Ex.

193
Selected worksheet data for Mannie Company are presented below.

Adjusted
Account Titles Trial Balance Trial Balance
Dr. Cr. Dr. Cr.
Accounts Receivable ? 35,000
Prepaid Insurance 26,000 18,000
Supplies 7,000 ?
Accumulated Depreciation 12,000 ?
Salaries and Wages Payable ? 8,500
Service Revenue 85,000 95,000
Insurance Expense ?
Depreciation Expense 9,600
Supplies Expense 5,800
Salaries and Wages Expense ? 49,000

Instructions
(a) Fill in the missing amounts.
(b) Prepare the adjusting entries that were made.
Ans: N/A, LO: 1, Bloom: AN, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem
Solving, IMA: FSA

Solution 193 (10 min.)

(a) Accounts Receivable—$25,000 ($35,000 – $10,000).
Supplies—$1,200 ($7,000 – $5,800).
Accumulated Depreciation—$21,600 ($12,000 + $9,600).
Salaries and Wages Payable—$0 No liability recorded until adjustments are made.
Insurance Expense—$8,000 ($26,000 – $18,000).
Salaries and Wages Expense—$40,500 ($49,000 – $8,500).

(b)

Accounts Receivable................................................................. 10,000

Service Revenue................................................................. 10,000
Insurance Expense.................................................................... 8,000
Prepaid Insurance................................................................ 8,000
Supplies Expense...................................................................... 5,800
Supplies............................................................................... 5,800
Depreciation Expense................................................................ 9,600
Accumulated Depreciation................................................... 9,600
Salaries and Wages Expense.................................................... 8,500
Salaries and Wages Payable............................................... 8,500
Ex. 194
These financial statement items are for Rugen Company at year-end, July 31, 2016.

Salaries and wages payable $ 2,980 Notes payable (long-term) $ 3,000

Salaries and wages expense 45,700 Cash 5,200
Utilities expense 21,100 Accounts receivable 9,780
Equipment 38,000 Accumulated depreciation 6,000
Accounts payable 4,100 Owner’s Drawings 4,000
Service revenue 57,200 Depreciation expense 4,000
Rent revenue 6,500 Owner’s capital (beginning 48,000
of the year)

Instructions
(a) Prepare an income statement and an owner’s equity statement for the year. The owner did
not make any new investments during the year.
(b) Prepare a classified balance sheet at July 31.
Ans: N/A, LO: 1,4, Bloom: AP, Difficulty: Hard, Min: 15, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem
Solving, IMA: FSA
Solution 194 (15 min.)
(a) RUGEN COMPANY
Income Statement
For the Year Ended July 31, 2016
——————————————————————————————————————————
—
Revenues
Service revenue........................................................................... $57,200
Rent revenue................................................................................ 6,500
Total revenues....................................................................... $63,700
Expenses
Salaries and wages expense........................................................ 45,700
Utilities expense........................................................................... 21,100
Depreciation expense................................................................... 4,000
Total expense........................................................................ 70,800
Net loss................................................................................................. $ (7,100)

RUGEN COMPANY
Owner’s Equity Statement
For the Year Ended July 31, 2016
——————————————————————————————————————————
—
Owner’s Capital, August 1, 2013........................................................... $48,000
Less: Net loss ....................................................................................... $7,100
Drawings...................................................................................... 4,000 11,100
Owner’s Capital, July 31, 2014.............................................................. $36,900

(b) RUGEN COMPANY

Balance Sheet
July 31, 2016
——————————————————————————————————————————
—
Assets
Current assets
Cash ............................................................................................ $5,200
Accounts receivable..................................................................... 9,780
Total current assets................................................................ $14,980
Property, plant, and equipment
Equipment.................................................................................... 38,000
Less: Accumulated depreciation................................................... 6,000 32,000
Total assets............................................................................ $46,980

Liabilities and Owner’s Equity

Current liabilities
Accounts payable......................................................................... $4,100
Salaries and wages payable......................................................... 2,980
Total current liabilities.............................................................. $ 7,080
Long-term liabilities
Notes payable.............................................................................. 3,000
 Total liabilities.......................................................................... 10,080
Owner’s equity
Owner’s capital............................................................................. 36,900
Total liabilities and owner’s equity............................................ $46,980

Ex. 217
Bolivia Company gathered the following condensed data for the year ended December 31,
2016:

Cost of goods sold $ 760,000

Net sales 1,400,000
Operating expenses 277,000
Interest expense 43,000
Dividend revenue 40,000
Casualty loss from vandalism 125,000

Instructions
1. Prepare a single-step income statement for the year ended December 31, 2016.
2. Prepare a multiple-step income statement for the year ended December 31, 2016.
Ans: N/A, LO: 5, Bloom: AP, Difficulty: Medium, Min: 25, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem
Solving, IMA: Reporting

Solution 217 (25 min.)

