Final review - hays PDF

Preview

Summary

PROBLEMSPr. 3-178 —Adjusting entries and account classification.Selected amounts from Trent Company's trial balance of 12/31/10 appear below: Accounts Payable € 160, Accounts Receivable 150, Accumulated Depreciation—Equipment 200, Allowance for Doubtful Accounts 20, Bonds Payable 500, Cash 150, Equi...

Description

Final Review

Intermediate 1

PROBLEMS Pr. 3-178—Adjusting entries and account classification. Selected amounts from Trent Company's trial balance of 12/31/10 appear below: 1. Accounts Payable € 160,000 2. Accounts Receivable 150,000 3. Accumulated Depreciation—Equipment 200,000 4. Allowance for Doubtful Accounts 20,000 5. Bonds Payable 500,000 6. Cash 150,000 7. Equipment 840,000 8. Insurance Expense 30,000 9. Interest Expense 10,000 10. Merchandise Inventory 300,000 11. Notes Payable (due 6/1/11) 200,000 12. Prepaid Rent 150,000 13. Retained Earnings 818,000 14. Salaries and Wages Expense 328,000 15. Share Capital–Ordinary 60,000 (All of the above accounts have their standard or normal debit or credit balance.) Part A.

Prepare adjusting journal entries at year end, December 31, 2010, based on the following supplemental information.

a. The equipment has a useful life of 15 years with no salvage value. (Straight-line method being used.) b. Interest accrued on the bonds payable is €15,000 as of 12/31/10. c. Expired insurance at 12/31/10 is €20,000. d. The rent payment of €150,000 covered the six months from November 30, 2010 through May 31, 2011. e. Salaries and wages earned but unpaid at 12/31/10, €22,000.

Part B.

a. b. c. d. e.

Indicate the proper statement of financial position classification of each of the 15 numbered accounts in the 12/31/10 trial balance before adjustments by placing appropriate numbers after each of the following classifications. If the account title would appear on the income statement, do not put the number in any of the classifications.

Property, plant, and equipment Current assets Equity Non-current liabilities Current liabilities

Solution 3-178 Part A. a. Depreciation Expense—Equipment (€840,000 – 0)  15 ............... Accumulated Depreciation—Equipment ............................. b. Interest Expense ............................................................................ Interest Payable .................................................................. Page 1 of 33

56,000 56,000 15,000 15,000 Ehab Abdou (97672930)

Final Review

Intermediate 1

c. Prepaid Insurance .......................................................................... Insurance Expense (€30,000 - €20,000) .............................

10,000

d. Rent Expense (€150,000  6)......................................................... Prepaid Rent .......................................................................

25,000

e. Salaries and Wages Expense ......................................................... Salaries and Wages Payable ..............................................

22,000

10,000 25,000 22,000

Part B. a. Property, plant, and equipment—3, 7 b. Current assets—2, 4, 6, 10, 12 c. Equity—13, 15 d. Non-current liabilities—5 e. Current liabilities—1, 11 Pr. 3-180—Adjusting and closing entries. The following trial balance was taken from the books of Fisk Corporation on December 31, 2010. Account Debit Cash $ 12,000 Accounts Receivable 40,000 Note Receivable 7,000 Allowance for Doubtful Accounts Merchandise Inventory 44,000 Prepaid Insurance 4,800 Furniture and Equipment 125,000 Accumulated Depreciation--F. & E. Accounts Payable Share Capital–Ordinary Retained Earnings Sales Cost of Goods Sold 111,000 Salaries Expense 50,000 Rent Expense 12,800 Totals $406,600 At year end, the following items have not yet been recorded. a. Insurance expired during the year, $2,000. b. Estimated bad debts, 1% of gross sales. c. Depreciation on furniture and equipment, 10% per year. d. Interest at 6% is receivable on the note for one full year. *e. Rent paid in advance at December 31, $5,400 (originally charged to expense). f. Accrued salaries at December 31, $5,800.

Credit

$ 1,800

15,000 10,800 44,000 55,000 280,000

$406,600

Instructions (a) Prepare the necessary adjusting entries. (b) Prepare the necessary closing entries. Solution 3-180 (a) Adjusting Entries a. Insurance Expense ................................................................ Prepaid Insurance ......................................................... b. Bad Debt Expense ................................................................. Allowance for Doubtful Accounts ................................... c. Depreciation Expense ............................................................ Page 2 of 33

2,000 2,000 2,800 2,800 12,500 Ehab Abdou (97672930)

Final Review

Intermediate 1

Accumulated Depreciation--F. & E. ............................... d. Interest Receivable ................................................................ Interest Revenue ........................................................... *e. Prepaid Rent .......................................................................... Rent Expense ............................................................... f. Salaries Expense ................................................................... Salaries Payable ...........................................................

