Assignment no 1:

Question no 2:

Answer:

2. Financial accounting measures,

classifies, and summarizes in
report form those activities and
that
information which relate to the
enterprise as a whole for use by
parties both internal and external
to a business enterprise.
Managerial accounting also
measures, classifies, and
summarizes in report
form enterprise activities, but the
communication is for the use of
internal, managerial parties, and
relates more to subsystems of the
entity. Managerial accounting is
management decision oriented
and directed more toward product
line, division, and profit center
reporting
Financial accounting measures, classifies, and summarizes in report form those activities and
that information which relate to the enterprise as a whole for use by parties both internal
and external to a business enterprise. Managerial accounting also measures, classifies, and
summarizes in report form enterprise activities, but the communication is for the use of
internal, managerial parties, and relates more to subsystems of the entity. Managerial
accounting is management decision oriented and directed more toward product line,
division, and profit center reporting.

Question no 12:

Answer:

The Financial Accounting standards Board (FASB) is an independent organization whose

mission is to establish and improve standards of financial accounting and reporting for U.S.
companies.
Problem no 3-7

ROLLING HILLS GOLF INC.

Retained Earnings Statement
For the Quarter Ended September 30, 2012

Retained earnings, July 1, 2012...................................................... $ 0

Add: Net income .................................................................................. 2,510
Less: Dividends ................................................................................... (600)
Retained earnings, September 30, 2012 ...................................... $1,910

ROLLING HILLS GOLF INC.

Balance Sheet
September 30, 2012

Assets

Current assets

Cash.................................................... $6,700
Accounts receivable...................... 1,000
Supplies............................................. 180
Prepaid rent expense .................... 900
Total current assets............... $ 8,780
Equipment...................................... 15,000
Less: Accumulated depreciation...... (350) 14,650
Total assets.............................. $23,430

Liabilities and Stockholders’ Equity

Current liabilities
Notes payable.................................. $5,000
Accounts payable .......................... 1,070
Unearned rent revenue................. 800
Salaries and wages payable....... 600
Interest payable .............................. 50 $ 7,520

Stockholders’ Equity
Common stock........................................ 14,000
Retained earnings.................................. 1,910
Total stockholders’ equity 15,910
Total liabilities and
Stockholders’ equity........... $23,430
(c) The following accounts would be closed: Service Revenue, Rent Revenue, Salaries and
Wages Expense, Rent Expense, Utilities Expenses, Depreciation Expense, Supplies Expense,
Interest Expense, Dividends.

(d) Interest of 12% per year equals a monthly rate of 1%; monthly interest is $50 ($5,000 X
1%). Since total interest expense is $50, the note has been outstanding one month.

Problem no 4-4

(a) TWAIN CORPORATION

Income Statement
For the Year Ended June 30, 2012

Sales Revenue
Sales revenue ................................................... $1,578,500
Less: Sales discounts................................... $31,150
Sales returns and allowances........ 62,300 93,450
Net sales............................................................. 1,485,050
Cost of goods sold................................................. 896,770
Gross profit .............................................................. 588,280

Operating Expenses
Selling expenses
Sales commissions .................................... $97,600
Salaries and wages exp............................ 56,260
Travel expense............................................. 28,930
Freight-out..................................................... 21,400
Entertainment expense............................. 14,820
Telephone and Internet expense ........... 9,030
Maintenance and repairs expense ........ 6,200
Depreciation expense................................ 4,980
Bad debt expense ....................................... 4,850
Misc. selling expenses.............................. 4,715 248,785
Administrative Expenses

Maintenance and repairs expense ............... 9,130

Property tax expense............................................ 7,320
Depreciation expense....................................... 7,250
Supplies expense .............................................. 3,450
Telephone and internet expense .................. 2,820
Miscellaneous office expenses..................... 6,000 35,970
Income from operations....................................... 303,525

Other Revenues and Gains

Dividend revenue ..................................................... 38,000
Other Expenses and Losses
Interest expense ....................................................... 18,000
Income before income tax ......................................... 323,525
Income tax ..................................................................102,000
Net income ................................................................. $221,525
Earnings per common share
[($221,525 – $9,000) ÷ 80,000] .............................. $2.66*
*Rounded

TWAIN CORPORATION
Retained Earnings Statement
For the Year Ended June 30, 2012

Retained earnings, July 1, 2011, as reported ......... $337,000

Correction of depreciation understatement,
net of tax................................................................ (17,700)
Retained earnings, July 1, 2011, as adjusted......... 319,300
Add: Net income.....................................................221,525
540,825

Less:
Dividends declared on preferred stock......... 9,000
Dividends declared on common stock.......... 37,000 46,000
Retained earnings, June 30, 2012 .............................. $494,825

