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AC 501 Unit 1 Homework Assignment
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E2-7 (Assumptions, Principles, and Constraints): Presented below are
the assumptions, principles, and constraints used in this chapter.
Economic entity assumption 5.Historical-cost principle 9. Materiality
Going-concern assumption 6.Matching principle 10. Industry practices
Monetary unit assumption 7. Full disclosure principle 11.
Conservatism
Periodicity assumption 8. Cost-benefit relationship
Instructions
Identify by number the accounting assumption, principle, or constraint
that describes each situation below. Do not use a number more than
once.
E2-8 (Assumptions, Principles, and Constraints): Presented below are a
number of operational guidelines and practices that have developed over
time.
Instructions
Select the assumption, principle, or constraint that most appropriately
justifies these procedures and practices. (Do not use qualitative
characteristics.)
E3-1 (Transaction Analysis—Service Company)
Beverly Crusher is a licensed CPA. During the first month of operations
of her business (a sole proprietorship), the following events and
transactions occurred.

E3-4 (Corrected Trial Balance): The trial balance of Watteau Co.
(shown on the next page) does not balance.
E3-10 (Adjusting Entries) Greco Resort opened for business on June 1
with eight air-conditioned units. Its trial balance on August 31 is as
follows.
E3-14 (Closing Entries)
Presented below is information related to Gonzales Corporation for the
month of January 2008.
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E4-4
INSTRUCTIONS
Prepare a classified balance sheet in good form (No monetary amounts
are necessary)
E4-9
INSTRUCTIONS
Restate the current assets and liabilities sections of the balance sheet in
accordance with good accounting practice. (Assume that both accounts
receivable and accounts payable are recorded gross.)
Determine the net effect of your adjustments on Allessandro Scarlatti
Company's retained earning balance.
E5-6

INSTRUCTIONS
Prepare a multiple-step income statement
Prepare a single-step income statement
E5-11
INSTRUCTIONS
Compute earnings per share data as it should appear on the income
statement of Tkachuk Corporation.
E6-3
INSTRUCTIONS
Classify each of the transactions above as:
1) Operating activity
2) Operating activity
3) Investing activity
4) Financing activity
5) Not reported as cash flow
E6-9
INSTRUCTIONS
Prepare a statement of cash flows for 2008 for Zubin Mehta Corporation
Determine Zubin Mehta Corporation's free cash flow.
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Exercise 7-5 (Recognition of Profit for Long-Term Contracts) Andre
Agassi Construction Company began operations January 1, 2008.
During the year, Andre Agassi Construction entered into a contract with
Lindsey Davenport Corp. to construct a manufacturing facility. At that
time, Agassi estimated that it would take 5 years to complete the facility
at a total cost of $4,500,000.The total contract price for construction of
the facility is $6,300,000.During the year, Agassi incurred $1,185,800
in construction costs related to the construction project. The estimated
cost to complete the contract is $4,204,200. Lindsey Davenport Corp.
was billed and paid 30% of the contract price.
Exercise 7-8 (Installment-Sales and Cost-Recovery Methods) Kenny
Harrison Corp., a capital goods manufacturing business that started on
January 4, 2008, and operates on a calendar-year basis, uses the
installment-sales method of profit recognition in accounting for all its
sales. The following data were taken from the 2008 and 2009 records.
Exercise 8-9 (Computing Bad Debts and Preparing Journal Entries) The
trial balance before adjustment of Reba McIntyre Inc. shows the
following balances.
Exercise 8-27 (Bank Reconciliation and Adjusting Entries) Angela
Lansbury Company deposits all receipts and makes all payments by
check. The following information is available from the cash records.
Exercise 9-12 (Compute FIFO, LIFO, Average-Cost-Periodic) Presented
below is information related to Blowfish radios for Hootie Company for
the month of July.
Exercise 9-21 (Dollar-Value LIFO) Presented below is information
related to Dino Radja Company.
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E10-12: (Depreciation Computations-SL, SYD, DDB) Montoni
Company purchases equipment on January 1, year 1, at a cost of $
469,000. The asset is expected to have a service life of 12 years and a
salvage value of $ 40,000.
Instructions
Complete the amount of depreciation for each years 1 through 3 using
the straight-line depreciation method.
the sum-of-the-years’-digits method.
the double-declining balance method. (In performing your calculations,
round constant percentage to the nearest one-hundredth of a point and
round answers to the nearest dollar.
E10-27: (Capitalization of Interest) Harrisburg Furniture Company
started construction of a combination office and warehouse building for
its own use at an estimated cost of $ 5,000,000 on January 1, 2008.
Harrisburg expected to complete the building by December 31, 2008.
Harrisburg has the following debt obligations outstanding during the
construction period.
Construction loan-12% interest, payable semiannually, issued

