Chapter 7
Write the journal entry for recording depreciation expense.
Debit Depreciation Expense; Credit Accumulated Depreciation
P.S.: What type of account is accumulated depreciation?
On December 2, 2023, Quebecor Printing received cash from customers for online subscriptions to begin in 2024. What would be the appropriate journal entry at the time cash was received on December 2, 2023?
Debit Cash; Credit Deferred Revenue
P.S.: What type of account is deferred revenue?
The cut-off point for distinguishing current versus long-term assets and liabilities is: ______ _______
A _______ is recorded when we sell an asset for more than its book value, while a ________ is recorded when we sell an asset for less than its book value.
(1) Gain; (2) Loss
True/False: Capitalized cost of a long-term asset refers to its cost plus all expenditures necessary to get the asset ready for use.
True
True/False: Liquidity refers to the ability of a company to quickly convert assets into cash to cover maturing debts.
True
True/False: Gains and losses have no effect on net income.
False
Calculate depreciation expense for Year 1 using straight-line, double-declining balance, and activity based.
On January 1, Midwest Specialty Foods purchased equipment for $14,000. Residual value at the end of an estimated four-year service life is expected to be $1,400. The machine operated for 1,900 hours in the first year, and the company expects the machine to operate for a total of 12,000 hours.
SL: $3,150; DDB: $7,000; AB: $1,995
A company purchased a piece of equipment by paying $5,000 cash. Shipping cost of $400 to get the equipment to its factory was also incurred. The fair value of this equipment is $7,000. For what amount should the company report the equipment?
$5,400
1) The two qualifications for recording a journal entry for a contingent liability are that the loss must be __________ and _________ _________.
2) Write the journal entry to record a contingent liability.
1) Probable and reasonably estimable
2) Debit Loss; Credit Contingent Liability
As each monthly payment of an installment note is made, the amount of interest expense (increases/decreases).
Decreases
Whole Grain Bakery purchases an industrial bread machine for $29,000. In addition to the purchase price, the company makes the following expenditures: freight, $1,900; installation, $3,800; testing, $1,400; and property tax on the machine for the first year, $580.
What is the initial cost of the bread machine?
Answer: $36,100
Solution: Purchase Price 29,000 + Freight 1,900 + Installation 3,800 + Testing 1,400 = 36,100
A company purchased a delivery truck on January 1, 2024, for $100,000. The truck has an estimated life of 10 years and an estimated residual value of $10,000. If the company uses double-declining balance, what would be the book value of the truck after two years?
Formula: Book Value = Original Cost - Accumulated Depreciation
Answer: $64,000
On November 1, 2024, a company signed a $100,000, 6%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 2025. The company should report interest payable on December 31, 2024, in the amount of:
$1,000
Pretzelmania, Incorporated, issues 5%, 10-year bonds with a face amount of $68,000 for $68,000 on January 1, 2024. Interest is paid semiannually on June 30 and December 31.
Record the bond issue on January 1, 2024 and first interest payment on June 30, 2024.
1) Debit Cash 68,000; Credit Bonds Payable 68,000
2) Debit Interest Expense 1,700; Credit Cash 1,700
Record the JE for gain or loss on sale of the equipment.
Piper's Pizza sold baking equipment for $25,300. The equipment was originally purchased for $72,300, and depreciation through the date of sale totaled $51,300.
Debit: Cash 25,300, Accumulated Depreciation 51,300; Credit: Equipment 72,300, Gain 4,300
Finley Company is looking for a new office location and sees a building with a fair value of $660,000. Finley also notices that much of the equipment in the existing building would be useful to its own operations. Finley estimates the fair value of the equipment to be $106,000. Finley offers to buy both the building and the equipment for $710,000, and the offer is accepted.
How much should Finley record in separate accounts for building and equipment?
Building: $611,749; Equipment: $98,251
Check Your Work: Total = $710,000
Carpenter Incorporated estimates warranty expense at 2% of sales. Sales during the year were $8 million and warranty expenditures during the year were $44,500. What was the balance in the Warranty Liability account at the end of the year?
$115,500
On January 1, 2024, Gundy Enterprises purchases a building for $360,000, paying $60,000 down and borrowing the remaining $300,000, signing a 7%, 10-year mortgage. Installment payments of $3,483.25 are due at the end of each month, with the first payment due on January 31, 2024.
Record the journal entry for the purchase of the building on January 1, 2024.
Debit Buildings 360,000; Credit Cash 60,000 and Notes Payable 300,000
On January 1, 2024, Gundy Enterprises purchases a building for $360,000, paying $60,000 down and borrowing the remaining $300,000, signing a 7%, 10-year mortgage. Installment payments of $3,483.25 are due at the end of each month, with the first payment due on January 31, 2024.
Complete the first three rows of an amortization schedule (provided on the whiteboard).
1/1/2024: Carrying Value 300,000
1/31/2024: Cash Paid 3,483.25; Interest Expense 1,750; Change in Carrying Value 1,733.25; Carrying Value 298,266.75
2/29/2024: Cash Paid 3,483.25; Interest Expense 1,739.89; Change in Carrying Value 1,743.36; Carrying Value 296,523.39