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Working Accounting Problems Example

Working Accounting Problems Example. Go to Accounting Toolbox for Success Print the Martin Corp. problem Refer to it as you view this module. R O W E R. R equirements. O rganize. W ork. E valuate. R eview. Requirements. Prepare journal entries

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Working Accounting Problems Example

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  1. Working Accounting Problems Example • Go to Accounting Toolbox for Success • Print the Martin Corp. problem • Refer to it as you view this module

  2. R O W E R • Requirements • Organize • Work • Evaluate • Review

  3. Requirements • Prepare journal entries • for the purchase of the equipment on 12/1/X0 • (b) for any necessary adjustments on 4/30/X1 • Round all computations to the nearest dollar

  4. Requirements Cost and Matching Principles JE for Asset Acquisition • Computations: • Interest • Straight Line Depreciation Adjusting Entries

  5. Requirements (2) How does this appear on the 4/30/X1 Balance Sheet and on the Income Statement for the year ended 4/30/X1?

  6. Requirements Balance Sheet Accounts Balance Sheet Presentation Income Statement Accounts Income Statement Presentation

  7. Requirements • Assume that the accountant • does not make the adjusting entry • for the accrual of interest. • How does this error • impact the financial statements?

  8. Requirements Matching Principle Effects of errors on the Balance Sheet Effects of errors on the Income Statement

  9. Organize Facts Accounting Period: 5/1/X0 – 4/30/X1 Cost of Equipment: $100,000 Purchase Date: 12/1/X0 Paid $20,000 Signed Note: $80,000, 1yr, 8% interest

  10. Organize Facts Straight Line Depreciation 5 year estimated life No salvage value at the end of 5 years

  11. Organize Watch for facts that are not needed $125,000 recent selling price Cost Principle – record at amount paid Tax method of depreciation Work with the financial method

  12. Organize Action Plan Paper and pencil, calculator Work one requirement at a time Label your work, save your work, finish the assignment and be neat

  13. Work – Requirement (1) (a)

  14. Work – Requirement (1) (b) $100,000/5 yrs = $20,000 depreciation per yr $20,000 X 5/12 ≈$8,333 Round to the nearest dollar

  15. Work – Requirement (1) (b) $80,000 X .08 X 5/12 ≈ $2,667 Round to the nearest dollar

  16. Work – Requirement (2) Martin Corporation Balance Sheet April 30, X1 Assets Property, Plant and Equipment Equipment $100,000 Less Accumulated Depreciation (8,333) $ 91,667 Book Value or Carrying Value

  17. Work – Requirement (2) Martin Corporation Balance Sheet April 30, X1 Current Liabilities Interest Payable $2,667 Notes Payable $80,000

  18. Work – Requirement (2) Martin Corporation Income Statement For the Year Ended April 30, X1 Expenses Depreciation $8,333 Interest 2,667

  19. Work – Requirement (3) Net Income is too high because $2,667 of Interest Expense was not recorded Current Liabilities are too low because $2,667 of Interest Payable was not recorded Net Income is overstated by $2,667 Current Liabilities are understated by $2,667

  20. Evaluate Determine how to receive feedback Make corrections I am ready for the next chapter and the exam Ask for clarification Learn from your mistakes

  21. Review Can you improve? Process Do you understand? Results Are you ready for the next assignment? Foundation

  22. Working Accounting Problems • You now have tools to help with: • Efficiency • Effectiveness

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