1. Match the qualitative characteristics and Asset below with the following statements.

1. Relevance 5. Comparability 9. Asset 13. Expense

2. Faithful representation 6. Completeness 10. Liability
3. Predictive value 7. Neutrality 11. Revenue
4. Confirmatory value 8. Timeliness 12. Equity
(a). Quality of information that permits users to identify similarities in and differences between
two sets of economic phenomena.___________________.
(b).Having information available to users before it loses its capacity to influence
decisions__________________.
(c). Information about an economic phenomenon that has value as an input to the processes
used by capital providers to form their own expectations about the future________________________.
(d). Increases assets during a period through sale of product___________________________________.
(e). Obligation to transfer resources arising from a past transaction__________________________.
(f). Information that is capable of making a difference in the decisions of users in their capacity
as capital providers__________________________.
(g). Absence of bias intended to attain a predetermined result or to induce a particular
behavior_______________.
(h). Residual interest in the assets of the enterprise after deducting its liabilities__________________.
(i) Qualitative characteristic being displayed when companies in the same industry are using the same
accounting principles.
(j) Quality of information that confirms users’ earlier expectations.
(k) Imperative for providing comparisons of a company from period to period.
(l) Ignores the economic consequences of a standard or rule.
(m) Requires a high degree of consensus among individuals on a given measurement.
(n) Predictive value is an ingredient of this fundamental quality of information.
(o) Four qualitative characteristics that enhance both relevance and faithful representation.
(p) An item is not reported because its effect on income would not change a decision.
(q) Obligation to transfer resources arising from a past transaction.
(r) Increases ownership interest by issuance of shares.
(s) Declares and pays cash dividends to owners.
(t) Increases in net assets in a period from non-owner sources.
(u) Items characterized by service potential or future economic benefit.
(v) Equals increase in assets less liabilities during the year, after adding distributions to owners and
subtracting investments by owners. (g) Residual interest in the assets of the enterprise after deducting its
liabilities.
(w) Increases assets during a period through sale of product.
(x) Decreases assets during the period by purchasing the company’s own shares
2. IMPAIRMENTS
Example 1
M. Alou Inc. has equipment that, due to changes in its use, it reviews for possible impairment. The
equipment’s carrying amount is $600,000 ($800,000 cost less $200,000 accumulated depreciation).
Alou determines the expected future net cash flows (undiscounted) from the use of the equipment
and its eventual disposal to be $650,000.
Example 2
Assume the same facts as in Example 1, except that the expected future net cash flows from Alou’s
equipment are $580,000 (instead of $650,000). The recoverability test indicates that the expected future
net cash flows of $580,000 from the use of the asset are less than its carrying amount of $600,000.
 Therefore, impairment has occurred. The difference between the carrying amount of Alou’s asset and its
fair value is the impairment loss. Assuming this asset has a fair value of $525,000.
3. The bank statement for Urethane Company for June 30, 2007, indicates a balance of $9,143.11. All cash
receipts are deposited each evening in a night depository, after banking hours. The accounting records
indicate the following summary data for cash receipts and payments for June:
Cash balance as of June 1 $ 3,943.50
Total cash receipts for June 28,971.60
Total amount of checks issued in June 28,388.85
Comparing the bank statement and the accompanying canceled checks and memoranda with the records
reveal the following reconciling items:
a. The bank had collected for Urethane Company $1,030 on a note left for collection. The face amount
of the note was $1,000.
b. A deposit of $1,852.21, representing receipts of June 30, had been made too late to appear on the
bank statement.
c. Checks outstanding totaled $5,265.27.
d. A check drawn for $139 had been incorrectly charged by the bank as $157.
e. A check for $30 returned with the statement had been recorded in the company’s records as $240.
The check was for the payment of an obligation to Avery Equipment Company for the purchase of
office supplies on account.
f. Bank service charges for June amounted to $18.20.
Instructions
1. Prepare a bank reconciliation for June.
2. Journalize the entries that should be made by Urethane Company.
4. The following selected transactions were taken from the records of Shaw Company for the first year of its
operations ending December 31, 2008:
Jan. 31. Wrote off account of B. Roberts, $2,400.
Mar. 26. Received $1,500 as partial payment on the $3,500 account of Carol Castellino. Wrote off the
remaining balance as uncollectible.
July 7. Received $2,400 from B. Roberts, which had been written off on January 31. Reinstated the
account and recorded the cash receipt.
Oct. 12. Wrote off the following accounts as uncollectible (record as one journal entry):
Julie Lindley $1,350
Mark Black 950
Jennifer Kerlin 525
Beth Chalhoub 1,125
Allison Fain 725
Dec. 31. Shaw Company uses the percent of credit sales method of estimating uncollectible accounts
expense. Based upon past history and industry averages, 2% of credit sales are expected to be
uncollectible. Shaw recorded $750,000 of credit sales during 2008.
a. Journalize the transactions for 2008 under the direct write-off method.
b. Journalize the transactions for 2008 under the allowance method.
5. Holsten Interior Decorators issued a 90-day, 9% note for $30,000, dated May 20, to Maderia Furniture
Company on account.
a. Determine the due date of the note.
b. Determine the maturity value of the note.
c. Journalize the entries to record the following: (1) receipt of the note by Maderia Furniture
And (2) receipt of payment of the note at maturity.
6. On the basis of the following data, determine the value of the inventory at the lower of cost or market
(NRV). Apply lower of cost or market to each inventory item as shown in Exhibit 7.
 Commodity Inventory quantity Unit cost price Unit market price
TRP4 96 $29 $18
V555 200 13 14
7. Cetus Corp. has a beginning inventory of €60,000 and purchases of €200,000, both at cost. Sales
at selling price amount to €280,000. The gross profit on selling price is 30 percent.
8. Calculate the ending inventory by using Retail inventory system:

