Assessment Solutions- Land Improvements :ACCTG219

Problem 1 (10 Points)
Jackson Browne Corporation is authorized to issue 1,000,000 shares of $2 par
value common stock. During 2021, its first year o …

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Problem 1 (10 Points)
Jackson Browne Corporation is authorized to issue 1,000,000 shares of $2 par
value common stock. During 2021, its first year of operation, the company has
the following stock transactions.
Jan. 1 Paid the state $12,000 for incorporation fees.
Jan. 15 Issued 500,000 shares of stock at $8 per share.
July 2 Issued 100,000 shares of stock for land. The land had an asking price
of $900,000. The stock is currently selling on a national exchange at $7
per share.
Sept. 5 Purchased 10,000 shares of common stock for the treasury at $6 per
share.
Dec. 6 Sold 7,000 shares of the treasury stock at $11 per share.
Instructions
Indicate the accounts and their respective balances that are increased and/or
decreased in the above transactions for Jackson Browne Corporation.
Solution
INCREASE/DECREASE DETAILS
DEBIT
($)
CREDIT
($)
INCREASE INCORPORATION EXPENSE 12000
DECREASE CASH 12000
INCREASE CASH (500000*8) 4000000
INCREASE COMMON STOCK (500000*2) 1000000
INCREASE PAID-IN CAPITAL IN EXCESS OF PAR COMMON SHARES 3000000
INCREASE LAND 900000
INCREASE COMMON STOCK (100000*7) 700000
INCREASE PAID-IN CAPITAL IN EXCESS OF PAR COMMON SHARES 200000
DECREASE TREASURY STOCK (10000*6) 60000
DECREASE CASH 60000
INCREASE CASH (7000*11) 77000
INCREASE TREASURY STOCK (7000*6) 42000
INCREASE PAID IN CAPITAL FROM TREASURY STOCK 35000
Problem 2 (12 Points)
The following items were shown on the balance sheet of ELO Corporation on
December 31, 2021:
Stockholders ’equity
Paid-in capital
Capital stock
Common stock, $5 par value, 800,000 shares
authorized; ______ shares issued and ______ outstanding ………………
$3,000,000
Additional paid-in capital
In excess of par ………………………………………………………………………………….
1,800,000
Total paid-in capital ………………………………………………………………….. 4,800,000
Retained earnings …………………………………………………………………………………………
1,850,000
Total paid-in capital and retained earnings ………………………………. 6,650,000
Less: Treasury stock (8,000 shares) …………………………………………………………. 42,000
Total stockholders ’equity ………………………………………………………………..
$6,608,000
Instructions
Complete the following statements and show your computations.
(a) The number of shares of common stock issued was ___$600000____________.
No of shares = capital stock/par value
= (3000000/5) = 600000
(b) The number of shares of common stock outstanding was __$592000__________.
No of shares outstanding = No. of common stock outstanding- treasury stock
= (600000-8000) = 592000
(c) The total sales price of the common stock when issued was $4800000 _________.
Total sales = capital stock + additional paid in capital
= (3000000+1800000)
= 4800000
(d) The cost per share of the treasury stock was $____ _5.25 __________.
Cost per share of treasury stock = treasury stock value/no. of shares
= (42000/8000) = 5.25
(e) The average issue price of the common stock was $______ _8 _______.
Average issue price = total sales/ no. of common stock issued
= (4800000/600000) = 8
(f) Assuming that 20% of the treasury stock is sold at $8 per share, the balance in
the Treasury Stock account would be $____ _33600 __________.
Treasury stock hold = 20%*8000 = 1600
Cost of treasury stock sold = 1600*5.25 = 8400
Balance in treasury stock a/c (42000-8400) = 33600
Problem 3 (10 Points)
Journey Company had the following transactions involving notes payable.
September 1, 2021 Borrows $240,000 from Washington State Bank by
signing a 6-month, 5% note.
Dec. 31, 2021 prepares the adjusting entry.
