This exercise will provide you with an illustration of how to handle a change in the estimated service life and salvage value of a plant asset due to an expenditure subsequent to acquisition. The Royal Company purchased a machine at the very end of 2001 for $210,000. The machine was being depreciated using the straight-line method over an estimated life of 20 years, with a […]

This exercise will help you to understand how the sale of a plant asset compares with the sale of inventory. Houston Merchandising Company sold two items. The following facts pertain: Item 1 Item 2 Sales price $10,000 $10,000 Cost/book value 5,200 5,200 Sales commission 400 400 Item 1 is an inventory item. Item 2 is a plant asset. Instructions Explain the manner of reporting each […]

This exercise illustrates the steps in estimating the value of goodwill. Mr. Judski is contemplating the sale of his business, Classic Vettes. The following data are available. Book value of tangible & identifiable intangible assets less liabilities $135,000 Fair market value of tangible & identifiable intangible assets less liabilities 200,000 Estimated fair market value of the business as a whole 240,000 Instructions Compute the estimated […]

This exercise will allow you to practice recording the exchange of plant assets when the exchange has commercial substance. Soon Yoon Company exchanged equipment used in its manufacturing operations plus $5,000 in cash for delivery equipment used in the operations of Peggy Gunshanan Company. The exchange is determined to have commercial substance because the timing and the amount of the cash flows arising from the […]

The following information pertains to the Berry Bear Corporation at December 31, 2014 Balance per bank S20 000 Deposits in transit e 000 Outstanding checks 16.000 Bank service charges for December 400 Bank erroneously charged Berry Bears account for Sonny-Bear”s check written for $1,400. As of December 31, the bank had not corrected this error 1.400 Berry Bear”s cash balance per ledger (books) before adjustment […]

The Jupiter Company purchased a parcel of land to be used as the site of a new office complex. The following data pertain to the purchase of the land and the beginning of construction for the new building: Purchase price of land $200,000 Attorney”s fees for land transaction 1,000 Title insurance cost 2,000 Survey fees to determine the boundaries of the lot 800 Excavation costs […]

The following data relate to the bank account of Springfield Cleaners: Cash balance, September 30 per bank $10,000 Cash balance, October 31 per bank 21,500 Checks paid during October by bank 5,900 Checks written during October per books 6,800 Cash balance, October 31 per books 22,200 Bank service charge for October, not recorded on books 100 Deposits per books for October 19,000 The amount of […]

The Venus Company hired an architect to design plans and a construction firm to build a new office building on a parcel of land it owns. The following data relates to the building: Price paid to the construction firm $320,000 Architect fees 18,000 Permit fees 1,200 Property taxes during the construction period 800 Insurance premium for first year of operations 3.000 Property taxes during the […]

This exercise will review the two bases for determining the dollar amount of the adjusting entry to recognize bad debt expense and to adjust the Allowance for Doubtful Accounts account. The trial balance before adjustment at December 31, 2014 for the Liz Company shows the following balances: Debit Credit Accounts Receivable $82000 Allowance for Doubtful Accounts 2120 Sales (all on credit) $410,000 Sales Returns and […]

The Patty Company purchased a piece of office equipment to be used in operations. The following expenditures and other data relate to the equipment: Invoice price excluding sales tax $12,000 Sales tax 600 Delivery charges 200 Installation costs 300 Cost of a special platform 400 Cost of supplies used in testing 80 Insurance premium for first year of use 60 The total acquisition cost of […]