9. Computation of interest cost of capitalized as a part of the cost of an asset

Ab Company constructed machine equipment in the year 2014. The construction activity started
on March 1, and the machine was ready for use on December 1 (the acquisition period is 9
months). On March 1, 2014, Ab Company borrowed $400,000 at 15% for five years to pay for
the parts and material acquired on that date, and financed additional costs of $360,000 from its
general borrowing of approximately $4,000,000, which carried an average interest rate of 12%.
The additional costs of $360,000 were incurred at rate of $40,000 a month from March 1 through
December 1. (Thus, the average amount of the accumulated additional costs was $180,000
($360,000/2 = $180,000) during the acquisition period.)
Required:
A. Determine the total interest cost included in the cost of the machine equipment.
B. Determine the total cost of the machine for financial accounting.
10. Deferred-Payment Contracts
S Company purchases Equipment on January 1, 2013. The company issues a $100,000, five-year,
zero-interest-bearing note to the seller for the new equipment. The prevailing market rate of
interest for obligations of this nature is 10 percent. S Company is to pay off the note in five
$20,000 installments, made at the end of each year. The company cannot readily determine the
fair value of this Equipment. The company’s fiscal year ends December 31, of each year.
Required:
Record all the necessary journal entries including yearend adjustments and installments for the
year 2013 and 2014.
11. Lump-Sum Purchases
NYZ Company decides to purchase several assets of a small heating concern, Comfort
Heating, for $80,000. NYZ is in the process of liquidation. Its assets sold are:
Book Value Fair Value
Inventory ……………$30,000 $ 25,000
Land…………………...20,000 25,000
Building……………….35,000 50,000
 $85,000 $100,000

