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Principles Of Accounting Volume 2 Chapters 12-25 1st Edition Robert Libby, Patricia Libby, Fred Phillips, Stacey Whitecotton - Solutions

M10-17 (Supplement 10C) Recording the Exchange of Assets Crosstown Motors acquired a new piece of hydraulic equipment worth $60,000, by paying $50,000 cash and trading in its old equipment. The old equipment had a cost of $40,000 and accumulated depreciation of $35,000. Calculate the amount of the
M10-16 (Supplement 10B) Computing Revised Depreciation after Change in Cost and Estimated Life Thornton Industries purchased a machine for $45,000 and is depreciating it with the straight-line method over a life of 10 years, using a residual value of $3,000. At the beginning of the sixth year, an
M10-15 (Supplement 10A) Recording Depletion for a Natural Resource Saskatchewan Forestry Company purchased a timber tract for $600,000, and estimates that it will be depleted evenly over its 10-year useful life with no residual value. Show the journal entry that would be recorded if 10 percent of
M10-14 Computing and Evaluating the Fixed Asset Turnover Ratio The following information was reported by Amuse Yourself Parks (AYP) for 2009: Net fixed assets (beginning of year) $8,450,000 Net fixed assets (end of year) 8,250,000 Net sales for the year 4,175,000 Net income for the year 1,700,000
M10-13 Computing Goodwill and Patents Taste-T Company has been in business for 30 years and has developed a large group of loyal restaurant customers. Down Home Foods made an offer to buy Taste-T Company for $6,000,000. The market value of Taste-T’s recorded assets, net of liabilities, on the
M10-12 Capitalizing versus Expensing Intangible Asset Costs Most highly visible companies spend significant amounts of money to protect their intellectual property, ensuring that no one uses this property without direct permission. For example, to include logos throughout this book, we had to
M10-10 Recording the Disposal of a Long-Lived Asset through Sale Prepare journal entries to record these transactions: (a) Morrell Corporation disposed of computer equipment at the end of its useful life. The computer equipment had cost $4,800 and its Accumulated Depreciation balance was $4,800. No
M10-9 Identifying Asset Impairment For each of the following impaired assets, indicate the amount of impairment loss to report. Book Value Fair Value Amount of Lossa. Machine $ 17,000 $ 9,000b. Copyright 41,000 39,000c. Factory building 60,000 30,000d. Building 250,000 210,000
M10-8 Computing and Recording Partial-Year Double-Declining-Balance Depreciation Calculate the amount of double-declining-balance depreciation to report during the year ended December 31, 2009, for a machine that was purchased at a cost of $33,000 on September 1, 2009. The machine has an estimated
M10-7 Computing and Recording Partial-Year Straight-Line Depreciation Calculate the amount of straight-line depreciation to report during the year ended December 31, 2009, for a machine that was purchased at a cost of $33,000 on September 1, 2009. The machine has an estimated residual value of
M10-6 Computing Book Value (Double-Declining-Balance Depreciation) Calculate the book value of a two-year-old machine that cost $200,000, has an estimated residual value of $40,000, and has an estimated useful life of four years. The company uses double-declining-balance depreciation. Round to the
M10-5 Computing Book Value (Units-of-Production Depreciation) Calculate the book value of a two-year-old machine that cost $200,000, has an estimated residual value of $40,000, and has an estimated useful life of 20,000 machine hours. The company uses units-ofproduction depreciation and ran the
M10-4 Computing Book Value (Straight-Line Depreciation) Calculate the book value of a two-year-old machine that cost $200,000, has an estimated residual value of $40,000, and has an estimated useful life of four years. The company uses straight-line depreciation.
