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Exercise 7-17 (LO 7-6)
Requirement 1
Debit
Credit
Cash
21,600
Requirement 2
Debit
Credit
Cash
13,600
7-22 Financial Accounting, 5e
Exercise 7-18 (LO 7-6)
Requirement 1
Fair value of the old land
$132,000
Requirement 2
Debit
Credit
Land, New
151,000
Exercise 7-19 (LO 7-7)
Net
Income
÷
Average
Total Assets
=
Return
on Assets
$28,000
÷
($389,000 + $496,000)/2
=
6.3%
Exercise 7-20 (LO 7-8)
Requirement 1
Step 1: Test for Impairment
The long-term asset is impaired since future cash flows ($7.1 million) are less than
($8.6 million) exceeds fair value ($5.9 million).
Requirement 2
Step 1: Test for Impairment
Exercise 7-21
Requirement 1
January 1
Debit
Credit
Equipment
19,500
Cash
19,500
(Purchase equipment for cash)
January 15
Debit
Credit
Cash
22,000
Accounts Receivable
22,000
(Receive cash on account)
January 19
Debit
Credit
Salaries Expense
29,800
Cash
29,800
(Pay for salaries)
Exercise 7-21 (continued)
Requirement 2
(a) January 31
Debit
Credit
Depreciation Expense
300
Accumulated Depreciation
300
(Record depreciation)
($300 = [$19,500−$1,500] / 60 months)
(c) January 31
Debit
Credit
Interest Receivable
50
Interest Revenue
50
(Adjust interest revenue)
($50 = $12,000×5%×1/12)
7-26 Financial Accounting, 5e
Exercise 7-21 (continued)
Requirement 3
TNT Fireworks
Adjusted Trial Balance
January 31, 2021
Accounts
Debit
Credit
Cash
$ 5,400
Accounts Receivable
223,000
Allowance for Uncollectible Accounts
$ 8,100
Interest Receivable
50
Income Tax Payable
9,000
Common Stock
220,000
Retained Earnings
50,000
Sales Revenue
220,000
Interest Revenue
50
Exercise 7-21 (continued)
Requirement 3 (continued)
Accounts
Ending
Balance
Beginning balance in bold, entries during
January in blue, and adjusting entries in red.
Cash
5,400
=
58,700−19,500−9,500+22,000−29,800−16,500
Accounts Receivable
223,000
=
25,000−22,000+220,000
Allowance for Uncollectible Accounts
8,100
=
2,200+5,900
Interest Receivable
50
=
50
Inventory
4,200
=
36,300+82,900−115,000
Exercise 7-21 (continued)
Requirement 4
TNT Fireworks
Multiple-Step Income Statement
For the month ended January 31, 2021
Sales revenue
$220,000
Cost of goods sold
115,000
Gross profit
$105,000
Salaries expense
62,400
Requirement 5
TNT Fireworks
Balance Sheet
January 31, 2021
Assets
Liabilities
Current assets:
Current liabilities:
Cash
$ 5,400
Accounts payable
$ 88,200
Long-term assets:
Notes receivable
12,000
Stockholders’ Equity
Land
155,000
Common stock
220,000
Equipment
19,500
Retained earnings
60,950
*
Exercise 7-21 (concluded)
Requirement 6
January 31, 2021
Debit
Credit
Sales Revenue
220,000
Interest Revenue
50
Requirement 7
(a) The return on assets ratio is:
Return on
Assets Ratio
=
Net income
=
$10,950
=
3.1%
Average total assets
($284,800 + $410,750) / 2
(b) The profit margin is:
Profit Margin
=
Net income
=
$10,950
=
5.0%
Net sales
$220,000
7-30 Financial Accounting, 5e
PROBLEMS: SET A
Problem 7-1A (LO 7-1)
Land
Building
Purchase price of land
$70,000
Demolition of old building
9,000
Sale of salvaged materials
(1,100)
Problem 7-2A (LO 7-1)
Requirement 1
The ovens should be recorded in the Great Harvest equipment account as
detailed in the following schedule:
Purchase price
$700,000
Requirement 2
The repair costs of $4,000 for the oven damaged during installation should not be
Problem 7-3A (LO 7-2)
1. The amount Fresh Cut paid for goodwill is $1.5 million,
calculated as follows:
(in millions)
2.
