ACCOUNTING
Ethics Case 10-12 Research and development
Mayer Biotechnical, Inc., develops, manufactures, and sells pharmaceuticals. Significant research and development (R&D) expenditures are made for the development of new drugs and the improvement of existing drugs. During 2011, $220 million was spent on R&D. Of this amount, $30 million was spent on the purchase of equipment to be used in a research project involving the development of a new antibiotic.
The controller, Alice Cooper, is considering capitalizing the equipment and depreciating it over the five-year useful life of the equipment at $6 million per year, even though the equipment likely will be used on only one project. The company president has asked Alice to make every effort to increase 2011 earnings because in 2012 the company will be seeking significant new financing from both debt and equity sources. “I guess we might use the equipment in other projects later,” Alice wondered to herself.
Required:
1. Assuming that the equipment was purchased at the beginning of 2011, by how much would Alice's treatment of the equipment increase before tax earnings as opposed to expensing the equipment cost?
2. Discuss the ethical dilemma Alice faces in determining the treatment of the $30 million equipment purchase.
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Saturday, August 20, 2011
For each of the following depreciable assets, determine the missing amount (?)
ACCOUNTING
E11-5 Depreciation methods; solving for unknowns
For each of the following depreciable assets, determine the missing amount (?). Abbreviations for depreciation methods are SL for straight line, SYD for sum-of-the-years' digits, and DDB for double-declining balance.
Asset Cost Residual Value Service of Life Depreciation Method Depreciation (Yr 2)
A ? $20,000 5 DDB $24,000
B $40,000 ? 8 SYD 7,000
C 65,000 5,000 ? SL 6,000
D 230,000 10,000 10 ? 22,000
E 200,000 20,000 8 150%DB ?
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E11-5 Depreciation methods; solving for unknowns
For each of the following depreciable assets, determine the missing amount (?). Abbreviations for depreciation methods are SL for straight line, SYD for sum-of-the-years' digits, and DDB for double-declining balance.
Asset Cost Residual Value Service of Life Depreciation Method Depreciation (Yr 2)
A ? $20,000 5 DDB $24,000
B $40,000 ? 8 SYD 7,000
C 65,000 5,000 ? SL 6,000
D 230,000 10,000 10 ? 22,000
E 200,000 20,000 8 150%DB ?
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The choice of eight years for straight-line depreciation of the company's trucks appears unreasonable
ACCOUNTING
Audit Evidence and Conclusions for Various Fixed Asset Questions
Audit Conclusions or Situations
1. The choice of eight years for straight-line depreciation of the company's trucks appears unreasonable. I would suggest that the client change to a six-year life and use DDB depreciation.
2. Insurance coverage appears to be inadequate, because the client has chosen to carry only liability insurance on the cement trucks. There is no provision for collision or damage done to the trucks.
3. The client acquired a substantial piece of real estate from the town of Baraboo to build a warehouse in the town's new industrial complex. The land was donated to the company provided it maintains operations for a minimum of ten years and pays real estate taxes on its appraised value. The land is carried on the books at the fair market value at the time of donation of $250,000.
4. Several pieces of idle equipment were noted. It is recommended that the equipment be written down to the scrap value of $50,000 from the current net book value of $185,000.
5. The company has self-constructed the warehouse located in the town of Baraboo. It has capitalized all payroll expense directly related to construction of the project. The adjusting entry debited Building for $73,000 and credited Payroll Expense for the same amount.
6. The company completely overhauled ten of its trucks at a significant cost. The overhaul should extend the life of the trucks by at least three years. Because the company performs similar overhauls each year, the cost has been properly charged to repairs and maintenance.
7. The company sold 15 of its old trucks to Virgin Distributors, a new company owned by the brother of the company's chief executive officer. The equipment was old, and a gain of $70,000 on the sale was credited to income.
Required
a. For each conclusion or situation listed, identify the type of audit evidence needed to support the auditor's conclusion.
b. Briefly indicate the audit implications if the auditor's conclusion is justified.
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Audit Evidence and Conclusions for Various Fixed Asset Questions
Audit Conclusions or Situations
1. The choice of eight years for straight-line depreciation of the company's trucks appears unreasonable. I would suggest that the client change to a six-year life and use DDB depreciation.
2. Insurance coverage appears to be inadequate, because the client has chosen to carry only liability insurance on the cement trucks. There is no provision for collision or damage done to the trucks.
3. The client acquired a substantial piece of real estate from the town of Baraboo to build a warehouse in the town's new industrial complex. The land was donated to the company provided it maintains operations for a minimum of ten years and pays real estate taxes on its appraised value. The land is carried on the books at the fair market value at the time of donation of $250,000.
