Journal Entries

Jan 1 Equipment with a historical cost of $10,000 and an accumulated depreciation of $3,000 was sold for $6,000

Jan   2 Equipment with a historical cost of $20,000 and an accumulated depreciation of $18,000 was disposed of with an additional disposal cost of $1,300.

Jan   2 Sanford Company borrowed $24,000 on a short-term discounted 90 day, 3.0% noninterest-bearing note payable.

Jan 3 Sanford Company paid $18,000 in advance for the 6 month rental of a warehouse.

Jan 3 Equipment with a historical cost of $50,000 and an accumulated depreciation of $35,000 was traded for new similar equipment valued at $75,000. Sanford Company received $14,500 as a trade in for the old equipment, paid $7,500 and established a 4.5% long-term note payable for the balance due.

Jan 4 Equipment with a historical cost of $35,000 and an accumulated depreciation of $20,000 was traded for new dissimilar equipment valued at $60,000. The salvage value of the old equipment was $5,000 and the trade in value was $7,000. Sanford paid $4,000 for the equipment and established a 4.5% long-term note payable for the balance due.

Jan 5 Sanford Company declared a dividend of $2.00 per share payable on February 10, 20x3 to all shareholders of record on January 20, 20x3.

Jan 6 The amount in wages payable and taxes payable was paid in full.

Jan 8 Sanford Company paid a total of $18,000 on accounts payable and was able to take advantage of $1,500 in purchase discounts for early payment. The original inventory purchase was recorded at the full amount (gross method).

Jan 15 Cash sales for two weeks equaled $22,000. The cost of inventory sold equaled $12,000.

Jan 20 Supplies in the amount of $4,200 were purchased for cash.

Jan 21 A customer who owed $10,000 on an account receivable, agreed to sign a 60-day note receivable with an interest rate of 6.0%. The interest earned on the note will be paid at the maturity date of the note receivable.

Jan 29 The balance of $14,500 in accounts payable was paid.

Jan 30 The company purchased $45,000 of inventory on account with the terms 2/10, net 30. The company has decided to switch to the net method for all inventory purchases on account beginning in 20x3.

Jan 31 Cash sales for two weeks equaled $24,000. The cost of inventory sold equaled $13,000.

Jan 31 Sales on account for the month of January totaled $55,000 with the terms 2/10, net 30. The cost of inventory sold equaled $26,000.

Jan 31 The unearned revenue represented the rental of special equipment that was used by another company on weekends. $4,000 of the revenue was earned in January.

Jan 31 Collected cash of $48,000 from the accounts receivable, plus there was a total sales discount of $1,000 for the payment of receivables within the ten day discount period.

Jan 31 Salary expenses in the amount of $14,000 and tax expenses in the amount of $8,000 were paid.

Jan 31 The utility bill of $2,500 was paid.

Jan 31 A bill in the amount of $3,600 for advertising expenses incurred during the month of January was received.

Jan 31 The monthly payment for January of the mortgage payable was made.

Feb 1 The Sanford Company made a new issue of 5,000 shares of common stock for cash. The market price of the stock was $40 per share.

Feb 2 A petty cash fund in the amount of $500 was established.

Feb 3 The Sanford Company bought back 1,000 shares of its own common stock for $40 per share.

Feb 8 The purchase of inventory on account on Jan 30th was paid in full.

Feb 10 Sanford Company sold the note receivable from Jan 21st to the bank, which discounted the note at 8.0%.

Feb 15 Cash sales for two weeks equaled $20,000. The cost of inventory sold equaled $11,000.

Feb 20 The company purchases $20,000 of inventory on account with the terms 2/10, net 30.

Feb 27 The company paid an advertising bill for $5,600 which included the February advertising expense of $2,000 plus the balance due from January.

Feb 28 Cash sales for two weeks equaled $25,000. The cost of inventory sold equaled $14,000.

Feb 28 The monthly payment for February of the mortgage payable was made.

Feb 28 The company collected cash of $59,000 from the accounts receivable, plus there was a total sales discount of $1,100 for the payment of receivables within the ten day discount period.

Feb 28 Salary expenses in the amount of $21,000 and tax expenses in the amount of $9,000 were paid.

Feb 28 The utility bill of $2,100 was paid.

Feb 28 Sales on account for the month of February totaled $60,000 with the terms 2/10, net 30. The cost of inventory sold equaled $30,000.

Mar 1 The short-term note payable that was due on March 1st plus all appropriate interest was paid.

