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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
Exercise 11–2 Make general journal entries to record the following transactions of Mehta Products for a two-month period. Explanations are not required.Jun. 30 Recorded cash sales of $115,000 for the month, plus PST of 8 percent collected on behalf of the province of Ontario and GST of 5 percent.
Exercise 11–1 Record the following note payable transactions of Lambda Company in the company’s general journal. Explanations are not required.2009 Jun. 1 Purchased delivery truck costing $86,000 by issuing a one-year, 4-percent note payable.Dec. 31 Accrued interest on the note payable.2010
Starter 11–11 What are some of the important elements of good internal control to safeguard payroll disbursements?
Starter 11–10 Refer to the payroll information in Starters 11–6 and 11–7.1. How much was the company’s total salary expense for the week for Fred Lind?2. How much cash did Fred Lind take home for his work?3. How much did the employee pay this week fora. Income tax?b. CPP and EI?4. How much
Starter 11–9 Suppose you work for an accounting firm all year and earn a monthly salary of $4,000. There is no overtime pay. Your withheld deductions consume 20 percent of gross pay. In addition to payroll deductions, you elect to contribute 4 percent monthly to your pension plan. Your employer
Starter 11–8 After solving Starters 11–6 and 11–7, journalize for Jones Golf Corp. the following expenses related to the employment of Fred Lind:a. Salary expenseb. Benefitsc. Employer payroll expenses Round all amounts to the nearest cent.
Starter 11–7 Return to the Fred Lind payroll situation in Starter 11–6. Lind’s employer, Jones Golf Corp., pays all the standard payroll expenses plus benefits for employee pensions (5 percent of gross pay), BC health insurance ($60 per employee per month), and disability insurance ($8 per
Starter 11–6 Fred Lind is paid $640 for a 40-hour work week and time-and-a-half for hours worked above 40.1. Compute Lind’s gross pay for working 50 hours during the first week of February.2. Lind is single, and his income tax withholding is 10 percent of total pay.His only payroll deductions
Starter 11–6 begins a sequence of exercises that ends with Starter 11–8.
Starter 11–5 Harley-Davidson, Inc., the motorcycle manufacturer, used to include the following note (adapted) in its annual report:1. Why are these contingent (versus real) liabilities?2. How can a contingent liability become a real liability for Harley-Davidson?What are the limits to the
Starter 11–4 Refer to the data given in Starter 11–3.What amount of warranty expense will Arctic Corporation report during 2009? Does the warranty expense for the year equal the year’s cash payments for warranties? Which accounting principle or objective addresses this situation?
Starter 11–3 Arctic Corporation guarantees its snowmobiles for three years. Company experience indicates that warranty costs will be 4 percent of sales.Assume that an Arctic dealer made sales totalling $600,000 during 2009, its first year of operations. The company received cash for 30 percent of
Starter 11–2 Refer to the data in Starter 11–1. Show what Langley Corp. reports for the note payable and related interest payable on its balance sheet at December 31, 2009, and on its income statement for the year ended on that date.
Starter 11–1 On June 30, 2009, Langley Corp. purchased $32,000 of inventory on a oneyear, 10-percent note payable. Journalize the company’s (a) accrual of interest expense on December 31, 2009, and (b) payment of the note plus interest on June 30, 2010.
24. Identify three internal controls designed to safeguard payroll cash.sales and notes receivable for the remainder. Warranty payments totalled$20,000 during 2009.1. Record the sales, warranty expense, and warranty payments for Arctic Corporation.2. Post to the Estimated Warranty Payable
23. Why do some companies use a special payroll bank account?
22. Briefly describe the two principal types of internal controls over payroll.
21. How much EI has been withheld from the pay of an employee who has earned $52,288 during the current year?What is the employer’s EI expense for this employee?
20. Briefly describe a basic payroll accounting system’s components and their functions.
19. Who pays EI premiums? What are these funds used for?
18. Identify the employee benefit expenses an employer pays.
17. Identify three required deductions and two optional deductions from employee paycheques.
16. What is the Canada (or Quebec) Pension Plan? Who pays contributions toward it? What are the funds used for?
15. What determines the amount of income tax that is withheld from employee paycheques?
14. What are two elements of an employer’s payroll expense in addition to salaries, wages, commissions, and overtime pay?
