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ACC306 WEEK3 E16-24 E16-25 P16-7 E17-10 E17-19 and P17-16

Price: $18.99


This tutorials are in WORD FORMAT

Templates for Week 3 Homework:
Please complete the following in “XX” and answer and complete the following questions for the enclosed problems and exercises
Complete these problems and turn them in via the dropbox:
E16-24, E16-25, P16-7, E17-10, E17-19, and P17-16
.

E 16-24 Balance sheet classification LO4 LO5 LO6 LO8
At December 31, DePaul Corporation had a $16 million balance in its deferred tax asset account
and a $68 million balance in its deferred tax liability account. The balances were due to the
following cumulative temporary differences:

1. Estimated warranty expense, $15 million: expense recorded in the year of the sale;
tax-deductible when paid (one-year warranty).

2. Depreciation expense, $120 million: straight-line in the income statement; MACRS on the tax
return.

3. Income from installment sales of properties, $50 million: income recorded in the year of the
sale; taxable when received equally over the next five years.

4. Bad debt expense, $25 million: allowance method for accounting; direct write-off for tax
purposes.

Required:
Show how any deferred tax amounts should be classified and reported in the December 31
balance sheet. The tax rate is 40%.

E 16-25 Multiple tax rates; balance sheet classification
Case Development began operations in December 2011. When property is sold on an installment basis, Case recognizes installment income for financial reporting purposes in the year of the sale. For tax purposes, installment income is reported by the installment method. 2011 installment income was $600,000 and will be collected over the next three years. Scheduled collections and enacted tax rates for 2012-2014 are as follows:

2012 $150,000 30%
2013 250,000 40
2014 200,000 40

Pretax accounting income for 2011 was $810,000, which includes interest revenue of $10,000 from municipal bonds. The enacted tax rate for 2011 is 30%.

Required:

1. Assuming no differences between accounting income and taxable income other than those described above, prepare the appropriate journal entry to record Case’s 2011 income taxes.

2. What is Case’s 2011 net income?

3. How should the deferred tax amount be classified in a classified balance sheet?


P16-7 Sherrod, Inc., reported pretax accounting income of $76 million for 2011. The following information relates to differences between pretax accounting income and taxable income:

a. Income from installment sales of properties included in pretax accounting income in 2011 exceeded that reported for tax purposes by $3 million. The installment receivable account at year-end had a balance of $4 million (representing portions of 2010 and 2011 installment sales), expected to be collected equally in 2012 and 2013.

b. Sherrod was assessed a penalty of $2 million by the Environmental Protection Agency for violation of a federal law in 2011. The fine is to be paid in equal amounts in 2011 and 2012.

c. Sherrod rents its operating facilities but owns one asset acquired in 2010 at a cost of $80 million. Depreciation is reported by the straight-line method assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight-line depreciation the first two years but less than straight-line depreciation the next two years ($ in millions):

Income Statement Tax Return Difference

2010 $20 $26 ($6)

2011 20 35 (15)

2012 20 12 8

2013 20 7 13

$80 $80 $0

d. Bad debt expense of $3 million is reported using the allowance method in 2011. For tax purposes, the expense is deducted when accounts prove uncollectible (the direct write-off method): $2 million in 2011. At December 31, 2011, the allowance for uncollectible accounts was $2 million (after adjusting entries). The balance was $1 million at the end of 2010.

e. In 2011, Sherrod accrued and expense and related liability for estimated paid future absences of $7 million relating to the company’s new paid vacation program. Future compensation will be deductible on the tax return when actually paid during the next two years ($4 million 2012; $3 million in 2013).

f. During 2010, accounting income included as estimated loss of $2 million from having accrued a loss contingency. The lost is paid in 2011 at which time it is tax deductible.

Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2011, were $1.2 million and $2.8 million, respectively. The enacted tax rate is 40% each year.

Required:

1. Determine the amounts necessary to record income taxes for 2011 and prepare the appropriate journal entry.

2. What is the 2011 net income?

3. Show how deferred tax amounts should be classified and reported in the 2011 balance sheet.

E 17-10 Determine pension expense
Abbott and Abbott has a noncontributory, defined benefit pension plan. At December 31, 2011,
Abbott and Abbott received the following information:

($in millions)
Projected Benefit Obligation
Balance, January 1 $120
Service cost 20
Interest cost 12
Benefits paid (9)
Balance, December 31 $143
Plant Assets
Balance, January 1 $80
Actual return on plan assets 9
Contribution 2011 20
Benefits paid (9)
Balance, December 31 $100

The expected long-term rate of return on plan assets was 10%. There was no prior service cost and a negligible net loss AOCI on January 1, 2011.

Required:
1)Determine Abbott and Abbott’s pension expense for 2011.
2) Prepare the journal entries to record Abbott and Abbott’s pension expense, funding, and payment for 2011.

E17-19 Beale Management has a noncontributory, defined benefit pension plan. On December 31, 2011 (the end of Beale’s fiscal year), the following pension-related data were available:

Projected Benefit Obligation ($in millions)

Balance, January 1, 2011 $480

Service cost 82

Interest cost, discount rate, 5% 24

Gain due to changes in actuarial assumptions in 2011 (10)

Pension benefits paid (40)

Balance, December 31, 2011 $536

Plant Assets

Balance, January 1, 2011 $500

Actual return on plan assets 40

(Expected return on plan assets, $45)

Cash Contributions 70

Pension benefits paid (40)

Balance, December 31, 2011 $570

January 1, 2011, balances:

Pension asset $20

Prior service cost-AOCI (amortization $8 per year) 48

Net gain-AOCI (any amortization over 15 years) 80

Required:

1. Prepare the 2011 journal entry to record pension expense.

2. Prepare the journal entry(s) to record any 2011 gains and losses.

3. Prepare the 2011 journal entries to record the contribution to plan assets and benefit payments to retirees.

4. Determine the balances at December 31, 2011, in the PBO, plan assets, the net gain-ACOI, and prior service cost-ACOI and show how the balances changed during 2011. [Hint: You might find T-accounts useful.]

5. What amount will Beale report in its 2011 balance sheet as a net pension asset or net pension liability for the funded status of the plan?

P17-16 Actuary and trustee reports indicate the following changes in the PBO and plan assets of Lakeside Cable during 2011:

Prior service cost at Jan. 1, 2011, from plan amendment at the

beginning of 2009 (amortization: $4 million per year) $32 million

Net loss-pensions at Jan. 1, 2011 (previous losses exceeded previous gains) $40million

Average remaining service life of the active employee group 10 years

Actuary's discount rate 8%

($in millions) PBO Plan Assets

Beginning of 2011 $300 Beginning of 2011 $200

Service cost 48 Return on plan assets.

Interest cost, 8% 24 7.5% (10% expected) 15

Loss (gain) on PBO (2) Cash contributions 45

Less: Retiree benefits (20) Less: Retiree benefits (20)

End of 2011 $350 End of 2011 $240

Required:

1. Determine Lakeside's pension expense for 2011 and prepare the appropriate journal entries to
record the expense as well as the cash contribution to plan assets and payment of benefits to
retirees.

2. Determine the new gains and/or losses in 2011 and prepare the appropriate journal entry(s) to
record them.

3. Prepare a pension spreadsheet to assist you in determining end of 2011 balances in the PBO,
plan assets, prior service cost—AOCI, the net loss—AOCI, and the pension liability.

4. Assume the following actuary and trustee reports indicating changes in the PBO and plan
assets of Lakeside Cable during 2012:
Determine Lakeside's pension expense for 2012 and prepare the appropriate journal entries to
record the expense, the cash funding of plan assets, and payment of benefits to retirees.

5. Determine the new gains and/or losses in 2012 and prepare the appropriate journal entry(s) to
record them.

6. Using T-accounts, determine the balances at December 31, 2012, in the net loss–AOCI and
prior service cost–AOCI.

7. Confirm the balances determined in Requirement 6 by preparing a pension spreadsheet.

ACC422 WEEK5 TEAM P13-4 E14-21 E21-7

Price: $8.99


P13-4 (Payroll Tax Entries) Below is a payroll sheet for Jedi Import Company for the month of September 2007. The company is allowed a 1% unemployment compensation rate by the state; the federal unemployment tax rate is 0.8% and the maximum for both is $7,000. Assume a 10% federal income tax rate for all employees and a 7.65% F.I.C.A. tax on employee and employer on a maximum of $90,000. In addition, 1.45% is charged both employer and employee for an employee’s wage in excess of $90,000 per employee.
Income
Earnings September Tax State Federal
Name to Aug. 31 Earnings Withholding F.I.C.A. U.C. U.C.
B.D. Williams $106,800 $10,800
D. Prowse 6,300 700
K. Baker 7,600 1,100
F. Oz 13,600 1,900
A. Daniels 105,000 15,000
B. Mayhew 112,000 16,000
Instructions
(a) Complete the payroll sheet and make the necessary entry to record the payment of the payroll.
(b) Make the entry to record the payroll tax expenses of Jedi Import Company.
(c) Make the entry to record the payment of the payroll liabilities created. Assume that the company pays all payroll liabilities at the end of each month.

*E14-21 (Term Modification without Gain—Debtor’s Entries) On December 31, 2007, the Firstar Bank
enters into a debt restructuring agreement with Nicole Bradtke Company, which is now experiencing financial trouble. The bank agrees to restructure a 12%, issued at par, $2,000,000 note receivable by the following modifications:
1. Reducing the principal obligation from $2,000,000 to $1,600,000.
2. Extending the maturity date from December 31, 2007, to December 31, 2010.
3. Reducing the interest rate from 12% to 10%.
Bradtke pays interest at the end of each year. On January 1, 2011, Bradtke Company pays $1,600,000 in cash to Firstar Bank.

