Grand ACC371 week 4 assignment
P22-6 (Accounting Change and Error Analysis)On December 31, 2014, before the books were closed, the management and accountants of Madrasa Inc. made the following determinations about three pieces of equipment.
1.Equipment A was purchased January 2, 2011. It originally cost $540,000 and, for depreciation purposes, the straight-line method was originally chosen. The asset was originally expected to beuseful for 10 years and have a zero salvage value. In 2014, the decision was made to change thedepreciation method from straight-line to sum-of the-years’-digits, and the estimates relating touseful life and salvage value remained unchanged.
2.Equipment B was purchased January 3, 2010. It originally cost $180,000 and, for depreciation purposes, the straight-line method was chosen. The asset was originally expected to be useful for 15 years and have a zero residual value. In 2014, the decision was made to shorten the total life of this asset to 9 years and to estimate the residual value at $3,000.
3.Equipment C was purchased January 5, 2010. The asset’s original cost was $160,000, and this amount was entirely expensed in 2010. This particular asset has a 10-year useful life and no residual value. The straight-line method was chosen for depreciation purposes.
Additional data:
1.Income in 2014 before depreciation expense amounted to $400,000.
2.Depreciation expense on assets other than A, B, and C totaled $55,000 in 2014.
3.Income in 2013 was reported at $370,000.
4.Ignore all income tax effects.
5.100,000 shares of common stock were outstanding in 2013 and 2014.
Instructions
(a)Prepare all necessary entries in 2014 to record these determinations.
(b)Prepare comparative retained earnings statements for Madrasa Inc. for 2013 and 2014. The company had retained earnings of $200,000 at December 31, 2012.
P24-1 (Subsequent Events)Your firm has been engaged to examine the financial statements of AlmadenCorporation for the year 2014. The bookkeeper who maintains the financial records has prepared all the unaudited financial statements for the corporation since its organization on January 2, 2009. The client provides you with the following information.
ALMADEN CORPORATION
BALANCESHEET
DECEMBER31, 2014
Assets
Current assets $1,881,100 Current liabilities
Other assets 5,171,400
Capital 4,650,600
$7,052,500
An analysis of current assets discloses the following.
Cash (restricted in the amount of $300,000 for plant expansion)
Investments in land
Accounts receivable less allowance of $30,000
Inventories (LIFO fl ow assumption)
$1,881,100
Other assets include:
Prepaid expenses
Plant and equipment less accumulated depreciation of $1,430,000
Cash surrender value of life insurance policy
Unamortized bond discount
Notes receivable (short-term)
Goodwill
Land
$5,171,400
Current liabilities include:
Accounts payable
Notes payable (due 2017)
Estimated income taxes payable
Premium on common stock
$ 962,400
Long-term liabilities include:
Unearned revenue
Dividends payable (cash)
8% bonds payable (due May 1, 2019)
$1,439,500
Capital includes:
Retained earnings
Common stock, par value $10; authorized 200,000 shares, 184,000 shares issued 1,840,000
$4,650,600
The supplementary information below is also provided.
1.On May 1, 2014, the corporation issued at 95.4, $750,000 of bonds to finance plant expansion. The long-term bond agreement provided for the annual payment of interest every May 1. The existing plant was pledged as security for the loan. Use the straight-line method for discount amortization.
2.The bookkeeper made the following mistakes.
(a)In 2012, the ending inventory was overstated by $183,000. The ending inventories for 2013 and 2014 were correctly computed.
(b)In 2014, accrued wages in the amount of $225,000 were omitted from the balance sheet, and these expenses were not charged on the income statement.
(c)In 2014, a gain of $175,000 (net of tax) on the sale of certain plant assets was credited directly to retained earnings.
3.A major competitor has introduced a line of products that will compete directly with Almaden’sprimary line, now being produced in a specially designed new plant. Because of manufacturing innovations, the competitor’s line will be of comparable quality but priced 50% below Almaden’s line. The competitor announced its new line on January 14, 2015. Almaden indicates that the company will meet the lower prices that are high enough to cover variable manufacturing and selling expenses, but permit recovery of only a portion of fixed costs.
4.You learned on January 28, 2015, prior to completion of the audit, of heavy damage because of a recent fire to one of Almaden’s two plants; the loss will not be reimbursed by insurance. The newspapers described the event in detail.
Instructions
Analyze the above information to prepare a corrected balance sheet for Almaden in accordance with proper accounting and reporting principles. Prepare a description of any notes that might need to be prepared.
The books are closed and adjustments to income are to be made through retained earnings.
P24-2(Segmented Reporting)Cineplex Corporation is a diversified company that operates in five different industries: A, B, C, D, and E. The following information relating to each segment is available for 2015.
The following information relating to each segment is available for 2015.
A B C D E
Sales revenue $40,000$ 75,000$580,000$35,000$55,000
Cost of goods sold 19,000 50,000 270,000 19,000 30,000
Operating expenses 10,00040,000235,00012,00018,
Total expenses 29,00090,000505,00031,00048,
Operating profi t (loss) $11,000$(15,000)$ 75,000$ 4,000$ 7,000
Identifi able assets $35,000$ 80,000$500,000$65,000$50,000
Sales of segments B and C included intersegment sales of $20,000 and $100,000, respectively.
Instructions
(a)Determine which of the segments are reportable based on the:
(1)Revenue test.
(2)Operating profit (loss) test.
(3)Identifiable assets test.
(b)Prepare the necessary disclosures required by GAAP.
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Rating:
/5
Solution: Grand ACC371 week 4 assignment