Final Review Jawaban Intermediate

8/10/2019 Final Review Jawaban Intermediate

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Final Review Intermediate 1

Page2of33 Ehab Abdou (97672930)

c. Prepaid Insurance ......................................................................... 10,000Insurance Expense (30,000 -20,000) ............................ 10,000

d. Rent Expense (150,000 6)......................................................... 25,000Prepaid Rent ..................................................................... 25,000

e. Salaries and Wages Expense ....................................................... 22,000

Salaries and Wages Payable ............................................. 22,000

Part B.

a. Property, plant, and equipment3, 7

b. Current assets2, 4, 6, 10, 12

c. Equity13, 15

d. Non-current liabilities5

e. Current liabilities1, 11

Pr. 3-180Adjusting and closing entries.

The following trial balance was taken from the books of Fisk Corporation on December 31, 2010.Account Debit Credit

Cash $ 12,000Accounts Receivable 40,000Note Receivable 7,000Allowance for Doubtful Accounts $ 1,800Merchandise Inventory 44,000Prepaid Insurance 4,800Furniture and Equipment 125,000Accumulated Depreciation--F. & E. 15,000Accounts Payable 10,800

Share CapitalOrdinary 44,000Retained Earnings 55,000Sales 280,000Cost of Goods Sold 111,000Salaries Expense 50,000Rent Expense 12,800

Totals $406,600 $406,600At year end, the following items have not yet been recorded.a. Insurance expired during the year, $2,000.b. Estimated bad debts, 1% of gross sales.c. Depreciation on furniture and equipment, 10% per year.d. Interest at 6% is receivable on the note for one full year.

*e. Rent paid in advance at December 31, $5,400 (originally charged to expense).f. Accrued salaries at December 31, $5,800.

Instructions(a) Prepare the necessary adjusting entries.(b) Prepare the necessary closing entries.

Solution 3-180

(a) Adjusting Entries

a. Insurance Expense ............................................................... 2,000Prepaid Insurance ........................................................ 2,000

b. Bad Debt Expense ................................................................ 2,800Allowance for Doubtful Accounts .................................. 2,800


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c. Depreciation Expense .......................................................... 12,500Accumulated Depreciation--F. & E. .............................. 12,500

d. Interest Receivable ............................................................... 420Interest Revenue ......................................................... 420

*e. Prepaid Rent ........................................................................ 5,400Rent Expense .............................................................. 5,400

f. Salaries Expense .................................................................. 5,800Salaries Payable .......................................................... 5,800

(b) Closing Entries

Sales ........................................................................................... 280,000Interest Revenue ......................................................................... 420

Income Summary .............................................................. 280,420

Income Summary ......................................................................... 191,500Salaries Expense ............................................................... 55,800Rent Expense .................................................................... 7,400Depreciation Expense ........................................................ 12,500Bad Debt Expense ............................................................. 2,800Insurance Expense ............................................................ 2,000Cost of Goods Sold ............................................................ 111,000

Income Summary ......................................................................... 88,920Retained Earnings ............................................................. 88,920

Ex. 3-170Adjusting entries.

Present, in journal form, the adjustments that would be made on July 31, 2011, the end of the fiscalyear, for each of the following.

1. The supplies inventory on August 1, 2010 was7,350. Supplies costing20,150 were acquiredduring the year and charged to the supplies inventory. A count on July 31, 2011 indicatedsupplies on hand of8,810.

2. On April 30, a ten-month, 9% note for20,000 was received from a customer.

*3. On March 1,12,000 was collected as rent for one year and a nominal account was credited.

Solution 3-170

1. Supplies Expense ................................................................... 18,690Supplies ........................................................................ 18,690

2. Interest Receivable ................................................................. 450

Interest Revenue .......................................................... 450

*3. Rent Revenue ......................................................................... 7,000Unearned Revenue ...................................................... 7,000


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PROBLEMS

Pr. 4-146Income statement.

Presented below is information (in thousands) related to Chen Company.

Retained earnings, December 31, 2010 650,000Sales 1,400,000Selling and administrative expenses 240,000Loss on disposal of component (pre-tax) 290,000Cash dividends declared on common stock 33,600Cost of goods sold 780,000Gain resulting from computation error on depreciation charge in 2009 (pre-tax) 520,000Rent revenue 120,000Impairment loss 90,000Interest expense 10,000InstructionsPrepare in good form an income statement for the year 2011. Assume a 30% tax rate and thatthere were 80,000 ordinary shares outstanding during the year.

Solution 4-146

Chen CompanyINCOME STATEMENT

For the Year Ended December 31, 2011

Sales 1,400,000Cost of goods sold 780,000Gross profit 620,000

Selling and administrative expenses 240,000Other income and expense 120,000Impairment loss 90,000Income from operations 410,000Interest expense 10,000Income before taxes 400,000Income taxes (120,000)Income from continuing operations 280,000Discontinued operations, net of applicable income taxes of 87,000 (203,000)Net income 77,000

Per shareIncome from continuing operating 3.50Discontinued operations net of tax (2.54)Net income 0.96


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Pr. 4-147Income statement form.