Instructions
(a) Based on FASB Statement No. 114, will the gain recorded by Bradtke be equal to the loss recorded by Firstar Bank under the debt restructuring?
(b) Can Bradtke Company record a gain under the term modification mentioned above? Explain.
(c) Assuming that the interest rate Bradtke should use to compute interest expense in future periods is 1.4276%, prepare the interest payment schedule of the note for Bradtke Company after the debt restructuring.
(d) Prepare the interest payment entry for Bradtke Company on December 31, 2009.
(e) What entry should Bradtke make on January 1, 2011?

E21-7 (Lessee-Lessor Entries; Sales-Type Lease) On January 1, 2007, Bensen Company leased equipment to Flynn Corporation. The following information pertains to this lease.
1. The term of the noncancelable lease is 6 years, with no renewal option. The equipment reverts to the lessor at the termination of the lease.
2. Equal rental payments are due on January 1 of each year, beginning in 2007.
3. The fair value of the equipment on January 1, 2007, is $150,000, and its cost is $120,000.
4. The equipment has an economic life of 8 years, with an unguaranteed residual value of $10,000.
Flynn depreciates all of its equipment on a straight-line basis.
5. Bensen set the annual rental to ensure an 11% rate of return. Flynn’s incremental borrowing rate is 12%, and the implicit rate of the lessor is unknown.
6. Collectibility of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by the lessor.

Instructions
(Both the lessor and the lessee’s accounting period ends on December 31.)
(a) Discuss the nature of this lease to Bensen and Flynn.
(b) Calculate the amount of the annual rental payment.
(c) Prepare all the necessary journal entries for Flynn for 2007.
(d) Prepare all the necessary journal entries for Bensen for 2007.

ACC422 WEEK 4 Team E11-18 P11-10 P12-3

Price: $9.99


• Ch. 11: Exercise E11-18 & Problem P11-10
• Ch. 12: Problem P12-3

E11-18 (Impairment) The management of Petro Garcia Inc. was discussing whether certain equipment
should be written off as a charge to current operations because of obsolescence. This equipment has a cost of $900,000 with depreciation to date of $400,000 as of December 31, 2007. On December 31, 2007, management projected its future net cash flows from this equipment to be $300,000 and its fair value to be $230,000. The company intends to use this equipment in the future.

Instructions
(a) Prepare the journal entry (if any) to record the impairment at December 31, 2007.
(b) Where should the gain or loss (if any) on the write-down be reported in the income statement?
(c) At December 31, 2008, the equipment’s fair value increased to $260,000. Prepare the journal entry
(if any) to record this increase in fair value.
(d) What accounting issues did management face in accounting for this impairment?

P11-10 (Comprehensive Depreciation Computations) Sheryl Crow Corporation, a manufacturer of
steel products, began operations on October 1, 2006. The accounting department of Crow has started the fixed-asset and depreciation schedule presented on page 563. You have been asked to assist in completing this schedule. In addition to ascertaining that the data already on the schedule are correct, you have obtained the following information from the company’s records and personnel.
1. Depreciation is computed from the first of the month of acquisition to the first of the month of disposition.
2. Land A and Building A were acquired from a predecessor corporation. Crow paid $820,000 for the
land and building together. At the time of acquisition, the land had an appraised value of $90,000, and the building had an appraised value of $810,000.
3. Land B was acquired on October 2, 2006, in exchange for 2,500 newly issued shares of Crow’s common stock. At the date of acquisition, the stock had a par value of $5 per share and a fair value of $30 per share. During October 2006, Crow paid $16,000 to demolish an existing building on this land so it could construct a new building.
4. Construction of Building B on the newly acquired land began on October 1, 2007. By September
30, 2008, Crow had paid $320,000 of the estimated total construction costs of $450,000. It is estimated that the building will be completed and occupied by July 2009.
5. Certain equipment was donated to the corporation by a local university. An independent appraisal of the equipment when donated placed the fair market value at $30,000 and the salvage value at $3,000.

6. Machinery A’s total cost of $164,900 includes installation expense of $600 and normal repairs and maintenance
of $14,900. Salvage value is estimated at $6,000. Machinery A was sold on February 1, 2008.
7. On October 1, 2007, Machinery B was acquired with a down payment of $5,740 and the remaining
payments to be made in 11 annual installments of $6,000 each beginning October 1, 2007. The
prevailing interest rate was 8%. The following data were abstracted from present-value tables
(rounded).
Present value of $1.00 at 8% Present value of an ordinary annuity of $1.00 at 8%
10 years .463 10 years 6.710
11 years .429 11 years 7.139
15 years .315 15 years 8.559
SHERYL CROW CORPORATION
Fixed Asset and Depreciation Schedule
For Fiscal Years Ended September 30, 2007, and September 30, 2008
Depreciation
Expense
Estimated Year Ended
Acquisition Depreciation Life in September 30
Assets Date Cost Salvage Method Years 2007 2008
Land A October 1, 2006 $ (1) N/A N/A N/A N/A N/A
Building A October 1, 2006 (2) $40,000 Straight-line (3) $17,450 (4)
Land B October 2, 2006 (5) N/A N/A N/A N/A N/A
Building B Under $320,000 — Straight-line 30 — (6)
Construction to date
Donated Equipment October 2, 2006 (7) 3,000 150% declining 10 (8) (9)
balance
Machinery A October 2, 2006 (10) 6,000 Sum-of-the- 18 (11) (12)
years’-digits
Machinery B October 1, 2007 (13) — Straight-line 20 — (14)
N/A—Not applicable
Instructions
For each numbered item on the schedule above, supply the correct amount. Round each answer to the
nearest dollar.

P12-3 (Accounting for Franchise, Patents, and Trade Name) Information concerning Haerhpin Corporation’s intangible assets is as follows.
1. On January 1, 2007, Haerhpin signed an agreement to operate as a franchisee of Hsian Copy Service, Inc. for an initial franchise fee of $75,000. Of this amount, $15,000 was paid when the agreement was signed, and the balance is payable in 4 annual payments of $15,000 each, beginning January 1, 2008. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. The present value at January 1, 2007, of the 4 annual payments discounted at 14% (the implicit rate for a loan of this type) is $43,700. The agreement also provides that 5% of the revenue from the franchise must be paid to the franchisor annually. Haerhpin’s revenue from the franchise for 2007 was $950,000. Haerhpin estimates the useful life of the franchise to be 10 years. (Hint: You may want to refer to Appendix 18A to determine the proper accounting treatment for the franchise fee and payments.)

2. Haerhpin incurred $65,000 of experimental and development costs in its laboratory to develop a
patent that was granted on January 2, 2007. Legal fees and other costs associated with registration of the patent totaled $13,600. Haerhpin estimates that the useful life of the patent will be 8 years.

3. A trademark was purchased from Shanghai Company for $32,000 on July 1, 2004. Expenditures for
successful litigation in defense of the trademark totaling $8,160 were paid on July 1, 2007. Haerhpin estimates that the useful life of the trademark will be 20 years from the date of acquisition.

Instructions
(a) Prepare a schedule showing the intangible assets section of Haerhpin’s balance sheet at December 31, 2007. Show supporting computations in good form.

(b) Prepare a schedule showing all expenses resulting from the transactions that would appear on
Haerhpin’s income statement for the year ended December 31, 2007. Show supporting computations
in good form.

ACC422 WEEK 4 E11-4 E11-11 E12-6 E12-16

Price: $10.99


• Ch. 11: Exercises E11-4 & E11-11
• Ch. 12: Exercises E12-6 & E12-16

E11-4 (Depreciation Computations—Five Methods) Jon Seceda Furnace Corp. purchased machinery
for $315,000 on May 1, 2007. It is estimated that it will have a useful life of 10 years, salvage value of $15,000, production of 240,000 units, and working hours of 25,000. During 2008 Seceda Corp. uses the machinery for 2,650 hours, and the machinery produces 25,500 units.

Instructions
From the information given, compute the depreciation charge for 2008 under each of the following
methods. (Round to the nearest dollar.)
(a) Straight-line.
(b) Units-of-output.
(c) Working hours.
(d) Sum-of-the-years’-digits.
(e) Declining-balance (use 20% as the annual rate).

E11-11 (Depreciation—Change in Estimate) Machinery purchased for $60,000 by Tom Brady Co. in
2003 was originally estimated to have a life of 8 years with a salvage value of $4,000 at the end of that time. Depreciation has been entered for 5 years on this basis. In 2008, it is determined that the total estimated life should be 10 years with a salvage value of $4,500 at the end of that time. Assume straight-line depreciation.

Instructions
(a) Prepare the entry to correct the prior years’ depreciation, if necessary.
(b) Prepare the entry to record depreciation for 2008.

E12-6 (Recording and Amortization of Intangibles) Rolanda Marshall Company, organized in 2006,
has set up a single account for all intangible assets. The following summary discloses the debit entries that have been recorded during 2007.
1/2/07 Purchased patent (8-year life) $ 350,000
4/1/07 Purchased goodwill (indefinite life) 360,000
7/1/07 Purchased franchise with 10-year life; expiration date 7/1/17 450,000
8/1/07 Payment of copyright (5-year life) 156,000
9/1/07 Research and development costs 215,000
$1,531,000

Instructions
Prepare the necessary entries to clear the Intangible Assets account and to set up separate accounts for distinct types of intangibles. Make the entries as of December 31, 2007, recording any necessary amortization and reflecting all balances accurately as of that date. (Use straight-line amortization.)

