note receivable. For each situation, show the account debited and the account credited to record receipt of the note.
15. Use the terms maker, payee, principal, maturity date, promissory note, and interest in an appropriate sentence or two describing a note receivable.
14. What are the benefits of credit-card sales to a retailer?What is the cost to the retailer? How is the cost of a credit-card sale recorded?
13. Show three ways to report Accounts Receivable of$100,000 and Allowance for Doubtful Accounts of$2,800 on the balance sheet or in the related notes.
12. How does a credit balance arise in a customer’s account receivable? How does the company report this credit balance on its balance sheet?
11. Briefly describe how a company may use both the percent-of-sales method and aging-of-accountsreceivable method (or the percent-of-accountsreceivable method) to account for uncollectibles.
10. Identify and briefly describe the three ways to estimate bad-debt expense and uncollectible accounts.
9. Which entry decreases net income under the allowance method of accounting for uncollectibles: the entry to record bad-debt expense, or the entry to write off an uncollectible account receivable?
8. What is another name for Allowance for Doubtful Accounts? What are two other names for Bad-Debt Expense?
7. Identify the accounts debited and credited to account for uncollectibles under (a) the allowance method, and(b) the direct write-off method.
6. Which of the two methods of accounting for uncollectible accounts—the allowance method or the direct write-off method—is preferable? Why?
5. Name the two methods of accounting for uncollectible receivables. Which method is easier to apply? Which method is consistent with GAAP?
4. What duty must be withheld from a company’s credit department in order to safeguard cash? If the credit department does this job, what can a dishonest credit department employee do?
3. Many businesses receive most of their cash on credit sales through the mail. Suppose you own a business so large that you must hire employees to handle cash receipts and perform the related accounting duties.What internal control feature should you use to ensure that cash received from customers
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