Airline Accessories has the following current assets: cash, $112 million

Airline Accessories has the following current assets: cash, $112 million; receivables, $104 million; inventory, $192 million; and other current assets, $28 million. Airline Accessories has the following liabilities: accounts payable, $118 million; current portion of long-term debt, $45 million; and long-term debt, $33 million. Based on these amounts, calculate the current ratio and the acid-test ratio for Airline Accessories.

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The Environmental Protection Agency (EPA) is in the process of investigating a possible water

The Environmental Protection Agency (EPA) is in the process of investigating a possible water contamination issue at the manufacturing facility of Northwest Forest Products. The EPA has not yet proposed a penalty assessment. Management feels an assessment is reasonably possible, and if an assessment is made, an unfavorable settlement is estimated between $20 and $30 million.

Which of the following statements is true?

A loss and a liability must be recorded for $20 million.

A disclosure note should be included in the financial statements, without an entry.

A loss must be recorded for $30 million and a liability must be recorded for $20 million.

A loss must be recorded for $20 million and a liability must be recorded for $30 million.

Northwest Forest Products has a contingent liability that is reasonably possible and reasonably estimable, within a range between $20 and $30 million. Since the loss is reasonably possible, but not probable, we will carefully disclose the situation, but not record the potential loss and liability in the financial records. Details regarding the investigation by the EPA, the reasonable possibility of an assessment, and the range of settlements should be included in the disclosure.

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Electronic Innovators is the defendant in a $10 million lawsuit filed by one of its customers

Electronic Innovators is the defendant in a $10 million lawsuit filed by one of its customers, Aviation Systems. The litigation is in final appeal, and legal counsel advises that it is probable that Electronic Innovators will lose the lawsuit. The estimated amount is somewhere between $6 and $10 million.

Which of the following statement(s) are true? (Select all that apply.)

A loss and a liability must be recorded for $6 million.

A loss and a liability must be recorded for $10 million.

A disclosure note should be included for a range of $6 and $10 million to the financial statements with an entry for the minimum amount.

A disclosure note should be included for a range of $6 and $10 million to the financial statements with an entry for the maximum amount.

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Electronic Innovators has a contingent liability that is probable and can be reasonably estimated within a range between $6 and $10 million. Electronic Innovators should record a loss and a liability for the minimum amount ($6 million) and disclose the range between $6 and $10 million in the notes to the financial statements.

Aviation Systems is involved in a $10 million lawsuit filed against one of its suppliers

Aviation Systems is involved in a $10 million lawsuit filed against one of its suppliers, Electronic Innovators. The litigation is in final appeal, and legal counsel advises that it is probable that Aviation Systems will win the lawsuit and be awarded somewhere between $6 and $10 million.

Which of the following statement is true?

A gain and an asset must be recorded for $10 million.

A gain and an asset must be recorded for $6 million.

A gain must be recorded for $6 million and an asset must be recorded for $10 million.

Gain contingencies are not recorded.

A gain must be recorded for $10 million and an asset must be recorded for $6 million.

Aviation Systems has a contingent gain that is probable and reasonably estimable, within a range between $6 and $10 million. Contingent gains are not recorded until the gain is certain. Though firms do not record contingent gains in the accounts, they sometimes disclose them in the notes to the financial statements.


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Sony introduces a new compact music player to compete with Apple’s iPod that carries a two-year

Sony introduces a new compact music player to compete with Apple’s iPod that carries a two-year warranty against manufacturer’s defects. Based on industry experience with similar product introductions, warranty costs are expected to be approximately 3% of sales. By the end of the first year of selling the product, total sales are $31 million, and actual warranty expenditures are $300,000. What amount (if any) should Sony report as a liability at the end of the year?

On December 18, Intel receives $260,000 from a customer toward a cash sale of $2.6 million for

On December 18, Intel receives $260,000 from a customer toward a cash sale of $2.6 million for computer chips to be completed on January 23. The computer chips had a total production cost of $1.6 million. What journal entries should Intel record on December 18 and January 23? Assume Intel uses the perpetual inventory system.

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Mike Samson is a college football coach making a base salary of $652,800 a year

Mike Samson is a college football coach making a base salary of $652,800 a year ($54,400 per month). Employers are required to withhold a 6.2% Social Security tax up to a maximum base amount and a 1.45% Medicare tax with no maximum. Assuming the FICA base amount is $118,500.

1. Compute how much will be withheld during the year for Coach Samson’s Social Security and Medicare..

2. What additional amount will the employer need to contribute towards FICA taxes?

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On November 1, Bahama Cruise Lines borrows $4 million and issues a six-month

On November 1, Bahama Cruise Lines borrows $4 million and issues a six-month, 6% note payable. Interest is payable at maturity.