E12-16 (Accounting for R&D Costs) Leontyne Price Company from time to time embarks on a research
program when a special project seems to offer possibilities. In 2006 the company expends $325,000
on a research project, but by the end of 2006 it is impossible to determine whether any benefit will be derived
from it.
Instructions
(a) What account should be charged for the $325,000, and how should it be shown in the financial
statements?
(b) The project is completed in 2007, and a successful patent is obtained. The R&D costs to complete
the project are $110,000. The administrative and legal expenses incurred in obtaining patent number
472-1001-84 in 2007 total $16,000. The patent has an expected useful life of 5 years. Record
these costs in journal entry form. Also, record patent amortization (full year) in 2007.
(c) In 2008, the company successfully defends the patent in extended litigation at a cost of $47,200,
thereby extending the patent life to December 31, 2015. What is the proper way to account for
this cost? Also, record patent amortization (full year) in 2008.
(d) Additional engineering and consulting costs incurred in 2008 required to advance the design of
a product to the manufacturing stage total $60,000. These costs enhance the design of the product
considerably. Discuss the proper accounting treatment for this cost.

ACC291 WEEK 4 E11-15 P11-6A E12-1 E12-2

Price: $5.99


Resources: Ch. 11 & 12 of Financial Accounting.
Complete Exercises E11-15, E12-1, & E12-2.
Complete Problem 11-6A.
E11-15 E12-1 E12-2 P11-6A

E11-15 On October 31, the stockholders’ equity section of Omar Company consists of common
stock $600,000 and retained earnings $900,000. Omar is considering the following two
courses of action: (1) declaring a 5% stock dividend on the 60,000, $10 par value shares outstanding, or (2) effecting a 2-for-1 stock split that will reduce par value to $5 per share. The current market price is $14 per share.

Instructions
Prepare a tabular summary of the effects of the alternative actions on the components of stockholders’ equity and outstanding shares. Use the following column headings: Before Action,After Stock Dividend, and After Stock Split.

P11-6A Arnold Corporation has been authorized to issue 40,000 shares of $100 par value, 8%,
noncumulative preferred stock and 2,000,000 shares of no-par common stock. The corporation
assigned a $5 stated value to the common stock. At December 31, 2011, the ledger contained the
following balances pertaining to stockholders’ equity.
Preferred Stock $ 240,000
Paid-in Capital in Excess of Par Value—Preferred 56,000
Common Stock 2,000,000
Paid-in Capital in Excess of Stated Value—Common 5,700,000
Treasury Stock—Common (1,000 shares) 22,000
Paid-in Capital from Treasury Stock 3,000
Retained Earnings 560,000
The preferred stock was issued for land having a fair market value of $296,000.All common stock
issued was for cash. In November, 1,500 shares of common stock were purchased for the treasury
at a per share cost of $22. In December, 500 shares of treasury stock were sold for $28 per share.
No dividends were declared in 2011.

Instructions
(a) Prepare the journal entries for the:
(1) Issuance of preferred stock for land.
(2) Issuance of common stock for cash.
(3) Purchase of common treasury stock for cash.
(4) Sale of treasury stock for cash.
(b) Prepare the stockholders’ equity section at December 31, 2011.

E12-1 Max Weinberg is studying for an accounting test and has developed the following questions about investments.
1. What are three reasons why companies purchase investments in debt or stock securities?
2. Why would a corporation have excess cash that it does not need for operations?
3. What is the typical investment when investing cash for short periods of time?
4. What are the typical investments when investing cash to generate earnings?
5. Why would a company invest in securities that provide no current cash flows?
6. What is the typical stock investment when investing cash for strategic reasons?

Instructions
Provide answers for Max

E12-2 Foren Corporation had the following transactions pertaining to debt investments.
Jan. 1 Purchased 50 8%, $1,000 Choate Co. bonds for $50,000 cash plus brokerage fees of
$900. Interest is payable semiannually on July 1 and January 1.
July 1 Received semiannual interest on Choate Co. bonds.
July 1 Sold 30 Choate Co. bonds for $34,000 less $500 brokerage fees.

Instructions
(a) Journalize the transactions.
(b) Prepare the adjusting entry for the accrual of interest at December 31.

ACC291 WEEK1 E9-2 Trudy Company incurred the following costs.

Price: $2.99


Note:  The instructions is to "indicate to which account Trudy would debit each of the costs". There's not enough enough info to do the whole journal entry, so make sure your problem is matched with the descriptions below.  :)


Resources: Ch. 9 of Financial Accounting
Complete Exercise E9-2.

E9-2 Trudy 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 2,000
4. Real estate broker’s commission on land purchased 3,500
5. Insurance premium paid for first year’s insurance on new truck 880
6. Cost of landscaping on property purchased 7,200
7. Cost of paving parking lot for new building constructed 17,900
8. Cost of clearing, draining, and filling land 13,300
9. Architect’s fees on self-constructed building 10,000

Instructions
Indicate to which account Trudy would debit each of the costs.

ACC290 Week2 E3-4 E3-9 P3-5A P3-6A

Price: $6.99


E3-4 A tabular analysis of the transactions made during August 2012 by Nigel Company
during its first month of operations is shown below. Each increase and decrease in
stockholders’ equity is explained.



Instructions
(a) Determine how much stockholders’ equity increased for the month.
(b) Compute the net income for the month.

E3-9 The May transactions of StepAside Corporation were as follows.

May 4 Paid $700 due for supplies previously purchased on account.
7 Performed advisory services on account for $6,800.
8 Purchased supplies for $850 on account.
9 Purchased equipment for $1,000 in cash.
17 Paid employees $530 in cash.
22 Received bill for equipment repairs of $900.
29 Paid $1,200 for 12 months of insurance policy. Coverage begins June 1.

Instructions
Journalize the transactions. Do not provide explanations.

P3-5A Towne Architects incorporated as licensed architects on April 1, 2012. During
the first month of the operation of the business, these events and transactions occurred:

Apr. 1 Stockholders invested $18,000 cash in exchange for common
stock of the corporation.
1 Hired a secretary-receptionist at a salary of $375 per week, payable monthly.
2 Paid office rent for the month $900.
3 Purchased architectural supplies on account from Spring Green Company $1,300.
10 Completed blueprints on a carport and billed client $1,900 for services.
11 Received $700 cash advance from J. Madison to design a new home.
20 Received $2,800 cash for services completed and delivered to M. Svetlana.
30 Paid secretary-receptionist for the month $1,500.
30 Paid $300 to Spring Green Company for accounts payable due.

The company uses these accounts: Cash, Accounts Receivable, Supplies, Accounts Payable,
Unearned Service Revenue, Common Stock, Service Revenue, Salaries and Wages Expense,
and Rent Expense.

Instructions
(a) Journalize the transactions, including explanations.
(b) Post to the ledger T accounts.
(c) Prepare a trial balance on April 30, 2012.

P3-6A This is the trial balance of Mimosa Company on September 30.

Mimosa Company
Trial Balance
30-Sep-12
DebitCredit
Cash  8,200
Accounts Receivable  2,600
Supplies  2,100
Equipment  8,000
Accounts Payable  4,800
Unearned Revenue  1,100
Common Stock  15,000
 20,900 20,900

The October transactions were as follows.
Oct. 5 Received $1,300 in cash from customers for accounts receivable due.
10 Billed customers for services performed $5,100.
15 Paid employee salaries $1,200.
17 Performed $600 of services for customers who paid in advance in August.
20 Paid $1,900 to creditors for accounts payable due.
29 Paid a $300 cash dividend.
31 Paid utilities $400.

Instructions
(a) Prepare a general ledger using T accounts. Enter the opening balances in the ledger
accounts as of October 1. Provision should be made for these additional accounts:
Dividends, Service Revenue, Salaries and Wages Expense, and Utilities Expense.
(b) Journalize the transactions, including explanations.
(c) Post to the ledger accounts.
(d) Prepare a trial balance on October 31, 2012.

ACC290 WEEK 3 BE4-1 P4-2A P4-3A

Price: $5.99


Complete Exercise BE4-1.
Complete Problems 4-2A and 4-3A.

BE4-1 Transactions that affect earnings do not necessarily affect cash. Identify the effect, if any, that each of the following transactions would have upon cash and net income. The first transaction has been completed as an example.

Net Cash Income
(a) Purchased $100 of supplies for cash. $100
(b) Recorded an adjusting entry to record use of $20 of the above supplies.
(c) Made sales of $1,300, all on account.
(d) Received $800 from customers in payment of their accounts.
(e) Purchased equipment for cash, $2,500.
(f) Recorded depreciation of building for period used, $600.

P4-2A Gil Vogel started his own consulting firm, Vogel Consulting, on June 1, 2012.
The trial balance at June 30 is as follows.


Vogel Consulting
Trial Balance
30-Jun-12
 
Cash   6,850
Accounts Receivable   7,000
Prepaid Insurance   2,880
Supplies   2,000
Office Equipment   15,000
Accounts Payable   4,230
Unearned Service Revenue   5,200
Common Stock   22,000
Service Revenue   8,300
Salaries Expense   4,000
Rent Expense   2,000  
   39,730  39,730

In addition to those accounts listed on the trial balance, the chart of accounts for Vogel
also contains the following accounts: Accumulated Depreciation—Equipment, Utilities
Payable, Salaries and Wages Payable, Depreciation Expense, Insurance Expense, Utilities
Expense, and Supplies Expense.
Other data:
1. Supplies on hand at June 30 total $720.
2. A utility bill for $180 has not been recorded and will not be paid until next month.
3. The insurance policy is for a year.
4. $4,100 of unearned service revenue has been earned at the end of the month.
5. Salaries of $1,250 are accrued at June 30.
6. The equipment has a 5-year life with no salvage value and is being depreciated at
$250 per month for 60 months.
7. Invoices representing $3,900 of services performed during the month have not been
recorded as of June 30.
Instructions
(a) Prepare the adjusting entries for the month of June.
(b) Post the adjusting entries to the ledger accounts. Enter the totals from the trial balance
as beginning account balances. Use T accounts.
(c) Prepare an adjusted trial balance at June 30, 2012.