Mar 3 The amount of the petty cash fund was increased by $200.

Mar 10 Supplies in the amount of $2,700 were purchased for cash.

Mar 15 Cash sales for two weeks equaled $27,000. The cost of inventory sold equaled $15,000.

Mar 20 Sanford Company reissued 300 shares of its own stock for $42 per share.

Mar 21 The bank notified Sanford Company that the note receivable from January 21st had not been paid. The bank collected the amount of the note plus the interest due and a $20 protest fee from Sanford Company. Sanford Company charged the full amount of the note receivable plus related fees against the customer’s account receivable balance.

Mar 25 The company purchased $50,000 of inventory on account with the terms 2/10, net 30.

Mar 28 The purchase of inventory on account on Feb 20th was paid in full.

Mar 29 The petty cash fund had $150 in cash and receipts in total amounts for the following expense categories: entertainment$160, travel $170, postage $90, and supplies $115. The petty cash fund was replenished.

Mar 30 Cash sales for two weeks equaled $20,000. The cost of inventory sold equaled $11,000.

Mar 30 The unearned revenue represented the rental of special equipment that was used by another company on weekends. $9,000 of the revenue was earned in March.

Mar 31 Sales on account for the month of March totaled $67,000 with the terms 2/10, net 30. The cost of inventory sold equaled $36,000.

Mar 31 Salary expenses in the amount of $16,000 and tax expenses in the amount of $7,000 were paid.

Mar 31 Collected cash of $70,000 from the accounts receivable, plus there was a total sales discount of $1,200 for the payment of receivables within the ten day discount period.

Mar 31 A warehouse building was acquired for $250,000. Closing costs on the acquisition equaled $7,000, and there were costs of $10,300 to get the building into an operational condition to be used by Sanford Company. Employee salaries specifically related to the building renovation were an additional $5,400. This salary expense was part of the normal monthly expenses and would have been incurred regardless of whether the employees worked on the warehouse or did other activities within the company. Sanford Company paid $100,000 in cash as a down payment with the balance due being added to the mortgage payable account.

Mar 31 The utility bill of $3,000 was paid.

Mar 31 Sanford Company repaid the 90 day discounted note payable from January 2nd in full.

Mar 31 The equipment depreciation entry for the three months of 20x3 was completed.

Mar 31 The depreciation entry for the building for the months of January, February, and March was entered.

Mar 31 The amortization of intangible assets for the three months of 20x3 was completed.

Mar 31 The bad debt expense based on the aging schedule for accounts receivable was determined for the three month period.

Mar 31 Salary expenses incurred during the month of March but not yet paid equaled $8,400 and tax expenses equaled $2,800.

Mar 31 A physical inventory of supplies indicated a total amount of $5,000 of supplies still on hand.

Mar 31 A customer sent an advance payment of $10,000 for the use of special equipment in April and May.

Mar 31 The amount of rent expense for the warehouse for the first three months of 20x3 was recognized.

Mar 31 Sanford Company provided services to a customer in the amount of $3,000 during March but a bill has not been sent.

Mar 31 The amount of insurance expense for the first three months of 20x3 was recognized.

Mar 31 The amount of interest earned on marketable securities for the three months of 20x3 was recognized.

Mar 31 The amount of interest expense for the total long-term notes payable for the first three months of 20x3 was recognized.

Mar 31 The amount of interest expense for the bonds payable for the three months of 20x3 was recognized.

Mar 31 The monthly payment for March of the mortgage payable was made.

Required

1.   Supply journal entries for each of the transactions. The numbers in the journal entries can be rounded to the nearest dollar.

Comiskey Fence Co. is evaluating extending credit to a new group of customers. Although these customers will provide $324,000 in additional credit sales, 12 percent are likely to be uncollectible. The company will incur $17,000 in additional collection expenses. Production and marketing expenses represent 72 percent of sales. The company has a receivables turnover of four times. No other asset buildup will be required to service the new customers. The firm has a 16 percent desired return on investment.

a-1. Calculate the incremental income before taxes from this new group of customers.

Incremental income before taxes           $

a-2. Calculate the return on incremental investment. (Round the final answer to 2 decimal place.)

Return on incremental investment              %

a-3. Should Cominsky extend credit to these customers?

• Yes

• No

b-1. Calculate the incremental income before taxes from the new group of customers if 15 percent of the sales prove uncollectable.

Incremental income before taxes           $

b-2. Calculate the return on incremental investment if 15 percent of the new sales prove uncollectible. (Round the final answer to 2 decimal place.)

