Inventory
Problem no. 1
Alou Appliance Center accumulates the following cost and market data at December 31.
Inventory Categories
Cost Data
Market Data
Cameras
$12,000
$12,100
Camcorders
$9,500
$9,700
VCRs
$14,000
$12,800
Compute the lower-of-cost-or-market valuation for the company's total inventory.
Problem no. 2
Jensen's Department Stores uses a perpetual inventory system. Data for product E2-D2
include the following purchases.
Date
Number of units
Unit price
07-May
50
$10
28-Jul
30
$13
On June 1 Jensen's sold 30 units and on August 27, 40 more units.
Prepare the perpetual inventory schedule for the above transactions using
1) FIFO
2) LIFO
3) Average cost
Problem no. 3
This information is available for Santo's Photo Corporation for 2007, 2008, and 2009.
2007
2008
2009
Beginning inventory
$100,000
$300,000
$400,000
Ending inventory
$300,000
$400,000
$480,000
Cost of goods sold
$900,000
$1,120,000
$1,300,000
Sales
$1,200,000
$1,600,000
$1,900,000
Instructions
Calculate inventory turnover, days in inventory, and gross profit rate.
Problem no. 4
Yount Company reports the following for the month of June
Units
Unit cost Total cost
01-Jun
Inventory
200
$5
$1,000
12-Jun
Purchase
300
$6
$1,800
23-Jun
Purchase
500
$7
$3,500
30-Jun
Inventory
120
Instructions
a) Compute the cost of the ending and the cost of goods sold under (1) FIFO and (2) LIFO.
b) Which costing method gives the higher ending inventory ? Why ?
c) Which method results in the higher cost of goods sold ? Why ?
Page 1 of 13
Problem no. 5
The management of Morales Co. is reevaluating the appropriateness of using its present
inventory cost flow method, which is average-cost. They request your help in determining
the results of operations for 2008 if either the FIFO method or the LIFO method had been
used. For 2008, the accounting records show the following data.
Inventories
Beginning (15.000 units) $32,000
Ending (30.000 units)
Purchases and Sales
Total net sales (215.000 units)
$865,000
Total cost of goods purchased (230.000 units) $595,000
Purchases were made quarterly as follows.
Units
Unit Cost Total cost
Quarter
1
60.0000
$2.40
$144.000
2
50.0000
$2.50
$125.000
3
50.0000
$2.60
$130.000
$2.80
$196.000
4
70.0000
230.0000
$595.000
Operating expenses were $147.000, and the company's income tax rate is 34%.
Instructions
Prepare comparative condensed income statements for 2008 under FIFO and LIFO.
(Show computations of ending inventory).
Problem no. 6
Eddings Company had a beginning inventory of 400 units of product XNA at a cost of $8 per
unit. During the year, purchases were :
20-Feb 600 units at $9
12-Aug
300 units at $11
05-Mar 500 units at $10
08-Dec
200 units at $12
Eddings Company uses a periodic inventory system. Sales totaled 1.500 units.
Instructions
a) Determine the cost of goods available for sale.
b) Determine (1) the ending inventory, and (2) the cost of goods sold under each of the assumed
cost flow methods (FIFO, LIFO, and average). Prove the accuracy of the cost of goods sold
under the FIFO and LIFO methods.
c) Which cost flow method results in (1) the lowest inventory amount for the balance sheet,
and (2) the lowest cost of goods sold for the income statement ?
Problem no. 7
Presented is information related to Bolivia Co. for the month of January 2007.
Freight-in
$10.000
Rent expense
$19.000
Freight-out
$5.000
Salary expense
$61.000
Page 2 of 13
Insurance expense $12.000
Sales discounts
$8.000
Purchases
$220.000
Sales returns
$13.000
Purchase discounts $3.000
Sales
$325.000
Purchase returns
$6.000
Beginning merchandise inventory was $42.000. Ending inventory was $63.000.
Instructions
Prepare an income statement for the month of January 2007.
Bank reconciliation
Problem no. 1
Anna Pelo is unable to reconcile the bank balance at January 31,2007. Anna's reconciliation
is as follows.
Cash balance per bank
$3560.20
Add : NSF check
$690
Less : Bank service charge
$25
Adjusted balance per bank
$4225.20
Cash balance per books
$3875.20
Less : Deposits in transit
$530
Add : Outstanding checks
$930
Adjusted balance per books
$4275.20
Instructions
a) Prepare a correct bank reconciliation.
b) Journalize the entries required by the reconciliation.
Problem no. 2
The information below relates to the Cash account in the ledger of Robertson Company.