March 1, 2022 Pays principal and interest to Washington State Bank.
Instructions
Indicate the accounts and their respective balances that are increased and/or
decreased for each of the above transactions.
Solution
DATE DETAILS DEBIT ($) CREDIT ($)
01-Sep-21 CASH 240000
NOTES PAYABLE 240000
31-Dec-21
INTEREST EXPENSE
(240000*5%*4/12) 4000
INTEREST PAYABLE 4000
01-Mar-22 NOTES PAYABLE 240000
INTEREST EXPENSE
(240000*5%*2/12) 2000
INTEREST PAYABLE 4000
CASH 246000
Problem 4 (18 Points)
Turner Inc. is considering two alternatives to finance its construction of anew $4 million plant.
(a) Issuance of 500,000 shares of common stock at the market price of $10 per share.
(b) Issuance of $5 million, 6% bonds at par.
Instructions
Complete the following table. You MUST show your work to receive full credit.
Issue Stock Issue Bonds
Income before interest and taxes $10,000,000 $10,000,000
Interest expense from bonds
____ 300000 (5000000*6%)
Income before income taxes $10000000 $ 9700000 _
Income tax expense (40%) 4000000 __ 3880000 __
Net income $6000000_ $5820000 _
Outstanding shares (2000000+500000) $2500000 ___ 2,000,000
Earnings per share ____ 2.4 _____ _2.91 ________
Earnings per share
Stocks = 6000000/2500000 = 2.4
Bonds = 5820000/2000000 = 2.91
Problem 5 (15 Points)
The Band Company was organized on January 1. During the first year of
operations, the following expenditures and receipts were recorded in random order
in the account, Land.
Expenditures
1. Cost of real estate purchased as a plant site
(land $220,000 and old building $30,00) $ 250,000
2. Accrued real estate taxes paid at the time of the purchase of the real estate.
35,000
3. Cost of demolishing building to make land suitable for construction of a new
building. 25,000
4. Architect’s fees on building plans. 20,000
5. Installation cost of fences around the building
15,000
6. Excavation costs for new building. 40,000
7. Cost of filling and grading the land. 35,000
8. Full payment to building contractor. 820,000
9. Cost of parking lots and driveways. 55,000
10. Real estate taxes paid for the current year on the land. 10,000
Total $1,305,000
Receipts
11. Proceeds from salvage of demolished building 16,500
Total $16,500
Instructions
Analyze the foregoing transactions using the following tabular arrangement. Insert
the number of each transaction in the Item space and insert the amounts in the
appropriate columns and show the total for each column .
Land
Item Land Buildings Improvements Other Account Title
1 220000 30000 LAND AND BUILDING
2 35000 PROPERTY TAX EXPENSE
3 25000 LAND IMPROVEMENTS
4 20000 MAINTENANCE AND REPAIRS EXPENSE
5 15000
INSTALLATION COST OF FENCES AROUND
OF THE BUILDING
6 40000 EXCAVATION COST
7 35000 LAND IMPROVEMENTS
8 820000
9 55000 LAND IMPROVEMENTS
10 10000 PROPERTY TAXES
11 -16500 PROCEEDS FROM SALVAGE
Problem 6 (10 points)
Bob Seger Company purchased equipment on January 1, 2021 for $110,000. It is
estimated that the equipment will have a $10,000 salvage value at the end of its
10-year useful life. It is also estimated that the equipment will produce 100,000
units over its 10-year life. You must show all of your calculations.
Instructions
Answer the following independent questions.
1. Compute the amount of depreciation expense for the year ended December 31,
2021, using the straight-line method of depreciation.
2. If 15,000 units of product were produced in 2021, what is the book value of
the equipment at December 31, 2021? The company uses the units-of-activity
depreciation method.
