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principles financial accounting

Financial Accounting A Business Perspective 7th Edition Roger H. Hermanson, James Don Edwards - Solutions

If a machine has an estimated useful life of nine years, what will be the total digits to use in calculating depreciation under the sum-of-the-years'-digits method? How is this figure used in the depreciation calculation?
Nancy Company purchased a machine that originally had an estimated eight years of useful life. At the end of the third year, Nancy determined that the machine would last only three more years. Does this revision affect past depreciation taken?
What does the balance in the accumulated depreciation account represent? Does this balance represent cash that can be used to replace the related plant asset when it is completely depreciated?
What is the justification for reporting plant assets on the balance sheet at undepreciated cost (book value) rather than market value?
Distinguish between capital expenditures and revenue expenditures.
For each of the following, state whether the expenditure made should be charged to an expense, an asset, or an accumulated depreciation account:a. Cost of installing air-conditioning equipment in a building that was not air conditioned.b. Painting of an owned factory building every other year.c.
Indicate which type of account (asset, accumulated depreciation, or expense) would be debited for each of the following expenditures:a. Painting an office building at a cost of \(\$ 1,000\). The building is painted every year.b. Adding on a new plant wing at a cost of \(\$ 24,000,000\).c. Expanding
How do subsidiary records provide control over a company's plant assets?
What advantages can accrue to a company that maintains plant asset subsidiary records?
Real World Question From the consolidated balance sheet of The Coca-Cola Company in the annual report booklet, identify the 1996 gross property, plant, and equipment and the net property, plant, and equipment.What percentage of the depreciable assets have been depreciated? Are the assets almost
Real World Question Based on the financial statements of Maytag Corporation contained in the annual report booklet, what was the 1996 ending balance in the Land account? Did the company acquire any of these assets in 1996?
Real World Question Based on the financial statements and the notes to those statements of The Limited, Inc., contained in the annual report booklet, what was the 1996 ending net property and equipment balance? Did the company acquire any of these assets in 1996? What depreciation method did the
Real World Question Based on the financial statements and the notes of John H. Harland Company contained in the annual report booklet, what was the 1996 ending balance of accumulated depreciation and amortization? Did the company acquire any of these assets in 1996? What depreciation methods did
Stephon Company paid \(\$ 640,000\) cash for a tract of land on which it plans to erect a new warehouse, and paid \(\$ 8,000\) in legal fees related to the purchase. Stephon also agreed to assume responsibility for \(\$ 25,600\) of unpaid taxes on the property. The company incurred a cost of \(\$
Laural Company paid \(\$ 840,000\) cash for real property consisting of a tract of land and a building. The company intended to remodel and use the old building. To allocate the cost of the property acquired, Laural had the property appraised. The appraised values were as follows: land, \(\$
A machine is acquired in exchange for 50 shares of Marley Corporation capital stock. The stock recently traded at \(\$ 400\) per share. The machine cost \(\$ 30,000\) three years ago. At what amount should the machine be recorded?
Keely Company purchased some office furniture for \(\$ 29,760\) cash on March 1, 1998. It also paid \(\$ 480\) cash for freight costs incurred. The furniture is being depreciated over four years under the straight-line method, assuming a salvage value of \(\$ 1,440\). The company employs a
On January 2,1998 , a new machine was acquired for \(\$ 900,000\). The machine has an estimated salvage value of \(\$ 100,000\) and an estimated useful life of 10 years. The machine is expected to produce a total of 500,000 units of product throughout its useful life. Compute depreciation for 1998
Terrill Company finds its records are incomplete concerning a piece of machinery used in its plant. According to the company records, the machinery has an estimated useful life of 10 years and an estimated salvage value of \(\$ 24,000\). It has recorded \(\$ 12,000\) in depreciation each year using
Katherine Company purchased a machine on April 1, 1998, for \(\$ 72,000\). The machine has an estimated useful life of five years with no expected salvage value. The company's accounting year ends on December 31.Compute the depreciation expense for 1998 and 1999 under (a) the
Australia Company purchased a machine for \(\$ 3,200\) and incurred installation costs of \(\$ 800\). The estimated salvage value of the machine is \(\$ 200\). The machine has an estimated useful life of four years. Compute the annual depreciation charges for this machine under the
