Using the numbers shown in parentheses, indicate how each separate question will affect the reconciliation of December 31, 2020. (Assume you are reconciling the balance per books and the balance per bank to the correct or adjusted balance). Write your answers on the space provided before each number. Use only CAPITAL LETTERS.

A. Add to bank balance
B. Deduct from the bank balance
C. Add to book balance
D. Deduct from book balance
E. No effect

1. Bank service charge for December, P 300, not recorded on books.

2. Checks totaling P 41,500 were outstanding at December 31, 2020.

3. Deposits totaling P 26,500 were in transit at December 31, 2020.

4. Check No. 601 dated November 30, 2020 was paid by the bank in December.

5. Check No. 607 for P 2,050 were recorded on the books as P 2,500.

6. A check from a customer was paid by the bank in December. It had been returned earlier in December for proper endorsement and was redeposited. No entry for the return or re-deposit had been made.


7. An interest charge was made to the account by the bank in error.

8. The December bank statement included the proceeds of a customer’s draft collected by the bank on December 30, 2020, but not recorded on the books.


9. Credit memorandum from the bank for December was not recorded in December. It was, however, recorded in January 2021.


10. A debit memo issued by the bank for P 450 recorded as a credit to cash.

On June 1, 2018, Riverbed Company and Marin Company merged to form Headland Inc. A total of 802,000 shares were issued to complete the merger. The new corporation reports on a calendar-year basis.

On April 1, 2020, the company issued an additional 625,000 shares of stock for cash. All 1,427,000 shares were outstanding on December 31, 2020.

Headland Inc. also issued $600,000 of 20-year, 8% convertible bonds at par on July 1, 2020. Each $1,000 bond converts to 38 shares of common at any interest date. None of the bonds have been converted to date.

Headland Inc. is preparing its annual report for the fiscal year ending December 31, 2020. The annual report will show earnings per share figures based upon a reported after-tax net income of $1,507,000. (The tax rate is 20%.)

Determine the following for 2020.

(a) The number of shares to be used for calculating: (Round answers to 0 decimal places, e.g. $2,500.)

(b) The earnings figures to be used for calculating: (Round answers to 0 decimal places, e.g. $2,500.)

Amanah Berhad is a furniture manufacturer which is based in Pasir Gudang. The following trial balance was taken from the books of Amanah Berhad on 31 December 2020.

Additional information:

(i)           Insurance expired during the year, RM2,000.

(ii)       Estimated bad debts, 5% of the accounts receivable.

(iii)      Depreciation on equipment, 10% per year.

(iv)      Interest at 5% is receivable on the note for one full year.

(v)       Rent paid in advance, RM5,400 (originally charged to expense).

(vi)      Accrued salaries and wages at December 31, RM5,800.

(vii)     Advertising paid in advance, RM560 (originally charged to expense).

Required;

(a)       Prepare adjusting journal entries for the above items.

(b)       Prepare Income Statement of Amanah Berhad for the year ended 31 December 2020.

(c)          Prepare Statement of Financial Position of Amanah Berhad as at 31 December 2020.

PART A

Shania Twain Ltd pays its annual insurance premium in cash on 1 September each year.  The latest payment of $9,000 was on 1 September 2020 which was $600 more than the previous year.  All transactions are recorded in the general journal. Shania Twain Ltd has a December 31st year end.

Required:

Assuming Shania Twain Ltd uses the Asset approach to record the payment, prepare general journal entries (narrations are NOT required) required at:

1. 1 September 2020
2. 31 December 2020 (adjusting entry only; i.e. closing entry not required)

PART B

Why do we prepare closing entries at year end?

PART C

Shania Twain Ltd had Accounts Receivable of $215,000 and an Allowance for Doubtful Debts of $520 (Credit) at 31 December 2020.  A review of outstanding accounts indicated the need to immediately write off $700 of bad debts and to make a provision for Doubtful Debts for next year based on 3% of Adjusted Accounts Receivable.

Prepare the necessary general journal entries for the above information (narrations are NOT required).

PART D

Shania Twain Ltd had purchased equipment on 1 January 2020 at a cost of $200,000. The equipment had a useful life of 6 years and an estimated residual of $35,000.  The company decided to use the reducing balance method of depreciation at 30% per annum.

Calculate the depreciation and prepare the necessary journal entry for the year ended 31 December 2021.

Exercise 12-04

Presented below is selected information for Cullumber Company.

