ACCT 302 Quiz 4 Accounting Changes, Error Corrections, Statement of Cash Flows solutions answers

ACCT 302 Quiz 4 Accounting Changes, Error Corrections, Statement of Cash Flows Revised solutions complete answers 

 

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A firm reported salaries expense of $249,000 for the current year. The beginning and ending balances in salaries payable were $44,000 and $14,000, respectively. What was the amount of cash paid for salaries?

 

Doug Smith Industries purchased warehouses for $231 million (no residual value) at the beginning of 2018. The warehouses were being depreciated over a 10-year life using the sum-of-the-years'-digits method. At the beginning of 2021, management decided to change to straight-line. Ignoring taxes, the 2021 adjusting entry will include a debit to depreciation expense of: (Round your answer to 2 decimal places.):

 

Van Frank Telecommunications has a patent on a cellular transmission process. The company has amortized the $9.00 million cost of the patent on a straight-line basis since it was acquired at the beginning of 2017. Due to rapid technological advances in the industry, management decided that the patent would benefit the company over a total of six years rather than the nine-year life being used to amortize its cost. The decision was made at the end of 2021 (before adjusting and closing entries).
 
What is the appropriate adjusting entry for patent amortization in 2021 to reflect the revised estimate? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places (i.e., 5,500,000 should be entered as 5.50).)

 

Tangerine Corp. constructed a machine at a total cost of $294 million. Construction was completed at the end of 2017 and the machine was placed in service at the beginning of 2018. The machine was being depreciated over a 10-year life using the sum-of-the-years'-digits method. By that method, accumulated depreciation at the end of 2020 is $140.4 million. The residual value is expected to be $8.0 million. At the beginning of 2021, Tangerine decided to change to the straight-line method. Ignoring income taxes, what will be Tangerine's depreciation expense for 2021?

 

Sales revenue for Hy Marx Tutoring was $560,000. The following data are from the accounting records of Marx:

 

Popeye Company purchased a machine for $400,000 on January 1, 2020. Popeye depreciates machines of this type by the straight-line method over a five-year period using no salvage value. Due to an error, no depreciation was taken on this machine in 2020. Popeye discovered the error in 2021. What amount should Popeye record as depreciation expense for 2021? The tax rate is 25%.

 

Due to an error in computing depreciation expense, Prewitt Corporation overstated accumulated depreciation by $23 million as of December 31, 2021. Prewitt has a tax rate of 30%. Prewitt's retained earnings as of December 31, 2021, would be: (Round million answer to 2 decimal places.)

 

A company overstated its liability for warranties by $180,000. Its tax rate is 20%. As a result of this error, income tax expense is:

 

Agee Technology, Inc., issued 9% bonds, dated January 1, with a face amount of $1,880 million on July 1, 2021, at a price of $1,860 million. For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semi-annually on June 30 and December 31.

Required: 
Prepare the journal entry to record interest at the effective interest rate at December 31. What would be the amount(s) related to the bonds that Agee would report in its statement of cash flows for the year ended December 31, 2021, if it uses the direct method?

 

Sales revenue is $380,000. Accounts receivable increased by $2,000. Cash received from customers is:

 

Three programmers at Feenix Computer Storage, Inc., write an operating systems control manual for Hill-McGraw Publishing, Inc., for which Feenix receives royalties equal to 12% of net sales. Royalties are payable annually on February 1 for sales the previous year. The editor indicated to Feenix on December 31, 2021, that book sales subject to royalties for the year just ended are expected to be $320,000. Accordingly, Feenix accrued royalty revenue of $38,400 at December 31 and received royalties of $38,920 on February 1, 2022.
 
What adjustments, if any, should be made to retained earnings or to the 2021 financial statements? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

 

Venice Company purchased a gondola for $451,000 (no residual value) at the beginning of 2018. The gondola was being depreciated over a 10-year life using the sum-of-the-years'-digits method. At the beginning of 2021, it was decided to change to straight-line. Ignoring taxes, the 2021 adjusting entry will include a debit to depreciation expense of:

 

Due to an error in computing depreciation expense, Crote Corporation understated accumulated depreciation by $76 million as of December 31, 2021. Crote has a tax rate of 25%. Crote's retained earnings as of December 31, 2021, would be: (Round million answer to 2 decimal places.)

 

In 2021, the Barton and Barton Company changed its method of valuing inventory from the FIFO method to the average cost method. At December 31, 2020, B & B’s inventories were $33.6 million (FIFO). B & B’s records indicated that the inventories would have totaled $24.6 million at December 31, 2020, if determined on an average cost basis.
 
Ignoring income taxes, what journal entry will B & B use to record the adjustment in 2021? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)

 

When DeSoto Water Works purchased equipment at the end of 2020 at a cost of $73,000, the company debited Buildings and credited Cash $73,000. The error was discovered in 2021.
 
Prepare the journal entry DeSoto will use to correct the error. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

 

Carter Containers sold marketable equity securities, land, and common stock for $27.0 million, $15.5 million, and $40.0 million, respectively. Carter also purchased treasury stock, equipment, and a patent for $14.0 million, $25.5 million, and $13.2 million, respectively.