P4-3A The Vang Hotel opened for business on May 1, 2012. Here is its trial balance before
adjustment on May 31.


Vang Hotel
Trial Balance
31-May-12
Cash   2,500
Prepaid Insurance   1,800
Supplies   2,600
Land   15,000
Lodge   70,000
Furniture   16,800
Accounts Payable   4,700
Unearned Rent Revenue   3,300
Mortgage Payable   36,000
Common Stock   60,000
Rent Revenue   9,000
Salaries Expense   3,000
Utilities Expense   800
Advertising Expense   500  
   113,000  113,000
Other data:
1. Insurance expires at the rate of $450 per month.
2. A count of supplies shows $1,050 of unused supplies on May 31.
3. Annual depreciation is $3,600 on the building and $3,000 on equipment.
4. The mortgage interest rate is 6%. (The mortgage was taken out on May 1.)
5. Unearned rent of $2,500 has been earned.
6. Salaries of $900 are accrued and unpaid at May 31.

Instructions
(a) Journalize the adjusting entries on May 31.
(b) Prepare a ledger using T accounts. Enter the trial balance amounts and post the adjusting
entries.
(c) Prepare an adjusted trial balance on May 31.
(d) Prepare an income statement and a retained earnings statement for the month of
May and a classified balance sheet at May 31.
(e) Identify which accounts should be closed on May 31.

ACC290 WEEK 4 P4-8A

Price: $2.50


P4-8A Dana La Fontsee opened Pro Window Washing Inc. on July 1, 2012. During July
the following transactions were completed.
July 1 Issued 12,000 shares of common stock for $12,000 cash.
1 Purchased used truck for $8,000, paying $2,000 cash and the balance on account.
3 Purchased cleaning supplies for $900 on account.
5 Paid $1,800 cash on 1-year insurance policy effective July 1.
12 Billed customers $3,700 for cleaning services.
18 Paid $1,000 cash on amount owed on truck and $500 on amount owed on cleaning supplies.
20 Paid $2,000 cash for employee salaries.
21 Collected $1,600 cash from customers billed on July 12.
25 Billed customers $2,500 for cleaning services.
31 Paid $290 for maintenance of the truck during month.
31 Declared and paid $600 cash dividend.

The chart of accounts for Pro Window Washing contains the following accounts: Cash,
Accounts Receivable, Supplies, Prepaid Insurance, Equipment, Accumulated Depreciation—
Equipment, Accounts Payable, Salaries and Wages Payable, Common Stock, Retained
Earnings, Dividends, Income Summary, Service Revenue, Maintenance and Repairs Expense,
Supplies Expense, Depreciation Expense, Insurance Expense, Salaries and Wages Expense.

Instructions
(a) Journalize the July transactions.
(b) Post to the ledger accounts. (Use T accounts.)
(c) Prepare a trial balance at July 31.
(d) Journalize the following adjustments.
(1) Services provided but unbilled and uncollected at July 31 were $1,700.
(2) Depreciation on equipment for the month was $180.
(3) One-twelfth of the insurance expired.
(4) An inventory count shows $320 of cleaning supplies on hand at July 31.
(5) Accrued but unpaid employee salaries were $400.
(e) Post adjusting entries to the T accounts.
(f ) Prepare an adjusted trial balance.
(g) Prepare the income statement and a retained earnings statement for July and a classified
balance sheet at July 31.
(h) Journalize and post closing entries and complete the closing process.
(i) Prepare a post-closing trial balance at July 31.

ACC290 WEEK 5 BE5–1, BE5–2, BE6-5, BE6-7, and BE7-4, BE7-5, and BE7-6

Price: $6.99


Complete Exercises BE5–1, BE5–2, BE6-5, BE6-7, and BE7-4, BE 7-5, and BE7-6

BE5-1 Presented here are the components in Korinek Company’s income statement.
Determine the missing amounts.


Sales revenue Cost of goods sold Gross profit Operating expenses Net income
 71,200  b)   30,000  d)   12,100
 108,000  70,000  c)   e)   29,500
 a)   71,900  109,600  46,200  f) 

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.

BE6-5 In its first month of operation, Moraine Company purchased 100 units of inventory
for $6, then 200 units for $7, and finally 140 units for $8. At the end of the month,
180 units remained. Compute the amount of phantom profit that would result if the company
used FIFO rather than LIFO. Explain why this amount is referred to as phantom
profit. The company uses the periodic method

BE6-7 Olsson Video Center accumulates the following cost and market data at
December 31.

Inventory Categories Cost Data Market Data
Cameras   12,500  13,400
Camcorders   9,000  9,500
DVDs   13,000  12,200

Compute the lower-of-cost-or-market valuation for Olsson inventory

BE7-4 Aldstadt Company has the following internal control procedures over cash receipts.
Identify the internal control principle that is applicable to each procedure.
(a) All over-the-counter receipts are registered on cash registers.
(b) All cashiers are bonded.
(c) Daily cash counts are made by cashier department supervisors.
(d) The duties of receiving cash, recording cash, and having custody of cash are assigned
to different individuals.
(e) Only cashiers may operate cash registers.

BE7-5 While examining cash receipts information, the accounting department determined
the following information: opening cash balance $150, cash on hand $1,125.74,
and cash sales per register tape $988.62. Prepare the required journal entry based upon
the cash count sheet.

BE7-6 Ndon Company has the following internal control procedures over cash disbursements.
Identify the internal control principle that is applicable to each procedure.
(a) Company checks are prenumbered.
(b) The bank statement is reconciled monthly by an internal auditor.
(c) Blank checks are stored in a safe in the treasurer’s office.
(d) Only the treasurer or assistant treasurer may sign checks.
(e) Check signers are not allowed to record cash disbursement transactions

ACC422 WEEK 3 Team P9-9 P10-8

Price: $5.99



• Ch. 9: Problem P9-9
• Ch. 10: Problem P10-8

P9-9 (Statement and Note Disclosure, LCM, and Purchase Commitment) Garth Brooks Specialty
Company, a division of Fresh Horses Inc., manufactures three models of gear shift components for bicycles
that are sold to bicycle manufacturers, retailers, and catalog outlets. Since beginning operations
in 1975, Brooks has used normal absorption costing and has assumed a first-in, first-out cost flow in its perpetual inventory system. The balances of the inventory accounts at the end of Brooks’s fiscal year, November 30, 2007, are shown below. The inventories are stated at cost before any year-end adjustments.
Finished goods $647,000
Work-in-process 112,500
Raw materials 240,000
Factory supplies 69,000
The following information relates to Brooks’s inventory and operations.
1. The finished goods inventory consists of the items analyzed below.
Cost Market
Down tube shifter
Standard model $ 67,500 $ 67,000
Click adjustment model 94,500 87,000
Deluxe model 108,000 110,000
Total down tube shifters 270,000 264,000
Bar end shifter
Standard model 83,000 90,050
Click adjustment model 99,000 97,550
Total bar end shifters 182,000 187,600
Head tube shifter
Standard model 78,000 77,650
Click adjustment model 117,000 119,300
Total head tube shifters 195,000 196,950
Total finished goods $647,000 $648,550
2. One-half of the head tube shifter finished goods inventory is held by catalog outlets on consignment.
3. Three-quarters of the bar end shifter finished goods inventory has been pledged as collateral for
a bank loan.
4. One-half of the raw materials balance represents derailleurs acquired at a contracted price 20 percent
above the current market price. The market value of the rest of the raw materials is $127,400.
5. The total market value of the work-in-process inventory is $108,700.
6. Included in the cost of factory supplies are obsolete items with an historical cost of $4,200. The
market value of the remaining factory supplies is $65,900
7. Brooks applies the lower-of-cost-or-market method to each of the three types of shifters in finished
goods inventory. For each of the other three inventory accounts, Brooks applies the lower-of-costor-
market method to the total of each inventory account.
8. Consider all amounts presented above to be material in relation to Brooks’ financial statements
taken as a whole.
Instructions
(a) Prepare the inventory section of Brooks’s balance sheet as of November 30, 2007, including any
required note(s).
(b) Without prejudice to your answer to (a), assume that the market value of Brooks’ inventories is less than cost. Explain how this decline would be presented in Brooks’ income statement for the
fiscal year ended November 30, 2007.
(c) Assume that Brooks has a firm purchase commitment for the same type of derailleur included in
the raw materials inventory as of November 30, 2007, and that the purchase commitment is at a
contracted price 15% greater than the current market price. These derailleurs are to be delivered
to Brooks after November 30, 2007. Discuss the impact, if any, that this purchase commitment
would have on Brooks’s financial statements prepared for the fiscal year ended November 30,
2007


P10-8 (Nonmonetary Exchanges) Susquehanna Corporation wishes to exchange a machine used in its
operations. Susquehanna has received the following offers from other companies in the industry.

