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TEST REVIEWACCOUNTING 101 - UNIT III - CHAPTERS 8, 9, 10, 11 & 12

Study suggestions: Review your class notes, homework exercises and problems.Review Key Points at the end of each chapter.Answer the Self Examination Questions in textbookUse your Study GuideKnow accounting terms

Know the account classification (i.e. asset, liability, or owner's equity) and normal balance of all accounts

Chapter 8 ReceivablesBe able to journalize the entries for the allowance method of accounting for uncollectible accountsKnow how to estimate uncollectible receivables expense based on sales and based on an analysis (aging) of receivables.Be able to journalize the entries for the direct write off of uncollectible receivables.Be able to journalize the entries for notes receivable transactions.Be able to compute accounts receivable turnover and the number of day's sales in receivables.

Chapter 9 Fixed Assets and Intangible AssetsBe able to compute depreciation expense the using straight-line method, the units-of-production method, and thedeclining-balance method.

Know how to classify fixed asset costs as either capital expenditures or revenue expenditures.

Be able to journalize entries for the disposal of fixed assets, including exchanges for similar assets.Be able to compute depletion and journalize the entry for depletion.Be able to journalize entries for acquiring and amortizing intangible assets, such as patents or copyrights.

Chapter 11 Corporations: Organization, Capital Stock Transactions, and DividendsBe able to journalize entries for issuing stockBe able to journalize the entries for treasury stock transactionsBe able to journalize the entries for cash dividends and stock dividendsUnderstand the effect of stock splitsKnow how to compute dividends per shareKnow how to compute dividend yield (Dividends per share/Market price per share)

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SAMPLE PROBLEMS

Problem 1 Uncollectible Receivables(a) What are the two methods of accounting for uncollectible receivables?

(b) What is the journal entry used to write-off an uncollectible account when using the direct write-off method?

(c) What is the journal entry used to write-off an uncollectible account when using the allowance method?

(d) What is the journal entry used to reinstate an account when using the direct write-off method?

(e) What is the journal entry used to reinstate an account when using the allowance method?

(f) What are the two methods used to estimate uncollectible accounts expense when using the allowance method?

Problem 2 Estimated uncollectible accounts based on salesBefore year-end adjustment, the Allowance for Doubtful Accounts has a credit balance of $25,000. Uncollectible accounts are estimatedas 1% of credit sales which were $1,500,000. The accounts receivable balance is $325,000.

(a) What is the uncollectible accounts expense for the period?

(b) What is the journal entry required?

(c) What is the balance of the Allowance for Doubtful Accounts after adjustment?

(d) What is the net realizable value of the receivables after adjustment?

Problem 3 Estimated uncollectible accounts based on analysis (aging) of receivablesBefore the year-end adjustment the Allowance for Doubtful Accounts has a debit balance of $5,000. Using the aging of receivablesmethod, the desired balance of the Allowance for Doubtful Accounts is estimated as $35,000.(a) What is the uncollectible accounts expense for the period?

(b) What is the journal entry required?

(b) What is the balance of the Allowance for Doubtful Accounts after adjustment?

(c) If the accounts receivable balance is $325,000, What is the net realizable value of the receivables after adjustment?

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SAMPLE PROBLEMS

Problem 4 Entries for receipt and dishonor of note receivableA 60 day, 12% note for $15,000, dated March 1 is received from a customer on account. The note is discounted on March 15 at 15%.The note is dishonored by the maker, and the bank charges a protest fee of $50.(a) What is the journal entry to record the receipt of the note?

(b) What is the maturity date of the note?

(c) What is the maturity value of the note?

(d) What is the amount of the discount?

(e) What are the proceeds?

(f) What is the journal entry to record the discounting of the note?

(g) What is the amount payable to the bank on the maturity date?

(h) What is the journal entry to record the dishonor of the note receivable?

Problem 5 Compute Accounts receivable turnover and the number of day's sales in receivables The Nicholas Company had net sales on account of $6,570,000 during 1998. The beginning and ending accounts receivable were$475,000 and 535,000 respectively.(a) Compute accounts receivable turnover for 1998

(b) Compute the number of days' sales in receivables at year end.

Problem 6 Straight-line depreciationA machine with a cost of $50,000 has an estimated residual value of $5,000 and an estimated useful life of 5 years.

What is the amount of annual depreciation computed by the straight-line method?

Problem 7 Depreciation by the units-of-production methodA truck that cost $40,000 has a residual value of $5,000 and an estimated useful life of 100,000 miles.(a)What is the depreciation rate per mile?

(b) What is the first year's depreciation if the truck was driven 12,000 miles?

Problem 8 Depreciation by the declining-balance methodAn item of production equipment acquired at the beginning of the year at a cost of $85,000 has an estimated residualvalue of $ 10,000 and an estimated useful life of 10 years. What is the amount of depreciation for the first and second yearscomputed by the declining-balance method at twice the straight-line rate?