December 31, 2007
$ 2,000,000
Short-term loan-10% interest, payable monthly, and principle
payable
At maturity on May 30, 2009
1,400,000
Long-term loan- 11% interest, payable on January 1 of each
Year. Principle payable on January 1, 2012
1,000,000
E11-4: (Intangible Amortization) Presented below is selected
information for Alatorre Company.
Alatorre purchased a patent from Vania Co. for $ 1,000,000 on January
1, 2006. The patent is being amortized over its remaining legal life of 10
years, expiring on January 1, 2016. During 2008, Alatorre determined
that the economic benefits of the patent would not last longer than 6
years from the date of acquisition. What amount should be reported in
the balance sheet for the patent, net of accumulated amortization, at
December 31, 2008?
Alatorre bought a franchise from Alexander Co on January 1, 2007 for $
400,000. The carrying amount of the franchise on Alexander’s books on
January 1, 2007, was $ 500,000. The franchise agreement had an
estimated useful life of 30 years. Because Alatorre must enter a
competitive bidding at the end of 2016, it is unlikely that the franchise
will be retained beyond 2016. What amount should be amortized for the
year ended December 31, 2008?
On January 1, 2008, Alatorre incurred organization costs of $ 275,000.
What amount of organization expense should be reported in 2008?
Alatorre purchased the license for distribution of a popular consumer
product on January 1, 2008, for $ 150,000. It is expected that this
product will generate cash flow for an indefinite period of time. The
license has an initial term of 5 years but by paying the normal fee,
Alatorre can renew the license indefinitely for successive 5-year terms.
What amount should be amortized for the year ended December 31,
2008?

E11-18: (Goodwill Impairment) Presented below is net asset information
related to the Carlos Division of Santana, Inc.
Carlos Division
Net Assets
As of December 31, 2008
(in millions)
Cash
$ 50
Receivables
200
Property, plant, and equipment (net)
2,600 Goodwill
200 Less: Notes payable
(2,700)
Net assets
$ 350
The purpose of the Carlos division is to develop a nuclear-
powered aircraft. If successful, traveling delayes associated with
refueling could be substantially reduced. Many other benefits would also
occur. To date, management has not had much success and is deciding
whether a writ-down at this time is appropriate. Management estimated
its future net cash flows from the project to be $ 400 million.
Management has also received an offer to purchase the division for $
335 million. All identifiable assets’ and liabilities’ book and fair value
amounts are the same.
Instructions
Prepare the journal entry (if any) to record the impairment at December
31, 2008.
At December 31, 2009, it is estimated that the division’s fair value
increased to $ 345 million. Prepare the journal entry (if any) to record
this increase in fair value.
E14-6: (Entries for Available-for-sale and Trading Securities) The
following information is available Barkley Company at December 31,
2008, regarding its investments.

Securities Cost
Fair Value
3,000 shares of Myers Corporation Common Stock $ 40,000
$ 48,000
1,000 shares of Cole Incorporated Preferred Stock 25,000
22,000
$ 65,000
$ 70,000
Instructions
Prepare the adjusting entry (if any) for 2008, assuming the securities are
classified as trading.
Prepare the adjusting entry (if any) for 2008, assuming the securities are
classified as available-for-sale.
Discuss how the amounts reported in the financial statements are
affected by the entries in (a) and (b).
E14-13: (Equity Method) Parent Co. invested $ 1, 000,000 in Sub Co.
for 25% of its outstanding stock. Sub Co. pays out 40% of net income in
dividends each year.
Investment in Sub Co.
1,000,000
110,000
44,000
Instructions:
How much was Parent Co.’s shares of Sub Co.’s net income for the
year?
How much was Parent Co.’s shares of Sub Co.’s dividends for the year?
What was Sub Co.’s total net income for the year?
What was Sub Co.’s total dividends for the year?
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Exercise 12-7:
Exercise 12-18:
Exercise 13-8:
Exercise 13-22:
Exercise 15-6:
Exercise 15-22:
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E16-1: (Compensated Absences) Zero Mostel Company began
operations on January 2, 2008. It employs 9 individuals who work 8-
hour days and are paid hourly. Each employee earns 10 paid vacation

