Accounting Term II Mid Term Answers Revised 2

Supplemental Instruction Handouts
Financial Accounting
Review of Chapters 9, 10, 11, 12 and Appendix A
Answer Key
1. On December 31, 2011, at the end of the current accounting period for Apex Company,
the allowance for doubtful accounts had a credit balance of $750. On the following March
18, 2012, management decided the $490 account of M. Peters was uncollectible and
wrote it off as a bad debt using the allowance method. About three months later, on June
20, 2012, Peters unexpectedly paid the amount previously written off. On December 31,
2012, Apex Company made their yearend adjustment to the allowance account by
calculating 5% of all sales. The companys sales were $55,000 for the year.
Required:
A. Prepare the necessary general journal entries for March 18, June 20 and December 31,
2012.
General Journal Page ____

Date Account Titles and Explanations PR Debit Credit
Mar 18 Allowance for Doubtful Accounts 490
Accounts Receivable M. Peters 490
June 20 Accounts Receivable M. Peters 490

Allowance for Doubtful Accounts 490
June 20 Cash 490

Accounts Receivable M. Peters 490
Dec 31 Bad Debts Expense 2,750

Allowance for Doubtful Accounts 2,750
B. Calculate the ending balance in the allowance for doubtful accounts for December 31,
2012.
$750 $490 + $490 + $2,750 = $3,500
Academic Success Centre www.rrc.mb.ca/asc

These answers were created by Michael Reimer and corrected by Gerry Richards for the
Academic Success Centre.
2. At the end of each year, Store Ur Stuff Self Storage Company uses their ending balance
in accounts receivable to estimate their bad debts for the coming year. On December 31,
2011, the companys year end, it has outstanding accounts receivable of $65,000 and
estimates that 6% will be uncollectible.
Required:
Prepare the necessary general journal entry to record bad debts expense for 2011 under
each of the following unrelated assumptions:
A. There is a $967 credit balance in the allowance account before the adjustment.

($65,000 x 0.06 = $3,900 $967 = $2,933)
B. There is a $1,584 debit balance in the allowance account before the adjustment.

($65,000 x 0.06 = $3,900 + $1,584 = $5,484)

3. The Bettis Company had the following transactions involving notes receivable:
2011:
November 1 Accepted a $4,500, five month, 7% note dated today from S. Smith in
granting a time extension on his past due account.
December 31 Made an adjusting entry to record the accrued interest on the S. Smith note.
2012:
January 25 Accepted a $2,300, 90 day, 5% note dated today from L. Saunders in granting a
time extension on her past due account.
April 1 S. Smith dishonored his note when presented for payment.
April 24 L. Saunders honored her note when presented for payment.
December 31 After exhausting all legal means of collection, wrote off S. Smiths account
using the allowance method.
Required:
Prepare general journal entries for each transaction described above.

2011
Nov 1 Notes Receivable 4,500
Accounts Receivable S. Smith 4,500
Dec 31 Interest Receivable 52.50

Interest Revenue (4,500 x 0.07 x 2/12) 52.50
2012
Jan 25 Notes Receivable 2,300
Accounts Receivable L. Saunders 2,300
April 1 Accounts Receivable S. Smith 4,631.25

Interest Receivable 52.50
Notes Receivable 4,500
April 24 Cash 2,328.36

Notes Receivable 2,300
Dec 31 Allowance for Doubtful Accounts 4,631.25

Accounts Receivable S. Smith 4,631.25

4. The accountant for your company has prepared a schedule of the December 31, 2011,
accounts receivable by age and, on the basis of past experience, has estimated the
percentage of the receivables in each age category that will become uncollectible. This
information is summarized in the following table:
December 31, 2011 Age of Expected Percentage

Accounts Receivable Accounts Receivable Uncollectible
$112,500 Not Due (under 30 days) 3%
$48,500 1 to 30 days past due 6%
$23,650 31 to 60 days past due 12%
$12,750 61 to 90 days past due 36%
$4,300 Over 90 days past due 75%
Required:
Prepare the necessary year end adjusting entry based on the following independent
assumptions:
A. The allowance account has a credit balance of $4,350.