Problem 9 Disposal of fixed asset

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A metal stamping machine acquired on January 1, 1990 at a cost of $ 55,000 had an estimated residual value of $ 5,000 and anestimated life of 10 years. It was sold on July 1, 1998 for $ 10,000.(a) What was the annual depreciation using the straight-line method?

(b) What was the book value on July 1, 1998 when it was sold?

(c) Journalized the entry to record the sale, including the depreciation for the current year.

Problem 10 Asset trade for similar assetA truck with a cost of $35,000 and accumulated depreciation of $ 32,500 is traded for a new truck priced at $ 45,000. Assume atrade-in allowance of $ 5,000.

(a) What is the book value of the old truck?

(b) What is the cost of the new truck for financial reporting purposes?

(c) What is the journal entry to record the purchase?

Problem 11 Asset traded for a similar assetA truck with a cost of $35,000 and accumulated depreciation of $ 30,000 is traded for a new truck priced at $ 45,000. Assume atrade-in allowance of $ 2,500.

(a) What is the book value of the old truck?

(b) What is the cost of the new truck for financial reporting purposes?

(c) What is the journal entry to record the purchase?

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SAMPLE PROBLEMS

Problem 12 Depletion entriesBosch Company acquired mineral rights for $15,000,000. The mineral deposit is estimated at 60,000,000 tons.

During the current year 11,500,000 tons were mined and sold for $3,500,000.(a) Determine the amount of depletion expense for the current year.

(b) Journalize the adjusting entry to recognize the expense.

Problem 13 Amortization of patent rightsOn January 2, 1998, the Jackson Corporation acquired patent rights from the Cooper Company for $85,000, incurring legal cost

of $5,000. Although the patent will not expire for 17 years, its estimated useful is only 15 years.Journalize the entry to amortize the patent at the end of the current fiscal year.

Problem 14 Fixed asset purchase with noteOn June 1, Speedy Delivery Inc. purchased a new delivery truck, paying $ 5,000 cash and issuing a $ 24,000, 180-day

10% note for the balance. The term of the note provide for 6 monthly payment of $ 4,000 on the principal plus interest accruedfrom the date of the preceding payment.

(a) Journalize the entry to record the purchase of the truck

(b) Journalize the payment of the first installment on July 1

Problem 15 Dividends per shareSlick, Inc., a computer consulting company, has stock outstanding as follows: 10,000 shares of $8 (8%) nonparticipating,noncumulative preferred stock of $100 par, and 50,000 shares of $25 par common. During it third year of operation, thecorporation paid a dividends of $167,500.Calculate the dividends per share for each class of stock.

Problem 16 Entries for issuing par stockOn June 1, Chicago Carpet World, a carpet retailer, issued for cash 10,000 shares of $20 par common stock at $24, and on July 1, itissued for cash 5,000 shares of $ 10 par preferred stock at $14.(a) Journalize the entries for the issuance of stock

(b) What is the total amount invested (total paid-in capital) by all stockholders as of July 1.

Problem 17 Treasury Stock transactionOn June I of the current year, Roma Inc., a distributor of Italian food products, reacquired 2,000 shares of its common stock at$32 per share. On July 15, Roma Inc. sold 500 of the reacquired shares at $41 per share. The remaining 1,500 shares were sold at$30 per share on November 12.

(a) Journalize the transactions of June 1, July 15, and November 12.

(b) What is the balance of Paid-in Capital from Sale of Treasury Stock on December 3 1 of the current year?

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SAMPLE PROBLEMS

Problem 18 Entries for stock dividendStock dividends are paid in shares of stock. To determine the number of shares, multiply the number of shares outstanding by thestock dividend percentage. To calculate the dollar value of the stock dividend, multiply the number of shares by the market price.The board of directors of Home Value Inc., a small chain of home centers, declared a 5% stock dividend when the market priceof the common stock was $ 40 per share. Prior to the stock dividend, the following account balances appear on the balance sheet:

Common Stock, $25 par, 10,000 shares $250,000Paid-in Capital in excess of par-Common Stock 50,000Retained Earnings 150,000Total Stockholders' Equity $450,000

(a) Journalize the entries to record (1) the declaration of the dividend, capitalizing an amount equal to the market value and (2)the issuance of the stock certificates.

(b) What is the total stockholder's equity, at year end, after the issuance of the stock dividend?

Problem 19 Entries for cash dividendOn November 15, the board of directors of Parker Corporation declared a cash dividend of 1.00 per share on the 50,000 sharescommon stock outstanding to stockholders of record on November 30, payable on December 15. Journalize the required entries.

Problem 20 Effect of stock splitSuper Clean Corporation, which had 10,000 shares of common stock outstanding, declared a 3 for 1 stock split (2 additionalshares for each share issued).

