At December 31, Moore Company’s inventory records indicated a balance of $400,000. Upon further investigation it was determined that this amount included the following:
(1) $56,000 in inventory purchases made by Moore shipped from the seller December 27 terms FOB shipping point, but not due to be received until January 3.
(2) $23,000 in inventory purchases made by Moore shipped from the seller December 27 terms FOB destination, but not due to be received until January 2.
(3) $6,000 in goods sold by Moore with terms FOB destination on December 27. The goods are not expected to reach their destination until January 6.
(4) $8,000 in goods sold by Moore with terms FOB shipping point on December 27. The goods are not expected to reach their destination until January 4.
(5) $13,000 of goods received on consignment from Dollywood Company.
What is Moore’s correct ending inventory balance at December 31?
1. FOB ship means buyer (Moore) owns once it’s shipped, so keep that in inventory
2. FOB dest means buyer (Moore) won’t own the merchandise until they get it on Jan 3, so subtract 23000 from inventory
3. FOB dest means buyer won’t own the merchandise until they receive it, so keep 6000 in seller (Moore) inventory until Jan 6
4. FOB ship means the buyer owns it once it’s shipped, so take 8000 out of the seller (Moore) inventory
5. Consignment goods (13000) should be taken out of inventory
400,000 beg inv
=356,000 end inv
The following information came from the income statement of the Wilkens Company: sales revenue $1,800,000; beginning inventory $160,000; ending inventory $240,000; and gross profit $600,000. What is Wilkens’ inventory turnover ratio?
ITR= COGS/avg inven
Sales rev 1.8m
Find avg inven:
1,200,000/200,000 = an ITR of 6 times
Howe Industries had the following inventory transactions occur during the current year:
Feb. 1 Purchase 40 $42
Mar. 14 Purchase 60 $43
May 1 Purchase 55 $44
The company sold 100 units at $75 each and has a tax rate of 20%. Assuming that a periodic inventory system is used and operating expenses are $1,000, what is the company’s after tax net income using LIFO? (rounded to whole dollars)
Sales rev 100 @ $75 = 7500
-COGS 55 @ $44 + 45 @ $43 = 4355
= GP 3145
-op exp 1000
=net inc before taxes 2145
-tax rate 20% 429
=net inc 1716
Carlos Company had beginning inventory of $80,000, ending inventory of $110,000, cost of goods sold of $285,000, and sales revenue of $475,000. What is Carlos’ days in inventory?
Days in inven=365/inven turnover ratio
ITR=285k/(190k/2) = 3
365/3= 121.67 days in inventory
Big Time Widgets has the following inventory data:
December 1 Beginning inventory of 50 units at $6.00 per unit
December 7 Purchased 10 units at $6.25 per unit
December 12 Sold 30 units
December 20 Purchased 30 units at $7.50 per unit
December 29 Sold 20 units
Assuming that a perpetual inventory system is used, what is the ending inventory on a LIFO basis for December? What if a periodic inventory system had been used instead of perpetual?
12/12 sold 30 units
10 @ 6.25
20 @ 6
12/29 sold 20 units
20 @ 7.50
10 @ 7.50 = 75
30 @ 6 = 180
EI = 255
50 units sold in december
30 @ 7.50
10 @ 6.25
10 @ 6
40 @ 6 = 240 EI
What is the LIFO reserve?
the difference between inventory reported using LIFO and inven reported using FIFO
In periods of rising prices, what will LIFO produce?
-lower total assets than FIFO
-lower retained earnings than FIFO
-lower net income than FIFO
What is the underlying rationale for the lower-of-cost-or-market rule?
The conservatism constraint
-conservatism means to use the lowest value for assets and revenues when in doubt.
Freehan Company’s accounting records has the following information about its inventory:
Units Unit Cost
Inventory, Jan. 1 6,000 $ 8
Purchase, April 2 18,000 10
Purchase, Aug. 28 16,000 12
If the company has 8,000 units on hand at December 31, how much is the cost of ending inventory under the average-cost method in a periodic inventory system?
average CPU = total cost/total number of units
total cost= 420,000
420k/40k= 10.50 per unit
8000 x 10.50 = 84,000 end inv
Net sales are $2,400,000, cost of goods sold is $1,260,000, and average inventory is $40,000. How many days’ sales are in inventory?
