You should start with an assessment of the situation including consideration of the major users of the
Question:
You should start with an assessment of the situation including consideration of the major users of the financial statements and their needs. Then identify accounting issues and analyze each one, determining the appropriate treatment and journal entries. Remember to draw conclusions after analyzing each issue.
Given Information:
A select portion of RRR’s Statement of Financial Position is provided below. The previous accountant recorded all gains on the sale of capital items for 2021 as “Other Revenue”.
2021 | 2020 | |
Machinery | 300,000 | 365,000 |
Accumulated depreciation - Machinery | 140,000 | 109,500 |
Land | 1,000,000 | 2,000,000 |
The amount of depreciation expense for the current year is $36,500. Machinery was sold for $65,000 and land for $3,000,000.
A few customers have been having difficulty paying and their accounts are currently overdue. We believe they are only temporarily struggling. They are long-time customers, and we trust they will pay when they can. We don’t want to lose them as customers, so we want to be sensitive to their troubles. We have therefore converted the receivables into notes as of Jan 1, 2022. The notes allow customers a two-year period to pay with an interest rate of 4% even though the current market rate is 8%. The previous accountant reclassified the $500,000 of accounts receivable as a note receivable on the date of conversion since we are sure they will pay. Interest is due at the end of each year.
RRR Company invested in corporate bonds at the start of the fiscal year with the intention of earning income and holding the bonds until maturity. The face value at the time of purchase for the three-year bonds was $100,000. The bonds pay semi-annual interest on 1 January and 1 July at 6% while the effective interest rate is 8%. This is not the first investment in bonds RRR Company has made. Previous investments were made for short-term profits. RRR Company needs to determine how to record the investment and the semi-annual interest payments.
Statistics for Business and Economics
ISBN: 978-0134506593
13th edition
Authors: James T. McClave, P. George Benson, Terry Sincich