ACC 205 Week 2 & 3 Assignments

acc_205_week_2__3_assignments x

Assignment questions are attached !!

WeekTwo Exercise Assignment

Revenue and Expenses

1. Recognition of concepts. Ron Carroll operates a small company that books entertainers for theaters, parties, conventions, and so forth. The company’s fiscal year ends on June 30. Consider the following items and classify each as either (1) prepaid expense, (2) unearned revenue, (3) accrued expense, (4) accrued revenue, or (5) none of the foregoing.

a. Amounts paid on June 30 for a 1-year insurance policy

b. Professional fees earned but not billed as of June 30

c. Repairs to the firm’s copy machine, incurred and paid in June

d. An advance payment from a client for a performance next month at a convention

e. The payment in part (d) from the client’s point of view

f. Interest owed on the company’s bank loan, to be paid in early July

g. The bank loan payable in part (f)

h. Office supplies on hand at year-end

2. Analysis of prepaid account balance. The following information relates to Action Sign Company for 20X2:

Insurance expense	$4,350
Prepaid insurance, December 31, 20X2	1,900
Cash outlays for insurance during 20X2	6,200

Compute the balance in the Prepaid Insurance account on January 1, 20X2.

3. Understanding the closing process. Examine the following list of accounts:

Interest Payable	Accumulated Depreciation: Equipment
Alex Kenzy, Drawing	Accounts Payable
Service Revenue	Cash
	Accounts Receivable	Supplies Expense
Interest Expense

Which of the preceding accounts

a. appear on a post-closing trial balance

?

b. are commonly known as temporary, or nominal, accounts?

c. generate a debit to Income Summary in the closing process?

d. are closed to the capital account in the closing process?

4. Adjusting entries and financial statements. The following information pertains to Fixation Enterprises:

· The company previously collected $1,500 as an advance payment for services to be rendered in the future. By the end of December, one third of this amount had been earned.

· Fixation provided $2,500 of services to Artech Corporation; no billing had been made by December 31.

· Salaries owed to employees at year-end amounted to $1,650.

· The Supplies account revealed a balance of $8,800, yet only $3,300 of supplies were actually on hand at the end of the period.

· The company paid $18,000 on October 1 of the current year to Vantage Property Management. The payment was for 6 months’ rent of Fixation’s headquarters, beginning on November 1.

Fixation’s accounting year ends on December 31.

Instructions

Analyze the five preceding cases individually and determine the following:

a. The type of adjusting entry needed at year-end (Use the following codes: A, adjustment of a prepaid expense; B, adjustment of an unearned revenue; C, adjustment to record an accrued expense; or D, adjustment to record an accrued revenue.)

b. The year-end journal entry to adjust the accounts

c. The income statement impact of each adjustment (e.g., increases total revenues by $500)

5. Adjusting entries. You have been retained to examine the records of Kathy’s Day Care Center as of December 31, 20X3, the close of the current reporting period. In the course of your examination, you discover the following:

· On January 1, 20X3, the Supplies account had a balance of $2,350. During the year, $5,5

20

worth of supplies was purchased, and a balance of $1,620 remained unused on December 31.

· Unrecorded interest owed to the center totaled $275 as of December 31.

· All clients pay tuition in advance, and their payments are credited to the Unearned Tuition Revenue account. The account was credited for $75,500 on August 31. With the exception of $15,500 all amounts were for the current semester ending on December 31.

· Depreciation on the school’s van was $3,000 for the year.

· On August 1, the center began to pay rent in 6-month installments of $21,000. Kathy wrote a check to the owner of the building and recorded the check in Prepaid Rent, a new account.

· Two salaried employees earn $400 each for a 5-day week. The employees are paid every Friday, and December 31 falls on a Thursday.

· Kathy’s Day Care paid insurance premiums as follows, each time debiting Prepaid Insurance:

1 year

Date Paid	Policy No.	Length of Policy	Amount
Feb. 1, 20X2	1033MCM19		1 year	$540
Jan. 1, 20X3	7952789HP	912
Aug. 1, 20X3	XQ943675ST	2 years	840

Instructions

The center’s accounts were last adjusted on December 31, 20X2. Prepare the adjusting entries necessary under the accrual basis of accounting.