Record the issuance of the note and the appropriate adjustment for interest expense at December 31, the end of the reporting period.

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On January 1, 2018, the general ledger of TNT Fireworks includes the following account balances

On January 1, 2018, the general ledger of TNT Fireworks includes the following account balances:

  Accounts           Debit     Credit

  Cash    $              58,700                                                    

  Accounts Receivable                    25,000                                                    

  Inventory                          36,300                                                    

  Notes Receivable (5%, due in 2 years)                 12,000                                                    

  Land                    155,000                                                                  

  Allowance for Uncollectible Accounts                                                   $              2,200      

  Accounts Payable                                                                          14,800    

  Common Stock                                                                               220,000                  

  Retained Earning                                                                            50,000    

       Totals             $              287,000                                 $              287,000                  

During January 2018, the following transactions occur:

January 1 Purchase equipment for $19,500. The company estimates a residual value of $1,500 and a five-year service life.

January 4 Pay cash on accounts payable, $9,500.

January 8 Purchase additional inventory on account, $82,900.

January 15 Receive cash on accounts receivable, $22,000

January 19 Pay cash for salaries, $29,800.

January 28 Pay cash for January utilities, $16,500.

January 30 Firework sales for January total $220,000. All of these sales are on account. The cost of the units sold is $115,000.


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Information for adjusting entries:

1. Depreciation on the equipment for the month of January is calculated using the straight-line method.

2. At the end of January, $3,000 of accounts receivable are past due, and the company estimates that 50% of these accounts will not be collected. Of the remaining accounts receivable, the company estimates that 3% will not be collected. The note receivable of $12,000 is considered fully collectible and therefore is not included in the estimate of uncollectible accounts.

3. Accrued interest revenue on notes receivable for January.

4. Unpaid salaries at the end of January are $32,600.

5. Accrued income taxes at the end of January are $9,000.

Abbott Landscaping purchased a tractor at a cost of $42,000 and sold it three years later for $21,600

Abbott Landscaping purchased a tractor at a cost of $42,000 and sold it three years later for $21,600. Abbott recorded depreciation using the straight-line method, a five-year service life, and a $3,000 residual value. Tractors are included in the Equipment account.

Required:

1. Record the sale.

2. Assume the tractor was sold for $13,600 instead of $21,600. Record the sale.

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On January 1, 2018, Weaver Corporation purchased a patent for $237,000

On January 1, 2018, Weaver Corporation purchased a patent for $237,000. The remaining legal life is 20 years, but the company estimates the patent will be useful for only six more years. In January 2020, the company incurred legal fees of $57,000 in successfully defending a patent infringement suit. The successful defense did not change the company’s estimate of useful life. Weaver Corporation’s year-end is December 31.

Required:

1. Record the purchase in 2018; amortization in 2018; amortization in 2019; legal fees in 2020; and amortization in 2020.

2. What is the balance in the Patent account at the end of 2020?


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Satellite Systems modified its model Z2 satellite to incorporate a new communication device

Satellite Systems modified its model Z2 satellite to incorporate a new communication device. The company made the following expenditures:

  Basic research to develop the technology           $3,900,000 

  Engineering design work            1,180,000 

  Development of a prototype device     590,000 

  Testing and modification of the prototype         390,000 

  Legal fees for patent application             79,000 

  Legal fees for successful defense of the new patent     39,000 

       Total               $6,178,000 

During your year-end review of the accounts related to intangibles, you discover that the company has capitalized all the above as costs of the patent. Management contends that the device represents an improvement of the existing communication system of the satellite and, therefore, should be capitalized.

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Red Rock Bakery purchases land, building, and equipment for a single purchase price of $600,000

Red Rock Bakery purchases land, building, and equipment for a single purchase price of $600,000. However, the estimated fair values of the land, building, and equipment are $175,000, $455,000, and $70,000, respectively, for a total estimated fair value of $700,000.

Required:

Determine the amounts Red Rock should record in the separate accounts for the land, the building, and the equipment.

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Orion Flour Mills purchased a new machine and made the following expenditures

Orion Flour Mills purchased a new machine and made the following expenditures:         

  Purchase price                $75,000   

  Sales tax            6,000   

  Shipment of machine   1,000   

  Insurance on the machine for the first year       700   

  Installation of machine                2,000   

The machine, including sales tax, was purchased on account, with payment due in 30 days. The other expenditures listed above were paid in cash.

Required:

Record the above expenditures for the new machine.

