- •108. On July 1, 2006, Jekel & Hyde Inc. Purchased land and incurred other costs relative to the construction of a new warehouse. A summary of economic activities is listed below:
- •Required:
- •Indicate the accounts that would be affected by the above transactions and the resulting balance in each account. Apply the interest on the construction loan to the cost of the building only.
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •In its 2004 annual report to shareholders, Boston Beer Co. Disclosed the following footnote:
- •E. Property, Plant and Equipment
- •128. Use a t- account to show the balances and changes during 2004 in Boston Beer's: Property, Plant and Equipment account and its Accumulated depreciation—Property, Plant & equipment account.
- •Required:
- •130. Use a t- account to show the balances and changes during 2004 in Plank Breweries:
- •Note 4 Property, Plant and Equipment
- •100. A summary of Klugman Company's December 31, 2006, accounts receivable aging schedule is presented below along with the estimated percent uncollectible for each age group:
- •101. A summary of London Fashion's December 31, 2006, accounts receivable aging schedule is presented below along with the estimated percent uncollectible for each age group:
- •114. Is there any evidence in Winchester's disclosures above that are consistent with earnings management?
- •Required:
- •121. Is there any evidence in hp's disclosures above that are consistent with earnings management?
- •100. Required:
- •101. Required:
- •104. Required:
- •105. Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •127. In its 2004 annual report to shareholders, Martin Marietta Materials, Inc. Included the following in its financial statement footnotes:
- •Note e: property, plant and equipment, net
- •In another footnote, the company reported:
Required:
What journal entry, if any, should Weaver make to record the effect of the accounting change? Explain.
Answer: Based upon a recent FASB pronouncement, the change in depreciation method is treated prospectively, just like a change in accounting estimate. Thus, there would be no entry required, as had previously been done, to record the cumulative effect of such a change. Rather, the depreciation expense for 2006 and remaining years of the assets' lives would apply the DDB method to the remaining depreciable basis of the assets.
Learning Objective: 6 Level of Learning: 3
116. Gonzaga Company has used the double-declining-balance method for depreciation since it started business in 2002. At the beginning of 2006, the company decided to change to the straight-line method. Depreciation expense as reported and what it would have been reported if the company had always used straight-line is listed below:
|
|
Straight- |
|
|
Year |
Line |
DDB |
|
2002 |
$32,000 |
$55,000 |
|
2003 |
35,000 |
50,000 |
|
2004 |
39,000 |
58,000 |
|
2005 |
39,000 |
48,000 |
Required:
What journal entry, if any, should Gonzaga make to record the effect of the accounting change? Explain.
Answer: Based upon a recent FASB pronouncement, the change in depreciation method is treated prospectively, just like a change in accounting estimate. Thus, there would be no entry required, as had previously been done, to record the cumulative effect of such a change. Rather, the depreciation expense for 2006 and remaining years of the assets' lives would apply the straight-line method to the remaining depreciable basis of the assets.
Learning Objective: 6 Level of Learning: 3
117. XL Computer's internal auditors in December, 2006, discovered that machinery costing $800,000 was charged to expense in 2004. The asset had an expected life of 10 years with no salvage value. XL would have recorded a half year of depreciation in 2004.
Required:
Prepare the necessary correcting entry that would be made in 2006 (ignore income taxes), and the entry to record depreciation for 2006.
Answer:
|
Equipment |
$800,000 |
|
|
Accumulated depreciation |
|
120,000 |
|
Retained earnings |
|
680,000 |
$800,000 / 10 = $80,000 per year. 2004 = $40,000 (½ year)
|
Depreciation expense |
80,000 |
|
|
Accumulated depreciation |
|
80,000 |
Learning Objective: 7 Level of Learning: 3
118. Atlas Trucking incurred the following costs during 2006:
-
Spent $15,000 on a major overhaul for a tractor-trailer rig. The overhaul is expected to increase the service life of the rig by three years.
-
Repaired the air conditioning system for $3,000.
-
Rearranged and reconfigured the maintenance, loading, and unloading facilities at a cost of $75,000. The rearrangement is expected to result in substantial cost savings and increased efficiency over the next several years.