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E2-7 (Assumptions, Principles, and Constraints):
Presented below are the assumptions, principles,
and constraints used in this chapter.
1. Economic entity assumption 5.Historical-cost
principle 9. Materiality
2. Going-concern assumption 6.Matching principle
10. Industry practices
3. Monetary unit assumption 7. Full disclosure
principle 11. Conservatism
4. Periodicity assumption 8. Cost-benefit
relationship
Instructions

Identify by number the accounting assumption,
principle, or constraint that describes each
situation below. Do not use a number more than
once.
E2-8 (Assumptions, Principles, and Constraints):
Presented below are a number of operational
guidelines and practices that have developed over
time.
Instructions
Select the assumption, principle, or constraint that
most appropriately justifies these procedures and
practices. (Do not use qualitative characteristics.)
E3-1 (Transaction Analysis—Service Company)
Beverly Crusher is a licensed CPA. During the first
month of operations of her business (a sole
proprietorship), the following events and
transactions occurred.
E3-4 (Corrected Trial Balance): The trial balance
of Watteau Co. (shown on the next page) does not
balance.
E3-10 (Adjusting Entries) Greco Resort opened for
business on June 1 with eight air-conditioned
units. Its trial balance on August 31 is as follows.

E3-14 (Closing Entries)
Presented below is information related to
Gonzales Corporation for the month of January
2008.

Assignment NEW
assignment-new
E4-4
INSTRUCTIONS
Prepare a classified balance sheet in good form
(No monetary amounts are necessary)
E4-9
INSTRUCTIONS
Restate the current assets and liabilities sections
of the balance sheet in accordance with good
accounting practice. (Assume that both accounts

receivable and accounts payable are recorded
gross.)
Determine the net effect of your adjustments on
Allessandro Scarlatti Company's retained earning
balance.
E5-6
INSTRUCTIONS
Prepare a multiple-step income statement
Prepare a single-step income statement
E5-11
INSTRUCTIONS
Compute earnings per share data as it should
appear on the income statement of Tkachuk
Corporation.
E6-3
INSTRUCTIONS
Classify each of the transactions above as:
1) Operating activity
2) Operating activity

3) Investing activity
4) Financing activity
5) Not reported as
cash flow E6-9
INSTRUCTIONS
Prepare a statement of cash flows for 2008 for
Zubin Mehta Corporation
Determine Zubin Mehta Corporation's free cash
flow.

Assignment NEW
assignment-new
Exercise 7-5 (Recognition of Profit for Long-Term
Contracts) Andre Agassi Construction Company
began operations January 1, 2008. During the year,
Andre Agassi Construction entered into a contract
with Lindsey Davenport Corp. to construct a
manufacturing facility. At that time, Agassi
estimated that it would take 5 years to complete
the facility at a total cost of $4,500,000. The total
contract price for construction of the facility is
$6,300,000. During the year, Agassi incurred
$1,185,800 in construction costs related to the
construction project. The estimated cost to
complete the contract is $4,204,200. Lindsey
Davenport Corp. was billed and paid 30% of the
contract price.

Exercise 7-8 (Installment-Sales and Cost-Recovery
Methods) Kenny Harrison Corp., a capital goods
manufacturing business that started on January 4,
2008, and operates on a calendar-year basis, uses
the installment-sales method of profit recognition
in accounting for all its sales. The following data
were taken from the 2008 and 2009 records.
Exercise 8-9 (Computing Bad Debts and Preparing
Journal Entries) The trial balance before
adjustment of Reba McIntyre Inc. shows the
following balances.
Exercise 8-27 (Bank Reconciliation and Adjusting
Entries) Angela Lansbury Company deposits all
receipts and makes all payments by check. The
following information is available from the cash
records.
Exercise 9-12 (Compute FIFO, LIFO, Average-Cost-
Periodic) Presented below is information related
to Blowfish radios for Hootie Company for the
month of July.
Exercise 9-21 (Dollar-Value LIFO) Presented below
is information related to Dino Radja Company.

