Chapter 7 focused on determining cost of goods sold and ending inventory using
Specific identification, FIFO, LIFO, and Average Cost Periodic Inventory; determining
cost of goods sold and ending inventory using FIFO and LIFO Perpetual Inventory;
1. Assuming that net purchases during the year were $170,000 and that ending
inventory was $4,000 more than the beginning inventory of $30,000, how much
was the cost of goods sold?________
2. Which of the following is not considered in computing net purchases? Freight
paid on goods shipped to customers; Purchases Discount; Purchases; Freight paid
on purchased goods; or Purchases Returns and Allowances
3. What are the entries to record a purchase of inventory on account under the
periodic and perpetual methods?______
4. What are the entries to record the sale of inventory on account under the periodic
and perpetual methods?_______
1. A retail company has goods available for sale of $500,000 at retail and $200,000
at cost and ending inventory of $50,000 at retail. What is the estimated cost of
goods sold?_____
2. Assuming a periodic inventory system is used, use the following information to
answer question(s) below:
April 1
Inventory
200 units
$3.00
April 6
Purchase
300
$3.40
April 13
Purchase
100
$3.60
April 20
Purchase
200
$3.90
April 25
Purchase
40
$4.20
Sold
620 units
o
o
o
Using LIFO, the cost assigned to ending inventory is______
Using FIFO, the cost assigned to ending inventory is______
Using the average-cost method, the cost assigned to ending inventory
is_______
5. Study Company reported the following information related to inventory and sales:
Units
Unit Cost
Beginning Inventory
100
$7
Purchase #1
700
$10
Purchase #2
200
$12
Sales--700 units at $20 per unit
Compute the following amounts assuming a periodic inventory system:
Inventory
Cost of
Gross
Revenue
Costing Method
Goods Sold Margin
Balance Sheet
Inventory
Average Cost
FIFO
LIFO
7. Prior to a fire that destroyed the inventory, Orange Company had inventory purchases
during the period of $80,000 and sales of $250,000. Orange began the period with
$190,000 in inventory. Orange's typical gross profit percentage is 20 percent. Inventory
that cost $10,000 survived the fire. Calculate the inventory loss from the fire.________
8. Blue's Department Store had net retail sales of $620,000 during the current year. The
following additional information was obtained from the accounting records:
At Cost
At Retail
Beginning Inventory
$110,000
$190,000
Net Purchases
$338,000
$580,000
Freight In
$14,000
Estimate the company's ending inventory at cost using the retail inventory
method.__________
Chapter 8 focused on determining and journalizing accounts
receivable (sell, collect, write off, or recover), notes receivable (AR rollover,
accrue interest, or pay note and interest at maturity), and making adjusting
journal entry for bad debts using either the % of Net Sales method or the
Aging of AR method.
Use the following to answer questions 1. - 4. Accounts Receivable shows a debit balance
of $50,000. The Allowance for Uncollectible Accounts has a credit balance of $1,000.
Net Sales for the year were $500,000. In the past 2% of sales has proven uncollectible,
and an aging of Accounts Receivable accounts results in an estimate of $13,500 of
uncollectible accounts receivable.
1. Using the percentage of net sales, the Allowance for Uncollectible Accounts balance
(after adjustment) would be__________.
2. Using the percentage of net sales method, Uncollectible Accounts Expense would be
debited for________.
3. Using the accounts receivable aging method, Uncollectible Accounts Expense would
be debited for__________.
4. Using the accounts receivable method, the Allowance for Uncollectible Accounts
balance (after adjustment) would be_________.
Use the following to answer questions 7.-8. Accounts Receivable shows a debit balance
of $25,000. The Allowance for Uncollectible Accounts has a debit balance of $1,500. Net
Sales for the year were $250,000. In the past 3% of sales has proven uncollectible, and an
aging of Accounts Receivable accounts results in an estimate of $10,000 of uncollectible
accounts receivable.
7. Using the accounts receivable aging method, Uncollectible Accounts Expense would
be debited for__________.
8. Using the accounts receivable method, the Allowance for Uncollectible Accounts
balance (after adjustment) would be_________.
9. You received notice that Floyd Wessel, a customer of yours with an Accounts
Receivable balance of $200 has gone bankrupt and will not be making future payments.
Assume you use the allowance method, the journal entry you make is: ___________
10. A note dated May 23 and due in 90 days would be due on_______________.
11. The interest on a 90 day, 12%, $3,000 note is_________________.
12. The maturity value of a 60 day, 9%, $1,000 note is________________.
1. On December 1, Gator Pizza borrowed $20,000 from the bank, issuing a 90 day,
15 percent note. Interest is in addition to the face value. Prepare Gator Pizza's
December 1 entry. December 31 adjusting entry for accrued interest, and March 1
entry at maturity. Assume reversing entries are not made.
2. On December 1, Alberta Pizza issued the bank a 90 day, 15 percent, $20,000 note
upon receiving a bank loan. The interest was discounted (withheld) by the bank in
advance. Prepare the December 1 entry, the December 31 adjusting entry for
accrued interest, and March 1 entry at maturity. Assume reversing entries are not
made.
Chapter 9
Tutorial on assets and depreciation: http://www.middlecity.com/ch09.shtml
Selling or disposing of Fixed Assets
After selling or disposing of fixed assets, the company no longer has the asset. This requires a journal
entry to remove everything in the accounting records relating to the asset.
The depreciable cost and accumulated depreciation relating to the asset must both be removed, or reversed.
