QUESTION 22

Colin and Jane form a partnership on 1 July 2016.

Colin’s contribution is $20,000 cash and $80,000 inventory. Jane’s contribution is $16,000 cash and land that cost $125,000 but has a market value of $200,000.

Required:

1. Prepare the necessary journal entries to set up the partnership on 1 July 2016.

The partnership of Colin and Jane has been in operation for one month and they have made a net profit of $23,000.

The partnership agreement provides for the following:

• An interest allowance of 5% of their capital balances.

(There has been no change in the partners’ capital balance since the partnership was set up).

• Salaries of $2,300 for Colin and $1,900 for Jane.
• Residual profits are to be divided equally.

Required:

2. Calculate the amount of profit allocated to each partner showing all workings.

3. Prepare the general journal entries to allocate the profit for the month to each of the partners.

Ajax Company bought equipment for $2,500. The company estimates that the equipment’s period of useful life will be 5 years. After 5 years the residual value is $500. Calculate depreciation expense and complete a depreciation schedule

A company had the following purchases during its first year of operations:
  

On December 31, there were 45 units remaining in ending inventory. These 45 units consisted of 6 from January, 7 from February, 11 from May, 5 from September, and 16 from November. Using the specific identification method, what is the cost of the ending inventory?

Multiple Choice

• $5,434.

• $5,440.

• $6,160.

• $6,316.

• $6,472.

Select one of these provisions of Sarbanes Oxley Act: 302; 401; 402; 806; and 906. Write a brief description of the requirements of that section of the Act and briefly describe processes that a company would put in place to meet the requirements.

Part A:  In each of the following circumstances, determine whether the disposal would qualify as a discontinued operation.  All companies are calendar year companies and the transactions are occurring in 2018. Give citations from the ASC to justify your answer.

1.      An entity manufactures and sells consumer products that are grouped into five major product lines. Each product line includes several individual products that comprise the lowest where operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity.  Product line 1 is made up of almost 100 different individual products. Due to declining sales, 3 products in Product line 1 were discontinued during the year.

2.         An entity manufactures and sells consumer products that are grouped into       five major product lines. Each product line includes several brands that       comprise the lowest where operations and cash flows that can be clearly            distinguished, operationally and for financial reporting purposes, from the           rest of the entity.  Product line 3 which makes up between 20 & 25% of the            entity’s total revenues has experienced significant market declines while the   other product lines have been growing.  As a result, the entity has decided to           sale its operations associated with Product line 3.

3.         An entity operates restaurants in several states. For that entity, each   restaurant comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the       rest of the entity.  As a result of an above market offer for two of its   restaurants in the state of Alabama, the entity sold these restaurants. These            two restaurants produced between 1 & 3% of the entity’s total revenues and            comprised about 1.5% of the entity’s total assets.

Part B. ABC Co. decided on March 3, 2018 to dispose of their Widget Segment. The sale of the segment was completed on November 13, 2018.  The disposal of this segment qualifies as a discontinued operation.  Income Statement data for ABC for calendar years 2016-2018 are as follows:

                                                               2018                          2017                          2016   

Sales                                                  $3,000,000               $2,700,000               $2,500,000

Cost of goods sold                             1,800,000                  1,593,000                  1,525,000

Operating expenses                             700,000                     680,000                     650,000

These amounts include the operating results for the Widget Segment through its disposal on November 13, 2018.  Income Statement data for the Widget Segment separately for 2016-2018 are as follows:

                                                               2018                          2017                          2016   

Sales                                                  $450,000                   $600,000                   $700,000

Cost of goods sold                            315,000                     408,000                     455,000

Operating expenses                          120,000                     150,000                     130,000

The book value of the assets and liabilities of Widget on November 13, 2018 was 4,800,000.  The sales price was 6,210,000.  ABC has a tax rate of 28% for 2016 & 2017 and a rate of 25% for 2018.

Required:  Prepare, in good form, complete comparative Income Statements for ABC for the years 2016-2018.

on April 1 2018, company sold 10,000 bonds ($1,000 face value) at 11% semi-annually. they are due April 1 2028.

proceeds from the bonds were 9,156,946 and their coupon dates are april 1 and october 1

on april 1 2020 , the company bough back 6,000 bonds for 5,331,000 cash.

