Problem 7-06           Allowance method

The balance sheet of Starsky Company at December 31, 2019, includes the following.

Transactions in 2020 include the following:

1. Accounts receivable of $78,000 were collected
2. Accounts receivable of $60,000 were collected, in which 2% sales discounts were granted.
3. A $5,300 customer account that was written off the books as worthless in 2019 was reinstated.
4. The $5,300 was received from the customer.
5. Customer accounts of $17,500 were written off during the year.
6. At year-end, Allowance for Doubtful Accounts was estimated to need a balance of $20,000. This estimate is based on an analysis of aged accounts receivable.
7. Instructions: Journalize the above transactions.

) Jaeco Corporation asks you to review its December 31, 2020 inventory values and prepare the adjustments that are needed to the books. The following information is given to you: • 1. Jaeco uses the periodic method of recording inventory. A physical count reveals $234,890 of inventory on hand at December 31, 2020, although the books have not yet been adjusted to reflect the ending inventory. • 2. Not included in the physical count of inventory is $10,420 of merchandise purchased on December 15 from Shamsi. This merchandise was shipped f.o.b. shipping point on December 29 and arrived in January. The invoice arrived and was recorded on December 31. • 3. Included in inventory is merchandise sold to Sage on December 30, f.o.b. destination. This merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale on account for $12,800 on December 31. The merchandise cost $7,350, and Sage received it on January 3. • 4. Included in the count of inventory was merchandise received from Dutton on December 31 with an invoice price of $15,630. The merchandise was shipped f.o.b. destination. The invoice, which has not yet arrived, has not been recorded. • 5. Not included in inventory is $8,540 of merchandise purchased from Growler Industries. This merchandise was received on December 31, after the inventory had been counted. The invoice was received and recorded on December 30. • 6. Included in inventory was $10,438 of inventory held by Jaeco on consignment from Jackel Industries. • 7. Included in inventory was merchandise sold to Kemp, f.o.b. shipping point. This merchandise was shipped after it was counted, on December 31. The invoice was prepared and recorded as a sale for $18,900 on December 31. The cost of this merchandise was $11,520, and Kemp received the merchandise on January 5. • 8. Excluded from inventory was a carton labelled “Please accept for credit.” This carton contained merchandise costing $1,500, which had been sold to a customer for $2,600. No entry had been made to the books to record the return, but none of the returned merchandise seemed damaged. • 9. Jaeco sold $12,500 of inventory to Simply Corp. for $21,000 on account on December 15, 2020. These items were shipped f.o.b. shipping point. The terms of sale indicate that Simply Corp. will be permitted to return an unlimited amount until May 15, 2021. Jaeco has never provided unlimited returns in the past and is not able to estimate the amount of any potential returns that Simply may make. Instructions a. Determine the proper inventory balance for Jaeco Corporation at December 31, 2020. b. Prepare any adjusting/correcting entries that are needed at December 31, 2020. Assume the books have not been closed and that Jaeco follows IFRS. c. Assume instead that Jaeco follows ASPE. Prepare any adjusting/correcting entries at December 31, 2020, that are needed.

Paul is celebrating his 43rd birthday today and is planning for a retirement savings programe for
his family.

[Planned expenses]

- Paul’s daughter is now 6 years old and he plans to send her to a top local university in 12 years.
Currently, the cost of studying (tuition fees and living expenses) is $150,000 per year, but it is
expected to increase with the inflation rate of 3% per year. It takes his daughter 4 years to
complete her undergraduate study, and it is assumed that he will have to pay the tutition fees
and living expenses for his daughter on his 55th, 56th, 57th and 58th birthdays.

- Besides, he would need $2,000,000 to take his wife for a round-the-world trip at their 30th
anniversary when he reaches 62.

- Paul is planning to retire at the age of 65. He estimates that he will need $30,000 a month to
enjoy his retirement years with his wife, with the first withdrawal on his 65th birthday and the
last withdrawal on his 90th birthday.

- He would also like to donate $40,000 semiannually to his university, starting from his 70th
birthday through the 80th birthday.

- He plans to leave $10,000,000 to his family at his 90th birthday.

[Planned savings and cash inflows]
- Eight years ago, Paul joined his employer’s retirement plan that paid him 6% interest
(compounded monthly). At the end of each month, he deposited $5,000 into the retirement
account. He is planning to move all the funds from his retirement account to a high-yield
savings account after he made the last deposit today.

- In addition, he plans to make a quarterly deposit to the high-yield savings account, with the
first deposit to be made a quarter from today and the last deposit one year before his retirement
(i.e. on his 64th birthday). He expects to earn a quarterly return of 3.7971% from the high-yield
account. When he retires, he will have to move all his money to a low-risk account that enables
him to withdraw money whenever he needs. It is expected that the low-risk account will pay
him an interest of 2% (compounded semiannually).

- He expects to stay in his company until he retires and receive a loyalty bonus of $80,000 at his
60th birthday. The loyalty bonus will be deposited to the high-yield account as well.

(a) How much does Paul currently have in his employer’s retirement account (before he moves his
fund to the high-yield account)?

