Exercise 1:

The perpetual inventory records of Sawyer Co. show 400 units of a particular
product on hand, acquired at the following dates and costs:
Purchase Quantity Unit Cost Total Cost
Date
November 18 100 $20 $2,000
December 2 300 28 8,400
Total on hand 400 $10,400

On December 13, Sawyer Co. sold 180 units of this product.

1. Compute the cost of goods sold relating to the sale on December 13 and the
ending inventory at December 31, using the following cost flow assumptions:

(a) LIFO.
(b) FIFO.
(c) Average cost.

2. Briefly explain the effects on the financial statements that may arise from
choosing the FIFO method over the LIFO method.

Exercise 2:

Johnson Co. uses the balance sheet approach to estimate uncollectible accounts
expense. At year-end, an aging of the accounts receivable produced the following
five groupings.
a. Not yet due...................................................$800,000
b. 1–30 days past due ........................................ 220,000
c. 31–60 days past due ....................................... 82,000
d. 61–90 days past due ........................................24,000
e. Over 90 days past due .................................... 36,000
Total ...............................................................$1,162,000
On the basis of past experience, the company estimated the percentages probably
uncollect ible for the five age groups to be as follows: Group a, 1 percent; Group b,
3 percent; Group c, 10 percent; Group d, 20 percent; and Group e, 50 percent. The
Allowance for Doubtful Accounts before adjustment at December 31 showed a
credit balance of $39,100.

Instructions:
a. Compute the estimated amount of uncollectible accounts based on the given
classification by age groups.

b. Prepare the adjusting entry needed to bring the Allowance for Doubtful
Accounts to the proper amount.

c. Compute the net realizable value of accounts receivable at December 31.

d. Assume that on January 25 of the following year, Johnson Co. learned that an
account receivable that had originated on October 18 in the amount of $8,200 was
worthless because of the bankruptcy of the client, Hamilton Co. Prepare the journal
entry required on January 25 to write off this account.

Exercise 3:
On May 6, 2014, East River Tug Co. purchased a new tugboat for $300,000. The
estimated life of the boat was 4 years, with an estimated residual value of $10,000.
East River Tug Co. depreciates the boat by the straight-line method, and apply the
half-year convention.
a.Prepare depreciation schedules for this boat
b. Prepare journal entries to record depreciation for the first year

c.Briefly explain the effects on the financial statements that may arise from using
the straight-line method of depreciation compared to the declining-balance
method?

Exercise 4:
Some transactions related the non-current assets of MARS Company that are
described as follows:
Equipment, use for administrative department
Purchase price, $1,230,000
Expenditures required to test the equipment and prepare it for ready to use
$90,000. Expected to be used for 6 years, with a residual value at the end of
that time of $120,000.
MARS depreciates equipment by the straight-line method.
Instructions
a. Prepare depreciation schedules of above equipment.
b. Prepare journal entries to record depreciation for the first year
c. At the beginning of 5th year, equipment was sold for $450,000. Prepare journal
entries to record this disposal of equipment.
Exercise 5:

The Royal Company issued a 6-year note payable of $6,000,000 at 01st November
2021. This note is payable monthly installments of $117,301 which include
principal and interest computed at annual rate of 12%.

a. Prepare amortization table for first 3 months of this note payable

b. Prepare the journal entry to record the first month payment (as at 01st
December 2021)
c. Prepare the adjusting entries at 31st December 2021 (accrued interest
expense)
d. Will any amounts relating to this 10-year note payable be classified as
current liabilities in Royal’s December 31, 2021, balance sheet?
Exercise 6:
Harley Co. issued $6 million of 10-year, 9 percent bonds on July 1, 2021, at 97.
Interest is due on June 30 and December 31 of each year, and all of the bonds in
the issue mature on June 30, 2031. Harley’s fiscal year ends on December 31.
Prepare the following journal entries:
a. July 1, 2021, to record the issuance of the bonds.
b. December 31, 2021, to pay interest and amortize the bond discount.
c. June 30, 2031, to pay interest, amortize the bond discount, and retire the bonds
at maturity (make two separate entries).
d. Briefly explain the effect of amortizing the bond discount upon financial
statements.
Exercise 7: On October 1, 2023 Spencer Co borrowed $600,000 from John
Credit Union and signed a 8%, 7-month note payable, all due at maturity.

a. The amount Spencer must pay on May 1, 2024, when the note matures is
$____________________
b. The interest expense Spencer will recognize on this note in 2024 is $
_________
c. At December 31, 2023, Spencer' liability to the Credit Union amounts to
$__________
d. Give the journal entry made by Spencer on October 1, 2023
 e. Give the adjusting entry made by Spencer on December 31, 2023
f. Give the journal entry made by Spencer on May 1, 2024

Exercise 8:

Hessey Co. originally issued 20,000,000 shares of its $5 par value stock for $22
per share in 2017. In June 2021, company purchased 7,000 shares of treasury
stock at $16 per share. In November 2021 it re-issued these 7,000 treasury
shares for $26 per share.

Instructions:

a. Prepare the journal entries to record all above transactions

b. Prepare stockholders’ equity section of balance sheet at 31st December 2021

(Retained Earnings of $79,000,000 on this date).
Exercise 9:
The data below are taken from the financial statements of the Rutherford
Corporation:
Income Statement 2023
Net Sales $432,000
Cost of goods sold 215,000
Operating expenses (including 150,000
depreciation of $20,000)
Income taxes expense 20,000
Net income 47,000
Balance Sheet 12/31/2023 12/31/2022
Accounts receivable $282,000 $251,000
Inventory 214,000 239,000
Short-term prepayments 11,000 8,000
Accounts payable (for merchandise) 125,000 133,000
Accrued operating expenses payable 26,000 29,000
Accrued income taxes payable 18,000 15,000
Instructions: Prepare the partial statement of cash flows for the year ended
December 31, 2023 (including only the operating activities section) and using both
the direct method and the indirect method.
 Exercise 10:

The following income statement and selected balance sheet account data are
available for Treece, Inc., at December 31, 2021.

Additional Information
1. Dividend revenue is recognized on the cash basis. All other income statement
amounts are recognized on the accrual basis.
2. Operating expenses include depreciation expense of $115,000.
 Instructions:
a. Prepare a partial statement of cash flows, including only the operating activities
section of the statement and using the direct method.
b. Prepare a partial statement of cash flows for the current year, showing the
computation of net cash flows from operating activities by the indirect method.