# ACCT 503 Week 5 Practice Exercise (E7-21A, E7-23A, E7-25A E7-34A, E8-32A, E8-30A, E9-26A, E9-27A E9-28AE9-34A)(Syllabus, 2019)

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E7-21A

Pawtucket Self Storage purchased land, paying \$150,000 cash as a down payment and signing a \$170,000 note payable for the balance. Pawtucket also had to pay delinquent property tax of \$3,000,

title insurance costing \$4,500, and \$7,000 o level the land and remove an unwanted building. The company paid \$54,000 to add soil for the foundation and then constructed an office building at a cost of

\$800,000. It also paid \$48,000 for a fence around the property, \$19,000 for the company sign near the property entrance, and \$10,000 for lighting of the grounds.

E7-23A

Assume Akro Products, Inc., purchased conveyor-belt machinery.

Requirement

1. Classify each of the following expenditures as a capital expenditure or an immediate expense related to machinery.

E7-25A

Piccadilly Pizza bought a used Toyota delivery van on January 2, 2016, for \$19,200. The van was expected to remain in service for four years left (71,200 miles). At the end of its useful life, Piccadilly

officials estimated that the van's residual value would be \$1,400.  The van traveled 28,000 miles the first year, 20,500 miles the second year, 18,500 miles the third year, and 4,200 miles in the fourth year.

Requirements

1.         Prepare a schedule of depreciation expense per year for the van under the three depreciation methods.

2.         Which method best tracks the wear and tear on the van?

3.         Which method would Piccadilly prefer to use for income tax purposes? Explain in detail why Piccadilly

would prefer this method.

E7-34A

Gunny Stores, Inc., one of the nation's largest grocery retailers, reported the following information (adapted) in its comparative financial statements for the fiscal year ended January 31, 2015.

Requirements

1.         Compute net profit margin ratio for the years ended January 31, 2015 and 2014.

Did it improve or worsen in 2015?

2.         Compute asset turnover for the years ended January 31, 2015 and 2014.

Did it improve or worsen in 2015?

3.         Compute return on assets for the years ended January 31, 2015 and 2014.

Did it improve or worsen in 2015?

Which component (net profit margin ratio or asset turnover) was mostlyresponsible?

E8-32A

Stockman Corp. purchased ten \$1,000 6% bonds of Voltgo Corporation when the market rate of interest was 7%.  Interest is paid semiannually, and the bonds will mature in eight years.

Using the PV function in Excel compute the price Stockman paid (the present value) for the bond investment. (Assume that all payments of interest and principal occur at the end of the period. Round your answer to the nearest cent.)

E8-30A

During fiscal year 2016, Honey Bakery reported a net income of \$132.4 million.  Honey

Bakery received \$1.4 million from the sale of other businesses. Honey Bakery made capital expenditures of \$10.0 million and sold property, plant, and equipment for 7.3 million. The company purchased long-term investments at a cost of \$11.5 million and sold other long-term investments for \$2.5 million.

E9-26A

Earth Friendly Structures, Inc., builds environmentally sensitive structures. The company's 2016

revenuestotaled \$2,760 million. At December 31, 2016, and 2015, the company had, respectively, \$658 miillion and \$603 million in current assets. The December 31, 2016, and 2015, balance sheets and income statements reported the following amounts.

E9-27A

Barclay Systems' revenues for 2016 totaled \$26.2 million. As with most companies, Barclay

is a defendant in lawsuits related to its products. Note 14 of the Barclay annual report for 2016

reported the following.

14. Contingencies

The company is involved in various legal proceedings.   It is the Company's policy to accrue for amounts related to these legal matters if it is probable that a liability has been incurred and an amount is reasonably estimable.

Requirement 1.

Suppose Barclay's lawyers believe that a significant legal judgment against the company is reasonably possible. How should Barclay report this situation in its financialstatements?  First, let's decide how the lawsuit should be reported in the financial statements.

The lawsuit should be reported by including a note similar to Note 14

.

E9-28A

Assume that Banff Electronics completed these selected transactions during March 2016:

a.         Sales of \$2,100,000 are subject to estimated warranty cost of 2%. The estimated warranty payable at the beginning of the year was \$35,000, and warranty payments for the year totaled \$58,000.

b.         On March 1, Banff Electronics signed a \$45,000 note payable that requires annual payments of \$9,000

plus 5% interest on the unpaid balance each March

c.         BuyMore, Inc., a chain of discount stores, ordered \$105,000 worth of wireless speakers and related products. With its order, BuyMore, Inc., sent a check for \$105,000 in advance, and Banff shipped \$60,000

of the goods. Banff will ship the remainder of the goods on April 3, 2016.

d.         The March payroll of \$220,000 is subject to employee withheld income tax of \$30,700 and FICA tax of 7.65%.  On March 31, Banff pays employees their take-home pay and accrues all tax amounts.

E9-34A

Companies that operate in different industries may have very different financial ratio values. These differences may grow even wider when we compare companies located in different countries.

Requirement

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