Tom Parkey has prepared the following list of statements about depreciation. 1. Depreciation is a process of asset valuation, not cost allocation. 2. Depreciation provides for the proper matching of expenses with revenues. 3. The book value of a plant asset should approximate its fair value. 4. Depreciation applies to three classes of plant assets: land, buildings, and equipment. 5. Depreciation does not apply to a building because its usefulness and revenue-producing ability generally remain intact over time. 6. The revenue-producing ability of a depreciable asset will decline due to wear and tear and to obsolescence. 7. Recognizing depreciation on an asset results in an accumulation of cash for replacement of the asset. 8. The balance in accumulated depreciation represents the total cost that has been charged to expense. 9. Depreciation expense and accumulated depreciation are reported on the income statement. 10. Four factors affect the computation of depreciation: cost, useful life, salvage value, and residual value. Instructions Identify each statement as true or false. If false, indicate how to correct the statement.
> Rigney Inc. uses the allowance method to estimate uncollectible accounts receivable. The company produced the following aging of the accounts receivable at year-end. Instructions a. Calculate the total estimated bad debts based on the information provi
> Presented below is an aging schedule for Halleran Company. At December 31, 2020, the unadjusted balance in Allowance for Doubtful Accounts is a credit of $12,000. Instructions a. Journalize and post the adjusting entry for bad debts at December 31, 20
> Information related to Mingenback Company for 2020 is summarized below. Total credit sales …………………………………. $2,500,000 Accounts receivable at December ………… 31 875,000 Bad debts written off …………………………………. 33,000 Instructions a. What amount of bad debt expen
> Sayaovang Company discovers in 2020 that its ending inventory at December 31, 2019, was $7,000 understated. What effect will this error have on (a) 2019 net income, (b) 2020 net income, and (c) the combined net income for the 2 years?
> At December 31, 2019, House Co. reported the following information on its balance sheet. Accounts receivable ……………………………………………………………. $960,000 Less: Allowance for doubtful accounts ……………………………………. 80,000 During 2020, the company had the following transac
> Daisey Company is a very profitable small business. It has not, however, given much consideration to internal control. For example, in an attempt to keep clerical and office expenses to a minimum, the company has combined the jobs of cashier and bookkeep
> Timmins Company of Emporia, Kansas, spreads herbicides and applies liquid fertilizer for local farmers. On May 31, 2020, the company’s Cash account per its general ledger showed a balance of $6,738.90. The bank statement from Emporia St
> The bank portion of the bank reconciliation for Langer Company at November 30, 2020, was as follows. The adjusted cash balance per bank agreed with the cash balance per books at November 30. The December bank statement showed the following checks and d
> On July 31, 2020, Keeds Company had a cash balance per books of $6,140. The statement from Dakota State Bank on that date showed a balance of $7,690.80. A comparison of the bank statement with the Cash account revealed the following facts. 1. The bank se
> The post-closing trial balance for Horner Co. is shown below. The subsidiary ledgers contain the following information: (1) accounts receivable—B. Hannigan $2,500, I. Kirk $7,500, and T. Hodges $5,000; (2) accounts payableâ€
> Presented below are the purchases and cash payments journals for Fornelli Co. for its first month of operations. In addition, the following transactions have not been journalized for July. The cost of all merchandise sold was 65% of the sales price. Ju
> Selected accounts from the chart of accounts of Mercer Company are shown below. 101 Cash ………………...………………...401 Sales Revenue 112 Accounts Receivable ……………412 Sales Returns and Allowances 120 Inventory ………………...…………414 Sales Discounts 126 Supplies
> The chart of accounts of LR Company includes the following selected accounts. 112 Accounts Receivable ………………...………………...401 Sales Revenue 120 Inventory ………………...………………...………………412 Sales Returns and Allowances 126 Supplies ………………...………………...………………...
