Solved by verified expert :I.
Determine whether each of the following is true or false
and briefly explain.
1.
If
the period revenues are less than the period expenses, and there are no gains
or losses, then Retained Earnings must decrease during the
period.
2.
In
a pre-closing trial balance, revenue and expense accounts must
have a zero balance.
3.
If
debits equal credits on the trial balance, you still cannot know with certainty
that your records are correct.
4.
At
the end of the first year of ownership of a long-term asset, if an accelerated
depreciation method is used, the net book value of the asset will always be
equal to or less than the market value of the asset.
5.
If
prices are increasing then LIFO, compared with FIFO, will show a higher net
income for the period.
6.
At
the end of the second year of ownership of a long-term asset, before the
closing entry is made, the balance in the accumulated depreciation account must be equal
to or greater than the balance in the depreciation
expense account.
II. (16 points)
For each numbered item place the letter(s) that
best describes its category from the
following possibilities: (A) Assets, (L)
Liabilities, (SE) Stockholders’ Equity, (R)
Revenue, and (E) Expense.
1. Accounts Payable –
2. Patents –
3. Buildings –
4. Salary expense –
5. Dividends
– If you receive a dividend from your investment, it is an asset. If you pay A dividend
to those who invested with you, it is a liability.
6. Unearned revenue –
7. Accumulated depreciation –
8. Cost of Goods Sold – III. (16 points)
Sarah Jones started a
new business in January, 2012. The
following are selected events that occurred in the business during the first
year of business. Please provide journal
entries for these events (explanations are not necessary).
1. Sarah invested $95,000 to start the
business, SaJon Inc and received 200 shares of stock from the business.
2. Purchased inventory of $40,000 on
account.
3. Signed a lease for two years for $36,000. The company paid $5,000 immediately; this was
one month’s rent in advance plus a security deposit.
4. Sold inventory, costing $25,000, on
account for $55,000 (recognize both the revenue and the expense).
5. Paid for the inventory purchased in 2).
6. Received payment for the amount billed
in 4).
7. Paid $3,000 in salaries.
8. Recognized the rent expense for the
first month.
IV. (18 points)
The ABC Company has the following inventory records.
2/1 Beginning balance [email protected] $60 $ 9000
2/5 Purchase [email protected]
50 1000
2/10 Sale 23
2/17 Purchase [email protected] 40 1000
2/23 Sale 30
2/25 Purchase [email protected] 30 540
3/10 Purchase [email protected]
20 1040
3/15 Sale 75
3/19 Purchase [email protected] 10 210
Required
For the above data set
please answer the following questions. Use
the periodic
inventory method. Compute, for each
month separately, the cost of goods sold, using
a)
FIFO
b)
LIFO
c)
Weighted-average
V. (18 points)
Assume the following events for the year 2011.
1. Credit sales $600,000
2. Cash sales
300,000
3. Accounts receivable balance 1/1/11 50,000
4. Accounts written off during the year
were 9,000
5. Allowance for Uncollectible balance 1/1/11 2,000
6. Sixty percent (60%) of this year’s
credit sales are collected during the year.
Required
Scenario One
Use the above data set. Assume that the company estimates its annual
bad debt expense at 2% of total sales.
1.
Compute
the Bad Debt Expense and provide the journal entry to show its recognition.
2.
Provide
the journal entry showing the write-off of bad debts.
3.
Show
the balance sheet presentation of net accountsreceivable.
Scenario Two
Use the above data
set. Ignore Scenario One. Assume that the company estimates that 4% of its
accounts receivable will not get collected.
1.
Compute
the Bad Debt Expense and provide the journal entry to show its recognition.
2.
Provide
the journal entry showing the write-off of bad debts.
3.
Show
the balance sheet presentation of net accounts receivable.
VI. (12 points)
The ABC Company, located
in Boston, purchases a piece of equipment from a dealer in Chicago for $75,000. The cost of shipping the equipment, $6,000,
will be paid for by ABC Co. It is
estimated that the asset will last ten years and at the end of its useful life
will have a salvage value of $13,000.
When the equipment arrives it has to be set up and adjusted, at a cost
of $12,000.
Required
Compute the depreciation
expense for year one and year two (do each year separately) using
1.
Straight-line
2.
Double-declining
balance
3.
This part is independent
of parts one through three. Assume that a company purchased an asset for
$500,000. At the end of four years the balance in the accumulated depreciation
account is $100,000, at which time the asset is sold for $355,000.
Required
Provide
the journal entry for the sale of the asset.
VII. (8 points).
Consider
each of the following scenarios independently.
1. If the ending balance
in Salaries Payable was $12,500, during the year the cash paid for salaries
(earned both last year and this year) was $150,000, and the Salary Expense for
the year was $70,000, what was the beginning balance in Salaries Payable?
2. On March 1, 2012 a four year insurance policy
was purchased for $96,000. By mistake
this entire cost was expensed immediately and this error was never
corrected. Ignore taxes. At the end of 2015 is the Retained Earnings correctly
stated and, if not, is it overstated or understated and by how much?
3. Assume the following. Net assets (assets minus liabilities) at the
beginning of the year were $80,000 and at the end of the year they were $95,000;
common stock increased (some were issued) during the year by $20,000; and
dividends declared for the year were $ 30,000.
What must have been the net income for the year?
4 The MNH Company purchased an asset on
January 1, 1965, for $120,000. The estimated life of the asset is twenty years; the company uses straight-line depreciation. On December
31, 1967, the net book value of the asset
is $105,000. What was the estimated
salvage value?