(a) What will be the number of shares outstanding after the split?

(b) If the common stock had a market value of $90 per share before the split what would be the approximate market price per

share after the split?

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SAMPLE PROBLEMS

Problem 21 Stockholders' Equity section of a balance sheetThe following accounts and their balances appear in the ledger of The Salty Dog, a company that sellsboats and accessories, on December 3 1, the end of the current fiscal year:Common Stock $10 par 750,000

Paid-in Capital in Excess of Par-Common Stock 150,000Paid-in Capital in Excess of Par-Preferred Stock 50,000

Paid-in Capital from Sale of Treasury Stock-Common 14,000Preferred $5 Stock, $100 par 500,000

Retained Earnings 617,000Treasury Stock-Common 18,000

There are 2,000 shares of common stock held as treasury stock; 250,000 of common stock and 20,000 shares of preferred stockare authorized.

Prepare the Stockholders' Equity section of the balance sheet as of December, the end of the current year using theformat below:

Stockholders' Equity

Paid-in capital:Preferred $ _____ stock, $ _______ Par(______________shares authorized, ................................ _______________shares issued) $ _______________

Excess of issue price over par .................................. _______________ _______________

Common stock $ _______ par(______________ shares authorized, _______________shares issued) ...................................... _______________

Excess of issue price over par .................................................................................................... _______________

From sales of treasury stock ............................................................................................... _______________

Total paid-in capital.................... .............................. . $ _______________

Retained earnings ............................................................................................................ ________________

Total ............................................................................................................................... ________________

Deduct treasury stock ( _________ shares at cost) ............................. ________________

Total stockholders' equity ............................................................ $_________________

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SOLUTIONS TO PROBLEMS

Problem 1 Uncollectible Receivables(a) The two methods of accounting for uncollectible receivables are:

direct write-off method and the allowance method.

(b) The journal entry used to write-off an uncollectible account when using the direct write-off method:Uncollectible Accounts Expense Debit

Accounts Receivable Credit

(c) The journal entry used to write-off an uncollectible account when using the allowance method:Allowance for Doubtful Accounts Debit

Accounts Receivable Credit

(d) The journal entry used to reinstate an account when using the direct write-off method:Accounts Receivable Debit

Uncollectible Accounts Expense Credit

(e) The journal entry used to reinstate an account when using the allowance method:Accounts Receivable Debit

Allowance for Doubtful Accounts Credit

(f) The two methods used to estimate uncollectible accounts expense when using the allowance method are the estimate based on salesand the estimate based on analysis of receivables

Problem 2 Estimated uncollectible accounts based on sales(a) The uncollectible accounts expense for the period is $15,000 (1% of $1,500,000)

(b) The journal entry required is:Uncollectible Accounts Expense 15,000

Allowance for Doubtful Accounts 15,000

(c) The balance of the Allowance for Doubtful Accounts after adjustment is $40,000. (25,000 + 15,000)

(d) The net realizable value of the receivables after adjustment is $285,000. (325,000 - 40,000)

Problem 3 Estimated uncollectible accounts based on analysis (aging) of receivables(a) The uncollectible accounts expense for the period is $40,000 (35,000 + 5,000)

(b) The journal entry required is:Uncollectible Accounts Expense 40,000

Allowance for Doubtful Accounts 40,000

(c) The balance of the Allowance for Doubtful Accounts after adjustment is $35,000

(d) The net realizable-value of the receivables after adjustment is $290,000 (325,000 - 35,000)

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SOLUTIONS TO PROBLEMS

Problem 4 Entries for receipt and dishonor of note receivable(a) The journal entry to record the receipt of the note is:

Notes Receivable 15,000Accounts Receivable 15,000

(b) The maturity date of the note is April 30.

(c) The maturity value of the note is $15,300; (15,000 X. 12 X 60 / 360)

(d) The amount of the discount is $293.25; (15,300 X. 15 X 46 / 360)

(e) The proceeds are $15,006.75; (15,000 - 293.25)

(f) The journal entry to record the discounting of the note is:Cash 15,006.75

Notes Receivable 15,000.00Interest Revenue 6.75

(g) The amount payable to the bank on the maturity date is $15,350; (15,300 + 50)

(h) The journal entry to record the dishonor of the note receivable is:Accounts Receivable 15,350

Cash 15,350

Problem 5 Compute Accounts receivable turnover and the number of day's sales in receivables(a) Accounts receivable turnover for 1998 was 13.0

6,570,000 / (475,000 + 535,000) / 2 = 13.0

(b) The number of days' sales in receivables at year end was 29.7 days535,000 / (6,570,000 / 365) = 29.7

Problem 6 Straight-line depreciation(50,000 - $5,000) / 5 years = $9,000 per year

Problem 7 Depreciation by the units-of-production method(a) ($45,000- $5,000)/100,000niiles = $0..5 per mile