4. Several pieces of idle equipment were noted. It is recommended that the equipment be written down to the scrap value of $50,000 from the current net book value of $185,000.
5. The company has self-constructed the warehouse located in the town of Baraboo. It has capitalized all payroll expense directly related to construction of the project. The adjusting entry debited Building for $73,000 and credited Payroll Expense for the same amount.
6. The company completely overhauled ten of its trucks at a significant cost. The overhaul should extend the life of the trucks by at least three years. Because the company performs similar overhauls each year, the cost has been properly charged to repairs and maintenance.
7. The company sold 15 of its old trucks to Virgin Distributors, a new company owned by the brother of the company's chief executive officer. The equipment was old, and a gain of $70,000 on the sale was credited to income.
Required
a. For each conclusion or situation listed, identify the type of audit evidence needed to support the auditor's conclusion.
b. Briefly indicate the audit implications if the auditor's conclusion is justified.
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Would it be considered unusual to find debits to fixed assets coming from a journal entry source rather than a purchase journal
ACCOUNTING
1. Would it be considered unusual to find debits to fixed assets coming from a journal entry source rather than a purchase journal? Explain. 2. Would it be normal to find entries to accumulated depreciation and depreciation expense to come from a journal entry source rather than another source? 3. Assume you were auditing FedEx and in your sample of debits to fixed assets, you find an entry for $500,000 with the following notation: "Capitalization of line capacity per CFO, amounts were originally in corrected recorded as an expense." Explain what you would do to complete the audit of this item. What evidence would you need to see to either corroborate or question the entry?
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1. Would it be considered unusual to find debits to fixed assets coming from a journal entry source rather than a purchase journal? Explain. 2. Would it be normal to find entries to accumulated depreciation and depreciation expense to come from a journal entry source rather than another source? 3. Assume you were auditing FedEx and in your sample of debits to fixed assets, you find an entry for $500,000 with the following notation: "Capitalization of line capacity per CFO, amounts were originally in corrected recorded as an expense." Explain what you would do to complete the audit of this item. What evidence would you need to see to either corroborate or question the entry?
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What are the major elements of an internal control over property, plant, and equipment
ACCOUNTING
What are the major elements of an internal control over property, plant, and equipment? For the specific control procedures identified, indicate their importance to the audit.
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What are the major elements of an internal control over property, plant, and equipment? For the specific control procedures identified, indicate their importance to the audit.
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What are the major authorization principles the auditor should investigate regarding both cash management and investments in marketable securities
ACCOUNTING
What are the major authorization principles the auditor should investigate regarding both cash management and investments in marketable securities?
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What are the major authorization principles the auditor should investigate regarding both cash management and investments in marketable securities?
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The following items were taken from the balance sheet of Nike, Inc
ACCOUNTING
The following items were taken from the balance sheet of Nike, Inc.
1. Cash $828.0
2. Accounts receivable 2,120.2
3. Common stock 890.6
4. Notes payable 146.0
5. Other assets 1,722.9
6. Other liabilities 2,081 .9
7. Inventories 1,633.6
8. Income taxes payable 118.2
9. Property, plant, and equipment 1,586.9
10. Retained earnings 3,891.1
11. Accounts payable 763.8
Instruction
a. Classify each of these items as an asset, liability, or stockholder equity.
b. Determine Nike's accounting equation by calculating the value of total assets, total liabilities, and total stockholders equity.
c. To what extent does Nike rely on debt versus equity financing?
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The following items were taken from the balance sheet of Nike, Inc.
1. Cash $828.0
2. Accounts receivable 2,120.2
3. Common stock 890.6
4. Notes payable 146.0
5. Other assets 1,722.9
6. Other liabilities 2,081 .9
7. Inventories 1,633.6
8. Income taxes payable 118.2
9. Property, plant, and equipment 1,586.9
10. Retained earnings 3,891.1
11. Accounts payable 763.8
Instruction
a. Classify each of these items as an asset, liability, or stockholder equity.
b. Determine Nike's accounting equation by calculating the value of total assets, total liabilities, and total stockholders equity.
c. To what extent does Nike rely on debt versus equity financing?
