Question 1 (6-1A):
For each of these five separate cases, identify the principle(s) of internal control that is violated. Recommend what the business should do to ensure adherence to principles of internal control.
Please select just one principle that indicates the primary violation per item.
Question 2 (6-4A):
Prepare a bank reconciliation and record adjustments:
The following information is available to reconcile Clark Company's book balance of cash with its bank statement cash balance as of July 31, 2011.
Question 3 (9-2A):
Warranty expense and liability estimation:
On October 29, 2010, Lue Co. began operations by purchasing razors for resale. Lue uses the perpetual inventory method. The razors have a 90-day warranty that requires the company to replace any nonworking razor. When a razor is returned, the company discards it and mails a new one from Merchandise Inventory to the customer. The company's cost per new razor is $18 and its retail selling price is $80 in both 2010 and 2011. The manufacturer has advised the company to expect warranty costs to equal 7% of dollar sales. The following transactions and events occurred.
Question 4 (9-5A):
Entries for payroll transactions:
On January 8, the end of the first weekly pay period of the year, Royal Company's payroll register showed that its employees earned $11,380 of office salaries and $32,920 of sales salaries. Withholdings from the employees' salaries include FICA Social Security taxes at the rate of 6.2%, FICA Medicare taxes at the rate of 1.45%, $6,340 of federal income taxes, $670 of medical insurance deductions, and $420 of union dues. No employee earned more than $7,000 in this first period.
Question 5 (8-1A):
Plant asset costs; depreciation methods:
Xavier Construction negotiates a lump-sum purchase of several assets from a company that is going out of business. The purchase is completed on January 1, 2011, at a total cash price of $787,500 for a building, land, land improvements, and four vehicles. The estimated market values of the assets are building, $408,000; land, $289,000; land improvements, $42,500; and four vehicles, $110,500. The company's fiscal year ends on December 31.
Question 6 (8-7A):
On July 23 of the current year, Dakota Mining Co. pays $4,836,000 for land estimated to contain 7,800,000 tons of recoverable ore. It installs machinery costing $390,000 that has a 10-year life and no salvage value and is capable of mining the ore deposit in eight years. The machinery is paid for on July 25, seven days before mining operations begin. The company removes and sells 400,000 tons of ore during its first five months of operations ending on December 31. Depreciation of the machinery is in proportion to the mine's depletion as the machinery will be abandoned after the ore is mined.
Prepare entries to record (a) the purchase of the land, (b) the cost and installation of machinery, (c) the first five months' depletion assuming the land has a net salvage value of zero after the ore is mined, and (d) the first five months' depreciation on the machinery.
Describe both the similarities and differences in amortization, depletion, and depreciation.
Question 7 (10-1A):
Computing bond price and recording issuance:
(Round dollar amounts to the nearest whole dollar. Assume no reversing entries are used.)
Stowers Research issues bonds dated January 1, 2011, that pay interest semiannually on June 30 and December 31. The bonds have a $20,000 par value and an annual contract rate of 10%, and they mature in 10 years.
For each of the following three separate situations, (a) determine the bonds' issue price on January 1, 2011, and (b) prepare the journal entry to record their issuance:
Question 8 (10-2A):
Straight-line amortization of bond discount:
Heathrow issues $2,000,000 of 6%, 15-year bonds dated January 1, 2011, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $1,728,224.\