The renting of an apartment is an example of a capital lease.
Answer:
Harnish Company needs to make adjusting entries for each of the following reconciling
items. Identify the account to be debited and the account to be credited in each case.
1> A check for $127 written to the company by J. Chandler was returned NSF.
2> The monthly service charge by the bank was $20.
3> The bank collected a $1,000 note plus interest of $100 on the company’s behalf. The
company had not accrued the interest.
Answer:
From a creditor’s point of view, the higher the total debt to total assets ratio, the lower
the risk that the company may be unable to pay its obligations.
Answer:
An event or transaction should be classified as an extraordinary item if it is unusual in
nature or if it occurs infrequently.
Answer:
The following items were taken from the financial statements of Buttercup Company.
[All dollars are in thousands.)
Instructions
Prepare a classified balance sheet in good form as of December 31, 2015.
Answer:
An examination of the accounts of Savage Company for the month of June revealed the
following errors after the transactions were journalized and posted.
1> A check for $800 from R. Wright, a customer on account, was debited to Cash $800
and credited to Service Revenue, $800.
2> A payment for Advertising Expense costing $630 was debited to Utilities Expense,
$360 and credited to Cash $360.
3> A bill for $850 for Supplies purchased on account was debited to Equipment, $580
and credited to Accounts Payable $580.
Instructions
Prepare correcting entries for each of the above assuming the erroneous entries are not
reversed. Explain how the transaction as originally recorded affected net income for the
month of June.
Answer:
Under Protection provides underground storage facilities for companies
desiring off-site storage of sensitive documents, computer records, and
other items. They have developed a sophisticated surveillance and security
system which they initially used in their own facilities, and have recently
started to market elsewhere as well.
The underground storage facilities are made from natural caves in some
instances [reinforced and modified as appropriate) and from excavations of
natural rock formations in others. The land was purchased over ten years
ago for a total of $2.5 million. The modifications have cost approximately
$15 million more. The company has never depreciated its storage facilities
because the market value of the property has continued to rise. Presently,
the market price is between $30 and $40 million.
Betsy Brantley, a new accounting manager, questioned this depreciation
policy. Will Gray, the controller, has told her that she needn’t worry about
it. For one thing, he says, this is really a special form of Land account,
which should not be depreciated at all. For another, this is a privately held
company, and so they don’t need to worry about misleading investors. All
the owners know about and approve the depreciation policy.
What are the ethical issues in this situation?
Answer:
In general, documents should be prenumbered and all documents should be accounted
for.
Answer: