Stern Corporation (A)
Case 5-1 Stern Corporation (a)
Individuel Case Study
After the controller of Stern Corporation had ascertained the changes in accounts receivable and the allowance for doubtful accounts in 1998, a similar analysis was made of property, plant, and equipment and accumulated depreciation accounts. Again the controller examined the December 31, 1997, balance sheet [see Exhibit 1 of Stern Corporation (A)]. Also reviewed were the following company transactions that were found to be applicable to these accounts:
1. On January 2, 1998, one of the factory machines was sold for its book value, $3,866. This machine was recorded on the books at $31,233 with accumulated depreciation of $27,367.
2. Tools were carried on the books at cost, and at the end of each year a physical inventory was taken to determine what tools still remained. The account was written down to the extent of the decrease in tools as ascertained by the year-end inventory. At the end of 1998, it was determined that there had been a decrease in the tool inventory amounting to $7,850.
3. On March 1, 1998, the company sold for $2,336 cash an automobile that was recorded on the books at a cost of $8,354 and had an accumulated depreciation of $5,180, giving a net book value of $3,174 as of January 1, 1998. In this and other cases of the sale of long-lived assets during the year, the accumulated depreciation and depreciation expense items were both increased by an amount that reflected the depreciation chargeable for the months in 1998 in which the asset was held prior to the sale, at rates listed in 7 below.
4. The patent listed on the balance sheet had been purchased by the Stern Corporation on December 31, 1987, for $168,750. This patent had been granted on December 31, 1985. The cost of the patent was to be written off as an expense over the remainder of its legal life. (The legal life of a patent is 17 years from the date granted.)
5. On July 1, 1998, a typewriter that had cost $1,027 and had been
Individuel Case Study
After the controller of Stern Corporation had ascertained the changes in accounts receivable and the allowance for doubtful accounts in 1998, a similar analysis was made of property, plant, and equipment and accumulated depreciation accounts. Again the controller examined the December 31, 1997, balance sheet [see Exhibit 1 of Stern Corporation (A)]. Also reviewed were the following company transactions that were found to be applicable to these accounts:
1. On January 2, 1998, one of the factory machines was sold for its book value, $3,866. This machine was recorded on the books at $31,233 with accumulated depreciation of $27,367.
2. Tools were carried on the books at cost, and at the end of each year a physical inventory was taken to determine what tools still remained. The account was written down to the extent of the decrease in tools as ascertained by the year-end inventory. At the end of 1998, it was determined that there had been a decrease in the tool inventory amounting to $7,850.
3. On March 1, 1998, the company sold for $2,336 cash an automobile that was recorded on the books at a cost of $8,354 and had an accumulated depreciation of $5,180, giving a net book value of $3,174 as of January 1, 1998. In this and other cases of the sale of long-lived assets during the year, the accumulated depreciation and depreciation expense items were both increased by an amount that reflected the depreciation chargeable for the months in 1998 in which the asset was held prior to the sale, at rates listed in 7 below.
4. The patent listed on the balance sheet had been purchased by the Stern Corporation on December 31, 1987, for $168,750. This patent had been granted on December 31, 1985. The cost of the patent was to be written off as an expense over the remainder of its legal life. (The legal life of a patent is 17 years from the date granted.)
5. On July 1, 1998, a typewriter that had cost $1,027 and had been