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Working Accounting Problems Example
• Go to Accounting Toolbox for Success• Print the Martin Corp. problem• Refer to it as you view this module
R O W E RR O W E R
•Requirements•Organize•Work•Evaluate•Review
Requirements
(1) Prepare journal entries
(a)for the purchase of the equipment on 12/1/X0
(b) for any necessary adjustments on 4/30/X1
Round all computations to the nearest dollar
Requirements
Cost and Matching Principles
JE for Asset Acquisition
Adjusting Entries
Computations: Interest Straight Line Depreciation
Requirements
(2) How does this appear on the 4/30/X1 Balance Sheet andon the Income Statement for the year ended 4/30/X1?
Requirements
Balance Sheet Accounts
Balance Sheet Presentation
Income Statement Accounts
Income Statement Presentation
Requirements
(3) Assume that the accountant does not make the adjusting entry for the accrual of interest. How does this error impact the financial statements?
Requirements
Matching Principle
Effects of errors on the Balance Sheet
Effects of errors on the Income Statement
Organize
Facts
Accounting Period: 5/1/X0 – 4/30/X1
Cost of Equipment: $100,000
Signed Note: $80,000, 1yr, 8% interest
Purchase Date: 12/1/X0 Paid $20,000
Organize
Facts
No salvage value at the end of 5 years
Straight Line Depreciation
5 year estimated life
Organize
Watch for facts that are not needed
$125,000 recent selling price
Tax method of depreciation
Cost Principle – record at amount paid
Work with the financial method
Organize
Action Plan
Paper and pencil, calculator
Work one requirement at a time
Label your work, save your work, finish the assignment and be neat
Work – Requirement (1) (a)
Work – Requirement (1) (b)
$100,000/5 yrs = $20,000 depreciation per yr
$20,000 X 5/12 ≈$8,333
Round to the nearest dollar
Work – Requirement (1) (b)
$80,000 X .08 X 5/12 ≈ $2,667
Round to the nearest dollar
Work – Requirement (2)
Martin Corporation Balance Sheet April 30, X1
AssetsProperty, Plant and Equipment
Equipment $100,000Less Accumulated Depreciation (8,333) $ 91,667Book Value or Carrying Value
Work – Requirement (2)
Martin Corporation Balance Sheet April 30, X1
Current Liabilities
Interest Payable $2,667 Notes Payable $80,000
Work – Requirement (2)
Martin Corporation Income Statement For the Year Ended April 30, X1
Expenses
Depreciation $8,333
Interest 2,667
Work – Requirement (3)
Net Income is too high because $2,667 of Interest Expense was not recorded
Net Income is overstated by $2,667 Current Liabilities are understated by $2,667
Current Liabilities are too low because $2,667 of Interest Payable was not recorded
Evaluate
Determine how to receive feedback
Make corrections
Learn from your mistakes
Ask for clarification
I am ready for the next chapter and the exam
I am ready for the next chapter and the exam
Review
Process
Results
Foundation
Can you improve?
Are you ready for the next assignment?
Do you understand?
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