Home Assignment 3

Q#1
Assume that you are the owner of a trucking company that has just invested $150,000 in a new
truck. Working with your accountant, you are in the process of estimating its useful life and
residual value. Your estimates will be used to compute straight line depreciation expense for
financial reporting purposes.
What factors should you take into consideration in developing these estimates? Discuss briefly
how these factors will influence the amount of depreciation expense reported by your company
each year.
Q#2
The following expenditures relating to plant assets were made by Wilson Company during the
first 2 months of 2018.

1. Paid $5,000 of accrued taxes at the time plant site was acquired.
2. Paid $200 insurance to cover possible accident loss on new factory machinery while the
machinery was in transit.
3. Paid $850 of sales tax on new delivery truck.
4. Paid $17,500 for parking lots and driveways on new plant site.
5. Paid $250 to have company name and advertising slogan painted on new delivery truck.
6. Paid $8,000 for installation of new factory machinery.
7. Paid $900 for one-year accident insurance policy on new delivery truck.
8. Paid $75 motor vehicle license fee on the new truck.

a. Explain the application of the cost principle in determining the acquisition cost of plant assets.
b. List the numbers of the foregoing transactions, and opposite each indicate the account title to
which each expenditure should be debited?
Q#3
In recent years, Pablo Company purchased three machines. Because of heavy turnover in the
accounting department, a different accountant was in charge of selecting the depreciation method
for each machine, and each selected a different method. Information concerning the machines is
summarized below.
Salvage Useful Life Depreciation
Machine Acquired Cost Value in Years Method
1 1/1/12 $86,000 $ 6,000 10 Straight-line
2 1/1/13 100,000 10,000 8 Declining-balance
3 11/1/15 78,000 6,000 6 Units-of-activity
For the declining-balance method, the company uses the double-declining rate. For the units-of
activity method, total machine hours are expected to be 24,000. Actual hours of use in the first
3 years were: 2015, 1,000; 2016, 4,500; and 2017, 5,000.

a. Compute the amount of accumulated depreciation on each machine at December 31, 2015.
b. If machine 2 had been purchased on April 1 instead of January 1, what would be the
depreciation expense for this machine in (1) 2013 and (2) 2014?
Q#4
The intangible assets section of Time Company at December 31, 2018, is presented below.

Patent ($60,000 cost less $6,000 amortization) $ 54,000

Copyright ($36,000 cost less $14,400 amortization) 21,600
Total $75,600

The patent was acquired in January 2018 and has a useful life of 10 years. The copyright was
acquired in January 2015 and also has a useful life of 10 years. The following cash transactions
may have affected intangible assets during 2019.

Jan. 2 Paid $27,000 legal costs to successfully defend the patent against infringement by
another company.
Jan.–June Developed a new product, incurring $140 ,000 in research and development costs. A
patent was granted for the product on July 1. Its useful life is equal to its legal life.
Sept. 1 Paid $75,000 to an Xgames star to appear in commercials advertising the company’s
products. The commercials will air in September and October.
Oct. 1 Acquired a copyright for $120,000.The copyright has a useful life of 50 years.

a. Prepare the intangible assets section of the balance sheet at December 31, 2019.
b. Prepare the note to the financials on Time’s intangibles as of December 31, 2019.

Q#5
Elmer Online Company has the following liability accounts after posting adjusting entries:
Accounts Payable $63,000, Unearned Ticket Revenue $24,000, Estimated Warranty
Liability $18,000, Interest Payable $8,000, Mortgage Payable $120,000, Notes Payable $80,000,
and Sales Taxes Payable $10,000.Assume the company’s operating cycle is less than 1 year,
ticket revenue will be earned within 1 year, warranty costs are expected to be incurred within 1
year, and the notes mature in 3 years.

a. Prepare the current liabilities section of the balance sheet, assuming $30,000 of the mortgage
is payable next year.
b. Comment on Elmer Online Company’s liquidity, assuming total current assets are $300,000.

Q#6
On January 1, 2018, the ledger of Softshoe Company contains the following liability accounts.
Accounts Payable $52,000
Sales Taxes Payable 7,700
Unearned Service Revenue 16,000
During January the following selected transactions occurred.

Jan. 5 Sold merchandise for cash totaling $22,680, which includes 8% sales taxes.
12 Provided services for customers who had made advance payments of $10,000. (Credit
Service Revenue.)
14 Paid state treasurer’s department for sales taxes collected in December 2017, $7,700.
 20 Sold 800 units of a new product on credit at $50 per unit, plus 8% sales tax. This new
product is subject to a 1-year warranty.
21 Borrowed $18,000 from Platteville Bank on a 3-month, 8%, $18,000 note.
25 Sold merchandise for cash totaling $12,420, which includes 8% sales taxes.

After taking into January transactions and making adjustment for entries at January 31 for (1) the
outstanding notes payable, and (2) estimated warranty liability, assuming warranty costs are
expected to equal 7% of sales of the new product, prepare the current liabilities section of the
balance sheet at January 31, 2018. Assume no change in accounts payable.

Q#7
Gentry Corporation had the following stockholders’ equity accounts on January 1, 2018:
Common Stock ($5 par) $500,000, Paid-in Capital in Excess of Par Value $200,000, and Retained
Earnings $100,000. In 2018, the company had the following treasury stock transactions.
Mar. 1 Purchased 5,000 shares at $9 per share.
June 1 Sold 1,000 shares at $12 per share.
Sept. 1 Sold 2,000 shares at $10 per share.
Dec. 1 Sold 1,000 shares at $6 per share.
In 2018, the company reported net income of $30,000.

Prepare the stockholders’ equity section for the Corporation at December 31, 2018.

Q#8
The stockholders’ equity accounts of Miles Corporation on January 1, 2018, were as follows.

Preferred Stock (8%, $50 par, cumulative, 10,000 shares authorized) $ 400,000
Common Stock ($1 stated value, 2,000,000 shares authorized) 1,000,000
Paid-in Capital in Excess of Par Value—Preferred Stock 100,000
Paid-in Capital in Excess of Stated Value—Common Stock 1,450,000
Retained 1,816,000
Treasury Stock—Common (10,000 shares) 50,000

During 2018, the corporation had the following transactions and events pertaining to its
stockholders’ equity.

Feb. 1 Issued 25,000 shares of common stock for $120,000.

Apr 14 Sold 6,000 shares of treasury stock—common for $33,000.
Sept. 3 Issued 5,000 shares of common stock for a patent valued at $35,000.
Nov 10 Purchased 1,000 shares of common treasury stock at $6 per share.
Dec. 31 Determined that net income for the year was $3452,000.

No dividend on common stocks were declared during the year

Prepare a stockholders’ equity section at December 31, 2018 including the disclosure of the
preferred dividend in arrears.