Days in inven= 365/ITR
365/31.5= 11.58 days in inven
If there is an error in the ending inventory affecting the net income of the current period, what will happen to the net income of the next accounting period?
it will have a reverse effect on next period’s net income because the ending inven of last period is the beg inven of this period
If the ending inventory is overstated, what occurs?
assets, net income, and stockholders eq overstated
If the ending inventory is understated, what occurs?
Net inc understated
If the beg inventory is overstated, what occurs?
Net inc understated
If the beg inventory is understated, what occurs?
Net inc overstated
Specific identification method inventory valuation requires __________ of goods to be representative of the cost flow.
What transactions would cause the inventory turnover ratio to increase the most?
Increase in sales –> increase in COGS
Decrease in inven–> lower number in denominator
Lance Company has the following inventory units and costs:
Units Unit Cost
Inventory, Jan. 1 8,000 $11
Purchase, June 19 13,000 12
Purchase, Nov. 8 5,000 13
If 9,000 units are on hand at December 31, what is the cost of the ending inventory under LIFO using a periodic inventory system?
9,000 units left after LIFO (will be first 9000 units):
8000 @ 11 = 88000
1000 @ 12 = 12000
End inv = 100k
In a period of rising prices which inventory method will result in the greatest amount of income tax expense?
With rising prices, FIFO has:
-highest net income
-highest income tax exp
-lowest net income
-lowest income tax exp
Two companies report the same cost of goods available for sale, but each employs a different inventory costing method. If the price of goods has increased during the period, which method will result in the highest inventory?
FIFO because with rising prices, FIFO has lower COGS which means it has higher inventory
Big Time Widgets has the following inventory data:
December 1 Beginning inventory of 15 units at $6.00 per unit
December 7 Purchases 60 units at $6.75 per unit
December 12 Sold 35 units
December 20 Purchased 30 units at $7.75 per unit
December 29 Sold 10 units
Assuming that a perpetual inventory system is used, what is the cost of goods sold on a LIFO basis for December? What if a periodic inventory system had been used instead of perpetual?
12/12 sold 35 units
35 @ 6.75 = 236.25
12/29 sold 10 units
10 @ 7.75 = 77.50
total EI = 313.75
Sold 45 units in december
30 @ 7.75 = 232.50
15 @ 6.75 = 101.25
total EI = 333.75
Inventory costing methods place primary reliance on assumptions about the flow of ______
Parrish Company has the following inventory units and costs:
Units Unit Cost
Inventory, Jan. 1 7,000 $11
Purchase, June 19 10,000 12
Purchase, Nov. 8 4,000 13
If 8,000 units are on hand at December 31, what is the cost of the ending inventory under FIFO using a periodic inventory system?
What’s left (last 8000 using FIFO):
4000 @ $13 = 52,000
4000 @ $12 = 48,000
total EI = 100k
When is a physical inventory usually taken?
at the end of the fiscal year
Cost of goods purchased is $620,000, ending inventory is $60,000, and cost of goods sold is $650,000. How much is beginning inventory?
Beg inv [90k]
-end inv 60k
The following information came from the income statement of the Watson Company: sales revenue $1,800,000; beginning inventory $160,000; ending inventory $240,000; and gross profit $600,000. Inventory turnover is 6 times per year. What is Watson’s days in inventory?
Days in inven= 365/ITR
ITR (given) = 6
365/6= 60.8 days in inven
At December 31, Sunrise Company’s inventory records indicated a balance of $752,000. Upon further investigation it was determined that this amount included the following:
(1) $112,000 of inventory purchased by Sunrise under the terms FOB destination, and this inventory did not arrive until January 2,
(2) $74,000 of inventory sold and shipped by Sunrise on December 27 under the terms FOB destination, and this inventory was received by the buyer on January 6.
(3) $6,000 of inventory held by Sunrise on consignment from another company.
What is Sunrise’s correct ending inventory balance at December 31?