> Reineke Company’s chart of accounts includes the following selected accounts. 101 Cash ………………...………………...201 Accounts Payable 120 Inventory ………………...…………306 Owner’s Drawings 130 Prepaid Insurance ………………...505Cost of Goods Sold 157 Equipment On October 1,
> Warnke Stores has 20 toasters on hand at the balance sheet date. Each costs $27. The net realizable value is $30 per unit. Under the lower-of-cost-or-net realizable value basis of accounting for inventories, what value should Warnke report for the toaste
> Kozma Company’s chart of accounts includes the following selected accounts. 101 Cash ………………...………………...………………...401 Sales Revenue 112 Accounts Receivable ………………...…………….414 Sales Discounts 120Inventory ………………...………………...………….505 Cost of Goods Sold 301
> Rayre Books uses the retail inventory method to estimate its monthly ending inventories. The following information is available for two of its departments at October 31, 2020. At December 31, Rayre Books takes a physical inventory at retail. The actual
> Bao Company lost all of its inventory in a fi re on December 26, 2020. The accounting records showed the following gross profit data for November and December. Bao is fully insured for fi re losses but must prepare a report for the insurance company.
> Wittmann Co. began operations on July 1. It uses a perpetual inventory system. During July, the company had the following purchases and sales. Instructions a. Determine the ending inventory under a perpetual inventory system using (1) FIFO, (2) moving
> Dempsey Inc. is a retailer operating in British Columbia. Dempsey uses the perpetual inventory method. All sales returns from customers result in the goods being returned to inventory; the inventory is not damaged. Assume that there are no credit transac
> The management of Danica Co. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods. For 2020, the accounting records provide the following data. Inventory, January 1 (10,000 units) $ 47,000 Cost of 100,
> Elsa’s Boards sells a snowboard, Xpert, that is popular with snowboard enthusiasts. Information relating to Elsa’s purchases of Xpert snowboards during September is shown below. During the same month, 121 Xpert snowboa
> On December 1, Kiyak Electronics Ltd. has three DVD players left in stock. All are identical, all are priced to sell at $150. One of the three DVD players left in stock, with serial #1012, was purchased on June 1 at a cost of $100. Another, with serial #
> On September 1, the balance of the Accounts Receivable control account in the general ledger of Montgomery Company was $10,960. The customers’ subsidiary ledger contained account balances as follows: Hurley $1,440, Andino $2,640, Fowler $2,060, and Sogar
> Kari Downs, an auditor with Wheeler CPAs, is performing a review of Depue Company’s inventory account. Depue did not have a good year, and top management is under pressure to boost reported income. According to its records, the inventory balance at year-
> Hendrix Entertainment Center has 5 TVs on hand at the balance sheet date that cost $400 each. The net realizable value is $380 per unit. Under the lower-of-cost-or-net realizable value basis of accounting for inventories, what value should Hendrix report
> Nex Company uses both special journals and a general journal as described in this chapter. On June 30, after all monthly postings had been completed, the Accounts Receivable control account in the general ledger had a debit balance of $340,000; the Accou
> Maria Garza’s regular hourly wage rate is $16, and she receives a wage of 1½ times the regular hourly rate for work in excess of 40 hours. During a March weekly pay period, Maria worked 42 hours. Her gross earnings prior to the current week were $6,000.
