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Exercise 5-1 (30 minutes)
a. Specific identification
Ending inventory100 units from January 30, 80 units from January20, and 45 units from beginning inventory
Ending Cost ofComputations Inventory Goods
Sold
(100 x $5.00) + (80 x $6.00) + (45 x $7.00)...... . $1,295
$2,800 - $1,295..................................................$1,505
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b. Weighted average perpetual
Date Goods Purchased Cost of Goods Sold Inventory Balance
1/ 1 140 @ $7.000 = $ 980
1/10 90 @ $ 7.00 = $ 630 50 @ $7.000 = $ 350
1/20 220 @ $6.00 50 @ $7.000= $1,670
220 @ $6.000(avg. cost is $6.185)
1/25 145 @ $6.185 = $ 897* 125 @ $6.185 = $ 773*
1/30 100 @ $5.00 _____ 125 @ $6.185= $1,273
$1,527 100 @ $5.000(avg. cost is $5.658)
*rounded
c. FIFO Perpetual
Date Goods Purchased Cost of Goods Sold Inventory Balance
1/ 1 140 @ $7.00 = $ 980
1/10 90 @ $7.00 = $ 630 50 @ $7.00 = $ 350
1/20 220 @ $6.00 50 @ $7.00= $1,670220 @ $6.00
1/25 50 @ $7.0095 @ $6.00 = $ 920 125 @ $6.00 = $ 750
1/30 100 @ $5.00 _____ 125 @ $6.00= $1,250$1,550 100 @ $5.00
Exercise 5-1 (Continued)
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d. LIFO Perpetual
Date Goods Purchased Cost of Goods Sold Inventory Balance
1/ 1 140 @ $7.00 = $ 980
1/10 90 @ $7.00 = $ 630 50 @ $7.00 = $ 350
1/20 220 @ $6.00 50 @ $7.00= $1,670220 @ $6.00
1/25 145 @ $6.00 = $ 870 50 @ $7.00= $ 80075 @ $6.00
1/30 100 @ $5.00 _____ 50 @ $7.00$1,500 75 @ $6.00 = $1,300
100 @ $5.00
Alternate Solution Format for FIFO and LIFO Perpetual
Ending Cost of Computations Inventory GoodsSold
c. FIFO(125 x $6.00) + (100 x $5.00)............................................. $1,250
(90 x $7.00) + (50 x $7.00) + (95 x $6.00)......................... $1,550d. LIFO
(50 x $7.00) + (75 x $6.00) + (100 x $5.00)....................... $1,300
(90 x $7.00) + (145 x $6.00)............................................... $1.500
Exercise 5-2(20 minutes)
LIBERTY COMPANYIncome Statements
For Month Ended January 31Specific
IdentificationWeightedAverage FIFO LIFO
Sales............................... $3,525 $3,525 $3,525 $3,525(235 units x $15 price)
Cost of goods sold........ 1,505 1,527 1,550 1,500Gross profit.................... 2,020 1,998 1,975 2,025Expenses....................... 1,250 1,250 1,250 1,250Income before taxes..... 770 748 725 775Income tax expense (30%). 231 224* 218* 233*Net income..................... $ 539 $ 524 $ 507 $ 542
* Rounded to nearest dollar.
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Exercise 5-2 (Concluded)
1. LIFO method results in the highest net income of $542.
2. Weighted average net income of $524 falls between the FIFO net
income of $507 and the LIFO net income of $542.