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McCoy’s Fish House purchases a tract of land and an existing building for $1,000,000

McCoy’s Fish House purchases a tract of land and an existing building for $1,000,000. The company plans to remove the old building and construct a new restaurant on the site. In addition to the purchase price, McCoy pays closing costs, including title insurance of $3,000. The company also pays $14,000 in property taxes, which includes $9,000 of back taxes (unpaid taxes from previous years) paid by McCoy on behalf of the seller and $5,000 due for the current fiscal year after the purchase date. Shortly after closing, the company pays a contractor $50,000 to tear down the old building and remove it from the site. McCoy is able to sell salvaged materials from the old building for $5,000 and pays an additional $11,000 to level the land.

Required:

Determine the amount McCoy’s Fish House should record as the cost of the land.

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On January 1, 2018, the general ledger of Big Blast Fireworks includes the following account balances

On January 1, 2018, the general ledger of Big Blast Fireworks includes the following account balances:

Accounts             Debit     Credit

 Cash     $              21,900                                                    

 Accounts Receivable                     36,500                                                    

 Inventory                           30,000                                                    

 Land                     61,600                                                    

 Allowance for Uncollectible Accounts                                                                    3,100      

 Accounts Payable                                                                           32,400    

 Notes Payable (8%, due in 3 years)                                                                         30,000    

 Common Stock                                                                                56,000    

 Retained Earnings                                                                           28,500    

 Totals   $              150,000                                 $              150,000                  

The $30,000 beginning balance of inventory consists of 300 units, each costing $100. During January 2018, Big Blast Fireworks had the following inventory transactions:

January 3 Purchase 1,200 units for $126,000 on account ($105 each).

January 8 Purchase 1,300 units for $143,000 on account ($110 each).

January 12 Purchase 1,400 units for $161,000 on account ($115 each).

January 15 Return 100 of the units purchased on January 12 because of defects.

January 19 Sell 4,000 units on account for $600,000. The cost of the units sold is determined using a FIFO perpetual inventory system.

January 22 Receive $580,000 from customers on accounts receivable.

January 24 Pay $410,000 to inventory suppliers on accounts payable.

January 27 Write off accounts receivable as uncollectible, $2,500.

January 31 Pay cash for salaries during January, $128,000.

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During the year, Trombley Incorporated has the following inventory transactions

During the year, Trombley Incorporated has the following inventory transactions.

 

  Date    Transaction         Number

of Units                Unit

Cost          Total Cost

  Jan. 1        Beginning inventory 20           $ 22       $ 440   

  Mar. 4                      Purchase        25           21           525   

  Jun. 9      Purchase        30           20           600   

  Nov. 11                    Purchase        30           18           540   

                                                               

                                105                         $ 2,105   

For the entire year, the company sells 81 units of inventory for $30 each.

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Tisdale Incorporated reports the following amount in its December 31, 2018, income statement

Tisdale Incorporated reports the following amount in its December 31, 2018, income statement.

  Sales revenue                 $ 300,000                 Income tax expense   $  30,000  

  Non-operating revenue              110,000                     Cost of goods sold       190,000  

  Selling expenses            60,000       Administrative expenses          40,000  

  General expenses         50,000                  

Required:

1. Prepare a multiple-step income statement.


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Russell Retail Group begins the year with inventory of $55,000 and ends the year with inventory of

Russell Retail Group begins the year with inventory of $55,000 and ends the year with inventory of $45,000. During the year, the company has four purchases for the following amounts.   

  Purchase on February 17            $ 210,000 

  Purchase on May 6        130,000 

  Purchase on September 8          160,000 

  Purchase on December 4           410,000

Required:

Calculate cost of goods sold for the year.

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On March 1, Terrell & Associates provides legal services to Whole Grain Bakery regarding some recent food poisoning complaints

On March 1, Terrell & Associates provides legal services to Whole Grain Bakery regarding some recent food poisoning complaints. Legal services total $11,000. In payment for the services, Whole Grain Bakery signs a 9% note requiring the payment of the face amount and interest to Terrell & Associates on September 1.

Required:

For Whole Grain Bakery, record the issuance of the note payable on March 1 and the cash payment on September 1.

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At the beginning of 2018, Brad’s Heating & Air (BHA) has a balance of $26,000 in accounts receivable

At the beginning of 2018, Brad’s Heating & Air (BHA) has a balance of $26,000 in accounts receivable. Because BHA is a privately owned company, the company has used only the direct write-off method to account for uncollectible accounts. However, at the end of 2018, BHA wishes to obtain a loan at the local bank, which requires the preparation of proper financial statements. This means that BHA now will need to use the allowance method. The following transactions occur during 2018 and 2019.

a. During 2018, install air conditioning systems on account, $190,000.

b. During 2018, collect $185,000 from customers on account.

c. At the end of 2018, estimate that uncollectible accounts total 15% of ending accounts receivable.

d. In 2019, customers’ accounts totaling $8,000 are written off as uncollectible.