(a) TWAIN CORPORATION

Income Statement
For the Year Ended June 30, 2012
Revenues
Net sales.......................................................................... $1,485,050
Dividend revenue ......................................................... 38,000
Total revenues.................................................... 1,523,050
Expenses
Cost of goods sold ...................................................... 896,770
Selling expenses .......................................................... 248,785
Administrative expenses........................................... 35,970
Interest expense........................................................... 18,000
Total expenses ................................................... 1,199,525
Income before income tax..................................................... 323,525
Income tax ...................................................................... 102,000
Net income.................................................................................. $ 221,525
Earnings per common share ................................................ $2.66

TWAIN CORPORATION
Retained Earnings Statement
For the Year Ended June 30, 2012

Retained earnings, July 1, 2011, as reported........ $337,000

Correction of depreciation understatement,
net of tax.............................................................. (17,700)
Retained earnings, July 1, 2011 as adjusted......... $319,300
Add: Net income................................................. ..221,525
540,825

Less:
Dividends declared on preferred stock...... 9,000
Dividends declared on common stock....... 37,000 46,000
Retained earnings, June 30, 2012............................. $494,825

Problem no 5-4

KISHWAUKEE CORPORATION
Balance Sheet
December 31, 2012
 Assets

Current assets
Cash............................................................... $175,900
Accounts receivable................................. 170,000
Inventory.................................................. 312,100
Total current assets........................... $ 658,000

Long-term investments
Assets allocated to trustee for
expansion:
Cash in bank ............................................... 70,000
Debt investments
(held-to-maturity) .................................... 138,000 208,000

Property, plant, and equipment

Land ............................................................... 950,000
Buildings ...................................................... $1,070,000a
Less: Accum. depreciation—
buildings .................................. 410,000 660,000 1,610,000
Total assets .......................................... $2,476,000

Liabilities and Stockholders’ Equity

Current liabilities
Notes payable—current installment...... $100,000
Income tax payable................................... 75,000
Total current liabilities...................... $ 175,000

Long-term liabilities
Notes payable .............................................. 500,000b
Total liabilities........................................ 675,000

Stockholders’ equity
Common stock, no par; 1,000,000
shares authorized and issued;
950,000 shares outstanding.................. 1,150,000
Retained earnings........................................ 738,000c
1,888,000
Less: Treasury stock, at cost
(50,000 shares) .................................. 87,000
Total stockholders’ equity ................. 1,801,000
Total liabilities and
stockholders’ equity......................... $2,476,000
a$1,640,000 – $570,000 (to eliminate the excess of appraisal value over cost
from the Buildings account. Note that the appreciation capital account is
also deleted).

b$600,000 – $100,000 (to reclassify the currently maturing portion of the

notes payable as a current liability).

c$858,000 – $120,000 (to remove the value of goodwill from retained earnings.
Note 2 indicates that retained earnings was credited. Note that the goodwill
account is also deleted).

Exercise no 5-17

(a) CHEKOV CORPORATION

Statement of Cash Flows
For the Year Ended December 31, 2012

Cash flows from operating activities

Net income.......................................................................... $55,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation expense .............................................. $13,000
Patent amortization................................................... 2,500
Loss on sale of equipment..................................... 3,000*
Increase in current liabilities ................................. 13,000
Increase in current assets (other than cash) ........ (25,000) 6,500
Net cash provided by operating activities ............... 61,500

Cash flows from investing activities

Sale of equipment............................................................. 9,000
Addition to building......................................................... (27,000)
Investment in stock.......................................................... (16,000)
Net cash used by investing activities........................ (34,000)

Cash flows from financing activities

Issuance of bonds............................................................ 50,000
Payment of dividends ..................................................... (25,000)
Purchase of treasury stock........................................... (11,000)
Net cash provided by financing activities................ 14,000
Net increase in cash............................................................... $41,500a

*[$9,000 – ($20,000 – $8,000)]

a An additional proof to arrive at the increase in cash is provided as follows:
Total current assets—end of period $301,500 [from part (b)]
Total current assets—beginning of period (235,000)
Increase in current assets during the period 66,500
Increase in current assets other than cash (25,000)
Increase in cash during year $ 41,500

(b) CHEKOV CORPORATION

Balance Sheet
December 31, 2012
Assets
Current assets........................................................ $301,500b
Long-term investments....................................... 16,000
Property, plant, and equipment
Land.................................................................... $ 30,000
Buildings ($120,000 + $27,000) .................. $147,000
Less: Accum. depreciation
($30,000 + $4,000) ............................. 34,000 113,000
Equipment ($90,000 – $20,000) .................. 70,000
Less: Accum. depreciation
($11,000 – $8,000 + $9,000) ............ 12,000 58,000
Total property, plant, and equipment...... 201,000
Intangible assets—patents
($40,000 – $2,500) ....................................... 37,500
Total assets.............................................. $556,000