(b) 12,000 miles X $.35 = $4,200

Problem 8 Depreciation by the declining-balance methodFirst year: 20% of $85,000 = $17,000

Second year: 20% of ($85,000 - $17,000) = $13,600

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SOLUTIONS TO PROBLEMS

Problem 9 Disposal of fixed asset(a) ($55,000 - $5,000) / 10 years = $5,000 per year(b) $55,000 - (8.5 years X $5,000) = $12,500(c) Journal entries:

Depreciation Expense (for year) 2,500

Accumulated Depreciation-Equipment 2,500Cash 10,000Accumulated Depreciation-Equipment 42,500Loss on Disposal of Fixed Assets 2,500

Equipment 55,000

Problem 10 Asset traded for a similar asset(a) The book value is $2,500; ($35,000- $32,500)(b) The amount of cash paid is $40,000; ($45,000 - $5,000)(c) The cost of the new truck is:$42,500; ($40,000 + $2,500) (cash paid + book value of old truck)(d) Journal entry

Truck (new) 42,500

Accumulated Depreciation-Truck (old) 32,500Truck (old) 35,000Cash 40,000

Problem 11 Asset traded for a similar asset(a) The book value is $5,000; ($35,000- $30,000)(b) The amount of cash paid is $42,500; ($45,000 - $2,500)(c) The cost of the new truck is:$45,000; ($42,500 + $5,000 - $2,500)

Cost of new truck = book value of old truck + cash paid - loss on trade-in

(d) Journal entryTruck (new) 45,000Accumulated Depreciation-Truck (old) 30,000

Loss on Disposal of Fixed Assets 2,500Truck (old) 35,000

Cash 42,500

Problem 12 Depletion entries(a) $15,000,000 / 60,000,000 = $.25 per ton

11,500,000 X $.25 = $2,875,000 depletion expense(b) Journal entry

Depletion Expense 2,875,000Accumulated Depletion 2,875,000

Problem 13 Amortization of patent rightsAmortization Expense - Patents 6,000

Patents 6,000

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SOLUTIONS TO PROBLEMS

Problem 14 Fixed asset purchase with note(a) Truck 29,000

Note Payable 24,000

Cash 5,000(b) Note Payable 4,000

Interest Expense (24,000 x 10% x 30 / 360) 200Cash 4,200

Problem 15 Dividends per sharePreferred Stock Dividend: $8 per share X 10,000 shares =$80,000Total dividends paid $167,500 - $80,000 = $87,500 for common stock

Common Stock Dividend: $87,500 / 50,000 shares = $1.75 per share

Problem 16 Entries for issuing par stock(a) June 1 Cash 240,000

Common Stock 200,000

Paid-in Capital in Excessof Par - Common Stock 40,000

July 1 Cash 70,000Preferred Stock 50,000Paid-in Capital in Excess

of Par - Preferred Stock 20,000

(b) Total amount invested by all stockholders as of July 1, $310,000 ($240,000 + $70,000)

Problem 17 Treasury Stock transactions(a) June 1 Treasury Stock 64,000

Cash 64,000

July 15 Cash 20,500Treasury Stock 16,000

Paid-in Capital from Sale of Treasury Stock 4,500

Nov 12 Cash 45,000Paid-in Capital from Sale of Treasury Stock 3,000

Treasury Stock 48,000

(c) Credit balance of $1,500

Problem 18 Entries for stock dividend

(a) (1) Stock Dividends (10,000 shares x 5% x $40) 20,000Stock Dividends Distributable 12,500Paid-in Capital in excess of par-Common Stock 7,500

(2) Stock Dividends Distributable 12,500Common Stock 12,500

(b) Total Stockholders' Equity after the stock dividend is $450,000 (the same as it was before the stock split)

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SOLUTIONS TO PROBLEMS

Problem 19 Entries for cash dividendNov 15 Cash Dividends 50,000

Cash Dividends Payable 50,000

Nov 30 No entry required

Dec 15 Cash Dividends Payable 50,000Cash 50,000

Problem 20 Effect ofstock split(a) 30,000 shares(b) $30 per share

Problem 21 Stockholders' Equity section ofbalance sheet

Stockholders' Equity

Paid-in capital:Preferred $5 stock, $100 par

(20,000 shares authorized,

5,000 shares issued) .............................. $500,000Excess of issue price over par ................... 50,000 $ 550,000Common stock, $10 par

(250,000 shares authorized,75,000 shares issued) ..............................750,000

Excess of issue price over par .................. 150,000 900,000From sales of treasury stock ........................... 14,000Total paid-in capital ........................................ $1,464,000

Retained earnings ................................................ 617,000Total ................................................................ $2,081,000

Deduct treasury common stock(2,000 shares at cost) ...................................... 18,000

Total stockholder' equity ..................................... $2,063,000