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Consider the following transactions associated with accounts receivable and the allowance for uncollectible accounts

Consider the following transactions associated with accounts receivable and the allowance for uncollectible accounts.

Required:

For each transaction, indicate whether it would increase (I), decrease (D), or have no effect by leaving the cell blank, on the account totals. (Hint: Make sure the accounting equation, Assets = Liabilities + Stockholders’ Equity, remains in balance after each transaction.)


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Mercy Hospital has the following balances on December 31, 2018, before any adjustment

Mercy Hospital has the following balances on December 31, 2018, before any adjustment: Accounts Receivable = $70,000; Allowance for Uncollectible Accounts = $1,400 (credit). Mercy estimates uncollectible accounts based on an aging of accounts receivable as shown below.

  Age Group        Amount

Receivable          Estimated Percent Uncollectible

  Not yet due      $ 50,000                15%

  0–30 days past due       11,000                   20%

  31–90 days past due     8,000                     45%

  More than 90 days past due      1,000                     85%

                                 

       Total               $ 70,000                 

                               

1. Estimate the amount of uncollectible receivables.

2. Record the adjustment for uncollectible accounts on December 31, 2018.

3. Calculate the net realizable value of accounts receivable.


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Physicians’ Hospital has the following balances on December 31, 2018, before any adjustment

Physicians’ Hospital has the following balances on December 31, 2018, before any adjustment: Accounts Receivable = $60,000; Allowance for Uncollectible Accounts = $1,100 (credit). On December 31, 2018, Physicians’ estimates uncollectible accounts to be 15% of accounts receivable.

Required:

1. Record the adjustment for uncollectible accounts on December 31, 2018.


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On April 25, Foreman Electric installs wiring in a new home for $3,500 on account

On April 25, Foreman Electric installs wiring in a new home for $3,500 on account. However, on April 27, Foreman’s electrical work does not pass inspection, and Foreman grants the customer an allowance of $600 because of the problem. The customer makes full payment of the balance owed, excluding the allowance, on April 30.

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On March 12, Medical Waste Services provides services on account to Grace Hospital for $11,000, terms

On March 12, Medical Waste Services provides services on account to Grace Hospital for $11,000, terms 2/10, n/30. Grace pays for those services on March 20.

Required:

For Medical Waste Services, record the service on account on March 12 and the collection of cash on March 20.


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Merry Maidens Cleaning generally charges $300 for a detailed cleaning of a normal-size home

Merry Maidens Cleaning generally charges $300 for a detailed cleaning of a normal-size home. However, to generate additional business, Merry Maidens is offering a new-customer discount of 10%. On May 1, Ms. E. Pearson has Merry Maidens clean her house and pays cash equal to the discounted price.

Required:

Record the revenue earned by Merry Maidens Cleaning on May 1.


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On May 7, Juanita Construction provides services on account to Michael Wolfe for $4,000

On May 7, Juanita Construction provides services on account to Michael Wolfe for $4,000. Michael pays for those services on May 13.

Required:

For Juanita Construction, record the service on account on May 7 and the collection of cash on May 13.


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Below are cash transactions for Goldman Incorporated, which provides consulting services related to mining of precious metals

Below are cash transactions for Goldman Incorporated, which provides consulting services related to mining of precious metals.

a. Cash used for purchase of office supplies, $2,400.

b. Cash provided from consulting to customers, $50,600.

c. Cash used for purchase of mining equipment, $83,000.

d. Cash provided from long-term borrowing, $70,000.

e. Cash used for payment of employee salaries, $25,000.

f. Cash used for payment of office rent, $13,000.

g. Cash provided from sale of equipment purchased in c. above, $23,500.

h. Cash used to repay a portion of the long-term borrowing in d. above, $45,000.

i. Cash used to pay office utilities, $5,300.

j. Purchase of company vehicle, paying $11,000 cash and borrowing $16,000.

Required:

Calculate cash flows from operating activities.

Below are several transactions for Meyers Corporation for 2018

Below are several transactions for Meyers Corporation for 2018.

a. Issue common stock for cash, $60,000.

b. Purchase building and land with cash, $45,000.

c. Provide services to customers on account, $8,000.

d. Pay utilities on building, $1,500.

e. Collect $6,000 on account from customers.

f. Pay employee salaries, $10,000.

g. Pay dividends to stockholders, $5,000.