M10-3 Deciding Whether to Capitalize an Expense For each of the following items, enter the correct letter to the left to show whether the expenditure should be capitalized (C) or expensed (E). Transactions ____ 1. Paid $600 for ordinary repairs. ____ 2. Paid $16,000 for extraordinary repairs. ____
M10-2 Deciding Whether to Capitalize or Expense American Golf Corporation operates over 170 golf courses throughout the country. For each of the following items, enter the correct letter to show whether the cost should be capitalized (C) or expensed (E).Transactions ____ 1. Purchased a golf course
M10-1 Classifying Long-Lived Assets and Related Cost Allocation Concepts For each of the following long-lived assets, indicate its nature and related cost allocation concept. Use the abbreviations shown on the right: Asset 1. Operating license 2. Property 3. New engine for old machine 4. Delivery
10. The Simon Company and the Allen Company each bought a new delivery truck on January 1, 2009. Both companies paid exactly the same cost, $30,000, for their respective vehicles. As of December 31, 2010, the book value of Simon’s truck was less than the Allen Company’s book value for the same
9. How many of the following statements regarding goodwill are true? • Goodwill is not reported unless purchased in an exchange. • Goodwill must be reviewed annually for possible impairment. • Impairment of goodwill results in a decrease in net income.a. None.c. Two.b. One.d. Three.
8. What assets should be amortized using the straight-line method?a. Land.b. Intangible assets with limited useful lives.c. Intangible assets with unlimited (or indefinite) lives.d. All of the above.
7. ACME, Inc., uses straight-line depreciation for all of its depreciable assets. ACME sold a used piece of machinery on December 31, 2010, that it had purchased on January 1, 2009, for $10,000. The asset had a five-year life, zero residual value, and Accumulated Depreciation as of December 31,
6. Under which depreciation method is partial-year depreciation not calculated by multiplying the annual depreciation by the fraction of the year for which the asset has been used?a. Straight line.b. Units of production.c. Declining balance.d. None of the above—partial-year depreciation always is
5. Barber, Inc., followed the practice of depreciating its building on a straight-line basis. Barber purchased a building on January 1, 2010, that had an estimated useful life of 20 years and a residual value of $20,000. The company’s depreciation expense for 2010 was $20,000 on the building.
4. Which of the following decisions will result in a higher net income in the year fixed assets are acquired?a. Using MACRS depreciation rates prescribed by the IRS rather than straight-line depreciation.b. Using long estimated useful lives.c. Using lower estimated residual values.d. Using the
3. Under what depreciation method(s) is an asset’s book value used to calculate depreciation each year?a. Straight-line method.b. Units-of-production method.c. Declining-balance method.d. All of the above.
2. When recording depreciation, which of the following statements is true?a. Total assets increase and owners’ equity increases.b. Total assets decrease and total liabilities increase.c. Total assets decrease and owners’ equity increases.d. None of the above is true.
1. Which of the following should be capitalized when a piece of production equipment is acquired for a factory?a. Sales taxes.b. Transportation costs.c. Installation costs.d. All of the above.
16. (Supplement 10C) In what two ways does the disposal of an asset through exchange differ from disposal through discarding or selling the asset?
15. (Supplement 10B) Over what period should an addition to an existing long-lived asset be depreciated? Explain.
14. (Supplement 10A) How does depletion affect the balance sheet and income statement? Why is depletion accounted for in a manner that differs from depreciation and amortization?
13. How is the fixed asset turnover ratio computed? Explain its meaning.
12. Define goodwill. When is it appropriate to record goodwill as an intangible asset?
11. Distinguish between depreciation and amortization.
10. What is book value? When equipment is sold for more than book value, how is the transaction recorded? How is it recorded when the selling price is less than book value?
9. What is an asset impairment? How do you account for it?
8. What type of depreciation expense pattern is used under each of the following methods, and when is its use appropriate?a. The straight-line method.b. The units-of-production method.c. The double-declining-balance method.
7. In computing depreciation, three values must be known or estimated. Identify and describe each.
5. Describe the relationship between the matching principle and accounting for long-lived assets. 6. Why are different depreciation methods allowed?
4. Distinguish between ordinary repairs and extraordinary repairs. How do you account for each?
3. What is the term for recording costs as assets rather than as expenses? Describe how the decision to record costs as assets rather than expenses affects the balance sheet and income statement.
