Part 1: Accounts Receivables and Allowance Method
1) Catalina Co. is a large wholesaler of flowers in the South. At the end of 2012, the company's controller estimates 2% of the $500,000 in Accounts Receivable will be uncollectible.
a. Write the journal entry to record Bad Debt Expense for the period if the Allowance for Doubtful Accounts has a credit balance of $4,500 before this adjusting entry is posted:
b. How does the posting of this journal entry affect the accounting equation?
c. What is theNet Realizable Value of Accounts Receivable reported in Catalina Co.'s balance sheet as of Dec. 31, 2012?
2) (Continuation of question 1). Assume that during 2013, a total of $4,300 Accounts Receivable has to be written off due to customers' inability to pay what they owe Catalina Co.
a. What journal entry would be used to record this write-off of $4,300?
b. How does the posting of this journal entry affect the accounting equation?
c. What is the Allowance for Doubtful Accounts balance after this write off? (Your answer should indicate the amount and whether it is a Debit or Credit balance. Hint: Use a T-account to determine your answer.)
d. Catalina Co. assumes that at the end of 2013, 2% of its new $470,000 Accounts Receivable balance will be uncollectible. Using the Allowance for Doubtful Accounts balance from above (question 2) c.) determine theBad Debt Expense that would be recorded at the end of 2013 and enter the journal entry below:
3) New scenario: Assume that on July 1 Smith Co. wrote off $600 due from Poore Co. due to Poore Co.'s inability to pay what they owed. What journal entry would Smith Co. record for this write off?
4) (Continuation of question 3). Now assume that on Aug. 1 Poore Co. pays the amount previously written off by Smith Co. What two journal entries must Smith Co. record related to this collection of a previously written off Accounts Receivable?
Part 2: Notes Receivable
5) On November 1, 2012, Johnson Company lends $48,000 to Stone Company for 6 months. What journal entry does Johnson Company record for this transaction?
6) (Continuation of question 5). The Note Receivable is established with a 5% annual interest rate, and the terms of the note states that the principal and interest will be due and paid on May 1, 2013. What adjusting journal entry is needed to accrue interest revenue earned for 2012 before Johnson Company prepares financial statements on December 31, 2012?
7) (Continuation of question 5&6). On May 1, 2013, Stone Company pays all principal and interest owed to Johnson Company. Write the journal entry (from the viewpoint of Johnson Company) to record the collection.
8) Jones and Co. buys a copyright on January 1, 2012 for $200,000 cash. They estimate the copyright will have a useful life of 5 years.
a. Write the journal entry to record amortization of the intangible asset as of 12/31/12.
b. At what amount is the copyright reported on the December 31, 2012 Balance Sheet?
9) What is the total cost (the "capitalized" cost) of equipment recently purchased and based on the following information:
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Cash purchase price
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$75,000
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Safety testing and installation
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9,500
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Shipping to our factory
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1,700
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Routine maintenance projected for first year of operation
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3,800
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Annual city license to operate
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1,500
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10) Johnson and Sons buy equipment on May 1, 2008 for $95,000 cash. They estimate the equipment will have a salvage value of $11,000 and a useful life of 4 years.
a. Write the journal entry to record depreciation for 2008.
b. Record the journal entry to record depreciation expense for the second year.
c. What is the book value of this equipment on the December 31, 2009 Balance Sheet?
11) Joke Industries purchased equipment on May 1, 2010 for $130,000. The equipment is estimated to have a $22,000 salvage value at the end of its 5 year life. The company uses straight-line method of depreciation. What is the balance in accumulated depreciation at 12/31/14?
12) On March 1, 2014, Woodland Corp sells machinery for $65,000. The machinery originally cost $140,000 and had an estimated 8 year life with an expected salvage value of $20,000. The Accumulated Depreciation account had a balance of $91,250 on December 31, 2013.
a. What is the gain or loss on the date of the sale?(Hint: Don't forget to update depreciation through the date of sale first!)
b. What is the journal entry to record this sale?
13) Identify the financial statement where the following accounts are reported. Choose between BS (Balance Sheet) or IS (income statement):
a. Accumulated Depreciation _______
b. Loss on Disposal of Equipment _______
c. Copyright or Goodwill _______
d. Depreciation Expense _______
e. Land _______
f. Unearned Revenue _______
g. Gain on Disposal of Equipment _______
h. Equipment _______
i. Amortization Expense _______