Assignment NEW
assignment-new
E10-12: (Depreciation Computations-SL, SYD,
DDB) Montoni Company purchases equipment on
January 1, year 1, at a cost of $ 469,000. The asset
is expected to have a service life of 12 years and a
salvage value of $ 40,000.
Instructions
Complete the amount of depreciation for each
years 1 through 3 using the straight-line
depreciation method.
years 1 through 3 using the sum-of-the-years’-
digits method.

years 1 through 3 using the double-declining
balance method. (In performing your calculations,
round constant percentage to the nearest one-
hundredth of a point and round answers to the
nearest dollar.
E10-27: (Capitalization of Interest) Harrisburg
Furniture Company started construction of a
combination office and warehouse building for its
own use at an estimated cost of $ 5,000,000 on
January 1, 2008. Harrisburg expected to complete
the building by December 31, 2008. Harrisburg
has the following debt obligations outstanding
during the construction period.
Construction loan-12% interest, payable
semiannually, issued
December 31, 2007
$ 2,000,000
Short-term loan-10% interest, payable monthly,
and principle payable
At maturity on May 30, 2009
1,400,000

Long-term loan- 11% interest, payable on January
1 of each
Year. Principle payable on January 1, 2012
1,000,000
E11-4: (Intangible Amortization) Presented below
is selected information for Alatorre Company.
Alatorre purchased a patent from Vania Co. for $
1,000,000 on January 1, 2006. The patent is being
amortized over its remaining legal life of 10 years,
expiring on January 1, 2016. During 2008, Alatorre
determined that the economic benefits of the
patent would not last longer than 6 years from the
date of acquisition. What amount should be
reported in the balance sheet for the patent, net of
accumulated amortization, at December 31, 2008?
Alatorre bought a franchise from Alexander Co on
January 1, 2007 for $ 400,000. The carrying
amount of the franchise on Alexander’s books on
January 1, 2007, was $ 500,000. The franchise
agreement had an estimated useful life of 30 years.
Because Alatorre must enter a competitive bidding
at the end of 2016, it is unlikely that the franchise
will be retained beyond 2016. What amount
should be amortized for the year ended December
31, 2008?

On January 1, 2008, Alatorre incurred
organization costs of $ 275,000. What amount of
organization expense should be reported in 2008?
Alatorre purchased the license for distribution of a
popular consumer product on January 1, 2008, for
$ 150,000. It is expected that this product will
generate cash flow for an indefinite period of time.
The license has an initial term of 5 years but by
paying the normal fee, Alatorre can renew the
license indefinitely for successive 5-year terms.
What amount should be amortized for the year
ended December 31, 2008?
E11-18: (Goodwill Impairment) Presented below is
net asset information related to the Carlos
Division of Santana, Inc.
Carlos Division
Net Assets
As of December 31, 2008
(in millions)
Cash
$ 50

Receivables
200
Property, plant, and equipment (net)
2,600 Goodwill
200 Less: Notes payable
(2,700)
Net assets
$ 350
The purpose of the Carlos division is to develop a
nuclear-powered aircraft. If successful, traveling
delayes associated with refueling could be
substantially reduced. Many other benefits would
also occur. To date, management has not had much
success and is deciding whether a writ-down at
this time is appropriate. Management estimated
its future net cash flows from the project to be $
400 million. Management has also received an
offer to purchase the division for $ 335 million. All
identifiable assets’ and liabilities’ book and fair
value amounts are the same.
Instructions
Prepare the journal entry (if any) to record the
impairment at December 31, 2008.

At December 31, 2009, it is estimated that the
division’s fair value increased to $ 345 million.
Prepare the journal entry (if any) to record this
increase in fair value.
E14-6: (Entries for Available-for-sale and Trading
Securities) The following information is available
Barkley Company at December 31, 2008, regarding
its investments.
Securities Cost
Fair Value
3,000 shares of Myers Corporation Common Stock
$ 40,000 $ 48,000
1,000 shares of Cole Incorporated Preferred Stock
25,000
$ 65,000
22,000
$ 70,000
Instructions
Prepare the adjusting entry (if any) for 2008,
assuming the securities are classified as trading.
Prepare the adjusting entry (if any) for 2008,
assuming the securities are classified as available-
for-sale.

Discuss how the amounts reported in the financial
statements are affected by the entries in (a) and
(b).
E14-13: (Equity Method) Parent Co. invested $ 1,
000,000 in Sub Co. for 25% of its outstanding
stock. Sub Co. pays out 40% of net income in
dividends each year.
Investment in Sub Co.
1,000,000
110,000
44,000
Instructions:
How much was Parent Co.’s shares of Sub Co.’s net
income for the year?
How much was Parent Co.’s shares of Sub Co.’s
dividends for the year?
What was Sub Co.’s total net income for the year?
What was Sub Co.’s total dividends for the year?

