Unique Globe, Prince Pipe, and Development Industries

1.  The following information is available for Unique Globe, as of May 31, 2011:

 

a. Cash on the books as of May 31 amounted to $43,784.16. Cash on the bank statement for the same date was $53,451.46.

b. A deposit of $5,220.94, representing cash receipts of May 31, did not appear on the bank statement.

c. Outstanding checks totaled $3,936.80.

d. A check for $1,920.00 returned with the statement was recorded incorrectly in the check register as $1,380.00. The check was for a cash purchase of merchandise.

e. The bank service charge for May amounted to $30.

f. The bank collected $12,200.00 for Unique Globe, on a note. The face value of the note was $12,000.00.

g. An NSF check for $178.56 from a customer, Eve Lay, was returned with the statement.

h. The bank mistakenly charged to the company account a check for $750.00 drawn by another company.

i. The bank reported that it had credited the account for $250.00 in interest on the average balance for May.

Required

a. Prepare a bank reconciliation for Unique Globe, Inc., as of May 31, 2011.

b. Why is a bank reconciliation considered an important control over cash?

 

2. Prince’s Pipe Co. purchases equipment with a list price of $22,000. Regarding the purchase, Prince:

 

• Received a 2% discount off the list price

• Paid shipping costs of $800

• Paid $1,750 to install the equipment, $1 ,200 of which was for a unique stand for the equipment

• Paid $2,800 to insure the equipment, $300 for delivery transit, and $2,500 for a two-year policy to cover operations

• Paid $600 to have the manufacturer train employees on safety features

 

Required:

Determine the acquisition cost of the equipment.

 

3. Development Industries purchased a depreciable asset for $50,000 on January 1, 2010. The asset has a five-year useful life and a $10,000 estimated salvage value. The company will use the straight-line method of depreciation for book purposes. However, Development will use the double-declining-balance method for tax purposes. Assume a tax rate of 30%.

 Required

a. Prepare depreciation schedules using the straight-line and double-declining-balance methods of depreciation for the useful life of the asset.

b. Under the straight-line method of depreciation, what is the gain or loss if the equipment is sold

  (1) at the end of 2012 for $30,000 or

  (2) at the end of 2013 for $16,000?