3. If costs were rising instead of falling, then the FIFO method wouldyield the highest net income.
Exercise 5-3 (30 minutes)
a. FIFO Perpetual
Date Goods Purchased Cost of Goods Sold Inventory Balance
1/ 1 126 @ $ 8 = $1,008
1/10 113 @ $ 8 = $ 904 13 @ $ 8 = $ 104
3/14 315 @ $13 = $4,095 13 @ $ 8= $4,199315 @ $13
3/15 13 @ $ 8 148 @ $13 = $1,924
167 @ $13 = $ 2,275
7/30 250 @ $18 = $4,500 148 @ $13= $6,424250 @ $18
10/ 5 148 @ $13230 @ $18 = $ 6,064 20 @ $18 = $ 360
10/26 50 @ $23 = $1,150 20 @ $18______ 50 @ $23 = $1,510$9,243
Exercise 5-3 (Concluded)
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a. LIFO Perpetual
Date Goods Purchased Cost of Goods Sold Inventory Balance
1/ 1 126 @ $ 8 = $1,008
1/10 113 @ $ 8 = $ 904 13 @ $ 8 = $ 104
3/14 315 @ $13 = $4,095 13 @ $ 8= $4,199315 @ $13
3/15 13 @ $ 8= $1,859180 @ $13 = $2,340 135 @ $13
7/30 250 @ $18 = $4,500 13 @ $ 8135 @ $13 = $6,359250 @ $18
10/ 5 250 @ $18 = $4,500 13 @ $ 8128 @ $13 = 1,664 7 @ $13 = $ 195
$6,164
10/26 50 @ $23 = $1,150 13 @ $ 87 @ $13 = $1,345
_____ 50 @ $23$9,408
Alternate Solution Format
Ending Cost ofInventory Goods Sold
a. FIFO(20 x $18) + (50 x $23)............................................................ $1,510(113 x $8) + (13 x $8) + (167 x $13) + (148 x $13) +(230 x $18)......................................................................... $9,243
b. LIFO(13 x $8) + (7 x $13) + (50 x $23)........................................... $1,345(113 x $8) + (180 x $13) + (250 x $18) + (128 x $13)... .... $9,408
FIFO Gross Margin
Sales revenue (671 units sold x $40 selling price)................. $26,840Less: FIFO cost of goods sold................................................ 9,243
Gross profit................................................................................ $17,597
LIFO Gross MarginSales revenue (671 units sold x $40 selling price)................. $26,840Less: LIFO cost of goods sold................................................ 9,408Gross profit................................................................................ $17,432
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Exercise 5-4 (15 minutes)
a. Specific identification methodCost of goods sold
Cost of goods available for sale..................................... $10,753
Ending inventory under specific identification
3/14 purchase ( 5 @ $13) ....................................... $ 65
7/30 purchase ( 15 @ $18)....................................... 270
10/26 purchase ( 50 @ $23)....................................... 1,150
Total ending inventory under specific identification. . 1,485
Cost of goods sold under specific identification........ $ 9,268
b. Specific identification methodGross margin
Sales revenue (671 units sold x $40 selling price)........ $26,840
Less: Specific identification cost of goods sold.......... 9,268
Gross profit....................................................................... $17,572
Exercise 5-5 (15 minutes)
Per Unit Total Total LCM applied toInventory Items Unit Cost Market Cost Market Products Whole
Helmets....... 19 $45 $49 $ 855 $ 931 $ 855
Bats.............. 12 73 67 876 804 804
Shoes........... 33 90 86 2,970 2,838 2,838
Uniforms...... 37 31 31 1,147 1,147 1,147 .
$5,848 $5,720 $5,644 $5,720
a. Lower of cost or market of inventory as a whole = $5,720
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b. Lower of cost or market of inventory by product = $5,644
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Exercise 5-6 (25 minutes)
1. Correct gross profit = $1,100,000 - $700,000 = $400,000 (for eachyear)
2. Reported income figures
Year 2008 Year 2009 Year 2010
Sales................................ $1,100,000 $1,100,000 $1,100,000
Cost of goods sold
Beginning inventory....... $280,000 $262,000 $280,000
Cost of purchases.......... 700,000 700,000 700,000
Good available for sale... 980,000 962,000 980,000
Ending inventory............ 262,000 280,000 280,000
Cost of goods sold......... 718,000 682,000 700,000
Gross profit...................... $382,000
$418,000
$ 400,000
Exercise 6-4 (20 minutes)
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1.Jan. 1 Petty Cash 350
Cash.............................................................. 350To establish a petty cash fund.