Required: 
What amount should Carter report as net cash from investing activities? (Amounts to be deducted should be indicated with a minus sign. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)

 

If sales revenue is $280 million and accounts receivable increased by $52 million, the amount of cash received from customers:

 

Irwin, Inc. constructed a machine at a total cost of $58 million. Construction was completed at the end of 2017 and the machine was placed in service at the beginning of 2018. The machine was being depreciated over a 10-year life using the sum-of-the-years’-digits method. The residual value is expected to be $3 million. At the beginning of 2021, Irwin decided to change to the straight-line method.
 
Ignoring income taxes, prepare the journal entry relating to the machine for 2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)

 

LaRoe Lawns’ inventory increased during the year by $6.6 million. Its accounts payable increased by $4.9 million during the same period.

Required: 
What is the amount of cash LaRoe paid to suppliers of merchandise during the reporting period if its cost of goods sold was $58 million? Prepare a summary entry that represents the net effect of merchandise purchases during the reporting period.

 

On January 1, 2021, the Merit Group issued to its bank a $50 million, five-year installment note to be paid in five equal payments at the end of each year. Installment payments of $11.870 million annually include interest at the rate of 6.0%.

Required: 
What would be the amount(s) related to the note that Merit would report in its statement of cash flows for the year ended December 31, 2021? (List each cash flow separately. List any cash outflows with a minus sign. Enter your answers in millions rounded to 2 decimal places (i.e., 5,500,000 should be entered as 5.50).)

 

In 2020, Quapau Products introduced a new line of hot water heaters that carry a one-year warranty against manufacturer’s defects. Based on industry experience, warranty costs were expected to approximate 6% of sales revenue. First-year sales of the heaters were $240,000. An evaluation of the company’s claims experience in late 2021 indicated that actual claims were less than expected—5% of sales rather than 6%.
 
Assuming sales of the heaters in 2021 were $290,000 and warranty expenditures in 2021 totaled $12,500, what is the 2021 warranty expense?

 

Horton Housewares' accounts receivable decreased during the year by $6.0 million.

Required: 
What is the amount of cash Horton received from customers during the reporting period if its sales were $35 million? Prepare a summary entry that represents the net effect of the selling and collection activities during the reporting period.

 

A company switched from the cash basis to the accrual basis for recognizing warranty expense. The unrecorded liability for warranties was $2.9 million at the beginning of the year. Its tax rate is 20%. The company booked a year-end warranty liability of $4 million. As a result of this change, the firm would:

 

Question 

 

Agee Technology, Inc., issued 9% bonds, dated January 1, with a face amount of $460 million on July 1, 2021, at a price of $450 million. For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semi-annually on June 30 and December 31.

 

Prepare the journal entry to record interest at the effective interest rate at December 31. What would be the amount(s) related to the bonds that Agee would report in its statement of cash flows for the year ended December 31, 2021, if it uses the direct method?

 

Question 

 

Prepare the summary entries necessary to determine the amount of cash received from customers for each of the four independent situations below.

 

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Popeye Company purchased a machine for $340,000 on January 1, 2020. Popeye depreciates machines of this type by the straight-line method over a five-year period using no salvage value. Due to an error, no depreciation was taken on this machine in 2020. Popeye discovered the error in 2021. What amount should Popeye record as depreciation expense for 2021? The tax rate is 25%.

 

Question 

 

A company overstated its liability for warranties by $260,000. Its tax rate is 20%. As a result of this error, income tax expense is:

 

Question 

 

Sales revenue for Hy Marx Tutoring was $300,000. The following data are from the accounting records of Marx:

 

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Horton Housewares' accounts receivable decreased during the year by $18.0 million.

 

What is the amount of cash Horton received from customers during the reporting period if its sales were $60 million?

 

Prepare a summary entry that represents the net effect of the selling and collection activities during the reporting period.

 

Question 

 

When DeSoto Water Works purchased equipment at the end of 2020 at a cost of $60,000, the company debited Buildings and credited Cash $60,000. The error was discovered in 2021.

 

Prepare the journal entry DeSoto will use to correct the error. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

 

Question 

 

In 2021, the Barton and Barton Company changed its method of valuing inventory from the FIFO method to the average cost method. At December 31, 2020, B & B’s inventories were $32.4 million (FIFO). B & B’s records indicated that the inventories would have totaled $24.0 million at December 31, 2020, if determined on an average cost basis.

 

Ignoring income taxes, what journal entry will B & B use to record the adjustment in 2021? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)

 

Question 

 

Doug Smith Industries purchased warehouses for $264 million (no residual value) at the beginning of 2018. The warehouses were being depreciated over a 10-year life using the sum-of-the-years'-digits method. At the beginning of 2021, management decided to change to straight-line. Ignoring taxes, the 2021 adjusting entry will include a debit to depreciation expense of: (Round your answer to 2 decimal places.):

 

Question 

 

A firm reported salaries expense of $242,000 for the current year. The beginning and ending balances in salaries payable were $35,000 and $14,000, respectively. What was the amount of cash paid for salaries?