($112,500 x 0.03) + ($48,500 x 0.06) + ($23,650 x 0.12) + ($12,750 x 0.36) + ($4,300 x 0.75)
= $3,375 + $2,910 + $2,838 + $4,590 + $3,225 = $16,938 $4,350 = $12,588
B. The allowance account has a debit balance of $2,250.

$16,938 + $2,250 = $19,188

5. On January 14, at the end of the first pay period of the year, a companys Payroll
Register showed that its employees had earned $25,000 of sales salaries and $14,250 of
office salaries. Withholdings from the employees salaries were to include $679 of EI,
$1,943 of CPP, $7,850 of income taxes, $1,500 of hospital insurance, and $650 of union
dues.
Required:
A. Prepare the journal entry to record the January 14 payroll.

Jan 14 Sales Salaries Expense 25,000
Office Salaries Expense 14,250
EI Payable 679
CPP Payable 1,943
Income Tax Payable 7,850
Hospital Insurance Payable 1,500
Union Dues Payable 650
Salaries Payable 26,628
B. Prepare a journal entry to record the employers payroll expenses resulting from the
January 14 payroll.

Jan 14 EI Expense 950.60
CPP Expense 1,943
EI Payable (679 x 1.4) 950.60
CPP Payable 1,943
C. Prepare the journal entry the employer would make to pay the payroll deductions to
the government on January 28.

Jan 28 EI Payable (679 + 950.60) 1,629.60
CPP Payable (1943 + 1943) 3,886
Income Tax Payable 7,850
Cash 13,365.60

6. The following information as to earnings and deductions for the pay period ended May
20 was taken from a companys payroll records:
Earnings A. CPP
(3,500/52)
Weekly to End Income Health A. EI (Gross Pay B. Net
Gross of Taxes Insurance (Gross 67.31) x Pay
0.0495
Employee Pay Previous Deductions Pay x
Week 0.0183)
M. Cullen $ 840 $16,800 $168 $24 $15.37 $38.25 $594.38
J. Hanson $ 920 $18,400 $184 $24 $16.84 $42.21 $652.95
A. Lee $ 760 $15,200 $152 $36 $13.91 $34.29 $523.80
M. Mann $1,200 $24,000 $240 $24 $21.96 $56.07 $857.97
Totals $3,720 $744 $108 $68.08 $170.82 $2,629.10
Required:
A. In the chart above calculate the employees EI and CPP withholdings.
B. In the chart above calculate each employees net pay.
C. Prepare a general journal entry to record the payroll assuming all employees work in
the office.

May 20 Office Salaries Expense 3,720
Income Tax Payable 744
Hospital Insurance Payable 108
EI Payable 68.08
CPP Payable 170.82
Salaries Payable 2,629.10

7. On January 3, 2011, your company purchased a machine for $23,000 with terms of
2/10, n/60, FOB shipping point. The seller prepaid the shipping charges, $520, adding this
amount to the invoice. The machine required a special steel mounting plate and a new
power connection at a cost of $2,940. Assemble of the machine cost $750 to get it into
operation. While the machine was being moved onto the steel mounting plate it was
dropped and damaged. The cost of repairs was $380 to get it working properly. Later,
$100 of raw materials was consumed in adjusting the machine so that it would produce a
satisfactory product. The adjustments were normal for this type of machine and were not
the result of the damage. However, the items produced while the adjustments were
being made were not sellable. The company always pays within the discount period.
Required:
A. Prepare a calculation to show the cost of this machine.
$23,000 x (1 0.02) = $22,540 + $520 + $2,940 + $750 + $100 = $26,850
B. Prepare the general journal entry for the purchase of the machine, assuming the
company paid cash for the machine.

Jan 3 Machine 26,850
Cash 26,850
C. Calculate the depreciation for the machine for 2012 using the double declining
balance method. Your company believes this machine will have a useful life of 3 years and
a salvage value of $500.
2011 2012
$26,850 x 2/3 = $17,900 ($26,850 $17,900) x 2/3 = $5,966.67
D. Prepare the adjusting journal entry for the end of the year, December 31, 2012.