> Suppose the following financial data were reported by 3M Company for 2019 and 2020 (dollars in millions). Instructions a. Calculate the current ratio and working capital for 3M for 2019 and 2020. b. Suppose that at the end of 2020, 3M management used $
> Younger Online Company has the following liability accounts after posting adjusting entries: Accounts Payable $73,000, Unearned Ticket Revenue $24,000, Warranty Liability $18,000, Interest Payable $8,000, Mortgage Payable $120,000, Notes Payable $80,000,
> Gallardo Co. is involved in a lawsuit as a result of an accident that took place September 5, 2020. The lawsuit was filed on November 1, 2020, and claims damages of $1,000,000. Instructions a. At December 31, 2020, Gallardo’s attorneys feel it is remote
> Betancourt Company sells automatic can openers under a 75-day warranty for defective merchandise. Based on past experience, Betancourt estimates that 3% of the units sold will become defective during the warranty period. Management estimates that the ave
> Moreno Company publishes a monthly sports magazine, Fishing Preview. Subscriptions to the magazine cost $20 per year. During November 2020, Moreno sells 15,000 subscriptions beginning with the December issue. Moreno prepares financial statements quarterl
> In performing accounting services for small businesses, you encounter the following situations pertaining to cash sales. 1. Poole Company enters sales and sales taxes separately on its cash register. On April 10, the register totals are sales $30,000 and
> On June 1, Merando Company borrows $90,000 from First Bank on a 6-month, $90,000, 8% note. Instructions a. Prepare the entry on June 1. b. Prepare the adjusting entry on June 30. c. Prepare the entry at maturity (December 1), assuming monthly adjusting
> Podsednik Corporation has 20 employees who each earn $140 a day. The following information is available. 1. At December 31, Podsednik recorded vacation benefits. Each employee earned 5 vacation days during the year. 2. At December 31, Podsednik recorded
> Kyle Adams is studying for the next accounting mid-term examination. What should Kyle know about (a) departing from the cost basis of accounting for inventories and (b) the meaning of “net realizable value” in the lower-of-cost-or-net realizable value me
> Mayberry Company has two fringe benefit plans for its employees: 1. It grants employees 2 days’ vacation for each month worked. Ten employees worked the entire month of March at an average daily wage of $140 per employee. 2. In its pension plan, the comp
> According to a payroll register summary of Frederickson Company, the amount of employees’ gross pay in December was $850,000, of which $80,000 was not subject to Social Security taxes of 6.2% and $750,000 was not subject to state and federal unemployment
> Selected data from a February payroll register for Sutton Company are presented below. Some amounts are intentionally omitted. FICA taxes are 7.65%. State income taxes are 4% of gross earnings. Instructions a. Fill in the missing amounts. b. Journaliz
> Ramirez Company has the following data for the weekly payroll ending January 31. Employees are paid 1½ times the regular hourly rate for all hours worked in excess of 40 hours per week. FICA taxes are 7.65% on the fi rst $127,200 of gross
> Employee earnings records for Slaymaker Company reveal the following gross earnings for four employees through the pay period of December 15. For the pay period ending December 31, each employee’s gross earnings is $4,500. The FICA ta
> C.S. Lewis Company had the following transactions involving notes payable. July 1, 2020 Borrows $50,000 from First National Bank by signing a 9-month, 8% note. Nov. 1, 2020 Borrows $60,000 from Lyon County State Bank by signing a 3-month, 6% note. Dec.
> Presented below are selected transactions at Ridge Company for 2020. Jan.1 Retired a piece of machinery that was purchased on January 1, 2010. The machine cost $62,000 on that date. It had a useful life of 10 years with no salvage value. June 30 Sold a c
> Terry Wade, the new controller of Hellickson Company, has reviewed the expected useful lives and salvage values of selected depreciable assets at the beginning of 2020. His findings are as follows. All assets are depreciated by the straight-line method
> Financial Statement Linton Company purchased a delivery truck for $34,000 on January 1, 2020. The truck has an expected salvage value of $2,000, and is expected to be driven 100,000 miles over its estimated useful life of 8 years. Actual miles driven wer
> Rottino Company purchased a new machine on October 1, 2020, at a cost of $150,000. The company estimated that the machine will have a salvage value of $12,000. The machine is expected to be used for 10,000 working hours during its 5-year life. Instructi
> Oscar Company has been using the FIFO cost flow method during a prolonged period of inflation. During the same time period, Oscar has been paying out all of its net income as dividends. What adverse effects may result from this policy?