Wilcox Corporation had income from continuing operations of $800,000 (after taxes) in 2011. Inaddition, the following information has not been considered.

1. A machine was sold for $140,000 cash during the year at a time when its book value was$110,000. (Depreciation has been properly recorded.) The company often sells machinery of

this type.

2. Wilcox decided to discontinue its stereo division in 2011. During the current year, the loss onthe disposal of this component of the business was $150,000 less applicable taxes.

InstructionsPresent in good form the income statement of Wilcox Corporation for 2011 starting with "incomefrom continuing operations." Assume that Wilcox's tax rate is 30% and 200,000 ordinary shareswere outstanding during the year.

Solution 4-147

Wilcox CorporationPartial Income Statement


Income from continuing operations $821,000*Discontinued operations

Loss on disposal of a component of a business,$150,000, less applicable income taxes, $45,000 (105,000)

Net income $716,000Per shareIncome from cont. operations $4.11

Discontinued operations, net of tax (0.53)Net income $3.58*Income from cont. operations (unadjusted) $800,000Gain on sale of machinery (after tax) 21,000Income from cont. operations (adjusted) $821,000


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Shown below is an income statement for 2011 that was prepared by a poorly trained bookkeeperof Howell Corporation.

Howell CorporationINCOME STATEMENT

December 31, 2011Sales revenue $945,000Investment revenue 19,500Cost of merchandise sold (408,500)Selling expenses (145,000)Administrative expense (215,000)Interest expense (13,000)Income before special item 183,000Special item

Loss on disposal of a component of the business (30,000)Net income tax liability (45,900)Net income $107,100

InstructionsPrepare a multiple-step income statement for 2011 for Howell Corporation that is presented inaccordance with IFRS (including format and terminology). Howell Corporation has 50,000 ordinaryshares outstanding and has a 30% income tax rate on all tax related items. Round all earnings pershare figures to the nearest cent.

Solution 4-148

Howell Corporation

INCOME STATEMENTFor the Year Ended December 31, 2011

Sales $945,000Cost of goods sold 408,500Gross profit 536,500Selling expenses $145,000Administrative expenses 215,000 360,000Other income: Investment revenue 19,500Income from operations 196,000Interest expense 13,000Income before income taxes 183,000

Income taxes 54,900Income from continuing operations 128,100Loss from discontinued operations, net of applicable income tax of $9,000 21,000Net income $107,100

Per share of shareIncome from continuing operations $2.56Discontinued operations loss net of tax (0.42)Net income $2.14


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Presented below is an income statement for Kinder Company for the year ended December 31,2011.

Kinder CompanyIncome Statement


Net sales $800,000Costs and expenses:

Cost of goods sold 640,000Selling, general, and administrative expenses 70,000Other, net 20,000 730,000

Income before income taxes 70,000Income taxes 21,000Net income $ 49,000

Additional information:

1. "Selling, general, and administrative expenses" included a charge of $7,000 for impairment ofintangibles.

2. "Other, net" consisted of interest expense, $10,000, and a discontinued operations loss of$10,000 before taxes. If the loss had not occurred, income taxes for 2011 would have been$24,000 instead of $21,000.

3. Kinder had 20,000 ordinary shares outstanding during 2011.

InstructionsPrepare a corrected income statement, including the appropriate per share disclosures.


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Solution 4-149

Kinder CompanyIncome Statement


Net sales $800,000

Cost of goods sold 640,000Gross profit $160,000Selling, general, and administrative expenses 63,000Other income and expenseLoss on impairment 7,000Income from operations 90,000Interest expense 10,000Income before taxes 80,000Income taxes 24,000Income from continuing operations 56,000Discontinued operations

Loss on disposal of component 10,000

Less applicable taxes 3,000 7,000Net income $ 49,000

Per shareIncome from continuing operations $2.80Discontinued operations, net of tax (0.35)Net income $2.45


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Pr. 4-150Income statement and retained earnings statement.

Wang Corporation's capital structure consists of 50,000 ordinary shares. At December 31, 2011 ananalysis of the accounts and discussions with company officials revealed the following information:

Sales 1,100,000Purchase discounts 18,000

Purchases 642,000Loss on discontinued operations (net of tax) 42,000Selling expenses 128,000Cash 60,000Accounts receivable 90,000Share capital 200,000Accumulated depreciation 180,000Dividend revenue 8,000Inventory, January 1, 2011 152,000Inventory, December 31, 2011 125,000Unearned service revenue 4,400Accrued interest payable 1,000

Land 370,000Patents 100,000Retained earnings, January 1, 2011 290,000Interest expense 17,000General and administrative expenses 150,000Dividends declared 29,000Allowance for doubtful accounts 5,000Notes payable (maturity 7/1/14) 200,000Machinery and equipment 450,000Materials and supplies 40,000Accounts payable 60,000

The amount of income taxes applicable to ordinary income was 48,600, excluding the tax effect ofthe discontinued operations loss which amounted to 18,000.