2.Jan. 8 Postage Expense............................................... 67
Merchandise Inventory*.................................... 35Delivery Expense............................................... 52Miscellaneous Expenses.................................. 56
Cash.............................................................. 210To reimburse the petty cash fund.
* Transportation-in costs are included inMerchandise Inventory under a perpetual system.
3.Jan. 8 Postage Expense 67
Merchandise Inventory..................................... 35Delivery Expense............................................... 52Miscellaneous Expenses.................................. 56
Cash.............................................................. 210To reimburse the petty cash fund.*
Jan. 8 Petty Cash.......................................................... 200Cash.............................................................. 200
To increase the petty cash fund.** The two January 8 entries can be combined into one entry.
Exercise 6-5 (20 minutes)
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1.Sept. 9 Petty Cash 250
Cash.............................................................. 250To establish a $250 petty cash fund.
2.Sept. 30 Merchandise Inventory*.................................... 47
Postage Expenses............................................. 62Miscellaneous Expenses.................................. 103Cash Short and Over......................................... 4
Cash.............................................................. 216To reimburse the petty cash fund.
* Transportation-in costs are included inMerchandise Inventory under a perpetual system.
3.Oct. 1 Petty Cash.......................................................... 50
Cash.............................................................. 50To increase the petty cash fund to $300.
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Exercise 6-6 (20 minutes)
Bank Balance Book Balance Not Shown onAdd Deduc
tAdd Deduc
tAdjust Reconciliation
1. NSF check from customer returned on Sept.25 but not recorded by this company.
x Cr.
2. Interest earned on the account. x Dr.
3. Deposit made on September 5 andprocessed by bank on September 6.
x
4. Check written by another depositor butcharged against this company's account.
x
5. Bank service charge. x Cr.
6. Checks outstanding on August 31 thatcleared the bank in September.
x
7. Check written against the company accountand cleared by the bank; erroneously notrecorded by the company recordkeeper.
x Cr.
8. Principal and interest on a note receivable tothis company is collected by the bank butnot yet recorded by the company.
x Dr.
9. Checks written and mailed to payees onOctober 2.
x
10.
Checks written by the company and mailedto payees on September 30.
x
11
.
Deposit made on September 30 after the
bank closed. x
12.
Special bank charge for collection of note inNo. 8 on company's behalf.
x Cr.
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Exercise 6-8 (25 minutes)
AUSTIN CLINICBank Reconciliation
June 30, 2009
Bank statement balance..... $15,382 Book balance............................................................
$15,671
Add AddDeposit of June 30........... 2,933 Error on Ck. No. 919......... 9
18,315 15,680Deduct Deduct
Outstanding checks...... .. 2,700 Bank service charge........ 65Adjusted bank balance.. ... . $15,615 Adjusted book balance.. .. .. $15,615
Exercise 6-10 (25 minutes)
WALSH COMPANYBank Reconciliation
May 31, 2009
Bank statement balance..... $6,900 Book balance............................................................
$7,750
Add
Deposit of May 31............ 1,100Bank error...................... 200
8,200Deduct Deduct
Outstanding checks........ 800 Bank service charge........ 50 _____ NSF check...................... 300
Adjusted bank balance... .. . $7,400 Adjusted book balance...... $7,400
Problem 6-2A (30 minutes)
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Part 1
Feb. 2 Petty Cash....................................................... 300Cash........................................................... 300
To establish the $300 petty cash fund.
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Part 2
Beard GalleryPetty Cash Payments Report (for February)
Delivery expense
Feb. 23 Delivery of customer's merchandise.......... $ 23.00
Mileage expenseFeb. 14 Reimbursement for mileage........................ 66.00
Postage expenseFeb. 12 Express delivery of contract....................... $ 7.85Feb. 27 Postage expense.......................................... 55.00 62.85
Merchandise inventory (transportation-in)*Feb. 9 COD charges on purchases........................ 32.50Feb. 25 COD charges on purchases........................ 10.30 42.80
Office supplies expenseFeb. 5 Purchased paper for copier......................... 14.55Feb. 20 Purchased stationery................................... 67.67 82.22
Total $276.87
* Transportation-in costs are included in Merchandise Inventory under a perpetualsystem.