2. Under the cost principle, what amounts should be recorded as a cost of a long-lived asset?
1. Define long-lived assets. Identify and describe each of the two common categories of long-lived asset.
CP9-5 Using an Aging Schedule to Estimate Bad Debts and Improve Collections from Customers Assume you were recently hired by Caffe D’Amore , the company that formulated the world’s first flavored instant cappuccino and now manufactures several lines of flavored cappuccino mixes. The company
CP9-4 Ethical Decision Making: A Mini-Case Having just graduated with a business degree, you are excited to begin working as a junior accountant at Clear Optics, Inc. The company supplies lenses, frames, and sunglasses to opticians and retailers throughout the country. Clear Optics is currently in
CP9-3 Internet-Based Team Research: Examining an Annual Report As a team, select an industry to analyze. Using your Web browser, each team member should acquire the annual report or 10-K for one publicly traded company in the industry, with each member selecting a different company. (See CP1-3 in
CP9-2 Comparing Financial Information Refer to the financial statements of Lowe’s in Appendix B at the end of this book, or download the annual report from the Cases section of the text’s Web site at www.mhhe.com/LLPW1e . 1. Does the company report Accounts Receivable or an Allowance for
CP9-1 Finding Financial Information Refer to the financial statements of The Home Depot in Appendix A at the end of this book, or download the annual report from the Cases section of the text’s Web site at www.mhhe.com/LLPW1e . 1. Does the company report an Allowance for Doubtful Accounts on the
PB9-5 Analyzing Allowance for Doubtful Accounts, Receivables Turnover Ratio, and Days to Collect Wal-Mart and Target are two of the largest and most successful retail chains in the world. To evaluate their ability to collect on credit sales, consider the following information reported in their 2005
PB9-4 Recording and Reporting Accounts Receivable and Notes Receivable Transactions Tractors-R-Us is a supplier of garden tractors. Most of its sales are made on account, but some particularly large orders are sold in exchange for notes receivable. Tractors-R-Us reported the following balances in
PB9-3 Recording Notes Receivable Transactions Stinson Company recently agreed to loan an employee $100,000 for the purchase of a new house. The loan was established on May 31, 2007, and is a one-year, 6 percent note, with interest payments required on November 30, 2007, and May 31, 2008. Stinson
PB9-2 Interpreting Disclosure of Allowance for Doubtful Accounts Xerox Corporation is the company that made the photocopier popular, although it now describes itself as a technology and services enterprise that helps businesses deploy document management strategies and improve productivity. It
PB9-1 Recording Accounts Receivable Transactions Using the Allowance Method Intel Corporation is a well-known supplier of computer chips, boards, systems, and software building blocks. Assume the company recently reported the following amounts in its unadjusted trial balance as of December 31, 2008
PA9-5 Analyzing Allowance for Doubtful Accounts, Receivables Turnover Ratio, and Days to Collect Coca-Cola and PepsiCo are two of the largest and most successful beverage companies in the world in terms of the products that they sell and in terms of their receivables management practices. To
PA9-4 Recording and Reporting Accounts Receivable and Notes Receivable Transactions Merle Adventures, Inc., is a distributor of kayaks, kayaking equipment, and kayaking accessories. The company ships mainly to retail stores in the northeastern United States. Most of its sales are made on account,
PA9-3 Recording Notes Receivable Transactions C&S Marketing (CSM) recently hired a new marketing director, Jeff Otos, for its downtown Minneapolis office. As part of the arrangement, CSM agreed on February 28, 2007, to advance Jeff $50,000 on a one-year, 8 percent note, with interest to be paid at
PA9-2 Interpreting Disclosure of Allowance for Doubtful Accounts Stride Rite, Corp., designs, develops, and markets performance-oriented athletic footwear, athletic apparel, and casual leather footwear. It recently disclosed the following information concerning the Allowance for Doubtful
PA9-1 Recording Accounts Receivable Transactions Using the Allowance Method Kraft Foods Inc. is the second-largest food and beverage company in the world. Assume the company recently reported the following amounts in its unadjusted trial balance as of December 31, 2007 (all amounts in
