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ACC557 Week 6 Chapter 9 and Chapter 10

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ACC557 Week 6
Chapter 9 E9-9 E9-11 E9-12 P9-3A
Chapter 10 E10-9 E10-12 E10-15 P10-1A
Financing Accounting 8e

E9-9 Presented below are selected transactions at Tomas Company for 2014.

Jan. 1 Retired a piece of machinery that was purchased on January 1, 2004. The machine
cost $58,000 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, 2011. 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, 2010. The truck
cost $33,000. 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. Tomas Company uses straight-line depreciation.
(Assume depreciation is up to date as of December 31, 2013.)

E9-11 On July 1, 2014, Sutton Inc. invested $720,000 in a mine estimated to have 800,000 tons of ore of uniform grade. During the last 6 months of 2014, 120,000 tons of ore were mined and sold.

a) Calculate depletion cost per unit.

b) Prepare the journal entry to record depletion expense.

c) Assume that the 120,000 tons of ore were mined, but only 90,000 units were sold. How are the costs applicable to the 30,000 unsold units reported?

E9-12 The following are selected 2014 transactions of Yosuke Corporation.
Jan. 1 Purchased a small company and recorded goodwill of $150,000. Its useful life is
indefinite.

May 1 Purchased for $84,000 a patent with an estimated useful life of 5 years and a
legal life of 20 years.

Instructions
Prepare necessary adjusting entries at December 31 to record amortization required by
the events above.

P9-3A On January 1, 2014, Thao Company purchased the following two machines for use in its production process.

Machine A:
The cash price of this machine was $35,000. 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. Thao 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 $80,000. Thao estimates that the useful life of the machine is 4 years with a $5,000 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, 2014.
(2) The journal entry to record annual depreciation at December 31, 2014.

(b) Calculate the amount of depreciation expense that Thao should record for Machine B
each year of its useful life under the following assumptions.
(1) Thao uses the straight-line method of depreciation.
(2) Thao uses the declining-balance method. The rate used is twice the straight-line rate.
(3) Thao uses the units-of-activity method and estimates that the useful life of the machine
is 125,000 units. Actual usage is as follows: 2014, 42,000 units; 2015, 35,000
units; 2016, 28,000 units; 2017, 20,000 units.

(c) Which method used to calculate depreciation on Machine B reports the highest amount
of depreciation expense in year 1 (2014)? The highest amount in year 4 (2017)? The

highest total amount over the 4-year period?

E10-9 Global Airlines is considering two alternatives for the financing of a purchase of a
fleet of airplanes. These two alternatives are:

1. Issue 60,000 shares of common stock at $40 per share. (Cash dividends have not been
paid nor is the payment of any contemplated.)

2. Issue 10%, 10-year bonds at face value for $2,400,000.

It is estimated that the company will earn $800,000 before interest and taxes as a result
of this purchase. The company has an estimated tax rate of 30% and has 90,000 shares of
common stock outstanding prior to the new financing.

Instructions
Determine the effect on net income and earnings per share for these two methods of
financing.

E10-12 Pueblo Company issued $300,000 of 5-year, 8% bonds at 98 on January 1, 2014. The bonds pay interest twice a year.

(a) (1) Prepare the journal entry to record the issuance of the bonds.

(2) Compute the total cost of borrowing for these bonds.

(b) (1) Prepare the journal entry to record the issuance of the bonds, assuming the bonds were issued at 104.

(2) Compute the total cost of borrowing for these bonds, assuming the bonds were issued at 104.

E10-15 Tucki Co. receives $240,000 when it issues a $240,000, 8%, mortgage note payable to finance the construction of a building at December 31, 2014. The terms provide for semiannual installment payments of $17,660 on June 30 and December 31.

Prepare the journal entries to record the mortgage loan and the first two installment payments.

P10-1A On January 1, 2014, the ledger of Shumway Company contains the following
liability accounts.

Accounts Payable $52,000
Sales Taxes Payable 5,800
Unearned Service Revenue 14,000

During January, the following selected transactions occurred.
Jan. 5 Sold merchandise for cash totaling $22,470, which includes 7% sales taxes.
12 Provided services for customers who had made advance payments of $10,000.
(Credit Service Revenue.)
14 Paid state revenue department for sales taxes collected in December 2013
($5,800).
20 Sold 600 units of a new product on credit at $50 per unit, plus 7% sales tax.
21 Borrowed $14,000 from DeKalb Bank on a 3-month, 8%, $14,000 note.
25 Sold merchandise for cash totaling $12,947, which includes 7% sales taxes.

Instructions
(a) Journalize the January transactions.
(b) Journalize the adjusting entries at January 31 for the outstanding notes payable. (Hint:
Use one-third of a month for the DeKalb Bank note.)
(c) Prepare the current liabilities section of the balance sheet at January 31, 2014. Assume
no change in accounts payable

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