Part 3
Feb. 28 Delivery Expense............................................ 23.00Mileage Expense............................................. 66.00Postage Expense............................................ 62.85Merchandise Inventory................................... 42.80Office Supplies Expense................................ 82.22Cash Over and Short...................................... 2.31
Cash........................................................... 279.18To reimburse the petty cash fund.
Feb. 28 Petty Cash....................................................... 100.00Cash........................................................... 100.00
To increase the petty cash fund to $400.
Note: The two Feb. 28 entries can be combined intoone.
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Problem 6-3A (20 minutes)
Part 1
May 1 Petty Cash............................................................... 350.00Cash................................................................... 350.00
To establish the $350 petty cash fund.
May 15 Janitorial Expenses................................................ 109.20Miscellaneous Expenses....................................... 89.15Postage Expenses.................................................. 60.90Advertising Expense.............................................. 80.01
Cash Over and Short........................................ 6.10Cash................................................................... 333.16
To reimburse the petty cash fund.
May 16 Petty Cash............................................................... 200.00Cash................................................................... 200.00To increase the petty cash fund to $550.
Note: The May 31 entries can be combined into oneentry.
May 31 Postage Expenses.................................................. 59.10Mileage Expense.................................................... 47.05Delivery Expense.................................................... 48.58Cash Over and Short.............................................. 5.00
Cash................................................................... 159.73To reimburse the petty cash fund.
May 31 Cash......................................................................... 50.00Petty Cash......................................................... 50.00
To decrease the petty cash fund to $500.
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Part 2
If the May 31 replenishment is not made and no entry is recorded,then several expenses would not be recognized and both net incomeand equity would be overstated by $159.73 ($59.10 + $47.05 + $48.58 +
$5.00). Also, the petty cash asset and total assets would beoverstated by $159.73.Problem 6-4A (30 minutes)
Part 1
HAMILTON COMPANYBank Reconciliation
July 31, 2009
Bank statement balance........ $28,575 Book balance......................
...........................................
$25,862
Add AddDeposit of July 31............... 7,152
35,727
Proceeds of note less
collection charge............. 5,97031,832
Deduct DeductChecks No. 3031....
$1,670
NSF check................$ 805
3065....
611
Service charge............. 9
3069... . 2,438 4,719 Error (Check 3056)...... 10 824Adjusted bank balance.......... $31,008 Adjusted book balance......... $31,008
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Part 2
July31
Cash....................................................................... 5,970
Collection Expense............................................... 30
Notes Receivable............................................ 6,000To record note collection less fees.
July31
Accounts ReceivableE. Shaw.......................... 805
Cash................................................................. 805To charge account for NSF check plus fees.
July31
Miscellaneous Expenses...................................... 9
Cash................................................................. 9To record bank service fee.
July31
Rent Expense........................................................ 10
Cash................................................................. 10To correct an entry error.
Problem 6-4A (Concluded)
Part 3
a. If the company's Cash account balance of $25,862 is listed onthe bank reconciliation as $25,682 then:
(i) The final balance that results from adjusting the bankstatement balance will not be affected by the error; and
(ii) The final balance that results from adjusting the bookbalance of cash will be understated by $180 ($25,862 -$25,682), and the bank reconciliation will not balance.
b. The bank's collection of the $6,000 note less the $30 collectionfee should have been added to the book balance of cash.Instead, it was added to the bank statement balance. As aresult:
(i) The final balance that results from adjusting the bankstatement balance will be overstated by $5,970; and
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(ii) The final balance that results from adjusting the bookbalance will be understated by $5,970.