> Yello Bus Lines uses the units-of-activity method in depreciating its buses. One bus was purchased on January 1, 2020, at a cost of $148,000. Over its 4-year useful life, the bus is expected to be driven 100,000 miles. Salvage value is expected to be $8,
> On March 1, 2020, Westmorlan Company acquired real estate on which it planned to construct a small office building. The company paid $75,000 in cash. An old warehouse on the property was razed at a cost of $8,600; the salvaged materials were sold for $1,
> Benedict Company incurred the following costs. 1. Sales tax on factory machinery purchased …………………………………………… $ 5,000 2. Painting of and lettering on truck immediately upon purchase …………….…….. 700 3. Installation and testing of factory machinery ……………………
> Rizzo’s Delivery Company and Overland’s Express Delivery exchanged delivery trucks on January 1, 2020. Rizzo’s truck cost $22,000. It has accumulated depreciation of $15,000 and a fair value of $3,000. Overland’s truck cost $10,000. It has accumulated de
> Presented below are two independent transactions. Both transactions have commercial substance. 1. Mercy Co. exchanged old trucks (cost $64,000 less $22,000 accumulated depreciation) plus cash of $17,000 for new trucks. The old trucks had a fair value of
> During 2020, Paola Corporation reported net sales of $3,500,000 and net income of $1,500,000. Its balance sheet reported average total assets of $1,400,000. Instructions Calculate the asset turnover.
> Gill Company, organized in 2020, has the following transactions related to intangible assets. Instructions Prepare the necessary entries to record these intangibles. All costs incurred were for cash. Make the adjusting entries as of December 31, 2020,
> The following are selected 2020 transactions of Pedigo Corporation. Jan. 1 Purchased a small company and recorded goodwill of $150,000. Its useful life is indefinite. May 1 Purchased for $75,000 a patent with an estimated useful life of 5 years and a leg
> On July 1, 2020, Friedman Inc. invested $720,000 in a mine estimated to have 900,000 tons of ore of uniform grade. During the last 6 months of 2020, 100,000 tons of ore were mined. Instructions a. Prepare the journal entry to record depletion. b. Assume
> In a period of rising prices, the inventory reported in Bert Company’s balance sheet is close to the current cost of the inventory, whereas Ernie Company’s inventory is considerably below its current cost. Identify the inventory cost flow method being us
> Pryce Company owns equipment that cost $65,000 when purchased on January 1, 2017. It has been depreciated using the straight-line method based on estimated salvage value of $5,000 and an estimated useful life of 5 years. Instructions Prepare Pryce Compa
> The following expenditures relating to plant assets were made by Prather Company during the first 2 months of 2020. 1. Paid $5,000 of accrued taxes at time plant site was acquired. 2. Paid $200 insurance to cover possible accident loss on new factory mac
> Presented below are two independent situations. Instructions a. On March 3, Kitselman Appliances sells $650,000 of its receivables to Ervay Factors Inc. Ervay Factors assesses a fi nance charge of 3% of the amount of receivables sold. Prepare the entry
> On December 31, 2020, Ling Co. estimated that 2% of its net accounts receivable of $450,000 will become uncollectible. The company recorded this amount as an addition to Allowance for Doubtful Accounts. The allowance account had a zero balance before adj
> At December 31, 2019, Blanda Company had a credit balance of $15,000 in Allowance for Doubtful Accounts. During 2020, Blanda wrote off accounts totaling $11,000. One of those accounts ($1,800) was later collected. At December 31, 2020, an aging schedule
> Godfreid Company has accounts receivable of $95,400 at March 31, 2020. Credit terms are 2/10, n/30. At March 31, 2020, there is a $2,100 credit balance in Allowance for Doubtful Accounts prior to adjustment. The company uses the percentage-of-receivables
> The ledger of Costello Company at the end of the current year shows Accounts Receivable $110,000, Sales Revenue $840,000, and Sales Returns and Allowances $20,000. Instructions a. If Costello uses the direct write-off method to account for uncollectible
> Presented below are two independent situations. Instructions a. On January 6, Brumbaugh Co. sells merchandise on account to Pryor Inc. for $7,000, terms 2/10, n/30. On January 16, Pryor Inc. pays the amount due. Prepare the entries on Brumbaugh’s books
> Presented below are selected transactions of Molina Company. Molina sells in large quantities to other companies and also sells its product in a small retail outlet. March 1 Sold merchandise on account to Dodson Company for $5,000, terms 2/10, n/30. 3 D
> Kerwick Company had accounts receivable of $100,000 on January 1, 2020. The only transactions that affected accounts receivable during 2020 were net credit sales of $1,000,000, cash collections of $920,000, and accounts written off of $30,000. Instructi
> Which assumed inventory cost flow method: a. usually parallels the actual physical flow of merchandise? b. divides cost of goods available by total units available for sale to determine a unit cost? c. assumes that the latest units purchased are the firs
> What are some examples of land improvements?