Solution
Part 1
DETAILS DETAILS AMOUNT
A COST OF EQUIPMENT 110000
B SALVAGE VALUE 10000
C USEFUL LIFE 10
D=(A-
B)/C
ANNUAL DEPRECIATION (110000-
10000)/10 10000
Part 2
DETAILS DETAILS AMOUNT
A COST OF EQUIPMENT 110000
B SALVAGE VALUE 10000
C USEFUL LIFE 100000
D=(A-
B)/C
DEPRECIATION PER UNIT (110000-
10000)/100000 1
DEPRECIATION FOR 2021
E UNITS 15000
F DEPRECIATION PER UNIT 1
G=E*F DEPRECIATION FOR 2021 (15000*1) 15000
A-G
BOOK VALUE OF EQUIPMENT
(110000-15000) 95000
Problem 7 (10 Points)
(a) Cinema Paradiso Company purchased equipment on January 1, 2013 for
$110,000 and estimated a $10,000 salvage value at the end of the
equipment’s 10-year useful life. At December 31, 2019, there was $70,000
in the Accumulated Depreciation account for this equipment using the
straight-line method of depreciation. On March 31, 2020, the equipment was
sold for $40,000.
Indicate the accounts that are increased and/or decreased and by which
amount to remove the equipment from the books of Cinema Paradiso
Company on March 31, 2020. You must show all of your calculations to
receive full credit
Solution
Working
DETAILS
AMOUNT
($)
COST OF EQUIPMENT 110000
ACCUMULATED DEP 70000
DEP FOR (JAN TO MAR) (110000-
10000)/10*3/12 2500
DATE DETAILS DEBIT ($)
CREDIT
($)
31-Mar DEPRECIATION EXPENSE 2500
ACCUMULATED DEPRECIATION 2500
31-Mar CASH 40000
ACCUMULATED DEP (70000+2500) 72500
EQUIPMENT 110000
GAIN ON SALE OF EQUIPMENT 2500
(b) Assume the same facts as above, except the equipment was sold for $35,000
Indicate which accounts are increased and /or decreased and by which amount
to record the disposition of the machine. You must show all your work to
receive full credit.
Solution
DATE DETAILS DEBIT ($)
CREDIT
($)
31-Mar DEPRECIATION EXPENSE 2500
ACCUMULATED DEPRECIATION 2500
31-Mar CASH 35000
ACCUMULATED DEP (70000+2500) 72500
LOSS ON SALE OF EQUIPMENT 2500
EQUIPMENT 110000
.
Problem 8 (20 Points)
The Killers Pesticide Company had a $400 balance in Allowance for Doubtful
Accounts at December 31, 2022, before the current year’s provision for
uncollectible accounts. An aging of the accounts receivable revealed the following:
Estimated Percentage
Uncollectible
Current Accounts $100,000 1%
1–30 days past due 50,000 3%
31 –60 days past due 40,000 5%
61 –90 days past due 20,000 10%
Over 90 days past due 10,000 20%
Total Accounts Receivable $220,000
Instructions: You MUST show your work to receive full credit.
(a) Determine the desired ending balance for Allowance for Doubtful Accounts
(b) Determine the amount to recognize as bad debt expense on December 31,
2022.
(c) What amount that is reported as the net balance for Accounts Receivable as of
December 31, 2022 on the Balance Sheet?
Solution
Working
DETAILS
AMOUNT
($) (A)
ESTIMATED
PERCENTAGE
UNCOLLECTIBLE
(B) (A)*(B)
CURRENT ACCOUNTS 100000 1% 1000
1-30 DAYS PASTS DUE 50000 3% 1500
31-60 DAYS PASTS DUE 40000 5% 2000
61-90 DAYS PASTS DUE 20000 10% 2000
OVER 90 DAYS PASTS DUE 10000 20% 2000
TOTAL ACCOUNTS RECEIVABLE 220000 8500
Part a
Ending balance of allowance for doubtful accounts (8500+400) = 8900.
Part b
Amount recognize as bad debt expense (8500-400) = 8100.
Part c
Net balance of accounts receivable (220000-8100) = 211900.