Regal Company acquired a delivery truck on January 2, 1998, for \(\$ 107,200\). The truck had an estimated salvage value of \(\$ 4,800\) and an estimated useful life of eight years. At the beginning of 2001, a revised estimate shows that the truck has a remaining useful life of six years. The
Assume that the truck described in Exercise 10-10 was used \(40 \%\) of the time in 1999 to haul materials used in the construction of a building by Regal Company for its own use. (Remember that 1999 is before the revision was made on estimated life.) During the remaining time, Regal used the truck
Vineland Company purchased a computer for \(\$ 60,000\) and placed it in operation on January 2, 1997. Depreciation was recorded for 1997 and 1998 using the straight-line method, a sixyear life, and an expected salvage value of \(\$ 2,400\). The introduction of a new model of this computer in 1999
On January 2, 1998, a company purchased and placed in operation a new machine at a total cost of \(\$ 60,000\). Depreciation was recorded on the machine for 1998 and 1999 under the straight-line method using an estimated useful life of five years and no expected salvage value. Early in 2000 , the
Lasky Company purchased a machine on January 3, 1998, at a cost of \(\$ 50,000\). It debited freight and installation charges of \(\$ 10,000\) to Repairs Expense. It recorded straight-line depreciation on the machine in 1998 and 1999 using an estimated life of 10 years and no expected salvage
Bragg Company owns a plant asset that originally cost \(\$ 240,000\) in 1995. The asset has been depreciated for three years assuming an eight-year useful life and no salvage value. During 1998, Bragg incorrectly capitalized \(\$ 120,000\) in repairs on the plant asset rather than expensing them.
Brite Company purchased a machine that had an invoice price of \(\$ 400,000\) excluding sales tax. Terms were net 30 . A \(4 \%\) sales tax was levied on the sale. The company incurred and paid freight costs of \(\$ 10,000\). Special electrical connections were run to the machine at a cost of \(\$
Maxwell Company purchased 2 square miles of farmland under the following terms: \(\$ 968,000\) cash; and liability assumed on mortgage note of \(\$ 320,000\) and interest accrued on mortgage note assumed, \(\$ 12,800\). The company paid \(\$ 67,200\) of legal and brokerage fees and also paid \(\$
Dawson Towing Company purchased a used panel truck for \(\$ 28,800\) cash. The next day the company's name and business were painted on the truck at a total cost of \(\$ 1,488\). The truck was then given a minor overhaul at a cost of \(\$ 192\), and new "super" tires were mounted on the truck at a
You are the new controller for Jayson Company, which began operations on October 1, 1998, after a start-up period that ran from the middle of 1997 . While reviewing the accounts, you find an account entitled "Fixed Assets," which contains the following items:In addition, you discover that cash
Land Company acquired and put into use a machine on January 1, 1998, at a cash cost of \(\$ 120,000\) and immediately spent \(\$ 5,000\) to install it. The machine had an estimated useful life of eight years and an estimated salvage value of \(\$ 15,000\) at the end of this time. It was further
Crawford Company paid \(\$ 60,000\) for a machine on April 1, 1998, and placed it in use on that same date. The machine has an estimated life of 10 years and an estimated salvage value of \(\$ 10,000\).Compute the amount of depreciation to the nearest dollar the company should record on this asset
Bolt Company purchased a machine for use in its operations that had an invoice price of \(\$ 80,000\) excluding sales tax. A \(4 \%\) sales tax was levied on the sale. Terms were net 30 . The company estimated the total cost of hauling the machine from the dealer's warehouse to the company's plant
Timothy Company acquired and placed into use a heavy factory machine on October 1, 1998. The machine had an invoice price of \(\$ 360,000\), but the company received a \(3 \%\) cash discount by paying the bill on the date of acquisition. An employee of Timothy Company hauled the machine down a city
Peach Company has the following entries in its Building account:Peach acquired the original property on May 5, 1998. Orange immediately engaged a contractor to construct a new wing on the south end of the building. While the new wing was being constructed, the company leased the second floor as
Pressler Company planned to erect a new factory building and a new office building in Atlanta, Georgia. A report on a suitable site showed an appraised value of \(\$ 180,000\) for land and orchard and \(\$ 120,000\) for a building.After considerable negotiation, the company and the owner reached
Cardine Company acquired and placed into use equipment on January 2, 1998, at a cash cost of \(\$ 935,000\). Transportation charges amounted to \(\$ 7,500\), and installation and testing costs totaled \(\$ 55,000\).The equipment was estimated to have a useful life of nine years and a salvage value
Goodrich Company purchased a machine on October 1,1998 , for \(\$ 100,000\). The machine has an estimated salvage value of \(\$ 30,000\) and an estimated useful life of eight years.