1. Choctaw Company offered to exchange a similar machine plus $23,000. (The exchange has commercial
substance for both parties.)
2. Powhatan Company offered to exchange a similar machine. (The exchange lacks commercial substance
for both parties.)
3. Shawnee Company offered to exchange a similar machine, but wanted $8,000 in addition to Susquehanna’s
machine. (The exchange has commercial substance for both parties.)
In addition, Susquehanna contacted Seminole Corporation, a dealer in machines. To obtain a new machine,
Susquehanna must pay $93,000 in addition to trading in its old machine.
Susquehanna Choctaw Powhatan Shawnee Seminole
Machine cost $160,000 $120,000 $147,000 $160,000 $130,000
Accumulated depreciation 50,000 45,000 71,000 75,000 –0–
Fair value 92,000 69,000 92,000 100,000 185,000
Instructions
For each of the four independent situations, prepare the journal entries to record the exchange on the
books of each company. (Round to nearest dollar

ACC422 WEEK 3 individual E9-1 E9-12 E9-19 E10-5 E10-12

Price: $13.99


• Ch. 9: Exercises E9-1, E9-12, & E9-19
• Ch. 10: Exercises E10-5 & E10-12

E9-1 (Lower-of-Cost-or-Market) The inventory of 3T Company on December 31, 2008, consists of the following items.
Part No. Quantity Cost per Unit Cost to Replace per Unit
110 600 $90 $100
111 1,000 60 52
112 500 80 76
113 200 170 180
120 400 205 208
121a 1,600 16 14
122 300 240 235

Instructions
(a) Determine the inventory as of December 31, 2008, by the lower-of-cost-or-market method,
applying this method directly to each item.
(b) Determine the inventory by the lower-of-cost-or-market method, applying the method to the total of the inventory.

E9-12 (Gross Profit Method) Mark Price Company uses the gross profit method to estimate inventory for monthly reporting purposes. Presented below is information for the month of May.

Inventory, May 1 $ 160,000
Purchases (gross) 640,000
Freight-in 30,000
Sales 1,000,000
Sales returns 70,000
Purchase discounts 12,000
Instructions
(a) Compute the estimated inventory at May 31, assuming that the gross profit is 30% of sales.
(b) Compute the estimated inventory at May 31, assuming that the gross profit is 30% of cost.

E9-19 (Retail Inventory Method) Presented below is information related to Ricky Henderson
Company.
Cost Retail
Beginning inventory $ 200,000 $ 280,000
Purchases 1,375,000 2,140,000
Markups 95,000
Markup cancellations 15,000
Markdowns 35,000
Markdown cancellations 5,000
Sales 2,200,000
Instructions
Compute the inventory by the conventional retail inventory method.


E10-5 (Treatment of Various Costs) Ben Sisko Supply Company, a newly formed corporation, incurred the following expenditures related to Land, to Buildings, and to Machinery and Equipment.

Abstract company’s fee for title search $ 520
Architect’s fees 3,170
Cash paid for land and dilapidated building thereon 87,000
Removal of old building $20,000
Less: Salvage 5,500 14,500
Interest on short-term loans during construction 7,400
Excavation before construction for basement 19,000
Machinery purchased (subject to 2% cash discount, which was not taken) 55,000
Freight on machinery purchased 1,340
Storage charges on machinery, necessitated by noncompletion of
building when machinery was delivered 2,180
New building constructed (building construction took 6 months from
date of purchase of land and old building) 485,000
Assessment by city for drainage project 1,600
Hauling charges for delivery of machinery from storage to new building 620
Installation of machinery 2,000
Trees, shrubs, and other landscaping after completion of building
(permanent in nature) 5,400
Instructions
Determine the amounts that should be debited to Land, to Buildings, and to Machinery and Equipment.
Assume the benefits of capitalizing interest during construction exceed the cost of implementation. Indicate
how any costs not debited to these accounts should be recorded.

E10-12 (Entries for Asset Acquisition, Including Self-Construction) Below are transactions related to Fred Couples Company.

(a) The City of Pebble Beach gives the company 5 acres of land as a plant site. The market value of
this land is determined to be $81,000.
(b) 13,000 shares of common stock with a par value of $50 per share are issued in exchange for land
and buildings. The property has been appraised at a fair market value of $810,000, of which
$180,000 has been allocated to land and $630,000 to buildings. The stock of Fred Couples Company
504 • Chapter 10 Acquisition and Disposition of Property, Plant, and Equipment
(L0 4)
(L0 2,
3, 5)
(L0 2,
3, 5)
is not listed on any exchange, but a block of 100 shares was sold by a stockholder 12 months ago
at $65 per share, and a block of 200 shares was sold by another stockholder 18 months ago at $58
per share.
(c) No entry has been made to remove from the accounts for Materials, Direct Labor, and Overhead
the amounts properly chargeable to plant asset accounts for machinery constructed during the
year. The following information is given relative to costs of the machinery constructed.
Materials used $12,500
Factory supplies used 900
Direct labor incurred 15,000
Additional overhead (over regular) caused by construction 2,700
of machinery, excluding factory supplies used
Fixed overhead rate applied to regular manufacturing operations 60% of direct labor cost
Cost of similar machinery if it had been purchased from
outside suppliers 44,000
Instructions
Prepare journal entries on the books of Fred Couples Company to record these transactions.

acc206quiz week4 Peterson Company has both fixed and variable costs. If the volume doubles, the total fixed costs will double

Price: $ 4.99


1. Peterson Company has both fixed and variable costs. If the volume doubles, the total fixed costs will double. (Points : 1)
True
False

2. Jurassic Manufacturers produces flooring material. Fixed costs are $5,000 per month. Sales price for one unit of product is $50, and the variable cost per unit is $30. If Jurassic wishes to earn an operating income of $2,000, how many units need to be sold? (Points : 1)
270
300
320
350 (5000+2000) / 20

3. Formosa Steel Products makes steel building materials for export, and uses an activity-based costing system to account for the indirect manufacturing costs of its various products. Indirect costs for the whole factory are broken down into three activities—casting, materials handling, and milling. The cost driver for casting is machine hours; the cost driver for material handling is kilograms, and the cost driver for milling is direct labor hours. Activity costs and volumes for the year were estimated as follows:
Activity Cost Volume
Casting $2,000,000 800,000.00 Machine hours
Material Handling $400,000 500,000.00 Kilograms
Milling $1,120,000 140,000.00 Direct labor hours


One product is steel reinforcement rods, sold by the metric ton. Engineering reports show that one metric ton of steel reinforcement rods requires $100 of direct materials cost plus $50 of direct labor cost. Producing one metric ton of steel rods also requires 24 machine hours for casting, weighs 1,000 kilograms, and requires 15 direct labor hours.


What is the activity rate for the milling activity? (Points : 1)
$8.00 per direct labor hr (1120000/140000)
$4.40 per direct labor hr
$0.13 per direct labor hr
$0.80 per direct labor hr

4. Jurassic Manufacturers produces flooring material. Fixed costs are $5,000 per month. Sales price for one unit of product is $50, and the variable cost per unit is $30. If Jurassic wishes to earn an operating income of $5,000, how many units need to be sold? (Points : 1)
500 (5000+5000) /20
300
450
350

5. Activity-based costing systems and traditional costing systems will produce the same results for product cost and profitability, although they use different methods of calculation. (Points : 1)
True
False

6. Which of the following statements is CORRECT with respect to variable cost per unit, within the relevant range? (Points : 1)
It will increase as production decreases.
It will decrease as production decreases.
It will remain the same as production levels change.
It will decrease as production increases.

7. Activity-based costing focuses on a single predetermined overhead rate for cost analysis. (Points : 1)
True
False

8. Brannon Company manufactures ceiling fans and uses an activity-based costing system. Each ceiling fan consists of 20 separate parts totaling $95 in direct materials, and requires 2.5 hours of machine time to produce. There are no direct labor costs. Additional information follows:
Activity Allocation Base Cost Allocation Rate
Materials handling Number of parts $ .08
Machining Machine hours $7.20
Assembling Number of parts $.35
Packaging Number of finished units $2.70



What is the total manufacturing cost per ceiling fan? (Points : 1)
$125.75
$121.13
$115.32
$124.30 (95+1.6+18+7+2.7)
None of these is correct

9. Ace Plastics produces many different kinds of products all in one manufacturing facility. They have identified four activities for their costing system:
Materials management – allocated by number of purchase orders
Chemical processing – allocated on metric tons
Molding – allocated on direct labor hours
Packaging – allocated by number of units produced

The activity rates are as follows:
Materials management $12.00 Per purchase order
Chemical processing $ 7.50 Per metric ton
Molding $24.00 Per direct labor hour
Packaging $ 0.10 Per unit


Ace received an order for 3,000 plastic toys. The engineering design shows that the order will require $540 of direct material cost in total, $90 of direct labor cost, will require 4 purchase orders, will use 2 metric tons of chemical base, will need 8 direct labor hours, and will produce 3.000 units of product. What will the full production cost of the order be? (Points : 1)
$ 630
$ 645
$1,095
$1,185 ((4 *$12.00) + (2 *$7.50) + (8 *$24) + (3,000 *$0.10) + $540 + $90)

10. Activity-based costing systems combine many various elements of overhead into a single cost pool. (Points : 1)
True
False

ACC421 WEEK 1 CA1-11 CA1-12

Price: $3.99


Resource: Intermediate Accounting
Write responses to Concepts for Analysis CA1-11 & CA1-12 in Ch. 1 of Intermediate Accounting

CA1-11 (Accounting Organizations and Documents Issued) Presented below are a number of accounting
organizations and types of documents they have issued.
Instructions
Match the appropriate document to the organization involved. Note that more than one document may
be issued by the same organization. If no document is provided for an organization, write in “0.”

