C6.35.
(continued)
c.
* Note that if the required adjustment to the Allowance for Bad Debts includes a
substantial amount of accounts that have been identified for immediate write-off, it may
be appropriate to treat part of this adjustment as a “prior period adjustment” for the
correction of an error in the application of an accounting principle. If this were the case,
are identified as uncollectible, would be written off with the following entry:
Dr. Allowance for Bad Debts ……………………………………… XXX
Cr. Accounts Receivable………………………………………. XXX
Note that the write-off entry has no impact on the net realizable value of accounts
receivable, but is necessary to maintain proper records of the account history for each
C6.35.
(continued)
f.
Balance Sheet Income Statement .
-114,400
Accumulated
-1,020,000
Accumulated
-845,400
Accumulated
Depreciation
C6.35.
(continued)
g.
Similar to the answer in part e, the net book value of equipment on the company’s
accounting records is not necessarily reflective of the underlying economic value of the
equipment. The relevant benchmarks for decision-making should be appropriate
measures of the equipment’s market value, such as its “blue book” value or appraised
value. If the selling price is greater than or equal to what the equipment is “worth” in the
marketplace, then it should be sold, regardless of what the accounting consequences of
the transaction may be.
Chapter 6 Accounting for and Presentation of Property, Plant, and Equipment, and Other Noncurrent Assets
TAKE-HOME QUIZ—CHAPTER 6 NAME___________________________
This question is designed to help you reason through the transactions related to accounting for
property, plant, and equipment. For each of the transactions described below (items a-d), enter the
effects the transaction on the appropriate side (debit or credit) of the T-accounts affected. Note that
several accounts which would be affected by these transactions are not included in the T-accounts
shown below.
a. Cost of equipment purchased.
b. Cost of equipment sold.
c. Depreciation expense for the period.
d. Accumulated depreciation on equipment sold.
———————————— Balance Sheet / Income Statement ——
Equipment Accumulated Depreciation Depreciation Expense
Beginning Balance Beginning Balance
b. If the accumulated depreciation on equipment sold (in part a) totaled $5,000, what was the
amount of depreciation expense for the year?
Instructor’s Manual / Solutions Manual
TAKE-HOME QUIZ—CHAPTER 6 (continued)
2. c. If there was a gain of $1,000 from the sale of equipment (in part a), how much cash was
received in the sale transaction? (Hint: Prepare the journal entry to record transaction).
3. For the month ended February 28, 2017, a company capitalized a $3,000 expenditure that
should have been expensed. Depreciation expense for the full month, using the straight-line
method, was recorded for $120 in February with respect to this item. Reported operating income
for February was $11,700.
a. Calculate the amount of net income that should have been reported for February.
b. If this error is not corrected, what will be the impact on operating income for the ten-month
period from March 1, 2017 through December 31, 2017?
4. a. Calculate the present value of $10,000 to be received in 9 years, assuming that interest is
Chapter 6 Accounting for and Presentation of Property, Plant, and Equipment, and Other Noncurrent Assets
TAKE-HOME QUIZ—CHAPTER 6 (continued)
4. b. If the amount calculated in your answer to part a were invested in a savings account for 9
years with interest at 8% compounded annually, how much would be in the account at the end
of 9 years?
5. Calculate the present value of $9,200 to be received in 7 years, assuming that interest is
compounded semi-annually at an annual rate of 12%.
6. Congratulations! You have won a prize of $48,000. But, you must decide whether to receive
7. You have just added a swimming pool and deck to your home, and have taken out a 10%
mortgage loan on which you agreed to make 20 annual payments of $4,698.37
a. What was the amount of the mortgage? (Hint: It was the present value of the payments
you will make).
b. What is the total amount of the payments you will make over the 20 years?
c. What accounts for the difference between the amounts in a and b?
1. ——————————– Balance Sheet / Income Statement —–
Equipment Accumulated Depreciation Depreciation Expense
2. a. Net book value, 3/31/16 (beginning) $98,000
Accumulated depreciation, 3/31/16 (beginning) 57,000
Cost of equipment, 3/31/16 (beginning) $155,000
b. Accumulated depreciation, 3/31/16 (beginning) credit balance $57,000
Debit for accumulated depreciation on equipment sold or scrapped ( 5,000)
Credit balance in account before depreciation expense $52,000
Depreciation expense for the year 24,000
Accumulated depreciation, 3/31/17 (ending) credit balance $76,000
c. Dr. Cash ?
3. a. Reported operating income $11,700
Less: Additional expense for item erroneously capitalized (3,000)
4. a. Using the present value factor for 8% for 9 periods from Table 6-4:
$10,000 * 0.5002 = $5,002
TAKE-HOME QUIZ KEY—CHAPTER 6
Chapter 6 Accounting for and Presentation of Property, Plant, and Equipment, and Other Noncurrent Assets
TAKE-HOME QUIZ KEY—CHAPTER 6 (continued)
6. The present value of $8,000 annually for 6 periods, discounted at 16% is:
$8,000 * 3.6847 = $29,477.60
7. a. $4,698.37 * 8.5136 (Table 6-5, 10%, 20 periods) = $40,000