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4. Assume the revenue recognition rule is the installment sales
method. Assume a customer agrees to pay $30,000 over the
next three years in three equal installments. The retailer's
cost of the item purchased is $24,000. Immediately after
the sale, the customer has physical possession of the
inventory, and the seller has a receivable with great
uncertainty. Prepare the journal entries at the time of sale
and at the time of the three installments. (6 points)
5. Fireflies Limited began retail operations on January 1, 2010.
On that date, it issued 10,000 shares of $1 par value
common stock for $50,000. On January 1, 2010, Fireflies
also borrowed $20,000 from a local back. The loan will be
due in three years, with 8% interest rate. Fireflies pays
interests every quarter. On January 31, Fireflies used
$36,000 of the proceeds to rent a store, paying in advance
for the next one year. Fireflies also purchased $12,000 of
merchandise on credit, agreeing to pay the supplier within
30 days. Prepare, in good format, Fireflies balance sheet as
of January 31, 2010. (8 points)
10. Sarah Company acquires common stock of Miriam
Enterprises for $400,000 on November 1, 2009, and
designates this investment as available-for-sale. The fair
value of these shares is $390,000 on December 31, 2009.
The fair value of these shares is $450,000 on December 31,
2010. Sarah sells these shares on August 15, 2011, for
$480,000. (10 points)
(a) The journal entries to record acquisition of securities available-
for-sale on November 1, 2009:
(b) The journal entries to measure securities available-for-sale on
December 31, 2009:
(c) The journal entries to measure securities available-for-sale on
December 31, 2010.
(a) The journal entries to record the sale of securities available-for-
sale on August 15, 2011.
(e) How much is the total income from the purchase and sale of
these securities is reported and when it is reported?
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9. Make necessary journal entries for the following dates and
events. (10 points)
a) On January 1, 2010, Hampton purchased equipment at a
cost of $400,000. The installation cost is $20,000. The
equipment has a 10 year life and an expected salvage value
at the end of 10 years of $20,000.
b) On December 31, 2010, Hampton determined that the fair
value of the equipment was $390,000 and no impairment
loss is incurred.
c) On January 1st, 2011, Hampton revised the useful life of the
computers to a total of 14 years to replace the original
assumption of 10 years and the salvage value to $30,000.