BAT$4$M

Unit $2$ Activity $6$

Summative Assignment

PART A $$ Transactions and Journal Entries

$1.$ Perth Construction Company

The Perth Construction Company purchased a piece of machinery on June $29,2013$ for

$$53000.$ Freight costs came to $$800.$ It cost $$1700$ to install and test the machinery. At this

time it was estimated that the machine would be used for six years and would have a residual

value of $$8000$ at that time.

Before recording the $2016$ amortization expense, the owners realized that this machinery would last only five

years, and therefore revised the amortization expense calculation.

On July $2,2017,$ the machine broke down and rather than repair it$,$ the company decided to sell it for $$12000.$

a$)$ Prepare the journal entry to record the purchase of the machine on June $29,2013.$

b$)$ Calculate the amortization charges that would appear on the $2013$ and $2014$ income

statements, using the straight line method of amortization.

c$)$ Show the journal entry for the $2013$ amortization.

d$)$ Show how the machine would appear in the Perth Construction Company Balance Sheet on December

$31,2015,$ presuming the straight$-$line method of amortization is used.

e$)$ Briefly explain why no journal entry would be made to correct previous years$$ records after the new

estimate in $2016$ for expected life. Give one GAAP to support your argument.

f$)$ Prepare the journal entry for the July $2,2017$ transaction.

$2.$ Miyasawa Mining Company

On Feb. $1,2015,$ Miyasawa Mining Company purchased a mine for $$80$ million that is estimated have $250000$

tonnes of ore and a residual value of $$3$ million. The cost of restoration at the end of the useful life is estimated

at $$8$ million. In $2015,30000$ tonnes of ore were extracted.

a$)$ Calculate the amount of amortization that should be recorded on December $31,2015.$

b$)$ Calculate the amount of the restoration liability.

c$)$ Show the journal entry for December $31,2015.$

$3.$ MacDougall Brothers

The income statement approach to estimating uncollectible accounts is used by MacDougall Brothers. On

January $31$ the firm had accounts receivable in the amount of $$750000.$ The Allowance for Doubtful Accounts

had a credit balance of $$5250.$ The controller estimated that the uncollectible accounts expense would

amount to one$-$half of $1\%$ of the $$4500000$ of net sales made during January. This estimate was entered in

the accounts by an adjusting entry on January $31.$ On February $12,$ an account receivable from Carlotta Smith

in the amount of $$4125$ was determined to be worthless and was written off. However, on February $24,$ Smith

won several million dollars in the lottery and immediately paid her $$4125$ past$-$due account.

a$)$ Prepare journal entries in general journal form for Jan. $31,$ Feb. $12,$ and Feb. $24.$

$4.$ Sunrise Products

Sunrise Products has $250$ accounts receivable accounts. All accounts are due in $30$ days. On June $30,$ an

ageing schedule was prepared. The results are summarized below:

Total Not Yet

Due

$1-30$ days

past due

$31-60$ days

past due

$61-90$ days

past due

Over $90$

days past

due

Amounts $$345250$ $$183590$ $$94680$ $$43340$ $$9000$ $$14640$

Two accounts receivable were accidentally omitted from this schedule. The following data is

available regarding these accounts:

$$ R$.$ Jones owes $$4250$ from two invoices: Invoice no$.218,$ dated March $14,$ in the amount of $$2980$; and

Invoice no$.568,$ dated May $9,$ in the amount of $$1270.$

$$ F$.$ Smith owes $$3760$ from two invoices: Invoice no$.574,$ dated May $19,$ in the amount of $$1350$: and

Invoice no$.641,$ dated June $5,$ in the amount of $$2410.$

a$)$ Complete the ageing chart as of June $30$ by adding to the column subtotals an ageing of

the accounts of Jones and Smith.

b$)$ Calculate the estimated portion of each age group that will prove uncollectible and the

required balance in the Allowance for Doubtful Accounts. The following percentages of

each age group are estimated to be uncollectible: Not yet due, $1\%$; $1-30$ days, $4\%$; $31-60$

days, $10\%$; $61-90$ days, $30\%$; over $90$ days, $50\%.$

c$)$ Prepare the journal entry to adjust the Allowance for Doubtful Accounts account at June

$30.$ Prior to making this adjustment, the account has a credit balance of $$13800.$

$5.$ Noodle Hut Restaurant

The Noodle Hut restaurant does a brisk business. Journalize the following three transactions

from their lunchtime crowd on May $16,2015.$ The following service fees apply:

$$0\mathrm{.}15$ per transaction for debit card; $2\mathrm{.}5\%$ for MasterCard and Visa; $3\mathrm{.}5\%$ for American Express.

a$)$ A lunch bill for $$34\mathrm{.}00$ was paid with a debit card.

b$)$ A lunch bill for $$25\mathrm{.}00$ was paid with a MasterCard.

c$)$ A lunch bill for $$55\mathrm{.}00$ was paid with an American Express.