Answer the questions asked about each of the factual situations. (Do not leave any answer field blank. Enter 0 for amounts.)

1. Cullumber purchased a patent from Vania Co. for $1,340,000 on January 1, 2018. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2028. During 2020, Cullumber determined that the economic benefits of the patent would not last longer than 6 years from the date of acquisition. What amount should be reported in the balance sheet for the patent, net of accumulated amortization, at December 31, 2020?

2. Cullumber bought a franchise from Alexander Co. on January 1, 2019, for $3,150,000. The carrying amount of the franchise on Alexander’s books on January 1, 2019, was $315,000. The franchise agreement had an estimated useful life of 30 years. Because Cullumber must enter a competitive bidding at the end of 2021, it is unlikely that the franchise will be retained beyond 2028. What amount should be amortized for the year ended December 31, 2020?

3. On January 1, 2020, Cullumber incurred organization costs of $257,500. What amount of organization expense should be reported in 2020?

The statement of comprehensive income of kolad plc, a publicly listed company, is as follows:

Statement of comprehensive income for the year ended 31 March 2020

The following supporting information is available:

1. Depreciation of £965,000 was charged (to cost of sales) for property, plant and equipment in the year ended 31 March 2020. An item of plant with a carrying value of £750,000 was sold at a profit of £65,000 during the year.

2. The following extracts from the statements of financial position for the years ended 31 March 2020 and 31 March 2019 are relevant:

YOU ARE REQUIRED TO:

1. Calculate the net cash flow from operating activities for kolad plc for the year to 31 March 2020 in accordance with IAS 7 Statement of cash flows using the indirect method.

2. Explain the characteristics of an item to be considered as a cash equivalent and give three examples of items that could be included as cash and cash equivalents in a statement of cash flows.

3. Profit is not a good indicator of performance as it can be changed to suit management’s needs.

Discuss whether, in your opinion, the statement of profit or loss or the statement of cash flows is a better indicator of a company’s performance.

The actuary for the pension plan of Ivanhoe Inc. calculated the following net gains and losses.

Other information about the company’s pension obligation and plan assets is as follows.

Ivanhoe Inc. has a stable labor force of 400 employees who are expected to receive benefits under the plan. The total service-years for all participating employees is 4,400. The beginning balance of accumulated OCI (G/L) is zero on January 1, 2020. The market-related value and the fair value of plan assets are the same for the 4-year period. Use the average remaining service life per employee as the basis for amortization.

Compute the minimum amount of accumulated OCI (G/L) amortized as a component of net periodic pension expense for each of the years 2020, 2021, 2022, and 2023. Apply the “corridor” approach in determining the amount to be amortized each year. (Round answers to 0 decimal places, e.g. 2,500.)

On March 10, 2020, Pharoah Company sold to Barr Hardware 160 tool sets at a price of $50 each (cost $30 per set) with terms of n/60, f.o.b. shipping point. Pharoah allows Barr to return any unused tool sets within 60 days of purchase. Pharoah estimates that (1) 10 sets will be returned, (2) the cost of recovering the products will be immaterial, and (3) the returned tools sets can be resold at a profit. On March 25, 2020, Barr returned 7 tool sets and received a credit to its account. Assume that instead of selling the tool sets on credit, that Pharoah sold them for cash.

(a)

Partially correct answer iconYour answer is partially correct.

Prepare journal entries for Pharoah to record (1) the sale on March 10, 2020, (2) the return on March 25, 2020, and (3) any adjusting entries required on March 31, 2020 (when Pharoah prepares financial statements). Pharoah believes the original estimate of returns is correct. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

Exercise 20-16

The actuary for the pension plan of Flint Inc. calculated the following net gains and losses.

Other information about the company’s pension obligation and plan assets is as follows.

Flint Inc. has a stable labor force of 400 employees who are expected to receive benefits under the plan. The total service-years for all participating employees is 4,400. The beginning balance of accumulated OCI (G/L) is zero on January 1, 2020. The market-related value and the fair value of plan assets are the same for the 4-year period. Use the average remaining service life per employee as the basis for amortization.

Compute the minimum amount of accumulated OCI (G/L) amortized as a component of net periodic pension expense for each of the years 2020, 2021, 2022, and 2023. Apply the “corridor” approach in determining the amount to be amortized each year. (Round answers to 0 decimal places, e.g. 2,500.)