- prepare journal entries for the bonds from sale (april 1, 2018 to the end of year 2020 (12/31/20)

- what are the 12/31/20 balances in the related bonds, discount, and interest payable (from T accounts)

- what amounts related to the bonds will appear in the income statement for 2020 and how will they be reported/classified?

ollowing are account balances (in millions of dollars) from a recent FedEx annual report, followed by several typical transactions. Assume that the following are account balances on May 31 (end of the prior fiscal year):

These accounts are not necessarily in good order and have normal debit or credit balances. Assume the following transactions (in millions) occurred the next fiscal year beginning June 1 (the current year):

a. Provided delivery service to customers, receiving $31,204 in accounts receivable and $25,200 in cash.

b. Purchased new equipment costing $3,814; signed a long-term note.

c. Paid $17,664 cash to rent equipment and aircraft, with $12,986 for rental this year and the rest for rental next year.

d. Spent $4,244 cash to maintain and repair facilities and equipment during the year.

e. Collected $35,685 from customers on account.

f. Repaid $540 on a long-term note (ignore interest).

g. Issued 210 shares of additional stock for $35.

h. Paid employees $20,026 during the year.

i. Purchased for cash and used $14,264 in fuel for the aircraft and equipment during the year.

j. Paid $1,164 on accounts payable.

k. Ordered $126 in spare parts and supplies.

1. & 2. Prepare T-accounts for May 31 of the current year from the preceding list; enter the respective beginning balances. For each transaction, record the current year's transaction effects in the T-accounts. Label each using the letter of the transaction. Compute ending balances. (Enter your answers in millions, not in dollars.)

Addison Manufacturing holds a large portfolio of debt securities as an investment. The fair value of the portfolio is greater than its original cost, even though some debt securities have decreased in value. Sam Beresford, the financial vice president, and Angie Nielson, the controller, are near year-end in the process of classifying for the first time this securities portfolio in accordance with GAAP. Beresford wants to classify those securities that have increased in value during the period as trading securities in order to increase net income this year. He wants to classify all the securities that have decreased in value as held-to-maturity.

Nielson disagrees. She wants to classify those debt securities that have decreased in value as trading securities and those that have increased in value as held-to-maturity. She contends that the company is having a good earnings year and that recognizing the losses will help to smooth the income this year. As a result, the company will have built-in gains for future periods when the company may not be as profitable.

(a)  

Will classifying the portfolio as each proposes actually have the effect on earnings that each says it will?

(b)  

Is there anything unethical in what each of them proposes? Who are the stakeholders affected by their proposals?

(c)  

Assume that Beresford and Nielson properly classify the entire portfolio into trading, available-for-sale, and held-to-maturity categories. But then each proposes to sell just before year-end the securities with gains or with losses, as the case may be, to accomplish their effect on earnings. Is this unethical?

Rosie Dry Cleaning was started on January 1, 2018. It experienced the following events during its first two years of operation:

Events Affecting 2018

1. Provided $32,050 of cleaning services on account.
2. Collected $25,640 cash from accounts receivable.
3. Adjusted the accounting records to reflect the estimate that uncollectible accounts expense would be 1 percent of the cleaning revenue on account.

Events Affecting 2019

1. Wrote off a $240 account receivable that was determined to be uncollectible.
2. Provided $37,402 of cleaning services on account.
3. Collected $33,101 cash from accounts receivable.
4. Adjusted the accounting records to reflect the estimate that uncollectible accounts expense would be 1 percent of the cleaning revenue on account.

Required

1. Organize the transaction data in accounts under an accounting equation for each year.
2. Determine the following amounts:

1. (1) Net income for 2018.
2. (2) Net cash flow from operating activities for 2018.
3. (3) Balance of accounts receivable at the end of 2018.
4. (4) Net realizable value of accounts receivable at the end of 2018.

3. Determine the following amounts:

1. (1) Net income for 2019.
2. (2) Net cash flow from operating activities for 2019.
3. (3) Balance of accounts receivable at the end of 2019.
4. (4) Net realizable value of accounts receivable at the end of 2019.

