2.For each transaction numbered 1 through 6 below, identify its effects on the accounting equation by selecting from the effects listed in
a
through
f. You may use each letter more than once or not at all.
Accounting Effects
|
a.– A and – SE (Retained Earnings)
|
b.+ A and + SE (Retained Earnings)
|
c.– A and – L
|
d.– A and – SE (Contributed Capital)
|
e.+ A and + L
|
f.No change in total A, L, or SE
|
____ 1.Equipment is purchased by incurring a long-term mortgage payable and paying the balance in cash
____ 2.Paid for transportation of equipment shipped from the vendor to our plant
____ 3.Paid for speeding ticket received while transporting the equipment to the manufacturing plant
____ 4.Depreciated the equipment during the first year of use
____ 5.Paid for lubrication and periodic tune ups of the equipment
____ 6.Sold the equipment, receiving more money than its book value
3.For each transaction numbered 1 through 5 below, identify in which account listed in
a
through
d
itwould bereported. You may use each letter more than once or not at all.
Accounts
|
a.Land
|
b.Buildings
|
c.Equipment
|
d.Not capitalized
|
_____1.Freight charges related to the acquisition costs of a production machine
_____2.Interest costs incurred during the construction period of a building built by a company for its own use
_____3.Costs paid to clear land
_____4.Annual painting costs of an office building
_____5.Sales taxes paid related to a machine purchased
Exercise 1 EXERCISE 1 For each account listed in 1 through 12 below, identify which reporting section (a through d) each would appear on a company’s financial statements. You may use each letter more than once or not at all. Reporting Sections of Financial Statements a. Balance sheet—property, plant, and equipment b. Balance sheet—intangible assets c. Balance sheet—other d. Income statement 1Depreciation expense 2Accumulated depreciation 3An improvement that adds to the value of a property or facility 4Oil reserve 5Land 6Organizational costs 7Amortization expense 8Total amortization since inception 9Gain on sale of patent 10Copyright 11Patents 12Goodwill Exercise 2 EXERCISE 2 For each transaction numbered 1 through 6 below, identify its effects on the accounting equation by selecting from the effects listed in a through f. You may use each letter more than once or not at all. Accounting Effects a. – A and – SE (Retained Earnings) b. + A and + SE (Retained Earnings) c. – A and – L d. – A and – SE (Contributed Capital) e. + A and + L f. No change in total A, L, or SE 1Equipment is purchased by incurring a long-term mortgage payable and paying the balance in cash 2Paid for transportation of equipment shipped from the vendor to our plant 3Paid for speeding ticket received while transporting the equipment to the manufacturing plant 4Depreciated the equipment during the first year of use 5Paid for lubrication and periodic tune ups of the equipment 6Sold the equipment, receiving more money than its book value Exercise 3 EXERCISE 3 For each transaction numbered 1 through 5 below, identify in which account listed in a through d it would be reported. You may use each letter more than once or not at all. Accounts a. Land b. Buildings c. Equipment d. Not capitalized 1Freight charges related to the acquisition costs of a production machine 2Interest costs incurred during the construction period of a building built by a company for its own use 3Costs paid to clear land 4Annual painting costs of an office building 5Sales taxes paid related to a machine purchased Exercise 4 EXERCISE 4 For each cost that appears in items 1 through 6 below, select the account in which it would be included and reported from those listed in a through c. You may use more than one answer for each cost. If the cost is not capitalized, place an X in the space provided. Accounts a. Land b. Buildings c. Equipment 1Installation costs of a special attachment to newly acquired equipment 2Freight costs for shipping the equipment into our manufacturing facility 3Costs of repairing a hole knocked in the wall during installation of new equipment 4Interest costs on a mortgage loan used to purchase a newly acquired building 5Property taxes paid on land for the current year on which a new building was erected 6Training session to teach faculty how to use computer projection equipment recently installed in classrooms Exercise 5 EXERCISE 5 Select the method of depreciation listed in a through c that is best for each purpose listed in items 1 through 4. Methods a. Straight-line b. Units-of-production c. Double-declining-balance 1Creates the largest net income in the early years of life 2Irregular due to unpredictable sales levels 3Creates the smallest taxable income in the early years of life 4Technological competitive changes are rapid Exercise 6 EXERCISE 6 For each transaction numbered 1 through 5 below, identify which effect(s) (a through d) that each transaction would have on the current and debt/equity ratios. You may use each letter more than once or not at all. Some transactions have two answers. Effects a. Decreases current ratio b. Increases current ratio c. Decreases debt/equity ratio d. Increases debt/equity ratio 1Equipment is purchased by incurring a long-term note payable and paying the balance in cash 2Paid for transportation of equipment shipped from a supplier 3Depreciated the equipment during the first year of use 4Paid for lubrication and periodic maintenance of the equipment 5Sold the equipment, receiving more money than its book value