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(Solved by Expert Tutors) Tutorial QuestionsQuestion 1Prescott College recently purchas



Tutorial QuestionsQuestion 1Prescott College recently purchased

new computing equipment for its library. The followinginformation refers to the purchase and installation of this equipment:i) The list price of the equipment was $275,000; however, Prescott College qualified for an?education discount? of $25,000. It paid $50,000 cash for the equipment, and issued a 3-month, 9%note for the remaining balance. The note, plus accrued interest charges of $4,500, was paidpromptly at the maturity date.ii) In addition to the amounts described in 1. Prescott paid sales taxes of $15,000 at the date ofpurchaseiii) Freight charges for delivery of the equipment totalled $1,000iv) Installation and training costs related to the equipment amounted to $5,000.v) During installation, one of the computer terminals was accidentally damaged by a libraryemployee. It cost the college $500 to repair this damage.vi) As soon as the computers were installed, the college paid $4,000 to print admissions brochuresfeaturing the library?s new, state-of-the-art computing facilities.Instructions:a) In one sentence, make a general statement summarizing the nature of expenditures that qualifyfor inclusion in the cost of plant assets such as computing equipment.b) For each of the six numbered paragraphs, indicate which items should be included by PrescottCollege in the total cost debited to its Computing Equipment account. Also briefly indicate theproper accounting treatment of those items that are not included in the cost of the equipment.c) Compute the total cost debited to the college?s Computing Equipment accountd) Prepare a journal entry at the end of the current year to record depreciation on the computingequipment. Prescott College will depreciate this equipment by the straight-line method over anestimated useful life of 5 years. Assume a zero residual value.- 3 -Question 2On January 1, 20X2, The GenKota Winery purchased a new bottling system. The system has anexpected life of 5 years. The system cost $325,000. Shipping, installation, and set up were anadditional $35,000. At the end of the useful life, Julie Hayes, chief accountant for GenKota, expects todispose of the bottling system for $26,000. She further anticipates total output of 668,000 bottles overthe useful life. The output for 20x2 was 108,000 bottles, 130,000 (20x3), 150,000 (20X4), 160,000(20X5), and 120,000 (20X6).i) Prepare depreciation schedules assuming use of the:(a) straight-line depreciation method(b) units-of-production depreciation method(c) sum-of-the-years digits depreciation method(d) double-declining balance depreciation methodii) Assuming use of the straight-line method, prepare revised depreciation calculations if the usefullife estimate was revised at the beginning of 20X4, to anticipate a remaining useful life of 4additional years (in other words, a total life of 6 years). The revised useful life was accompaniedby a change in estimated salvage value to $34,400.Question 3Nelson Lewis provides freight service in Missouri, Kansas, and Illinois. The company?s balance sheetincludes Land, Buildings and Motor-Carrier Equipment. Lewis has a separate accumulateddepreciation account for each depreciable asset. During 20X7 Lewis completed the followingtransactions:January 1 Traded in motor-carrier equipment with accumulated depreciation of $90,000 (costof $130,000) for similar new equipment with a cash cost of $176,000. Lewisreceived a trade-in allowance of $70,000 on the equipment and paid the remainderin cashJuly 1 Sold a building that cost $550,000 and had accumulated depreciation of $250,000through December 31 of the preceding year. Depreciation is calculated on astraight-line basis. The building has a 40-year useful life and a residual value of$50,000. Lewis received $100,000 cash and a $600,000 note receivable.October 31 Purchased land and a building for a cash payment of $300,000. An independentappraisal valued the land at $115,000 and the building at $230,000.December 31 Recorded depreciation as follows:Motor-carrier equipment has an expected useful life of 1,000,000 miles and anestimated residual value of $26,000. Depreciation is units-of-production. Duringthe year, Lewis drove his truck 150,000 miles.Depreciation on buildings is straight-line. The new building has a 40-year life and aresidual value equal to $20,000a) Prepare journal entries to record each of the transactions in Nelson Lewis?s journal.b) Will the gains and losses on disposal of plant assets affect the gross profit reported in the income