Required:

1. For each transaction, determine the amount of cash flows. If cash is involved in the transaction, select whether Meyers should classify it as operating, investing, or financing in a statement of cash flows.

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Below are several transactions for Witherspoon Incorporated, a small manufacturer of decorative glass designs

Below are several transactions for Witherspoon Incorporated, a small manufacturer of decorative glass designs.

Required:

For each transaction, indicate (1) whether cash is involved (yes or no), and, if cash is involved, (2) whether Witherspoon should classify it as operating, investing, or financing in a statement of cash flows, and (3) whether the cash is an inflow or outflow. Enter N/A if the question is not applicable to the statement.


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T. L. Jones Trucking Services establishes a petty cash fund on April 3 for $200. By the end of April

T. L. Jones Trucking Services establishes a petty cash fund on April 3 for $200. By the end of April, the fund has a cash balance of $97. The company has also issued a credit card and authorized its office manager to make purchases. Expenditures for the month include the following items:

  Utilities (credit card)     $ 435 

  Entertainment (petty cash)       44 

  Stamps (petty cash)      59 

  Plumbing repair services (credit card)   630 

Required:

Record the establishment of the petty cash fund on April 3, all expenditures made during the month, and the replenishment of the petty cash fund on April 30. The credit card balance is paid in full on April 30.

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Halle’s Berry Farm establishes a $200 petty cash fund on September 4 to pay for minor cash

Halle’s Berry Farm establishes a $200 petty cash fund on September 4 to pay for minor cash expenditures. The fund is replenished at the end of each month. At the end of September, the fund contains $30 in cash. The company has also issued a credit card and authorized its office manager to make purchases. Expenditures for the month include the following items:

  Office party decorations (petty cash)    $  170 

  Lawn maintenance (credit card)              420 

  Postage (credit card)    575 

  Fuel for deliveries (credit card)                285 

Required:

Record the establishment of the petty cash fund on September 4, all expenditures made during the month, and the replenishment of the petty cash fund on September 30. The credit card balance is not yet paid.

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On October 31, 2018, Damon Company’s general ledger shows a checking account balance of $8,397

On October 31, 2018, Damon Company’s general ledger shows a checking account balance of $8,397. The company’s cash receipts for the month total $74,320, of which $71,295 has been deposited in the bank. In addition, the company has written checks for $72,467, of which $70,982 has been processed by the bank.

The bank statement reveals an ending balance of $11,727 and includes the following items not yet recorded by Damon: bank service fees of $150, note receivable collected by bank of $5,000, and interest earned on the account balance plus from the note of $320. After closer inspection, Damon realizes that the bank incorrectly charged the company’s account $300 for an automatic withdrawal that should have been charged to another customer’s account. The bank agrees to the error.

Required:

1. Prepare a bank reconciliation to calculate the correct ending balance of cash on October 31, 2018.

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Spielberg Company's general ledger shows a checking account balance of $22,970 on July 31, 2018

Spielberg Company's general ledger shows a checking account balance of $22,970 on July 31, 2018. The July cash receipts of $1,885, included in the general ledger balance, are placed in the night depository at the bank on July 31 and processed by the bank on August 1. The bank statement dated July 31 shows bank service fees of $55. The bank processes all checks written by the company by July 31 and lists them on the bank statement, except for one check totaling $1,460. The bank statement shows a balance of $22,490 on July 31.

Required:

1. Prepare a bank reconciliation to calculate the correct ending balance of cash on July 31, 2018.

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On January 1, 2018, the general ledger of Dynamite Fireworks includes the following account balances

On January 1, 2018, the general ledger of Dynamite Fireworks includes the following account balances:

 

  Accounts           Debit     Credit

  Cash    $              23,800                                                    

  Accounts Receivable                    5,200                                                      

  Supplies                             3,100                                                      

  Land                    50,000                                                    

  Accounts Payable                                                                          3,200      

  Common Stock                                                                               65,000    

  Retained Earning                                                                            13,900    

       Totals             $              82,100                   $              82,100    

uring January 2018, the following transactions occur:

January 2. Purchase rental space for one year in advance, $6,000 ($500/month).

January 9. Purchase additional supplies on account, $3,500.

January 13. Provide services to customers on account, $25,500.

January 17. Receive cash in advance from customers for services to be provided in the future, $3,700.

January 20. Pay cash for salaries, $11,500.

January 22. Receive cash on accounts receivable, $24,100.

January 29. Pay cash on accounts payable, $4,000.

Record each of the transactions listed above.

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