Problem Set for Session 5: Chapters 9 and 10

Name : WINDY MARTAPUTRI Session : # 5

NIM : 1901806211 (Batch 15 / LOA 5) Date : 03 Jan. 2019

PART I — MULTIPLE CHOICE (26 points)

Instructions: Designate the best answer for each of the following questions.

A 1. Which of the following is included as part of property, plant, and equipment but does not
decline in service potential?
a. Land on which a company warehouse is built
b. Fixed assets used in production
c. A patent that provides a superior product compared to competitors
d. Parking lots and sidewalks providing access for a company’s employees

C 2. What does the balance of the Accumulated Depreciation account represent?

a. The decline in value of plant assets
b. The accumulation of funds needed to replace the assets at the end of their useful
life
c. The portion of the cost allocated as an expense since the asset was acquired
d. The fair value of the asset that is being depreciated

A 3. What is the goal when a company is selecting a depreciation method?

a. To select a method that best measures an asset’s contribution to revenue
over its life
b. To select a method that allows the least amount of income taxes to be paid
c. To select the method that is required by GAAP for each particular asset
d. To select a method that measures the asset in units of output

C 4. When an asset is depreciated, to what amount will its book value at the end of its useful
life be equal?
a. The cost of the asset being depreciated
b. Total accumulated depreciation
c. The salvage value of the asset
d. The annual cost allocation amount

D 5. Which of the following is a true statement as it relates to impairments of plant assets?

a. The assets are recorded at the book value of the asset.
b. The impairment amount is capitalized and depreciated along with the cost of the
original asset.
c. The impairment amount is added to the plant asset account in the year the decline
of value occurs.
d. They are written down to the new fair value during the year in which the
decline occurs.
PS5-2 Chapter 9 and Chapter 10

B 6. Which of the following ratios indicates how efficiently a company uses it assets to
generate sales?
a. Profit margin
b. Asset turnover
c. Return on assets
d. Sustainability

A 7. For which of the following pairs of costs will a company record no amortization expense?
a. Research and development costs and goodwill
b. Copyrights and licenses
c. Franchises and patents
d. Goodwill and trade names

D 8. Big Town Retailers operates in Florida and collects sales taxes from customers on all
purchases. How should these sales taxes be reported when collected?
a. As an expense on the income statement
b. As sales revenue along with the selling price of the items sold
c. As unearned revenues
d. As a current liability until paid to the State of Florida

D 9. Which of the following amounts are deducted from employees’ paychecks?

a. FICA Taxes Payable and State Unemployment Taxes Payable
b. Federal Unemployment Taxes Payable and State Unemployment Taxes Payable
c. Federal Unemployment Taxes Payable and FICA Taxes Payable
d. Federal Income Taxes Payable and FICA Taxes Payable

A 10. To what is the current market value of bonds equal when determining their issue
price?
a. The present value of the bonds future cash flows
b. The sum of the future interest payments, plus the principal payment when the bonds
mature
c. The difference between the face value of the bonds and the contractual interest rate
d. The cash that will be paid to the investor when the bonds mature

C 11. Failure to record a liability will probably

a. understate net income.
b. result in overstated total liabilities and owner’s equity.
c. understate the debt total assets ratio.
d. make a company appear to be less solvent

B 12. Which statement is true concerning off-balance sheet financing?

a. It allows a company to overstate its debt to assets ratio.
b. It is an intentional effort by a company to structure its financing arrangements
to avoid showing liabilities on its balance sheet.
c. It is a violation of GAAP and causes total liabilities to be understated.
d. It occurs when companies report liabilities on the income statement as expenses
rather than liabilities on the balance sheet.
 Problem Set PS5-3

C 13. Wilson, Inc. issued bonds that are subject to retirement at a stated dollar amount prior to
maturity at the option of the issuer. What are these bonds called?
a. Convertible bonds
b. Early retirement bonds.
c. Callable bonds
d. Secured bonds

PART II—MATCHING (6 points)

Instructions: Match the cash expenditures given below with the appropriate accounting treatment.
An individual classification may be used more than once, or not at all. If none of the listed
treatments are appropriate for an expenditure, place an ‘X’ in the answer space.