12. Issuance of Stock

Example 1:
Upgrade Living Co. decides to purchase some adjacent land for expansion of its carpeting and
cabinet operation. In lieu of paying cash for the land, the company issues to Deedland Company
5,000 shares of common stock (par value $10) that have a fair value of $12 per share. Upgrade
Living Co. records the following entry.
Example 2:
Equipment that was appraised $350, 000 is acquired in exchange for 3,000 shares of $100 par
common stock; the exchange is recorded as follows
13. Plant Assets Acquired by Gift:
When companies acquire assets as donations or gift, the donated asset is recorded based on the fair
value of the asset to establish its value on their books. To illustrate this point, A Regional state
offer to Dani PLC a land with current fair value of $100,000 as an incentive to invest, in return
Dani Plc is going to create a job opportunity for many individuals.
14. Improvements/Betterments/, Renewals and Replacements
Use the substitution approach.
Example: Instinct Enterprises decides to replace the pipes in its plumbing system. A plumber
suggests that the company use plastic tubing in place of the cast iron pipes and copper tubing. The
old pipe and tubing have a book value of $15,000 (cost of $150,000 less accumulated depreciation of
$135,000), and a scrap value of $1,000. The plastic tubing costs $125,000. If Instinct pays $124,000
for the new tubing after exchanging the old tubing, it makes the following entry:
15. Fixed-Percentage-of-Declining Balance Method
A plant asset that cost $10,000, has a net residual value 0f $1,296, has an economic life of four
years. Compute depreciation expense for each four years using Fixed-percentage-of-Declining
–balance Method.
16. ALL DEPRECIATION METHODS
Maserati Corporation purchased a new machine for its assembly process on August 1, 2012.
The cost of this machine was $150,000. The company estimated that the machine would have a
salvage value of $24,000 at the end of its service life. Its life is estimated at 5 years and its
working hours are estimated at 21,000 hours. Year-end is December 31.
Instructions
Compute the depreciation expense under the following methods. Each of the following should be
considered unrelated.
(a) Straight-line depreciation for 2012.
(b) Activity method for 2012, assuming that machine usage was 800 hours.
(c) Sum-of-the-years’-digits for 2013.
(d) Double-declining-balance for 2013
17. Group and Composite Methods
Dickinson Inc. owns the following assets.
Asset Cost Salvage Estimated Useful Life
A $70,000 $7,000 10 years
B 50,000 5,000 5 years
C 82,000 4,000 12 years
 Compute the composite depreciation rate and the composite life of Dickinson’s assets.

18. RETIREMENTS, DISPOSALS AND EXCHANGES OF PLANT AS

Example1
ABC Company has a copy machine which had a cost of $40,000 on January 1, 2004. The machine has
an economic life of 5 years. The company uses straight line deprecation and the equipment does not
have any residual value. On December 31, 2008, the asset was disposed because it was no more
economical to keep the machine.
Instruction: Prepare all the necessary journal entries as of December 31, 2008.
Example 2
ABC Company has a copy machine which had a cost of $40,000 on January 1, 2004. The machine has
an economic life of 5 years. The company uses straight line deprecation and the equipment does not
have any residual value. On September 30, 2008, the asset was discarded.
Instruction: Prepare all the necessary journal entries as of September 30, 2008.
Example 3: Exchanges Loss Situations
Information Processing, Inc. exchanges its used machine for a new model at Jerrod Business Solutions
Inc. The exchange has commercial substance. The used machine has a book value of $6,000 (original
cost $20,000 less $14,000 accumulated depreciation) and a fair value of $4,000.
Required: Prepare the necessary journal entries.
Example 4
Information Processing, Inc. trades its used machine for a new model at Jerrod Business Solutions
Inc. The used machine has a book value of $6,000 (original cost $20,000 less $14,000 accumulated
depreciation) and a fair value of $3,500. Information Processing also paid cash of $200.
Required: Prepare the necessary journal entries.
Example 5
Information Processing, Inc. trades its used machine for a new model at Jerrod Business Solutions
Inc. The exchange has commercial substance. The used machine has a book value of $8,000 (original
cost $12,000 less $4,000 accumulated depreciation) and a fair value of $6,000. The new model lists
for $16,000. Jerrod gives Information Processing a trade-in allowance of $9,000 for the used
machine.
Required: Prepare the necessary journal entries.
Example 6
Information Processing, Inc. trades its used machine for a new model at Jerrod Business Solutions
Inc. The used machine has a book value of $6,000 (original cost $20,000 less $14,000 accumulated
depreciation) and a fair value of $5,000. Information Processing also received cash of $200.
Required: Prepare the necessary journal entries.
Example 7: Exchanges Gain situations with commercial substance
Interstate Transportation Company exchanged a number of used trucks plus cash for a semi-truck.
Assume the exchange has commercial substance. The used trucks have a combined book value of
$42,000 (cost $64,000 less$22,000 accumulated depreciation). Interstate’s purchasing agent,
experienced in the secondhand market, indicates that the used trucks have a fair value of $49,000. In
addition to the trucks, Interstate must pay $11,000 cash for the semi-truck.
Required: Prepare the necessary journal entries.
Example 8: Exchanges Gain situations. Lacks commercial substance-No cash received
We now assume that the Interstate Transportation Company exchange lacks commercial substance.
That is, the economic position of Interstate did not change significantly as a result of this exchange.
The economic Interstate Transportation Company exchanged a number of used trucks plus cash for a
 semi-truck. The used trucks have a combined book value of $42,000 (cost $64,000 less$22,000
accumulated depreciation). Interstate’s purchasing agent, experienced in the secondhand market,
indicates that the used trucks have a fair value of $49,000. In addition to the trucks, Interstate must pay
$11,000 cash for the semi-truck.
Example 9: Exchanges Gain situations. Lacks commercial substance-Some cash received
Assume that Queen Corporation traded in used machinery with a book value of $60,000 (cost
$110,000 less accumulated depreciation $50,000) and a fair value of $100,000. It receives in
exchange a machine with a fair value of $90,000 plus cash of $10,000. The transaction lacks
commercial exchange.
19. DEPLETION
Example 1: Assume that early in year 7, Low Company acquired mining property for Br. 720, 000. It is
estimated that there are 1.2 million recoverable units of the natural resource, and that the land will have a
net residual value (after restoration costs) of Br. 60, 000 when the resource is exhausted. The depletion
per unit of output is computed as follows:
Example 2 Every Corporation acquires a coal mine at a cost of $400,000. Intangible development costs
total $100,000. After extraction has occurred, Every must restore the property (estimated fair value of
the obligation is $80,000), after which it can be sold for $160,000. Every estimate that 4,000 tons of
coal can be extracted. If 700 tons are extracted the first year, prepare the journal entry to record
depletion.
20. Intangible Assets
Example 1: Patent
Assume that Harcott Co. incurs $180,000 in legal costs on January 1, 2012, to successfully
Defend a patent. The patent’s useful (Economic) life is 15 years, amortized on a straight-line basis.
Harcott records the legal fees and the amortization at the end of 2012 as follows.
Example 2: Goodwill
TRACTORLING CO.
BALANCE SHEET
AS OF DECEMBER 31, 2012
Assets liabilities and Equities
Cash $ 25,000 Current liabilities $ 55,000
Accounts receivable 35,000 Capital stock 100,000
Inventory 42,000 Retained earnings 100,000
Property, plant, and equipment, net 153,000
Total assets $255,000 Total liabilities and equities $255,000
After considerable negotiation, Tractorling Company decides to accept Multi-
Diversified’s offer of $400,000. What, then, is the value of the goodwill, if any?