Instructions(a) Prepare an income statement.

(b) Prepare a retained earnings statement.


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Solution 4-150Wang Corporation

INCOME STATEMENTFor the Year Ended December 31, 2011

Sales 1,100,000Cost of goods sold:

Merchandise inventory, Jan. 1 152,000Purchases 642,000Less purchase discounts 18,000

Net purchases 624,000Merchandise available for sale 776,000Less merchandise inv., Dec. 31 125,000

Cost of goods sold 651,000

Gross profit 449,000Selling expenses 128,000General and administrative expenses 150,000 278,000

Other income and expense:Dividend revenue 8,000Income from operations 179,000Interest expense 17,000Income before income taxes 162,000Income taxes 48,600Income from continuing operations 113,400Discontinued operations

Loss on disposal, less applicable taxes of $18,000 42,000Net income 71,400

Per share of share capital

Income from continuing operations 2.27Discontinued operations, (0.84)Net income 1.43

Wang CorporationRETAINED EARNINGS STATEMENT


Retained earnings, January 1, 2011 290,000Add: Net income 71,400

Deduct: Dividends declared 29,000 42,400Retained earnings, December 31, 2011 332,400


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PROBLEMS

Pr. 5-130Statement of financial position presentation.

The following statement of financial position was prepared by the bookkeeper for Kraus Companyas of December 31, 2012.

Kraus CompanyStatement of Financial Positionas of December 31, 2012

Investments 76,300 Shareholders' equity 218,500Equipment (net) 96,000 Non-current liabilities 100,000Patents 32,000 Accounts payable 75,000Inventories 57,000Accounts receivable (net) 52,200Cash 80,000

393,500 393,500

The following additional information is provided:1. Cash includes the cash surrender value of a life insurance policy 9,400, and a bank overdraft

of 2,500 has been deducted.

2. The net accounts receivable balance includes:

(a) accounts receivabledebit balances 60,000;(b) accounts receivablecredit balances 4,000;(c) allowance for doubtful accounts 3,800.

3. Inventories do not include goods costing 3,000 shipped out on consignment. Receivables of3,000 were recorded on these goods.

4. Investments include investments in share capitalordinary, trading 19,000 and available-for-sale 48,300, and franchises 9,000.

5. Equipment costing 5,000 with accumulated depreciation 4,000 is no longer used and is heldfor sale. Accumulated depreciation on the other equipment is 40,000.

Instructions

Prepare a statement of financial position in good form (shareholders' equity details can be

omitted.)


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Solution 5-130

Kraus CompanyStatement of Financial Position

As of December 31, 2012

Assets

InvestmentsAvailable-for-sale securities 48,300Cash surrender value 9,400 57,700

Property, plant, and equipmentEquipment 135,000 (5)

Less accumulated depreciation 40,000 95,000

Intangible assetsPatents 32,000Franchises 9,000 41,000

Current assets*Equipment held for sale 1,000 (4)Inventories 60,000 (3)Accounts receivable 57,000 (2)Less: Allowance for doubtful accounts 3,800 53,200Trading securities 19,000Cash 73,100 (1)

Total current assets 206,300Total assets 400,000

Equity and LiabilitiesShareholders' equity 218,500

Non-current liabilities 100,000Current liabilities

Accounts payable 79,000 (6)Bank overdraft 2,500

Total current liabilities 81,500Total liabilities 181,500Total liabilities and shareholders' equity 400,000

(1) (80,0009,400 + 2,500)(2) (60,0003,000)(3) (57,000 + 3,000)(4) (5,0004,000)(5) (96,000 + 40,0005,000 + 4,000)(6) (75,000 + 4,000)

*An alternative is to show it as an other asset.


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Pr. 5-131Statement of financial position presentation.

Given the following account information for Leong Corporation, prepare a statement of financialposition in report form for the company as of December 31, 2012. All accounts have normalbalances.

Equipment 40,000

Interest Expense 2,400Interest Payable 600Retained Earnings ?Dividends 50,400Land 137,320Inventory 102,000Bonds Payable 78,000Notes Payable (due in 6 months) 14,400Share capitalordinary 60,000Accumulated Depreciation - Eq. 10,000Prepaid Advertising 5,000Revenue 331,400

Buildings 80,400Supplies 1,860Taxes Payable 3,000Utilities Expense 1,320Advertising Expense 1,560Salary Expense 53,040Salaries Payable 900Accumulated Depr. - Bld. 15,000Cash 30,000Depreciation Expense,

Building & Equipment 8,000


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Solution 5-131

Leong CorporationStatement of Financial Position

December 31, 2012Assets

Property, Plant and Equipment

Land 137,320Building 80,400Accumulated depreciation - building (15,000) 65,400Equipment 40,000Accumulated depreciation -equipment (10,000) 30,000

Total Property, Plant and Equipment 232,720Current Assets

Inventory 102,000Supplies 1,860Prepaid advertising 5,000Cash 30,000

Total Current Assets 138,860Total assets 371,580

Equity & LiabilitiesEquity

Share capital-ordinary 60,000Retained earnings (265,080*- 50,400) 214,680

Total shareholders' equity 274,680Non-current liabilities

Bond payable 78,000Current Liabilities

Notes payable 14,400Taxes payable 3,000

Salaries payable 900Interest payable 600

Total current liabilities 18,900

Total liabilities 96,900

Total liabilities & stockholders' equity 371,580

*331,400 - 53,040 - 8,000 - 2,400 - 1,560 - 1,320


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Pr. 5-132Statement of cash flows preparation.