Treatments
A. Record the expenditure as an asset and depreciate it.
B. Record the expenditure as an asset and amortize it.
C. Record the expenditure as an asset but do not systematically allocate it to expense.
D. Record the expenditure as an expense in the current period.

Expenditures
X 1. Offered a new flavor of one of the company’s products
B 2. Purchased a copyright from an author
A 3. Paid for a complete renovation of the office building
D 4. Paid for research and development costs
C 5. Paid closing costs in acquiring new property that will be converted into a parking lot
B 6. Paid legal costs to successfully defend a patent against infringement
PS5-4 Chapter 9 and Chapter 10

PART III — PLANT ASSETS: SHORT PROBLEMS (28 points)

Instructions: Complete the requirements specified for each of the following independent situations.

1. Jumpstart Deliveries acquired a truck at a cost of $64,000 on January 1, 2014. The truck is
expected to have a salvage value of $8,000 at the end of its 4-year useful life. Jumpstart uses
the straight-line method. Prepare the journal entry to record annual depreciation for 2015.
Diketahui :
Original Cost : $ 64.000 Useful Life : 4 years
Salvage Value : $ 8.000 Method : Straight line method

Perhitungan :
Depreciation / Year = ($ 64.000 - $ 8.000) / 4 = $ 14.000 / tahun

Jurnal :
Depreciation Expense $ 14.000
Accumulated Depreciation $ 14.000

2. DynaChrome Bumpers bought two acres of land with an old office building on it that was
deemed unusable. The cost was $480,000 of which DynaChrome paid $80,000 in cash as a
down payment and signed a 7% mortgage for the remainder. DynaChrome immediately had the
old building razed at a net cost of $8,700 and sold the salvaged materials for $2,200. Attorneys
were paid $1,100 in connection with the purchase. The architect’s fee for drawing building plans
for the new building cost $6,800. DynaChrome paid $3,100 in connection with permits and
zoning variances necessary prior to construction of the new building. DynaChrome paid the
contractor $1,420,000 for construction of the new building, along with $42,000 for a parking lot
and necessary walkways and driveways.

A. At what amount should the land be recorded?

Nilai Perolehan Tanah terdiri dari :
Harga Beli $ 480.000
the old building razed - net cost 8.700
Salvaged materials sold (2.200)
Attorneys paid 1.100
Total Land Recorded $ 487.600

B. At what amount should the new office building be recorded?

Nilai Perolehan Office terdiri dari :
Architect $ 6.800
Permits and zoning variances 3.100
Contractors Paid 1.420.000
Total Office Recorded $ 1.429.900
3. On July 1, 2014, Winslow Enterprises sold equipment with an original cost of $86,000 for
$33,000. The equipment was purchased January 1, 2011, and was depreciated using the
straight-line method over a five-year useful life with a $9,000 salvage value. Prepare the journal
entry to record the sale of the equipment.

Diketahui :
Original Cost : $ 86.000 Tanggal Pembelian : 1 Januari 2011
Salvage Value : $ 9.000 Tanggal Penjualan : 1 Juli 2014
Useful Life : 5 years Sell Price : $ 33.000
Method : Straight line

Perhitungan :
Depreciation / Year = ($ 86.000 - $ 9.000) / 5 = $ 15.400 / tahun
Masa Pemakaian = 1 Januari 2011 s/d 1 Juli 2014  3,5 Tahun
Accumulated Depreciation = 3,5 x $ 15.400 = $ 53.900
Book Value = Original Cost – Accum. Depreciation = 86.000 – 53.900 = $ 32.100
Date of sales - 1 Juli 2014 :
Sell price > book value  33.000 > 32.100
Gain on sale of equipment = Sell price – Book value = 33.000 – 32.100 = $ 900

Jurnal :
Cash $ 33.000
Accumulated depreciation 53.900
Equipment $ 86.000
Gain on sale of equipment 900

4. Sonic Company bought machinery on January 1, 2009, at a cost of $90,000. The machinery
had an estimated life of 8 years and salvage value of $16,000. On January 1, 2014, Sonic
estimates that the machinery will have a life of only 2 more years from January 1, 2014, and the
salvage value is now estimated to be $4,000. Sonic uses straight-line depreciation. Compute
the annual depreciation expense for 2014.