Liabilities and Stockholders’ Equity

Current liabilities ($150,000 + $13,000) ........................... $163,000
Long-term liabilities
Bonds payable ($100,000 + $50,000) ........................ 150,000
Total liabilities........................................................... 313,000
Stockholders’ equity
Common stock................................................................. $180,000
Retained earnings ($44,000 + $55,000 – $25,000) .......... 74,000
Total paid-in capital and retained earnings......... 254,000
Less: Cost of treasury stock...................................... 11,000
Total stockholders’ equity .................................... 243,000
Total liabilities and stockholders’ equity......... $556,000

b the amount determined for current assets could be computed last and then is a
“plug” figure. That is, total liabilities and stockholders’ equity is computed because
information is available to determine this amount. Because the total assets amount is
the same as total liabilities and stockholders’ equity amount, the amount of total
assets is determined. Information is available to compute all the asset amounts except
current assets and therefore current assets can be determined by deducting the total
of all the other asset balances from the total asset balance (i.e., $556,000 – $37,500 –
$201,000 – $16,000). Another way to compute this amount, given the information, is
that beginning current assets plus the $25,000 increase in current assets other than
cash plus the $41,500 increase in cash equals $301,500.

Problem no 7-4

(b) FORTNER CORPORATION Analysis of Changes in the Allowance for Doubtful Accounts
For the Year Ended December 31, 2010

Balance at January 1, 2010......................................................... £130,000

Provision for doubtful accounts (£9,000,000 X 2%) ........... 180,000
Recovery in 2010 of bad debts written off previously....... 15,000 325,000
Deduct write-offs for 2010 (£90,000 + £60,000) .................... 150,000
Balance at December 31, 2010 before change in accounting
estimate............................................................ 175,000
Increase due to change in accounting estimate during 2010 (£263,600 –
£175,000) ....................................... 88,600
Balance at December 31, 2010 adjusted (Schedule 1) ...... £263,600

Schedule 1
Computation of Allowance for Doubtful Accounts at December 31, 2010

Aging Category Balance % Doubtful Accounts

Nov–Dec 2010 £1,080,000 2 £ 21,600
July–Oct 650,000 10 65,000
Jan–Jun 420,000 25 105,000
Prior to 1/1/10 90,000(a) 80 72,000
£263,600
 (a) £150,000 – £60,000

(b) The journal entry to record this transaction is as follows:

Bad Debt Expense................................................. 88,600

Allowance for Doubtful Accounts ...............88600

(To increase the allowance for doubtful accounts at December 31, 2010, resulting from a change in
accounting estimate)

Problem no 8-1

1. $175,000 – ($175,000 X .20) = $140,000;

$140,000 – ($140,000 X .10) = $126,000, cost of goods purchased

2. $1,100,000 + $69,000 = $1,169,000. The $69,000 of goods in transit on which title had
passed on December 24 (f.o.b. shipping point) should be added to 12/31/10 inventory. The
$29,000 of goods shipped (f.o.b. shipping point) on January 3, 2011, should remain part of
the 12/31/10 inventory.

2. Because no date was associated with the units issued or sold, the periodic (rather than
perpetual) inventory method must be assumed.

FIFO inventory cost: 1,000 units at $24 $ 24,000

 1,000 units at 23 23,000
Total $ 47,000

Average cost: 1,500 at $21 $ 31,500

2,000 at 22 44,000
3,500 at 23 80,500
1,000 at 24 24,000
Totals 8,000 $180,000
$180,000 ÷ 8,000 = $22.50
Ending inventory (2,000 X $22.50) is $45,000.

4. The inventoriable costs for 2011 are:

Merchandise purchased ........................................ $909,400
Add: Freight-in......................................................... 22,000
931,400
Deduct: Purchase returns.................................... $16,500
Purchase discounts .............................. 6,800 23,300
Inventoriable cost .................................................... $908,100

Problem no 10-3
1. Land (Schedule A) ........................................................ 188,700
Building (Schedule B) ................................................. 136,250
Insurance Expense (6 months X $95) .................... 570
Prepaid Insurance (16 months X $95) .................... 1,520
Organization Expense................................................. 610
Retained Earnings........................................................ 53,800
Salary Expense.............................................................. 32,100
Land and Building.............................................. 399,950
Share Premium—Preference (800 shares X $17) .......................................... 13,600

Schedule A
Amount Consists of:

Acquisition Cost ($80,000 + [800 X $117]) ................................ $173,600