> Eileen Corp. had the following balances in receivable accounts at October 31, 2020 (in thousands): Allowance for Doubtful Accounts $52, Accounts Receivable $2,910, Other Receivables $189, and Notes Receivable $1,353. Instructions Prepare the balance she
> On May 2, McLain Company lends $9,000 to Chang, Inc., issuing a 6-month, 7% note. At the maturity date, November 2, Chang indicates that it cannot pay. Instructions a. Prepare the entry to record the issuance of the note. b. Prepare the entry to record
> Vandiver Company had the following select transactions. Apr. 1, 2020 Accepted Goodwin Company’s 12-month, 6% note in settlement of a $30,000 account receivable. July 1, 2020 Loaned $25,000 cash to Thomas Slocombe on a 9-month, 10% note. Dec. 31, 2020 Acc
> Record the following transactions for Redeker Co. in the general journal. 2020 May 1 Received a $9,000, 12-month, 10% note in exchange for Mark Chamber’s outstanding accounts receivable. Dec. 31 Accrued interest on the Chamber note. Dec. 31 Closed the in
> Elburn Supply Co. has the following transactions related to notes receivable during the last 2 months of 2020. The company does not make entries to accrue interest except at December 31. Nov. 1 Loaned $30,000 cash to Manny Lopez on a 12 month, 10% note.
> Colaw Stores accepts both its own and national credit cards. During the year, the following selected summary transactions occurred. Jan. 15 Made Colaw credit card sales totaling $18,000. (There were no balances prior to January 15.) 20 Made Visa credit c
> Presented below are two independent situations. Instructions a. On April 2, Jennifer Elston uses her JCPenney Company credit card to purchase merchandise from a JCPenney store for $1,500. On May 1, Elston is billed for the $1,500 amount due. Elston pays
> Don Wyatt is unable to reconcile the bank balance at January 31. Don’s reconciliation is as follows. Instructions a. Prepare a correct bank reconciliation. b. Journalize the entries required by the reconciliation. Cash balance per
> Listed below are five procedures followed by Gilmore Company. 1. Employees are required to take vacations. 2. Any member of the sales department can approve credit sales. 3. Paul Jaggard ships goods to customers, bills customers, and receives payment fro
> Listed below are five procedures followed by Eikenberry Company. 1. Several individuals operate the cash register using the same register drawer. 2. A monthly bank reconciliation is prepared by someone who has no other cash responsibilities. 3. Joe Cockr
> Kensington Company uses special journals. It recorded in a sales journal a sale made on account to R. Stiner for $435. A few days later, R. Stiner returns $70 worth of merchandise for credit. Where should Kensington Company record the sales return? Why?