Fair Values
Cash $ 25,000
Accounts receivable 35,000
Inventory 122,000
Property, plant, and equipment, net 205,000
Patents 18,000
Liabilities (55,000)

Fair value of net assets $350,000

21. On September 1, Klondike Co. issued a 90-day note with a face amount of $120,000 to Arctic
Apparel Co. for merchandise inventory.
 a. Determine the proceeds of the note, assuming the note carries an interest rate of 8%.
b. Determine the proceeds of the note, assuming the note is discounted at 8%.
22. THE REVALUATION MODEL

Example 1: On June 30, 2013, an item of PPE has a carrying amount of Br 42,000, being the
original cost of Br 70,000 less accumulated depreciation of Br 28,000. The fair value of PPE is
Br 50,000. The tax rate is 30%.

Accumulated depreciation………….28, 000

PPE………………………………………..28,000
(Write down PPE to its carrying amount)

PPE……………………………………………8, 0000
Gain on revaluation of PPE (OCI)………………………8,000
(Revaluation of PPE to fair value)

Income tax expense (OCI)… (8,000*0.3)………2,400

Differed tax liability……………………………..2,400
(Tax effect of revaluation increase)

Gain on revaluation of PPE (OCI)………………………8,000

Income tax expense (OCI)………………………………………2,400
Asset revaluation surplus………………………………………..5,600
(Accumulation of net revaluation gain in equity)
Example 2: Assume an item of PPE as a carrying amount of Br 50,000, being original cost of Br
60,000 less accumulated depreciation of Br 10,000. If the asset is revalued downwards to Br
24,000.

Accumulated depreciation………….10, 000

PPE………………………………………..10,000
(Write down PPE to its carrying amount)

Loss-Downward revaluation of PPE (Profit or Loss)…….26, 000

PPE……………………………………………………………..26,000
(Revaluation of PPE from carrying amount of Br 50,000 to fair value of Br 24,000)