13. Two people are studying Beauregarde Company’s manufacturing process. One person is Beauregarde Company’s factory supervisor, and the other person is an outside consultant who is an expert in the industry.Which person’s salary is the payroll expense of Beauregarde Company? Identify the
12. Why is payroll expense relatively more important to a service business such as a public accounting firm than it is to a merchandising company such as Zellers?
11. What are the two basic categories of current liabilities?Give an example of each.
10. Identify one contingent liability of a definite amount and one contingent liability of an indefinite amount.
9. Murray Company warrants its products against defects for two years from date of sale. During the current year, the company made sales of $1,000,000. Management estimated warranty costs on those sales would total$30,000 over the two-year warranty period. Ultimately, the company paid $35,000 cash
8. Why is a customer deposit a liability? Give an example.
7. At the beginning of the school term, what type of account is the tuition that your college or university collects from students? What type of account is the tuition at the end of the school term?
6. Describe the similarities and differences between an account payable and a short-term note payable.
5. Why is an accrued expense a liability?
4. What is meant by the term current portion of long-term debt, and how is this item reported in the financial statements?
3. Explain how GST that is paid by consumers is a liability of the store that sold the merchandise. To whom is GST paid?
2. A company purchases a machine by signing a $50,000, 4-percent, one-year note payable on June 30. Interest is to be paid at maturity. What two current liabilities related to this purchase does the company report on its December 31 balance sheet? What is the amount of each current liability?
1. What distinguishes a current liability from a long-term liability? What distinguishes a contingent liability from an actual liability?
10. Which of the following items is reported as a current liability on the balance sheet? (p. 561)a. Short-term notes payableb. Estimated warrantiesc. Payroll withholdingsd. All of the above
9. The best step to ensure good internal controls in the payroll area is (p. 576)a. Using a payroll bank accountb. Separating payroll dutiesc. Using a payroll registerd. Using time cards
8. The main reason for using a separate payroll bank account is to (p. 576)a. Safeguard cash by preventing the writing of payroll cheques to fictitious employeesb. Safeguard cash by limiting paycheques to amounts based on time cardsc. Increase efficiency by isolating payroll disbursements for
7. Which of the following represents a cost to the employer?(p. 576)a. Withheld income taxb. Canada Pension Planc. Employment Insuranced. Both b and c
6. Emilie Frontenac’s weekly pay for 40 hours is $400, plus time and a half for overtime. The federal tax rate, based on her income level and deductions, is 10.5 percent, the provincial rate is 8.8 percent, the QPP rate is 4.95 percent on her weekly earnings, and the EI rate is 1.73 percent on
5. Nu Systems Company is a defendant in a lawsuit that claims damages of $55,000. On the balance sheet date, it appears unlikely that the court will render a judgment against the company. How should Nu Systems Company report this event in its financial statements?(pp. 560–561)a. Omit mention
4. Suppose Canadian Tire estimates that warranty costs will equal 1 percent of tire sales. Assume that November tire sales totalled $900,000, and the company’s outlay in replacement tires and cash to satisfy warranty claims was $7,400. How much warranty expense should the November income
3. Known liabilities of uncertain amounts should be(p. 558)a. Contingent liabilitiesb. Ignored. Record them when they are paid.c. Reported on the balance sheetd. Reported only in the notes to the financial statements
2. Which of the following liabilities creates no expense for the company? (pp. 554–555)a. Interestc. Employment Insuranceb. Sales taxd. Warranty
1. A $10,000, 9-percent, one-year note payable was issued on July 31. The balance sheet at December 31 will report interest payable of (pp. 551–552)a. $0 because the interest is not due yetb. $522.74c. $375d. $900
Financial Statement Case 2 Refer to Sun-Rype Products Ltd.’s financial statements in Appendix B and answer the following questions.1. With respect to manufacturing operations, which amortization method does Sun-Rype Products Ltd. use for the purpose of reporting to shareholders and creditors in
Financial Statement Case 1 Refer to the financial statements of Canadian Western Bank (CWB) in Appendix A and answer the following questions.1. Which amortization method does CWB use for property, plant, and equipment for the purpose of reporting to shareholders and creditors in the financial