Selected financial statement information and additional data for Stanislaus Co. is presented below.Prepare a statement of cash flows for the year ending December 31, 2012

December 31

2011 2012

Land 58,800 21,000Equipment .............................................. 504,000 789,600Inventory ................................................ 168,000 201,600Accounts receivable (net) ....................... 84,000 151,200Cash ....................................................... 42,000 63,000

TOTAL ........................................856,800 1,226,400

Share capitalordinary ............................420,000 487,200Retained earnings .................................. 67,200 205,800Notes payable - Long-term ..................... 168,000 302,400Notes payable - Short-term .................... 67,200 29,400

Accounts payable ................................... 50,400 86,000Accumulated depreciation ...................... 84,000 115,600

TOTAL ........................................856,800 1,226,400

Additional data for 2012:1. Net income was235,200.2. Depreciation was31,600.3. Land was sold at its original cost.4. Dividends of96,600 were paid.5. Equipment was purchased for84,000 cash.6. A long-term note for201,600 was used to pay for an equipment purchase.7. Share capitalordinary was issued to pay a67,200 long-term note payable.


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Solution 5-132

Stanislaus Co.Statement of Cash Flows

For the year ended December 31, 2012

Net Income 235,200

Cash flow from operating activitiesDepreciation expense 31,600Increase in accounts receivable (67,200)Increase in inventory (33,600)Increase in accounts payable 35,600Decrease in short-term notes payable (37,800) (71,400)

Net cash provided by operating activities 163,800

Cash flow from investing activitiesPurchase equipment (84,000)Sale of land 37,800

Net cash used by investing activities (46,200)

Cash flow from financing activitiesPayment of cash dividend (96,600)

Net increase in cash 21,000Cash at beginning of year 42,000Cash at end of the year 63,000

Noncash investing and financing activities

Payment of long-term note payable with issuance of67,200 of share capitalordinary

Long-term note issued as payment of equipment purchase,201,600


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Pr. 5-133Statement of cash flows preparation.

Selected financial statement information and additional data for Johnston Enterprises is presentedbelow. Prepare a statement of cash flows for the year ending December 31, 2012

Johnston EnterprisesStatement of Financial Position and Income Statement Data

December 31, December 31,2012 2011___Property, Plant, and Equipment HK$1,241,000 HK$1,122,000Less: Accumulated Depreciation (476,000) (442,000)

765,000 680,000Current Assets:

Inventory 391,000 340,000Accounts Receivable 238,000 306,000Cash 153,000 119,000

Total Current Assets 782,000 765,000

Total Assets HK$1,547,000 HK$1,445,000

Shareholders' Equity:Share capitalordinary HK$ 510,000 HK$ 467,500Retained Earnings 374,000 340,000

Total Shareholders' Equity 884,000 807,500

Non-Current Liabilities:Bonds Payable 340,000 391,000

Current Liabilities:Accounts Payable 187,000 102,000Notes Payable 51,000 68,000

Income Tax Payable 85,000 76,500Total Current Liabilities 323,000 246,500

Total Liabilities 663,000 637,500

Total Liabilities & Shareholders' Equity HK$1,547,000 HK$1,445,000

Sales HK$1,615,000 HK$1,513,000Less Cost of Goods Sold 731,000 731,000Gross Profit 884,000 782,000Expenses:

Depreciation Expense 153,000 136,000Salary Expense 391,000 357,000Interest Expense 34,000 34,000Loss on Sale of Equipment 17,000 0

Income Before Taxes 289,000 255,000Less Income Tax Expense 119,000 102,000Net Income HK$ 170,000 HK$ 153,000

Additional Information:During the year, Johnston sold equipment with an original cost of HK$153,000 and accumulated

depreciation of HK$119,000 and purchased new equipment for HK$272,000.


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Solution 5-133

Johnston EnterprisesStatement of Cash Flows


Net Income HK$ 170,000

Cash flow from operating activitiesDepreciation expense HK$153,000Loss on sale of equipment 17,000Decrease in accounts receivable 68,000Increase in inventory (51,000)Increase in accounts payable 85,000Decrease in notes payable (17,000)Increase in tax payable 8,500 263,500

Net cash provided by operating activities 433,500

Cash flow from investing activities

Sale of equipment 17,000Purchase of equipment (272,000)

Net cash used by investing activities (255,000)

Cash flow from financing activitiesRetirement of bonds payable (51,000)Issuance of share capitalordinary 42,500Payment of dividends (136,000)**

Net cash used by financing activities (144,500)

Net increase in cash 34,000Beginning cash 119,000

Cash at end of year HK$153,000

**Beginning R/E Net income Dividends Ending R/EHK$340,000 HK$170,000 Dividends HK$374,000Dividends HK$136,000


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PROBLEMS

Pr. 7-159Entries for bad debt expense.

