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Proper accounts to be debited and credited

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Problem # 1
The ledger accounts given below, with an identification number for each, are used by Tyler Company.
Instructions: Prepare appropriate adjusting entries for the year ended December 31, 2005, by replacing the appropriate identification number(s) in the debit and credit columns provided and the dollar amount in the adjoining column. Item 0 is given as an example.

1. Notes Receivable 10. Unearned Service Revenue
2. Accounts Receivable 11. Notes Payable
3. Interest Receivable 12. Interest Revenue
4. Supplies 13. Service Revenue
5. Prepaid Insurance 14. Depreciation Expense?Equipment
6. Equipment 15. Salaries Expense
7. Accumulated Depreciation?Equipment 16. Interest Expense
8. Salaries Payable 17. Supplies Expense
9. Interest Payable 18. Insurance Expense
??????????????????????????????????????????
Account(s) Account(s) Dollar
Entry Information Debited Credited Amount
??????????????????????????????????????????
0. Interest of $500 is accrued on a note 3 12 $500
receivable at December 31, 2005.
??????????????????????????????????????????
1. Tyler has three employees who earn $120 per $
day per person. At December 31, four days'
salaries have been earned but not paid.
??????????????????????????????????????????
2. A customer paid Tyler $10,000 on December 1, $
2005 for services to be rendered from December 1
through January 31, 2006. The receipt was credited
to a liability account.
??????????????????????????????????????????
3. Tyler purchased equipment costing $48,000 on $
January 1, 2004. Monthly depreciation is $1,000.
??????????????????????????????????????????
4. Tyler provided services to a customer in 2005 at a $
fee of $500. This fee has not yet been received or billed.
??????????????????????????????????????????
5. Tyler started the year with no supplies on hand. $
They purchased $8,000 in supplies during the year
and have $2,000 on hand at December 31. Supplies
were debited to an asset account when purchased.
??????????????????????????????????????????
6. Tyler paid $9,000 for a three-year insurance policy $
on July 1, 2005, debiting an asset account at that time.
??????????????????????????????????????????
7. Tyler borrowed $20,000 by signing a three-month, $
12% interest, note payable on November 1, 2005.
????????????????????????????????????????
8. Tyler purchased short-term investments on November 1, $
2005. Interest of $200 per month has been earned but
not received prior to December 31.

Problem # 2

The chart of accounts used by Klear Copy Company is listed below. You are to indicate the proper accounts to be debited and credited for the following transactions by writing the account number(s) in the appropriate boxes.
CHART OF ACCOUNTS
101 Cash 209 Unearned Revenue
112 Accounts Receivable 301 Common Stock
125 Paper Supplies 306 Dividends
157 Copy Machines 400 Photocopy Revenue
200 Note Payable 610 Advertising Expense
201 Accounts Payable 729 Rent Expense
???????????????????????????????????????????
Number(s) Number(s)
of account(s) of account(s)
debited credited
1. Tom Klear invests $90,000 cash to start the business.
???????????????????????????????????????????
2. Purchased three photocopy machines for $200,000, paying $50,000 cash and signing a 5-year, 10% note for the remainder.
???????????????????????????????????????????
3. Purchased $5,000 paper supplies on credit.
???????????????????????????????????????????
4. Cash photocopy revenue amounted to $7,000.
???????????????????????????????????????????
5. Paid $500 cash for radio advertising.
???????????????????????????????????????????
6. Paid $800 on account for paper supplies purchased in transaction 3.
???????????????????????????????????????????
7. Paid cash dividends of $1,500.
???????????????????????????????????????????
8. Paid $1,200 cash for rent for the current month.
???????????????????????????????????????????
9. Received $2,000 cash advance from a customer for future copying.
???????????????????????????????????????????
10. Billed a customer for $450 for photocopy work done.
???????????????????????????????????????????

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Problem # 1
The ledger accounts given below, with an identification number for each, are used by Tyler Company.
Instructions: Prepare appropriate adjusting entries for the year ended December 31, 2005, by replacing the appropriate identification number(s) in the debit and credit columns provided and the dollar amount in the adjoining column. Item 0 is given as an example.