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Exercise 7-2 (25 minutes)
Part 1
GENERAL LEDGER
Accounts Receivable SalesSales Returns and
AllowancesNov. 5 5,817 Nov. 21 268 Nov. 5 5,817 Nov. 21 268
10 1,774 10 1,77413 1,040 13 1,04030 3,698 30 3,698
Bal. 12,061Exercise 7-2 (concluded)Part 1continued
ACCOUNTS RECEIVABLE LEDGER
Ski Shop Welcome Enterprises Kit RoninNov. 5 5,817 Nov. 10 1,774 Nov. 13 1,04
0Nov. 21 268
30 3,698Bal. 9,515 Bal. 772
Part 2
Beachum Company
Schedule of Accounts ReceivableNovember 30, 2009
Ski Shop............................................................................... $ 9,515Welcome Enterprises.......................................................... 1,774Kit Ronin.............................................................................. 772Total...................................................................................... $12,061
Comparison: The total of the Schedule of Accounts Receivable($12,061) is proved with the balance of the Accounts Receivable
controlling T-account from Part 1 ($12,061).
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Exercise 7-3 (20 minutes)
Dec. 31 Bad Debts Expense............................................... 5,148Allowance for Doubtful Accounts.................. 5,148
To record estimated bad debts expense
(.006 x $858,000).
Feb. 1 Allowance for Doubtful Accounts....................... 429Accounts ReceivableD. Fidel..................... 429
To write off an account.
June 5 Accounts ReceivableD. Fidel........................... 429 Allowance for Doubtful Accounts.................. 429
To reinstate an account.
June 5 Cash....................................................................... 429Accounts ReceivableD. Fidel..................... 429
To record cash received on account.
Exercise 7-4 (15 minutes)
a.Dec. 31 Bad Debts Expense*.............................................. 419
Allowance for Doubtful Accounts................ 419To record estimated bad debts expense.
*Unadjusted balance = $2,371 credit
Estimated balance ($139,500 x .02) = 2,790 credit Required adjustment = $ 419 credit
b.Dec. 31 Bad Debts Expense**............................................. 3,277
Allowance for Doubtful Accounts................ 3,277To record estimated bad debts expense.
** Unadjusted balance = $ 487 debit
Estimated balance ($139,500 x .02) = 2,790 credit
Required adjustment = $3,277 credit
Exercise 7-5 (30 minutes)
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a. Computation of the estimated balance of the allowance foruncollectibles:
Not due: $66,000 x 0.01 = $ 6601 to 30: 15,000 x 0.02 = 300
31 to 60: 6,000 x 0.04 = 24061 to 90: 3,000 x 0.07 = 210Over 90: 5,000 x 0.12 = 600
$2,010 credit
b.Dec. 31 Bad Debts Expense.......................................... 2,310
Allowance for Doubtful Accounts............ 2,310To record estimated bad debts.*
* Unadjusted balance........................... $ 300 debitEstimated balance............................. 2,010 credit
Required adjustment......................... $2,310 credit
c.Dec. 31 Bad Debts Expense.......................................... 1,810
Allowance for Doubtful Accounts............ 1,810To record estimated bad debts.*
* Unadjusted balance........................... $ 200 creditEstimated balance............................. 2,010 credit
Required adjustment......................... $1,810 credit
Exercise 7-6 (25 minutes)
a. Computation of the estimated balance of the allowance foruncollectibles:
$95,000 x 0.02 = $1,900 credit
b.Dec. 31 Bad Debts Expense.......................................... 2,200
Allowance for Doubtful Accounts............ 2,200To record estimated bad debts.*
* Unadjusted balance........................... $ 300 debit
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Estimated balance............................. 1,900 credit
Required adjustment......................... $2,200 credit
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c.Dec. 31 Bad Debts Expense.......................................... 1,700
Allowance for Doubtful Accounts............ 1,700To record estimated bad debts.*
* Unadjusted balance........................... $ 200 creditEstimated balance............................. 1,900 credit
Required adjustment......................... $1,700 credit
Exercise 7-7 (20 minutes)
Feb. 1 Allowance for Doubtful Accounts....................... 950Accounts ReceivableLaguna Co................ 200Accounts ReceivableMalibu Co................. 750
To write off specific accounts.