The trial balance before adjustment of Risen Company reports the following balances:

Dr. Cr.

Accounts receivable $100,000Allowance for doubtful accounts $ 2,500Sales (all on credit) 750,000Sales returns and allowances 40,000

Instructions

(a) Prepare the entries for estimated bad debts assuming that doubtful accounts are estimated tobe (1) 6% of gross accounts receivable and (2) 1% of net sales.

(b) Assume that all the information above is the same, except that the Allowance for DoubtfulAccounts has a debit balance of $2,500 instead of a credit balance. How will this differenceaffect the journal entries in part (a)?

Solution 7-159

(a) (1) Bad Debt Expense ......................................................... 3,500Allowance for Doubtful Accounts ........................ 3,500

Gross receivables $100,000Rate 6%Total allowance needed 6,000Present allowance (2,500)Bad debt expense $ 3,500

(2) Bad Debt Expense ......................................................... 7,100Allowance for Doubtful Accounts ........................ 7,100

Sales $750,000Sales returns and allowances (40,000)Net sales 710,000Rate 1%Bad debt expense $ 7,100

(b) The percentage of receivables approach would be affected as follows:

Gross receivables $100,000Rate 6%Total allowance needed 6,000Present allowance 2,500Additional amount required $ 8,500

The journal entry is therefore as follows:Bad Debt Expense ......................................................... 8,500

Allowance for Doubtful Accounts ........................ 8,500


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Pr. 7-160Amortization of discount on note.

On December 31, 2010, Green Company finished consultation services and accepted in exchangea promissory note with a face value of $400,000, a due date of December 31, 2013, and a statedrate of 5%, with interest receivable at the end of each year. The fair value of the services is notreadily determinable and the note is not readily marketable. Under the circumstances, the note is

considered to have an appropriate imputed rate of interest of 10%.

The following interest factors are provided:Interest Rate

Table Factors For Three Periods 5% 10%Future Value of 1 1.15763 1.33100Present Value of 1 .86384 .75132Future Value of Ordinary Annuity of 1 3.15250 3.31000Present Value of Ordinary Annuity of 1 2.72325 2.48685

Instructions(a) Determine the present value of the note.

(b) Prepare a Schedule of Note Discount Amortization for Green Company under the effectiveinterest method. (Round to whole dollars.)

Solution 7-160

(a) Present value of interest = $20,000 2.48685 = $ 49,737Present value of maturity value = $400,000 .75132 = 300,528

$350,265

(b) Green CompanySchedule of Note Discount Amortization

Effective Interest Method5% Note Discounted at 10% (Imputed)

Cash Effective Unamortized PresentInterest Interest Discount Discount Value

Date (5%) (10%) Amortized Balance of Note12/31/10 $49,735 $350,26512/31/11 $20,000 $ 35,027 $15,027 34,708 365,29212/31/12 20,000 36,529 16,529 18,179 381,82112/31/13 20,000 38,179* 18,179 0 400,000

$60,000 $109,735 $49,735

*$3 adjustment to compensate for rounding.

Pr. 7-161Accounts receivable assigned.

Prepare journal entries for Mars Co. for:

(a) Accounts receivable in the amount of $500,000 were assigned to Utley Finance Co. by Mars assecurity for a loan of $425,000. Utley charged a 3% commission on the accounts; the interestrate on the note is 12%.

(b) During the first month, Mars collected $200,000 on assigned accounts after deducting $450 ofdiscounts. Mars wrote off a $530 assigned account.

(c) Mars paid to Utley the amount collected plus one month's interest on the note.


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Solution 7-161

(a) Cash ....................................................................................... 410,000Finance Charge......................................................................... 15,000

Notes Payable ............................................................... 425,000

(b) Cash ....................................................................................... 200,000Sales Discounts ........................................................................ 450Allowance for Doubtful Accounts ............................................... 530

Accounts Receivable ..................................................... 200,980

(c) Notes Payable ........................................................................... 200,000Interest Expense ....................................................................... 4,250

Cash .............................................................................. 204,250


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Pr. 7-162Factoring Accounts Receivable.

On May 1, Dexter, Inc. factored $800,000 of accounts receivable with Quick Finance on a withoutrecourse basis. Under the arrangement, Dexter was to handle disputes concerning service, andQuick Finance was to make the collections, handle the sales discounts, and absorb the creditlosses. Quick Finance assessed a finance charge of 6% of the total accounts receivable factoredand retained an amount equal to 2% of the total receivables to cover sales discounts.

Instructions

(a) Prepare the journal entry required on Dexter's books on May 1.

(b) Prepare the journal entry required on Quick Finances books on May 1.