Organization
1. _____ Accounting Standards Executive Committee
2. _____ Accounting Principles Board
3. _____ Committee on Accounting Procedure
4. _____ Financial Accounting Standards Board

Document
(a) Opinions
(b) Practice Bulletins
(c) Accounting Research Bulletins
(d) Financial Accounting Standards
(e) Statements of Position

CA1-12 (Accounting Pronouncements) Standard setting bodies have issued a number of authoritative
pronouncements. A list is provided on the left, below, with a description of these pronouncements on the
right.
Instructions
Match the description to the pronouncements.
1. _____ Staff Positions
2. _____ Interpretations (of the Financial Accounting
Standards Board)
3. _____ Statement of Financial Accounting
Standards
4. _____ EITF Statements
5. _____ Opinions
6. _____ Statement of Financial Accounting
Concepts

(a) Official pronouncements of the APB.
(b) Sets forth fundamental objectives and
concepts that will be used in developing
future standards.
(c) Primary document of the FASB that establishes
GAAP.
(d) Provides additional guidance on implementing
or applying FASB Standards
or Interpretations.
(e) Provides guidance on how to account
for new and unusual financial transactions
that have the potential for creating
diversity in financial reporting
practices.
(f) Represent extensions or modifications
of existing standards

ACC421 WEEK 4 E5-5 E5-12 P5-3 E24-2 E24-4

Price $14.99


E5-5 (Preparation of a Corrected Balance Sheet) Uhura Company has decided to expand its operations.
The bookkeeper recently completed the balance sheet presented below in order to obtain additional
funds for expansion.
UHURA COMPANY
BALANCE SHEET
FOR THE YEAR ENDED 2007
Current assets
Cash $230,000
Accounts receivable (net) 340,000
Inventories at lower of average cost or market 401,000
Trading securities—at cost (fair value $120,000) 140,000
Property, plant, and equipment
Building (net) 570,000
Office equipment (net) 160,000
Land held for future use 175,000
Intangible assets
Goodwill 80,000
Cash surrender value of life insurance 90,000
Prepaid expenses 12,000
Current liabilities
Accounts payable 135,000
Notes payable (due next year) 125,000
Pension obligation 82,000
Rent payable 49,000
Premium on bonds payable 53,000
Long-term liabilities
Bonds payable 500,000
Stockholders’ equity
Common stock, $1.00 par, authorized
400,000 shares, issued 290,000 290,000
Additional paid-in capital 160,000
Retained earnings ?
Instructions
Prepare a revised balance sheet given the available information. Assume that the accumulated depreciation
balance for the buildings is $160,000 and for the office equipment, $105,000. The allowance for doubtful
accounts has a balance of $17,000. The pension obligation is considered a long-term liability.

E5-12 (Preparation of a Balance Sheet) Presented below is the trial balance of John Nalezny Corporation
at December 31, 2007.
Debits Credits
Cash $ 197,000
Sales $ 8,100,000
Trading Securities (at cost, $145,000) 153,000
Cost of Goods Sold 4,800,000
Long-term Investments in Bonds 299,000
Long-term Investments in Stocks 277,000
Short-term Notes Payable 90,000
Accounts Payable 455,000
Selling Expenses 2,000,000
Investment Revenue 63,000
Land 260,000
Buildings 1,040,000
Dividends Payable 136,000
Accrued Liabilities 96,000
Accounts Receivable 435,000
Accumulated Depreciation—Buildings 152,000
Allowance for Doubtful Accounts 25,000
Administrative Expenses 900,000
Interest Expense 211,000
Inventories 597,000
Extraordinary Gain 80,000
Long-term Notes Payable 900,000
Equipment 600,000
Bonds Payable 1,000,000
Accumulated Depreciation—Equipment 60,000
Franchise 160,000
Common Stock ($5 par) 1,000,000
Treasury Stock 191,000
Patent 195,000
Retained Earnings 78,000
Additional Paid-in Capital 80,000
Totals $12,315,000 $12,315,000
Instructions
Prepare a balance sheet at December 31, 2007, for John Nalezny Corporation. Ignore income taxes.

P5–3 (Balance Sheet Adjustment and Preparation) The adjusted trial balance of Side Kicks Company
and other related information for the year 2007 are presented on the next page.
SIDE KICKS COMPANY
ADJUSTED TRIAL BALANCE
DECEMBER 31, 2007
Debits Credits
Cash $ 41,000
Accounts Receivable 163,500
Allowance for Doubtful Accounts $ 8,700
Prepaid Insurance 5,900
Inventory 308,500
Long-term Investments 339,000
Land 85,000
Construction Work in Progress 124,000
Patents 36,000
Equipment 400,000
Accumulated Depreciation of Equipment 140,000
Unamortized Discount on Bonds Payable 20,000
Accounts Payable 148,000
Accrued Expenses 49,200
Notes Payable 94,000
Bonds Payable 400,000
Common Stock 500,000
Premium on Common Stock 45,000
Retained Earnings 138,000
$1,522,900 $1,522,900
Additional information:
1. The LIFO method of inventory value is used.
2. The cost and fair value of the long-term investments that consist of stocks and bonds is the same.
3. The amount of the Construction Work in Progress account represents the costs expended to date
on a building in the process of construction. (The company rents factory space at the present
time.) The land on which the building is being constructed cost $85,000, as shown in the trial
balance.
4. The patents were purchased by the company at a cost of $40,000 and are being amortized on a
straight-line basis.
5. Of the unamortized discount on bonds payable, $2,000 will be amortized in 2008.
6. The notes payable represent bank loans that are secured by long-term investments carried at
$120,000. These bank loans are due in 2008.
7. The bonds payable bear interest at 8% payable every December 31, and are due January 1, 2018.
8. 600,000 shares of common stock of a par value of $1 were authorized, of which 500,000 shares were
issued and outstanding.
Instructions
Prepare a balance sheet as of December 31, 2007, so that all important information is fully disclosed.

E24-2 (Post-Balance-Sheet Events) For each of the following subsequent (post-balance-sheet) events,
indicate whether a company should (a) adjust the financial statements, (b) disclose in notes to the financial
statements, or (c) neither adjust nor disclose

1. Settlement of federal tax case at a cost considerably in excess of the amount expected at
year-end.
______ 2. Introduction of a new product line.
______ 3. Loss of assembly plant due to fire.
______ 4. Sale of a significant portion of the company’s assets.
______ 5. Retirement of the company president.
______ 6. Prolonged employee strike.
______ 7. Loss of a significant customer.
______ 8. Issuance of a significant number of shares of common stock.
______ 9. Material loss on a year-end receivable because of a customer’s bankruptcy.
______ 10. Hiring of a new president.
______ 11. Settlement of prior year’s litigation against the company.
______ 12. Merger with another company of comparable size.

ACC421 WEEK 3 E4-6 E4-16 P4-3 E18-4 E18-5 P18-7

Price: $16.99


Resource: Intermediate Accounting
Write responses to Exercises E4-6 & E4-16; and Problem P4-3 in Ch. 4 and Exercises E18-4 & E18-5, and Problem P18-7 in Ch. 18 of Intermediate Accounting

E4-6 (Multiple-step and Single-step) The accountant of Whitney Houston Shoe Co. has compiled the
following information from the company’s records as a basis for an income statement for the year ended
December 31, 2007.
Rental revenue $ 29,000
Interest on notes payable 18,000
Market appreciation on land above cost 31,000
Wages and salaries—sales 114,800
Materials and supplies—sales 17,600
Income tax 37,400
Wages and salaries—administrative 135,900
Other administrative expenses 51,700
Cost of goods sold 496,000
Net sales 980,000
Depreciation on plant assets (70% selling, 30% administrative) 65,000
Cash dividends declared 16,000
There were 20,000 shares of common stock outstanding during the yea

E4-16 (Various Reporting Formats) The following information was taken from the records of Roland
Carlson Inc. for the year 2007. Income tax applicable to income from continuing operations $187,000;
income tax applicable to loss on discontinued operations $25,500; income tax applicable to extraordinary
gain $32,300; income tax applicable to extraordinary loss $20,400; and unrealized holding gain on
available-for-sale securities $15,000.
Extraordinary gain $ 95,000 Cash dividends declared $ 150,000
Loss on discontinued operations 75,000 Retained earnings January 1, 2007 600,000
Administrative expenses 240,000 Cost of goods sold 850,000
Rent revenue 40,000 Selling expenses 300,000
Extraordinary loss 60,000 Sales 1,900,000
Shares outstanding during 2007 were 100,000.
Instructions
(a) Prepare a single-step income statement for 2007.
(b) Prepare a retained earnings statement for 2007.
(c) Show how comprehensive income is reported using the second income statement format.

P4-3 (Irregular Items) Tony Rich Inc. reported income from continuing operations before taxes during
2007 of $790,000. Additional transactions occurring in 2007 but not considered in the $790,000 are as
follows.
1. The corporation experienced an uninsured flood loss (extraordinary) in the amount of $80,000 during
the year. The tax rate on this item is 46%.
2. At the beginning of 2005, the corporation purchased a machine for $54,000 (salvage value of $9,000)
that had a useful life of 6 years. The bookkeeper used straight-line depreciation for 2005, 2006, and
2007 but failed to deduct the salvage value in computing the depreciation base.
3. Sale of securities held as a part of its portfolio resulted in a loss of $57,000 (pretax).
4. When its president died, the corporation realized $110,000 from an insurance policy. The cash surrender
value of this policy had been carried on the books as an investment in the amount of $46,000
(the gain is nontaxable).
5. The corporation disposed of its recreational division at a loss of $115,000 before taxes. Assume that
this transaction meets the criteria for discontinued operations.
6. The corporation decided to change its method of inventory pricing from average cost to the FIFO
method. The effect of this change on prior years is to increase 2005 income by $60,000 and decrease
2006 income by $20,000 before taxes. The FIFO method has been used for 2007. The tax rate on
these items is 40%.
158 • Chapter 4 Income Statement and Related Information
(L0 4,
5, 6)
Instructions
Prepare an income statement for the year 2007 starting with income from continuing operations before taxes.
Compute earnings per share as it should be shown on the face of the income statement. Common shares outstanding
for the year are 80,000 shares. (Assume a tax rate of 30% on all items, unless indicated otherwise.)