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Eskimo Pie Corporation markets a broad range of frozen treats, including its famous Eskimo Pie ice cream bars
ACCOUNTING
Eskimo Pie Corporation markets a broad range of frozen treats, including its famous Eskimo Pie ice cream bars. The following items were taken from a recent income statement and balance sheet. In each case identify whether the item would appear on the balance sheet (BS) or income statement (IS).
a) Income tax expense
b) Inventories
c) Amount payable
d) Retained earnings
e) Property, plant and equipment
f ) Net sales
g) Cost of goods sold
h) Common stock
i) Receivables
j) Interest expense
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Eskimo Pie Corporation markets a broad range of frozen treats, including its famous Eskimo Pie ice cream bars. The following items were taken from a recent income statement and balance sheet. In each case identify whether the item would appear on the balance sheet (BS) or income statement (IS).
a) Income tax expense
b) Inventories
c) Amount payable
d) Retained earnings
e) Property, plant and equipment
f ) Net sales
g) Cost of goods sold
h) Common stock
i) Receivables
j) Interest expense
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Friday, August 19, 2011
Be You Apparel Inc. is considering two investment projects
ACCOUNTING
Be You Apparel Inc. is considering two investment projects. The estimated net cash flows from each project are as follows:
Each project requires an investment of $480,000. A rate of 15% has been selected for the net present value analysis.
Present Value of $1 at Compound Interest
Year 6% 10% 12% 15% 20%
1 0.943 0.909 0.893 0.870 0.833
2 0.890 0.826 0.797 0.756 0.694
3 0.840 0.751 0.712 0.658 0.579
4 0.792 0.683 0.636 0.572 0.482
5 0.747 0.621 0.567 0.497 0.402
6 0.705 0.564 0.507 0.432 0.335
7 0.665 0.513 0.452 0.376 0.279
8 0.627 0.467 0.404 0.327 0.233
9 0.592 0.424 0.361 0.284 0.194
10 0.558 0.386 0.322 0.247 0.162
1. a. Compute the cash payback period for each project.
b. Compute the net present value. Use the present value of $1 table above. If required, use the minus sign to indicate a negative net present value.
2. Prepare a brief report advising management on the relative merits of each project. The input in the box below will not be graded, but may be reviewed and considered by your instructor.
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Be You Apparel Inc. is considering two investment projects. The estimated net cash flows from each project are as follows:
Each project requires an investment of $480,000. A rate of 15% has been selected for the net present value analysis.
Present Value of $1 at Compound Interest
Year 6% 10% 12% 15% 20%
1 0.943 0.909 0.893 0.870 0.833
2 0.890 0.826 0.797 0.756 0.694
3 0.840 0.751 0.712 0.658 0.579
4 0.792 0.683 0.636 0.572 0.482
5 0.747 0.621 0.567 0.497 0.402
6 0.705 0.564 0.507 0.432 0.335
7 0.665 0.513 0.452 0.376 0.279
8 0.627 0.467 0.404 0.327 0.233
9 0.592 0.424 0.361 0.284 0.194
10 0.558 0.386 0.322 0.247 0.162
1. a. Compute the cash payback period for each project.
b. Compute the net present value. Use the present value of $1 table above. If required, use the minus sign to indicate a negative net present value.
2. Prepare a brief report advising management on the relative merits of each project. The input in the box below will not be graded, but may be reviewed and considered by your instructor.
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BE5-2 Pocras Company buys merchandise on account from Wedell Company
ACCOUNTING
ACC 290 Week 5 Assignment
BE5-2 Pocras Company buys merchandise on account from Wedell Company. The selling price of the goods is $900 and the cost of the goods sold is $590. Both companies use perpetual inventory systems. Journalize the transactions on the books of both companies.
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ACC 290 Week 5 Assignment
BE5-2 Pocras Company buys merchandise on account from Wedell Company. The selling price of the goods is $900 and the cost of the goods sold is $590. Both companies use perpetual inventory systems. Journalize the transactions on the books of both companies.
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8-79 Compensation tied to balanced scorecard
ACCOUNTING
8-79 (Compensation tied to balanced scorecard) Degree of difficulty of target achievement in the mid-1990s mobile corporation's marketing and refining (M&R) division underwent a major reorganization and developed new strategic directions. In conjunction with these changes, M&R developed a balance scorecard around four perspectives: financial customer, internal business processes and learning and growth. Subsequently M&R linked compensation to its balanced scorecard metrics. To illustrate, all salaried employees in M&R's Natural Business Units received the following percentages of their competitive market salary:
Poor Performance within industry Average performance within industry Performance best in industry
Base Pay 90% 90% 90%
Award Based on corporate 1-2% 3-6% 10%
performance on financial metrics
Award based on performance on 0% 5-8% 20%
balanced scorecard metrics for the
M&R division and business unit 91-92% 98-104% 120%
The balanced scorecards included numerous metrics. M&R's financial metrics included return on capital employed and profitability and customer metrics included share of targeted segments of consumers and profitability of dealers. Internal business process metrics included safety and quality indices. Finally learning and growth metrics included an index of employees perceptions of the work climate at M&R
a. What are the advantages and concerns in linking compensation to a balanced scorecard generally?