12,500

5,400

(b) Closing Entries Sales ............................................................................................ Interest Revenue ........................................................................... Income Summary ................................................................

280,000 420

420 420 5,400 5,800 5,800

280,420

Income Summary .......................................................................... Salaries Expense ................................................................ Rent Expense ..................................................................... Depreciation Expense ......................................................... Bad Debt Expense .............................................................. Insurance Expense ............................................................. Cost of Goods Sold .............................................................

191,500

Income Summary .......................................................................... Retained Earnings ..............................................................

88,920

55,800 7,400 12,500 2,800 2,000 111,000 88,920

Ex. 3-170—Adjusting entries. Present, in journal form, the adjustments that would be made on July 31, 2011, the end of the fiscal year, for each of the following. 1. The supplies inventory on August 1, 2010 was €7,350. Supplies costing €20,150 were acquired during the year and charged to the supplies inventory. A count on July 31, 2011 indicated supplies on hand of €8,810. 2. On April 30, a ten-month, 9% note for €20,000 was received from a customer. *3. On March 1, €12,000 was collected as rent for one year and a nominal account was credited. Solution 3-170 1. Supplies Expense .................................................................... Supplies ........................................................................

18,690

2. Interest Receivable .................................................................. Interest Revenue ...........................................................

450

*3. Rent Revenue .......................................................................... Unearned Revenue .......................................................

7,000

Page 3 of 33

18,690 450 7,000

Ehab Abdou (97672930)

Final Review

Intermediate 1

PROBLEMS Pr. 4-146—Income statement. Presented below is information (in thousands) related to Chen Company. Retained earnings, December 31, 2010 ¥ 650,000 Sales 1,400,000 Selling and administrative expenses 240,000 Loss on disposal of component (pre-tax) 290,000 Cash dividends declared on common stock 33,600 Cost of goods sold 780,000 Gain resulting from computation error on depreciation charge in 2009 (pre-tax) 520,000 Rent revenue 120,000 Impairment loss 90,000 Interest expense 10,000 Instructions Prepare in good form an income statement for the year 2011. Assume a 30% tax rate and that there were 80,000 ordinary shares outstanding during the year.

Solution 4-146 Chen Company INCOME STATEMENT For the Year Ended December 31, 2011 Sales Cost of goods sold Gross profit Selling and administrative expenses Other income and expense Impairment loss Income from operations Interest expense Income before taxes Income taxes Income from continuing operations Discontinued operations, net of applicable income taxes of ¥87,000 Net income Per share— Income from continuing operating Discontinued operations net of tax Net income

Page 4 of 33

¥1,400,000 780,000 620,000 240,000 120,000 90,000 410,000 10,000 400,000 (120,000) 280,000 (203,000) ¥ 77,000

¥ 3.50 (2.54) ¥ 0.96

Ehab Abdou (97672930)

Final Review

Intermediate 1

Pr. 4-147—Income statement form. Wilcox Corporation had income from continuing operations of $800,000 (after taxes) in 2011. In addition, the following information has not been considered. 1. A machine was sold for $140,000 cash during the year at a time when its book value was $110,000. (Depreciation has been properly recorded.) The company often sells machinery of this type. 2. Wilcox decided to discontinue its stereo division in 2011. During the current year, the loss on the disposal of this component of the business was $150,000 less applicable taxes. Instructions Present in good form the income statement of Wilcox Corporation for 2011 starting with "income from continuing operations." Assume that Wilcox's tax rate is 30% and 200,000 ordinary shares were outstanding during the year.