1. Notes Receivable 10. Unearned Service Revenue
2. Accounts Receivable 11. Notes Payable
3. Interest Receivable 12. Interest Revenue
4. Supplies 13. Service Revenue
5. Prepaid Insurance 14. Depreciation Expense?Equipment
6. Equipment 15. Salaries Expense
7. Accumulated Depreciation?Equipment 16. Interest Expense
8. Salaries Payable 17. Supplies Expense
9. Interest Payable 18. Insurance Expense
??????????????????????????????????????????
Account(s) Account(s) Dollar
Entry Information Debited Credited Amount
??????????????????????????????????????????
0. Interest of $500 is accrued on a note 3 12 $500
receivable at December 31, 2005.
??????????????????????????????????????????
1. Tyler has three employees who earn $120 per 15 8 $480
day per person. At December 31, four days'
salaries have been earned but not paid.
??????????????????????????????????????????
2. A customer paid Tyler $10,000 on December 1, 10 13 $5000
2005 for services to be rendered from December 1
through January 31, 2006. The receipt was ...

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Proper Accounting Treatment for Leases

Your accounting firm has been hired to consult with the Graduate Manufacturing Company (GMC). GMC is preparing its annual financial statements as of December 31.

GMC entered into five separate lease arrangements at the beginning of the year. Each lease provides for annual lease payments at the beginning of each year. For each lease, GMC recorded the initial lease payment on January 2nd by debiting Lease Expense and crediting Cash for the lease payment amount.

You have been assigned to prepare a written report to be presented to GMC's senior management that explains the proper accounting treatment for each lease.

For each lease, you should include the following:

1. Any accounting entries needed to correctly state the accounting treatment for each lease. Keep in mind that GMC has already debited Lease Expense for the year's lease payment and you may have to include a correction for that entry.
2. A discussion of why these accounting entries are appropriate and necessary, from accounting theory and regulatory standpoints.
3. References to the appropriate accounting authority supporting your conclusions using the FASB's ASC suggested reference notation that can be found in the ASC Notice to Constituents, to the section level.

Lease 1

GMC leased a mid-size computer from the Wiz Bang Computer Company to serve as their network hub. The following facts apply to this lease:

Lease term: 5 years
Annual lease payment: $18,000
Computer's fair market value at the inception of the lease: $100,000
Computer's anticipated economic life: 6 years
GMC's borrowing rate: 9%
Present value factor for an annuity due for 5 periods at 9%: 4.23975

At the end of the lease term, the computer must be returned to Wiz Bang.
Lease 2

GMC leased a luxury car for the use of the company's president from the local Lexus dealership. The following facts apply to this lease:

Lease term: 3 years
Annual lease payment: $30,000
Ca'rs fair market value at the inception of the lease: $120,000
Car's anticipated economic life: 7 years
GMC's borrowing rate: 9%
Present value factor for an annuity due for 3 periods at 9%: 2.75911

At the end of the lease, the car can be purchased for its estimated fair market value or it must be returned to the dealer.

Lease 3

GMC leased a computerized industrial laser cutting machine from the Coherent Light Company to custom produce parts for one of their products. The following facts apply to this lease:

Lease term: 7 years
Annual lease payment: $10,000
Machine's fair market value at the inception of the lease: $60,000
Machine's anticipated economic life: 10 years
GMC's borrowing rate: 9%
Present value factor for an annuity due for 7 periods at 9%: 5.48592

At the end of the lease, the machine can be purchased for its estimated fair market value or it must be returned to Coherent Light.

Lease 4

GMC leased a diesel powered generator from the Always On Company for its administrative building that automatically starts whenever power is interrupted to the. The following facts apply to this lease:

Lease term: 10 years
Annual lease payment: $25,000
Generator's fair market value at the inception of the lease: $190,000
Generator's anticipated economic life: 14 years
GMC's borrowing rate: 9%
Present value factor for an annuity due for 10 periods at 9%: 6.99525

At the end of the lease, the generator can be purchased for $1 or it can be returned to Coherent Light.

Lease 5

GMC leased a video conferencing system from the I See You Company so that it can hold meetings with management from its various factories without incurring travel expenses. The following facts apply to this lease:

Lease term: 4 years
Annual lease payment: $44,000
Machine's fair market value at the inception of the lease: $175,000
Machine's anticipated economic life: 6 years
GMC's borrowing rate: 9%
Present value factor for an annuity due for 4 periods at 9%: 3.53130

At the end of the lease, the system becomes GMC's property.

As you prepare your report, keep in mind that your client is not an accountant and, consequently, your description should not utilize technical accounting jargon. It should be clearly written in layman's terms and logically explain the rationale behind the accounting entries. Do not simply copy verbiage from a textbook or pronouncement.

Use all of the resources available to you.

Grading will be based upon:

Accuracy of the accounting entries (25%)
Clarity, completeness and accuracy of the discussion (25%)
Accuracy of the references cited (25%)
Overall professionalism and appearance of the report (25%)

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