(a) Date No. Account Titles and Explanation Debit Credit 1. 2. 3. 4. 5. 6. 7. 8.
ID: 2595141 • Letter: #
Question
(a)
Date
No.
Account Titles and Explanation
Debit
Credit
1.
2.
3.
4.
5.
6.
7.
8.
9.
(To record depreciation expense)
(To record sale of equipment)
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(b)
Cash
Accounts Receivable
Allowance For Doubtful Accounts
Equipment
Accumulated Depreciation—Equipment
Land
Buildings
Accumulated Depreciation—Buildings
Accounts Payable
Common Stock
Retained Earnings
Novak Corp. prepares quarterly financial statements. The post-closing trial balance at December 31, 2016, is presented below.NOVAK CORP.
Post-Closing Trial Balance
December 31, 2016 Debit Credit Cash $23,800 Accounts Receivable 22,000 Allowance for Doubtful Accounts $1,300 Equipment 17,000 Accumulated Depreciation—Equipment 12,000 Buildings 103,000 Accumulated Depreciation—Buildings 12,000 Land 20,000 Accounts Payable 12,390 Common Stock 87,000 Retained Earnings 61,110 $185,800 $185,800
During the first quarter of 2017, the following transactions occurred:
1. On February 1, Novak collected fees of $7,200 in advance. The company will perform $600 of services each month from February 1, 2017, to January 31, 2018. 2. On February 1, Novak purchased computer equipment for $11,250 plus sales taxes of $750. $3,750 cash was paid with the rest on account. Check #455 was used. 3. On March 1, Novak acquired a patent with a 10-year life for $12,000 cash. Check #456 was used. 4. On March 28, Novak recorded the quarter’s sales in a single entry. During this period, Novak had total sales of $170,000 (not including the sales referred to in item 1 above). All of the sales were on account. 5. On March 29, Novak collected $163,000 from customers on account. 6. On March 29, Novak paid $16,390 on accounts payable. Check #457 was used. 7. On March 29, Novak paid other operating expenses of $97,500. Check #458 was used. 8. On March 31, Novak wrote off a receivable of $300 for a customer who declared bankruptcy. 9. On March 31, Novak sold for $1,620 equipment that originally cost $11,000. It had an estimated life of 5 years and salvage of $1,000. Accumulated depreciation as of December 31, 2016, was $8,000 using the straight line method. (Hint: Record depreciation on the equipment sold, then record the sale.)
Bank reconciliation data and adjustment data:
1. The company reconciles its bank statement every quarter. Information from the December 31, 2016, bank reconciliation is:
Deposit in transit: 12/30/2016 $5,500 Outstanding checks #440 3,200 #452 600 #453 700 #454 5,850
The bank statement received for the quarter ended March 31, 2017, is as follows:
Beginning balance per bank $28,650 Deposits: 1/2/2017, $5,500; 2/2/2017, $7,200; 3/30/2017, $163,000 175,700 Checks: #452, $600; #453, $700; #457, $16,390; #458, $97,500 (115,190) Debit memo: Bank service charge (record as operating expense) (100) Ending bank balance $89,060 2. Record revenue earned from item 1 above. 3. $22,000 of accounts receivable at March 31, 2017, are not past due yet. The bad debt percentage for these is 4%. The balance of accounts receivable are past due. The bad debt percentage for these is 24%. Record bad debt expense. (Hint: You will need to compute the balance in accounts receivable before calculating this.) 4. Depreciation is recorded on the equipment still owned at March 31, 2017. The new equipment purchased in February is being depreciated on a straight-line basis over 5 years and salvage value was estimated at $1,200. The old equipment still owned is being depreciated over a 10-year life using straight-line with no salvage value. 5. Depreciation is recorded on the building on a straight-line basis based on a 30-year life and a salvage value of $16,000. 6. Amortization is recorded on the patent. 7. The income tax rate is 30%. This amount will be paid when the tax return is due in April. (Hint: Prepare the income statement up to income before taxes and multiply by 30% to compute the amount.)
Explanation / Answer
(a)
(b)
Date No. Account Titles and Explanation Debit Credit February 1 1 Cash 7200 Unearned revenue 7200 (To record advance fees collected) February 1 2 Computer equipment ($11250 + $750) 12000 Cash 3750 Accounts payable 8250 (To record computer equipment purchased) March 1 3 Patent 12000 Cash 12000 (To record patent acquired) March 28 4 Accounts receivable 170000 Sales revenue 170000 (To record sales on account) March 29 5 Cash 163000 Accounts receivable 163000 (To record collections on account) March 29 6 Accounts payable 16390 Cash 16390 (To record payments on account) March 29 7 Operating expenses 97500 Cash 97500 (To record operating expenses paid) March 31 8 Allowance for doubtful accounts 300 Accounts receivable 300 (To record write off of uncollectible account) March 31 9 Depreciation expense [($11000 - $1000)/5 x 3/12] 500 Accumulated depreciation-equipment 500 (To record depreciation expense) Cash 1620 Accumulated depreciation-equipment ($8000 + $500) 8500 Loss on disposal of plant assets 880 Equipment 11000 (To record sale of equipment)Related Questions
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