Reference no: EM13854588

Intangible Assets and Depreciation Accounting Methods

Week 6 Problem Sets

Part 1

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  • Answer the following question: What is meant by the net realizable value for accounts receivable?
  • Answer the following question: What is aging of accounts receivable, and how is it used to account for uncollectible accounts?
  • Answer the following question: How is the accounts receivable turnover computed? What information does this ratio provide?
  • Answer the following question: Describe what is meant by the term "goodwill."

7-13A

Effects of credit card sales on financial statements

Ultra Day Spa provided $120,000 of services during 2016.  All customers paid for the services with credit cards.  Ultra submitted the credit card receipts to the credit card company immediately.  The credit card company paid Ultra cash in the amount of face value less a 5 percent service charge.

Required

a. Record the credit card sales and the subsequent collection of accounts receivable in a horizontal statements model like the one shown here.  In the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA).  Use NA to indicate that an element is not affected by the event.

Assets      = Liab.  +  Equity	Rev.  -  Exp  = Net Inc.	Cash Flow
Cash  +  Accts. Rec

b. Based on this information alone, answer the following questions:

(1) What is the amount of total assets at the end of the accounting period?

(2) What is the amount of revenue reported on the income statement?

(3) What is the amount of cash flow from operating activities reported on the statement of cash flows?

(4) What costs would a business incur by accepting credit cards?

8-34A

Accounting for intangible assets

Mitre Company acquired Midwest Transportation Co. for $1,400,000.  The fair market values of the assets acquired were as follows.  No liabilities were assumed.

Equipment                                                                                                                $510,000 Land                                                                                                                           $150,000 Building                                                                                                                     $520,000 Franchise (10-year life)                                                                                          $40,000

Required

a. Calculate the amount of goodwill acquired.

b. Prepare the journal entry to record the amortization of the franchise fee at the end of year 1.

8-9A

Events related to the acquisition, use, and disposal of a tangible plant asset: straight-line depreciation

City Taxi Service purchased a new auto to use as a taxi on January 1, 2016, for $36,000.  In addition, City paid sales tax and titles fees of $1,200 for the vehicle.  The taxi is expected to have a five-year life and a salvage value of $4,000.

Required

a. Using the straight-lined method, compute the depreciation expense for 2016 and 2017.

b. Prepare the general journal entry to record the 2016 depreciation.

c. Assume that the taxi was sold on January 1, 2018, for $22,000.  Prepare the journal entry for the sale in 2018.