Question 1. Chris Rock believes a current liability is a debt that can be expected to be paid in one year. Is Chris correct? Explain.
Question 2: Describe the two major obligations incurred by a company when bonds are issued.
Question 3: You are a newly hired accountant with Schindlebeck Company. On your first day, the controller asks you to identify the main internal control objectives related to payroll accounting. How would you respond?
Question 4: Distinguish between the two types of payroll deductions and give examples of each.
Question 5: The ledger of Salizar Company at the end of the current year shows Accounts Receivable $110,000, Sales $840,000, and Sales Returns and Allowances $40,000.
Instructions:
(a) If Allowance for Doubtful Accounts has a credit balance of $2,500 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 1% of net sales, and (2) 10% of accounts receivable.
(b) If Allowance for Doubtful Accounts has a debit balance of $500 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 0.75% of net sales and (2) 6% of accounts receivable.
Instructions
Prepare the journal entries on December 31, 2002, May 11, 2003, and June 12, 2003.
Question 6: Presented below are two independent situations.
(a) On March 3, Lisa Ceja Appliances sells $700,000 of its receivables to Horatio Factors Inc. Horatio Factors assesses a finance charge of 3% of the amount of receivables sold. Prepare the entry on Lisa Ceja Appliances’ books to record the sale of the receivables.
(b) On May 10, Worthy Company sold merchandise for $4,000 and accepted the customer’s Firstar Bank MasterCard. At the end of the day, the Firstar Bank MasterCard receipts were deposited in the company’s bank account. Firstar Bank charges a 4% service charge for credit card sales. Prepare the entry on Worthy Company’s books to record the sale of merchandise.
Question 7: Lindy Rig. the new controller of Bellingham Company. has reviewed the expected use¬ful lives and salvage values of selected depreciable assets at the beginning of 2002. Her findings are as follows.
Accumulated Useful Life
Type of Date Depriciation in years Salvage Value
Asset Acquired Cost 1/1/02 Old Proposed Old Proposed
Building 1/1/96 $800,000 $114,000 40 50 $40,000 $70,000
Warehouse 1/1/99 100,000 11,400 25 20 5,000 3,600
All assets are depreciated by the straight-line method. Bellingham Company uses a calendar year in preparing annual financial statements. After discussion, management has agreed to ac¬cept Lindy's proposed changes.
Instructions
(a) Compute the revised annual depreciation on each asset in 2002. (Show computations.)
(b) Prepare the entry (or entries) to record depreciation on the building in 2002.
Question 8: Hootie and the Blow Fish, Inc.. organized in 2002. has the following transactions re¬lated to intangible assets.
1/2/02 Purchased patent (7-year life) $490.000
4/1/02 Goodwill purchased (indefinite life) 360.000
7/1/02 10-year franchise: expiration date 7/1/2012 420,000
9/1/02 Research and development costs 185,000
Instructions:
Prepare the necessary entries to record these intangibles. All costs Incurred were for cash. Make the entries as of December 31. 2002, recording any necessary amortization and reflecting all balances accurately as of that date.
Question 9: Melanie Griffith Company closes its books monthly. On September 30. selected ledger account balances are:
Notes Receivable 528.000
Interest Receivable $ 216
Notes Receivable include the following
Date Maker Face Term Interest
Aug. 16 Foran Inc. $8.000 60 days 12%
Aug. 25 Drexler Co. 8.000 60 days 12%
Sept. 30 Sego Corp. 12.000 6 months 9%
Interest is computed using a 360-day year. During October. the following transactions were com-pleted.
Oct. 7 Made sales of $6900 on Melanie Griffith credit cards.
12 Made sales of $750 on MasterCard credit cards. The credit card service charge is 4%.
15 Added $485 to Melanie Griffith customer balance for finance charges on unpaid balances.
15 Received payment in full from Foran Inc. on the amount due.
24 Received notice that Drexler note has been dishonored. (Assume that Drexler Is expected to pay in the future.)
Instructions:
(a) Journalize the October transactions and the October 31 adjusting entry for accrued inter¬est receivable.
(b) Enter the balances at October 1 in the receivable accounts. Post the entries to all of the receivable accounts.
(c) Show the balance sheet presentation of the receivable accounts at October 31.
Question 10: In recent years. Letterman Company purchased three machines. Because of heavy turnover in the accounting department. a different accountant was in charge of selecting the depreciation method for each machine. and various methods were selected. Information concerning the machines is summarized below.
Machine Acquired Cost Salvage Useful Life Depredation Method
Value in Years
1 1/1/99 $96,000 $6,000 10 Straight-line
2 1/1/00 60,000 10,000 8 Declining-balance
3 11/1/02 66,000 6,000 6 Units-of-activity
For the declining-balance method. the company uses the double-declining rate. For the units¬of-activity method, total machine hours are expected to be 24.030. Actual hours of use in the first 3 years welt: 2002.1,000 2003, 000: and 2001„ 5.1300.
Instructions:
(a) Compute the amount of accumulated depreciation on each machine at December 31, 2002.
(b) If machine 2 had been purchased on April 1 instead of January 1. What would be the depriciation expense for this machine in (1) 2000 and (2) 2001?