 

Question 

 

A company switched from the cash basis to the accrual basis for recognizing warranty expense. The unrecorded liability for warranties was $2.7 million at the beginning of the year. Its tax rate is 30%. The company booked a year-end warranty liability of $4 million. As a result of this change, the firm would:

 

Question 

 

Irwin, Inc. constructed a machine at a total cost of $58 million. Construction was completed at the end of 2017 and the machine was placed in service at the beginning of 2018. The machine was being depreciated over a 10-year life using the sum-of-the-years’-digits method. The residual value is expected to be $3 million. At the beginning of 2021, Irwin decided to change to the straight-line method.

 

Ignoring income taxes, prepare the journal entry relating to the machine for 2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)

 

Question 

 

Sales revenue is $120,000. Accounts receivable increased by $3,000. Cash received from customers is:

 

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Question 

 

Three programmers at Feenix Computer Storage, Inc., write an operating systems control manual for Hill-McGraw Publishing, Inc., for which Feenix receives royalties equal to 12% of net sales. Royalties are payable annually on February 1 for sales the previous year. The editor indicated to Feenix on December 31, 2021, that book sales subject to royalties for the year just ended are expected to be $280,000. Accordingly, Feenix accrued royalty revenue of $33,600 at December 31 and received royalties of $34,080 on February 1, 2022.

 

What adjustments, if any, should be made to retained earnings or to the 2021 financial statements? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

 

Question 

 

Venice Company purchased a gondola for $442,200 (no residual value) at the beginning of 2018. The gondola was being depreciated over a 10-year life using the sum-of-the-years'-digits method. At the beginning of 2021, it was decided to change to straight-line. Ignoring taxes, the 2021 adjusting entry will include a debit to depreciation expense of:

 

Question 

 

On January 2, 2021, Tobias Company began using straight-line depreciation for a certain class of assets. In the past, the company had used double-declining-balance depreciation for these assets. As of January 2, 2021, the amount of the change in accumulated depreciation is $46,000. The appropriate tax rate is 25%. The separately reported change in 2021 earnings is:

 

Question 

 

Due to an error in computing depreciation expense, Prewitt Corporation overstated accumulated depreciation by $11 million as of December 31, 2021. Prewitt has a tax rate of 30%. Prewitt's retained earnings as of December 31, 2021, would be: (Round million answer to 2 decimal places.)

 

Question 

 

If sales revenue is $220 million and accounts receivable increased by $40 million, the amount of cash received from customers:

 

Question 

 

In 2020, Quapau Products introduced a new line of hot water heaters that carry a one-year warranty against manufacturer’s defects. Based on industry experience, warranty costs were expected to approximate 4% of sales revenue. First-year sales of the heaters were $350,000. An evaluation of the company’s claims experience in late 2021 indicated that actual claims were less than expected—3% of sales rather than 4%.

 

Assuming sales of the heaters in 2021 were $400,000 and warranty expenditures in 2021 totaled $10,000, what is the 2021 warranty expense?

 

Question 

 

Carter Containers sold marketable equity securities, land, and common stock for $28.0 million, $18.0 million, and $45.0 million, respectively. Carter also purchased treasury stock, equipment, and a patent for $16.0 million, $18.0 million, and $13.0 million, respectively.

 

What amount should Carter report as net cash from investing activities? (Amounts to be deducted should be indicated with a minus sign. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)

 

Question 

 

On January 1, 2021, the Merit Group issued to its bank a $39 million, five-year installment note to be paid in five equal payments at the end of each year. Installment payments of $9.258 million annually include interest at the rate of 6.0%.

 

What would be the amount(s) related to the note that Merit would report in its statement of cash flows for the year ended December 31, 2021? (List each cash flow separately. List any cash outflows with a minus sign. Enter your answers in millions rounded to 2 decimal places (i.e., 5,500,000 should be entered as 5.50).)

 

Question 

 

Due to an error in computing depreciation expense, Crote Corporation understated accumulated depreciation by $72 million as of December 31, 2021. Crote has a tax rate of 30%. Crote's retained earnings as of December 31, 2021, would be: (Round million answer to 2 decimal places.)

 

Question 

 

LaRoe Lawns’ inventory increased during the year by $5.9 million. Its accounts payable increased by $4.8 million during the same period.

 

What is the amount of cash LaRoe paid to suppliers of merchandise during the reporting period if its cost of goods sold was $56 million? Prepare a summary entry that represents the net effect of merchandise purchases during the reporting period.

 

Question 

 

Van Frank Telecommunications has a patent on a cellular transmission process. The company has amortized the $24.30 million cost of the patent on a straight-line basis since it was acquired at the beginning of 2017. Due to rapid technological advances in the industry, management decided that the patent would benefit the company over a total of six years rather than the nine-year life being used to amortize its cost. The decision was made at the end of 2021 (before adjusting and closing entries).

 

What is the appropriate adjusting entry for patent amortization in 2021 to reflect the revised estimate? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places (i.e., 5,500,000 should be entered as 5.50).)