Balance September 1,2007 - $17,150; Cash deposited - $64,000
Balance September 30,2007 - $17,404; Checks written - $63,746
The September bank statement shows a balance of $16,422 on September 30,2007 and
the following memoranda.
Credits
Collection of $1,500 note plus interest $30
$1,530
Interest earned on checking account
$45
Debits
Page 3 of 13
NSF check : J.E.Hoover
$425
Safety deposit box rent
$65
At September 30,2007 deposits in transit were $4,450, and outstanding checks totaled
$2,383
Instructions
a) Prepare the bank reconciliation at September 30,2007.
b) Prepare the adjusting entries at September 30,2007, assuming (1) the NSF check was
from a customer on account, and (2) no interest had been accrued on the note.
Problem no. 3
The following information pertains to Family Video Company.
1- Cash balance per bank, July 31, $7,263.
2- July bank service charge not recorded by the depositor $28.
3- Cash balance per books, July 31, $7,284.
4- Deposits in transit, July 31, $1,500.
5- Bank collected $900 note for Family in July, plus interest $36, less fee $20. The collection
has not been recorded by Family, and no interest has been accrued.
6- Outstanding checks, July 31, $591.
Instructions
a) Prepare a bank reconciliation at July 31, 2007.
b) Journalize the adjusting entries at July 31 on the books of Family Video Company.
Problem no. 4
On May 31, 2008 James Logan Company has a cash balance per books of $6,781.50.
The bank statement from Farmers State Bank on that date showed a balance of $6,404.60.
A comparison of the statement with the cash account revealed the following facts.
1- The statement included a debit memo of $40 for the printing of additional company checks.
2- Cash sales of $836.15 on May 12 were deposited in the bank. The cash receipts journal
entry and the deposit slip were incorrectly made for $886.15. The bank credited Logan
Company for the correct amount.
3- Outstanding checks at May 31 totaled $576.25. Deposits in transit were $1,916.15
4- On May 18, the company issued check No. 1181 for $685 to Barry Trest, on account.
The check which cleared the bank in May, was incorrectly journalized and posted by
Logan Company for $658.
5- A $2,500 note receivable was collected by the bank for Logan Company on May 31 plus
$80 interest. The bank charged a collection fee of $20. No interest has been accrued on
on the note.
6- Included with the cancelled checks was a check issued to Bridgetown Company to Tom
Lujak for $800 that was incorrectly charged to Logan Company by the bank.
7- On May 31, the bank statement showed an NSF charge of $680 for a check issued by
Sandy Grifton, a customer, to Logan Company on account.
Instructions
a) Prepare the bank reconciliation at May 31, 2008.
Page 4 of 13
b) Prepare the necessary adjusting entries for Logan Company at May 31, 2008.
Accounts Receivables
Problem no. 1
Presented below are three receivables transactions. Indicate whether these receivables are
reported as accounts receivable, notes receivables, or other receivables on a balance sheet.
a) Sold merchandise on account for $64,000 to a customer.
b) Received a promissory note of $57,000 for services performed.
c) Advanced $10,000 to an employee.
Problem no. 2
Record the following transactions in the books of Keyser Co.
a) On July 1, Keyser Co. sold merchandise on account to Maxfield Inc. for $15,200,
terms 2/10,n/30.
b) On July 8, Maxfield Inc. returned merchandise worth $3,800 to Keyser Co.
c) On July11, Maxfield Inc. paid for the merchandise.
Problem no. 3
At the end of 2008, Delong Co. has accounts receivable of $700,000 and an allowance for
doubtful accounts of $54,000. On January 24,2009, the company learns that its receivable
from Ristau Inc. is not collectible, and management authorizes a write-off of $5,400.
a) Prepare the journal entry to record the write-off.
b) What is the cash realizable of the accounts receivable (1) before the write-off and (2) after
the write-off.
Problem no. 4
Assume the same information as problem no.3. On March 4,2009, Delong Co. receives payment
of $5,400 in full from Ristau Inc. Prepare the journal entries to record this transaction.
Problem no.5
Nieto Co. elects to use the percentage-of-sales in 2008 to record bad debts expense. It
estimates that 2%of net credit sales will become uncollectible. Sales are $800,000 for 2008,
sales returns and allowances are $45,000, and the allowance for doubtful account has a credit
balance of $9,000. Prepare the adjusting entry to record bad debts expense in 2008.
Problem no. 6
Linhart Co. uses the percentage-of-receivables basis to record bad debts expense. It
estimates that 1% of accounts receivable will become uncollectible. Accounts receivable
are $450,000 at the end of the year, and the allowance for doubtful accounts has a credit
balance of $1,500.
a) Prepare the adjusting journal entry to record bad debts expense for the year.
b) If the allowance for doubtful accounts had a debit balance of $800 instead of a credit
balance of $1,500, determine the amount to be reported for bad debts expense.
