End-of-Chapter Eaten bial ma a oF Goldsmith Company shown below pertains 10 December 31, 20X6, which is lowing: its year-long accounting period, Data needed for the adjusting entrics include the Ful 8, Supplies on hand at year-end, $2,000, €. Acerued service reventic, $12,000. » Dereciation on miture ancl fixtures, f. Of the $45,000 balance of unearned service 2.000. revenue, $32,000 was earned during the ¢. Depreciation on building, $10,000, year. 5 A. Salaries owed but not yet paid, $5,000, __& Accrued income tax expense, $35,000. Requirements 1. Open the ledger accounts with their unadjusted balances. Show dollar amounts in thousands, as shown for Accounts Receivable: Accounts Receivable 370 2. Jouralize the Goldsmith Company adjusting entries at December 31, 20X6, Key entries by Iettr, as in Exhibit 3-8 : 3. Post the adjusting entries 4. Prepare an adjusted trial balance, as shown in Exhibit 3-9 5. Prepare the Income Stalement, the statement of changes in equity, and the Balance Sheet. (At this stag, itis not necessary to classify asscts or iabiliics as eurent or long term.) Draw ar- rows linking these three financial statements, 6. Make Goldsmith Company's closing entries at December 31, 20X6. Explain what the closing entries accomplish and why they are necessary. Show amounts in thousands. 7. Post the closing entries to Retained Earnings and compare Retained Earnings’ ending balance ‘with the amount reported on the Balance Sheet in requirement 5. The two amounts should be the same. 158iw 3 o aa ae S B id ; or sr Coma December 31, 20X6 2 | Cash _ mr $ 198,000 3 Accounts receivable e 370,000 4 Supplies a 200 || aaa Furniture and fixtures a 100,000 Accumulated depreciation—furniture and fixtures 1$ 40,000) 7 Building a ae 250,000 8 Accumulated deprecia! 130,000) 9 /Accountspayable & 380, 10 Salary payable 11 Unearned service revenue 45,000] 12 Income tax payable ok Ss 100,000) 193,000) 65,000 286,000) 172,000 20 Depreciation expel a fi 21. Income tax expense es i 22 Miscellaneous expense 13,000) 1,174,000} $ 1,174,000) 23 Total ieee es rr Accrual Accountingchapter 7 REVIEW | PPES and Intangibles Quick Check (Answer are given ate end ofthe chapler) 4. Bretinan, Ine, purchased a tact of lad, as $1,800.00 The appraised vale of the the cauipment $40,000, Whit the eo 1, S600 000) 1, Si.02.000 office biking and sore equipment for Tan was 120,000, the bung 8450088, ad os ofthe land $140,000 4. None ofthe shove 2. Which stat &. Deprec rent fase? om shaved onthe malching principle because M matches the cost ofthe ith the revenue generated over the asset's weil ie ‘Depreciation isa proces of allacaing the cost of a PPE over its set if «. Depreciation creates a fund ( replace the aset the end of suse ile 44. The cost ofa PPE minus accumulated deprecation equals he asset's book valve Use the following data for questions 3-6, On July 1 20X6, Amir Communications purchased new poe of equipment that cost $65,00, ‘The estimated useful ite is 10 years and estimated residual value $5,000. 3. What isthe depreciation expense for 20X6 if Amir ses the straight-line method? $3,000 $3,250 i. $6,000 4.6500 4, Assume Amir Communications purchased the exipment on January 1 20X6, I Amir uses the sruight-line method for depreciation, what isthe ase’s book value at the end of 20X77 a. $54,000 548,000 bs, $59,000) 4.553.000 5. Assume Amis Communications purchased the equipment on January 1, 20X6, IF Amir uses the doubledectning balance method, what isthe depreciation for 20X72 a. $13,000) 512,00 », $10,400, 4.39,600 6, Return to Amir’ original purchase date of July 1,20XS. Assome that Amir uses the straight-line met of depreciation and sll the equipment for $44,500 on July 1,20X8. “The result ofthe sale of the equipment sagan oss of { a. $3.50. © $15,500), bs, $8.50 4.50, ‘A company bought a new machine for $30,000 on January 1. The machine is expected 10 ive years and has a resid valve of $6000. I the company uses the double- Falance method, secumulaed depreciation at the end of year 2 willbe a. $12,000 © 519200, Which ofthe follwing snot a eapital expenditure? ‘a, A comple overhaul ofan at-condtioning system Ih Replacement of an ok! motor with anew one ina piece of equipment «, The cost of installing a piece of equipment 4d, The saldtion ofa buiing wing 4.515360, | fe Atne-up of company vehiclehich ofthe following assets is or subject (0a thon. depletion, oF mention a. Gorsiill Land provements a. Totangibles eereasing book value through deprecis PPE and Intangibles 427 «. Natural resources 10, Why woul a basins soleot an accelerated method of depreciation fr tax purposes? a. Accel depreciation by, Accelerated deprecation generat ssl than docs straight-line deprecation. ste depreciation Will est in higher guia on disposal of PPE than straight-line 4 greater amount of depreciation over the life of the ‘e. Accelerated depreciation is easier to calculate because salvage value is jznored {4 Accelerates Uepreciation generates higher depreciation expense