days and 6 paid sick days annually. Vacation days may be taken after
January 15 of the year following the year in which they are earned. Sick
days may be taken as soon as they are earned; unused sick days
accumulate. Additional information is as follows.
E16-12: (Basic Pension Worksheet) The following defined-benefit
pension data of Doreen Corp. apply to the year 2008.
Projected benefits obligation, January 1, 2008 (before amendment)
$ 560,000
Plan assets, January 1, 2008
546,200
Pension liability
13,800
On January 1, 2008Doreen Corp., through plan amendment, grants prior
service benefits having a present value of
100,000
Settlement rate
9%
Annual pension service cost
58,000
Contributions (funding)
55,000
Actual return on plan assets
52,280
Benefits paid to retirees
40,000
Prior service cost amortization for 2008
17,000
Instructions: For 2008, prepare a pension worksheet for Doreen Corp.
that shows the journal entry for pension expense and the year-end
balance in the related pension accounts.
E17-2: (Lessee Computations and Entries; Capital Lease with
Guaranteed Residual Value) Delaney Company leases an automobile
with fair value of $ 8,725 from John Simon Motors, Inc., on the
following terms.

Noncancelable term of 50, months.
Rental of $ 200 per month (at end of each month; present value at 1%
per month is $ 7,840).
Estimated residual value after 50 months is $ 1,180. (The present value
at 1% per month is $ 715.) Delaney Company guarantees the residual
value of $ 1,180.
Estimated economic life of the automobile is 60 months.
Delaney Company’s incremental borrowing rate is 12% a year (1% a
month). Simon’s implicit rate is unknown.
Instructions:
What is the nature of this lease to Delaney Company?
What is the present value of the minimum lease payments?
Record the lease on Delaney Company’s books at the date of inception.
Record the first month’s depreciation on Delaney Company’s books.
(Assume straight-line.)
Record the first month’s lease payment.
E17-8: (Amortization Schedule and Journal Entries for Lessee) Laura
Leasing Company signs an agreement on January 1, 2008, to lease
equipment to Plote Company. The following information relates to this
agreement.
The term of the Noncancelable lease is 5 years with no renewal option.
The equipment has an estimated economic life of 5 years.
The fair value of the asset at January 1, 2008, is $ 80,000.
The asset will revert to the lessor at the end of the lease term, at which
time the asset is expected to have a residual value of $ 7,000, none of
which is guaranteed.
Plote Company assumes direct responsibility for all executor costs,
which include the following annual amounts: (1) $ 900 to Rocky
Mountain Insurance Company for insurance, and (2) $ 1,600 to Laclede
County for property taxes.
The agreement requires equal annual rental payments of $ 18,142.95 to
the lessor, beginning on January 1, 2008.
The lessee’s incremental borrowing rate is 12%. The lessor’s implicit
rate is 10% and is known to the lessee.

Plote Company uses the straight-line depreciation method for all
equipment.
Plote uses reversing entries when appropriate.
Instructions: (Round all numbers to the nearest cent.)
Prepare an amortization schedule that would be suitable for the lessee
for the lease term.
Prepare all of the journal entries for the lessee for 2008 and 2009 to
record the lease agreement, the lease payments, and all expenses related
this lease. Assume the lessee’s annual accounting period ends on
December 31.
E18-11: (Change in Estimate - Depreciation) Peter M. Dell Co.
purchased equipment for $ 510,000 which was estimated to have a
useful life of 10 years with a salvage value of $ 10,000 at the end of that
time. Depreciation has been entered for 7 years on a straight-line basis.
In 2008, it is determined that the total estimated life should be 15 years
with a salvage value of $ 5,000 at the end of that time.
Instructions:
Prepare the entry (if any) to correct the prior years’ depreciation.
Prepare the entry to record depreciation for 2008.
E18-23: (EPS with Convertible Bonds and Preferred Stock) On January
1, 2008, Crocker Company issued 10-year, $ 2,000,000 face value, 6%
bonds, at par. Each $ 1,000 bond is convertible into 15 shares of Crocker
common stock. Crocker’s net income in 2008 was $ 300,000, and its tax
rate was 40%. The company had 100,000 shares of common stock
outstanding throughout 2008. None of the bonds were converted in
2008.
Instructions:
Compute diluted earnings per share for 2008.
Compute diluted earnings per share for 2008, assuming the same facts as
above, except that $ 1,000,000 of 6% convertible preferred stock was
issued instead of the bonds. Each $ 100 preferred shares are convertible
into 5 shares of Crocker’s common stock.

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