1.
(Determine Cash Balance)
Presented below are a number of independent situations.
For each individual situation, determine the amount that should be reported as cash.
1.
Checking account balance $925,000; certificate of deposit $1,400,000; cash advance to subsidiary of
$980,000; utility deposit paid to gas company $180.
2.
925,000
$
Checking account balance $500,000; an overdraft in special checking account at same bank as normal
checking account of $17,000; cash held in a bond sinking fund $200,000; petty cash fund $300; coins
and currency on hand $1,350.
3.
484,650
$
Checking account balance $590,000; postdated check from customer $11,000; cash restricted due to
maintaining compensating balance requirement of $100,000; certified check from customer $9,800;
postage stamps on hand $620.
4.
599,800
$
Checking account balance at bank $42,000; money market balance at mutual fund (has checking
privileges) $48,000; NSF check received from customer $800.
5.
90,000
$
Checking account balance $700,000; cash restricted for future plant expansion $500,000; short-term
Treasury bills $180,000; cash advance received from customer $900 (not included in checking account
balance); cash advance of $7,000 to company executive, payable on demand; refundable deposit of
$26,000 paid to federal government to guarantee performance on construction contract.
$
700,900
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2.
3.
Recording Bad Debts)
At the end of 2010 Sorter Company has accounts receivable of $900,000 and an allowance for
doubtful accounts of $40,000. On January 16, 2011, Sorter Company determined that its receivable
from Ordonez Company of $8,000 will not be collected, and management authorized its write-off.
(a) Prepare the journal entry for Sorter Company to write off the Ordonez receivable.
Description/Account
Debit
Bad debt expense
Accounts receivable
Credit
8,000
8,000
(b) What is the net realizable value of Sorter Company's accounts receivable before the write-off of the
Ordonez receivable?
860,000
$
(c) What is the net realizable value of Sorter Company's accounts receivable after the write-off of the
Ordonez receivable?
$
852,000
3. Inventoriable Costs–Error Adjustments)
Werth Company asks you to review its December 31, 2010, inventory values and prepare the necessary
adjustments to the books. The following information is given to you.
1.
2.
3.
4.
5.
6.
7.
8.
Werth uses the periodic method of recording inventory. A physical count reveals $234,890 of
inventory on hand at December 31, 2010.
Not included in the physical count of inventory is $10,420 of merchandise purchased on December
15 from Browser. This merchandise was shipped f.o.b. shipping point on December 29 and arrived
in January. The invoice arrived and was recorded on December 31.
Included in inventory is merchandise sold to Bubbey on December 30, f.o.b. destination. This
merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale on
account for $12,800 on December 31. The merchandise cost $7,350, and Bubbey received it on
January 3.
Included in inventory was merchandise received from Dudley on December 31 with an invoice price
of $15,630. The merchandise was shipped f.o.b. destination. The invoice, which has not yet arrived,
has not been recorded.
Not included in inventory is $8,540 of merchandise purchased from Minsky Industries. This
merchandise was received on December 31 after the inventory had been counted. The invoice was
received and recorded on December 30.
Included in inventory was $10,438 of inventory held by Werth on consignment from Jackel
Industries.
Included in inventory is merchandise sold to Sims f.o.b. shipping point. This merchandise was
shipped after it was counted. The invoice was prepared and recorded as a sale for $18,900 on
December 31. The cost of this merchandise was $11,520, and Sims received the merchandise on
January 5.
Excluded from inventory was a carton labeled "Please accept for credit." This carton contains
merchandise costing $1,500 which had been sold to a customer for $2,600. No entry had been
made to the books to reflect the return, but none of the returned merchandise seemed damaged.
(a) Determine the proper inventory balance for Werth Company at December 31, 2010.
233392
$
Prepare any correcting entries to adjust inventory to its proper amount at December 31, 2010. Assume
(b)
the books have not been closed.
Description/Account
Debit
Credit
Sales
12,800
Accounts receivable
(To reverse sale entry in 2010.)
Purchases (inventory)
15,630
Accounts payable
15,630
(To record purchase of merchandise in 2010.)
Sales returns and allow ances
2,600
Accounts receivable
(To record merchandise returned.)
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4. (FIFO, LIFO and Average Cost Determination)
LoBianco Company's record of transactions for the month of April was as follows.
2,600
Purchases
April 1 (Balance on hand)
4
8
13
21
29
Sales
600 @ $6.00
April 3
500 @ $10.00
1,500 @ $6.08
9
1,300 @ $10.00
800 @ $6.40
11
600 @ $11.00
1,200 @ $6.50
23
1,200 @ $11.00
900 @ $12.00
700 @ $6.60
27
4,500
500 @ $6.79
5,300
(a) Assuming that periodic inventory records are kept in units only, compute the inventory at April 30
using (1) LIFO and (2) average cost.
LIFO
$
4,816
Average Cost
5,080
$
(b) Assuming that perpetual inventory records are kept in dollars, determine the inventory using (1) FIFO
and (2) LIFO.
FIFO
$
5,375
LIFO
4,816
$
(c) Compute cost of goods sold assuming periodic inventory procedures and inventory priced at FIFO.
Cost of goods sold
28,280
$
(d) In an inflationary period, which inventory method–FIFO, LIFO, average cost–will show the highest net
income?
FIFO