Page 5 of 13
Problem no. 7
On January 10,2008 Edmunds Co. sold merchandise on account to Jeff Gallup for $13,000,
n/30. On February 9, Jeff Gallup gave Edmunds Co. a 10% promissory note in settlement of
this account. Prepare the journal entry to record the sale and the settlement of the account
receivable.
Problem no. 8
The ledger of Hixson Company at the end of the current year shows Accounts Receivable
$120,000, Sales $840,000, and Sales Returns and Allowances $30,000.
a) If Allowance fro Doubtful Accounts has a credit balance of $2,100 in the trial balance,
journalize the adjusting entry at December 31, assuming bad debts are expected to be
(1) 1% of net sales, and (2) 10% of accounts receivable.
b) If Allowance for Doubtful Accounts has a debit balance of $200 in the trial balance,
journalize the adjusting entry at December 31, assuming bad debts are expected to be
(1) 0.75% of net sales and (2) 6% of accounts receivable.
Problem no. 9
Ingles Company has accounts receivable of $93,100 at March 31,2007. An analysis of the
accounts shows the following :
Month of sale
March
February
January
Prior to January
Balance, March 31
$60,000
$17,600
$8,500
$7,000
$93,100
Credit terms are 2/10, n/30. At March 31, Allowance for Doubtful Accounts has a credit
balance of $1,200 prior to adjustment. The company uses the percentage-of-receivables
basis for estimating uncollectible accounts. The company's estimate of bad debts is as follows.
Age of Accounts
Estimated percentage Uncollectible
1-30 days
2%
30-60 days
5%
60-90 days
30%
over 90 days
50%
a) Determine the total estimated uncollectible.
b) Prepare the adjusting entry at March 31, 2007 to record bad debts expense.
Problem no. 10
At December 31,2007, Leis Co. reported the following information on its balance sheet.
Accounts receivable
$960,000
Less : Allowance for doubtful accounts
$80,000
Page 6 of 13
During 2008, the company had the following transactions related to receivables.
1) Sales on account
$3,200,000
2) Sales returns and allowances
$50,000
3) Collections of accounts receivable
$2,810,000
4) Write-offs of accounts receivable deemed uncollectible
$90,000
5) Recovery of bad debts previously written off as uncollectible
$24,000
Instructions
a) Prepare the journal entries to record each of these five transactions. Assume that no cash
discounts were taken on the collections of accounts receivable.
b) Enter the January 1,2008, balances in Accounts Receivable and Allowance for Doubtful
Accounts, post the entries to the two accounts (use T accounts), and determine the balances.
c) Prepare the journal entry to record bad debts expense for 2008, assuming that an aging of
accounts receivable indicates that expected bad debts are $115,000.
d) Compute the accounts receivable turnover ratio for 2008.
Problem no. 11
On January 1,2008, Kloppenberg Company had Accounts Receivable $139,000, Notes
Receivable $25,000, and Allowance for Doubtful Accounts $13,200. The note receivable
is from Sara Rogers Company. It is a 4-month, 12% note dated December 31, 2007.
Kloppenberg Company prepares financial statements annually. During the year the following
selected transactions occurred.
05-Jan
Sold $20,000 of merchandise to Dedonder Company, terms n/15.
20-Jan
Accepted Dedonder Company's $20,000, 3-month,9% note for balance due.
18-Feb Sold $8,000 of merchandise to Ludwig Company and accepted Ludwig's $8,000,
6-month, 9% note for the amount due.
20-Apr Collected Dedonder Company note in full.
30-Apr Received payment in full from Sara Rogers Company on the amount due.
25-May Accepted Jenks Inc.'s $4,000, 3-month, 7% note in settlement of a past-due balance
on account.
18-Aug Received payment in full from Ludwig Company on note due.
25-Aug The Jenks Inc. note was dishonored . Jenks Inc. is not bankrupt; future payment is
anticipated.
01-Sep Sold $12,000 of merchandise to Lena Torme Company and accepted a $12,000,
6-month, 10% note for the amount due.
Instructions
Journalize the transactions.
Problem no. 12
On May 2, Kleinsorge Company lends $7,600 to Everhart, Inc., issuing a 6-month, 9% note.
At the maturity date, November 2, Everhart indicates that it cannot pay.
Instructions
a) Prepare the entry to record the dishonor of the note, assuming that Kleinsorge Company
Page 7 of 13
expected collection will occur.
b) Prepare the entry to record the dishonor of the note, assuming that Kleinsorge Company
does not expect collection in the future.
