Liquidity, Solvency, Profitability
Gross Profit = Net Sales - COGS
Net Sales = Gross Sales - Sales Returns - Allowances - Discounts
Gross Profit Margin = (Revenue - COGS)/Revenue * 100
Operating Profit = Gross Profit - Operating Expenses
Accounts Receivables and Sales Transaction Practice
1- Jenkins and John Company have prepared the following aging schedule for the company at December
31, 2014.
Number of Days Outstanding
Total
0–30
31–60
61–90
91–120
Accounts
receivable
$375,000
$220,000
$90,000
$40,000
$10,000
% uncollectible
1%
4%
8%
16%
Estimated
bad debts
15100
2200
3600
3200
1600
Over 120
$15,000
30%
4500
1. Complete the table to include the estimated bad debts
2a. Assuming the company has a $2,500 debit balance in the allowance account at the beginning of the period, write the journal entry to record bad debt expense in
the journal below.
2b. Assume that in the current year, Jerkins and John identify an account to be written off for $5000. Prepare the write-off journal entry.
Date
Accounts
DEBIT
CREDIT
2a
Bad Debts Expense
17600
Allowance for ADA
17600
15100+2500
2b
ADA
5000
A/R
5000
2c Show the NRV of Accounts Receivable after the above journal entries:
Net Realizable Value = Total A/R - ADA
Before Write-off
NRV= 375000-15100 = 359900
Accounts Receivable= 375000-5000=370000
Less: ADA = 15100-5000=10100
Net Realizable Value = 370000-10100=359900
More Capital Asset Practice
On May 5, 2014, Knottinghill Company purchased a property for $400,000 cash. The property included the following long-lived assets and closing costs:
Appraised Value
Land
$105,000
Building
200,000
Equipment*
100,000
Paved area
20,000
Outdoor Lighting
10,000
Closing Costs on the Land Purchase
15,000
$450,000
*Annual Insurance for the equipment is expected to be $2,400.
Instructions
a.
Give the journal entry to allocate the purchase price between the above assets. Round all amounts to the nearest dollar, if necessary.
appraised value/ total appraised value * purchase price
Land = 105000+15000 = 120,000 [120,000/450,000 * 400,000] = 106,667
Building = 200,000 [200,000/450,000* 400,000] = 177,778
Equipment = 100,000 [88,889]
Land Improvements = 30,000 [26,667]
Total Appraised Value = 450,000
Journal Entry:
Land
106,667
Building
177,778
Equipment
88,889
Land Improvements
26,666
Cash
400,000
b.
Prepare a compound journal entry to record depreciation of the long-lived assets on
December 31, 2014, assuming the following additional details:
Useful Life in Years
Residual Value
Rate
Building
30
$20,000
Equipment
5
10,000
Land Improvements
5
-0100%/5*2 = 40%
Prorate depreciation based on the number of months the asset has been in use. Use DECLINING BALANCE for the Land Improvements and STRAIGHT-LINE for
the Building. The equipment has an estimated total of 1,500,000 machine hours and used 90,000 in the current year.
Land Improvements = DDB Rate = 100%/5yr*2=40%*26,666=10,666*8/12=7111
Equipment = [88889-10000]/1500000*90000=4733
Building = [177778-20000]/30*8/12=3506
Amortization Expense
Accumulated Amortization - Building
Accumulated Amortization - Equipment
Accumulated Amortization - Land Improvements
15,350
3,506
4,733
7,111
The entry to record shares issued for cash (IPO):
Dr.___Cash_______________ Cr. ____Common Shares_ or _Preferred Shares__________
The entry to record shares issued for non cash goods/services:
RULE: Under IFRS, use the fair value of the goods/services RECEIVED by the corporation issuing the shares (if possible). Otherwise, use the current market value of the shares given up.
Dr. ___eg. Legal fees_or equipment___ Cr. ___Common Shares__or Preferred Shares