Problem 1
1. C
2. D
3. B 4. C 5. C 6. C 7. C 8. B 9. B 10. C 11. D 12. B
13. D 14. A 15. B 16. B 17. D 18. D 19. B 20. C 21. C 22. C 23. A 24. A
Problem 2 (20 points)
1. Compute the amount of bad debt expense that Walker would include in its 2011 income
statement. (4 points)
Allowance for bad debts
15,800
50,000
X = 46,900
12,700
Beg. Balance
Write-offs
Bad debt expense
End. balance
2. Compute the amount of cash collected from credit sales by Walker during 2011 (4
points)
Accts Receivable
Beg balance
Credit Sales
Cash received
Write-offs
Conversion to note
Sale of A/R
End. Balance
396,256
3,358,755
X= 3060367
50,000
75000
200,000
369644
3. Prepare the journal entry associated with the $125,000 note on April 30, 2011. (4 points)
Cash
$137,500
Int revenue
Int receivable
Note recv
$4,167
8,333
125,000
4. Prepare the journal entry required for the sale of receivables to a factor on November 1, 2011. (4
points)
Cash
$170,000
Due from factor
10,000
Loss due to sale of A/R 24,000
A/R
$ 200,000
Recourse liability
4,000
5. On April 30, 2012, the factor reports that they have collected $170,000 and do not believe any
further collections will be made. Provide the journal entry that will be reported by Walker due to
the end of this contract. (4 points)
Recourse liability
Loss
4,000
26,000
Due from factor 10,000
Cash
20,000
Problem 3 (20 points)
Part A.
a) Compute the ending inventory and cost of goods sold assuming Cunningham uses a perpetual
inventory system and LIFO cost flow assumption. (4 points)
CGS (LIFO) = (500*$60+300*$55) + 750*$63 = $93,750
EI (LIFO)
= ( 200*$55) + (250*$63) =
$26,750
b) Compute the ending inventory and cost of goods sold assuming Cunningham uses a periodic inventory
system and weighted average cost flow assumption. (4 points)
Unit cost = (500*$55+ 500*$60+1000*$63) / 2000 = $60.25
CGS = 1550 * $60.25 = $93,387.50
EI
= 450 * $60.25 = $27,112.50
Part B (12 points)
Gross Corporation adopted the dollar-value LIFO method of inventory valuation on December 31, 2011.
Its inventory at that date was $440,000 and the relevant price index was 100. Information regarding
inventory for subsequent years is as follows:
Date
December 31, 2012
December 31, 2013
December 31, 2014
Inventory at
Current Prices
$513,600
580,000
650,000
Current
Price Index
107
125
130
a) What is the cost of the ending inventory at December 31, 2012 under dollar-value LIFO?
b) What is the cost of the ending inventory at December 31, 2013 under dollar-value LIFO?
c) What is the cost of the ending inventory at December 31, 2014 under dollar-value LIFO?
Inventory at
Year-end cost
Cost
Index
Inv at base
year cost
$440,000
$513,600
1.0
1.07
$440,000
$480,000
$580,000
1.25
$464,000
$650,000
1.30
$500,000
Inventory
layers at base
yr
$440,000
$440,000
40,000
$440,000
$ 24,000
Inventory
layers
converted
$440,000
$440,000
$40,000*1.07
$440,000*1
$ 24,000*1.07
$440,000
$ 24,000
$ 36,000
$440,000*1
$ 24,000*1.07
$ 36,000*1.3
Ending
Inventory at
DVL cost
$440,000
$482,800
$465,680
$512,480