1. FOB dest means seller pays, which means buyer (Sunrise) did not receive the goods til Jan 2, so subtract this from inventory
2. FOB dest means seller (Sunrise) pays, which means buyer doesn’t get their goods until Jan 6, so keep this in inventory
3. Consignment goods do not count as inventory, so subtract this from inventory
752000-112000-6000= 634000 correct EI
In the current year, a company shows inventory of $280,000 using LIFO. If the company had used FIFO, its inventories would have been higher by $50,000 and $30,000 in the current year and in the prior year, respectively. How much is the company’s LIFO reserve in the current year?
LIFO reserve is the difference between LIFO and FIFO for the current year which is 50,000
Ownership passes to the buyer when purchased goods are received by the buyer from a public carrier if the goods are shipped
Cecil gives goods on consignment to Jerry who agrees to try to sell them for a 25% commission. At the end of the accounting period, which of the following parties includes in its inventory the consigned goods?
Cecil because he owns the goods
Ray’s Sounds has accumulated the following cost and market data on March 31:
Cost Data Market Data
iPods $23,000 $21,600
Cell phones $16,000 $17,500
DVDs $21,000 $18,900
Using the lower-of-cost-or-market, how much is the value of the ending inventory?
just use the lower of the two numbers and add them up
Irwin Industries had the following inventory transactions occur during the current year:
Feb. 1 Purchase 40 $42
Mar. 14 Purchase 60 $43
May 1 Purchase 53 $44
The company sold 100 units at $75 each and has a tax rate of 25%. Assuming that a periodic inventory system is used and operating expenses are $2,000, what is the company’s gross profit using LIFO? (rounded to whole dollars)
Ending inventory is $10,000, beginning inventory is $20,000, and the cost of goods purchased is $25,000. How much is cost of goods sold?
What quality of earnings ratio might a company have if it is using more aggressive accounting techniques in order to accelerate income recognition?
significantly less than 1
Cosmos Corporation, which uses a perpetual inventory system, purchased $2,000 of merchandise on July 5 on account. Credit terms were 2/10, n/30. It returned $400 of the merchandise on July 9. What is the journal entry when Cosmos pays its bill on July 21?
7/5 debit inven 2000
credit a/p 2000
7/9 debit a/p 400
credit inven 400
7/21 debit a/p 1600
credit cash 1600
they did not pay within discount period
RNA Company purchased merchandise with an invoice price of $2,000 and credit terms of 3/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?
3% of 2000= $60 interest if paid 20 days before final due date
interest=principal x int rate x time
60=2000 x int rate x 20/360
60/2000 x 360/20 = int rate
Martin Company purchases $4,200 of merchandise on March 1, with credit terms of 3/10, n/30. If Martin pays on March 11, Martin must pay
A/P debit 4200
Credit inven 126
Credit cash 4074
martin must pay $4074
When using a periodic inventory system and the purchaser directly incurs the freight costs, which account is debited?
buyer pays freight cost –> freight in debited
(add this cost to purchases when calculating COGS)
Assume that sales revenue are $450,000, sales discounts are $10,000, net income is $35,000, and cost of goods sold is $320,000. How much are gross profit and operating expenses, respectively?
Sales rev 450k
-sales disc 10k
=net sales 440k
-Op exp 85k
=Net inc 35k
A company which uses a perpetual inventory system needs how many journal entries when it sells merchandise?
Quality of earnings ratio
net cash provided by op act/net inc
Net income is $10,000, operating expenses are $25,000, and net sales total $75,000. How much is the gross profit rate?
Gross profit rate=gross profit/net sales
net sales 75k
-op exp 25k
=net inc 10k
35k/75k = 46.7% gross profit rate
A credit sale of $750 is made on June 13, terms 2/10, n/30, on which a return of $50 is granted on June 16. What amount is received as payment in full on June 23?
6/13 debit inven 750
credit a/p 750
6/16 debit a/p 50
credit inven 50
6/23 debit a/p 700
credit cash 686
credit inven 14
The operating cycle of a merchandising company is ordinarily ____________ that of a service firm.
