1. ACC 421 Week 2 Individual Assignments
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Problem 1:
Grading: This problem is worth a total of 18.75 points. There are 10grading
elements each worth 18.75 x 2/3 / 10 = 1.25 points. There are 18.75 x 1/3 =
6.25 points available for effort.
Consider each one of the following in light of the characteristics of
accounting:
A: The economic consequences of a standard or rule are not considered.
B: Two other qualitative characteristics related to both reliability and
relevance.
C: Exists when a particular measurement is agreed to by the majority.
D: Two large retail chains employ the same accounting principles.
E: Accounting information is useful because of these two primary qualities.
F: Users’ expectations are confirmed by accounting information.
G: This primary quality has predictive value as a component.
H: This primary component of relevance is illustrated by quarterly financial
statements issued in addition to annual financial statements.
I: A component of this primary quality of accounting information is
neutrality.
J: This quality is necessary in order to compare the results of a company
over time.
Problem 2:
Grading: This problem is worth a total of 18.75 points. There are 10grading
elements each worth 18.75 x 2/3 / 10 = 1.25 points. There are 18.75 x 1/3 =
6.25 points available for effort.
Consider each of the following in light of accounting assumptions,
principles, and constraints:
A: Potential gains are not recorded in the financial records; however
potential losses are recorded in the financial records.
B: Financial information for personal finances and financial information for
business finances are kept separate.
C: The value of land increases after it was purchased, however the increase
in value is not recorded in the financial records. (Do not use the revenue
recognition principle.)
D: In the United States, the dollar is the quantitative measure used in
financial statements.
E: Allows a dealer in gold to revalue gold inventory up to market value, for
instance.
F: Requires the recording of expenses in the same period the revenue
resulting from those expenses is recorded.
G: A company’s assets are not reported at liquidation value. (Do not use the
historical cost principle.)
H: Allows information that will not influence the decisions of reasonably
informed uses to be omitted from the financial statements but requires the
inclusion of information that will affect such decisions. (Do not use the
full disclosure principle.)
I: Financial statements are issued at regular intervals.
J: Financial statements contain all relevant information.
2. Problem 3:
Grading: This problem is worth a total of 18.75 points. There are 12grading
elements each worth 18.75 x 2/3 / 12 = 1.0417 points. There are 18.75 x 1/3
= 6.25 points available for effort.
Consider each of the following items recorded by the SWN Company:
A: The SWN Company has received the proper documents indicating that it is
being sued by the WWK Company for $300,000 because the WWK Company claims
that one of SWN Company’s products failed causing damage to WWK Company’s
factory machines. SWN Company’s attorneys have carefully reviewed the suit
and have concluded that there is very little probability that the suit will
be successful and SWN Company will have no liability for the damages.
However, in order to be conservative, SWN Company records the following
entry:
Product Liability Loss 300,000
Accrued product liability loss 300,000
To accrue for possible loss from product liability
(Note that generally accepted accounting principles specify that potential
losses are recorded if (1) the amount of the potential loss can be reasonably
estimated and (2) it is probable that the loss will be incurred.)
B: The SWN Company acquired factory equipment for $135,000 at a liquidation
sale of a local company that was in bankruptcy. Because the company was
selling due to a bankruptcy liquidation, the sale prices were significantly
below the actual fair market value of the equipment. In fact, the fair
market value of the equipment purchased by the SWN Company was $180,000.
Upon purchase the SWN Company recorded the following:
Equipment 180,000
Cash 135,000
Gain on acquisition of equipment 45,000
To record acquisition of equipment sold in liquidation
C: Although the SWN Company is doing reasonably well, management is concerned
that, in the event of a liquidation, certain assets could not be sold for
their current value as shown on the balance sheet. Management’s major
concern is the amount of $450,000 paid in goodwill when acquiring a
competitor company this year. Therefore the company wrote off the goodwill
with the following entry:
Loss on impairment of goodwill 450,000
Goodwill 450,000
To record write-down of goodwill
D: The majority stockholder and president of the SWN Company purchased a new
automobile for his personal use at a cost of $54,000. Rather than have SWN
Company declare and pay a dividend to him in order to pay for the car, the
president had SWN Company paid for the car and recorded the following entry:
President Expense 54,000
Cash 54,000
To record president’s expenses
E: SWN Company’s management was looking at the prices of new factory
machinery similar to the machinery they are currently using and discovered
that prices of such machinery have risen considerably recently. When
compared to the prices of new machines, the amount of depreciation expense
recorded for the year appears to be inadequate. Therefore the company
recorded the following entry:
Depreciation Expense 6,000
Accumulated Depreciation 6,000
To record catch-up depreciation
F: During the year, the value of one of the company’s raw materials increased
in value to $924,000. The materials had originally cost $770,000. To record
this increase in value, the company recorded the following entry:
Materials Inventory 154,000
Gain on Inventory 154,000
To record correct value of inventory
Instructions:
For each of the above entries:
3. 1. Determine if each journal entry is appropriate under generally accepted
accounting principles.
2. If the entry is not appropriate under generally accepted accounting
principles, explain why it is not appropriate and indicate which principle(s)
is violated.
Problem 4:
Grading: This problem is worth a total of 18.75 points. There are 10grading
elements each worth 18.75 x 2/3 / 10 = 1.25 points. There are 18.75 x 1/3 =
6.25 points available for effort.
The following are selected general ledger account balances for the KFD
Company as of June 30, 2012 before any adjustments:
Debit Credit
Cash $14,300
Accounts Receivable 12,500
Prepaid Insurance 3,600
Supplies 3,400
Equipment 34,200
Accumulated Depreciation - Equipment 0
Accounts Payable 9,800
Notes Payable 20,000
Unearned Rent Revenue 20,000
Rent Revenue 10,000
Telephone Expense 4,600
Wages Expense 15,400 15,400
Pension Expense 3,850
Interest Expense 0
The following information is available:
A: The prepaid insurance expires at the rate of $300 per month.
B: The equipment depreciates at the rate of $570 per month.
C: Interest of $400 is accrued on the notes payable for the quarter.
D: 25% of the unearned rent was earned during the quarter.
E: A count of supplies at the end of the quarter revealed that $1,360 of
supplies were on hand