Problem 10–2C Courtnell Mining Corp. is a new company that has been formed to mine for nickel in Northern Ontario. The ore body is estimated to contain 100,000 metric tonnes of pure nickel for which the world price is $15,000 per metric tonne. The costs of mine development are estimated to be
Problem 10–1C The owner of newly formed Lake of the Woods Air Taxi, a friend of your family, knows you are taking an accounting course and asks for some advice. Mr. Linden tells you that he is pretty good at running the company but doesn’t understand accounting. Specifically, he has two
Problem 10–8B On January 4, 2010, Northern Mines Ltd. acquired Cambrian Mines Inc. for $3,750,000. At the time of the acquisition, Cambrian Mines Inc.’s balance sheet contained the following items, which were transferred to Northern Mines Ltd.:• Mining Equipment: original cost of $1,500,000
Problem 10–7B Cardston TV owns a televison station in the interior of British Columbia. Its year end is June 30. The company completed the following transactions:2010 Apr. 1 Paid $2,175,000 plus $75,000 in legal fees (pertaining to all assets purchased)to purchase the following assets from a
Problem 10–6B Part 1 Kitkan Inc. is a global producer and marketer of rolled aluminum products.Suppose Kitkan Inc. paid $4.4 million cash for a lease giving the firm the right to work a mine that contained an estimated 400,000 tonnes of bauxite. Assume that the company paid$30,000 to remove
Problem 10–5B Assume that Luxury Limousines completed the following transactions:2009 Jan. 5 Paid $40,000 cash for a used limousine.6 Paid $4,000 to have the engine overhauled.9 Paid $1,500 to have the company logo put on the limousine.Jun. 15 Paid $600 for a minor tune-up after limousine was put
Problem 10–4B On January 5, 2010, Steele Inc. paid $438,000 for equipment used in manufacturing computer equipment. In addition to the basic purchase price, the business paid $2,200 transportation charges, $600 insurance for the goods in transit, $35,200 provincial sales tax, and$20,000 for a
Problem 10–3B The board of directors of Mauger Properties Ltd. is reviewing the 2010 annual report. A new board member, a dermatologist with little business experience, questions the company accountant about the amortization amounts. The dermatologist wonders why amortization expense has
Problem 10–2B Belkin Freight provides general freight service in Canada. The business’s balance sheet includes the following assets under Property, Plant, and Equipment: Land, Buildings, and Motor Carrier Equipment. Belkin Freight has a separate accumulated amortization account for each of
Problem 10–1B The owner of Big Boy Movers incurred the following costs in acquiring land, making land improvements, and constructing and furnishing the company’s office building in the year ended December 31, 2010.a. Purchase price of 4 hectares of land, including an old building that will be
Problem 10–8A On October 2, 2009, Jaffar Mines Inc. acquired Bassett Exploration Ltd. for $11,000,000. At the time of the acquisition, Bassett’s balance sheet contained the following items, which were transferred to Jaffar Mines Inc.:• Mining Equipment: original cost of $22,000,000 and a
Problem 10–7A Dueck Toy Co. has a fiscal year ending August 31. The company completed the following selected transactions:2009 Mar. 2 Paid $640,000 plus $20,000 in legal fees (pertaining to all assets purchased)to purchase the following assets from a competitor that was going out of
Problem 10–6A Part 1 Oilco Canada Limited sells refined petroleum products. The company’s balance sheet includes reserves of oil assets.Suppose Oilco paid $15 million cash for an oil lease that contained an estimated reserve of 1,990,000 barrels of oil. Assume that the company paid $550,000 for
Problem 10–5A Assume that Rees Warehousing completed the following transactions:2009 Mar. 3 Paid $8,000 cash for a used forklift.5 Paid $1,500 to have the forklift engine overhauled.7 Paid $1,000 to have the forklift modified for specialized moving of auto parts.Nov. 3 Paid $550 for an oil change
Problem 10–4A On January 5, 2010, Keitly Construction purchased a used crane at a total cost of $300,000.Before placing the crane in service, the company spent $12,500 painting it, $4,800 replacing tires, and $11,400 overhauling the engine. Karen Keitly, the owner, estimates that the crane will
Problem 10–2A The board of directors of Little People Nursery The company’s balance sheet reports the following assets under Property, Plant, and Equipment: Land, Buildings, Office Furniture, Communication Equipment, and Video Equipment. The company has a separate Accumulated Amortization
Problem 10–1A Bennett Distributors incurred the following costs in acquiring land and a building, making land improvements, and constructing and furnishing an office building for its own use.a. Purchase price of 2 hectares of land, including an old building that will be used for storage of