Return on incremental investment              %

b-3. Should credit be extended if 15 percent of the new sales prove uncollectible?

• Yes

• No

c-1. Calculate the return on incremental investment if the receivables turnover drops to 1.6 and 12 percent of the accounts are uncollectible (as in part a)? (Round the final answer to 2 decimal places.)

Return on incremental investment              %

c-2. Should credit be extended if the receivables turnover drops to 1.6 and 12 percent of the accounts are uncollectible (as in part a)?

• No

• Yes

Problem 7-23

Reconsider Comiskey Fence. Assume the average collection period is 180 days. All other factors are the same (including 12 percent uncollectible).

a. Compute the return on incremental investment. (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.)

Return on incremental investment              %

b. Should credit be extended?

• Yes

• No

The company is considering the introduction of a new product that is expected to reach sales of $10 million in its first full year and $13 million of sales in the second and third years. Thereafter, annual sales are expected to decline to two-thirds of peak annual sales in the fourth year and one-third of peak sales in the fifth year. No more sales are expected after the fifth year. The CGS is about 60% of the sales revenues in each year. The GS&A expenses are about 23.5% of the sales revenue. Tax on profits is to be paid at a 40% rate. A capital investment of $0.5 million is needed to acquire production equipment. No salvage value is expected at the end of its five-year useful life. This investment is to be fully depreciated on a straight-line basis over five years. In addition, working capital is needed to support the expected sales in an amount equal to 27% of the sales revenue. This working capital investment must be made at the beginning of each year to build up the needed inventory and implement the planned sales program. Furthermore, during the first year of sales activity, a one-time product introductory expense of $200,000 is incurred. Approximately $1.0 million has already been spent promoting and test marketing the new product.

a. Formulate a multiyear income statement to estimate the cash flows throughout its five-year life cycle.

b. Assuming a 20% discount rate, what is the new product’s NPV?

c. Should the company introduce the new product?

The company is considering the introduction of a new product that is expected to reach sales of $10 million in its first full year and $13 million of sales in the second and third years. Thereafter, annual sales are expected to decline to two-thirds of peak annual sales in the fourth year and one-third of peak sales in the fifth year. No more sales are expected after the fifth year. The CGS is about 60% of the sales revenues in each year. The GS&A expenses are about 23.5% of the sales revenue. Tax on profits is to be paid at a 40% rate. A capital investment of $0.5 million is needed to acquire production equipment. No salvage value is expected at the end of its five-year useful life. This investment is to be fully depreciated on a straight-line basis over five years. In addition, working capital is needed to support the expected sales in an amount equal to 27% of the sales revenue. This working capital investment must be made at the beginning of each year to build up the needed inventory and implement the planned sales program. Furthermore, during the first year of sales activity, a one-time product introductory expense of $200,000 is incurred. Approximately $1.0 million has already been spent promoting and test marketing the new product.

a. Formulate a multiyear income statement to estimate the cash flows throughout its five-year life cycle.

b. Assuming a 20% discount rate, what is the new product’s NPV?

c. Should the company introduce the new product?

The data show systolic and diastolic blood pressure of certain people. Find the regression​ equation, letting the systolic reading be the independent​ (x) variable. Find the best predicted diastolic pressure for a person with a systolic reading of 150. Is the predicted value close to 66.2​, which was the actual diastolic​ reading? Use a significance level of 0.05.
Systolic
139
118
145
133
141
138
139
136
  
Diastolic
101
61
82
74
104
79
74
74
LOADING... Click the icon to view the critical values of the Pearson correlation coefficient r.

Refer to the accompanying data set and construct a 95​% confidence interval estimate of the mean pulse rate of adult​ females; then do the same for adult males. Compare the results.

Males Females

84       78

71       95

49       56

63       64

53       54

61       82

51       81

75       88

54       89

62       57

69       36

59       65

62       86

78       74

80       75

65       64

65       68

94       77

45       61

86       61

71       82

63       83

74       68

74       71

54       84

68       90

56       87

77       89

71       91

66       91

63       71

93       91

57       80

63       79

56       74

57       56

71       101

69       76

81       78

56       75

Applehead Technology is a company that purchases a device called the EyePod from a supplier and then sells the devices to retail customers. If the company makes no changes in its operations, the company expects the following for the coming year.

