Required Entries
The required journal entry to dispose of a equipment that cost $40,000 and has accumulated depreciation of $10,000
What is a $40,000 credit to Equipment, a $10,000 debit to Accumulated Depreciation and a $30,000 debit to Loss on Disposal?
The cost to replace a roof
What is a capitalizable cost?
The internal control principle that is violated if the staff accountant operates the cash register while the head cashier is on vacation
What is a violation of the segregation of duties principle?
Dawson Company's required entry on April 30, 2024, if Dawson sells $12,000 of goods on January 1, 2024, accepts a 2%, 8-month note and Dawson uses accrual accounting and issues financial statements every April 30
What is an $80 debit to Interest Receivable and an $80 credit to Interest Revenue?
$12,000 Face Value x .02 Interest Rate x 4/12 (4 months of earned interest expressed in terms of 1 year) = $80
The capitalizable cost if a company buys outdoor lighting at a purchase price of $20,000, receives a $200 discount for prompt payment, pays $500 in installation costs and pays $50 to replace a broken wire after the lighting is used for 30 days
What is a capitalizable cost of $20,300?
$20,000 - $200 + $500 = $20,300
The $50 cost is a revenue expenditure.
The required entry for a seller recording the sale of a land improvement for $100,000 cash if the land improvement cost $80,000, has accumulated depreciation of $60,000 on the date of sale, and a salvage value of $10,000
What is a $100,000 debit to Cash, an $80,000 credit to Land Improvement, a $60,000 debit to Accumulated Depreciation and $80,000 credit to Gain on Sale?
The cost to rewire a building
What is a capitalizable cost?
The internal control principle that is violated if a company does not have a mandatory vacation policy
What is the human resource principle of internal control?
The total amount of interest on a $45,000, 3%, 8-month note
What is $900 of interest?
$45,000 Face Value Note x Interest Rate .03 x Duration of Note expressed in terms of one year 8/12 =
$900 Interest
The book value of a land improvement on December 31, 2024, if a company purchases the land improvement on January 1, 2024, for $25,000, depreciates the land improvement at a rate of $1,000 per month and the land improvement has a salvage value of $15,000.
What is $15,000?
Cost - Accumulated Depreciation = Book Value
The land improvement is depreciated until book value = salvage value. Once the book value of the land improvement = salvage value, the land improvement is fully depreciated (after 10 months).
The required entry for a seller to record the retirement of a plant asset if the asset was fully depreciated, cost $20,000 and had a salvage value of $5,000 and an expected useful life of 10 years
What is $20,000 credit to Equipment, a $15,000 debit to Accumulated Depreciation and a $5,000 debit to Loss on disposal?
The cost to replace a broken sprinkler head on an underground sprinkler system
What is a revenue expenditure?
The internal control principle that is violated if a company does not prepare a bank reconciliation
What is the independent internal verification principle of internal control?
The amount of Bad Debts Expense if a company has an ending Accounts Receivable balance of $20,000, estimates 10% of receivables are uncollectible and the allowance for doubtful accounts has a $2,500 credit balance
What is $1,500?
10% x 20,000 = $2,000
1,000 + X = $2,500
X = $1,500
PD Construction Company's depreciation expense for 2024 if the company purchased equipment on January 1, 2024, for $90,000, paid $16,200 for installation, had an estimated salvage value of $18,000 and an estimated useful life of 5 years and PD issues financial statements at December 31
What is depreciation expense of $17,640?
Depreciable Cost x Straight-line Rate = Depreciation Expense (prorate if owned less than 12 months)
Depreciable Cost = Cost - Salvage Value
Depreciable Cost = $88,200 =
[($90,000 + $16,200) - $18,0000]
Straight-line Rate = 1/useful life = 1/5 = 20%
$88,200 x .20 = $17,640
The required entry for a seller to record the sale of equipment on July 1, 2024, for $50,000 if the seller purchased the equipment on January 1, 2024, for $30,000, uses straight-line depreciation, and the equipment had a salvage value of $6,000 and an expected useful life of 5 years
What is a $50,000 debit to Cash, a $30,000 credit to Equipment, a $2,400 debit to Accumulated Depreciation and a $22,400 credit to Gain on Sale?
Annual Depreciation ($30,000-$6,000)x1/5= $4,800
$4,800 x 6/12 = $2,400 Depreciation Expense
Accumulated Depreciation is $2,400 at July 1
Gain =
$50,000 Proceeds -($30,000-$2,400)Book Value 7/1 = $22,400 Gain on Sale
The cost to repave a parking lot
What is a capital expenditure?
The internal control principle that is violated if a company does not use a password to access its computer system
What is the physical control principle?
The cash realizable value of receivables if the Accounts Receivable balance is $100,000, 20% of receivables is estimated as uncollectible and the allowance for doubtful accounts has a $100 credit balance
What is $80,000?
Accounts Receivable $100,000
AFDA $20,000 (or 20% of $100,000)
____________________________
$80,000 Cash Realizable Value
The amount of Depreciation Expense in 2024 using the units of activity method of depreciation, if equipment is purchased July 1, 2024, for $50,000, with an estimated useful life of 5 years or 20,000 hours and an estimated salvage value of $10,000 and the equipment is used for 80 hours in 2024
What is Depreciation Expense of $160?
($50,000 - $10,000)/20,000 hours = $2 per hour
$2 x 80 = $160
A seller's required entry if a company sells equipment for $25,000 cash, the equipment has $5,000 of accumulated depreciation and the equipment cost $30,000
What is a $30,000 credit to Equipment, a $5,000 debit to Accumulated Depreciation, and a $25,000 debit to Cash?
The annual cost of having a furnace inspection
What is a revenue expenditure?
An example of a practice that violates the establishment of responsibility principle of internal control
Sample responses:
What is a policy of having the staff accountant prepare financial statements and accept cash payments from customers?
What is a policy that has one individual assigned to multiple tasks?
Highline Company's required adjusting entry to record bad debts if the company has Accounts Receivable of $10,000 at the end of the period, estimates that 10% of receivables will be uncollectible and the AFDA has a $100 debit balance prior to preparing the adjustment for bad debts
What is a $1,100 debit to Bad Debts Expense and a $1,100 credit to AFDA?
Accounts Receivable $10,000
AFDA $1,000
Accounts Receivable, net $9,000
Adjustment: By how much do we need to increase AFDA to go from -100 to a credit balance of $1,000 (current estimate for uncollectible accounts)?
-$100 + x = $1,000; X = $1,100
A grocery store's capitalizable cost for a display case used in the store if the records show:
Purchase price $5,000; Delivery and installation cost $200; Testing cost $50 (Display case is tested on ongoing basis after case installed) After using the case for 6 months, the store pays $300 to repair the case.
What is a capitalizable cost of $5,200?
$5,000 + $200 = $5,200