B. Evaluate M&Rs approach to linking compensation to multiple measures including its system of assigning degrees of difficulty to achieving targets. In your response, consider the process that is involved in developing the compensation scheme.
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8-79 (Compensation tied to balanced scorecard) Degree of difficulty of target achievement in the mid-1990s mobile corporation's marketing and refining (M&R) division underwent a major reorganization and developed new strategic directions. In conjunction with these changes, M&R developed a balance scorecard around four perspectives: financial customer, internal business processes and learning and growth. Subsequently M&R linked compensation to its balanced scorecard metrics. To illustrate, all salaried employees in M&R's Natural Business Units received the following percentages of their competitive market salary:
Poor Performance within industry Average performance within industry Performance best in industry
Base Pay 90% 90% 90%
Award Based on corporate 1-2% 3-6% 10%
performance on financial metrics
Award based on performance on 0% 5-8% 20%
balanced scorecard metrics for the
M&R division and business unit 91-92% 98-104% 120%
The balanced scorecards included numerous metrics. M&R's financial metrics included return on capital employed and profitability and customer metrics included share of targeted segments of consumers and profitability of dealers. Internal business process metrics included safety and quality indices. Finally learning and growth metrics included an index of employees perceptions of the work climate at M&R
a. What are the advantages and concerns in linking compensation to a balanced scorecard generally?
B. Evaluate M&Rs approach to linking compensation to multiple measures including its system of assigning degrees of difficulty to achieving targets. In your response, consider the process that is involved in developing the compensation scheme.
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Evaluating McGraw Industries Capital Structure Case
FINANCE
Evaluating McGraw Industries’ Capital Structure
McGraw Industries, an established producer of printing equipment, expects its sales to remain flat for the next 3 to 5 years because of both a weak economic outlook and an expectation of little new printing technology development over that period. On the basis of this scenario, the firm’s management has been instructed by its board to institute programs that will allow it to operate more efficiently, earn higher profits, and, most important, maximize share value.
In this regard, the firm’s chief financial officer (CFO), Ron Lewis, has been charged with evaluating the firm’s capital structure. Lewis believes that the current capital structure, which contains 10% debt and 90% equity, may lack adequate financial leverage. To evaluate the firm’s capital structure, Lewis has gathered the data summarized in the following table on the current capital structure (10% debt ratio) and two alternative capital structures—A (30% debt ratio) and B (50% debt ratio)—that he would like to consider.
Capital structure*
Source of capital Current (10% debt) A (30% debt) B (50% debt)
Long-term debt $1,000,000 $3,000,000 $5,000,000
Coupon interest rate** 9% 10% 12%
Common stock 100,000 shares 70,000 shares 40,000 shares
Required return on equity*** 12% 13% 18%
*These structures are based on maintaining the firm’s current level of $10,000,000 of total financing.
**Interest rate applicable to all debt.
***Market-based return for the given level of risk.
Lewis expects the firm’s earnings before interest and taxes (EBIT) to remain at its current level of $1,200,000. The firm has a 40% tax rate.
Use the current level of EBIT to calculate the times interest earned ratio for each capital structure. Evaluate the current and two alternative capital structures using the times interest earned and debt ratios.
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Evaluating McGraw Industries’ Capital Structure
McGraw Industries, an established producer of printing equipment, expects its sales to remain flat for the next 3 to 5 years because of both a weak economic outlook and an expectation of little new printing technology development over that period. On the basis of this scenario, the firm’s management has been instructed by its board to institute programs that will allow it to operate more efficiently, earn higher profits, and, most important, maximize share value.
In this regard, the firm’s chief financial officer (CFO), Ron Lewis, has been charged with evaluating the firm’s capital structure. Lewis believes that the current capital structure, which contains 10% debt and 90% equity, may lack adequate financial leverage. To evaluate the firm’s capital structure, Lewis has gathered the data summarized in the following table on the current capital structure (10% debt ratio) and two alternative capital structures—A (30% debt ratio) and B (50% debt ratio)—that he would like to consider.