# of units sold                                                              30,000

Price                                                                           $300 per unit

Cost of merchandise                                                 $100 per unit                       

Rent and Salaries for the year                                 $1,300,000

The company is holding a meeting to discuss ways to increase its profit – that is the company’s goal. At that meeting, Maria Garcia, the marketing manager, says “If we make the changes I suggest, I think we can attract more customers and increase our share of the market. Currently, our customers pay for shipping. Market research says customers hate shipping charges, so rather than having customers pay it, we should pay it. Shipping would cost us $3 per unit. Market research also shows that our prices are not competitive. So, we should lower our price to $270. If we take these actions, I estimate we will increase the number of units sold to 32,000.”

1. On the spreadsheet provided labeled “For Problem 3a”, prepare the contribution margin income statements to analyze each of the 2 possibilities for the coming year, namely
   1. Applehead makes no changes
   2.    Applehead adopts Garcia’s proposal

Answer the following questions on the separate answer sheet labeled “For Problem 3b, c, d, e”:

2. Mr. Big, the CEO of the company says to Maria “Clearly your suggestion is a good one. Based on your estimates, we will see an additional 2,000 units. Let’ do it!” How would you answer Mr. Big?
3. Assume Maria’s suggestions are NOT implemented. What is the breakeven point for Applehead? (Can be in $ or in units – your choice.) Show all work.
4. Calculate Applehead’s margin of safety. You can measure it in units or dollars or as a % of sales (your choice, but you only need to compute one of those). In making your margin of safety computation, assume Maria’s suggestions are NOT implemented and that the company sells the 30,000 units. Show all work.
5. Explain briefly what margin of safety tells the company – what is the meaning of the number you computed?

Patrick opened Patrick’s Window Washing on July 1, 2019. During July the following transactions

were completed:

July 1 Patrick invested $20,000 cash in exchange for stock of the business.

1 Purchased used truck for $6,000, paying $3,000 cash and the balance on account.

3 Purchased cleaning supplies for $1,300 on account.

5 Paid $1,200 cash on one-year insurance policy effective July 1.

6 Purchased 20 bottles of window washing detergent from Coal Company for Patrick’s inventory for $10/bottle, 2/10 n30.

12 Billed customers $2,500 for cleaning services.

13 Goat company purchased 10 bottles of window washing detergent for $20 per bottle, 1/5 n30 .

14 Paid Coal Company in full.

18 Paid $1,000 cash on amount owed on truck and $800 on amount owed on cleaning supplies.

19 Received payment from Goat company.

20 Paid $1,200 cash for employee salaries.

21 Collected $1,400 cash from customers billed on July 12.

25 Billed customers $3,000 for cleaning services.

31 Paid gas and oil for month on truck $200.

31 Paid Dividends of $900.

Prepare the multistep income statement and statement of Retained Earnings for July and a classified balance sheet at July 31

Zillmann Company sells goods on credit and estimates bad debts as a percentage of Account receivable, the credit period is 30 days .The Company has three customers following are the details of the Receivables at Dec-31, 2017 from these customers and the respective date when sales were made.

Required:

1. Which approach of recording bad debts is used by company?
2. Prepare aging schedule for Zillmann Company on Dec-31, 2017 in the format given below.

Calculate the estimated amount of bad debt by applying the percentage given in the above table.

4. Record the bad debt expense on Dec-31, 2017, assume allowance for bad debts has a debit balance of

$ 15,000 at this date.

5.    Assume on Mar-15, 2018 Blair, declared bankrupt, Record this default in the books of Zilmann.
6.    Do you think Zilmann can use direct write off approach to record bad debts, Max two lines.

Exercise 11-12

In 1993, Nash Company completed the construction of a building at a cost of $2,040,000 and first occupied it in January 1994. It was estimated that the building will have a useful life of 40 years and a salvage value of $59,200 at the end of that time.

Early in 2004, an addition to the building was constructed at a cost of $510,000. At that time, it was estimated that the remaining life of the building would be, as originally estimated, an additional 30 years, and that the addition would have a life of 30 years and a salvage value of $20,400.

In 2022, it is determined that the probable life of the building and addition will extend to the end of 2053, or 20 years beyond the original estimate.

A.) Using the straight-line method, compute the annual depreciation that would have been charged from 1994 through 2003.(Per year)

B.) Compute the annual depreciation that would have been charged from 2004 through 2022. (Per year)

C.) Prepare the entry, if necessary, to adjust the account balances because of the revision of the estimated life in 2021. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

D.) Compute the annual depreciation to be charged, beginning with 2022. (Round answer to 0 decimal places, e.g. 45,892.)