You are a new staff auditor assigned to audit Cray Company's Buildings account. You determine that Cray Company made the following entries in its Buildings account in 1998:Using all of this information, do the following:a. Prepare a schedule that shows the separate cost of land, buildings, and land
On October 1, 1999, Besler Company acquired and placed into use new equipment costing \(\$ 504,000\). The equipment has an estimated useful life of five years and an estimated salvage value of \(\$ 24,000\). Besler estimates that the equipment will produce 2 million units of product during its
Double-declining-balance.b. Prepare a written report describing the conditions in which each of these four methods would be most appropriate.3. The notes to the financial statements of Anthony Industries, Inc., in "A Broader Perspective" on page 380 , stated that substantially all fixed assets are
The following footnote excerpted from the 1996 annual report of John H. Harland Company describes the company's accounting policies for property, plant, and equipment: Property, plant, and equipment are carried at cost. Depreciation of buildings is computed primarily by the declining balance
In a group of two or three students, visit a large company in your community and inquire about the subsidiary records it maintains to establish accounting control over its plant assets. Also inquire about physical controls used to protect its equipment that is movable, such as computers, copy
With a team of two or three students, visit two companies in your community to inquire about why they use certain depreciation methods. Try to locate companies that use several depreciation methods in accounting for various depreciable fixed assets. Interview those who made the decision as to
In a small group of students, visit a large company in your community to determine how it decides to account for expenditures on fixed assets made after the assets have been in use for some time. In other words, how does it decide whether to debit the asset account, the accumulated depreciation
Visit the Becker CPA Review site at:\section*{http://www.beckercpa/careers.htm}Study the descriptions of accounting careers at this site. Identify the major types of employers. Identify the types of public accounting firms. Describe the types of services provided by these firms. Make note of any
\section*{Visit the Best Software website at:}\section*{http://www.bestsoftware.com}Click on "Fixed Asset Management Systems." Investigate what types of information the system tracks on a particular fixed asset, such as an automobile. Why might a company buy this software and how much does it cost?
When a plant asset is still being used after it has been fully depreciated, depreciation can be taken in excess of its cost.
In an exchange of dissimilar assets, the new asset is recorded at the fair market value of the asset received or the fair market value of the asset given up plus cash paid, whichever is more clearly evident.
In calculating depletion, the residual value of acquired land containing an ore deposit is included in total costs subject to depletion.
All recorded intangible assets are subject to amortization.
When a fully depreciated asset is still in use:a. Prior years' depreciation should be adjusted.b. The cost should be adjusted to market value.c. Part of the depreciation should be reversed.d. The cost and accumulated depreciation should remain in the ledger and no more depreciation should be
A truck costing \(\$ 45,000\) and having an estimated salvage value of \(\$ 4,500\) and an original life of five years is exchanged for a new truck. The cash price of the new truck is \(\$ 57,000\), and a trade-in allowance of \(\$ 22,500\) is received. The old truck has been depreciated for three
Land containing a mine having an estimated \(1,000,000\) tons of economically extractable ore is purchased for \(\$ 375,000\). After the ore deposit is removed, the land will be worth \(\$ 75,000\). If 100,000 tons of ore are mined and sold during the first year, the depletion cost charged to
Bren Company purchased a patent for \(\$ 36,000\). The patent is expected to have value for 10 years even though its legal life is 17 years. The amortization for the first year is:a. \(\$ 36,000\).b. \(\$ 3,600\).c. \(\$ 2,118\).d. \(\$ 3,240\).e. None of the above.
When depreciable plant assets are sold for cash, how is the gain or loss measured?
A plant asset that cost \(\$ 27,000\) and has a related accumulated depreciation account balance of \(\$ 27,000\) is still being used in business operations. Would it be appropriate to continue recording depreciation on this asset? Explain. When should the asset's cost and accumulated depreciation
A machine and \(\$ 22,500\) cash were exchanged for a delivery truck. How should the cost basis of the delivery truck be measured?