Capital structure*
Source of capital Current (10% debt) A (30% debt) B (50% debt)
Long-term debt $1,000,000 $3,000,000 $5,000,000
Coupon interest rate** 9% 10% 12%
Common stock 100,000 shares 70,000 shares 40,000 shares
Required return on equity*** 12% 13% 18%
*These structures are based on maintaining the firm’s current level of $10,000,000 of total financing.
**Interest rate applicable to all debt.
***Market-based return for the given level of risk.
Lewis expects the firm’s earnings before interest and taxes (EBIT) to remain at its current level of $1,200,000. The firm has a 40% tax rate.
Use the current level of EBIT to calculate the times interest earned ratio for each capital structure. Evaluate the current and two alternative capital structures using the times interest earned and debt ratios.
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Tuesday, August 9, 2011
Comprehensive Problem: Packard Company has the following opening account balances in its general and subsidiary ledgers on January 1 and uses the
ACCOUNTING
Comprehensive Problem: Chapters 3, 4, 5, 6, and 7
Packard Company has the following opening account balances in its general and subsidiary ledgers on January 1 and uses the periodic inventory system. All accounts have normal debit and credit balances.
General Ledger
Account Number Account Title January 1 Opening Balance
101 Cash $33,750
112 Accounts Receivable 13,000
115 Notes Receivable 39,000
120 Merchandise Inventory 20,000
125 Office Supplies 1,000
130 Prepaid Insurance 2,000
157 Equipment 6,450
158 Accumulated Depreciation 1,500
201 Accounts Payable 35,000
301 I. Packard, Capital 78,700
Accounts
Receivable Subsidiary Ledger
Accounts
Payable Subsidiary Ledger
Customer
January 1 Opening
Balance
Creditor
January 1 Opening
Balance
R. Draves $1,500 S. Kosko $ 9,000
B. Hachinski 7,500 R. Mikush 15,000
S. Ingles 4,000 D. Moreno 11,000
Jan. 3 Sell merchandise on account to B. Remy $3,100, invoice no. 510, and J. Fine $1,800, invoice no. 511.
5 Purchase merchandise on account from S. Yost $3,000 and D. Laux $2,700.
7 Receive checks for $4,000 from S. Ingles and $2,000 from B. Hachinski.
8 Pay freight on merchandise purchased $180.
9 Send checks to S. Kosko for $9,000 and D. Moreno for $11,000.
5 Purchase merchandise on account from S. Yost $3,000 and D. Laux $2,700.
7 Receive checks for $4,000 from S. Ingles and $2,000 from B. Hachinski.
8 Pay freight on merchandise purchased $180.
9 Send checks to S. Kosko for $9,000 and D. Moreno for $11,000.
9 Issue credit of $300 to J. Fine for merchandise returned.
10 Summary cash sales total $15,500.
11 Sell merchandise on account to R. Draves for $1,900, invoice no. 512, and to S. Ingles $900, invoice no. 513.
Post all entries to the subsidiary ledgers.
12 Pay rent of $1,000 for January.
13 Receive payment in full from B. Remy and J. Fine.
15 Withdraw $800 cash by I. Packard for personal use.
16 Purchase merchandise on account from D. Moreno for $15,000, from S. Kosko for $13,900, and from S. Yost for $1,500.
17 Pay $400 cash for office supplies.
18 Return $200 of merchandise to S. Kosko and receive credit.
20 Summary cash sales total $17,500.
21 Issue $15,000 note to R. Mikush in payment of balance due.
21 Receive payment in full from S. Ingles.
Post all entries to the subsidiary ledgers.
22 Sell merchandise on account to B. Remy for $3,700, invoice no. 514, and to R. Draves for $800, invoice no. 515.
23 Send checks to D. Moreno and S. Kosko in full payment.
25 Sell merchandise on account to B. Hachinski for $3,500, invoice no. 516, and to J. Fine for $6,100, invoice no. 517.
27 Purchase merchandise on account from D. Moreno for $12,500, from D. Laux for $1,200, and from S. Yost for $2,800.
28 Pay $200 cash for office supplies.
31 Summary cash sales total $22,920.
31 Pay sales salaries of $4,300 and office salaries of $3,600.
Hint: AP, S
Instructions
(a) Record the January transactions in the appropriate journal—sales, purchases, cash receipts, cash payments, and general.
(b) Post the journals to the general and subsidiary ledgers. Add and number new accounts in an orderly fashion as needed.
(c) Prepare a trial balance at January 31, 2010, using a worksheet. Complete the worksheet using the following additional information.