Dec 31 Depreciation Expense Machine 5,966.67
Accumulated Depreciation Machine 5,966.67

E. Calculate the machines book value for the end of 2012.
2012
$26,850 $17,900 $5,966.67 = $2,983.33
8. On March 20, 2011, Piper Plumbing Company paid $184,125 for real estate plus $9,800
in closing costs. The real estate included land appraised at $83,160; land improvements
appraised at $27,720 and a building appraised at $87,120.
Required:
A. Prepare a calculation showing the allocation of the total cost amongst the three items
purchased.
184,125 + 9,800 = 193,925 Total Paid
Land $83,160/$198,000 = 0.42 x $193,925 = $81,448.50

Land Improvements $27,720/$198,000 = 0.14 x $193,925 = $27,149.50
Building +$87,120/$198,000 = 0.44 x $193,925 = $85,327. 00
Total $198,000 $193,925.00
B. Prepare a general journal entry to record the purchase assuming Piper Plumbing
Company paid cash.

Mar 20 Land 81,448.50
Land Improvements 27,149.50
Building 85,327.00
Cash 193,925
C. Calculate the depreciation for the building for 2011 using the straight line method to
the nearest month. Piper Plumbing Company feels that the building can be used for 15
years with a $5,000 salvage value.
($85,327 $5,000) / 15 = $5355.13 x 9/12 = $4,016.35

D. Prepare the adjusting journal entry for the end of the year, December 31, 2011.

Dec 31 Depreciation Expense Building 4,016.35
Accumulated Depreciation Building 4,016.35
9. After planning to build a new manufacturing plant, Jammers Casual Wear purchased a
lot on which a small building was located. The negotiated purchase price for this real
estate was $150,000 for the lot plus $80,000 for the building. The company paid $23,000
to have the old building torn down and $34,000 for landscaping the lot. Finally, it paid
$960,000 in construction costs, which included the cost of a new building plus $57,000 for
lighting and paving a parking lot next to the building.
Required:
A. Calculate the value of the land, land improvements and the building.
Land Land Improvements Building

$150,000 $57,000 $960,000
$80,000 -$57,000
$23,000 $903,000
$34,000
$287,000
B. Present a single general journal entry to record the costs incurred by Jammers, all of
which were paid in cash, on April 15, 2011.

April 15 Land 287,000
Land Improvements 57,000
Building 903,000
Cash 1,247,000

10. Moon Paper Company installed a computerized machine in its factory at a cost
$84,600 on March 3, 2011. The machine has a useful life of 5 years or 700,000 units with
a salvage value of $14,600. Moon Paper Companys year end is December 31.
Year Units Produced

2011 75,000
2012 180,000
2013 135,000
2014 190,000
2015 150,000
Required:
Using the space provided:
A. Calculate the depreciation expense for each year of the machines life using the units
of production method.
($84,600 $14,600) / 700,000 = $0.10/unit
2011 75,000 x $0.10 = $7,500

2012 180,000 x $0.10 = $18,000
2013 135,000 x $0.10 = $13,500
2014 190,000 x $0.10 = $19,000
2015 (700,000 75,000 180,000 135,000 190,000) x $0.10 = $12,000
B. Calculate the depreciation expense for each year of the machines life using the double
declining balance method.
2011 $84,600 x 2/5 = $33,840 x 10/12 = $28,200

2012 $84,600 $28,200 = $56,400 x 2/5 = $22,560
2013 $84,600 $28,200 $22,560 = $33,840 x 2/5 = $13,536
2014 $84,600 $28,200 $22,560 $13,536 = $20,304 $14,600 = $5,704
2015 $0

11. On April 4th, 2010, Lake Excavating Services purchased a trencher for $500,000. The
machine was expected to have a five year life and a salvage value of $50,000. In early
January of 2012, it was decided that the machine would last a total of 7 years and have a
new salvage value of $14,375. This company uses the straight line method of
depreciating to the nearest month.
Required:
A. Calculate the depreciation for the trencher for 2010.
($500,000 $50,000) / 5 = $90,000 x 9/12 = $67,500
B. Calculate the book value for the trencher at the end of 2011.
2011
$500,000 $67,500 $90,000 = $342,500
C. Show how the machine would appear on the 2011 balance sheet.
Property, Plant and Equipment