1. BOLIVIA COMPANY
Income Statement
For the Year Ended December 31, 2016
Revenues
Net sales................................................................................... $1,400,000
Dividend revenue....................................................................... 40,000
Total revenues..................................................................... 1,440,000
Expenses
Cost of goods sold..................................................................... $760,000
Operating expenses.................................................................. 277,000
Casualty loss from vandalism.................................................... 125,000
Interest expense........................................................................ 43,000
Total expenses..................................................................... 1,205,000
Net income ..................................................................................... $ 235,000

2. BOLIVIA COMPANY
Income Statement
For the Year Ended December 31, 2016

Net sales................................................................... $1,400,000

Cost of goods sold..................................................... 760,000
Gross profit................................................................ 640,000
Operating expenses.................................................. 277,000
Income from operations............................................. 363,000
Other revenues and gains
Dividend revenue.............................................. 40,000
Other expenses and losses
Casualty loss from vandalism........................... $125,000
Interest expense............................................... 43,000 168,000 (128,000)
Net income................................................................ $ 235,000

Ex. 219
The adjusted trial balance of Bennett Company contained the following information:
Debit Credit
Sales Revenue $530,000
Sales Returns and Allowances $ 12,000
Sales Discounts 7,000
Cost of Goods Sold 318,000
Freight-Out 2,000
Advertising Expense 15,000
Interest Expense 13,000
Salaries and Wages Expense 90,000
Utilities Expense 23,000
Depreciation Expense 12,000
Interest Revenue 37,000

Instructions
1. Use the above information to prepare a multiple-step income statement for the year ended
December 31, 2016.

2. Prepare a single-step income statement for the year ended December 31, 2016.
Ans: N/A, LO: 5, Bloom: AP, Difficulty: Medium, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem
Solving, IMA: Reporting
Solution 219 (20 min.)
1. BENNETT COMPANY
Income Statement
For the Year Ended December 31, 2016
Revenues
Sales revenue.......................................................... $530,000
Less: Sales returns and allowances....................... $ 12,000
Sales discounts............................................ 7,000 19,000
Net sales.................................................................. 511,000
Cost of goods sold................................................... 318,000
Gross profit.............................................................. 193,000
Operating expenses
Salaries and wages expense........................ $90,000
Utilities expense........................................... 23,000
Advertising expense..................................... 15,000
Depreciation expense................................... 12,000
Freight-out.................................................... 2,000
Total operating expenses.................. 142,000
Income from operations............................................ 51,000
Other revenues and gains
Interest revenue................................................. 37,000
Other expenses and losses
Interest expense................................................. 13,000 24,000
Net income .............................................................. $ 75,000

2. BENNETT COMPANY
Income Statement
For the Year Ended December 31, 2016
Revenues
Net sales................................................................................... $511,000
Interest revenue......................................................................... 37,000
Total revenues..................................................................... 548,000
Expenses
Cost of goods sold..................................................................... $318,000
Salaries and wages expense...................................…………… 90,000
Utilities expense.......................................................…………… 23,000
Advertising expense.................................................…………… 15,000
Depreciation expense..............................................…………… 12,000
Freight-out................................................................…………… 2,000
Interest expense........................................................................ 13,000
Total expenses..................................................................... 473,000
Net income............................................................................................ $ 75,000
a
Ex. 210
Britt Company uses the perpetual inventory system and the LIFO method. The following
information is available for the month of May:

May 1 Beginning inventory 20 units @ $6

10 Purchase 20 units @ $7
15 Sales 12 units
18 Purchase 10 units @ $9
21 Sales 18 units
30 Purchase 10 units @ $10

Instructions
Prepare a schedule to show cost of goods sold and the value of the ending inventory for the
month of May.
Ans: N/A, LO: 5, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting

a
Solution 210 (10 min.)
Cost of goods sold:
May 15 sale 12 units × $7 = $84
May 21 sale 10 units × $9 = 90
8 units × $7 = 56
30 units $230 Cost of goods sold
Ending inventory:
May 1 20 units × $6 = $120
May 30 10 units × $10 = 100
30 units $220 Ending inventory
a
Ex. 211
Norris Company uses the perpetual inventory system and had the following purchases and
sales during March.
Purchases Sales
Units Unit Cost Units Selling Price/Unit
3/1 Beginning inventory 100 $40
3/3 Purchase 60 $50
3/4 Sales 70 $80
3/10 Purchase 200 $55
3/16 Sales 80 $90
3/19 Purchase 40 $60
3/25 Sales 120 $90