1. Office supplies at January 31 total $700.
2. Insurance coverage expires on October 31, 2010.
3. Annual depreciation on the equipment is $1,500.
4. Interest of $30 has accrued on the note payable.
5. Merchandise inventory at January 31 is $15,000.
Trial balance totals $196,820;
Adj. T/B totals $196,975
(d) Prepare a multiple-step income statement and a statement of owner's equity for January and a classified balance sheet at the end of January.
Net income $9,685
Total assets $126,315
(e) Prepare and post the adjusting and closing entries.
(f) Prepare a post-closing trial balance, and determine whether the subsidiary ledgers agree with the control accounts in the general ledger.
Post-closing T/B totals $127,940
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Comprehensive Problem: Chapters 3, 4, 5, 6, and 7
Packard Company has the following opening account balances in its general and subsidiary ledgers on January 1 and uses the periodic inventory system. All accounts have normal debit and credit balances.
General Ledger
Account Number Account Title January 1 Opening Balance
101 Cash $33,750
112 Accounts Receivable 13,000
115 Notes Receivable 39,000
120 Merchandise Inventory 20,000
125 Office Supplies 1,000
130 Prepaid Insurance 2,000
157 Equipment 6,450
158 Accumulated Depreciation 1,500
201 Accounts Payable 35,000
301 I. Packard, Capital 78,700
Accounts
Receivable Subsidiary Ledger
Accounts
Payable Subsidiary Ledger
Customer
January 1 Opening
Balance
Creditor
January 1 Opening
Balance
R. Draves $1,500 S. Kosko $ 9,000
B. Hachinski 7,500 R. Mikush 15,000
S. Ingles 4,000 D. Moreno 11,000
Jan. 3 Sell merchandise on account to B. Remy $3,100, invoice no. 510, and J. Fine $1,800, invoice no. 511.
5 Purchase merchandise on account from S. Yost $3,000 and D. Laux $2,700.
7 Receive checks for $4,000 from S. Ingles and $2,000 from B. Hachinski.
8 Pay freight on merchandise purchased $180.
9 Send checks to S. Kosko for $9,000 and D. Moreno for $11,000.
5 Purchase merchandise on account from S. Yost $3,000 and D. Laux $2,700.
7 Receive checks for $4,000 from S. Ingles and $2,000 from B. Hachinski.
8 Pay freight on merchandise purchased $180.
9 Send checks to S. Kosko for $9,000 and D. Moreno for $11,000.
9 Issue credit of $300 to J. Fine for merchandise returned.
10 Summary cash sales total $15,500.
11 Sell merchandise on account to R. Draves for $1,900, invoice no. 512, and to S. Ingles $900, invoice no. 513.
Post all entries to the subsidiary ledgers.
12 Pay rent of $1,000 for January.
13 Receive payment in full from B. Remy and J. Fine.
15 Withdraw $800 cash by I. Packard for personal use.
16 Purchase merchandise on account from D. Moreno for $15,000, from S. Kosko for $13,900, and from S. Yost for $1,500.
17 Pay $400 cash for office supplies.
18 Return $200 of merchandise to S. Kosko and receive credit.
20 Summary cash sales total $17,500.
21 Issue $15,000 note to R. Mikush in payment of balance due.
21 Receive payment in full from S. Ingles.
Post all entries to the subsidiary ledgers.
22 Sell merchandise on account to B. Remy for $3,700, invoice no. 514, and to R. Draves for $800, invoice no. 515.
23 Send checks to D. Moreno and S. Kosko in full payment.
25 Sell merchandise on account to B. Hachinski for $3,500, invoice no. 516, and to J. Fine for $6,100, invoice no. 517.
27 Purchase merchandise on account from D. Moreno for $12,500, from D. Laux for $1,200, and from S. Yost for $2,800.
28 Pay $200 cash for office supplies.
31 Summary cash sales total $22,920.
31 Pay sales salaries of $4,300 and office salaries of $3,600.
Hint: AP, S
Instructions
(a) Record the January transactions in the appropriate journal—sales, purchases, cash receipts, cash payments, and general.
(b) Post the journals to the general and subsidiary ledgers. Add and number new accounts in an orderly fashion as needed.
(c) Prepare a trial balance at January 31, 2010, using a worksheet. Complete the worksheet using the following additional information.
1. Office supplies at January 31 total $700.
2. Insurance coverage expires on October 31, 2010.
3. Annual depreciation on the equipment is $1,500.
4. Interest of $30 has accrued on the note payable.
5. Merchandise inventory at January 31 is $15,000.
Trial balance totals $196,820;
Adj. T/B totals $196,975
(d) Prepare a multiple-step income statement and a statement of owner's equity for January and a classified balance sheet at the end of January.
