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Question 1

1.

2.

3.

(a)

(b)

4.
5.

6.

(a)

(b)

7.

Cash ..................................................................................................................................................................
3,866
Accumulated Depreciation, Factory Machinery ..............................................................................................
27,367
Factory Machinery ......................................................................................................................................
31,233
Tools Used (Expense) ......................................................................................................................................
7,850
Tools ............................................................................................................................................................
7,850
(Note the contrast between depreciation and a direct write-off.)
Depreciation Expense .......................................................................................................................................
278
Accumulated Depreciation, Automotive Equipment ...................................................................................
278
(The additional depreciation is 1/6 x .20 x $8,354. Note that the half-year
convention is not used. Note that if the depreciation incurred in 2006 is
disregarded, the loss will be overstated.)
Cash ..................................................................................................................................................................
2,336
Accumulated Depreciation, Automotive Equipment........................................................................................
5,458
Loss on Sale of Other Assets ............................................................................................................................
560
Automotive Equipment ...............................................................................................................................
8,354
(There can be a discussion of the proper showing of the loss on the income
statement.)
Patent Amortization Expense ...........................................................................................................................
11,250
Patent ...........................................................................................................................................................
11,250
Cash ..................................................................................................................................................................
75
Accumulated Depreciation, Office Machines ..................................................................................................
1,027
Gain on Sale of Other Assets.......................................................................................................................
75
Office Machines ..........................................................................................................................................
1,027
(The gain is preferably combined with the loss on Item 3, with entries to a
Loss or Gain account. It is shown separately here for clarity.)
Depreciation Expense ..................................................................................................................................
37
Accumulated Depreciation....................................................................................................................
37
(.75 x .10 x $490)
Cash ............................................................................................................................................................
80
Accumulated Depreciation, Furniture and Fixtures.....................................................................................
432
Furniture and Fixtures ...........................................................................................................................
490
Gain on Sale of Other Assets ................................................................................................................
22
Depreciation Expense ..................................................................................................................................
398,779
Accumulated Depreciation, Building ....................................................................................................
48,105
Accumulated Depreciation, Factory Machinery ...................................................................................
330,935
Accumulated Depreciation, Furniture and Fixtures ..............................................................................
5,599
Accumulated Depreciation, Automotive
Equipment .............................................................................................................................................
9,989
Accumulated Depreciation, Office Machines .......................................................................................
4,151
(Note that depreciation is calculated after the earlier entries have been recorded and that
depreciation on factory machinery is not calculated on the $85,000 of fully depreciated assets.)

Question 2

Accumulated
Gross
Depreciation
Net
Land .............................................................................................................................................................................
$ 186,563
$ 186,563
Building .......................................................................................................................................................................
2,405,259
$ 711,484
1,693,775
Factory machinery ......................................................................................................................................................
3,394,352
1,945,926
1,448,426
Furniture and fixtures .................................................................................................................................................
55,994
45,604
10,390
Automotive equipment ...............................................................................................................................................
49,944
41,965
7,979

Office machines ..........................................................................................................................................................


41,507
31,129
10,378
Tools ...........................................................................................................................................................................
53,444
53,444
Patent ...........................................................................................................................................................................
45,000
_________
45,000
Total ......................................................................................................................................................................
$6,232,063
$2,776,108
$3,455,955

ANSWERS TO PROBLEM 2.4 AND 2.5


Problem 2-4
CARSON LEGATT PARTNERSHIP
BALANCE SHEET AS OF JUNE 1, ----.

Assets

Capital Accounts

Cash .....................................................................................................................................................................................
$ 50,000
Carson .....................................................................................
$ 50,000
Inventory ..............................................................................................................................................................................
50,000
Legatt ......................................................................................
50,000
Total assets ......................................................................................................................................................................
$100,000
Total capital........................................................................
$100,000

CARSON LEGATT PARTNERSHIP


BALANCE SHEET AS OF JUNE 30, ----.

Assets

Liabilities

Cash .....................................................................................................................................................................................
$ 22,100
Bank loan ................................................................................
$ 50,000
Inventory ..............................................................................................................................................................................
58,500
Capital - Carson ......................................................................
51,550
Land .....................................................................................................................................................................................
25,000
Capital - Legatt .......................................................................
54,050
Building ...............................................................................................................................................................................
50,000
________
$155,600
$155,600

CARSON LEGATT PARTNERSHIP


ACCOUNTS, JUNE 30, ----.
Carson
Capital - June 1.............................................................................................................
$50,000
Additions ......................................................................................................................
7,750
Withdrawals .................................................................................................................
( 6,200 )
Capital - June 30...........................................................................................................
$51,550

Legatt
Capital - June 1.............................................................................................................
$50,000
Additions ......................................................................................................................
7,750
Withdrawals .................................................................................................................
( 3,700 )
Capital - June 30...........................................................................................................
$54,050
Problem 2-5
Jan. 4:
Jan. 6:
Jan. 8:
Jan. 11:
Jan. 16:
Jan. 26:

Retained earnings (Sales) + $12,000; Cash + $12,000 Inventory - $7,000 ;Retained earnings
(Cost of goods sold) - $7,000
No effect.
Inventory + $7,000; Accounts Payable + $7,000
Inventory - $1,500; Cash + $2,500; Retained earnings (Sales) + $2,500; Retained earnings
(Cost of goods sold) - $1,500
Inventory - $2,000; Retained earnings (Cost of goods sold) - $2,000; Accounts receivable +
$3,400; Retained earnings (Sales) + $3,400
Cash - $4,200; Retained earnings (Wages) - $4,200

Jan. 29:
Jan. 31:

Cash - $20,000; Land + $20,000


Cash - $2,800; Prepaid insurance + $2,800

MARVIN COMPANY
BALANCE SHEET AS OF JANUARY 31, ----.

Assets

Liabilities

Cash .....................................................................................................................................................................................
$12,500
Accounts payable .............................................................
$ 7,000
Accounts receivable .............................................................................................................................................................
3,400
Total current liabilities .....................................................
$7,000
Inventory ..............................................................................................................................................................................
46,500
Current assets .......................................................................................................................................................................
62,400
Notes payable ...................................................................
20,000
Land .....................................................................................................................................................................................
20,000
Total liabilities .................................................................
27,000
Prepaid insurance .................................................................................................................................................................
2,800
Owners Equity
Capital ..............................................................................
55,000
_______
Retained earnings .............................................................
3,200
Total assets ....................................................................................................................................................................
$85,200
Total liabilities
and owners equity ...................................................
$85,200