At 30 June 2013, the financial statements of Detroit Ltd showed a building with a cost of $300,000 and accumulated depreciation of $150,000. The business uses the straight-line method to depreciate the building. When acquired, the building’s useful life was estimated at 50 years with no residual value. On 1 January 2019, Detroit Ltd completed structural improvements to the building costing $93,000 and paid with cash. As a result of the improvements, the useful life of the building was changed to 50 years from the date of the improvements. No change is expected in the residual value. Ignore GST.

Required:

1. Calculate the number of years the building had been depreciated to 30 June 2013.
2. Prepare the general journal entry to record the cost of the structural improvements on 1 January 2019
3. Prepare the general journal entry to record the building’s depreciation expense for the year ended 30 June 2019. Assume no depreciation had been recorded since 30 June 2018.

Sales Tax

Far and Wide Broadband provides Internet connection services to customers living in remote areas. During February 2020, it billed a customer a total of $295,000 before taxes. Weston also must pay the following taxes on these charges:

1. State of Kansas sales tax of 6%
2. Federal excise tax of 0.2%
3. State of Kansas excise tax of 0.4%

Required:

Assuming Far and Wide collects these taxes from the customer, what journal entry would Far and Wide make when the customer pays their bill? If an amount box does not require an entry, leave it blank.

“One of the means by which the interests of the shareholders and other parties interested in the affairs of a company can be satisfied is the production and availability of comprehensive information about the financial and other standings through an annual report”.

(a)        Identify and briefly discuss each of the components of a financial statement.

(b)        Describe the functions of the auditor’s reports and the types of opinions in an annual report.

(c)        An annual report consists of some other basic reports that are qualitative in nature. Enumerate and examine the reasons for the inclusion of such reports in the annual report of a company.

At year-end (December 31), Chan Company estimates its bad debts as 0.40% of its annual credit sales of $879,000. Chan records its Bad Debts Expense for that estimate. On the following February 1, Chan decides that the $440 account of P. Park is uncollectible and writes it off as a bad debt. On June 5, Park unexpectedly pays the amount previously written off. Prepare the journal entries for these transactions.

Holly Springs, Inc. contracted with Coldwater Corporation to have constructed a custom-made lathe. The machine was completed and ready for use on January 1, 2018. Holly Springs paid for the lathe by issuing a $310,000 note due in three years. Interest, specified at 4%, was payable annually on December 31 of each year. The cash market price of the lathe was unknown. It was determined by comparison with similar transactions for which 8% was a reasonable rate of interest. Holly Springs uses the effective interest method of amortization.

Required:
1. Prepare the journal entry on January 1, 2018, for Holly Springs’ purchase of the lathe.
2. Prepare an amortization schedule for the three-year term of the note.
3. Prepare the journal entries to record (a) interest for each of the three years and (b) payment of the note at maturity.

A project has an initial cost of $160,000 and an estimated salvage value after 15 years of $75,000. Estimated average annual receipts are $30,000. Estimated average annual disbursements are $16,000. Assuming that annual receipts and distributions will be uniform for the 15 years, compute the prospective rate of return before taxes.

Liang Company began operations on January 1, 2015. During its first two years, the company completed a number of transactions involving sales on credit, accounts receivable collections, and bad debts. These transactions are summarized as follows.

2015

1. Sold $1,348,600 of merchandise (that had cost $980,800) on credit, terms n/30.
2. Wrote off $19,500 of uncollectible accounts receivable.
3. Received $665,200 cash in payment of accounts receivable.
4. In adjusting the accounts on December 31, the company estimated that 2.20% of accounts receivable will be uncollectible.

2016

5. Sold $1,502,800 of merchandise (that had cost $1,260,400) on credit, terms n/30.
6. Wrote off $32,500 of uncollectible accounts receivable.
7. Received $1,267,700 cash in payment of accounts receivable.
8. In adjusting the accounts on December 31, the company estimated that 2.20% of accounts receivable will be uncollectible.

Required:

Prepare journal entries to record Liang’s 2015 summarized transactions and its year-end adjustments to record bad debts expense. (The company uses the perpetual inventory system and it applies the allowance method for its accounts receivable.) (Round your intermediate calculations to the nearest dollar amount.)

XYZ has been experiencing losses on its Widget line for several years. Here is the most recent contribution margin statement:

The general factory overhead is a common cost allocated on the basis of machine hours

The Purchasing department is a common cost allocated on the basis of sales dollars.

What is the total relevant costs in the decision to drop this line?

The budget director for Campbell Cleaning Services prepared the following list of expected selling and administrative expenses. All expenses requiring cash payments are paid for in the month incurred except salary expense and insurance. Salary is paid in the month following the month in which it is incurred. The insurance premium for six months is paid on October 1. October is the first month of operations; accordingly, there are no beginning account balances.

Required

1. Complete the schedule of cash payments for S&A expenses by filling in the missing amounts.

2. Determine the amount of salaries payable the company will report on its pro forma balance sheet at the end of the fourth quarter.

3. Determine the amount of prepaid insurance the company will report on its pro forma balance sheet at the end of the fourth quarter.

4.

Statement of Cost of Goods Manufactured for a Manufacturing Company

Cost data for Disksan Manufacturing Company for the month ended January 31 are as follows:

a. Prepare a cost of goods manufactured statement for January.

b. Determine the cost of goods sold for January.
$

When using monetary-unit sampling, the upper misstatement limit was $11,200 and the risk of incorrect acceptance was 5%. This means that

A. Tolerable misstatement is $11,200.

B. There is a 95% chance that the actual misstatement in the account is $11,200 or more.

C. There is a 95% chance that the actual misstatement in the account is $11,200.

D. There is a 95% chance that the actual misstatement in the account is $11,200 or less.

Zion Electronics Company produces two products, Resistors and Transistors in a small manufacturing plant which had total manufacturing overhead of $21,000 in June. The factory has two departments, Design, which incurred $10,000 of manufacturing overhead, and Production which incurred $11,000 of manufacturing overhead. Design used 250 hours of direct labor and Production used 80 machine hours.

Assume that Resistors used 100 direct labor hours to make 100 units and Transistors used 150 direct labor hours to make 100 units in the Design Department. Also, assume that Resistors used 50 machine hours and Transistors used 30 machine hours in the Production Department.

The overhead costs assigned to each unit of Resistors and Transistors using department overhead rate were: