The following selected account balances were taken from the general ledger of Vance Corporation as of December 31, 20X7. Examine this information and prepare the property, plant, and equipment section of the company's balance sheet. All accounts listed carry a normal balance. Land $ 500,000 Buildings 1,650,000 Equipment 2,860,000 Accumulated depreciation: Buildings 472,000 Accumulated depreciation: Equipment 1,333,400 Depreciation expense: Buildings 125,000 Depreciation expense: Equipment 278,111 Evaluate the following costs and decide if each is a "capital expenditure" or not. Then, if a capital expenditure, decide which account the cost should be recorded in: Land, Land Improvement, Building, or Equipment. The first item is done as an example. Balance sheet presentation of property, plant, and equipment B-10.01 Identification of capital expenditures B-10.03 Mike Highlight Mike Highlight Capital Category Yes No Land Land Improvement Building Equipment Delivery cost of new furniture   Wages paid to guard at office building Fees for title insurance on land purchase Cost of periodic repainting of parking lot Cost of building new sidewalks Interest costs on loan to buy equipment Computer training class on general commercial software package Interest cost on loan during construction period for new building Architects fees for new building Installation and setup costs on new machinery Repair of damage to device broken during initial installation Safety violation fines at construction site Tap fees for connecting new building to city water system On January 1, 20X3, Perkins Printing Corporation purchased a digital press for $1,450,000. It cost an additional $50,000 to deliver, install, and calibrate the press. This machine has a service life of 5 years, at which time it is expected that the device will be disposed of for a $100,000 salvage value. Perkins uses the straight-line depreciation method. (a) Prepare a schedule showing annual depreciation expense, accumulated depreciation, and related calculations for each year. (b) Show how the asset and related accumulated depreciation would appear on a balance sheet at December 31, 20X5. B-10.06 Straight-line depreciation Mike Highlight Robinson Corporation recently requested a contractor to prepare a proposal to refurbish the exterior of its office building. Robinson wanted to give its building a "face lift." The contractor provided the following bid document: ROBINSON CORPORATION BID Add extension to front porch approach $20,000 Install shrubs and trees 2,500 Replace rotting exterior siding material 7,500 Replace burned out exterior light bulbs 500 Total for all work: $30,500 Assume that Robinson Corporation agreed to the bid, and authorized the work. What journal entry would be appropriate for each of the above expenditures? Ng's Shrimp Company owns a fishing vessel that originally cost $250 ...

1. The following selected account balances were taken from the
general ledger of Vance Corporation as of
December 31, 20X7. Examine this information and prepare the
property, plant, and equipment section of
the company's balance sheet. All accounts listed carry a normal
balance.
Land $ 500,000
Buildings 1,650,000
Equipment 2,860,000
Accumulated depreciation: Buildings 472,000
Accumulated depreciation: Equipment 1,333,400
Depreciation expense: Buildings 125,000
Depreciation expense: Equipment 278,111
Evaluate the following costs and decide if each is a "capital
expenditure" or not. Then, if a capital expenditure,
decide which account the cost should be recorded in: Land,
Land Improvement, Building, or Equipment. The
first item is done as an example.
Balance sheet presentation of property, plant, and equipment B-

2. 10.01
Identification of capital expenditures B-10.03
Mike
Highlight
Mike
Highlight
Capital Category
Yes No Land
Land
Improvement
Building Equipment
Delivery cost
of new
Wages paid
to guard at
office building
Fees for title
insurance on land
purchase
Cost of periodic

3. repainting of
parking lot
Cost of
building new
sidewalks
Interest costs
on loan to buy
equipment
Computer training class
on general commercial
software package
Interest cost on loan
during construction period
for new building
Architects
fees for
new building
Installation and
setup costs on
new machinery
Repair of damage
to device broken

4. during initial installation
Safety violation
fines at
construction site
Tap fees for connecting
new building to
city water system
On January 1, 20X3, Perkins Printing Corporation purchased a
digital press for $1,450,000. It cost an additional
$50,000 to deliver, install, and calibrate the press. This machine
has a service life of 5 years, at which time it
is expected that the device will be disposed of for a $100,000
salvage value.
Perkins uses the straight-line depreciation method.
(a) Prepare a schedule showing annual depreciation expense,
accumulated depreciation, and related
calculations for each year.
(b) Show how the asset and related accumulated depreciation
would appear on a balance sheet at
December 31, 20X5.
B-10.06 Straight-line depreciation

5. Mike
Highlight
Robinson Corporation recently requested a contractor to prepare
a proposal to refurbish the exterior of its
office building. Robinson wanted to give its building a "face
lift." The contractor provided the following bid
document:
ROBINSON CORPORATION BID
Add extension to front porch approach $20,000
Install shrubs and trees 2,500
Replace rotting exterior siding material 7,500
Replace burned out exterior light bulbs 500
Total for all work: $30,500
Assume that Robinson Corporation agreed to the bid, and
authorized the work. What journal entry would
be appropriate for each of the above expenditures?
Ng's Shrimp Company owns a fishing vessel that originally cost
$250,000, with a 20-year life, and no antici-
pated salvage value. Ng uses the straight-line depreciation
method. Review the following three independent
cases, and prepare the journal entry to reflect the disposition of
the boat in each case.
Case 1 After 8 years of ownership, the boat was taken by a
storm.