(c) Assume Dexter factors the $800,000 of accounts receivable with Quick Finance on a withrecourse basis instead. Prepare the journal entry required on Dexters books on May 1.

Solution 7-162

(a) Cash ............................................................................................. 736,000Due from Factor (2% $800,000)................................................. 16,000Loss on Sale of Receivables (6% $800,000) ............................. 48,000

Accounts Receivable .................................................... 800,000

(b) Accounts Receivable .................................................................... 800,000Due to Dexter ..................................................................... 16,000Financing Revenue ............................................................. 48,000Cash .................................................................................. 736,000

(c) Cash ............................................................................................. 736,000

Due from Factor .......................................................................... 16,000Finance Charge.. .......................................................................... 48,000

Accounts Receivable .......................................................... 800,000


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Ex. 8-173FIFO and Average Cost Mitchell Companys record of transactions for the month ofJune was as follows.

Purchases SalesJune 1 (balance on hand) 600 @ $3.00 June 3 (balance on hand) 500 @ $5.00

4 1,500 @ 3.04 9 1,300 @ 5.00

8 800 @ 3.20 11 600 @ 5.5013 1,200 @ 3.25 23 1,200 @ 5.5021 700 @ 3.30 27 900 @ 6.0029 500 @ 3.13 4,500

5,300

Instructions(a) Assuming that periodic inventory records are kept, compute the inventory at

June 30 using (1) FIFO and (2) average cost.(b) Assuming that perpetual inventory records are kept in both units and dollars, determine the

inventory at June 30 using (1) FIFO and (2) average cost.

Solution 8-173

(a) 1. FIFO 500 @ 3.13 = $1,565300 @ 3.30 = 990

$2,555

2. Average Cost

Total cost = $16,695* = $3.15 average cost per unitTotal units 5,300

800 @ 3.15 = $2,520

*Units Price Total Cost600 @ $3.00 = $1,800

1,500 @ $3.04 = 4,560800 @ $3.20 = 2,560

1,200 @ $3.25 = 3,900700 @ $3.30 = 2,310500 @ $3.13 = 1,565

5,300 $16,695


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Solution 8-173 (Continued)

(b) 1. FIFO 500 @ 3.13 = $1,565300 @ 3.30 = 990

$2,555

2. Average Cost

Purchase Sold BalanceNo. of Unit No. of Unit No. of Unit

Date units cost units cost units cost AmountJune 1 600 $3.0000 $1,800

3 500 $3.000 100 3.0000 3004 1,500 $3.04 1,600 3.0375 4,8608 800 3.20 2,400 3.0917 7,4209 1,300 3.0917 1,100 3.0917 3,401

11 600 3.0917 500 3.0917 1,54613 1,200 3.25 1,700 3.2035 5,44621 700 3.30 2,400 3.2317 7,75623 1,200 3.2317 1,200 3.2317 3,87827 900 3.2317 300 3.2317 96929 500 3.13 800 3.1675 2,534

Inventory June 30 is $2,534

PROBLEMS

Pr. 8-178Inventory cut-off.

Vogts Company sells TVs. The perpetual inventory was stated as $28,500 on the books atDecember 31, 2010. At the close of the year, a new approach for compiling inventory was usedand apparently a satisfactory cut-off for preparation of financial statements was not made. Someevents that occurred are as follows.

1. TVs shipped to a customer January 2, 2011, costing $5,000 were included in inventory atDecember 31, 2010. The sale was recorded in 2011.

2. TVs costing $12,000 received December 30, 2010, were recorded as received on January 2,2011.

3. TVs received during 2010 costing $4,600 were recorded twice in the inventory account.

4. TVs shipped to a customer December 28, 2010, f.o.b. shipping point, which cost $10,000, werenot received by the customer until January, 2011. The TVs were included in the endinginventory.

5. TVs on hand that cost $6,100 were never recorded on the books.

InstructionsCompute the correct inventory at December 31, 2010.


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Solution 8-178

Inventory per books $28,500Add: Shipment received 12/30/10 $12,000

TVs on hand 6,100 18,10046,600

Deduct: TVs recorded twice 4,600TVs shipped 12/28/10 10,000 14,600Correct inventory 12/31/10 $32,000

Pr. 8-179Analysis of errors.

(All sales and purchases are on credit.)Indicate in each of the spaces provided the effect of the described errors on the various elementsof a company's financial statements. Use the following codes: O = amount is overstated; U =amount is understated; NE = no effect. Assume a periodic inventory system.

Accounts Accounts Cost ofReceivable Inventory Payable Sales Goods Sold

EXAMPLE: Excluded goods in rentedwarehouse from inventory NE U NE NE Ocount.

___________________________________________________________________________

1. Goods in transit shipped "f.o.b.destination" by supplier wererecorded as a purchase but wereexcluded from ending inventory.

___________________________________________________________________________

2. Goods held on consignment wereincluded in inventory count andrecorded as a purchase.

___________________________________________________________________________

3. Goods in transit shipped "f.o.b.shipping point" were not recordedas a sale and were included inending inventory.

___________________________________________________________________________

4. Goods were shipped and appro-

priately excluded from endinginventory but sale was notrecorded.