Solution 4-147 Wilcox Corporation Partial Income Statement For the Year Ended December 31, 2011 Income from continuing operations Discontinued operations Loss on disposal of a component of a business, $150,000, less applicable income taxes, $45,000 Net income Per share—Income from cont. operations Discontinued operations, net of tax Net income *Income from cont. operations (unadjusted) Gain on sale of machinery (after tax) Income from cont. operations (adjusted)

Page 5 of 33

$821,000* (105,000) $716,000 $4.11 (0.53) $3.58 $800,000 21,000 $821,000

Ehab Abdou (97672930)

Final Review

Intermediate 1

Pr. 4-148—Income statement. Shown below is an income statement for 2011 that was prepared by a poorly trained bookkeeper of Howell Corporation. Howell Corporation INCOME STATEMENT December 31, 2011 Sales revenue Investment revenue Cost of merchandise sold Selling expenses Administrative expense Interest expense Income before special item Special item Loss on disposal of a component of the business Net income tax liability Net income

$945,000 19,500 (408,500) (145,000) (215,000) (13,000) 183,000 (30,000) (45,900) $107,100

Instructions Prepare a multiple-step income statement for 2011 for Howell Corporation that is presented in accordance with IFRS (including format and terminology). Howell Corporation has 50,000 ordinary shares outstanding and has a 30% income tax rate on all tax related items. Round all earnings per share figures to the nearest cent.

Solution 4-148 Howell Corporation INCOME STATEMENT For the Year Ended December 31, 2011 Sales Cost of goods sold Gross profit Selling expenses $145,000 Administrative expenses 215,000 Other income: Investment revenue Income from operations Interest expense Income before income taxes Income taxes Income from continuing operations Loss from discontinued operations, net of applicable income tax of $9,000 Net income Per share of share— Income from continuing operations Discontinued operations loss net of tax Net income

Page 6 of 33

$945,000 408,500 536,500 360,000 19,500 196,000 13,000 183,000 54,900 128,100 21,000 $107,100

$2.56 (0.42) $2.14

Ehab Abdou (97672930)

Final Review

Intermediate 1

Pr. 4-149—Income statement. Presented below is an income statement for Kinder Company for the year ended December 31, 2011. Kinder Company Income Statement For the Year Ended December 31, 2011 Net sales Costs and expenses: Cost of goods sold Selling, general, and administrative expenses Other, net Income before income taxes Income taxes Net income

$800,000 640,000 70,000 20,000

730,000 70,000 21,000 $ 49,000

Additional information: 1. "Selling, general, and administrative expenses" included a charge of $7,000 for impairment of intangibles. 2. "Other, net" consisted of interest expense, $10,000, and a discontinued operations loss of $10,000 before taxes. If the loss had not occurred, income taxes for 2011 would have been $24,000 instead of $21,000. 3. Kinder had 20,000 ordinary shares outstanding during 2011. Instructions Prepare a corrected income statement, including the appropriate per share disclosures.

Page 7 of 33

Ehab Abdou (97672930)

Final Review

Intermediate 1

Solution 4-149 Kinder Company Income Statement For the Year Ended December 31, 2011 Net sales Cost of goods sold Gross profit Selling, general, and administrative expenses Other income and expense Loss on impairment Income from operations Interest expense Income before taxes Income taxes Income from continuing operations Discontinued operations Loss on disposal of component Less applicable taxes Net income Per share— Income from continuing operations Discontinued operations, net of tax Net income

Page 8 of 33

$800,000 640,000 $160,000 63,000 7,000 90,000 10,000 80,000 24,000 56,000 10,000 3,000

7,000 $ 49,000

$2.80 (0.35) $2.45

Ehab Abdou (97672930)

Final Review

Intermediate 1

Pr. 4-150—Income statement and retained earnings statement. Wang Corporation's capital structure consists of 50,000 ordinary shares. At December 31, 2011 an analysis of the accounts and discussions with company officials revealed the following information: Sales Purchase discounts Purchases Loss on discontinued operations (net of tax) Selling expenses Cash Accounts receivable Share capital Accumulated depreciation Dividend revenue Inventory, January 1, 2011 Inventory, December 31, 2011 Unearned service revenue Accrued interest payable Land Patents Retained earnings, January 1, 2011 Interest expense General and administrative expenses Dividends declared Allowance for doubtful accounts Notes payable (maturity 7/1/14) Machinery and equipment Materials and supplies Accounts payable

¥1,100,000 18,000 642,000 42,000 128,000 60,000 90,000 200,000 180,000 8,000 152,000 125,000 4,400 1,000 370,000 100,000 290,000 17,000 150,000 29,000 5,000 200,000 450,000 40,000 60,000

The amount of income taxes applicable to ordinary income was ¥48,600, excluding the tax effect of the discontinued operations loss which amounted to ¥18,000. Instructions (a) Prepare an income statement. (b) Prepare a retained earnings statement.