Trencher $500,000
Less: Accumulated Depreciation Trencher 157,500
Net Trencher $342,500
D. Calculate the depreciation for the trencher for 2012.
2012
($342,500 $14,375) / (7 1.75) = $328,125 / 5.25 = $62,500
E. Present the general journal entry for the depreciation at the end of 2012.

Dec 31 Depreciation Expense Trencher 62,500
Accumulated Depreciation Trencher 62,500

12. Plum Hill Industries purchased and installed a machine on January 3, 2008, at a total
cost of $185,500. Straight line depreciation was taken each year for four years, based on
the assumption of a seven year life and no salvage value. The machine was disposed of on
July 2, 2012, during its fifth year of operation.
Required:
Prepare a general journal entry for each of the following unrelated assumptions:
A. The machine is sold for $70,000 cash.

July 2 Cash 70,000
Accumulated Depreciation Machine 119,250
Gain on disposal 3,750
Machine 185,500
($185,500 / 7 = $26,500 x 4.5 years = $119,250)
B. The machine is destroyed in a fire and Plum Hill receives an insurance settlement of
$60,000.

July 2 Cash 60,000
Accumulated Depreciation Machine 119,250
Loss on disposal 6,250
Machine 185,500
C. The machine and $100,000 cash were traded for a new machine of like purpose that
had a fair value of $187,000.

July 2 Machine 187,000
Accumulate Depreciation Machine 119,250
Gain on exchange 20,750
Machine 185,500
Cash 100,000

13. On December 31, 2011, RH Companys year end, RH Company is doing their annual
year end reevaluation of its property, plant and equipment assets to see if any of their
assets has incurred an impairment loss.
Asset: Cost Estimated Salvage Total Accumulated Replacement

Useful Life Value Depreciation Value
Building $450,000 10 $50,000 $180,000 $240,000
Equipment $95,000 8 $5,000 $45,000 $55,000
Land $125,000 N/A N/A N/A $145,000
Truck $122,000 6 $2,000 $80,000 $42,000
Required:
A. Calculate the book value of each asset listed above.
Building: $450,000 $180,000 = $270,000

Equipment: $95,000 $45,000 = $50,000
Land: $125,000 $0 = $125,000
Truck: $122,000 $80,000 = $42,000
B. Calculate impairment loss for each asset that has a book value less than replacement
value.
Building: $270,000 $240,000 = $30,000
C. Prepare a general journal for December 31, 2011 to record impairment loss.

Dec 31 Impairment Loss 30,000
Building 30,000
D. Recalculate the depreciation expense for any asset that has incurred an impairment
loss. (All assets are depreciated using the straight line method of amortization.)
($450,000 - $50,000) / 10 = $40,000 Depreciation per year

$180,000 / $40,000 = 4.5 years
($240,000 $50,000) / 10 4.5 = $190,000 / 5.5 = $34,545.45

14. Newberg and Scampi began a partnership by investing $52,000 and $78,000,
respectively. During its first year, the partnership earned a net income of $180,000. The
partnership has a year end of December 31.
Required:
In the space provided, prepare calculations that show how the income should be allocated
to the partners under each of the following plans for sharing incomes and losses:
A. The partners failed to agree on a method of sharing income.
180,000/2 = 90,000
B. The partners agreed to share incomes and losses in their investment ratio.
Newton $52,000 $130,000 = 0.4 x $180,000 = $72,000

Scampi $78,000 $130,000 = 0.6 x $180,000 = $108,000
Total $130,000
C. The partners agreed to share income by allowing an $85,000 per year salary allowance
to Newberg, $65,000 per year salary allowance to Scampi, 10% interest on beginning
capital balances, and the remainder equally.
Newberg Scampi Total

180,000
Salary 85,000 65,000 150,000
Interest
$52,000 x 0.10 5,200 5,200
$78,000 x 0.10 7,800 7,800
17,000
$17,000/2 8,500 8,500 17,000
98,700 81,300 0
D. Prepare the year end closing journal entry based on your answer in part C.