Depreciation
Problem no. 1
Neely Company incurs the following expenditures in purchasing a truck : Cash price $30,000,
accident insurance $2,000, sales tax $1,500, motor vehicle license $100, and painting and
lettering $400. What is the cost of the truck ?
Problem no. 2
Conlin Company acquires a delivery truck at a cost of $42,000. The truck is expected
to have a salvage value of $6,000 at the end of its 4-year useful life. Compute annual
depreciation for the first and second years using the straight-line method.
Problem no. 3
Depreciation information for Conlin Company is given in BE10-3. Assuming the declining
balance depreciation rate is double the straight-line rate, compute annual depreciation for
the first and second years under the declining-balance method.
Problem no. 4
Speedy Taxi Service uses the units-of-activity method in computing depreciation on its
taxicabs. Each cab is expected to be driven 150.000 miles. Taxi no. 10 cost $33,500
and is expected to have a salvage value of $500. Taxi no. 10 is driven 30.000 miles in
year 1 and 20.000 miles in year 2. Compute the depreciation for each year.
Problem no. 5
On January 1,2008, the Ramirez Company ledger shows Equipment $29,000 and
accumulated Depreciation $9,000. The depreciation resulted from using the straight-line
method with a useful life of 10 years and salvage value of $2,000. On this date, the
company concludes that the equipment has a remaining useful life of only 4 years with
the same salvage value. Compute the revised annual depreciation.
Problem no. 6
Prepare journal entries to record the following.
a) Gomez Company retires its delivery equipment , which cost $41,000. Accumulated
Page 8 of 13
depreciation is also $41,000 on this delivery equipment. No salvage value is received.
b) Assume the same information as (a), except that accumulated depreciation for Gomez
Company is $39,000, instead of $41,000.
Problem no. 7
Chan Company sells office equipment on September 30, 2008, for $20,000 cash. The
office equipment originally cost $72,000 and as of January 1, 2008, had accumulated
depreciation of $42,000. Depreciation for the first 9 months of 2008 is $5,250.
Prepare the journal entries to (a) update depreciation to September 30,2008, and
(b) record the sale of the equipment.
Problem no.8
Younger Bus Lines uses the units-of-activity method in depreciating its buses. One bus was
purchased on January 1,2008, at a cost of $168,000. Over its 4-year useful life, the bus
is expected to be driven 100.000 miles. Salvage value is expected to be $8,000.
Instructions
a) Compute the depreciation cost per unit.
b) Prepare a depreciation schedule assuming actual mileage was : 2008, 26.000; 2009,
32.000; 2010, 25.000; and 2011, 17.000.
Problem no. 9
Kelm Company purchased a new machine on October 1, 2008, at a cost of $120,000.
the company estimated that the machine will have a salvage value of $12,000. The machine
is expected to be used for 10.000 working hours during its 5-year life.
Instructions
Compute the depreciation expense under the following methods for the year indicated.
a) Straight-line for 2008.
b) Units-of-activity for 2008, assuming machine usage was 1,700 hours.
c) Declining-balance using double the straight-line rate for 2008 and 2009.
Problem no. 10
Presented below are two independent transactions. Both transactions have commercial
substance.
1) Sidney Co. exchanged old trucks (cost $64,000 less $22,000 accumulated depreciation)
plus cash of $17,000 for new trucks. The old trucks had a fair market value of $36,000.
2) Lupa Inc. trades its used machine (cost $12,000 less $4,000 accumulated depreciation)
for a new machine. In addition to exchanging the old machine (which had a fair market
value of $9,000, Lupa also paid cash of $3,000.
Instructions
a) Prepare the entry to record the exchange of assets by Sidney Co.
b) Prepare the entry to record the exchange of assets by Lupa Inc.
Problem no. 11
Page 9 of 13
In recent years, Juresic Transportation purchased three used buses. Because of frequent
turnover in the accounting department, a different accountant selected the depreciation
method for each bus, and various methods were selected. Information concerning the
buses is summarized below.
Bus
Acquired
Salvage Useful Life
Depreciation
Cost
value
in Years
Method
1
#######
$6,000
5
Straight-line
$96,000
2
#######
$10,000
4
Declining-balance
$120,000
3
#######
$8,000
5
Units-of-activity
$80,000
For the declining-balance method, the company uses the double-declining rate. For the units
of activity method, total miles are expected to be 120.000. Actual miles of use in the first
3 years were : 2007, 24.000; 2008, 34.000; and 2009, 30.000.