PA9-1 Recording Accounts Receivable Transactions Using the Allowance Method Kraft Foods Inc. is the second-largest food and beverage company in the world. Assume the company recently reported the following amounts in its unadjusted trial balance as of December 31, 2007 (all amounts in millions):
E9-19 (Supplement) Recording Write-Offs and Reporting Accounts Receivable Using the Direct Write-Off Method Trevorson Electronics is a small company privately owned by Jon Trevorson, an electrician who installs wiring in new homes. Because the company’s financial statements are prepared only for
E9-18 Determining the Effects of Bad Debts on Receivables Turnover Ratio During 2008, Jesse Enterprises Corporation recorded credit sales of $650,000. Based on prior experience, the company estimates a 1 percent bad debt rate on credit sales. At the beginning of the year, the balance in Net Trade
E9-17 Analyzing and Interpreting Receivables Turnover Ratio and Days to Collect A recent annual report for FedEx Corporation contained the following data (in millions): MAY 31, Current Year Prior Year Accounts receivable $3,660 $3,422 Less: Allowance for doubtful accounts 144 125 Net accounts
E9-16 Determining the Effects of Uncollectible Accounts on the Receivables Turnover Ratio Complete the following table indicating the direction of the effect ( + for increase, – for decrease, and NE for no effect) of each transaction during 2009: Transaction a. Writing off of $92,000,000 in
E9-15 Using Financial Statement Disclosures to Infer Bad Debt Expense The annual report for Sears Holding Corporation contained the following information (in millions): Prior Year Current Year Accounts receivable $686 $846 Allowance for doubtful accounts (40) (35) Accounts receivable, net $646 $811
E9-14 Using Financial Statement Disclosures to Infer Write-Offs and Bad Debt Expense and to Calculate the Receivables Turnover Ratio Microsoft develops, produces, and markets a wide range of computer software including the Windows operating system. Microsoft reported the following information about
E9-13 Recording Note Receivable Transactions, Including Accrual Adjustment for Interest To attract retailers to its shopping center, the Marketplace Mall will lend money to tenants under formal contracts, provided that they use it to renovate their store space. On November 1, 2008, the company
E9-12 Recording Note Receivable Transactions, Including Accrual Adjustment for Interest The following transactions took place for Parker’s Grocery. 2008 Jan. 1 Loaned $50,000 to a cashier of the company and received back a one-year, 7 percent note. June 30 Accrued interest on the note. Dec. 31
E9-11 Recording Note Receivable Transactions, Including Accrual Adjustment for Interest The following transactions took place for Smart Solutions Ltd. 2007 July 1 Loaned $70,000 to an employee of the company and received back a one-year, 10 percent note. Dec. 31 Accrued interest on the note. 2008
E9-10 Comprehensive Recording and Reporting of Credit Sales and Bad Debts Using Aging Okay Optical, Inc. (OOI) began operations in January 2008 selling inexpensive sunglasses to large retailers like Walgreens and other smaller stores. Assume the following transactions occurred during its first six
E9-9 Recording and Reporting Allowance for Doubtful Accounts Using Aging of Accounts Receivable Method InnovativeTech, Inc. uses the aging approach to estimate bad debt expense. The balance of each account receivable is aged on the basis of three time periods as follows: (1) 1–30 days old,
E9-8 Computing Bad Debt Expense Using Aging of Accounts Receivable Method Brown Cow Dairy uses the aging approach to estimate bad debt expense. The balance of each account receivable is aged on the basis of three time periods as follows: (1) 1–30 days old, $12,000, (2) 31–90 days old, $5,000,
E9-7 Computing Bad Debt Expense Using Aging of Accounts Receivable Method Young and Old Corporation (YOC) uses two aging categories to estimate uncollectible accounts. Accounts less than 60 days outstanding are considered young and have a 5 percent uncollectible rate. Accounts more than 60 days
E9-6 Determining Financial Statement Effects of Write-Offs, Recoveries, and Bad Debt Expense Estimates (Aging Method) Using the following categories, indicate the effects of the transactions in E9-5. Use + for increase and – for decrease and indicate the accounts affected and the amounts. Assets
