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ACC325 Week 4

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E9-2 P9-5A E10-6 E10-9 P10-3A E11-2 E11-10

E9-2 Presented below are two independent situations.

(a) On January 6, Arneson Co. sells merchandise on account to Cortez Inc. for $9,000, terms
2/10, n/30. On January 16, Cortez Inc. pays the amount due. Prepare the entries on
Arneson’s books to record the sale and related collection.

(b) On January 10, Mary Dawes uses her Pierson Co. credit card to purchase merchandise from
Pierson Co. for $9,000. On February 10, Dawes is billed for the amount due of $9,000. On
February 12, Dawes pays $5,000 on the balance due. On March 10, Dawes is billed for the
amount due, including interest at 2% per month on the unpaid balance as of February 12.

Prepare the entries on Pierson Co.’s books related to the transactions that occurred on
January 10, February 12, and March 10.

P9-5A At December 31, 2010, the trial balance of Worcester Company contained the following
amounts before adjustment.

Debits Credits
Accounts Receivable $385,000
Allowance for Doubtful Accounts $ 2,000
Sales 950,000

Instructions

(a) Based on the information given, which method of accounting for bad debts is Worcester
Company using—the direct write-off method or the allowance method? How can you tell?

(b) Prepare the adjusting entry at December 31, 2010, for bad debts expense under each of the
following independent assumptions.

(1) An aging schedule indicates that $11,750 of accounts receivable will be uncollectible.

(2) The company estimates that 1% of sales will be uncollectible.

(c) Repeat part (b) assuming that instead of a credit balance there is an $2,000 debit balance in
Allowance for Doubtful Accounts.

(d) During the next month, January 2011, a $3,000 account receivable is written off as uncollectible.
Prepare the journal entry to record the write-off.

(e) Repeat part (d) assuming that Worcester uses the direct write-off method instead of the allowance
method in accounting for uncollectible accounts receivable.

(f) What type of account is Allowance for Doubtful Accounts? How does it affect
how accounts receivable is reported on the balance sheet at the end of the accounting period?

E10-6 Kelm Company purchased a new machine on October 1, 2010, at a cost of $120,000.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.

Instructions
Compute the depreciation expense under the following methods for the year indicated.

(a) Straight-line for 2010.

(b) Units-of-activity for 2010, assuming machine usage was 1,700 hours.

(c) Declining-balance using double the straight-line rate for 2010 and 2011.

E10-9 Presented below are selected transactions at Ingles Company for 2010.


Jan. 1 Retired a piece of machinery that was purchased on January 1, 2000.The machine cost
$62,000 on that date. It had a useful life of 10 years with no salvage value.

June 30 Sold a computer that was purchased on January 1, 2007.The computer cost $40,000. It
had a useful life of 5 years with no salvage value.The computer was sold for $14,000.

Dec. 31 Discarded a delivery truck that was purchased on January 1, 2006. The truck cost
$39,000. It was depreciated based on a 6-year useful life with a $3,000 salvage value.

Instructions

Journalize all entries required on the above dates, including entries to update depreciation,
where applicable, on assets disposed of. Ingles Company uses straight-line depreciation. (Assume
depreciation is up to date as of December 31, 2009.)

P10-3A On January 1, 2010, Pele Company purchased the following two machines for use in
its production process.

Machine A: The cash price of this machine was $38,000. Related expenditures included:
sales tax $1,700, shipping costs $150, insurance during shipping $80, installation
and testing costs $70, and $100 of oil and lubricants to be used with the
machinery during its first year of operations. Pele estimates that the useful
life of the machine is 5 years with a $5,000 salvage value remaining at the end

of that time period. Assume that the straight-line method of depreciation
is used.

Machine B: The recorded cost of this machine was $160,000. Pele estimates that the useful
life of the machine is 4 years with a $10,000 salvage value remaining at the end
of that time period.

Instructions

(a) Prepare the following for Machine A.

(1) The journal entry to record its purchase on January 1, 2010.

(2) The journal entry to record annual depreciation at December 31, 2010.

(b) Calculate the amount of depreciation expense that Pele should record for machine B each
year of its useful life under the following assumptions.

(1) Pele uses the straight-line method of depreciation.

(2) Pele uses the declining-balance method.The rate used is twice the straight-line rate.

(3) Pele uses the units-of-activity method and estimates that the useful life of the machine is
125,000 units. Actual usage is as follows: 2010, 45,000 units; 2011, 35,000 units; 2012,
25,000 units; 2013, 20,000 units.

(c) Which method used to calculate depreciation on machine B reports the highest amount of
depreciation expense in year 1 (2010)? The highest amount in year 4 (2013)? The highest
total amount over the 4-year period?

E11-2 On June 1, Melendez Company borrows $90,000 from First Bank on a 6-month,
$90,000, 12% 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 entries have been
made through November 30.

(d) What was the total financing cost (interest expense)?

E11-10 Joyce Kieffer’s regular hourly wage rate is $15, and she receives a wage of 112 times
the regular hourly rate for work in excess of 40 hours. During a March weekly pay period Joyce
worked 42 hours. Her gross earnings prior to the current week were $6,000. Joyce is married and
claims three withholding allowances. Her only voluntary deduction is for group hospitalization
insurance at $25 per week.

Instructions

(a) Compute the following amounts for Joyce’s wages for the current week.

(1) Gross earnings.

(2) FICA taxes. (Assume an 8% rate on maximum of $90,000.)

(3) Federal income taxes withheld. (Use the withholding table in the text, page 497.)

(4) State income taxes withheld. (Assume a 2.0% rate.)

(5) Net pay.

(b) Record Joyce’s pay, assuming she is an office computer operator.




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