Accounting Practice Problems: Assets, Liabilities, Cash Flow

Financial Reporting & Transaction Analysis

This section presents accounting scenarios focusing on financial statement impact and transaction analysis for various companies.

Problem AP8-8A: Whiskey Industries & Holding Ltd.

Whiskey Industries Ltd. Financial Transactions

Whiskey Industries Ltd., a Nanaimo, British Columbia–based company, has a December 31 year-end. The company's comparative statement of financial position and its statement of income for the most recent fiscal year are presented here, along with some additional information:

• During the year, Whiskey Industries sold, for $500 cash, equipment that had an original cost of $1,000 and a net carrying amount of $200.
• Whiskey Industries borrowed an additional $8,000 by issuing notes payable in 2020.
• During the year, the company purchased a piece of land for a future manufacturing site for $200,000. The land was purchased with no money down, and the company entered into a mortgage payable for the full amount.

Holding Ltd. Financial Statement Impact Analysis

Indicate how each of the following transactions would affect Holding Ltd.'s statement of income, statement of financial position, and statement of cash flows. If there would be no effect, then state that.

• a. Holding sold a piece of equipment for $37,000. The equipment had originally cost $164,000 and had a carrying amount of $45,000 at the time it was sold.
• b. Holding purchased a new piece of equipment to replace the equipment that had been sold. The new equipment had a cost of $218,000.
• c. Holding recorded the annual depreciation on its equipment in the amount of $129,000.

Asset Accounting: Acquisition, Depreciation, Disposal

This section details transactions related to the acquisition, depreciation, disposal, and replacement of specialized equipment.

Problem AP8-11A: Jijang Excavations Ltd. Equipment

Jijang Excavations Ltd. (JEL) operates specialized equipment for installing natural gas pipelines. JEL, which has a December 31 year-end, began 2020 with a single piece of equipment that had been purchased on January 1, 2017, for $40,000 and a truck that had been purchased on January 1, 2019, for $60,000. When the equipment was purchased, JEL's management had estimated that the equipment would have a residual value of $4,000 and a useful life of six years. When the truck was purchased, management determined that it would have a useful life of four years and a residual value of $5,000.

On March 31, 2020, JEL sold this piece of equipment for $29,000 cash. On April 12, 2020, JEL purchased replacement equipment with double the capacity for $82,000 cash. JEL's management determined that this equipment would have a useful life of six years and a residual value of $10,000.

Gift Card Accounting & Revenue Recognition

This section focuses on the accounting treatment of gift card sales and redemptions, including journal entries and financial statement impact.

Problem AP9-7A: Emile's Electronics Gift Cards

During the month of December, Emile's Electronics sells $7,500 of gift cards. From experience, Emile's management expects that 95% of the gift cards sold will be redeemed. In January, $5,000 of these cards is redeemed for merchandise with a cost of $3,000. In February, a further $1,500 of these cards is redeemed for merchandise with a cost of $1,000. The company uses a perpetual inventory system.

Questions for Emile's Electronics:

• a. Prepare journal entries to record the transactions for December, January, and February.
• b. How much income (if any) was earned in each of these months?
• c. What liability (if any) would appear on the company's statement of financial position at the end of each of these months?