Instructions
a) Compute the amount of accumulated depreciation on each bus at December 31,2008.
b) If a bus no. 2 was purchased on April 1 instead of January 1, what is the depreciation
expense for this bus in (1) 2006 and (2) 2007 ?
Cash flow statement
Problem no. 1
Martinez, Inc. reported net income of $2.5 million in 2008. Depreciation for the year was
$160,000, accounts receivable decreased $350,000, and accounts payable decreased
$280,000. Compute net cash provided by operating activities using the indirect method.
Problem no. 2
The net income for Adcock Co. for 2008 was $280,000. For 2008 depreciation on plant
assets was $70,000, and the company incurred a loss on sale of plant assets of $12,000.
Compute net cash provided by operating activities under the indirect method.
Problem no. 3
The comparative balance sheets for Goltra Company show these changes in noncash current
asset accounts : accounts receivable decrease $80,000, prepaid expense increase $28,000,
Page 10 of 13
and inventories increase $30,000. Compute net cash provided by operating activities using
the indirect method assuming that net income is $200,000.
Problem no. 4
The following T account is a summary of the cash account of Edmonds Company.
Cash (Summary Form)
Balance, Jan 1
$8,000 Payments for goods
$200,000
Receipts from customers
$364,000 Payments for operating expenses
$140,000
Dividends on stock investments
$6,000 Interest paid
$10,000
Proceeds from sale of equipment
$36,000 Taxes paid
$8,000
Proceeds from issuance of bond payable
$300,000 Dividends paid
$50,000
Balance, Dec. 31
$306,000
What amount of net cash provided (used) by financing activities should be reported in the statement
of cash flow.
Problem no. 5
Villa Company reported net income of $195,000 for 2008. Villa also reported depreciation expense
of $45,000 and a loss of $5,000 on the sale of equipment. The comparative balance sheet shows a
decrease in accounts receivable of $15,000 for the year, a $17,000 increase in accounts payable,
and a $4,000 decrease in prepaid expenses.
Instructions
Prepare the operating activities section of the statement of cash flow for 2008. Use the indirect method.
Problem no. 6
The current sections of Bellinham Inc.'s balance sheets at December 31, 2007 and 2008 are presented
below.
Current assets
2008
2007
Cash
$105,000
$99,000
Accounts receivable
$110,000
$89,000
Inventory
$158,000
$172,000
$22,000
Prepaid expenses
$27,000
Total current assets
$400,000
$382,000
Current liabilities
Accrued expenses payable
$15,000
$5,000
$92,000
Accounts payable
$85,000
Total current liabilities
$100,000
$97,000
Bellinham's net income for 2008 was $153,000. Depreciation expense was $24,000.
Instructions
Prepare the net cash provided by operating activities section of the company's statement of cash flows
for the year ended December 31,2008, using the indirect method.
Problem no. 7
Page 11 of 13
Comparative balance sheets for Eddie Murphy Company are presented below.
Eddie Murphy Company
Comparative balance sheets
Dec-31
Assets
2008
2007
Cash
$63,000
$22,000
Accounts receivable
$85,000
$76,000
Inventories
$180,000
$189,000
Land
$75,000
$100,000
Equipment
$260,000
$200,000
($42,000)
Accumulated depreciation
($66,000)
Total
$597,000
$545,000
Liabilities and Stockholders' Equity
Accounts payable
$34,000
$47,000
Bonds payable
$150,000
$200,000
Common stock ($1 par)
$214,000
$164,000
$134,000
Retained earnings
$199,000
Total
$597,000
$545,000
Additional information :
1) Net income for 2008 was $125,000.
2) Cash dividends of $60,000 were declared and paid.
3) Bonds payable amounting to $50,000 were redeemed for cash $50,000.
4) Common stock was issued for $50,000 cash.
5) Depreciation expense was $24,000.
6) Sales for the year were $978,000.
Instructions
Prepare a statement of cash flows for 2008 using the indirect method.
Problem no. 8
The 2008 accounting records of Verlander Transport reveal these transactions and events.
Payment of interest
$10,000
Cash sales
$48,000
Receipt of dividend revenue
$18,000
Payment of income taxes
$12,000
Net income
$38,000
Payment of accounts payable for merchandise
$115,000
Payment for land
$74,000
Collection of accounts receivable
$182,000
Payment of salaries and wages
$53,000
Depreciation expense
$16,000
Proceeds from sale of vehicles
$12,000
Purchase of equipment for cash
$22,000
Loss on sale of vehicles
$3,000
Page 12 of 13
Payment of dividends
$14,000
Payment of operating expenses
$28,000
Instructions
Prepare the cash flows from operating activities section using the direct method. (Not all of the
items will be used.)
Page 13 of 13