Net income $9,685
Total assets $126,315
(e) Prepare and post the adjusting and closing entries.
(f) Prepare a post-closing trial balance, and determine whether the subsidiary ledgers agree with the control accounts in the general ledger.
Post-closing T/B totals $127,940
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Sunday, August 7, 2011
Packard Company has the following opening account balances in its general and subsidiary ledgers on January 1 and uses the periodic inventory system
ACCOUNTING
Comprehensive Problem: Chapters 3, 4, 5, 6, and 7
Packard Company has the following opening account balances in its general and subsidiary ledgers on January 1 and uses the periodic inventory system. All accounts have normal debit and credit balances.
General Ledger
Account Number Account Title January 1 Opening Balance
101 Cash $33,750
112 Accounts Receivable 13,000
115 Notes Receivable 39,000
120 Merchandise Inventory 20,000
125 Office Supplies 1,000
130 Prepaid Insurance 2,000
157 Equipment 6,450
158 Accumulated Depreciation 1,500
201 Accounts Payable 35,000
301 I. Packard, Capital 78,700
Accounts
Receivable Subsidiary Ledger
Accounts
Payable Subsidiary Ledger
Customer
January 1 Opening
Balance
Creditor
January 1 Opening
Balance
R. Draves $1,500 S. Kosko $ 9,000
B. Hachinski 7,500 R. Mikush 15,000
S. Ingles 4,000 D. Moreno 11,000
Jan. 3 Sell merchandise on account to B. Remy $3,100, invoice no. 510, and J. Fine $1,800, invoice no. 511.
5 Purchase merchandise on account from S. Yost $3,000 and D. Laux $2,700.
7 Receive checks for $4,000 from S. Ingles and $2,000 from B. Hachinski.
8 Pay freight on merchandise purchased $180.
9 Send checks to S. Kosko for $9,000 and D. Moreno for $11,000.
5 Purchase merchandise on account from S. Yost $3,000 and D. Laux $2,700.
7 Receive checks for $4,000 from S. Ingles and $2,000 from B. Hachinski.
8 Pay freight on merchandise purchased $180.
9 Send checks to S. Kosko for $9,000 and D. Moreno for $11,000.
9 Issue credit of $300 to J. Fine for merchandise returned.
10 Summary cash sales total $15,500.
11 Sell merchandise on account to R. Draves for $1,900, invoice no. 512, and to S. Ingles $900, invoice no. 513.
Post all entries to the subsidiary ledgers.
12 Pay rent of $1,000 for January.
13 Receive payment in full from B. Remy and J. Fine.
15 Withdraw $800 cash by I. Packard for personal use.
16 Purchase merchandise on account from D. Moreno for $15,000, from S. Kosko for $13,900, and from S. Yost for $1,500.
17 Pay $400 cash for office supplies.
18 Return $200 of merchandise to S. Kosko and receive credit.
20 Summary cash sales total $17,500.
21 Issue $15,000 note to R. Mikush in payment of balance due.
21 Receive payment in full from S. Ingles.
Post all entries to the subsidiary ledgers.
22 Sell merchandise on account to B. Remy for $3,700, invoice no. 514, and to R. Draves for $800, invoice no. 515.
23 Send checks to D. Moreno and S. Kosko in full payment.
25 Sell merchandise on account to B. Hachinski for $3,500, invoice no. 516, and to J. Fine for $6,100, invoice no. 517.
27 Purchase merchandise on account from D. Moreno for $12,500, from D. Laux for $1,200, and from S. Yost for $2,800.
28 Pay $200 cash for office supplies.
31 Summary cash sales total $22,920.
31 Pay sales salaries of $4,300 and office salaries of $3,600.
Hint: AP, S
Instructions
(a) Record the January transactions in the appropriate journal—sales, purchases, cash receipts, cash payments, and general.
(b) Post the journals to the general and subsidiary ledgers. Add and number new accounts in an orderly fashion as needed.
(c) Prepare a trial balance at January 31, 2010, using a worksheet. Complete the worksheet using the following additional information.
1. Office supplies at January 31 total $700.
2. Insurance coverage expires on October 31, 2010.
3. Annual depreciation on the equipment is $1,500.
4. Interest of $30 has accrued on the note payable.
5. Merchandise inventory at January 31 is $15,000.
Trial balance totals $196,820;
Adj. T/B totals $196,975
(d) Prepare a multiple-step income statement and a statement of owner's equity for January and a classified balance sheet at the end of January.
Net income $9,685
Total assets $126,315
(e) Prepare and post the adjusting and closing entries.