Problem 9 (20 point)
Muse Company uses the periodic inventory method and had the following
inventory information available:
Units Unit Cost Total Cost
1/1 Beginning Inventory 400 $6 $2,400
1/20 Purchase 600 $7 4,200
7/25 Purchase 800 $8 6,400
10/20 Purchase 500 $10 5,000
2,300 $18,000
A physical count of inventory on December 31 revealed that there were 600 units
on hand.
Instructions
Answer the following independent questions and show computations supporting
your answers.
1. Assume that the company uses the FIFO method. The value of the ending
inventory at December 31 is $__ _5800 _______.(500*10+100*8)
2. Assume that the company uses the Average-Cost method. The value of the
ending inventory on December 31 is $______ _4695.95 ___.(18000/2300)*600
3. Assume that the company uses the LIFO method. The value of the ending
inventory on December 31 is $____ 3700 ______.(500*6+100*7)
4. Determine the difference in the amount of income that the company would
have reported if it had used the FIFO method instead of the LIFO method.
Would income have been greater or less and by how much?
Difference in income to be reported
Value of inventory under FIFO method 5800
Value of inventory under LIFO method 3700
Difference in income to be reported (5800-3700) 2100
Hence, the income would be more by 2100 ifFIFO method isused instead of LIFO.
Problem 10 (20 Points)
Match the items below by entering the appropriate code letter in the space
provided.
A. Declaration date F. Cumulative dividend
B. Market interest rate G. Face value
C. Payout ratio H. Legal capital
D. Maturity date I. Treasury stock
E. Bond certificate J. Premium on bonds payable
Premium on bonds payable 1. Occurs when the contractual rate of interest
is more than the market rate of interest.
Bond certificate 2. A legal document that indicates the face value of the bonds and
other data.
Market interest rate 3. The rate investors demand for loaning funds to a
corporation.
Legal Capital 4. The amount that must be retained in the business for the
protection of creditors .
Maturity Date 5. The time that the final payment on a bond is due from
the bond issuer.
Declaration date 6. The date the board of directors formally declares a
dividend.
Face value 7. Amount of principal due at the maturity date of the bond.
Cumulative dividend 8. Preferred stockholders have a right to receive
current and unpaid prior-year dividends before common stockholders
receive any dividends.
Payout ratio 9. Measures the percentage of earnings distributed in the form of
dividends to common stockholders.
Treasury stock 10. Corporation ’s own stock that has been reacquired by the
corporation but not retired.
Problem 11 (20 Points)
Ennio Morricone Company had the following normal account balances on selected
accounts:
Sales Revenue $2,400,000
Advertising Expense 55,000
Sales Returns and Allowances 41,000
Cost of Goods Sold 1,085,000
Common stock 250,000
Dividends 150,000
Freight-Out 25,000
Income tax expense 20,000
Interest Expense 70,000
Salaries and Wages Expense 675,000
Utilities Expense 17,000
Depreciation Expense 125,000
Interest Revenue 30,000
Inventory 67,000
Retained earnings 535,000
Insurance Expense 15,000
Sales Discounts 8,500
Instructions
1. Use the above information to prepare a multiple-step income statement for the
year ended December 31, 2022.