E18-4 (Recognition of Profit on Long-Term Contracts) During 2007 Pierson Company started a construction
job with a contract price of $1,500,000. The job was completed in 2009. The following information
is available.
2007 2008 2009
Costs incurred to date $400,000 $935,000 $1,070,000
Estimated costs to complete 600,000 165,000 –0–
Billings to date 300,000 900,000 1,500,000
Collections to date 270,000 810,000 1,425,000
Instructions
(a) Compute the amount of gross profit to be recognized each year assuming the percentage-ofcompletion
method is used.
(b) Prepare all necessary journal entries for 2008.
(c) Compute the amount of gross profit to be recognized each year assuming the completed-contract
method is used.

E18-5 (Analysis of Percentage-of-Completion Financial Statements) In 2007, Beth Botsford Construction Corp. began construction work under a 3-year contract. The contract price was $1,000,000. Beth Botsford uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is based on the proportion of cost incurred to total estimated costs for completing
the contract. The financial statement presentations relating to this contract at December 31, 2007, follow.
Balance Sheet
Accounts receivable—construction contract billings $21,500
Construction in progress $65,000
Less: Contract billings 61,500
Cost of uncompleted contract in excess of billings 3,500
Income Statement
Income (before tax) on the contract recognized in 2007 $18,200
Instructions
(a) How much cash was collected in 2007 on this contract?
(b) What was the initial estimated total income before tax on this contract

P18-7 (Long-Term Contract with an Overall Loss) On July 1, 2007, Kyung-wook Construction Company
Inc. contracted to build an office building for Mingxia Corp. for a total contract price of $1,950,000.
On July 1, Kyung-wook estimated that it would take between 2 and 3 years to complete the building. On
December 31, 2009, the building was deemed substantially completed. Following are accumulated contract
costs incurred, estimated costs to complete the contract, and accumulated billings to Mingxia for
2007, 2008, and 2009.
At At At
12/31/07 12/31/08 12/31/09
Contract costs incurred to date $ 150,000 $1,200,000 $2,100,000
Estimated costs to complete the contract 1,350,000 800,000 –0–
Billings to Mingxia 300,000 1,100,000 1,850,000
Instructions
(a) Using the percentage-of-completion method, prepare schedules to compute the profit or loss to
be recognized as a result of this contract for the years ended December 31, 2007, 2008, and 2009.
(Ignore income taxes.)
(b) Using the completed-contract method, prepare schedules to compute the profit or loss to be
recognized as a result of this contract for the years ended December 2007, 2008, and 2009. (Ignore
income taxes.)

ACC421 WEEK 3 E4-6 E4-16 E18-4 E18-5

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E4-6 (Multiple-step and Single-step) The accountant of Whitney Houston Shoe Co. has compiled the
following information from the company’s records as a basis for an income statement for the year ended
December 31, 2007.
Rental revenue $ 29,000
Interest on notes payable 18,000
Market appreciation on land above cost 31,000
Wages and salaries—sales 114,800
Materials and supplies—sales 17,600
Income tax 37,400
Wages and salaries—administrative 135,900
Other administrative expenses 51,700
Cost of goods sold 496,000
Net sales 980,000
Depreciation on plant assets (70% selling, 30% administrative) 65,000
Cash dividends declared 16,000
There were 20,000 shares of common stock outstanding during the yea

E4-16 (Various Reporting Formats) The following information was taken from the records of Roland
Carlson Inc. for the year 2007. Income tax applicable to income from continuing operations $187,000;
income tax applicable to loss on discontinued operations $25,500; income tax applicable to extraordinary
gain $32,300; income tax applicable to extraordinary loss $20,400; and unrealized holding gain on
available-for-sale securities $15,000.
Extraordinary gain $ 95,000 Cash dividends declared $ 150,000
Loss on discontinued operations 75,000 Retained earnings January 1, 2007 600,000
Administrative expenses 240,000 Cost of goods sold 850,000
Rent revenue 40,000 Selling expenses 300,000
Extraordinary loss 60,000 Sales 1,900,000
Shares outstanding during 2007 were 100,000.
Instructions
(a) Prepare a single-step income statement for 2007.
(b) Prepare a retained earnings statement for 2007.
(c) Show how comprehensive income is reported using the second income statement format.

E18-4 (Recognition of Profit on Long-Term Contracts) During 2007 Pierson Company started a construction
job with a contract price of $1,500,000. The job was completed in 2009. The following information
is available.
2007 2008 2009
Costs incurred to date $400,000 $935,000 $1,070,000
Estimated costs to complete 600,000 165,000 –0–
Billings to date 300,000 900,000 1,500,000
Collections to date 270,000 810,000 1,425,000
Instructions
(a) Compute the amount of gross profit to be recognized each year assuming the percentage-ofcompletion
method is used.
(b) Prepare all necessary journal entries for 2008.
(c) Compute the amount of gross profit to be recognized each year assuming the completed-contract
method is used.

E18-5 (Analysis of Percentage-of-Completion Financial Statements) In 2007, Beth Botsford Construction Corp. began construction work under a 3-year contract. The contract price was $1,000,000. Beth Botsford uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is based on the proportion of cost incurred to total estimated costs for completing
the contract. The financial statement presentations relating to this contract at December 31, 2007, follow.
Balance Sheet
Accounts receivable—construction contract billings $21,500
Construction in progress $65,000
Less: Contract billings 61,500
Cost of uncompleted contract in excess of billings 3,500
Income Statement
Income (before tax) on the contract recognized in 2007 $18,200
Instructions
(a) How much cash was collected in 2007 on this contract?
(b) What was the initial estimated total income before tax on this contract

ASHFORD ACC306 WEEK 2 E14-18, E14-16, P14-21, E15-25, and P15-3

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The attached tutorials are in EXCEL FORMAT; however, if you have a template from your instructor in different formate, feel free to email me and I will help you fill it out.

Intermediate ACC 306: Week 2 Exercises Complete these problems and turn them in via the dropbox: E14-18, E14-16, P14-21, E15-25, and P15-3

E 14-16 Error in amortization schedule
Wilkins Food Products, Inc., acquired a packaging machine from Lawrence Specialists
Corporation. Lawrence completed construction of the machine on January 1, 2009. In payment
for the machine Wilkins issued a three-year installment note to be paid in three equal payments at
the end of each year. The payments include interest at the rate of 10%.
Lawrence made a conceptual error in preparing the amortization schedule, which Wilkins failed
to discover until 2011. The error had caused Wilkins to understate interest expense by $45,000 in
2009 and $40,000 in 2010.

Required:
1. Determine which accounts are incorrect as a result of these errors at January 1, 2011, before
any adjustments. Explain your answer. (Ignore income taxes.)
2. Prepare a journal entry to correct the error.
3. What other step(s) would be taken in connection with the error

E 14-18 Installment note; amortization schedule

American Food Services, Inc., acquired a packaging machine from Barton and Barton Corporation. Barton and Barton completed construction of the machine on January 1, 2011. In payment for the $4 million machine, American Food Services issued a four-year installment note to be paid in four equal payments at the end of each year. The payments include interest at the rate of 10%.

Required:
1. Prepare the journal entry for American Food Services' purchase of the machine on January 1, 2011.
2. Prepare an amortization schedule for the four-year term of the installment note.
3. Prepare the journal entry for the first installment payment on December 31, 2011.
4. Prepare the journal entry for the third installment payment on December 31, 2013.

E 15-25 Concepts; terminology

Listed below are several terms and phrases associated with leases. Pair each item from List A with the item from List B (by letter) that is most appropriately associated with it.

List A
___ 1. Effective rate times balance.
___ 2. Realization principle.
___ 3. Minimum lease payments plus unguaranteed residual value.
___ 4. Periodic lease payments plus lessee-guaranteed residual value.
___ 5. PV of minimum lease payments plus PV of unguaranteed residual value.
___ 6. Initial direct costs.
___ 7. Rent revenue.
___ 8. Bargain purchase option.
___ 9. Leasehold improvements.
___10. Cash to satisfy residual value guarantee.
___11. Capital lease expense.
___12. Deducted in lessor’s computation of lease payments.
___13. Title transfers to lessee.
___14. Contingent rentals.
___15. Lease payments plus lessee-guaranteed and third-part-guaranteed residual value.


List B
a. PV of BPO price.
b. Lessor’s net investment.
c. Lessor’s gross investment.
d. Operating lease.
e. Depreciable assets.
f. Loss to lessee.
g. Executory costs.
h. Depreciation longer than lessee term.
i. Disclosure only.
j. Interest expense.
k. Additional lessor conditions.
l. Lessee’s minimum lease payments.
m. Purchase price less than fair value.
n. Sales-type lease selling expense.
o. Lessor’s minimum lease payments.

P15-3 Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of surgery to eliminate kidney stones. Physicians’ Leasing purchased a lithotripter from Rand for $2,000,000 and leased it to Mid-South Urologist Group, Inc., on January 1, 2011.

Lease Description

Quarterly lease payments $130,516-beginning of each period

Lease term 5 years (20 quarters)

No residual value; no BPO

Economic life of lithotripter 5 years

Implicit interest rate and lessee's incremental borrowing rate 12%

Fair value of asset $2,000,000

Collectability of the lease payments is reasonably assured, and there are no lessor costs yet to be incurred.

