BRIEF EXERCISES
BE5-1
Korinek Company’s Income Statement
Sales
cost of
Gross
Operating
Net
Revenue
goods sold
Profit
Expenses
Income
$ 71,200
$ 41,200
$30,000
$ 17,900
$ 12,100
$ 108,000
$70,000
$ 38,000
$ 8,500
$29,500
$ 181,500
$71,900
$109,600
$46,200
$ 63,400
Workings
a) sales revenue = Cost of goods sold + gross profit
= $71,900+$109,600
= $ 181,500
b) cost of goods sold = Sales revenue – gross profit
= 71,200 – 30,000
= $ 41,200
c) gross profit = sales revenue – cost of goods sold
= 108,000 – 70,000
= $ 38,000
d) operating expense = gross profit – net income
= 30,000 – 12,100
= $ 17,900
e) = 38,000 – 29,500
= $ 8,500
f) net income = gross profit – operating expenses
= 109,600 – 46,200
= $ 63,400
BE5-2
a. Pocras Company journal
Account
Debit
Inventory
$ 900
Accounts Payable
Credit
$ 900
$ 900
$ 900
b. Wedell Company Journals
Account
Debit
Inventory
Accounts Payable
Credit
$ 900
$ 900
$ 900
$ 900
Accounts
Debit
Credit
Cost of goods sold
$590
Sale of goods journal
Inventory
Accounts receivable
$ 900
$ 310
$ 900
$ 900
BE 6-5
Total stock purchased = 100 + 200 + 140
= 440 units
Remaining units
= 180 units
Utilized units
= 440- 180
= 260 units

The cost of units utilized under FIFO method is
100 units @ $6 = $ 600
160 units @ $ 7 = $ 1,120
Therefore the cost of goods for the utilized units will be $600 + $1,120= $1,720

If the company uses LIFO method
140 units @ $8 = $ 1,120
130 units @ $ 7 = $ 910
The cost of goods for the utilized 270 units would be $1,120 + $ 900 = $2,020
Phantom profit is the difference in the cost of goods sold between the two methods.
I.e. = $ 2,020 - $ 1,720
= $300
The amount is referred to as phantom profit since it is a cash transaction that has been recorded, but
no cash has been received or even deposited.
BE 6-7
Camera
Cost- $12,500
Market- $ 13,400
The lower of cost of market is $12,500
Camcorders
Cost- 9,000
market- $9,500
The lower of cost or market is $9,000
DVDs
Cost- $13,000
Market- $ 12,200
The lower of cost or market is $12,200
BE7-5
Account
Debit
Opening cash
$150
Cash on hand
$ 1,125.74
Cash sales per register tape
$ 988.62
$ 2,264.32
Credit
BE7-6
a) Pre-numbered checks
This procedure is derived from the principle of documentation. It states that documents should be
pre-numbered and all documents should be accounted for.
b) Monthly Reconciliation of bank statement by an internal auditor
The procedure is highlighted in the internal control system principle of Independent Internal
Verification. The internal auditors are employed by a company to evaluate on a continuous basis
the effectiveness of company’s system of internal control. The auditor is mandated to periodically
review and reconcile all financial statements of the company.