immediately, and therefore lowers tax payments inthe early years ofthe asse's if 11. A company purchased an oil wel for $270,000, Itestmates thatthe well contains 100,000 thet has an eight-year life, and has no salvage value I the company extracts and sels 30.000 barels of oi in the Fst year, how mach depletion expense shouldbe recorded? a. $33,750 be. 554.000 . $27,000 4, $67,500 12, Which item among the following is ot an intangible asset? ‘a. Acopyright bi. A patent A trademark 4. Goodwill Accounting Vocabulary accelerated depreciation method (p. 404) A depreva tion method that writes off relatively larger amount ofthe set's cost nearer the start ofits useful Iifethan does the Straight-line method ‘accumulated depreciation (p. 400) The cumative sum of all deprecation expense from the date of acquiring PPE. amortization (p. 418) The systematic reduction of a lump> Summ amount. Expense that spplie to intangible assets inthe Same way Jepreation applies to PPE and depletion applies to natural resources asset turnover (p.423) A measure of ellciency onthe use fof assets fo generate sales. capital expenditure (p. 397) An expenditure that increases Sn assets capacity or efficiency orextends ils useful life Capital expenditures are debited fo an asset account, copyright (p. 420) Exclusive right to reproduce and sella bouk, musical composition, fi her work of at or com puter program, Issued by the government, copyrights may ‘extend many years beyond the author's ie, depletion expense (p. 417) "That portion ofa natural resource’s ‘ost thats used up in a partiula period, Depletion expense is ‘Computed in the sane way as unio preduetion depreciation (p-399) The systematic allocation ofthe cost fof 4 long-term asset over its wsetul ie depreciable eost(p, 401) The cost of a PPE minus its esti- mated residual value fe Alofthe above are intangible assets ouble-dectining-balance (DDB) method (p. 404) An sceelerated depreciation method that computes annual depreciation by multiplying the asses decreasing book value by a constant percentage, which is two times the ine rate estimated residual value (p. 401) Expected cash value of an ‘asset at the end of its useful life, Aso called residual value scrap value, of salvage value ‘estimated useful life (p. 401) Lensth of service that a bust ness expects to get from an asset. May be expressed in years, units of output, miles, oF other measures. franchises and licenses (p. 420) Privileges granted by a pric vate business ora government to sella product or service in ceordance with specified conditions ‘goodill(p. 420) Excess of the cost of an acquired company ‘ver the sum ofthe market valves of is net assets (assets ‘minus lables). impairment (p. 391) The condition that exists when the earrying amount of an asset exceeds its recoverable amount Intangible assets (p. 392) A non-monetary asset with no ‘physical form that conveys future economic benefits to the entity. patent (p. 419) A government grant giving the holder the exclusive right fora certain aumber of years to produce and sell an invention,SO \ chapter REVIEW | Inventory and Merchandising Operations Quick Check (Answers are given atthe end ofthe chapter) ‘Whi semen ise? {Themis the prise’ eet or coletion fom te cstoer 1 serie company purchase rom spp aed en sll em. &. Gis lt sth exces sles evens vere of gods 2 @L The Stes seco ese to cod oly son seat Sales viscous should appear inthe financial statements a. aca addition to inventory 4.35 an aditon to sales, b. asa deduction fom aes, as an operating expense. «6 among the euteat ables 3. How is inventory classified in the nancial statements? a. As afabily e Asanexpense 1, As a cones account to 4. Asanasset Cost of Goods Sold Asarovenue ‘Questions 4-6 use the following data of Dana, Ine. a Unig Ont Catal einai is ~~ 8 archaeon p28 “ oe) Paso No 0 ° ” Sal ” ? ? 4 Dana uses a FIFO inventory system, Cos of goods sod forthe period is a. $300 $265, wb 283, 4.5195, ‘5. Dana's LIFO cost of ending inventory would be SiN5; © 37. $160, asi7s, 6, Dana’ average cos of ending inventory is a $195 © SIT. hy S160, a.si7s. 7. When applying the lower feos or ne realizable value, NRV means 2, selling rive Fess discounts. 1, origi cost plus profit margin, sling price fess costo sell 4 original ost ess physical deterivation 1 ing pio of ising pices, the inventory method that will yield the highest net income and act vale | «specifi ietiaton. average cost.: Inventory and Mercrardeng Operations 387 curt Ege ll Cereal PPO. When prises oe seg. the inventory ead ha ean in tle eding lve ‘value is FIFO. a! es «. Anerroroverstaing ceding inventar in 210 wl underate 210 at acme SL Aplications lato lm rest ine ower ena vale han 10, Te eating nen of Misty Hab ois $9.0, begining nemory was $86,000 Jl goose te $127.00, de cox of gods sli 2 si1000 anes b $32.00 pone of above © 386,00. 