Instructions
Using the inventory and sales data above, calculate the value assigned to cost of goods sold in
March and to the ending inventory at March 31 using (a) FIFO and (b) LIFO.
Ans: N/A, LO: 5, Bloom: AP, Difficulty: Medium, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting

a
Solution 211 (20 min.)
a) FIFO
Date Purchases Sales Balance
3/1 (100 @ $40) $4,000
3/3 (60 @ $50) $3,000 (100 @ $40)
(60 @ $50) $7,000
3/4 (70 @ $40) $2,800 (30 @ $40)
(60 @ $50) $4,200
3/10 (200 @ $55) $11,000 (30 @ $40)
(60 @ $50)
(200 @ $55) $15,200
3/16 (30 @ $40) (10 @ $50)
(50 @ $50) $3,700 (200 @ $55) $11,500
3/19 (40 @ $60) $2,400 (10 @ $50)
(200 @ $55)
(40 @ $60) $13,900
3/25 (10 @ $50) (90 @ $55)
(110 @ $55) $6,550 (40 @ $60) $7,350
March cost of goods sold = $13,050 ($2,800 + $3,700 + $6,550)
March 31 inventory = $7,350
b) LIFO
Date Purchases Sales Balance
3/1 (100 @ $40) $4,000
3/3 (60 @ $50) $3,000 (100 @ $40)
(60 @ $50) $7,000
3/4 (60 @ $50)
(10 @ $40) $3,400 (90 @ $40) $3,600
3/10 (200 @ $55) $11,000 (90 @ $40)
(200 @ $55) $14,600
a
Solution 211 (Cont.)
3/16 (80 @ $55) $4,400 (90 @ $40)
(120 @ $55) $10,200
3/19 (40 @ $60) $2,400 (90 @ $40)
(120 @ $55)
(40 @ $60) $12,600
3/25 (40 @ $60) (90 @ $40)
(80 @ $55) $6,800 (40 @ $55) $5,800

March cost of goods sold = $14,600 ($3,400 + $4,400 + $6,800)

March 31 inventory = $5,800
Ex. 197
Molina Company had a $700 credit balance in Allowance for Doubtful Accounts at December
31, 2016, before the current year's provision for uncollectible accounts. An aging of the
accounts receivable revealed the following:
Estimated Percentage
Uncollectible
Current Accounts $120,000 1%
1–30 days past due 20,000 3%
31–60 days past due 10,000 6%
61–90 days past due 10,000 12%
Over 90 days past due 8,000 30%
Total Accounts Receivable $168,000

Instructions
(a) Prepare the adjusting entry on December 31, 2016, to recognize bad debt expense.
(b) Assume the same facts as above except that the Allowance for Doubtful Accounts account
had a $500 debit balance before the current year's provision for uncollectible accounts.
Prepare the adjusting entry for the current year's provision for uncollectible accounts.
(c) Assume that the company has a policy of providing for bad debts at the rate of 1% of sales,
that sales for 2016 were $550,000, and that Allowance for Doubtful Accounts had a $650
credit balance before adjustment. Prepare the adjusting entry for the current year's
provision for bad debts.
Ans: N/A, LO: 2, Bloom: AN, Difficulty: Medium, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: FSA

Solution 197 (20 min.)

(a) Bad Debt Expense......................................................................... 5,300
Allowance for Doubtful Accounts ($6,000* – $700).............. 5,300

*($120,000  1%) + ($20,000  3%) + ($10,000  6%) + ($10,000  12%) + ($8,000  30%)

(b) Bad Debt Expense......................................................................... 6,500

Allowance for Doubtful Accounts ($6,000 + $500)............... 6,500

(c) Bad Debt Expense ($550,000 × 1%).............................................. 5,500

Allowance for Doubtful Accounts.......................................... 5,500

Ex. 198
Compute bad debt expense based on the following information:

(a) LRP Company estimates that 3% of net credit sales will become uncollectible. Sales
revenue are $600,000, sales returns and allowances are $30,000, and the allowance for
doubtful accounts has a $5,000 credit balance.
(b) LRP Company estimates that 10% of accounts receivable will become uncollectible.
Accounts receivable are $160,000 at the end of the year, and the allowance for doubtful
accounts has a $400 debit balance.
Ans: N/A, LO: 2, Bloom: AN, Difficulty: Medium, Min: 4, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: FSA

Solution 198 (4 min.)