Solution
DETAILS AMOUNT ($)
SALES REVENUE 2400000
LESS: SALES RETURN AND ALLOWANCES 41000
LESS: SALES DISCOUNT 8500
LESS: COST OF GOODS SOLD 1085000
GROSS PROFIT (2400000-41000-8500-1085000) 1265500
LESS: OPERATING EXPENSES
FREIGHT OUT 25000
ADVERTISING EXPENSE 55000
SALARIES AND WAGES EXPENSE 675000
UTILITY EXPENSE 17000
DEPRECIATION EXPENSE 125000
INSURANCE EXPENSE 15000
TOTAL OPERATING EXPENSE
(25000+55000+675000+17000+125000+15000) 912000
OPERATING INCOME (1265500-912000) 353500
OTHER REVENUE AND GAINS
INTEREST REVENUE 30000
INTEREST EXPENSE 70000
PROFIT BEFORE TAX (353500-30000-70000) 313500
LESS: INCOME TAX 20000
PROFIT AFTER TAX (313500-20000) 293500
Problem 12 (35 Points)
The financial statements of Spertramp Company appear below:
Supertramp COMPANY
Comparative Balance Sheet
December 31, 2022
____________________________________________________________________________________
Assets 2022
2021
Cash ……………………………………………………………………………………………. $ 120,200 $ 128,400
Debt investments ……………………………………………………………………… 148,000 100,000
Accounts receivable (net) ……………………………………………………….. 235,600 205,600
Inventory …………………………………………………………………………………… 252,000 231,000
Property, plant and equipment (net) ………………………………….. 1,298,000 1,040,600
Total assets ………………………………………………………………………….. $2,053,800 $1,705,600
Liabilities and stockholders’ equity
Accounts payable ……………………………………………………………………… $ 320,000 $ 290,800
Income taxes payable ………………………………………………………………. 87,000 84,000
Bonds payable …………………………………………………………………………… 440,000 400,000
Common stock ………………………………………………………………………….. 580,000 600,000
Retained earnings ……………………………………………………………………. 626,800 330,800
Total liabilities and stockholders’ equity …………………………. $2,053,800 $1,075,600
Supertramp COMPANY
Income Statement
For the Year Ended December 31, 2022
Net sales (all on credit) …………………………………………………………… $3,781,080
Cost of goods sold …………………………………………………………………….. 2,117,080
Gross profit ……………………………………………………………………………….. 1,664,000
Expenses
Selling and administrative expenses ………………………………. $1,000,000
Interest expense ………………………………………………………………….. 44,000
Total expenses ……………………………………………………………….. 1,044,000
Income before income taxes …………………………………………………… 620,000
Income tax expense …………………………………………………………………. 184,000
Net income ………………………………………………………………………………… $ 436,000
Additional information:
a. Cash dividends of $140,000 were declared and paid on common stock in
2022.
b. Weighted-average number of shares of common stock outstanding during
2022 was 100,000 shares.
c. Net cash provided by operating activities during 2022 was $440,000
d. Capital expenditures during 2022 were $272,000.
Instructions
Using the financial statements and additional information, compute the following
ratios for the Supertramp Company for 2020. You Must show all computations .
1. Gross profit rate ___ 44.01% ______.
GP ratio = GP/sales*100
= (1664000/3781080)*100 = 44.01%
2. Return on common stockholders’ equity ___ 40.79% ______.
ROE = Net income/average equity
= (436000/1068800)*100 = 40.79%
Average equity = (1206800+930800)/2 = 1068800
3. Return on assets ___ 23.02% ______.
ROA = Net income/average assets
= (436000/1879700)*100 = 23.02%
Average assets = (2503800+1705600)/2 = 1879700
4. Accounts receivable turnover ___17.14 ______.
AR turnover = Net sales/ average accounts receivable
= (3781080/220600) = 17.14
Average accounts receivable = (235600+205600)/2 = 220600
5. Average collection period ______ 21 Days ___.
Average collection period = Days/average collection period
= 365/17.14 = 21 days
6. Inventory turnover __7.78 _______.
Inventory turnover = COGS/ average inventory
= (1879700/241500) = 7.78
Average accounts receivable = (252000+231000)/2 = 241500
7. Days in inventory ____ 47days__ __.
Days in inventory = Days/inventory turnover
= 365/7.78 = 47 days
8. Times interest earned ___ 15.09 ______.
TIE = EBIT/Interest expense
= 664000/44000 = 15.09
9. Asset turnover _____ 2.01 ____.
Assets turnover = Net sales/average total assets
= 3781080/1879700 = 2.01
Average total assets = (2053800+1705600)/2 = 1879700
10. Free cash flow _168000 ________
FCF = Cash from operating activities – capital expenditure
= (440000-272000) = 168000
11. Profit margin____ 11.53% ____
PM = Net profit/sales
= 436000/3781080 = 11.53%

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