1) An income ratio based on ______________ balances may be appropriate when the
amount of funds invested in the partnership is critical to the partnership.
2) Hayden Company purchased a machine on January 1, 2014, at a cost of $90,000. It is
expected to have an estimated salvage value of $5,000 at the end of its 5-year life. The
company capitalized the machine and depreciated it in 2014 using the
double-declining-balance method of depreciation. The company has a policy of using
the straight-line method to depreciate equipment but the company accountant neglected
to follow company policy when he used the double-declining-balance method. Net
income for the year ended December 31, 2014 was $55,000 as the result of depreciating
the machine incorrectly.
Instructions
Using the method of depreciation which the company normally follows, prepare the
correcting entry and determine the corrected net income. (Show computations.)
3) Under the direct method, noncash charges, such as depreciation, are
_______________ in the statement of cash flows.
4) The trial balance of Gleimer Corporation reported the following balances for selected
accounts on July 31, 2014:
Prepaid Insurance$24,000Unearned Service Revenue$ 9,600
Equipment120,000Notes Payable60,000
Accumulated Depreciation18,000Interest Payable1,400
Instructions: Using the additional information given below, prepare the appropriate
monthly adjusting entries at July 31 . Show computations.
1>Revenue for services rendered to customers, but not yet billed, totaled $16,000 on
July 31 .
2>The note payable is a 7%, 1 year note issued March 1, 2014 .
3>The equipment was purchased on January 1, 2014, for $120,000. It has an estimated
life of 5 years and an estimated salvage value of $24,000. Gleimer uses the straight-line
depreciation method.
4>An insurance policy was acquired on June 30, 2014; the premium paid for 2 years
was $11,520.
5>Gleimer received $9,600 fees in advance from a customer on January 1, 2014 .
Two-thirds of this amount was earned in July.
5) Presented below is a balance sheet for Jim Henson Yard Service at December 31,
2014 .
JIM HENSON YARD SERVICE
Balance Sheet
December 31, 2014
AssetsLiabilities and Owner’s Equity
Cash$13,000Liabilities
Accounts receivable6,000Accounts payable$ 8,000
Supplies9,000Notes payable15,000
Equipment11,000Owner’s equity
Owners capital 16,000
Total assets$39,000Total liabilities & owners equity$39,000
The following additional data are available for the year which began on January 1: All
expenses (excluding supplies expense) total $6,000. Supplies on January 1, were
$11,000 and $7,000 of supplies were purchased during the year. Net income for the year
was $8,000 and drawings were $9,000.
Instructions
Determine the following: (Show all computations.)
1>Supplies used during the year.
2>Total expenses for the year.
3>Service revenues for the year.
4>Owners capital balance on January 1 .
6) 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 $40 million.
Betsy Brantley, a new accounting manager, questioned this depreciation policy. Will
Gray, the controller, has told her that she needn’t worry about it. For one thing, he says,
this is really a special form of Land account, which should not be depreciated at all. For
another, this is a privately held company, and so they don’t need to worry about
misleading investors. All the owners know about and approve the depreciation policy.
Required:
What are the ethical issues in this situation?
7) The following information is available for Elwes Company for the year ended
December 31, 2014:
Accounts payable$ 3,800
Accumulated depreciation-equipment4,000
Owners capital9,300
Intangible assets2,300
Notes payable (due in 5 years)5,000
Accounts receivable1,500
Cash2,800
Short-term investments1,000
Equipment8,800
Long-term investments5,700
Instructions
Use the above information to prepare a classified balance sheet for the year ended
December 31, 2014 .
8) Scruffy Brothers Supply uses a periodic inventory system. During May, the
following transactions and events occurred.
May13Purchased 8 motors at a cost of $45 each from Charlie Company, terms 4/10,
n/30. The motors cost Charlie Company $26 each.
May16Returned 1 defective motor to Charlie.
May 23Paid Charlie Company in full. Round to nearest dollar.
Instructions
Journalize the May transactions for Scruffy Brothers. You may omit explanations.
9) After all closing entries have been journalized and posted, the final step in the
accounting cycle is to prepare a ______________ trial balance.
10) Prepare a trial balance from the ledger accounts of Black Diamond Express as of
January 31, 2014 .
Accounts Payable$ 1,100Rent Expense$ 500
Accounts Receivable1,700Service Revenue3,000
Cash1,400Supplies200
Owners Capital2,000Salaries and Wages Expense1,300
Owners Drawings1,000