On December 31, 2016, Price Company recorded the journalentries required for items #1-14 below. The entries record either:(a) annual adjusting entries at year-end or (b)transactions that occurred onDecember 31, 2016. Show all computations. Round any amounts to thenearest dollar.
1. The December 31, 2016, balance in Rent Revenue beforeadjusting entries is $36,000. This amount was received on July 1,2016, for an 18-month lease beginning on that date.
2. On December 31, 2016, Price recorded an adjusting entryrelated to a 10%, $500,000 note payable. The annual interestpayment on the note is due on January 1, 2017; the note is dueJanuary 1, 2019.
3. On December 31, 2016, Price received $9,000 for an annualinterest payment on Williams Company bonds that mature in 4 years.The 6% bonds have a face value of $150,000 were purchased to yield8%. The current balance in the Discount on bond investment accountis $7,731. Price classified this investment as held-to-maturity andused the effective interest method. The fair value of the bonds atyear-end was $170,000. Note: Itis not necessary to compute theprice/present value of the bond investment.
4. On December 31, 2016, Price received $47,000 from the sale of100 tablet devices. Each tablet came with 6-months of tech supportand service beginning on January 1, 2017. The stand-alone sellingprices are: tablet,$450 per device; tech support, $50 per tablet.COGS related to this sale is included in item #7.
5. On December 31, 2016, Price recorded bad debt expense usingthe allowance method. At the beginning of2016, the balances inAccounts Receivable and Allowance for Uncollectible Accounts were$1,000,000 and $50,000 (credit), respectively. In 2016, Pricerecorded net credit sales of $5,000,000 and cash collections of$4,700,000. Actual uncollectible accounts receivable written off in2016 were $100,000. Price estimated uncollectible accounts to be 5%of year-end Accounts Receivable.
6. On December 31, 2016, Price recorded interest on a 3-year,$100,000 noninterest-bearing note using the effective interestmethod. Price received the note from a customer on January 1, 2016.The effective interest rate was 10%. (Assume the sales revenuerecorded on January 1 is included in the 2016 preliminary netincome in part 2).
7. On December 31, 2016, Price the cost of goods sold entry forthe periodic recordkeeping system. Price used the FIFO inventorymethod and had 6,000 units left in ending inventory. The followinginventory information was available:
Jan. 1, 2016, beginning inventory 3,000 units at $100= $300,000
March purchases 8,000 units at $120 = 960,000
September purchases 5,000 units at $130 = 650,000
8. On December 31, 2016, the net realizable value of Priceâsinventory was $750,000. Price records LCNRV write-downs as separatelosses.
9. On December 31, 2016, the balance in the Building account was$6,000,000, the cost of construction of a new building that wascompleted at the end of the year and will be placed in service in2017. The average accumulated expenditures for this project were$3,200,000. On January 1, 2016, Price borrowed $4,000,000on a5-year, 9% note to finance construction. The interest on this noteis due January 1, 2017; Price has not recorded any interest relatedto this note in 2016.
10. During 2016, Price saw demand for one of its productsdecline and is concerned about whether the manufacturing machinerymay have suffered a permanent decline in value. On December 31,2016, the balances in the Machinery and Accumulated Depreciationaccounts were $1,100,000 and $400,000,respectively. At this time,Price estimated the future cash flows from the machinery to be$650,000 and the fair value to be $570,000. (Assume 2016depreciation has already been recorded.)
11. At the end of 2016, Price revised the estimated useful lifeof the companyâs corporate jet. The jet was purchased on January 1,2015, for $2,000,000. At that time, Price adopted straight-linedepreciation and estimated the jetâs useful life to be 15 years andresidual value to be $500,000. However, in 2016, Price dramaticallyreduced its use of the jet due to shareholdersâ scrutiny ofbenefits granted to corporate executives. At the end of 2016, thecompany expected that the jet will be sold at the end of 2018 at anestimated price of $1,000,000. 2016 depreciation has not yet beenrecorded on the jet.
12. In 2016, Price had investments in debt and equity securitiesclassified as available-for-sale and trading.The followinginformation is available on December 31, 2016 before the year-endfair value adjustment is recorded:
Available-for-salesecurities Tradingsecurities
Balance in Investment account $2,500,000(AFS) $1,350,000(TS)
Fair Value Adj. account, 1-1-16 100,000 credit(AFS)
Accumulated OCI, 1-1-16 100,000 debit(AFS)
Fair value, 12-31-16 2,700,000 (AFS) 800,000(TS)
13. Price owns 25% of the common stock of Harvey Company. At thebeginning of 2016, the balance in theInvestment in Harvey stock was$9,000,000. On December 31, 2016, Price received $250,000 in cashdividends from Harvey and was notified that Harveyâs 2016 netincome was $3,000,000. At the time, the fair value of Priceâsinvestment in Harvey was $8,700,000. No transactions have beenrecorded in 2016 related to the Harvey Co. investment.
14. On December 31, 2016, Price declared dividends of $30,000that will be paid to common shareholders on January 15, 2017.