There might be a gain or loss when disposing of assets. There might also be incidental costs relating to
disposing of the asset. All these things should be included in the journal entry recording the disposal.
Let's assume on September 1, the ledger shows these balances for a piece of equipment.
General Ledger
Equipment
Date
Description
Debit
Sep-1
Balance forward
$7000
Credit
Balance
$7000
Accumulated Depreciation - Equipment
Date
Description
Debit
Sep-1
Balance forward
Credit
Balance
$5600
($5600)
Removing these amounts from the books with a journal entry
When assets disposed of there might be a gain, loss or a wash (no gain or loss). In either case all such
journal entries will start from the same place, removing the related asset cost and accumulated depreciation.
This journal entry does not balance; is the beginnings of a journal entry, and must be completed when all
the information is available.
General Journal
Date
Sep-15
Account
Debit
Accumulated Depreciation
$5,600
Equipment
Credit
$7,000
To record disposal of equipment
Notice the exact opposite of the account balances is entered for each account. This causes the account
balances to go to zero after this journal entry is posted.
General Ledger
Equipment
Date
Description
Debit
Sep-1
Balance forward
$7000
Sep-15
Disposal of asset
Accumulated Depreciation - Equipment
Credit
Balance
$7000
$7000
$0
Date
Description
Sep-1
Balance forward
Sep-15
Disposal of asset
Debit
Credit
Balance
$5600
($5600)
$5600
$0
The asset and related accumulated depreciation have both been removed from the books.
Calculating Book Value
Book Value is the difference between the asset cost and accumulated depreciation:
Equipment cost
$ 7,000
Less: accumulated depreciation
-5,600
Book Value before sale
$ 1,400
Gains and losses are calculated using the Book Value.
Equipment sold for a Gain
If the equipment is sold for more than its book value there will be a gain. Gains are similar to revenues, and
will be recorded with a credit entry. Let's say the equipment is sold on September 15 for $2,000. The gain
will be:
Selling Price
$ 2,000
Less: Book Value
- 1,400
Gain
$
600
We'll begin with the journal entry we started above, and add the additional information, the selling price
and gain or loss, in the right places.
General Journal
Date
Sep-15
Account
Debit
Accumulated Depreciation
$5,600
Cash
$2,000
Credit
Gain on disposal of equipment
$ 600
Equipment
$7,000
To record disposal of equipment
The journal entry is now in balance. Did you notice what I did? I started the journal entry with what I
already knew - the cost and accumulated depreciation. I left 2 lines blank in the middle of the journal entry,
so the sales price and gain or loss could be recorded.
Equipment sold for a Loss
If the equipment is sold for less than its book value there will be a loss. Losses are similar to expenses, and
will be recorded with a debit entry. Let's say the equipment is sold on September 15 for $1,000. The loss
will be:
Selling Price
$ 1,000
Less: Book Value
- 1,400
Loss
($ 400)
We'll begin with the journal entry we started above, and add the additional information, the selling price
and gain or loss, in the right places.
General Journal
Date
Sep-15
Account
Debit
Accumulated Depreciation
$5,600
Cash
$1,000
Loss on disposal of equipment
$ 400
Equipment
Credit
$7,000
To record disposal of equipment
Equipment sold for a Wash
If the equipment is sold equal to its book value there will be a wash. Let's say the equipment is sold on
September 15 for $1,400.
Selling Price
$ 1,400
Less: Book Value
- 1,400
Wash
$
0
We'll begin with the journal entry we started above, and add the additional information, the selling price
and gain or loss, in the right places. In this case there is a wash, so no gain or loss is recorded. The
equipment is simply removed from the books.
General Journal
Date
Sep-15
Account
Debit
Accumulated Depreciation
$5,600
Cash
$1,400
Equipment
To record disposal of equipment
Credit
$7,000
Calculating Declining-Balance Depreciation
To illustrate double-declining-balance depreciation, consider the truck that has a cost of $90,000, an
expected salvage value of $10,000, and a five-year useful life. The truck's net book value at acquisition is
also $90,000 because no depreciation expense has been recorded yet. The straight-line rate for an asset
with a five-year useful life is 20% (1 ÷ 5 = 20%), so the double-declining-balance rate, which uses the 200%
multiple, is 40% (20% x 200% = 40%). The following table shows how the double-declining-balance method
allocates depreciation expense to the truck.
Double-Declining-Balance Depreciation
Beginning-of-Year Book Value
Year 1 40% × $90,000
= $36,000 $36,000 $54,000
Year 2 40% × 54,000
= 21,600 57,600 32,400
Year 3 40% × 32,400
= 12,960 70,560 19,440
Year 4 40% × 19,440
= 7,776
78,336 11,664
At the end of an asset's useful life, the asset's net book value should equal its salvage value. Although 40%
of $11,664 is $4,666, the truck depreciates only $1,664 during year five because net book value must never
drop below salvage value. If the truck's salvage value were $5,000, depreciation expense during year five
would have been $6,664. If the truck's salvage value were $20,000, then depreciation expense would have
been limited to $12,400 during year three, and no depreciation expense would be recorded during year four
or year five.
Read more: http://www.cliffsnotes.com/WileyCDA/CliffsReviewTopic/Depreciation-of-OperatingAssets.topicArticleId-21081,articleId-21076.html#ixzz0WHsKPM3S
Intangible Assets
Intangibles are assets that have no physical existence. They are legal assets or accounting assets, such as
copyrights, patents, trademarks or goodwill. We use a simple form of amortization, usually straight-line, to
allocate the cost of these items to amortization expense.