E9-5 Recording Write-Offs, Recoveries, and Bad Debt Expense Estimates (Aging Method) Prior to recording the following, Elite Electronics, Incorporated had a credit balance of $2,000 in its allowance for doubtful accounts. Required: Prepare journal entries for each transaction.a. On August 31, 2008,
E9-4 Recording, Reporting, and Evaluating a Bad Debt Estimate (Percentage of Credit Sales Method) During the year ended December 31, 2007, Kelly’s Camera Shop had sales revenue of $170,000, of which $85,000 was on credit. At the start of 2007, Accounts Receivable showed a $10,000 debit balance,
E9-3 Recording and Determining the Effects of Write-Offs, Recoveries, and Bad Debt Expense Estimates on the Balance Sheet and Income Statement (Percentage of Sales Method) Academic Dishonesty Investigations Ltd. operates a plagiarism detection service for universities and community colleges. While
E9-2 Determining Financial Statement Effects of Bad Debt Expense Estimates and Write-Offs Using the following categories, indicate the effects of the transactions in E9-1. Use + for increase and – for decrease and indicate the accounts affected and the amounts. Assets = Liabilities + Owners’
E9-1 Recording Bad Debt Expense Estimates and Write-Offs During 2008, Blackhorse Productions, Inc., estimated bad debt losses of $9,750. Required: Prepare journal entries for each transaction.a. On October 31, 2008, an account receivable for $1,000 from March 2008 was determined to be uncollectible
M9-13 (Supplement) Recording Write-Offs and Reporting Accounts Receivable Using the Direct Write-off Method Complete all requirements of M9-3, except assume that Extreme Fitness uses the direct write-off method. Note that this means Extreme does not have an Allowance for Doubtful Accounts balance.
M9-12 Preparing Financial Statements Caterpillar, Inc., reported the following accounts and amounts (in millions) in its December 31, 2005, year-end financial statements. Prepare the current assets section of a classified balance sheet. Assume that the Allowance for Doubtful Accounts relates to
M9-11 Evaluating the Effect of Factoring on the Receivables Turnover Ratio and Computing the Cost of Factoring After noting that its receivables turnover ratio had declined, Imperative Company decided to sell $500,000 of receivables to a factoring company. The factor charges a factoring fee of 3
M9-10 Determining the Effects of Credit Policy Changes on Receivables Turnover Ratio and Days to Collect Indicate the most likely effect of the following changes in credit policy on the receivables turnover ratio and days to collect ( + for increase, – for decrease, and NE for no effect).a.
M9-9 Recording Note Receivable Transactions RecRoom Equipment Company received an $8,000, six-month, 6 percent note to settle an $8,000 unpaid balance owed by a customer. Prepare journal entries to record the following transactions for RecRoom. Rather than using letters to reference each
M9-8 Recording Note Receivable Transactions Scotia Corporation hired a new corporate controller and agreed to provide her with a $20,000 relocation loan on a six-month, 7 percent note. Prepare journal entries to record the following transactions for Scotia Corporation. Rather than using letters to
M9-7 Using the Interest Formula to Compute Interest Complete the following table by computing the missing amounts (?) for the following independent cases. Principal Amount on Note Receivable a. $ 100,000 b. c. $ 50,000 Annual Interest Rate 10% Time Period Interest Earned 6 months ? 10% 12 months
M9-6 Estimating Bad Debts Using the Aging Method Assume that Simple Co. had credit sales of $250,000 and cost of goods sold of $150,000 for the period. Simple uses the aging method and estimates that the appropriate ending balance in the Allowance for Doubtful Accounts is $1,500. The balance in the
M9-5 Estimating Bad Debts Using the Percentage of Credit Sales Method Assume Simple Co. had credit sales of $250,000 and cost of goods sold of $150,000 for the period. Simple uses the percentage of credit sales method and estimates that ½ percent of credit sales would result in uncollectible
M9-4 Recording Recoveries Using the Allowance Method Let’s go a bit further with the example from M9-3. Assume that on February 2, 2009, Extreme Fitness received a payment of $500 from one of the customers whose balance had been written off. Prepare the journal entries to record this transaction.