Exercise 10–17 Great Lake Furniture Limited’s 2010 financial statements reported these amounts (in thousands of dollars):December 31 2010 2009 Accumulated Accumulated Properties Cost Amortization Cost Amortization Land ...................................................... $ 41,378 — $ 35,073
*Exercise 10–15 In 2009, Maxwell Inc. paid $625,000 for equipment that is expected to have a five-year life.In this industry, the residual value is estimated to be 5 percent of the asset’s cost. Maxwell Inc. plans to use straight-line amortization for accounting purposes. For income tax
Exercise 10–14 In 2010, Camden Electronics purchased Raytheon Electronics, paying $2.0 million in a note payable. The market value of Raytheon Electronics’ assets was $3.1 million, and Raytheon Electronics had liabilities of $1.8 million.Required 1. Compute the cost of the goodwill purchased by
Exercise 10–13 The financial statements of Dane Transportation for the year ended December 31, 2009, reported the following details of acquisitions (adapted):Assets: In thousands Cash................................................................... $ 3,400 Noncash Current
Exercise 10–12 Bolton Industries acquired companies with assets with a market value of $45 million and liabilities of $30 million. Thompson paid $25 million for these acquisitions during the year ended December 31, 2010.Required 1. How would a value be assigned to the net assets acquired?2. What
Exercise 10–11 1. Worman Company manufactures flat screen monitors for the graphics industry and has recently purchased for $525,000 a patent for the design of a new monitor. Although it gives legal protection for 20 years, the patent is expected to provide Worman Company with a competitive
Exercise 10–10 Clear Lake Mining Ltd. paid $900,000 for the right to extract ore from a 300,000-tonne mineral deposit. In addition to the purchase price, the company also paid a $1,000 filing fee, a$5,000 licence fee to the province of Quebec, and $75,000 for a geological survey. Because Clear
Exercise 10–9 Timmins Distribution is a large warehousing and distribution company that operates throughout Eastern Canada. Timmins Distribution uses the UOP method to amortize its trucks because its managers believe UOP amortization best measures the wear and tear on the trucks. Timmins
Exercise 10–8 On January 13, 2009, Sinclair Gifts purchased store fixtures for $65,000 cash, expecting the fixtures to remain in service for 10 years. Sinclair Gifts has amortized the fixtures on a DDB basis with an estimated residual value of $5,000. On September 30, 2010, Sinclair Gifts sold
Exercise 10–7 Massicote Marketing Services purchased land and a building for $1,200,000. The land had a fair value of $300,000 and the building $900,000. The building was amortized on a straightline basis over a 50-year period. The estimated residual value was $50,000. After using the building
Exercise 10–6 Zhang Machine & Dye bought a machine on January 2, 2010, for $460,000. The machine was expected to remain in service for three years and produce 2,000,000 parts. At the end of its useful life, company officials estimated that due to technological changes, the machine’s residual
Exercise 10–5 Ron Alexander has just slept through the class in which Professor Larston explained the concept of amortization. Because the next test is scheduled for Wednesday, Alexander texts Nancy Wu to ask for her notes from the lecture. Wu texts back: “Amortization—sounds like Greek 2
Exercise 10–4 Firestone Shoes is a family-owned retail shoe operation with two stores. Assume that early in year 1, Firestone Shoes purchased computerized point-of-sale and operating systems costing $150,000. Bob Firestone expects this equipment will support the inventory and accounting
Exercise 10–3 Classify each of the following expenditures as (1) a cost/betterment, (2) a repair (expense)related to a machine used to earn revenue, or (3) other: (a) purchase price; (b) sales tax paid on the purchase price; (c) transportation and insurance while the machine is in transport from
Exercise 10–2 Mirobel Trucking bought three used trucks for $60,000. An independent appraisal of the trucks produced the following figures:Truck No. Appraised Value 1 $24,000 2 22,000 3 20,000 Mirobel Trucking paid 25 percent in cash and signed a note for the remainder. Record the purchase in the
Exercise 10–1 The accounting firm of Pratt & Taylor purchased land, paying $150,000 cash as a down payment and signing a $310,000 note payable for the balance. In addition, the company paid property tax in arrears of $3,000, a legal fee of $1,500, and a $20,500 charge for levelling the land and
*Starter 10–13 This exercise uses the JetQuick Airways data from Starter 10–4. JetQuick is comparing the CCA method used for income tax purposes with the straight-line amortization method.1. Calculate the amount of CCA, at a rate of 25%, that JetQuick will be able to take in its first year.2.