Diketahui :
Tanggal Pembelian : 1 Januari 2009 Tanggal Estimasi : 1 Januari 2014
Original Cost : $ 90.000 Remaining Useful Life : 2 years
Salvage Value : $ 16.000 New Salvage Value : $ 4.000
Useful Life : 8 years Method : Straight line

Perhitungan :
1st Depreciation
Depreciation / Year = ($ 90.000 - $ 16.000) / 8 = $ 9.250 / tahun
Masa Pemakaian = 1 Januari 2009 s/d 1 Januari 2014  5 Tahun
Accumulated Depreciation = 5 x $ 9.250 = $ 46.250
Book Value = Original Cost – Accum. Depreciation = 90.000 – 46.250 = $ 43.750
2nd Depreciation
New depreciation for 2014 = ($43.750 - $ 4.000) / 2 = $ 19.875
 Problem Set PS5-5

PART IV — INTANGIBLE ASSET TRANSACTIONS (9 points)

Instructions: Complete the requirements specified for each of the following independent
situations.

1. During 2013, Sunbolt Corporation incurred $120,000 of research and development costs to
produce a solar cell for motorcycles. It then paid filing fees of $6,800 to register a patent on this
product and $23,000 to an attorney who helped obtain the patent. In late 2013 shortly before
Sunbolt put the solar cell into production, it was sued by another company claiming to own the
rights to the patent. Sunbolt paid $40,700 to defend the patent against infringement by the
competitor and won the suit. Production of solar computers began on January 1, 2014. The
patent has a legal life of 20 years and a useful life of 15 years. How much is patent amortization
expense for 2014?
Calculation for Patent :
Filing fees for patent’s registration $ 6.800
Paid to attorney 23.000
Cost to defend the patent 40.700
Total Cost for Patent $ 70.500  Useful Life : 15 years
Amortization Expense for 2014 = $ 70.500 / 15 = $ 4.700

2. Super Tech Industries purchased Jones, Inc. on June 30, 2014 and recorded goodwill of
$62,000 on this purchase. The useful life of the goodwill is estimated to be 20 years. How much
is goodwill amortization expense for 2014?
Tidak ada nilai beban amortisasi untuk goodwill pada tahun 2014, karena Goodwill bukan
merupakan subjek yang dapat diamortisasi.

PART V — RATIO ANALYSIS (16 points)

Jiffy Mart and Quick Shop are two companies of roughly the same size both running a chain of
convenience stores. Each company depreciates its plant assets using the straight-line method. An
investigation of their financial statements reveals the following information:
Jiffy Mart Quick Shop
Net income $ 129,050 $ 129,800
Sales revenue 890,000 1,100,000
Total assets (average) 4,340,000 5,490,000
Plant assets (average) 1,650,000 1,900,000

Instructions: Complete the requirements specified for each of the following independent
situations. Round answers to two decimal places.