Dec 31 Income Summary 180,000
Newberg, Capital 98,700
Scampi, Capital 81,300

15. The Harris Bartlett Partnership has total partners equity of $380,000, which is made
up of Harris, Capital, $300,000, and Bartlett, Capital, $80,000. The partners share net
income and losses in a ratio of 3:1. On July 1, Megan is admitted to the partnership and
given a 20% interest in equity and in gains and losses.
Required:
Prepare the journal entry to record the entry of Megan under each of the following
unrelated assumptions: Megan invests cash of:
A. $95,000

July 1 Cash 95,000
Megan, Capital 95,000
($380,000 + $95,000 = $475,000 x 0.2 = $95,000)
B. $115,000

July 1 Cash 115,000
Harris, Capital ($16,000 x ) 12,000
Bartlett, Capital ($16,000 x ) 4,000
($380,000 + $115,000 = $495,000 x 0.2 = $99,000
$115,000 $99,000 = $16,000)
C. $55,000

July 1 Cash 55,000
Harris, Capital ($32,000 x ) 24,000
Bartlett, Capital ($32,000 x ) 8,000
($380,000 + $55,000 = $435,000 x 0.2 = $87,000
$55,000 $87,000 = -$32,000)

16. Hollis, Evans, and Bowen have been partners sharing net incomes and losses in a 3:2:5
ratio. On October 31, 2011, the date Bowen retires from the partnership, the equities of
the partners are Hollis $130,000; Evans, $200,000; and Bowen $50,000.
Required:
Present general journal entries to record Bowens retirement under each of the following
unrelated assumption:
A. Bowen is paid $50,000.

Oct 31 Bowen, Capital 50,000
Cash 50,000
B. Bowen is paid $60,000.

Hollis, Capital ($10,000 x 3/5) 6,000
Evans, Capital ($10,000 x 2/5) 4,000
Cash 60,000
($50,000 $60,000 = -$10,000)
C. Bowen is paid $45,000.

Hollis, Capital ($5,000 x 3/5) 3,000
Evans, Capital ($5,000 x 2/5) 2,000
Cash 45,000
($50,000 $45,000 = $5,000)

17. Prince, Count, and Earl are partners who share incomes and losses in a ratio in a 1:3:4.
After lengthy disagreements among the partners and several unprofitable periods, the
partners decided to liquidate the partnership. Before the liquidation, the partnership
balance sheet showed:
Assets: Liabilities:
Cash $62,000 Accounts Payable $50,000
Machinery 500,000 Notes Payable 150,000
Less: Accumulated Total Liabilities $200,000
Depreciation Machinery 324,000 Owners Equity:
Prince, Capital $8,000
Count, Capital 10,000
Earl, Capital 20,000 38,000
Total Assets $238,000 Total Liabilities and
Owners Equity $238,000
Required:
Prepare all the necessary general journal entries to liquidate the partnership if the assets
were sold for $180,000. The partnership was liquidated on December 31, 2011.

Dec 31 Cash 180,000
Accumulated Depreciation Machinery 324,000
Gain on disposal 4,000
Machinery 500,000
Dec 31 Gain on disposal 4,000

Prince, Capital ($4,000 x 1/8) 500
Count, Capital ($4,000 x 3/8) 1,500
Earl, Capital ($4,000 x 4/8) 2,000
Dec 31 Accounts Payable 50,000

Notes Payable 150,000
Cash 200,000
Dec 31 Prince, Capital ($8,000 + $500) 8,500

Count, Capital ($10,000 + $1,500) 11,500
Earl, Capital ($20,000 + $2,000) 22,000
Cash 42,000

18. Prince, Count, and Earl are partners who share incomes and losses in a ratio in a 1:3:4.
After lengthy disagreements among the partners and several unprofitable periods, the
partners decided to liquidate the partnership. Before the liquidation, the partnership
balance sheet showed:
Assets: Liabilities:
Cash $62,000 Accounts Payable $50,000
Machinery 500,000 Notes Payable 150,000
Less: Accumulated Total Liabilities $200,000
Depreciation Machinery 324,000 Owners Equity:
Prince, Capital $8,000
Count, Capital 10,000
Earl, Capital 20,000 38,000
Total Assets $238,000 Total Liabilities and
Owners Equity $238,000
Required:
Prepare all the necessary general journal entries to liquidate the partnership if the assets
were sold for $168,000. The partnership was liquidated on December 31, 2011.