A plant asset was exchanged for a new asset of a similar type. How is the cost of the new asset determined?
When similar assets are exchanged, a resulting gain is not recognized. Justify this.
What is the proper accounting treatment for the costs of removing or dismantling a company's old plant assets?
a. Distinguish between depreciation, depletion, and amortization. Name two assets that are subject to depreciation, to depletion, and to amortization.b. Distinguish between tangible and intangible assets, and classify the assets named in part (a) accordingly.
A building with an estimated physical life of 40 years was constructed at the site of a coal mine. The coal mine is expected to be completely exhausted within 20 years. Over what length of time should the building be depreciated, assuming the building will be abandoned after all the coal has been
What are the characteristics of intangible assets? Give an example of an asset that has no physical existence but is not classified as an intangible asset.
What reasons justify the immediate expensing of most research and development costs?
Over what length of time should intangible assets be amortized?
Should costs incurred on internally generated intangible assets be capitalized in asset accounts?
Describe the typical accounting for a patent.
During 1999, Hardy Company incurred \(\$ 123,000\) of research and development costs in its laboratory to develop a patent that was granted on December 29, 1999. Legal fees (outside counsel) and other costs associated with registration of the patent totaled \(\$ 22,800\). What amount should be
What is a capital lease? What features may characterize a capital lease?
What is the difference between a leasehold (under an operating lease contract) and a leasehold improvement? Is there any difference in the accounting procedures applicable to each?
Walt Company leased a tract of land for 40 years at an agreed annual rental fee of \(\$ 18,000\). The effective date of the lease was July 1, 1998. During the last six months of 1998, Walt constructed a building on the land at a cost of \(\$ 450,000\). The building was placed in operation on
You note that a certain store seems to have a steady stream of regular customers, a favorable location, courteous employees, high-quality merchandise, and a reputation for fairness in dealing with customers, employees, and suppliers. Does it follow automatically that this business should have
Real World Question From the consolidated balance sheet of The Coca-Cola Company in the annual report booklet, identify the 1996 intangible assets ending balance. What percentage increase does this amount represent over the 1995 ending balance and what percentage did the intangible assets balance
Real World Question Based on the financial statements of Maytag Corporation contained in the annual report booklet, what was the 1996 allowance for amortization of intangibles? What percentage change does this represent from the preceding year?
The accounts of Stackhouse Company as of December 31, 1999, show Accounts Receivable, \(\$ 190,000\); Allowance for Uncollectible Accounts, \(\$ 950\) (credit balance); Sales, \(\$ 920,000\); and Sales Returns and Allowances, \(\$ 12,000\). Prepare journal entries to adjust for possible
Compute the required balance of the Allowance for Uncollectible Accounts for the following receivables: Accounts Receivable Age (months) Probability of Collection $180,000. Less than 1 95% 90,000. 1-3 85 39,000 3-6 75 12,000 6-9 35 2,250. 9-12 10
On April 1, 1998, Kelley Company, which uses the allowance method of accounting for uncollectible accounts, wrote off Bob Dyer's \(\$ 400\) account. On December 14, 1998, the company received a check in that amount from Dyer marked "in full payment of account." Prepare the necessary entries.
Jamestown Furniture Mart, Inc., sold \(\$ 80,000\) of furniture in May to customers who used their Carte Blanche credit cards. Such sales are subject to a \(3 \%\) discount by Carte Blanche (a nonbank credit card),a. Prepare journal entries to record the sales and the subsequent receipt of cash
Dunwoody Discount Toys, Inc., sells merchandise in a state that has a 5\% sales tax. Rather than record sales taxes collected in a separate account, the company records both the sales revenue and the sales taxes in the Sales account. At the end of the first quarter of operations, when it is time to
Assume the following note appeared in the annual report of a company:In 1998, two small retail customers filed separate suits against the company alleging misrepresentation, breach of contract, conspiracy to violate federal laws, and state antitrust violations arising out of their purchase of
Determine the maturity date for each of the following notes: Issue Date Life January 13, 1999. January 31, 1999 30 days 90 days June 4, 1999 1 year December 2, 1999. 1 month
Crawford, Inc., gave a \(\$ 20,000,120\)-day, \(12 \%\) note to Dunston, Inc., in exchange for merchandise. Crawford uses periodic inventory procedure. Prepare journal entries to record the issuance of the note and the entries needed at maturity for both parties, assuming payment is made.