Tutorial QuestionsQuestion 1a) What does a lock-box system accomplish?b) In each of the following situations, identify the internal control weakness as well as the business?spotential problem and propose a solution to each internal control problem.i) Law firms use paraprofessional employees to perform routine tasks. For example,paraprofessionals might prepare first drafts of documents to assist a lawyer. In the law firm of Lee& Dunham. Joseph Lee, the senior partner, turns over most of his legal research to new members ofhis paraprofessional staff.ii) Aimee Atkins has worked for Michael Riggs, MD, for many years. Atkins perform all accountingduties, including opening the mail, recording and depositing cash receipts, writing cheques, as wellas preparing monthly bank reconciliation. Riggs trust Atkins completely.iii) In evaluating internal control over cash payments, an auditor learns that the purchasing agent isresponsible for purchasing diamonds for use in the company?s manufacturing process. Thepurchasing agent also approves the invoices for payment and signs the cheques.iv) Tobey Keith purchases supplies for Darcey Company and stores them in a locked room for whichhe has the key. He is also responsible for distributing these supplies to employees upon request. Atthe end of each month, Tobey takes an inventory of the supplies on hand and notifies theaccounting department of the amount of the adjusting entry for supplies used.Question 2The May 31 bank statement of Marlow Furniture Co. has just arrived from the First State Bank. Toprepare the bank reconciliation, you gather the following data.i) The May 31 bank balance is $19,209.82ii) The bank statement includes two charges for returned cheques from customers. One is a $67.50NSF cheque received from Sarah Batten and deposited on May 19. The other is a $195.03 chequereceived from Lena Masters and deposited on May 21. It was returned due to ?UnauthorizedSignature.?iii) The following Marlow cheques are outstanding at May 31Cheque #616802806809810811Amount$403.0074.2536.60161.38229.0548.91iv) Marlow collects from a few customers by EFT. The May bank statement lists a $200 depositfor a collection on account from customer Jack Oates.Mona School of Business & Management Studies, University of the West Indies at Mona. - 5 -v) The bank statement includes two special deposits: $899.14, for dividend revenue and $16.86,the interest revenue Marlow earned on its bank balance during May.vi) The bank statement lists a $6.25 subtraction for the bank service charges.vii) On May 31, the Marlow treasurer deposited $381.14, but this deposit does not appear on thebank statement.viii) The bank statement includes a $410.00 deduction for a cheque drawn by Marimont freightCompany. Marlow notified the bank of this bank error.ix) Marlow?s cash account shows a balance of $18,200.55 on May 31.Required:a) Prepare the bank reconciliation for Marlow Furniture at May 31.b) Prepare the journal entries necessary to bring the company?s book balance of cash in conformitywith the reconciled cash balance as of May 31. Assume that the accounts have not been closed.Question 3Dialex Watches completed the following selected transactions during 2007 & 2008:2007Dec. 31 Estimated that uncollectible-account (bad-debt) expense for the year was 1% ofcredit sales of $400,000 and recorded the amount as expense. Use the allowancemethod.Dec. 31 Made the closing entry for uncollectible-account expense.2008Jan. 17 Sold inventory to Mitch Vanez, $600, on account. Ignore cost of goods sold.June. 29 Wrote off Mitch Vanez?s account as uncollectible after repeated effort to collectfrom him.Aug. 6 Received $200 from Mitch Vanez, along with a letter apologizing for being so late.Reinstated Vanez?s account in full and recorded the cash receipt.Dec. 31 Made a compound entry to write off the following accounts as uncollectible:Bernard Klaus, $1,700; Marie Moner, $1,300.Dec. 31 Estimated that uncollectible expense for the year was 1% of credit sales of$480,000, and recorded that amount as expenseDec. 31 Made the closing entry for uncollectible-account expense.Requirements:a) Open general ledger accounts for Allowance for Uncollectible Accounts and UncollectibleAccountsExpense. Keep running balances. All accounts begin with zero balance.b) Record the transactions in the general journal and post to the two ledger accounts.c) The December 31, 2008 balance of Accounts Receivable is $139,000. Show how AccountsReceivable would be reported on the balance sheet at that date.Mona School of Business & Management Studies, University of the West Indies at Mona. - 6 -Question 4The June 30, 20X9, balance sheet of Ram Technologies reports the following:Accounts Receivable?????????????. $265,000Allowance for Uncollectible Accounts (Cr)????. 7,100At the end of each quarter, RAM estimates uncollectible-account expense to be 2% of credit sales. Atthe end of the year, RAM ages its accounts receivable. RAM then adjusts the balance in the Allowancefor Uncollectible Accounts to correspond to the aging schedule.During the second half of 20X9, RAM completed the following transactions:July 14 Made a compound entry to write off uncollectible accounts:T.J. Dooley, $700; Design Works, $2,400; and S. DeWitt, $100.Sept. 30 Recorded uncollectible-account expense equal to 2% of credit sales of $140,000Nov. 22 Wrote off accounts receivable as uncollectible:Transnet, $1,300; Webvan, $2,100; and Alpha Group, $700.Dec. 31 Recorded uncollectible-account expense based on the aging of receivables.Age of AccountsTotal1-30Days31 ? 60Days61 ? 90DaysOver 90Days$255,000 $120,000 $80,000 $40,000 $15,000Estimated percent (%) uncollectible 0.5% 1.0% 4% 50%Required:i) Record the transactions in the journal.ii) Open the Allowance for Uncollectible accounts, and post entries affecting that account. Keep arunning balance.iii)Show how RAM Technologies should report accounts receivable on its December 31, 20X9,balance sheet.

 


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