Dec 31 Cash 168,000
Accumulated Depreciation Machinery 324,000
Machinery 500,000
Dec 31 Prince, Capital ($8,000 x 1/8) 1,000

Count, Capital ($8,000 x 3/8) 3,000
Earl, Capital ($8,000 x 4/8) 4,000
Dec 31 Accounts Payable 50,000

Notes Payable 150,000
Cash 200,000
Dec 31 Prince, Capital ($8,000 1,000) 7,000

Count, Capital ($10,000 3,000) 7,000
Earl, Capital ($20,000 4,000) 16,000
Cash 30,000


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Supplemental Instruction Handouts

General Journal Page ____

June 20 Accounts Receivable M. Peters 490

June 20 Cash 490

Dec 31 Bad Debts Expense 2,750

$750 $490 + $490 + $2,750 = $3,500

Academic Success Centre www.rrc.mb.ca/asc

General Journal Page ____

General Journal Page ____

Academic Success Centre www.rrc.mb.ca/asc

Prepare general journal entries for each transaction described above.

General Journal Page ____

Dec 31 Interest Receivable 52.50

April 1 Accounts Receivable S. Smith 4,631.25

April 24 Cash 2,328.36

Dec 31 Allowance for Doubtful Accounts 4,631.25

Academic Success Centre www.rrc.mb.ca/asc

December 31, 2011 Age of Expected Percentage

A. The allowance account has a credit balance of $4,350.

General Journal Page ____

B. The allowance account has a debit balance of $2,250.

General Journal Page ____

$16,938 + $2,250 = $19,188

Academic Success Centre www.rrc.mb.ca/asc

General Journal Page ____

General Journal Page ____

General Journal Page ____

Academic Success Centre www.rrc.mb.ca/asc

A. In the chart above calculate the employees EI and CPP withholdings.

B. In the chart above calculate each employees net pay.

General Journal Page ____

Academic Success Centre www.rrc.mb.ca/asc

A. Prepare a calculation to show the cost of this machine.

$23,000 x (1 0.02) = $22,540 + $520 + $2,940 + $750 + $100 = $26,850

General Journal Page ____

General Journal Page ____

Academic Success Centre www.rrc.mb.ca/asc

184,125 + 9,800 = 193,925 Total Paid

Land $83,160/$198,000 = 0.42 x $193,925 = $81,448.50

General Journal Page ____

($85,327 $5,000) / 15 = $5355.13 x 9/12 = $4,016.35

Academic Success Centre www.rrc.mb.ca/asc

General Journal Page ____

Land Land Improvements Building

General Journal Page ____

Academic Success Centre www.rrc.mb.ca/asc

Year Units Produced

Using the space provided:

($84,600 $14,600) / 700,000 = $0.10/unit

2011 75,000 x $0.10 = $7,500

2011 $84,600 x 2/5 = $33,840 x 10/12 = $28,200

Academic Success Centre www.rrc.mb.ca/asc

A. Calculate the depreciation for the trencher for 2010.

($500,000 $50,000) / 5 = $90,000 x 9/12 = $67,500

Property, Plant and Equipment

D. Calculate the depreciation for the trencher for 2012.

General Journal Page ____

Academic Success Centre www.rrc.mb.ca/asc

A. The machine is sold for $70,000 cash.

General Journal Page ____

General Journal Page ____

General Journal Page ____

Academic Success Centre www.rrc.mb.ca/asc

Asset: Cost Estimated Salvage Total Accumulated Replacement