1. For each company, calculate:

A. Return on assets
B. Profit margin
C. Asset turnover
 Ratio Formula Jiffy Mart Quick Shop
Return on assets Net Income 129.050 129.800
 2,97%  2,36%
Total Assets (average) 4.340.000 5.490.000
Profit margin Net Income 129.050 129.800
 14,5%  11,8%
Sales Revenue 890.000 1.100.000
Asset turnover Sales Revenue 890.000 1.100.000
 0,21X  0,20 X
Total Assets (average) 4.340.000 5.490.000

2. Based on your calculations in part 1, comment on the relative effectiveness of the two
companies in using their assets to generate sales. What factors complicate your ability to
compare the two companies?
- Return on Asset
ROA Jiffy Mart > ROA Quick Shop  2,97% > 2,36%
Jiffy Mart menunjukkan kinerja profitabilitas yang lebih baik dari Quick Shop karena
memiliki ROA yang lebih tinggi, yakni sebesar 2,97%. Artinya : Setiap $1 nilai aset
perusahaan akan menghasilkan $ 0,03 (3 cents) profit bagi perusahaan.
- Profit Margin
Profit Margin Jiffy Mart > ROA Quick Shop  14,5% > 11,8%
Jiffy Mart menunjukkan kemampuan dalam mengelola biaya (COGS dan opex) yang
lebih baik daripada Quick Shop, sehingga Iebih efektif dan efisien dalam menghasilkan
laba, yang ditunjukkan dengan profit margin yang lebih tinggi, yaitu sebesar 14,5%.
- Asset Turnover
Asset Turnover Jiffy Mart > ROA Quick Shop  0,21 X > 0,2 X
Jiffy Mart memiliki efektivitas lebih baik daripada Quick Shop dalam memanfaatkan aset
yang ia miliki untuk menghasilkan revenue bagi perusahaan, dimana Jiffy Mart mampu
memutar asetnya lebih cepat daripada Quick Shop guna mencetak sales bagi
perusahaan. Hal ini ditunjukkan dengan angka asset turnover yang sedikit lebih tinggi,
yakni 0,21 X.
Secara keseluruhan, Jiffy Mart menunjukkan kinerja yang lebih baik daripada Quick Shop,
baik dari segi ROA, profit margin & asset turnover. Hal ini menggambarkan kemampuan Jiffy
Mart menghasilkan laba (profitabilitas), efisiensi dan efektivitas dalam mengelola biaya, serta
efektivitas memanfaatkan aset dalam menghasilkan revenue & profit yang lebih baik.
PS5-6 Chapter 9 and Chapter 10

PART VI — LIABILITY PROBLEMS (15 points)

Instructions: Complete the requirements specified for each of the following independent situations.

1. On January 1, 2014, Wicker World issued bonds with a face value of $200,000. The bonds
carry a stated interest of 6% payable each January 1. Prepare the journal entry for the
issuance of the bonds if the bonds are issued at 98.5.
Issued at discount : 98,5% x $ 200.000 = $ 197.000
Journal :
Cash $ 197.000
Discount on Bonds Payable 3.000
Bonds Payable $ 200.000

2. Strike Zone Fishing purchased $50,000 of its own bonds on June 30, 2014, at 101 and
immediately retired them. The carrying value of the bonds on the retirement date was $51,500.
The bonds pay semiannual interest and the interest payment due on June 30, 2014, has been
made and recorded. Prepare the entry for the retirement of the bonds.
Bond purchased (principal) = $ 50.000
Cash paid for bond purchased : 101% x $ 50.000 = $ 50.500
Carrying value > cash paid  $ 51.500 > $ 50.500  Gain = 51.500 – 50.500 = $ 1.000
Journal :
Bond Payable $ 50.000
Premium on bond payable 1.500
Cash $ 50.500
Gain on bond redemption 1.000

3. On April 1, the Mactors Company borrows $80,000 from New National Bank by signing a 6-
month, 5%, interest-bearing note.
(a) Prepare the entry on April 1 when the note was issued.
Journal :
Cash $ 80.000
Notes Payable $ 80.000

(b) Prepare any adjusting entries necessary on June 30 in order to prepare the semiannual
financial statements. Assume no other interest accrual entries have been made.
Adjustment Amount for Interest Expense :
1 April s/d 30 June = 3 bulan
Interest = 3 / 12 x 5% x $ 80.000 = $ 1.000
Journal :
Interest Expense $ 1.000
Interest Payable $ 1.000