6. Bank reconciliation and entries. The following information was taken from the accounting records of Palmetto Company for the month of January:

Balance per bank	$6,150
Balance per company records	3,5 80
Bank service charge for January	20
Deposits in transit	940
Interest on note collected by bank	100
Note collected by bank	1,000
NSF check returned by the bank with the bank statement	650
Outstanding checks	3,080

Instructions:

a. Prepare Palmetto’s January bank reconciliation.

b. Prepare any necessary journal entries for Palmetto.

7. Direct write-off method. Harrisburg Company, which began business in early 20X7, reported $40,000 of accounts receivable on the December 31, 20X7, balance sheet. Included in this amount was $550 for a sale made to Tom Mattingly in July. On January 4, 20X8, the company learned that Mattingly had filed for personal bankruptcy. Harrisburg uses the direct write-off method to account for uncollectibles.

a. Prepare the journal entry needed to write off Mattingly’s account.

b. Comment on the ability of the direct write-off method to value receivables on the year-end balance sheet.

8. Allowance method: estimation and balance sheet disclosure. The following pre-adjusted information for the Maverick Company is available on December 31:

· Accounts receivable $107,000

· Allowance for uncollectible accounts 5,400 (credit balance)

· Credit sales 250,000

a. Prepare the journal entries necessary to record Maverick’s uncollectible accounts expense under each of the following assumptions:

(1) Uncollectible accounts are estimated to be 5% of Credit Sales.

(2) Uncollectible accounts are estimated to be 14% of Accounts Receivable.

b. How would Maverick’s Accounts Receivable appear on the December 31 balance sheet under assumption (1) of part (a)?

c. How would Maverick’s Accounts Receivable appear on the December 31 balance sheet under assumption (2) of part (a)?

9. Direct write-off and allowance methods: matching approach. The December 31, 20X2, year-end trial balance of Targa Company revealed the following account information:

Accounts Receivable

Debits	Credits
$252,000
Allowance for Uncollectible Accounts	$ 3,000
	Sales	855,000

Instructions

a. Determine the adjusting entry for bad debts under each of the following conditions:

(1) An aging schedule indicates that $12,420 of accounts receivable will be uncollectible.

(2) Uncollectible accounts are estimated at 2% of net sales.

b. On January 19, 20X3, Targa learned that House Company, a customer, had declared bankruptcy. Present the proper entry to write off House’s $950 balance using the allowance method.

c. Repeat the requirement in part (b), using the direct write-off method.

d. In light of the House bankruptcy, examine the allowance and direct write-off methods in terms of their ability to properly match revenues and expenses.

10. Allowance method: analysis of receivables. At a January 20X2 meeting, the president of Sonic Sound directed the sales staff “to move some product this year.” The president noted that the credit evaluation department was being disbanded because it had restricted the company’s growth. Credit decisions would now be made by the sales staff.

By the end of the year, Sonic had generated significant gains in sales, and the president was very pleased. The following data were provided by the accounting department:

Sales

20X2	20X1
$23,987,000	$8,423,000
Accounts Receivable, 12/31	12,444,000	1,056,000
Allowance for Uncollectible Accounts, 12/31	?	23,000 cr.

The $12,444,000 receivables balance was aged as follows:

Age of Receivable	Amount	Percentage of Accounts Expected to Be Collected
Under 31 days	$5,321,000	99%
312 60 days	3,890,000	90
61290 days	1,067,000	80
Over 90 days	2,166,000	60

Assume that no accounts were written off during 20X2.

Instructions

a. Estimate the amount of Uncollectible Accounts as of December 31, 20X2.

b. What is the company’s Uncollectible Accounts expense for 20X2?

c. Compute the net realizable value of Accounts Receivable at the end of 20X1 and 20X2.

d. Compute the net realizable value at the end of 20X1 and 20X2 as a percentage of respective year-end receivables balances. Analyze your findings and comment on the president’s decision to close the credit evaluation department.

Week Three Exercise Assignment

Inventory

1. Specific identification method. Boston Galleries uses the specific identification method for inventory valuation. Inventory information for several oil paintings follows.

Painting

Cost

1/2 Beginning inventory

Woods

$11,000

4/19 Purchase

Sunset

21,800

6/7 Purchase

Earth

31,200

12/16 Purchase

Moon

4,000

Woods and Moon were sold during the year for a total of $35,000. Determine the firm’s

a. cost of goods sold.

b. gross profit.

c. ending inventory.