Leyton and Dustin run a service station in a country town, the service station sells petrol and a number of other goods, which are displayed near the cash register and outside the office. Leyton and Dustin are partners in the business, though they have an old written agreement that states that neither will order goods or services over the value of $3,000 unless the contract contains signatures from both partners.

Leyton has been approached by a supplier of magazines who offers the business the delivery of 100 copies of a particular publication each month. Leyton convinced that the magazine is popular and will make some money, signs a contract with a promise to pay $5,000 in instalments for the delivery of the magazines.

The magazines arrive and Dustin is very upset, first because the magazine is quite unsuitable for display in the business and may result in a loss of customers if they see this publication, but he is also upset that Leyton has made an agreement without consulting him. There is an argument between the partners and Leyton takes sick leave and stays at home to recover from the stress of the argument. In the meantime, Dustin communicates with the supplier of the magazines and declares that the agreement to supply the publication is invalid due to a breach of the partnership agreement, and that the magazines will be returned and no payments will be forthcoming from the business.

Explain, with reference to partnership law:

1. Whether Dustin can cancel the contract with supplier of the magazines?         

[Answer here]

2. Whether Dustin can be liable for the actions of Leyton?                  

[Answer here]

1a. Berry Co. purchases a patent on January 1, 2021, for $35,000 and the patent has an expected useful life of five years with no residual value. Assuming Berry Co. uses the straight-line method, what is the amortization expensefor the year ended December 31, 2022?

1b. Kansas Enterprises purchased equipment for $75,500 on January 1, 2021. The equipment is expected to have a ten-year service life, with a residual value of $6,750 at the end of ten years. Using the double-declining balance method, depreciation expense for 2022 would be: (Do not round your intermediate calculations)

1c.Kansas Enterprises purchased equipment for $76,500 on January 1, 2021. The equipment is expected to have a ten-year life, with a residual value of $6,600 at the end of ten years. Using the double-declining balance method, the book value at December 31, 2022, would be: (Do not round your intermediate calculations)

1d. The Pita Pit borrowed $206,000 on November 1, 2021, and signed a six-month note bearing interest at 12%. Principal and interest are payable in full at maturity on May 1, 2022. In connection with this note, The Pita Pit should report interest expense at December 31, 2021, in the amount of: (Do not round your intermediate calculations.)

1e. On September 1, 2021, Daylight Donuts signed a $210,000, 6%, six-month note payable with the amount borrowed plus accrued interest due six months later on March 1, 2022. Daylight Donuts should report interest payable at December 31, 2021, in the amount of: (Do not round your intermediate calculations.)

if a couple are living together and hold themselves out as married can they file a joint return?

Hyrkas Corporation's most recent balance sheet and income statement appear below:

Dividends on common stock during Year 2 totaled $39 thousand. The market price of common stock at the end of Year 2 was $14.40 per share.

Required:

Compute the following for Year 2:

(a-f complete)

g. Return on equity. (Round your "Percentage" answer to 2 decimal places.)

h. Book value per share. (Round your answer to 2 decimal places.)

i. Working capital. (Input your answer in thousands of dollars.)

j. Current ratio. (Round your answer to 2 decimal places.)

k. Acid-test (quick) ratio. (Round your answer to 2 decimal places.)

l. Accounts receivable turnover. (Round your answer to 2 decimal places.)

m. Average collection period. (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 1 decimal place.)

n. Inventory turnover. (Round your answer to 2 decimal places.)

o. Average sale period. (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 1 decimal place.)

p. Times interest earned ratio. (Round your answer to 2 decimal places.)

q. Debt-to-equity ratio. (Round your answer to 2 decimal places.)

Prepare journal entries for the following transactions for Chillee Company: A. Chillee sold consulting services on account to a customer RST for $3,000, terms 2/10, n/30. B. Customer RST was not completely satisfied with the services he received, so Chillee granted an allowance of $200. C. The customer RST paid the amount owed to Chillee within the discounted period. D. Chillee lent $1000 to an employee who signed a 2 month note with an interest rate of 10% E. The employee in "d" above paid the note plus interest at the end of the second month.