Page 9 of 33

Ehab Abdou (97672930)

Final Review

Intermediate 1

Solution 4-150 Wang Corporation INCOME STATEMENT For the Year Ended December 31, 2011 Sales Cost of goods sold: Merchandise inventory, Jan. 1 Purchases Less purchase discounts Net purchases Merchandise available for sale Less merchandise inv., Dec. 31 Cost of goods sold

¥1,100,000 ¥152,000 ¥642,000 18,000

Gross profit Selling expenses General and administrative expenses Other income and expense: Dividend revenue Income from operations Interest expense Income before income taxes Income taxes Income from continuing operations Discontinued operations Loss on disposal, less applicable taxes of $18,000 Net income Per share of share capital— Income from continuing operations Discontinued operations, Net income

624,000 776,000 125,000 651,000 449,000 128,000 150,000

278,000 8,000 179,000 17,000 162,000 48,600 113,400 ¥

42,000 71,400

¥2.27 (0.84) ¥1.43

Wang Corporation RETAINED EARNINGS STATEMENT For the Year Ended December 31, 2011 Retained earnings, January 1, 2011 Add: Net income Deduct: Dividends declared Retained earnings, December 31, 2011

Page 10 of 33

¥290,000 ¥71,400 29,000

42,400 ¥332,400

Ehab Abdou (97672930)

Final Review

Intermediate 1

PROBLEMS Pr. 5-130—Statement of financial position presentation. The following statement of financial position was prepared by the bookkeeper for Kraus Company as of December 31, 2012. Kraus Company Statement of Financial Position as of December 31, 2012 Investments Equipment (net) Patents Inventories Accounts receivable (net) Cash

£ 76,300 96,000 32,000 57,000 52,200 80,000 £393,500

Shareholders' equity Non-current liabilities Accounts payable

£218,500 100,000 75,000

£393,500

The following additional information is provided: 1. Cash includes the cash surrender value of a life insurance policy £9,400, and a bank overdraft of £2,500 has been deducted. 2. The net accounts receivable balance includes: (a) accounts receivable—debit balances £60,000; (b) accounts receivable—credit balances £4,000; (c) allowance for doubtful accounts £3,800. 3. Inventories do not include goods costing £3,000 shipped out on consignment. Receivables of £3,000 were recorded on these goods. 4. Investments include investments in share capital–ordinary, trading £19,000 and available-forsale £48,300, and franchises £9,000. 5. Equipment costing £5,000 with accumulated depreciation £4,000 is no longer used and is held for sale. Accumulated depreciation on the other equipment is £40,000. Instructions Prepare a statement of financial position in good form (shareholders' equity details can be omitted.)

Page 11 of 33

Ehab Abdou (97672930)

Final Review

Intermediate 1

Solution 5-130 Kraus Company Statement of Financial Position As of December 31, 2012 Assets Investments Available-for-sale securities Cash surrender value

£48,300 9,400

Property, plant, and equipment Equipment Less accumulated depreciation

135,000 40,000

Intangible assets Patents Franchises Current assets *Equipment held for sale Inventories Accounts receivable Less: Allowance for doubtful accounts Trading securities Cash Total current assets Total assets

(5) 95,000

32,000 9,000

£ 57,000 (2) 3,800

41,000

1,000 60,000

(4) (3)

53,200 19,000 73,100

(1)

Equity and Liabilities Shareholders' equity Non-current liabilities £100,000 Current liabilities Accounts payable £ 79,000 (6) Bank overdraft 2,500 Total current liabilities 81,500 Total liabilities Total liabilities and shareholders' equity (1) (2) (3) (4) (5) (6)

£57,700

206,300 £400,000 £ 218,500

181,500 £400,000

(£80,000 – £9,400 + £2,500) (6£0,000 – £3,000) (£57,000 + £3,000) (£5,000 – £4,000) (£96,000 + £40,000 – £5,000 + £4,000) (£75,000 + £4,000)

*An alternative is to show it as an other asset.

Page 12 of 33

Ehab Abdou (97672930)

Final Review

Intermediate 1

Pr. 5-131—Statement of financial position presentation. Given the following account information for Leong Corporation, prepare a statement of financial position in report form for the company as of December 31, 2012. All accounts have normal balances. Equipment Interest ...