Required:

1. How should this lease be classified by Mid-South Urologists Group and by Physicians’ Leasing?

2. Prepare appropriate entries for both Mid-South Urologists Group and Physicians’ Leasing from the inception of the lease through the second rental payment on April 1, 2011. Depreciation is recorded at the end of each fiscal year (December 31).

3. Assume Mid-South Urologists Group leased the lithotripter directly from the manufacturer, Rand Medical, which produced the machine at a cost of $1.7 million. Prepare appropriate entries for Rand Medical from the inception of the lease through the second lease payment on April 1, 2011.

ASHFORD ACC306 WEEK 1 P12-1, P12-7, P12-10, P12-14, E13-21, E13-22, P13-6

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The attached tutorials are in EXCEL FORMAT; however, if you have a template from your instructor in a different format, feel free to email me and I will help you fill it out.

P 12-1 Securities held-to-maturity; bond investment; effective interest

Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2011. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 10%. The price paid for the bonds was $66 million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31, 2011, was $70 million.

Required:
1. Prepare the journal entry to record Fuzzy Monkey's investment on January 1, 2011.
2. Prepare the journal entry by Fuzzy Monkey to record interest on June 30, 2011 (at the effective rate).
3. Prepare the journal entries by Fuzzy Monkey to record interest on December 31, 2011 (at the effective rate).
4. At what amount will Fuzzy Monkey report its investment in the December 31, 2011, balance sheet? Why?
5. How would Fuzzy Monkey's 2011 statement of cash flows be affected by this investment?

P12-7 Amalgamated General Corporation is a consulting firm that also offers financial services through its credit division. From time to time the company buys and sells securities intending to earn profits on short-term differences in price. The following selected transactions relate to Amalgamated’s investment activities during the last quarter of 2011 and the first month of 2012. The only securities held by Amalgamated at October 1 were $30 million of 10% bonds of Kansas Abstractors, Inc., purchased on May 1 at face value. The company’s fiscal year ends on December 31.

2011
October 18 Purchased 2 million preferred shares of Millwork Ventures Company for $58 million as a speculative investment to be sold under suitable circumstances.
31 Received semiannual interest of $1.5 million from the Kansas Abstractors bonds.
Nov. 1 Purchased 10% bonds of Holistic Entertainment Enterprises at their $18 million face value, to be held until they mature in 2018. Semiannual interest is payable April 30 and October 31.
1 Sold the Kansas Abstractors bond for $28 million because rising interest rates are expected to cause their fair value to continue to fall.
Dec. 1 Purchased 12% bonds of Household Plastics Corporation at their $60 million face value, to be held until they mature in 2028. Semiannual interest is payable May 31 and November 30.
20 Purchased U.S. Treasury bonds for $5.6 million as trading securities, hoping to earn profits on short-term differences in prices.
21 Purchased 4 million common shares of NXS Corporation for $44 million as trading securities, hoping to earn profits on short-term differences in prices.
22 Sold the Treasury bonds for $5.7 million.
29 Received cash dividends of $3 million from the Millwork Ventures Company preferred shares.
30 Recorded any necessary adjusting entry(s) and closing entries relating to the investments. The market price of the Millwork Ventures Company preferred stock was $27.50 per share and $11.50 per share for the NXS Corporation common. The fair values of the bond investments were $58.7 million for Household Plastics Corporation and $16.7 million for Holistic Entertainment Enterprises.
2012
Jan. 7 Sold the NXS Corporation common shares for $43 million.

Required:
Prepare the appropriate journal entry for each transaction or event.


P 12-10 Fair value option; equity method investments

[This problem is a variation of Problem 12-9 focusing on the fair value option.]

On January 4, 2011, Runyan Bakery paid $324 million for 10 million shares of Lavery Labeling Company common stock. The investment represents a 30% interest in the net assets of Lavery and gave Runyan the ability to exercise significant influence over Lavery's operations. Runyan chose the fair value option to account for this investment. Runyan received dividends of $2.00 per share on December 15, 2011, and Lavery reported net income of $160 million for the year ended December 31, 2011. The market value of Lavery's common stock at December 31, 2011, was $31 per share. On the purchase date, the book value of Lavery's net assets was $800 million and:

a. The fair value of Lavery's depreciable assets, with an average remaining useful life of six years, exceeded their book value by $80 million.

b. The remainder of the excess of the cost of the investment over the book value of net assets purchased was attributable to goodwill.

Required:
1. Prepare all appropriate journal entries related to the investment during 2011, assuming Runyan accounts for this investment under the fair value option and accounts for the Lavery investment in a manner similar to what they would use for trading securities.
2. What would be the effect of this investment on Runyan's 2011 net income?

P 12-14 Classifying investments

Indicate (by letter) the way each of the investments listed below most likely should be accounted for based on the information provided.

Reporting category
T. Trading securities
M. Securities held-to-maturity
A. Securities available-for-sale
E. Equity method
C. Consolidation
N. None of these

Item
___ 1. 35% of the nonvoting preferred stock of American Aircraft Company.
___ 2. Treasury bills to be held to maturity.
___ 3. Two-year note receivable from affiliate.
___ 4. Accounts receivable.
___ 5. Treasury bond maturing in one week.
___ 6. Common stock held in trading account for immediate resale.
___ 7. Bonds aquired to profit from short-term differences in price.
___ 8. 35% of the voting common stock of Computer Storage Devices Company.
___ 9. 90% of the voting common stock of Affiliated Peripherals, Inc.
___ 10. Corporate bonds of Primary Smelting Company to be sold if interest rates fall 1/2%.
___ 11. 25% of the voting common stock of Smith Foundries Corporation: 51% family-owned by Smith family; fair value determinable.
___ 12. 17% of the voting common stock of Shipping Barrels Corporation; Investor's CEO on the board of directors of Shipping Barrels Corporation.

E 13-21 Classification of liabilities

Indicate (by letter) the way each of the items listed below should be reported in a balance sheet at December 31, 2011.

1. Commercial paper.
2. Noncommitted line of credit.
3. Customer advances.
4. Estimated warranty cost.
5. Accounts payable.
6. Long-term bonds that will be callable by the creditor in ther upcoming year unless an existing violation is not corrected (there is a reasonable possibility the violation will be corrected within the grace period).
7. Note due March 3, 2012.
8. Interest accrued on note, Dec. 31, 2011.
9. Short-term bank loan to be paid with proceeds of sale of common stock.
10. A determinable gain that is contingent on a future event that appears extremely likely to occur in three months.
11. Unasserted assessment of back taxes that probably will be asserted, in which case there would probably be a loss in six months.
12. Unasserted assessment of back taxes with a reasonable possibility of being asserted, in which case there would probably be a loss in 13 months.
13. A determinable loss from a past event that is contingent on a future event that appears extremely likely to occur in three months.
14. Bond sinking fund.
15. Long-term bonds callable by the creditor in the upcoming year that are not expected to be called.

E 13-22 Woodmier Lawn Products introduced a new line of commercial sprinklers in 2010 that carry a one-year warranty against manufacturer’s defects. Because this was the first product for which the company offered a warranty, trade publications were consulted to determine the experience of others in the industry. Based on that experience, warranty costs were expected to approximate 2% of sales. Sales of the sprinklers in 2010 were $2.5 million. Accordingly, the following entries relating to the contingency for warranty costs were recorded during the first year of selling the product:
In late 2011, the company’s claims experience was evaluated and it was determined that claims were far more than expected—3% of sales rather than 2%.

Accrued liability and expense
Warranty expense (2% × $2,500,000) .......................................................... Estimated warranty liability .....................................................................
Actual expenditures (summary entry)
Estimated warranty liability ........................................................................ Cash, wages payable, parts and supplies, etc. .......................................
50,000
23,000
50,000
23,000

Required:
1. Assuming sales of the sprinklers in 2011 were $3.6 million and warranty expenditures in 2011 totaled $88,000, prepare any journal entries related to the warranty.
2. Assuming sales of the sprinklers were discontinued after 2010, prepare any journal entry(s) in 2011 related to the warranty.

P 13-6 Various contingencies
● LO5 LO6
Eastern Manufacturing is involved with several situations that possibly involve contingencies. Each
is described below. Eastern’s fiscal year ends December 31, and the 2011 financial statements are
issued on March 15, 2012.
a.
Eastern is involved in a lawsuit resulting from a dispute with a supplier. On February 3, 2012,
judgment was rendered against Eastern in the amount of $107 million plus interest, a total of
$122 million. Eastern plans to appeal the judgment and is unable to predict its outcome though
it is not expected to have a material adverse effect on the company.
b.
In November 2010, the State of Nevada filed suit against Eastern, seeking civil penalties and
injunctive relief for violations of environmental laws regulating hazardous waste. On January
12, 2012, Eastern reached a settlement with state authorities. Based upon discussions with
legal counsel, the Company feels it is probable that $140 million will be required to cover the
cost of violations. Eastern believes that the ultimate settlement of this claim will not have a
material adverse effect on the company.

c.
Eastern is the plaintiff in a $200 million lawsuit filed against United Steel for damages due to
lost profits from rejected contracts and for unpaid receivables. The case is in final appeal and
legal counsel advises that it is probable that Eastern will prevail and be awarded $100 million.
d.
At March 15, 2012, the Environmental Protection Agency is in the process of investigating
possible soil contamination at various locations of several companies including Eastern. The
EPA has not yet proposed a penalty assessment. Management feels an assessment is
reasonably possible, and if an assessment is made an unfavorable settlement of up to $33
million is reasonably possible.
Required:
1. Determine the appropriate means of reporting each situation. Explain your reasoning.
2. Prepare any necessary journal entries and disclosure notes.