11, LantenCorgany ha et of gos sl of $148,000 The beating nein iveno- Hees an 25 respects Purch fr th per mst ave been 2 st600 i erreeat i steno fe sis2000 © ste0t0 ‘Ue the fatoing information fr question 12-14 ro eo 0 kriaing mes and $35.00 eding inventor Nettles via one asc, SosON, yc ee andalowances, 700; and eight $3000 396000, 4 e100 i soso noe he above © 82000 13, Whats Highways eos rf peng ound othe nearest erestage? 2st <5 hase 4 Nec of sbve 14, Whats Hignway’s te of imei uroe!? 2 26s © 30tines, is S3tines e2atines 15 ining invertor 120000, pase 270.00 an se al S460600, The Bez so Uae ioe pol me how mths ang MELO? san 4. 388,000 i siszam0 f: None ofthe above essa 6. Anonentacent ning etry in oe period ess in tame ofthe besinnnginvenoy ofthe next ped $s amon oat nim of he ex pero Accounting Vocabulary cvevagect met (p34 ctr costing mebod_ctsigument (232) A inventory rangement where era a car) ng te pod, hese sls er hat belongs toate pat. The en ee usd) Uninet ctt of onde sale dos tints consigned merchandise on asikiy the number of usable Ako called the inits Balance Shes, because the seller does not own this weighted-average metho. inventory.End-of-Chapter Summary Problem following comparative Balance Sheet and Income State- “ a al ase Adeva Wealth Foods, in | Comparative Balance Sheets December 31 2 = $19,000 | $3000 = = zape0 | 2000 =a 34,000} 3,000, a ‘1p00_| 3,000 Adeva Health Fods, ne. Year Ended income Statement December31, 20X7 Sales revenve Gain onsale of equipment Total revenue and Bans Gop. of goods sald Deprection expense Other operating expenses Total expenses Income before incom Income tox expense | ‘Assume that Beshshire Hathaway Ine 1 considering buying Adeva. Berkshire Hathaway requests 20N7, There were no noncash investing und Financing activities the following cash-flow dats 1. Collections from customers b. Cash payments for inventor {. Cash payments for operating expensesChapter 11 a Cash payment for inco1 the year.) Issuance of shares Provide the requested data. Show your work.38 Chapter 11 4. 1 20N0, PAW Con shaves to S46 poe shan N vation borrowed $120,000, paid dividends of $35,000, issued 10.060 Purchased fan for $250,000, and received dividends of $20,000, income was $160,000, and depreciation forthe year totaled $8,000. How much should ‘ne roport a et cash provided by operating activities by the indirect method? $205,000 €. $230,000 b. Slason0 4. $152,000 5. Activites that obtain the cash needed to launch and sustain a company are investing ativitis, , marketing activites. 1, financing atvitis. 4. income atviics, 6. The exchange of shates for land would be reported as noneash investing and financing activities. , would be reported as financing activities, {. would ot be reported on the stitement of cashflows. 4. would be reported 3s investing activites. Use the following Montana Company informati for questions 7-10. Retwcone $50 000, Toc im accoun payable 10000 GO, Gracin) | WeatiteesetcarenacssLal) 29000 2.000 Saleof teas shares. “4,000 Increase aout SC 3.000 16000 Galleria ot egtrntes ettaler ee 600) 42,000 ost on sl an ve 18000 Deceaeinintetoie 3,00. 7. Under the ingiret method, net eash provided by operating activities would be $1,000 «$79,000 bs, $73.08, 4. $57,000 18, Not cash provided by (used for investing activities would be (1.000) € $1,000. (13,000). 4. $13,000 9. Net cas provided by (used fr) financing activities would be 1. $15,000), «$14,000, by, Si48,000), 4. $2,000. 10, The eos of land ns have been $42,000. Jy mint have been $87,000, must have been $27,000. 4, cant he determined from the data given, 1H, Sw Tat Cam ga te eth HO in sc ela ee te ‘year il Sot, 00 in accounts receivable If sales forthe year were $700,000; the cash col- Jest from customers caring the year amounted 19 a, $7ob 00 «- $720,000. b, $700.00. 4. $680,000.12. Nassau Farm CashFlows 667 | Ltd., made sales of $760,000 and had cost of, goods sold of $410,000. Inventory decreased by $10,000 and accounts payable decreased by $12,000. Operating expenses were $180,000. How much w Sassau Farms’s net income for the year? c. $168,000 d. $350,000 a. $172,000 b. $170,000 13, Use the Nassau Farms data from question 12 How much cash did Nassau Farms pay for inventory during the year? $410,000 b. $400,000 ¢. $422,000 d. $412,000 ng Vocabulary 633) Highly Jiquid short-term investments {nto cash immediately. Accot cash equivalents (P- that can be converted hh flows (p. 633) Cash receipts and cash payments (disbursements) h realization ratio (P (959) An entity's ability to generate cash from net or operating profit, Caleulated as cash flows from operations divided BY net profit oa) pormat of the operating: activi- c free cash flow (p. 659) The amount of cash available from operations after paying for capital expenditures such as investments in PPE. indirect method (p. 637) Format of the operating activitie section of the statement of cash flows; starts with net inco and reconciles to cash flows from operating activities. investing activities (p. 636) Activities that increase or decr the long-term assets available to the business; a section of t ement of cash flows.