June 5 Accounts ReceivableLaguna........................... 200 Allowance for Doubtful Accounts.................. 200
To reinstate an account.
June 5 Cash....................................................................... 200Accounts ReceivableLaguna..................... 200
To record cash received on account.
Exercise 7-8 (25 minutes)
a. Expense is 2% of credit sales
Dec. 31 Bad Debts Expense............................................ 6,000Allowance for Doubtful Accounts............... 6,000
To record estimated bad debts[$300,000 x .02].
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b. Expense is 1% of total sales
Dec. 31 Bad Debts Expense............................................ 7,000Allowance for Doubtful Accounts............... 7,000
To record estimated bad debts[($300,000 + $400,000) x .01].
c. Allowance is 8% of accounts receivable
Dec. 31 Bad Debts Expense............................................ 6,200Allowance for Doubtful Accounts............... 6,200
To record estimated bad debts.*
* Unadjusted balance.................................... $1,000 debit.
Estimated balance ($65,000 x 8%)............. 5,200 credit
Required adjustment.................................. $6,200 credit
Exercise 7-9 (20 minutes)
July 4 Accounts Receivable........................................ 7,160Sales............................................................. 7,160
To record sales on credit.
4 Cost of Goods Sold........................................... 4,582Merchandise Inventory............................... 4,582
To record cost of sales.
9 Cash.................................................................... 19,285Factoring Fee Expense*.................................... 1,015
Accounts Receivable.................................. 20,300To record sale of receivable. *($20,300 x .05)
17 Cash.................................................................... 3,938Accounts Receivable.................................. 3,938
To record cash received on account.
27 Cash.................................................................... 11,000Notes Payable.............................................. 11,000To record cash from a loan.
Note to Financial StatementsAccounts receivable in the amount of $14,700 are pledged as
security for a $11,000 note payable to Main Bank.
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Exercise 7-10 (15 minutes)
Nov. 1 Notes ReceivableC. Cruz............................. 15,000Accounts ReceivableC. Cruz................. 15,000
To record receipt of note on account.
Dec. 31 Interest Receivable.......................................... 175Interest Revenue........................................ 175
To record interest earned[$15,000 x .07 x 60/360].
Apr. 30 Cash.................................................................. 15,525Notes ReceivableC. Cruz....................... 15,000Interest Revenue........................................ 350Interest Receivable.................................... 175
To record cash received on note plusinterest earned [$15,000 x .07 x 120/360].
Exercise 7-11 (20 minutes)
Mar. 21 Notes ReceivableJ. Penn............................. 17,200Accounts ReceivableJ. Penn................ 17,200
To record receipt of note on account.
Sept. 17 Accounts ReceivableJ. Penn...................... 17,802Interest Revenue........................................ 602Notes ReceivableJ. Penn....................... 17,200
To record note dishonored plus interestearned [$17,200 x .07 x 180/360 = $602].
Dec. 31 Allowance for Doubtful Accounts.................. 17,802Accounts ReceivableJ. Penn................ 17,802
To write off an account.
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Exercise 8-3 (20 minutes)
Purchase price......................................................... $404,000Closing costs............................................................ 21,500Total cost of acquisition.......................................... $425,500
Allocation of total costAppraised
ValuePercentof Total
Applying %to Cost
ApportionedCost
Land.......................... $217,140 47% $425,500 x .47 $199,985
Land improvements........... 83,160 18 $425,500 x .18 76,590
Building.................... 161,700 35 $425,500 x .35 148,925
Totals........................ $462,000 100 % $425,500
Journal entryLand..................................................................... 199,985Land Improvements........................................... 76,590Building............................................................... 148,925
Cash............................................................. 425,500
To record costs of lump-sum purchase.