2. Inventory valuation methods: basic computations. The January beginning inventory of the White Company consisted of 300 units costing $40 each. During the first quarter, the company purchased two batches of goods: 700 Units at $44 on February 21 and 800 units at $50 on March 28. Sales during the first quarter were 1,400 units at $75 per unit. The White Company uses a periodic inventory system. Using the White Company data, fill in the following chart to compare the results obtained under the FIFO, LIFO, and weighted-average inventory methods.

Using the White Company data, fill in the following chart to compare the results obtained under the FIFO, LIFO, and weighted-average inventory methods.

Using the White Company data, fill in the following chart to compare the results obtained under the FIFO, LIFO, and weighted-average inventory methods.

FIFO

LIFO

Weighted Average

Goods available for sale

$

$

$

Ending inventory, March 31

Cost of goods sold

3. 3. Perpetual inventory system: journal entries. At the beginning of 20X3, Beehler Company implemented a computerized perpetual inventory system. The first transactions that occurred during 20X3 following.

1. Purchases on account: 500 units @ $4 = $2,000

1. Sales on account: 300 of the above units = $2,550

1. Returns on account: 75 of the above unsold units

The company president examined the computer-generated journal entries for these transactions and was confused by the absence of a Purchases account.

a. Duplicate the journal entries that would have prepared on the computer printout.

b. Calculate the balance in the firm’s Inventory account.

c. Briefly explain the absence of the Purchases account to the company president.

4. Inventory valuation methods: computations and concepts. Wave Riders Surfboard Company began business on January 1 of the current year. Purchases of surfboards were as follows:

1/3:

Purchase 100 boards @ $125

3/17:

Sold 50 boards @ $130

5/9:

5/9: 246 boards @140

7/3:

400 boards @ $150

10/23:

74 boards @ $160

Wave Riders sold 710 boards at an average price of $250 per board. The company uses a periodic inventory system.

Instructions

a. Calculate cost of goods sold, ending inventory, and gross profit under each of the following inventory valuation methods:

1. First-in, first-out

1. Last-in, first-out

1. Weighted average

b. Which of the three methods would be chosen if management’s goal is to

(1) produce an up-to-date inventory valuation on the balance sheet?

(2) approximate the physical flow of a sand and gravel dealer?

(3) report low earnings (for tax purposes) for a separate electronics company that has been experiencing declining purchase prices?

5. Depreciation methods. Betsy Ross Enterprises purchased a delivery van for $30,000 in January 20X7. The van was estimated to have a service life of 5 years and a residual value of $6,000. The company is planning to drive the van 20,000 miles annually. Compute depreciation expense for 20X8 by using each of the following methods:

a. Units-of-output, assuming 17,000 miles were driven during 20X8

b. Straight-line

c. Double-declining-balance

6. Depreciation computations. Alpha Alpha Alpha, a college fraternity, purchased a new heavy-duty washing machine on January 1, 20X3. The machine, which cost $1,000, had an estimated residual value of $100 and an estimated service life of 4 years (1,800 washing cycles). Calculate the following:

a. The machine’s book value on December 31, 20X5, assuming use of the straight-line depreciation method

b. Depreciation expense for 20X4, assuming use of the units-of-output depreciation method. Actual washing cycles in 20X4 totaled 500.

c. Accumulated depreciation on December 31, 20X5, assuming use of the double-declining-balance depreciation method.

7. Depreciation computations: change in estimate. Aussie Imports purchased a specialized piece of machinery for $50,000 on January 1, 20X3. At the time of acquisition, the machine was estimated to have a service life of 5 years (25,000 operating hours) and a residual value of $5,000. During the 5 years of operations (20X3 – 20X7), the machine was used for 5,100, 4,800, 3,200, 6,000, and 5,900 hours, respectively.

Instructions

a. Compute depreciation for 20X3 – 20X7 by using the following methods: straight line, units of output, and double-declining-balance.

b. On January 1, 20X5, management shortened the remaining service life of the machine to 20 months. Assuming use of the straight-line method, compute the company’s depreciation expense for 20X5.

c. Briefly describe what you would have done differently in part (a) if Aussie Imports had paid $47,800 for the machinery rather than $50,000 In addition, assume that the company incurred $800 of freight charges $1,400 for machine setup and testing, and $300 for insurance during the first year of use.