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Question 1

1. Cash ...................................................................................... 3,866Accumulated Depreciation, Factory Machinery .................. 27,367

Factory Machinery .......................................................... 31,2332. Tools Used (Expense) .......................................................... 7,850

Tools ................................................................................ 7,850(Note the contrast between depreciation and a direct write-off.)

3. (a) Depreciation Expense ........................................................... 278Accumulated Depreciation, Automotive Equipment ....... 278(The additional depreciation is 1/6 x .20 x $8,354. Note that the half-yearconvention is not used. Note that if the depreciation incurred in 2006 isdisregarded, the loss will be overstated.)

(b) Cash ...................................................................................... 2,336Accumulated Depreciation, Automotive Equipment............ 5,458Loss on Sale of Other Assets ................................................ 560

Automotive Equipment ................................................... 8,354(There can be a discussion of the proper showing of the loss on the income

statement.)4. Patent Amortization Expense ............................................... 11,250

Patent ............................................................................... 11,2505. Cash ...................................................................................... 75

Accumulated Depreciation, Office Machines ...................... 1,027Gain on Sale of Other Assets ........................................... 75Office Machines .............................................................. 1,027(The gain is preferably combined with the loss on Item 3, with entries to aLoss or Gain account. It is shown separately here for clarity.)

6. (a) Depreciation Expense ...................................................... 37Accumulated Depreciation ........................................ 37

(.75 x .10 x $490)(b) Cash ................................................................................ 80

Accumulated Depreciation, Furniture and Fixtures......... 432Furniture and Fixtures ............................................... 490Gain on Sale of Other Assets .................................... 22

7. Depreciation Expense ...................................................... 398,779Accumulated Depreciation, Building ........................ 48,105Accumulated Depreciation, Factory Machinery ....... 330,935Accumulated Depreciation, Furniture and Fixtures .... 5,599Accumulated Depreciation, AutomotiveEquipment .................................................................

9,989

Accumulated Depreciation, Office Machines ........... 4,151

(Note that depreciation is calculated after the earlier entries have been recorded and thatdepreciation on factory machinery is not calculated on the $85,000 of fully depreciated assets.)

Question 2

Gross

Accumulated

Depreciation NetLand ......................................................................... $ 186,563 $ 186,563Building ................................................................... 2,405,259 $ 711,484 1,693,775Factory machinery .................................................. 3,394,352 1,945,926 1,448,426

Furniture and fixtures ............................................. 55,994 45,604 10,390Automotive equipment ........................................... 49,944 41,965 7,979

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Office machines ...................................................... 41,507 31,129 10,378Tools ....................................................................... 53,444 53,444Patent ....................................................................... 45,000 _________ 45,000

Total .................................................................. $6,232,063 $2,776,108 $3,455,955

ANSWERS TO PROBLEM 2.4 AND 2.5

Problem 2-4

CARSON LEGATT PARTNERSHIP

BALANCE SHEET AS OF JUNE 1, ----.

Assets Capital AccountsCash ............................................... $ 50,000 Carson ............................................... $ 50,000Inventory ........................................ 50,000 Legatt ................................................ 50,000

Total assets ................................ $100,000 Total capital .................................. $100,000

CARSON LEGATT PARTNERSHIP

BALANCE SHEET AS OF JUNE 30, ----.

Assets LiabilitiesCash ............................................... $ 22,100 Bank loan .......................................... $ 50,000Inventory ........................................ 58,500 Capital - Carson ................................ 51,550Land ............................................... 25,000 Capital - Legatt ................................. 54,050Building ......................................... 50,000 ________

$155,600 $155,600

CARSON LEGATT PARTNERSHIP

ACCOUNTS, JUNE 30, ----.

Carson

Capital - June 1 ..................... $50,000Additions .............................. 7,750Withdrawals ......................... ( 6,200 )Capital - June 30 ................... $51,550

Legatt

Capital - June 1 ..................... $50,000Additions .............................. 7,750Withdrawals ......................... ( 3,700)Capital - June 30 ................... $54,050

Problem 2-5

Jan. 4: Retained earnings (Sales) + $12,000; Cash + $12,000 Inventory - $7,000 ;Retained earnings(Cost of goods sold) - $7,000

Jan. 6: No effect.Jan. 8: Inventory + $7,000; Accounts Payable + $7,000Jan. 11: Inventory - $1,500; Cash + $2,500; Retained earnings (Sales) + $2,500; Retained earnings

(Cost of goods sold) - $1,500Jan. 16: Inventory - $2,000; Retained earnings (Cost of goods sold) - $2,000; Accounts receivable +

$3,400; Retained earnings (Sales) + $3,400Jan. 26: Cash - $4,200; Retained earnings (Wages) - $4,200

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Jan. 29: Cash - $20,000; Land + $20,000Jan. 31: Cash - $2,800; Prepaid insurance + $2,800

MARVIN COMPANY

BALANCE SHEET AS OF JANUARY 31, ----.Assets Liabilities

Cash .................................................. $12,500 Accounts payable ......................... $ 7,000Accounts receivable .......................... 3,400 Total current liabilities ................. $7,000Inventory ........................................... 46,500Current assets .................................... 62,400 Notes payable ............................... 20,000Land .................................................. 20,000 Total liabilities ............................. 27,000Prepaid insurance .............................. 2,800 Owners Equity

Capital .......................................... 55,000_______ Retained earnings ......................... 3,200

Total assets ................................. $85,200 Total liabilitiesand owners equity ...............

$85,200