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Problem 1: Investments

The Investments general ledger account for Sanofi Company Ltd. (Sanofi) held the following
Held for Trading Securities at January 1, 2010. There were no other investments.

Number of Shares Total Average Cost Total Market Value


Click Co. 2000 $25 000 $22 000
Star Co. 1000 $16 000 $12 100

 Sanofi uses a valuation allowance to account for the difference between market value and
average cost of its temporary investments.
 Sanofi does not pay any commissions on its investment transactions.
 Sanofi has a December 31 year end.

The following transactions related to investments occurred during 2010:

January 13 Received a $1.25 per share dividend from its Click Co. investment
March 6 Purchased 1,000 shares of Click Co. at $14.00 per share
May 5 Sold 500 shares of Click Co. at $14.20 per share
July 31 Purchased 500 shares of Ball Co. for $6.75 per share

On December 31, 2010, the market value of various shares was:

Market Value Per Share


Click Co. $15.50
Star Co. $14.25
Ball Co. $6.60

Required:

1. Calculate the balance required in the valuation allowance account at the end of the year.
For completing the assignment only, a negative number will denote a credit and a positive
number will denote a debit balance.

2. Calculate the amount of net unrealized gain or loss on investments for the year ended
December 31, 2010. For completing the assignment only, a negative number will denote a debit
or unrealized loss and a positive number will denote a credit or unrealized gain.
Answer Fill in the Blank 02
Using the information above, prepare all the journal entries for 2010, not including adjusting
entries.

Date Accounts Debit Credit


Jan 13
Mar 6
May 5
July 31

4. Assume for this part, only, that the beginning balance in the valuation allowance was $6,150cr
and the required valuation allowance at the end of the year is now $ 2,200cr. Prepare the journal
entry required to record the valuation allowance at the end of the year.

Date Accounts Debit Credit


Dec 31
Problem 2: Inventory

Hollard Company had the following inventory activity for the month of September:

Beginning
Date Sales
Inventory / Purchases

Beginning
Sep 1 1,200 @ $2.00 = $2,400
inventory
Sep 5 Purchase 11,000 @ 2.75 = $30,250
@ $4.00 =
Sep 14 Sale 11,600
$46,400
@ $3.00 =
Sep 21 Purchase 12,000
$36,000
@ $4.70 =
Sep 29 Sale 11,800
$55,460
Totals 24,200 $68,650 23,400 $101,860

The company uses a perpetual inventory system.


Required:

1. Calculate the cost of the ending inventory for September, assuming a first-in, first-out
(FIFO) cost flow assumption is used.
Answer:
2. Calculate the the gross profit for the September 14 sale, assuming that a weighted-
average cost flow assumption is used.
Answer:
3. Calculate the cost of goods sold for the September 29 sale on account using a weighted
average cost flow assumption.
Answer:
4. Prepare any journal entries required to record the September 29 sale on account,
assuming a weighted average cost flow assumption is used.
5. Assume that Hollard currently used a weighted average system to determine the cost of
the inventory. If prices are rising, how would you expect the following ratios to change
(i.e. increase or decrease) if Hollard were to use FIFO instead of weighted average.

i. Current ratio
ii. Inventory turnover

Part B

On March 1, 2010, Strummond Co. had beginning inventory of $6,500. They purchased a further
$89,000 in inventory on credit on March 12, 2010. Inventory was sold for $147,000 on credit on
March 23, 2010. A count on March 31, 2010 revealed that there was $5,400 left in inventory.
Prepare all of the journal entries with respect to inventory using the periodic inventory system
for the month of March, 2010.

Debit Credit
March 12 Fill in the Blank 14 Fill in the Blank 15
Fill in the Blank 16 Fill in the Blank 17

March 23 Fill in the Blank 18 Fill in the Blank 19


Fill in the Blank 20 Fill in the Blank 21

March 31 Fill in the Blank 22 Fill in the Blank 23


Fill in the Blank 24 Fill in the Blank 25
Fill in the Blank 26 Fill in the Blank 27
Problem 3: Capital Assets

The following is a partial adjusted trial balance for Leo Company (Leo) at December 31, 2009:

Debit Credit
Building $14,800,000
Delivery truck 69,000
Equipment 283,000
Computerized processor 1,000,000
Accumulated Amortization - Building $3,780,000
Accumulated Amortization - Delivery truck 15,000
Accumulated Amortization - Equipment 175,000
Accumulated Amortization – Computerized processors 90,000
The following information was also available for the capital assets:

Asset Useful life Salvage value Amortization method


Building 35 years $100,000 Straight-line
Delivery truck 310,000 km $2,350 Units of production
Equipment 12 years $40,000 Double declining balance
Computerized processors 10 years $100,000 Straight-line

All amortization is recorded at year end and a full year amortization is taken in the year of
acquisition. (For this question ONLY) Leo has a December 31 year end.

Required:

Calculate the net book value of the building at December 31, 2009.
Answer:

In what year was the building purchased?


Answer:
Calculate the amortization expense on the building for the year ended December 31, 2010.
Answer:

Calculate the amortization expense on the delivery truck for the year ended December 31, 2010,
assuming the truck was driven 35,000km's.
Answer:

Prepare the journal entry required to record the amortization expense on the building for the year
ended December 31, 2010.

Date Debit Credit


Dec 31/10

On July 1, 2010, all the equipment was sold for $95,000 cash. Calculate the total gain or loss on
the sale of the old equipment. For this assignment, only, a negative number denotes a loss and a
positive number denotes a gain.
Answer:

Assume that equipment with an original cost of $85,000, salvage value of $6,000, estimated and
useful life of 12 years was sold for $15,500 on December 31 when its net book value was
$17,000. Prepare the journal entry to record the sale.

Date Debit Credit


Dec 31/10 Fill in the Blank 12 Fill in the Blank 13
Fill in the Blank 14 Fill in the Blank 15
Fill in the Blank 16 Fill in the Blank 17
Fill in the Blank 18 Fill in the Blank 19 Fill in the Blank 20
Fill in the Blank 21 Fill in the Blank 22
Fill in the Blank 23 Fill in the Blank 24

Due to lower than expected activity in 2009, Leo estimated in 2010 that the useful life of the
computerized processors would now be a total of 13 years instead of the original estimate of 10
years. In addition, they estimated that the salvage value will now be $400 at the end of its useful
life.
Prepare the journal entry to record amortization expense for the year ended December 31, 2010.

Date Debit Credit


Dec 31/10 Fill in the Blank 25 Fill in the Blank 26
Fill in the Blank 27 Fill in the Blank 28