Assignment #1 Accounting Principles Spring, 2003
1. The intangible assets section or Turbo Company at December 31, 2002, is presented below.
Patent ($70,000 cost less $7,000 amortization) / $ 63,000Copyright ($48,000 cost less $19,200 amortization) / 28,800
Total / $91,000
The patent was acquired in January 2002 and has a useful life of 10 years. The copyright was acquired in January 1999 and also has a useful life of 10 years. The following cash transactions may have affected intangible assets during 2000.
Jan. 2 / Paid $27,000 legal costs to successfully defend the patent against infringement by another company.Jan.-June / Developed a new product, incurring $140,000 in research and development costs. A patent was granted for the product on July 1. Its useful life is equal to its legal life.
Sept. 1 / Paid $80,000 to an extremely large defensive lineman to appear in commercials advertising the company’s products. The commercials will air in September and October.
Oct. 1 / Acquired a copyright for $120,000. The copyright has a useful life of 50 years.
Required:
(1) Prepare journal entries to record the transactions above.
(2) Prepare journal entries to record the 2003 amortization expense.
(3) Prepare the intangible assets section of the balance sheet at December 31, 2003.
2. Juna Company sells automatic can openers under a 75-day warranty for defective merchandise. Based on past experience, Juna estimates that 4% of the units sold will become defective during the warranty period. Management estimates that the average cost of replacing or repairing a defective unit is $15. The units sold and units defective that occurred during the last 2 months of 2002 are as follows.
Month / Units Sold / Units Defective Prior to December 31November / 30,000 / 700
December / 32,000 / 500
Required:
(1) Determine the estimated warranty liability at December 31 for the units sold in November and December.
(2) Prepare the journal entries to record the estimated liability for warranties and the costs incurred in honoring 1,200 warranty claims. (Assume actual costs of $18,000)
(3) Give the entry to record the honoring of 550 warranty contracts in January at an average cost of $15.
3. At the end of its first year of operation on December 31,2002, the ABC Company’s accounts show the following.
Partner / Drawing / CapitalJane April / $12,000 / $33,000
Victor Bernard / 9,000 / 20,000
Steven Cats / 6,000 / 10,000
The Capital balance represents each partner’s initial capital investment. Therefore, net income or net loss for 2002 has not been closed to the partners’ capital accounts.
Required:
(1) Journalize the entry to record the division of net income for 2002 under each of the following independent assumptions.
(a) Net income is $32,600. Income is shared 5:3:2.
(b) Net income is $30,000. April and Bernard are given salary allowance of $13,000 and $8,000, respectively. The remainder is shared equally.
(c) Net income is $25,200. Each partner is allowed interest of 10% on beginning capital balances. April is given a $15,000 salary allowance. The reminder is shared equally.
(2) Prepare a schedule showing the division of net income under assumption (c) above.
(3) Prepare a partner’s capital statement for the year under assumption (c) above.
4. The Payroll procedures used by Mitch Company are described as follows. In Mitch Company employees are required to record hours worked by “punching” clock cards in a time clock. At the end of each pay period, the clock cards are collected by the department manger. The manager prepares a payroll register in duplicate and forwards the original to payroll. In payroll, the summaries are checked for mathematical accuracy, and a payroll supervisor pays each employee by check.
Required:
(1) Indicate the weakness(es) in internal control.
(2) For each weakness, describe the control procedure(s) that will provide effective internal control. Use the following format for your answer.
Weaknesses Recommended Procedures