6. Case 2 After 12 years of ownership, the boat was sold for
$175,000.
Case 3 After 15 years of ownership, the boat was sold for
$60,000.
Journal entries for costs subsequent to acquisition B-11.02
Disposition of depreciable asset B-11.03
Mike
Highlight
Mike
Highlight
On October 1, 20X4, Farmer Engineering Services purchased a
new laser surveying instrument. Farmer paid
$5,000 down and executed the following promissory note:
Promissory note
For value received, the undersigned promises to pay to the order
of Laser Equipment Company
the sum of: *****Twenty-Thousand and no/100 Dollars*****
($20,000.00)
Along with annual interest of 10% on the unpaid balance. This
note shall mature and be payable,
along with accrued interest, on September 30, 20X5.

7. October 1, 20X4 J.D. Farmer Farmer Engineering
Issue Date Maker signature
(a) Prepare the appropriate journal entry to record the purchase
on October 1, 20X4.
(b) Prepare the appropriate journal entry to record the year-end
interest accrual on December 31, 20X4.
Mike
Sticky Note
B-12.03
Mike
Sticky Note
Accounting for notes payable
The auditing firm of Rossellini and Rossellini was auditing the
year-end financial statements of its client, City
Center Foods. In the course of the audit, it was discovered that
City Center was the defendant in a law suit
involving a "food poisoning" case. City Center denies that it
sold any tainted food products. City Center's
attorney provided a representation letter regarding the ongoing
litigation. Following is a portion of the reply

8. received from the attorney:
Dear Ms. Rossellini:
You requested that we furnish you with certain information in
connection with your
examination of the accounts of City Center Foods, as of
December 31, 20X7 . . .
While this firm represents City Center Foods, our engagement
has been limited to specific
matters involving the ongoing litigation between City Center
Foods and Randal Ransom.
This response is necessarily limited to those matters. The
Company has advised us it does
not intend to waive the attorney-client privilege with respect to
any information which
the Company has furnished to us. Moreover, please be advised
that our response to you
should not be construed in any way to constitute a waiver of the
protection of the attorney
work-product privilege with respect to any of our files
involving the Company.
In the matter of Randal Ransom v. City Center Foods: On June
30, 20X7, Randal Ransom
filed a civil action in Federal District Court for the Eastern
District of Texas alleging that he
was significantly damaged by consumption of food products
sold by City Center Foods.
He further alleges that City Center Foods knowingly sold such
food products and failed to
maintain appropriate refrigeration equipment. Mr. Ransom is
requesting specific damages
of $1,000,000 and such additional amounts as may be awarded
by a jury.

9. This litigation is in its earliest stages, and discovery is not yet
complete. At this stage of
litigation, it is impracticable to render an opinion about whether
the likelihood of an
unfavorable outcome is either “probable” or “remote;” however,
the Company believes it
has meritorious defenses and is vigorously defending this
litigation . . .
Robert Bean, Attorney
(a) What is a contingent liability?
(b) What criteria drive the determination of when/how a
contingency should be reported?
(c) How do you believe the litigation described in the attorney's
letter should be reported?
Criteria relating to contingent liabilities B-12.06
Mike
Highlight
SFCC Corporation has 8 employees. Information about the
October payroll follows:

10. Name
Hours
Worked Pay Rate
Federal Income
Tax Withheld
Breschi, K 95 $12 per hour $200
Carballo, P n/a $3,000 per month $850
Dangelo, J 180 $14 per hour $625
Gaines, T n/a $4,500 per month $1,100
Goseco, M n/a $10,100 per month $3,575
Skolnick, J 180 $12 per hour $480
Williams, R 172 $9 per hour $140
Wong, O 195 $16 per hour $800
Additional information is as follows:
SFCC is in a state without an income tax. Employees' federal
income tax withholdings depend on various
factors, and the amounts are as indicated in the above table.
No employees worked overtime, with the exception of Oscar
Wong, who worked 15 hours of overtime.
Overtime is paid at 150% of the normal hourly rate.
Payroll records and entries I-12.04

11. x
Mike
Highlight
Assume that gross pay is subject to social security taxes at a
6.5% rate, on an annual base of $100,000. Assume
that Medicare/Medicaid taxes are 1.5% of gross earnings. These
taxes are matched by the employer. Only
Marcia Goseco had earned more than $90,000 during the months
leading up to October. She had earned
$90,900 during that time period.
SFCC has 100% participation in a $10 per month employee
charitable contribution program. These
contributions are withheld from monthly pay.
SFCC pays for workers' compensation insurance at a 2% of
gross pay rate. None of this cost is paid by the
employee.
SFCC provides employees with a group health care plan;
however, the cost is fully paid by employees. The
rate is $250 per month, per employee.
SFCC's payroll is subject to federal (0.5%) and state (1.5%)
unemployment taxes on each employee's gross
pay, up to $8,000 per year. All employees had earned in excess
of $8,000 in the months leading up to October,