(in millions)
Debit
Credit
7-32 Financial Accounting, 5e
Problem 7-4A (LO 7-3)
1. Capitalize
2. Expense
Problem 7-5A (LO 7-4)
Requirement 1 Straight-Line
University Car Wash
Calculation
End of Year Amounts
Year
Depreciable
Cost*
X
Depreciation
Rate
=
Depreciation
Expense
Accumulated
Depreciation
Book
Value**
1
$246,000
1/6
$41,000
$ 41,000
$229,000
Requirement 2 Double-declining-balance
University Car Wash
Calculation
End of Year Amounts
Year
Beginning
Book Value
X
Depreciation
Rate*
=
Depreciation
Expense
Accumulated
Depreciation
Book
Value**
1
$270,000
1/3
$90,000
$ 90,000
$180,000
Requirement 3 Activity-based
University Car Wash
Calculation
End of Year Amounts
Year
Hours
Used
X
Depreciation
Rate*
=
Depreciation
Expense
Accumulated
Depreciation
Book
Value**
1
3,100
$20.50
$63,550
$ 63,550
$206,450
2
1,100
$20.50
22,550
86,100
183,900
Problem 7-6A (LO 7-5)
Requirement 1
a. Goodwill is not amortized.
Debit
Credit
b. Amortization Expense. . . . . .. .. . . .
11,750*
Patents . . . . . . . . .. . . . . . . . .
Requirement 2
University Testing Services
Balance Sheet
December 31, 2021
(Intangible Assets section)
Intangible Assets
Goodwill
$310,000
7-36 Financial Accounting, 5e
Problem 7-7A (LO 7-4, 7-5)
Requirement 1
Debit
Credit
Depreciation Expense
58,880*
Accumulated Depreciation
58,880
Requirement 2
Debit
Credit
Amortization Expense
50,000*
Patent
50,000
Requirement 3
Solich Sandwich Shop
December 31, 2021
Cost
Accumulated
Depreciation
Book
Value
Land
$ 95,000
–
$ 95,000
Problem 7-8A (LO 7-6)
Requirement 1
$170,000
=
$910,000 – $60,000
x
2 years
10
Requirement 2
Cost of the oven
$910,000
Requirement 3
Sale amount
$700,000
Less:
Cost of the oven
$910,000
Requirement 4
Debit
Credit
Cash
700,000
Problem 7-9A (LO 7-7)
Requirement 1
Sub Station
Net
Income
÷
Average
Total Assets
=
Return
on Assets
$25,922
÷
($75,183 + $116,371)/2
=
27.1%
Requirement 2
Planet Sub
Net
Income
÷
Average
Total Assets
=
Return
on Assets
$3,492
÷
($38,599 + $44,533)/2
=
8.4%
Requirement 3
Sub Station has the higher profit margin, while Planet Sub has the higher asset
turnover. This is consistent with their primary business strategies. Sub Station uses the
Problem 7-10A (LO 7-7)
Requirement 1
Sandwiches Only
Net
Income
÷
Average
Total Assets
=
Return
on Assets
$170,000
÷
$500,000
=
34.0%
Requirement 2
Sandwiches and Smoothies
Net
Income
÷
Average
Total Assets
=
Return
on Assets
$260,000
÷
$900,000
=
28.9%
Requirement 3
Do not go forward with the expansion plans. The return on assets, profit margin, and
7-40 Financial Accounting, 5e
PROBLEMS: SET B
Problem 7-1B (LO 7-1)
Land
Building
Purchase price of land
$90,000
Problem 7-2B (LO 7-1)
Requirement 1
The ovens should be recorded in the Sicily Pizza equipment account as
detailed in the following schedule:
Purchase price
$341,000
Requirement 2
All amounts were included in the Equipment account.
