Question

In: Accounting

Berful Industries requests your assistance in preparing its accounting records for its annual audit, following US...

  1. Berful Industries requests your assistance in preparing its accounting records for its annual audit, following US GAAP. What advice would you give them with respect to the following list of accounting questions?
  1. On the last day of the year, Berful borrowed $50,000 from a bank, agreeing to pay the $50,000 principle amount of the loan and $3,000 in interest on the last day of the next year—one year later. Is the principle amount of the loan a liability on the day the money is borrowed? YES _____ NO _____

Is the $3,000 in interest a liability of the firm on the day the money is borrowed? YES _____ NO _____

  1. Berful bought a new truck, paying $1,000 to have it delivered to its Alaskan office. Is the delivery fee part of the cost of the truck or Delivery Expense? Part of the cost of the truck _____ Delivery Expense _____
  1. Berful hired a new accountant on the last day of the year on a one-year contract, with the new duties beginning on the first day of the next year. Is the salary to be paid the new accountant a liability to Berful on its balance sheet in the year in which she is hired? YES _____ NO _____

  1. Berful spent $20,000,000 to undertake original new product research this year. Are these expenditures treated as an asset or an expense this year? ASSET _____   EXPENSE _____

  1. Berful has no bad debts this year, but expects some of its current year sales, now in accounts receivable, to be identified as uncollectible next year. Using the Direct Write-off Method, would Berful recognize any Bad Debts Expense this year? YES _____ NO _____

  1. Same facts as in e. above, but Berful uses the Allowance Method to account for accounts receivable. Does Berful have any Bad Debts Expense to recognize in the current year? YES _____ NO _____

  1. Berful owns a mine with an estimated 200,000,000 tons of ore. The cost of the ore is estimated to be $2.00 per ton, while the cost of the land without the ore is calculated as $1,000,000. If 6,000,000 tons are mined and sold in the current year, what amount of Mineral Depletion Expense is expected to be recognized this year? _______________

  1. If Berful acquires another business, and believes that $20,000 in Goodwill should be recorded, is this an asset on Berful’s books or an expense? ASSET _____ EXPENSE _____

  1. If Berful bought a new machine this year for $40,000 on the first day of the year, and estimates the machine to have $4,000 in salvage value, and a life of 8 years, calculate the first year depreciation expense to be recognized under the following depreciation methods:

  1. Straight Line                               ____________
  2. Double Declining Balance        ____________
  1. Berful sells a very expensive product that it buys for resale. It sold one this year. It had one item in beginning inventory that cost $1,000,000, and it acquired 2 more during the year, costing $1,100,000, and $1,200,000 for the last one. Calculate Cost of Goods Sold and Ending Inventory for these facts under these cost flow assumptions:
  1. FIFO Cost of Goods Sold ________ Ending Inventory ________
  2. LIFO Cost of Goods Sold ________ Ending Inventory ________
  3. Average Cost of Goods Sold ________ Ending Inventory ________
  1. Prepare a bank reconciliation using the following data, and record the ending balance of cash in this account on the line provided:

Balance per Bank Statement                           $4,862.77

Balance per Books                                            2,479.48

Deposits in Transit, not on bank statement        654.24

Outstanding checks, not on bank statement   3,028.89

Interest earned, not in books yet                              8.64

      Ending balance of cash in this account _________

I. Berful wants to increase its reported net income. Will the following result in an increase in net income for the firm?

  1. Berful issues new shares of stock to investors, with investors paying an amount per share in excess of par value. YES _____ NO _____
  2. Berful sells to the public some of its own shares held as Treasury Stock, at a gain. YES _____ NO _____

Solutions

Expert Solution

Ans a yes, the loan when taken becomes a liability
No, $3000 interest is not a liability on the day loan is borrowed as it is not accured
1) Yes
2) No
ans b
It ia part of the truck as the truck is not put to use before its put to use all the
expense related to bring it in the condition of put to use becomes its part
Cost of truck
ans c
No, as she is only hired and would be working form the first day of next year hence
no liability will occur
ans d
It is an expense Reserch & development expense
ans e
No, as direct method when used it takes bade debt into account when it actually occurs
ans f
Yes, as allowance method is used hence bad debt expnese will be recorded
ans h
It is an asset-Goodwill intagible asset
ans i
Straight linr (40000-4000)/8 4500
DDB method (40000*25%) 10000
DDB rate 1/8*200% 0.25
ans j
a) FIFO
Cost of good sold $1,000,000
Ending Inventory (1100000+1200000) 2300000
b)
LIFO
Cost of good sold $1,200,000
Ending Inventory (1100000+1000000) 2100000
c) Avg method
(1200000+1100000+1000000)/3 1100000
Cost of good sold $1,100,000
Ending Inventory 2200000
ans k
Bank reconsialiation statement
Balance per Bank 4862.77
Add: Deposit in transit 654.24
Less: Outstanding checks -3028.89
Adjusted balance 2488.12
Unadjsuted balance as per bookks 2479.48
Add: Interest earned 8.64
Adjusted ending balance 2488.12
ans l
No effect as its issue of shares
No effect as paid in capital would increase
If any doubt please comment

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