Based on the facts in the previous exercise, prepare the entries that Crawford, Inc., and Dunston, Inc., would make at the maturity date, assuming Crawford defaults.
John Wood is negotiating a bank loan for his company, Wood, Inc., of \(\$ 16,000\) for 90 days. The bank's current interest rate is \(10 \%\). Prepare Wood's entries to record the loan under each of the following assumptions:a. Wood signs a note for \(\$ 16,000\). Interest is deducted in
Based on the previous exercise, prepare the entry or entries that would be made at maturity date for each alternative, assuming the loan is paid before the end of the accounting period.
AT\&T provides communication services and products, as well as network equipment and computer systems, to businesses, consumers, communications services providers, and government agencies. The following amounts were included in its 1995 annual report:Calculate the accounts receivable turnover
The following selected accounts are for Keystone, Inc., a name brand shoe wholesale store, as of December 31, 1998. Prior to closing the accounts and making allowance for uncollectible accounts entries, the \(\$ 5,000\) account of Morgan Company is to be written off (this was a credit sale of
The cash register at Frank's Restaurant at the close of business showed cash sales of \(\$ 7,500\) and credit card sales of \(\$ 10,000\) ( \(\$ 6,000\) VISA and \(\$ 4,000\) American Express). The VISA (bank credit card) invoices were discounted \(5 \%\) when they were deposited. The American
Beacham Hardware, Inc., sells merchandise in a state that has a 6\% sales tax. On July 1, 1999, it sold goods with a sales price of \(\$ 20,000\) on credit. Sales taxes collected are recorded in a separate account. Assume that sales for the entire month were \(\$ 400,000\). On July 31, 1999, the
Quick Wheels, Inc., sells racing bicycles and warrants all parts for one year. The average price per bicycle is \(\$ 560\), and the company sold 4,000 in 1998 . The company expects \(20 \%\) of the bicycles to develop defective parts within one year of sale. The estimated average cost of warranty
Vance Commercial Properties, Inc., has an accounting period of one year, ending on July 31. On July 1, 1998, the balances of certain ledger accounts are Notes Receivable, \(\$ 654,000\); and Notes Payable, \(\$ 900,000\). A schedule of the notes receivable is as follows:The note payable is a 60-day
On November 1, 1999, Grand Strand Property Management, Inc., discounted its own \(\$ 50,000\), 180-day, noninterest-bearing note at its bank at \(18 \%\). The note was paid on its maturity date. The company uses a calendar-year accounting period.Prepare dated journal entries to record \((a)\) the
As of December 31, 1998, Fargo Company's accounts prior to adjustment show:Fargo Company estimates uncollectible accounts at \(1 \%\) of sales.On February 23, 1999, the account of Dan Hall in the amount of \(\$ 300\) was considered uncollectible and written off. On August 12, 1999, Hall remitted
At the close of business, Jim's Restaurant had credit card sales of \(\$ 12,000\). Of this amount, \(\$ 4,000\) were VISA (bank credit card) sales invoices, which can be deposited in a bank for immediate credit, less a discount of \(3 \%\). The balance of \(\$ 8,000\) consisted of American Express
Ruiz Company sells merchandise in a state that has a 5\% sales tax. On January 2, 1999, Ruiz sold goods with a sales price of \(\$ 80,000\) on credit. Sales taxes collected are recorded in a separate account. Assume that sales for the entire month were \(\$ 900,000\). On January 31, 1999, the
Honest Tim's Auto Company sells used cars and warrants all parts for one year. The average price per car is $10,000, and the company sold 900 in 1998. The company expects 30% of the cars to develop defective parts within one year of sale. The estimated average cost of warranty repairs per defective
Celoron Power Boat Company is in the power boat manufacturing business. As of September 1 , the balance in its Notes Receivable account is \(\$ 256,000\). The balance in Dishonored Notes Receivable is \(\$ 60,660\) (includes the interest of \(\$ 600\) and the protest fee of \(\$ 60\) ). A schedule
Premium Office Equipment, Inc., discounted its own $30,000, noninterest-bearing, 180-day note on November 16, 1998, at Niagara County Bank at a discount rate of 12%. Prepare dated journal entries for:a. The original discounting on November 16.b. The adjustment required at the end of the company's

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