12. with the exception of Karen Breschi. Karen was first employed
during the month of October.
SFCC contributes 5% of gross pay to an employee retirement
program. Employees do not contribute to this
plan.
(a) Complete the payroll schedule
(b) Prepare journal entries for SFCC's payroll and the related
payroll expenses.
Clear Water Coffee issued $100,000 of 7% bonds on January 1,
20X1. The bonds were issued at par and pay
interest on June 30 and December 31 of each year. By December
31, 20X5, the market rate of interest had
increased, and Clear Water was able to reacquire and retire the
bonds for $97,500, plus accrued interest.
Prepare the journal entry to record the interest payment and
bond retirement on December 31, 20X5.
Jacob Joseph has identified five different companies in which
he is interested in investing, based upon their
products and prospects. However, Jacob is concerned about a
general economic downturn and desires to
invest in companies with the lowest debt exposure. Following is
a list of the data for the five potential invest-
ments. Jacob has compiled the data and has ranked the

13. companies based upon total debt. He has requested
your help in evaluating the risk profiles for each company.
To complete your evaluation, you need to know that each
company faces an income tax rate that is equivalent
B-13.12 Basic bond retirement
B-13.13 Debt analysis
Mike
Highlight
Mike
Highlight
to 30% of income before taxes (which also means that net
income is 70% of income before taxes). In addition,
assume that each company incurs an average interest cost that is
8% of total debt.
Total Assets Total Liabilities Net Income
A $10,000,000 $ 1,000,000 $ 200,000
B 20,000,000 3,000,000 1,000,000
C 6,000,000 4,000,000 250,000
D 15,000,000 6,000,000 1,600,000
E 30,000,000 22,000,000 4,000,000

14. (a) Calculate the debt to total asset ratio, and reorder the list
from least risky to most risky, based upon
that ratio.
(b) Calculate the debt to equity ratio, and reorder the list from
least risky to most risky, based upon
that ratio.
(c) Calculate the times interest earned ratio, and reorder the list
from least risky to most risky, based
upon that ratio.
(d) Do the ratios suggest that risk is a function of total debt, or
other factors? Do all the ratios produce
the same signals?
Mike Davis Company entered into two lease agreements. One
lease was for office space and the other was
for office equipment.
The office space lease is not a capital lease. It is an operating
lease because the risks and rewards of owning
the property remain with the lessor (owner of the property). The
lease agreement is for 5 years and provides
for monthly payments of $2,500. These rent payments are
charged to rent expense as incurred. No liability
is recorded for the lease contract.
The office equipment lease is a capital lease. This lease is also
for 5 years. Payments at the end of each month
are $2,500, and their present value at the inception of the lease
is $112,388. The interest rate implicit in the
lease is 1% per month.
(a) Prepare the journal entry needed to record a payment under
the office space lease.

15. (b) Prepare the initial journal entry to record the office
equipment lease.
(e) How would the financial reporting differ for the office space
versus the office equipment?
Commitments and leases B-13.14
Mike
Highlight
Each of the following scenarios is independent. Utilize the
appropriate future value or present value table, and
calculate the requested amount. Then, if available, utilize the
related function in an electronic spreadsheet
(or financial calculator) to verify your calculation.
(a) How much will a lump sum of $10,000, invested at 7% per
annum, grow to in 20 years?
(b) How much will be in account after 2 years, if $50 is placed
into the account at the beginning of each
month? Assume the account's interest rate is 6%, with monthly
compounding.
(c) How much should be set aside today, so that it will grow to
$30,000 in 15 years? The discount rate
is 9%.
(d) What is the present worth of an income stream that includes
annual end-of-period payments of

16. $100,000 for 20 years? Assume the appropriate discount rate is
8% per year.
Mike
Sticky Note
I-13.01
Mike
Sticky Note
Future value and present value calculations3 - TEXT -
ACCT221 - Walther, Accounting - May 2015 (part 1) 2823 -
TEXT - ACCT221 - Walther, Accounting - May 2015 (part 1)
2833 - TEXT - ACCT221 - Walther, Accounting - May 2015
(part 1) 2853 - TEXT - ACCT221 - Walther, Accounting - May
2015 (part 1) 3003 - TEXT - ACCT221 - Walther, Accounting -
May 2015 (part 1) 3213 - TEXT - ACCT221 - Walther,
Accounting - May 2015 (part 1) 3223 - TEXT - ACCT221 -
Walther, Accounting - May 2015 (part 1) 3263 - TEXT -
ACCT221 - Walther, Accounting - May 2015 (part 1) 3273 -
TEXT - ACCT221 - Walther, Accounting - May 2015 (part 1)
3473 - TEXT - ACCT221 - Walther, Accounting - May 2015
(part 1) 3483 - TEXT - ACCT221 - Walther, Accounting - May
2015 (part 1) 3493 - TEXT - ACCT221 - Walther, Accounting -
May 2015 (part 1) 3513 - TEXT - ACCT221 - Walther,
Accounting - May 2015 (part 1) 3523 - TEXT - ACCT221 -
Walther, Accounting - May 2015 (part 1) 353