Assignment NEW
assignment-new
Exercise 12-7:
Exercise 12-18:
Exercise 13-8:
Exercise 13-22:
Exercise 15-6:
Exercise 15-22:

Assignment NEW
assignment-new
E16-1: (Compensated Absences) Zero Mostel
Company began operations on January 2, 2008. It
employs 9 individuals who work 8-hour days and
are paid hourly. Each employee earns 10 paid
vacation days and 6 paid sick days annually.
Vacation days may be taken after January 15 of the
year following the year in which they are earned.
Sick days may be taken as soon as they are earned;
unused sick days accumulate. Additional
information is as follows.
E16-12: (Basic Pension Worksheet) The following
defined-benefit pension data of Doreen Corp.
apply to the year 2008.

Projected benefits obligation, January 1, 2008
(before amendment)
$ 560,000
Plan assets, January 1, 2008
546,200
Pension liability
13,800
On January 1, 2008Doreen Corp., through plan
amendment, grants prior service benefits having a
present value of
100,000
Settlement rate
9%
Annual pension service cost
58,000
Contributions (funding)
55,000
Actual return on plan assets

52,280
Benefits paid to retirees
40,000
Prior service cost amortization for 2008
17,000
Instructions: For 2008, prepare a pension
worksheet for Doreen Corp. that shows the journal
entry for pension expense and the year-end
balance in the related pension accounts.
E17-2: (Lessee Computations and Entries; Capital
Lease with Guaranteed Residual Value) Delaney
Company leases an automobile with fair value of $
8,725 from John Simon Motors, Inc., on the
following terms.
Noncancelable term of 50, months.
Rental of $ 200 per month (at end of each month;
present value at 1% per month is $ 7,840).
Estimated residual value after 50 months is $
1,180. (The present value at 1% per month is $
715.) Delaney Company guarantees the residual
value of $ 1,180.

Estimated economic life of the automobile is 60
months.
Delaney Company’s incremental borrowing rate is
12% a year (1% a month). Simon’s implicit rate is
unknown.
Instructions:
What is the nature of this lease to Delaney
Company?
What is the present value of the minimum lease
payments?
Record the lease on Delaney Company’s books at
the date of inception.
Record the first month’s depreciation on Delaney
Company’s books. (Assume straight-line.)
Record the first month’s lease payment.
E17-8: (Amortization Schedule and Journal Entries
for Lessee) Laura Leasing Company signs an
agreement on January 1, 2008, to lease equipment
to Plote Company. The following information
relates to this agreement.

The term of the Noncancelable lease is 5 years
with no renewal option. The equipment has an
estimated economic life of 5 years.
The fair value of the asset at January 1, 2008, is $
80,000.
The asset will revert to the lessor at the end of the
lease term, at which time the asset is expected to
have a residual value of $ 7,000, none of which is
guaranteed.
Plote Company assumes direct responsibility for
all executor costs, which include the following
annual amounts: (1) $ 900 to Rocky Mountain
Insurance Company for insurance, and (2) $ 1,600
to Laclede County for property taxes.
The agreement requires equal annual rental
payments of $ 18,142.95 to the lessor, beginning
on January 1, 2008.
The lessee’s incremental borrowing rate is 12%.
The lessor’s implicit rate is 10% and is known to
the lessee.
Plote Company uses the straight-line depreciation
method for all equipment.
Plote uses reversing entries when appropriate.

Instructions: (Round all numbers to the nearest
cent.)
Prepare an amortization schedule that would be
suitable for the lessee for the lease term.
Prepare all of the journal entries for the lessee for
2008 and 2009 to record the lease agreement, the
lease payments, and all expenses related this
lease. Assume the lessee’s annual accounting
period ends on December 31.
E18-11: (Change in Estimate - Depreciation) Peter
M. Dell Co. purchased equipment for $ 510,000
which was estimated to have a useful life of 10
years with a salvage value of $ 10,000 at the end of
that time. Depreciation has been entered for 7
years on a straight-line basis. In 2008, it is
determined that the total estimated life should be
15 years with a salvage value of $ 5,000 at the end
of that time.
Instructions:
Prepare the entry (if any) to correct the prior
years’ depreciation.

Prepare the entry to record depreciation for 2008.
E18-23: (EPS with Convertible Bonds and
Preferred Stock) On January 1, 2008, Crocker
Company issued 10-year, $ 2,000,000 face value,
6% bonds, at par.
Each $ 1,000 bond is convertible into 15 shares of
Crocker common stock. Crocker’s net income in
2008 was $ 300,000, and its tax rate was 40%. The
company had 100,000 shares of common stock
outstanding throughout 2008. None of the bonds
were converted in 2008.
Instructions:
Compute diluted earnings per share for 2008.
Compute diluted earnings per share for 2008,
assuming the same facts as above, except that $
1,000,000 of 6% convertible preferred stock was
issued instead of the bonds. Each $ 100 preferred
shares are convertible into 5 shares of Crocker’s
common stock.

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