Exercise 8-5 (20 minutes)
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Double-declining-balance depreciationDepreciation rate: 100% / 4 years = 25% x 2 = 50%
YearBeginning-Year
Book ValueDepreciation
RateAnnual
DepreciationYear-EndBook Value
2009....... $102,000 50% $51,000 $51,000
2010....... 51,000 50 25,500 25,500
2011....... 25,500 50 4,500* 21,000
2011....... 21,000 -- -- 21,000
Total....... $81,000
* Do not depreciate more than $4,500 in the third year since thesalvage value is not subject to depreciation.
Exercise 8-7 (10 minutes)
Units-of-production:
Depreciation per unit = ($67,000 - $4,000) / 420,000 units = $0.15 perunit
For 29,900 units in second year: Depreciation = 29,900 x $0.15 =
$4,485
Exercise 8-8 (15 minutes)
Double-declining-balance:
Double-declining-balance rate = (100% / 10 years) x 2 = 20% per year
First years depreciation = $67,000 x 20% = $13,400
Book value at beginning of second year = $67,000 - $13,400 = $53,600Second years depreciation = $53,600 x 20% = $10,720Exercise 8-9 (10 minutes)
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Straight-line depreciation for 2009
($253,000 - $25,300) / 5 years = $45,540
Exercise 8-11 (15 minutes)
1. Original cost of machine................................................ $ 26,400Less two years' accumulated depreciation
[($26,400 - $2,900) / 4 years] x 2 years....................... (11,750)
Book value at end of second year................................. $ 14,650
2. Book value at end of second year................................. $ 14,650
Less revised salvage value............................................ (2,050)
Remaining depreciable cost........................................... $ 12,600
Revised annual depreciation = $12,600 / 3 years = $4,200
Exercise 8-15 (15 minutes)
1. Equipment............................................................... 29,500Cash.................................................................. 29,500
To record betterment.
2. Repairs Expense.................................................... 7,375Cash.................................................................. 7,375
To record ordinary repairs.
3. Equipment............................................................... 22,450Cash.................................................................. 22,450
To record extraordinary repairs.
Exercise 8-17 (25 minutes)
2013July 1 Depreciation Expense........................................... 5,875
Accumulated Depreciation--Machinery.......... 5,875
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To record one-half year depreciation.*
*Annual depreciation = $94,000 / 8 years = $11,750Depreciation for 6 months in 2013 = $11,750 x 6/12 = $5,875
1. Sold for $43,593 cash
July 1 Cash...................................................................... 43,593Accumulated DepreciationMachinery............ 52,875
Gain on Sale of Machinery.............................. 2,468Machinery.......................................................... 94,000
To record sale of machinery.*
*Total accumulated depreciation at date of disposal:Four years 2009-2012 (4 x $11,750)......... $47,000Partial year 2013 (6/12 x $11,750)............. 5,875Total accumulated depreciation.............. $52,875
Book value of machinery = $94,000 - $52,875 = $41,125Gain on sale = $43,593 - $41,125 = $2,468
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2. Destroyed by fire with $39,480 cash insurance settlement
July 1 Cash...................................................................... 39,480Loss from Fire...................................................... 1,645
Accumulated DepreciationMachinery............ 52,875Machinery.......................................................... 94,000
To record disposal of machinery from fire.
Loss on sale = $39,480 - $41,125 = $(1,645)
Exercise 8-18 (10 minutes)
Dec. 31 Depletion ExpenseMineral Deposit............... 498,960Accumulated DepletionMineral Deposit... 498,960
To record depletion [$3,920,000/1,400,000 tons =$2.80 per ton; 178,200 tons x $2.80 = $498,960].
Dec. 31 Depreciation ExpenseMachinery .................. 26,730Accumulated DepreciationMachinery...... 26,730
To record depreciation [$210,000/1,400,000 tons=$0.15 per ton; 178,200 tons x $0.15 = $26,730].
Exercise 8-19 (10 minutes)
Jan. 1 Copyright............................................................. 432,000
Cash................................................................. 432,000To record purchase of copyright.
Dec. 31 Amortization ExpenseCopyright................... 28,800Accumulated AmortizationCopyright....... 28,800
To record amortization of copyright[$432,000 / 15 years].