>> Accounting Basics
1. On July 1, 2015, Friedman Inc. invested $720,000 in a mine estimated to have 900,000 tons of ore of uniform grade. During the last 6 months of 2015, 100,000 tons of ore were mined and sold.
a) Prepare the journal entry to record depletion expense.
b) Assume that the 100,000 tons of ore were mined, but only 80,000 units were sold. How are the costs applicable to the 20,000 unsold units reported?
2. Whitmore Company issued $500,000 of 5-year, 8% bonds at 97 on January 1, 2015. The bonds pay interest twice a year.
a) (1) Prepare the journal entry to record the issuance of the bonds.
(2) Compute the total cost of borrowing for these bonds.
b) Repeat the requirements from part (a), assuming the bonds were issued at 105.
3. Jernigan Co. receives $300,000 when it issues a $300,000, 10%, mortgage note payable to ?nance the construction of a building at December 31, 2015. The terms provide for semiannual installment payments of $25,000 on June 30 and December 31.
Prepare the journal entries to record the mortgage loan and the ?rst two installment payments.
4. The intangible assets section of Sappelt Company at December 31, 2015, is presented below.
Patents ($70,000 cost less $7,000 amortization) $63,000
Franchises ($48,000 cost less $19,200 amortization) 28,000
The patent was acquired in January 2015 and has a useful life of 10 years. The franchise was acquired in January 2012 and also has a useful life of 10 years. The following cash transactions may have affected intangible assets during 2016.
Jan. 2: Paid $27,000 legal costs to successfully defend the patent against infringement by another company.
Jan.-June: Developed a new product, incurring $140,000 in research and development costs. A patent was granted for the product on July 1. Its useful life is equal to its legal life.
Sept. 1: Paid $50,000 to an extremely large defensive lineman to appear in commercials advertising the company's products. The commercials will air in September and October.
Oct. 1: Acquired a franchise for $140,000. The franchise has a useful life of 50 years.
a) Prepare journal entries to record the transactions above.
b) Prepare journal entries to record the 2016 amortization expense.
c) Prepare the intangible assets section of the balance sheet at December 31, 2016.
5. On January 1, 2015, the ledger of Accardo Company contains the following liability accounts.
Accounts Payable $52,000
Sales Taxes Payable 7,700
Unearned Service Revenue 16,000
During January, the following selected transactions occurred.
Jan. 5 Sold merchandise for cash totaling $20,520, which includes 8% sales taxes.
12Performed services for customers who had made advance payments of $10,000. (Credit Service Revenue.)
14Paid state revenue department for sales taxes collected in December 2014 ($7,700).
20Sold 900 units of a new product on credit at $50 per unit, plus 8% sales tax.
21Borrowed $27,000 from Girard Bank on a 3-month, 8%, $27,000 note.
25Sold merchandise for cash totaling $12,420, which includes 8% sales taxes.
a) Journalize the January transactions.
b) Journalize the adjusting entry at January 31 for the outstanding note payable. (Hint: Use one-third of a month for the Girard Bank note.)
c) Prepare the current liabilities section of the balance sheet at January 31, 2015. Assume no change in accounts payable.