M9-3 Reporting Accounts Receivable and Recording Write-Offs Using the Allowance Method At the end of 2008, Extreme Fitness has adjusted balances of $800,000 in Accounts Receivable and $55,000 in the Allowance for Doubtful Accounts. On January 2, 2009, the company learns that certain customer
M9-2 Determining Financial Statement Effects of Write-Offs and Bad Debt Expense Using the Allowance Method Using the following categories, indicate the effects of the following transactions. Use + for increase and – for decrease and indicate the accounts affected and the amounts.a. During the
M9-1 Recording Write-Offs and Bad Debt Expense Using the Allowance Method Prepare journal entries for each transaction listed.a. During the period, customer balances in the amount of $17,000 are written off.b. At the end of the period, bad debt expense is estimated to be $14,000.
10. In a recent year, Coca-Cola Company had a receivables turnover ratio of 10.2. Which of the following would cause the ratio to decrease?a. Write off additional customer accounts receivable.b. Increase the percentages used to estimate bad debts.c. Lengthen credit terms from 30 to 60 days.d. None
9. If the receivables turnover ratio decreased during the year,a. The days to collect also decreased.b. Receivables collections slowed down.c. Sales revenues increased at a faster rate than receivables increased.d. None of the above.
8. If a 12 percent note receivable for $20,000 is created on December 1, 2009, and interest and principal are due on November 30, 2010, what amount of interest revenue would be reported for the year ended December 31, 2009?a. $2,400.c. $2,200.b. $200.d. None of the above.
7. If a 10 percent note receivable for $10,000 is created on January 1, 2006, and it has a maturity date of December 31, 2010,a. No interest revenue will be recorded in 2006.b. The note receivable will be classified as a current asset.c. Interest revenue of $1,000 will be recorded in 2006.d. None
6. When an account receivable that has been written off is “recovered”a. Total assets increase.c. Owners’ equity increases.b. Total assets decrease.d. None of the above.
5. If the Allowance for Doubtful Accounts had a beginning balance of $10,000, included write-offs of $5,000 (with no recoveries) during the period, and had a desired ending balance based on aging of $20,000, what was the amount of bad debt expense?a. $5,000.b. $10,000.c. $15,000.d. $20,000.
4. Which of the following best describes the proper presentation of Accounts Receivable in the financial statements?a. Gross Accounts Receivable plus the Allowance for Doubtful Accounts in the asset section of the balance sheet.b. Gross Accounts Receivable in the asset section of the balance sheet
3. You have determined that Carefree Company estimates bad debt expense using the aging of accounts receivable method. Generally, its estimate of uncollectible receivables resulting from the aging analysis equals:a. Bad debt expense for the current period.b. The ending balance in the Allowance for
2. When using the allowance method, as bad debt expense is recorded,a. Total assets remain the same and owners’ equity remains the same.b. Total assets decrease and owners’ equity decreases.c. Total assets increase and owners’ equity decreases.d. Total liabilities increase and owners’
1. When a company using the allowance method writes off a specific customer’s account receivable from the accounting system, how many of the following are true? • Total owners’ equity remains the same. • Total assets remain the same. • Total expenses remain the same.a. None.c. Two.b.
10. (Supplement) Describe how (and when) the direct write-off method accounts for uncollectible accounts. What are the disadvantages of this method?

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