> A new accountant at Wyne Inc. is trying to identify which of the amounts shown below should be reported as the current asset “Cash and cash equivalents” in the year-end balance sheet, as of April 30, 2020. 1. $60 of currency and coin in a locked box used
> Wynn Company has recorded the following items in its financial records. Cash in bank ………………...………………...$ 42,000 Cash in plant expansion fund ……………100,000 Cash on hand ………………...………………..12,000 Highly liquid investments ………………...34,000 Petty cash ………………...…
> The cash records of Dawes Company show the following four situations. For July: 1. The June 30 bank reconciliation indicated that deposits in transit total $920. During July, the general ledger account Cash shows deposits of $15,750, but the bank stateme
> The information below relates to the Cash account in the ledger of Minton Company. Balance September 1—$17,150; Cash deposited—$64,000. Balance September 30—$17,404; Checks written—$
> The following information pertains to Crane Video Company. 1. Cash balance per bank, July 31, $7,263. 2. July bank service charge not recorded by the depositor $28. 3. Cash balance per books, July 31, $7,284. 4. Deposits in transit, July 31, $1,300. 5. B
> On April 30, the bank reconciliation of Westbrook Company shows three outstanding checks: no. 254, $650; no. 255, $620; and no. 257, $410. The May bank statement and the May cash payments journal show the following. Instructions Using Step 2 in the rec
> Hasselback Company has the following selected transactions during March. Mar. 2 Purchased equipment costing $7,400 from Bole Company on account. 5 Received credit of $410 from Carwell Company for merchandise damaged in shipment to Hasselback. 7 Issued c
> Francisco Company uses the columnar cash journals illustrated in the textbook. In April, the following selected cash transactions occurred. 1. Made a refund to a customer as an allowance for damaged goods. 2. Received collection from customer within the
> R. Santiago Co. uses special journals and a general journal. The following transactions occurred during May 2020. May 1 R. Santiago invested $40,000 cash in the business. 2 Sold merchandise to Lawrie Co. for $6,300 cash. The cost of the merchandise sold
> Gomes Company uses special journals and a general journal. The following transactions occurred during September 2020. Sept. 2 Sold merchandise on account to H. Drew, invoice no. 101, $620, terms n/30. The cost of the merchandise sold was $420. 10 Purchas
> What is the major advantage and the major disadvantage of the specific identification method of inventory costing?
> Pennington Company has a balance in its Accounts Payable control account of $9,250 on January 1, 2020. The subsidiary ledger contains three accounts: Hale Company, balance $3,000; Janish Company, balance $1,875; and Valdez Company. During January, the fo
> Kieschnick Company has a balance in its Accounts Receivable control account of $10,000 on January 1, 2020. The subsidiary ledger contains three accounts: Bixler Company, balance $4,000; Cuddyer Company, balance $2,500; and Freeze Company. During January,
> Presented below is the subsidiary accounts receivable account of Jill Longley. Instructions Write a memo to Sara Fogelman, chief financial officer, that explains each transaction. Date Ref. Debit Credit Balance 2020 Sept. 2 S31 61,000 61,000 9 G4 1
> Selected account balances for Hulse Company at January 1, 2020, are presented below. Accounts Payable………………...$14,000 Accounts Receivable……………22,000 Cash………………...………………...17,000 Inventory………………...…………..13,500 Hulse’s sales journal for January shows a tot
> Tresh Products uses both special journals and a general journal as described in this chapter. Tresh also posts customers’ accounts in the accounts receivable subsidiary ledger. The postings for the most recent month are included in the
> Selected accounts from the ledgers of Youngblood Company at July 31 showed the following. Instructions From the data prepare: a. The single-column purchases journal for July. b. The general journal entries for July. GENERAL LEDGER Equipment No. 15
> The general ledger of Hensley Company contained the following Accounts Payable control account (in T-account form). Also shown is the related subsidiary ledger. Instructions a. Indicate the missing posting reference and amount in the control account, a
> The following are some typical transactions incurred by Ricketts Company. 1. Payment of creditors on account. 2. Return of merchandise sold for credit. 3. Collection on account from customers. 4. Sale of land for cash. 5. Sale of merchandise on account.