Starter 10–12 This exercise summarizes the accounting for patents and research costs.InnoTech Applications paid $1,600,000 in research costs for a new software program. InnoTech also paid $1,000,000 to acquire a patent on other software. After readying the software for production, InnoTech’s
Starter 10–11 Media-related companies have little in the way of property, plant, and equipment. Instead, their main asset is goodwill. When one media company buys another, goodwill is often the most costly asset acquired.Assume that Media Watch paid $800,000 to acquire The Thrifty Nickel, a
Starter 10–10 EnCana, the giant oil company, holds huge reserves of oil and gas assets.Assume that at the end of 2010, EnCana’s cost of oil and gas assets totalled approximately $18 billion, representing 2.4 billion barrels of oil and gas reserves in the ground.1. Which amortization method does
Starter 10–9 In 2008, Global Travel purchased a computer for $4,000, debiting Computer Equipment. During 2008 and 2009, Global recorded total amortization of $2,000 on the computer. In January 2010, Global traded in the computer for a new one with a fair market value of $4,200, paying $2,500
Starter 10–8 Return to the RONA delivery truck example in Exhibit 10–6 on page 508.Suppose RONA sold the truck on December 31, 2012, for $30,000 cash, after using the truck for three full years. Amortization for 2012 has already been recorded. Make the journal entry to record RONA’s sale of
Starter 10–7 Assume the Goldeyes Baseball Club paid $60,000 for a hot dog stand with a 10-year useful life and no residual value. After using the hot dog stand for four years, the club determines that the asset will remain useful for only two more years. Record amortization on the hot dog stand
Starter 10–6 On March 31, 2010, JetQuick Airways purchased a used Boeing jet at a cost of $40,000,000. JetQuick expects to fly the plane for five years and expects it to have a residual value of $4,000,000. Compute JetQuick’s amortization on the plane for the year ended December 31, 2010, using
Starter 10–5 At the beginning of 2010, JetQuick Airways purchased a used Boeing aircraft at a cost of $40,000,000. JetQuick expects the plane to remain useful for five years (6,000,000 miles) and to have a residual value of $4,000,000.JetQuick expects the plane to be flown 750,000 miles the first
Starter 10–4 At the beginning of 2010, JetQuick Airways purchased a used Boeing jet at a cost of $40,000,000. JetQuick expects the plane to remain useful for five years (6,000,000 miles) and to have a residual value of $4,000,000. JetQuick expects the plane to be flown 750,000 miles the first
Starter 10–3 JetQuick Airways repaired one of its Boeing 767 aircraft at a cost of$600,000, which JetQuick paid in cash. JetQuick erroneously capitalized this cost as part of the cost of the plane. How will this accounting error affect JetQuick’s net income? Ignore amortization.
Starter 10–2 Suppose you make a lump-sum purchase of land, building, and equipment.At the time of your purchase, the land has a current market value of$240,000, the building’s market value is $300,000, and the equipment’s market value is $180,000. Journalize the lump-sum purchase of the three
Starter 10–1 This chapter lists the costs included for the acquisition of land. First is the purchase price of the land, which is obviously included in the cost of the land. The reasons for including the other costs are not so obvious. For example, the removal of a building looks more like an
*22. Does amortization affect income taxes? How does amortization affect cash provided by operations?
*21. What is capital cost allowance (CCA)?
20. Bombardier Inc. is recognized as a world leader in the manufacture and sale of transportation systems and industrial products. The company’s success has created vast amounts of business goodwill. Would you expect to see this goodwill reported on Bombardier Inc. financial statements? Why, or
19. Your company has just purchased another company for$1,000,000. The market value of the other company’s net assets is $700,000. What is the $300,000 excess called? What type of asset is it? How is this asset amortized under GAAP?
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