(a) Bad debt expense = $17,100 [($600,000 – $30,000) × .03]
(b) Bad debt expense = $16,400 [($160,000 × .10) + $400]

Ex. 199
The December 31, 2015 balance sheet of Barone Company had Accounts Receivable of
$400,000 and a credit balance in Allowance for Doubtful Accounts of $32,000. During 2016, the
following transactions occurred: sales on account $1,500,000; sales returns and allowances,
$50,000; collections from customers, $1,250,000; accounts written off $36,000; previously
written off accounts of $6,000 were collected.

Instructions
(a) Journalize the 2016 transactions.
(b) If the company uses the percentage-of-sales basis to estimate bad debt expense and
anticipates 3% of net sales to be uncollectible, what is the adjusting entry at December 31,
2016?
(c) If the company uses the percentage of receivables basis to estimate bad debt expense and
determines that uncollectible accounts are expected to be 8% of accounts receivable, what
is the adjusting entry at December 31, 2016?
(d) Which basis would produce a higher net income for 2016 and by how much?
Ans: N/A, LO: 2, Bloom: AN, Difficulty: Medium, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: FSA

Solution 199 (20–30 min.)

(a) Accounts Receivable..................................................................... 1,500,000
Sales Revenue.................................................................... 1,500,000
(To record credit sales)

Sales Returns and Allowances....................................................... 50,000

Accounts Receivable........................................................... 50,000
(To record credits to customers)

Cash ............................................................................................ 1,250,000

Accounts Receivable........................................................... 1,250,000
(To record collection of receivables)

Allowance for Doubtful Accounts.................................................... 36,000

Accounts Receivable........................................................... 36,000
(To write off specific accounts)

Accounts Receivable..................................................................... 6,000

Allowance for Doubtful Accounts.......................................... 6,000
(To reverse write-off of account)

Cash ............................................................................................ 6,000

Accounts Receivable........................................................... 6,000
(To record collection of account)
Solution 199 (cont.)
(b) Percentage-of-sales basis:
Sales revenue................................................................................ $1,500,000
Less: Sales Returns and Allowances............................................ 50,000
Net Sales............................................................................. 1,450,000
Bad debt percentage...................................................................... .03
Bad debt provision......................................................................... $ 43,500

Dec. 31 Bad Debt Expense .......................................................... 43,500

Allowance for Doubtful Accounts .................................... 43,500

(c) Percentage-of-receivables basis:

ALLOWANCE FOR DOUBTFUL
ACCOUNTS RECEIVABLE ACCOUNTS
400,000 50,000 36,000 32,000
1,500,000 1,250,000 6,000
6,000 36,000 Bal. 2,000
6,000
Bal. 564,000

Required balance ($564,000 × .08).............................................................. $45,120

Balance before adjustment........................................................................... 2,000
Adjustment required..................................................................................... $43,120

Dec. 31 Bad Debt Expense......................................................... 43,120

Allowance for Doubtful Accounts........................... 43,120

(d) Percentage-of-sales basis............................................................................ $43,500

Percentage-of-receivables basis.................................................................. 43,120
Net income higher with percentage of receivables basis by......................... $ 380

Ex. 200
Megan's Products is undecided about which base to use in estimating uncollectible accounts.
On December 31, 2016, the balance in Accounts Receivable was $308,000 and net credit sales
amounted to $2,700,000 during 2016. An aging analysis of the accounts receivable indicated
that $31,000 in accounts are expected to be uncollectible. Past experience has shown that
about 1% of net credit sales eventually are uncollectible.

