Problem 22- You have been assigned to examine the financial statements of Martin
ID: 2515562 • Letter: P
Question
Problem 22- You have been assigned to examine the financial statements of Martinez Company for the year ended December 31, 2017. You discover the following situations 1. Depreciation of $3,200 for 2017 on delivery vehicles was not recorded 2. The physical inventory count on December 31, 2016, improperly excluded merchandise costing $17,800 that had been temporarily stored in a public warehouse 3. A collection of $5,900 on account from a customer received on December 31, 2017, was not recorded until January 2, 2018 4. In 2017, the company sold for $4,000 fully depreciated equipment that originally cost $26,100. The company credited the proceeds from the sale to the Equipment 5. During November 2017, a competitor company filed a patent-infringement suit against Martinez claiming damages of $210,000. The company's legal counsel has Martinez uses a periodic inventory system account. indicated that an unfavorable verdict is probable and a reasonable estimate of the court's award to the competitor is $126,000. The company has not reflected on disclosed this situation in the financial statements 6. Martinez has a portfolio of trading investments. No entry has been made to adjust to market. Information on cost and fair value is as follows. Cost Fair Value December 31, 2016 December 31, 2017 $99,600 $79,000 $99,600 $76,800 7. At December 31, 2017, an analysis of payroll information shows accrued salaries of $13,200. The Salaries and Wages Payable account had a balance of $15,700 at December 31, 2017, which was unchanged from its balance at December 31, 2016 A large piece of equipment was purchased on January 3, 2017, for $41,400 and was charged to Maintenance and Repairs Expense. The equipment is estimated to have a service life of 8 years and no residual value. Martinez normally uses the straight-line depreciation method for this type of equipment. A 12,900 insurance premium paid on July 1, 2016, for a policy that expires on June 30, 2019, was charged to insurance expense 8. 9, 10 A trademark was acquired at the beginning of 2016 for $46,300. No amortization has been recorded since its acquisition. The maximum allowable amortization period is 10 years.Explanation / Answer
1) Depreciation A/c.... Dr $3200
To Delivery Vehicles A/c $3200
2) Stock A/c.... Dr $17,800
To PnL A/c $17,800
3) Cash / Bank A/c..... Dr $5,900
To Debtors A/c $5,900
4) Cash / Bank A/c..... Dr $4,000
To Profit on sale of equipment A/c/ PnL A/c $4,000
5) PnL A/c..... Dr $1,26,000
To Provision A/c $1,26,000
6) PnL A/c.... Dr $22,800
To Investments A/c $22,800
7) PnL A/c...... Dr $13,200
To Outstanding Salaries $13,200
8-a) Equipment A/c...... Dr $41,400
To Maintenance and Repairs A/c $41,400
8-b) Depreciation A/c..... Dr $5,175
To Provision for Depreciation A/c $5,175
9) Prepaid Insurance A/c.... dr (12900/12=1075 pm; 1075*6=6450) $6,450
To Insurance expense A/c $6,450
10) Amortisation A/c..... Dr $4,630
To Trademark A/c $4,630
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