(b) What is the present value (at Paul’s 43rd birthday) of the total costs for sending her daughter to
the university for undergraduate study?

(c) How much must Paul deposit every quarter in order to meet all his withdrawal needs?

Rayya Co. purchases and installs a machine on January 1, 2016, at a total cost of $142,800. Straight-line depreciation is taken each year for four years assuming a eight-year life and no salvage value. The machine is disposed of on July 1, 2020, during its fifth year of service.

Prepare entries to record the partial year’s depreciation on July 1, 2020.

Record the depreciation expense as of July 1, 2020.

Prepare entries to record the disposal under the following separate assumptions:

1. The machine is sold for $71,400 cash.|

Record the sale of machinery for $71,400 cash.

2. An insurance settlement of $59,976 is received due to the machine’s total destruction in a fire.

Record the insurance settlement received of $59,976 resulting from the total destruction of the machine in a fire.

1.The population of India in the year 2000 was 1 billion and it increased exponentially at a rate of 1.6% per year. If the growth rate is maintained, what will be the population in the year 2020? If the growth rate is decreased to 1.2% per year from 2020 onwards and is maintained at that level, what will be the population in the year 2050? Assuming the average human exhales 2.3 pounds of carbon dioxide on an average day, what is the total amount of Carbon released in the atmosphere annually by human exhalation (in billion tonnes) around the year 2020?  

2.Calculate the suspended particulate concentration (in μg/m³) in a sample collected through a hi-vol. sampler: Weight of clean filter = 5.00 g, Weight of the filter after exposure for 24 hours = 5.38 g, Average air flow = 2000 m³ in 24 hours.   

On January 1, 2018, Surreal Manufacturing issued 670 bonds, each with a face value of $1,000, a stated interest rate of 3 percent paid annually on December 31, and a maturity date of December 31, 2020. On the issue date, the market interest rate was 4 percent, so the total proceeds from the bond issue were $651,410. Surreal uses the effective-interest bond amortization method and adjusts for any rounding errors when recording interest in the final year.

Required:

1. 1. Prepare a bond amortization schedule.

2. 2-5. Prepare the journal entries to record the bond issue, the interest payments on December 31, 2018 and 2019, the interest and face value payment on December 31, 2020 and the bond retirement. Assume the bonds are retired on January 1, 2020, at a price of 102.

On January 1, 2018, Surreal Manufacturing issued 530 bonds, each with a face value of $1,000, a stated interest rate of 3 percent paid annually on December 31, and a maturity date of December 31, 2020. On the issue date, the market interest rate was 4 percent, so the total proceeds from the bond issue were $515,294. Surreal uses the simplified effective-interest bond amortization method and adjusts for any rounding errors when recording interest in the final year.

Required:

1. 1. Prepare a bond amortization schedule.

2. 2-5. Prepare the journal entries to record the bond issue, the interest payments on December 31, 2018 and 2019, the interest and face value payment on December 31, 2020 and the bond retirement. Assume the bonds are retired on January 1, 2020, at a price of 103.

On January 1, 2018, Loop Raceway issued 580 bonds, each with a face value of $1,000, a stated interest rate of 5 percent paid annually on December 31, and a maturity date of December 31, 2020. On the issue date, the market interest rate was 6 percent, so the total proceeds from the bond issue were $564,485. Loop uses the straight-line bond amortization method and adjusts for any rounding errors when recording interest in the final year.

Required:

1. 1. Prepare a bond amortization schedule.

2. 2-5. Prepare the journal entries to record the bond issue, the interest payments on December 31, 2018 and 2019, the interest and face value payment on December 31, 2020 and the bond retirement. Assume the bonds are retired on January 1, 2020, at a price of 98.

On January 1, 2018, Loop Raceway issued 580 bonds, each with a face value of $1,000, a stated interest rate of 5 percent paid annually on December 31, and a maturity date of December 31, 2020. On the issue date, the market interest rate was 6 percent, so the total proceeds from the bond issue were $564,485. Loop uses the straight-line bond amortization method and adjusts for any rounding errors when recording interest in the final year. Required: 1. Prepare a bond amortization schedule. 2-5. Prepare the journal entries to record the bond issue, the interest payments on December 31, 2018 and 2019, the interest and face value payment on December 31, 2020 and the bond retirement. Assume the bonds are retired on January 1, 2020, at a price of 98.

On January 1, 2018, Loop Raceway issued 530 bonds, each with a face value of $1,000, a stated interest rate of 7 percent paid annually on December 31, and a maturity date of December 31, 2020. On the issue date, the market interest rate was 8 percent, so the total proceeds from the bond issue were $516,324. Loop uses the straight-line bond amortization method and adjusts for any rounding errors when recording interest in the final year.

Required:

1. 1. Prepare a bond amortization schedule.

2. 2-5. Prepare the journal entries to record the bond issue, the interest payments on December 31, 2018 and 2019, the interest and face value payment on December 31, 2020 and the bond retirement. Assume the bonds are retired on January 1, 2020, at a price of 99.