___________________________________________________________________________

Solution 8-179

1. NE NE O NE O2. NE O O NE NE3. U O NE U U

4. U NE NE U NE


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Ex. 9-145Lower-of-cost-or-net realizable value.

The December 31, 2010 inventory of Gwynn Company consisted of four products, for which certaininformation is provided below.

Estimated Expected EstimatedProduct Original Cost Completion Cost Selling Price Cost to sell

A $25 $6 $40 $4

B $42 $12 $58 $8C $120 $25 $150 $15D $18 $3 $26 $2

InstructionsUsing the lower-of-cost-or-net realizable value approach applied on an individual-item basis,compute the inventory valuation that should be reported for each product on December 31, 2010.

Solution 9-145Lower-of-

Net Real. Cost-or-Product Value Cost NRV

A $30 $25 $25

B $38 $42 $38

C $110 $120 $110

D $21 $18 $18

Ex. 9-146LCNRV

Pinkel Company uses the LCNRV method, on an individual-item basis, in pricing its inventoryitems. The inventory at December 31, 2011, consists of products D,E,F,G,H, and I, Relavant per-unit data for these products appear below.

Item Item Item Item Item ItemD E F G H I

Estimated selling price 180 165 140 135 165 135Cost 110 120 120 120 75 54Cost to complete 45 45 35 50 45 45Selling costs 15 27 15 30 15 30

InstructionsUsing the LCNRV rule, determine the proper unit value for statement of financial position reportingpurposes at December 31, 2011, for each of the inventory items above.


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Solution 9-146Net

Realizable.Item Value Cost LCNRV

D 120* 110 110

E 93 120 93

F 90 120 90

G 55 120 55

H 105 75 75

1 60 54 54*Estimated selling priceEstimated selling costs and cost tocomplete =180 45 15 = 120.

Ex. 9-147LCNRVJournal Entries

Dover Company began operations in 2010 and determined its ending inventory at cost and at aLCNRV at December 31, 2010, and December 31, 2011. This information is presented below.

Cost Net Realizable Value

12/31/10 520,000 485,000

12/31/11 615,000 585,000

Instructions(a) Prepare the journal entries required at December 31, 2010, and December 31, 2011,

assuming that the inventory is recorded at LCNRV, using a perpetual inventory system andthe cost-of-goods-sold method.

(b) Prepare the journal entries required at December 31, 2010, and December 31, 2011,assuming that the inventory is recorded at cost, using a perpetual system and the lossmethod.

(c) Which of the two methods above provides the higher net income in each year?

Solution 9-147(a) 12/31/10 Cost of Goods Sold 35,000

Allowance to ReduceInventory to NRV.. 35,000

12/31/11 Allowance to ReduceInventory to NRV..5,000

Costs of Goods Sold 5,00035,000(615,000 585,000)

(b) 12/31/10 Loss Due to Decline ofInventory to NRV35,000

Allowance to ReduceInventory to NRV.. 35,000


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Solution 9-147 cont.

12/31/11 Allowance to ReduceInventory to NRV..5,000

Recovery or Inventory Loss 5,000

(c) Both methods provide the same net income.

Ex. 9-150Gross profit method.

An inventory taken the morning after a large theft discloses $60,000 of goods on hand as of March12. The following additional data is available from the books:

Inventory on hand, March 1 $ 84,000Purchases received, March 111 63,000Sales (goods delivered to customers) 120,000

Past records indicate that sales are made at 50% above cost.

InstructionsEstimate the inventory of goods on hand at the close of business on March 11 by the gross profitmethod and determine the amount of the theft loss. Show appropriate titles for all amounts in yourpresentation.

Solution 9-150

Beginning Inventory $ 84,000Purchases 63,000Goods Available 147,000

Goods Sold ($120,000 150%) 80,000Estimated Ending Inventory 67,000Physical Inventory 60,000Theft Loss $ 7,000


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On January 1, a store had inventory of $48,000. January purchases were $46,000 and Januarysales were $90,000. On February 1 a fire destroyed most of the inventory. The rate of gross profitwas 25% of cost. Merchandise with a selling price of $5,000 remained undamaged after the fire.Compute the amount of the fire loss, assuming the store had no insurance coverage. Label allfigures.

Solution 9-151

Beginning Inventory $ 48,000Purchases 46,000Goods available 94,000Cost of sale ($90,000 125%) (72,000)Estimated ending inventory 22,000Cost of undamaged inventory ($5,000 125%) (4,000)Estimated fire loss $18,000


Utley Co. prepares monthly income statements. Inventory is counted only at year end; thus, month-end inventories must be estimated. All sales are made on account. The rate of mark-up on cost is20%. The following information relates to the month of May.

Accounts receivable, May 1 $21,000Accounts receivable, May 31 27,000Collections of accounts during May 90,000Inventory, May 1 45,000

Purchases during May 58,000

InstructionsCalculate the estimated cost of the inventory on May 31.