Removal of Old Building.................................. 9,800
Legal Fees (Examination of title) .................. 1,300
Special Tax Assessment.................................. 4,000
Total ................................................................. $188,700

Schedule B
 Amount Consists of:

Legal Fees (Construction contract) ............. $ 1,860

Construction Costs (First payment) ............ 60,000
Construction Costs (Second payment) ....... 40,000
Insurance (2 months) ([2,280 ÷ 24] = $95 X 2 = $190) .................... 190
Plant Superintendent’s Salary ....................... 4,200
Construction Costs (Final payment) ............ 30,000
Total ................................................................. $136,250 2.
Land and Building ........................................................ 4,000
Depreciation Expense....................................... 2,637
Accumulated Depreciation—Building......... 1,363

Schedule C
Depreciation taken....................................... $ 4,000

Depreciation that should be taken (1% X $136,250) ......................................... (1,363)

Depreciation adjustment............................ $ 2,637

(a) Plant, Property, and Equipment: Land.............................................................................

$188,700 Building ...................................................................... $136,250
Less: Accumulated depreciation...................... 1,363 134,887
Total.................................................................. $323,587

Problem no 11-3

(a) Depreciation Expense—Asset A .................................... 3,900

Accumulated Depreciation—Asset A
(5/55 X [£46,000 – £3,100]) .................................. 3,900
Accumulated Depreciation—Asset A ........................... 35,100
Asset A (£46,000 – £13,000) ................................... 33,000
Gain on Disposal of Plant Assets........................ 2,100
(b) Depreciation Expense—Asset B ..........................6,720
Accumulated Depreciation—Asset B
([£51,000 – £3,000] ÷ 15,000 X 2,100) .............. 6,720
(c) Depreciation Expense—Asset C .......................... 6,000
Accumulated Depreciation—Asset C
([£80,000 – £15,000 – £5,000] ÷ 10) .................. 6,000
(d) Asset E................................................................ 28,000
Retained Earnings................................................. 28,000
Depreciation Expense—Asset E............................... 5,600*
Accumulated Depreciation—Asset E................. 5,600
*(£28,000 X .20)
Note: No correcting entry is needed for asset D. In 2010, Eshkol
Records depreciation expense of $80,000 X (10% X 2) = $16,000.

Problem no 12-3

(a) SANDRO CORPORATION

Intangible Assets
December 31, 2010

Franchise, net of accumulated amortization of $5,870

(Schedule 1) .............................................................................................. $ 52,830
Patent, net of accumulated amortization of $2,200
(Schedule 2) .............................................................................................. 15,400
Trademark, net of accumulated amortization of $6,600
(Schedule 3) .............................................................................................. 39,600
Total intangible assets .................................................................. $107,830

Schedule 1 Franchise
Cost of franchise on 1/1/10 ($15,000 + $43,700) ............................... $ 58,700
2010 amortization ($58,700 X 1/10) ....................................................... (5,870)
Cost of franchise, net of amortization...................................... $ 52,830

Schedule 2 Patent
Cost of securing patent on 1/2/10......................................................... $ 17,600
2010 amortization ($17,600 X 1/8) ......................................................... (2,200)
Cost of patent, net of amortization............................................ $ 15,400

Schedule 3 Trademark
Cost of trademark on 7/1/07.................................................................... $ 36,000
Amortization, 7/1/07 to 7/1/10 ($36,000 X 3/20) ................................. (5,400)
Book value on 7/1/10 ................................................................................. 30,600
Cost of successful legal defense on 7/1/10....................................... 10,200
Book value after legal defense............................................................... 40,800
Amortization, 7/1/10 to 12/31/10 ($40,800 X 1/17 X 6/12)................ (1,200)
Cost of trademark, net of amortization.................................... $ 39,600

(b) SANDRO CORPORATION

Expenses Resulting from Selected Intangible Assets Transactions

For the Year Ended December 31, 2010

Interest expense ($43,700 X 14%) ......................................................... $ 6,118

Franchise amortization (Schedule 1) .................................................. 5,870
Franchise fee ($900,000 X 5%) ............................................................... 45,000
Patent amortization (Schedule 2) ......................................................... 2,200
Trademark amortization (Schedule 4) ................................................. 2,100
Total intangible assets.................................................................. $61,288

Note: The $65,000 of research and development costs incurred in developing

the patent would have been expensed prior to 2010.

Schedule 4 Trademark Amortization

Amortization, 1/1/10 to 6/30/10 ($36,000 X 1/20 X 6/12) ................. $ 900
Amortization, 7/1/10 to 12/31/10 ($40,800 X 1/17 X 6/12) ............... 1,200
Total trademark amortization ..................................................... $2,100