Instructions
Prepare the adjusting entries to record estimated bad debt expense using the (1) percentage of
sales basis and (2) the percentage of receivables basis under each of the following independent
assumptions:
(a) Allowance for Doubtful Accounts has a credit balance of $2,300 before adjustment.
(b) Allowance for Doubtful Accounts has a debit balance of $370 before adjustment.
Ans: N/A, LO: 2, Bloom: AN, Difficulty: Medium, Min: 15, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: FSA
Solution 200 (15 min.)
(1) Percentage-of-sales basis:
The following adjusting entry would be the same regardless of the balance in the Allowance
for Doubtful Accounts.
Bad Debt Expense ($2,700,000 × .01)........................................... 27,000
Allowance for Doubtful Accounts.......................................... 27,000

(2) Percentage-of-receivables basis:

(a) Bad Debt Expense ($31,000 – $2,300)................................... 28,700
Allowance for Doubtful Accounts.................................... 28,700
(b) Bad Debt Expense ($31,000 + $370)...................................... 31,370
Allowance for Doubtful Accounts.................................... 31,370

Ex. 260
Zimmer Company sold the following two machines in 2017:

Machine A Machine B
Cost $76,000 $80,000
Purchase date 7/1/13 1/1/14
Useful life 8 years 5 years
Salvage value $4,000 $4,000
Depreciation method Straight-line Double-declining-balance
Date sold 7/1/17 8/1/17
Sales price $35,000 $16,000
Instructions
Journalize all entries required to update depreciation and record the sales of the two assets in
2017. The company has recorded depreciation on the machines through December 31, 2016.
Ans: N/A, LO: 3, Bloom: AP, Difficulty: Medium, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: FSA

Solution 260 (20 min.)

July 1 Depreciation Expense................................................................ 4,500
Accumulated Depreciation—Equipment............................ 4,500
($76,000 – $4,000)×1/8×6/12 = $4,500
Cash.......................................................................................... 35,000
Accumulated Depreciation—Equipment*................................... 36,000
Loss on Disposal of Plant Assets ($40,000 – $35,000).............. 5,000
Equipment......................................................................... 76,000
*2013 ($76,000 – $4,000) × 1/8 × 6/12 = $4,500
2014 ($76,000 – $4,000) × 1/8 = $9,000
2015 $9,000
2016 $9,000
2017 ($76,000 – $4,000) × 1/8 × 6/12 = $4,500
Total accumulated depreciation at date of disposal = $36,000

Aug. 1 Depreciation Expense................................................................ 4,032

 Accumulated Depreciation—Equipment............................ 4,032
($80,000 – $62,720)  .40  7/12 = $4,032
Cash.......................................................................................... 16,000
Accumulated Depreciation—Equipment**.................................. 66,752
Equipment......................................................................... 80,000
Gain on Disposal of Plant Assets ($16,000 – $13,248)..... 2,752
Solution 260 (Cont.)
**2014 ($80,000 – 0) × .40 = $32,000
2015 ($80,000 – $32,000) × .40 = $19,200
2016 ($80,000 – $51,200) × .40 = $11,520
2017 ($80,000 – $62,720) × .40 × 7/12 = $4,032
Total accumulated depreciation at date of disposal = $66,752

Ex. 258
Grayson's Lumber Mill sold two machines in 2018. The following information pertains to the two
machines:
Purchase Useful Salvage Depreciation Sales
Machine Cost Date Life Value Method Date Sold Price
#1 $66,000 7/1/14 5 yrs. $6,000 Straight-line 7/1/18 $15,000
#2 $50,000 7/1/17 5 yrs. $5,000 Double-declining- 12/31/18 $30,000
balance

Instructions
(a) Compute the depreciation on each machine to the date of disposal.
(b) Prepare the journal entries in 2018 to record 2018 depreciation and the sale of each
machine.
Ans: N/A, LO: 3, Bloom: AP, Difficulty: Medium, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: Business Economics

Solution 258 (20 min.)

(a) Machine #1
Annual Accumulated
Year Depreciable Cost  Depreciation Rate = Depreciation Depreciation
2014 $60,000 20% $ 6,000* $ 6,000
2015   12,000 18,000
2016   12,000 30,000
2017   12,000 42,000
2018   6,000* 48,000
*One-half a year.

Machine #2
Book Value Annual Accumulated
Year Beginning of Year  DDB Rate Depreciation Depreciation
2017 $50,000 40% $ 10,000* $ 10,000
2018 40,000 40% 16,000 26,000
*One-half a year.
Solution 258 (Cont.)
(b) Machine 1 Machine 2
Depreciation Expense 6,000 16,000
Accumulated Depreciation—Equip. 6,000 16,000

Cash 15,000 30,000

Loss on Disposal of Plant Assets 3,000* -0-
Accumulated Depreciation—Equip. 48,000 26,000
Equipment 66,000 50,000
Gain on Disposal of Plant Assets -0- 6,000**

*$66,000 – $48,000 = $18,000; $18,000 – $15,000 = $3,000 loss.

**$30,000 – ($50,000 – $26,000) = $6,000.