Solution 9-152

Collections of accounts $ 90,000Add accounts receivable, May 31 27,000Deduct accounts receivable, May 1 (21,000)Sales during May $ 96,000

Inventory, May 1 $ 45,000Purchases during May 58,000Goods available 103,000Cost of sales ($96,000 120%) (80,000)Estimated cost of inventory, May 31 $ 23,000


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Ex. 9-153Retail Inventory Method.

Presented below is information related to Kuchinsky Company.

Cost Retail

Beginning inventory 280,000 390,000

Purchases 1,820,000 3,000,000

Markups 130,000

Markup cancellations 20,000

Markdowns 47,000

Markdown cancellations 7,000

Sales 3,150,000

InstructionsCompute the inventory by the conventional retail inventory method.

Solution 9-153Cost Retail

Beginning inventory. 280,000 390,000Purchases. 1,820,000 3,000,000

Totals.. 2,100,000 3,390,000Add: Net marksups

Markups. 130,000Markup cancellations (20,000) 110,000

Totals 2,100,000 3,500,000

Deduct: Net markdownsMarkdowns 47,000Markup cancellations (7,000) 40,000

Sales price of goods available.. 3,460,000Deduct: Sales.. 3,150,000Ending Inventory ay retail.. 310,000

Cost-to-retail ratio =2,100,000

60%3,500,000

Ending inventory at cost = 60% 310,000 =186,000


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Pr. 9-155Gross profit method.

On December 31, 2010 Felt Company's inventory burned. Sales and purchases for the year hadbeen $1,400,000 and $980,000, respectively. The beginning inventory (Jan. 1, 2010) was$170,000; in the past Felt's gross profit has averaged 40% of selling price.

Instructions

Compute the estimated cost of inventory burned, and give entries as of December 31, 2010 toclose merchandise accounts.

Solution 9-155

Beginning inventory $ 170,000Add: Purchases 980,000Cost of goods available 1,150,000Sales $1,400,000Less 40% (560,000) 840,000Estimated inventory lost $ 310,000

Sales ............................................................................................... 1,400,000Income Summary ................................................................ 1,400,000

Cost of Goods Sold ......................................................................... 840,000Fire Loss ......................................................................................... 310,000

Inventory ............................................................................. 170,000Purchases ........................................................................... 980,000

Pr. 9-156Retail inventory method.

When you undertook the preparation of the financial statements for Telfer Company at January 31,2011, the following data were available:At Cost At Retail

Inventory, February 1, 2010 $70,800 $ 98,500Markdowns 35,000Markups 63,000Markdown cancellations 20,000Markup cancellations 10,000Purchases 219,500 294,000Sales 345,000Purchases returns and allowances 4,300 5,500Sales returns and allowances 10,000

InstructionsCompute the ending inventory at cost as of January 31, 2011, using the retail method whichapproximates lower of cost or net realizable value. Your solution should be in good form withamounts clearly labeled.


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Solution 9-156At Cost At Retail

Beginning inventory, 2/1/10 $ 70,800 $ 98,500Purchases $219,500 $294,000

Less purchase returns 4,300 215,200 5,500 288,500Totals $286,000 387,000

Add markups (net) 53,000Totals 440,000

Deduct markdowns (net) 15,000Sales price of goods available 425,000Sales less sales returns 335,000Ending inventory, 1/31/11 at retail $ 90,000Ending inventory at cost: Ratio of cost to retail =

$286,000 $440,000 = 65%;$90,000 65% = $58,500 $ 58,500


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Pr. 9-157Retail inventory method.

Presented below is information related to Carpenter Inc.Cost Retail

Inventory, 12/31/10 $375,000 $ 550,000Purchases 1,369,000 2,050,000

Purchase returns 90,000 120,000Purchase discounts 27,000 Gross sales (after employee discounts) 2,110,000Sales returns 145,000Markups 180,000Markup cancellations 60,000Markdowns 65,000Markdown cancellations 30,000Freight-in 63,000 Employee discounts granted 12,000Loss from breakage (normal) 8,000

InstructionsAssuming that carpenter Inc. uses the conventional retail inventory method, compute the cost of itsending inventory at December 31, 2011.

Solution 9-157Cost Retail

Beginning Inventory.. $ 375,000 $ 550,000Purchases.. 1,369,000 2,050,000Purchase returns (90,000) (120,000)Purchase discounts (27,000)

Freight-in.. 63,000 Markups $ 180,000 Markup cancellations. (60,000) 120,000

Totals. $1,690,000 2,600,000Markdowns.. (65,000) Markdown cancellations 30,000 (35,000)Sales. (2,110,000) Sales returns 145,000 (1,965,000)Inventory losses due to breakage. (8,000)Employee discounts (12,000)Ending inventory at retail $ 580,000

Cost-to-retail ratio =$1,690,500

65%$2,600,000

Ending inventory at cost: $580,000 x 65% = $377,000

Documents

Final Review Jawaban Intermediate