(f) Prepare a post-closing trial balance, and determine whether the subsidiary ledgers agree with the control accounts in the general ledger.
Post-closing T/B totals $127,940
Click here for the SOLUTION
Comprehensive Problem: Chapters 3, 4, 5, 6, and 7
Packard Company has the following opening account balances in its general and subsidiary ledgers on January 1 and uses the periodic inventory system. All accounts have normal debit and credit balances.
General Ledger
Account Number Account Title January 1 Opening Balance
101 Cash $33,750
112 Accounts Receivable 13,000
115 Notes Receivable 39,000
120 Merchandise Inventory 20,000
125 Office Supplies 1,000
130 Prepaid Insurance 2,000
157 Equipment 6,450
158 Accumulated Depreciation 1,500
201 Accounts Payable 35,000
301 I. Packard, Capital 78,700
Accounts
Receivable Subsidiary Ledger
Accounts
Payable Subsidiary Ledger
Customer
January 1 Opening
Balance
Creditor
January 1 Opening
Balance
R. Draves $1,500 S. Kosko $ 9,000
B. Hachinski 7,500 R. Mikush 15,000
S. Ingles 4,000 D. Moreno 11,000
Jan. 3 Sell merchandise on account to B. Remy $3,100, invoice no. 510, and J. Fine $1,800, invoice no. 511.
5 Purchase merchandise on account from S. Yost $3,000 and D. Laux $2,700.
7 Receive checks for $4,000 from S. Ingles and $2,000 from B. Hachinski.
8 Pay freight on merchandise purchased $180.
9 Send checks to S. Kosko for $9,000 and D. Moreno for $11,000.
5 Purchase merchandise on account from S. Yost $3,000 and D. Laux $2,700.
7 Receive checks for $4,000 from S. Ingles and $2,000 from B. Hachinski.
8 Pay freight on merchandise purchased $180.
9 Send checks to S. Kosko for $9,000 and D. Moreno for $11,000.
9 Issue credit of $300 to J. Fine for merchandise returned.
10 Summary cash sales total $15,500.
11 Sell merchandise on account to R. Draves for $1,900, invoice no. 512, and to S. Ingles $900, invoice no. 513.
Post all entries to the subsidiary ledgers.
12 Pay rent of $1,000 for January.
13 Receive payment in full from B. Remy and J. Fine.
15 Withdraw $800 cash by I. Packard for personal use.
16 Purchase merchandise on account from D. Moreno for $15,000, from S. Kosko for $13,900, and from S. Yost for $1,500.
17 Pay $400 cash for office supplies.
18 Return $200 of merchandise to S. Kosko and receive credit.
20 Summary cash sales total $17,500.
21 Issue $15,000 note to R. Mikush in payment of balance due.
21 Receive payment in full from S. Ingles.
Post all entries to the subsidiary ledgers.
22 Sell merchandise on account to B. Remy for $3,700, invoice no. 514, and to R. Draves for $800, invoice no. 515.
23 Send checks to D. Moreno and S. Kosko in full payment.
25 Sell merchandise on account to B. Hachinski for $3,500, invoice no. 516, and to J. Fine for $6,100, invoice no. 517.
27 Purchase merchandise on account from D. Moreno for $12,500, from D. Laux for $1,200, and from S. Yost for $2,800.
28 Pay $200 cash for office supplies.
31 Summary cash sales total $22,920.
31 Pay sales salaries of $4,300 and office salaries of $3,600.
Hint: AP, S
Instructions
(a) Record the January transactions in the appropriate journal—sales, purchases, cash receipts, cash payments, and general.
(b) Post the journals to the general and subsidiary ledgers. Add and number new accounts in an orderly fashion as needed.
(c) Prepare a trial balance at January 31, 2010, using a worksheet. Complete the worksheet using the following additional information.
1. Office supplies at January 31 total $700.
2. Insurance coverage expires on October 31, 2010.
3. Annual depreciation on the equipment is $1,500.
4. Interest of $30 has accrued on the note payable.
5. Merchandise inventory at January 31 is $15,000.
Trial balance totals $196,820;
Adj. T/B totals $196,975
(d) Prepare a multiple-step income statement and a statement of owner's equity for January and a classified balance sheet at the end of January.
Net income $9,685
Total assets $126,315
(e) Prepare and post the adjusting and closing entries.
(f) Prepare a post-closing trial balance, and determine whether the subsidiary ledgers agree with the control accounts in the general ledger.
Post-closing T/B totals $127,940
Click here for the SOLUTION
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