Net credit sales are $800,000, average net receivables total $150,000, average inventory totals $200,000, and the allowance for doubtful accounts totals $8,000. How much is the average collection period (also known as the days in receivable ratio)?
avg collection pd= 365/ A/R turnover ratio
A/R turnover ratio= net credit sales/avg net A/R
800k/150k = 5.33
365/5.33= ACP is 68.5 days
What is the maturity value equal to?
face value + interest
Which one of these statements about promissory notes is incorrect?
-The party to whom payment is to be made is called the payee.
-The party making the promise to pay is called the maker.
-A promissory note is not a negotiable instrument.
-A promissory note is more liquid than an account receivable.
-A promissory note is not a negotiable instrument.
Which one of the following is not a method used by companies to accelerate cash receipts?
-Offering discounts for early payment
-Accepting national credit cards for customer purchases
-Selling receivables to a factor
-Writing off receivables
-Writing off receivables
When an uncollectible account is recovered after it has been written off, two journal entries are recorded. What are the entries?
1. Debit A/R
this reverses the writeoff
2. Debit cash
this records the cash collection
Baker Co. loaned $25,000 to Idaho Co. on June 1, at 12% interest for 3 months. What *adjusting* entry should Baker Co. record on June 30 before preparing the financial statements on June 30?
interest= principal x int rate x time
= 25000 x 12% x 1/12 (bc 1 month has passed)
6/30 debit int receivable 250
credit int revenue 250
Michael Co. *accepts* a $4,000, 3-month, 8% promissory note in settlement of an account with Tony Co. The entry to record this transaction includes
Debit N/R 4000
Credit A/R 4000
How much accrued interest should be reported on the payee’s December 31 balance sheet on a $8,000, 9%, 9-month note receivable issued on May 1?
interest= principal x int rate x time
= 8000 x 9% x 8/12 = 480
In September, Oliver Company sold merchandise on account to Mr. Reed for $200 with terms 1/10, n/30. Oliver Company uses the percentage of receivables basis for estimating uncollectible accounts on December 31. On April 18, Oliver Company determines that it will not collect the amount due from Mr. Reed. Prepare the journal entry to record the write-off on April 18.
Debit AFDA 200
Credit A/R 200
If a company uses the allowance method for uncollectible accounts, then the entry to record writing-off a customer’s $800 account includes
Debit AFDA 800
Credit A/R 800
What is the journal entry to record the dishonor of a note receivable?
When a merchandiser sells goods, it increases Accounts Receivable by debiting it and it _________ Sales Revenue by __________ it.
A 120-day promissory note is issued on April 11. What is the note’s maturity date?
August 9th bc April and June have 30 days
On June 15, Kelsey Company sold merchandise on account to Buyer Co. for $1,000 with terms 2/10, n/30. On June 20, Buyer Co. returns $300 of merchandise to Kelsey Company. On June 24, Buyer Co. pays the balance due. What is the amount of cash received by Kelsey Company on June 24?
6/15 Debit inven 1000
Credit a/p 1000
6/20 Debit a/p 300
Credit inven 300
6/24 Debit A/P 700
Credit cash 686
Credit inven 14
In the table below the information for four companies is provided.
Company Accounts Receivable turnover
Industry Average 13.0
Assuming all four companies are in the same industry, which company appears to have the lowest likelihood of paying its current obligations?
Gamma has the lowest A/R turnover which means the lowest likelihood to pay back
On May 2, Cartwright Company receives a $5,000, 6-month, 10% note from Sheldon Company as a settlement of its accounts receivable. What journal entry will Cartwright Company record on May 2?
Debit N/R 5000
Credit A/R 5000
Net credit sales for the month are $6,000,000 for Stacy Clothiers. Its accounts receivable balance is $300,000. The allowance is calculated as 7% of the receivables balance using the percentage of receivables basis. The Allowance for Doubtful Accounts has a credit balance of $10,000 before adjustment. How much is the balance of the allowance account after adjustment?
AFDA will have a *credit* balance of 21000 after adjustment because that’s 7% of the 300k A/R bal
The five basic issues in accounting for notes receivable are
1. determining the maturity date
2. computing interest
3. recognizing notes receivable
4. valuing notes receivable
5. disposing of notes receivable.
Managing accounts receivable involves five steps. What are they?
1. determining to whom to extend credit
2. establish a payment period
3. monitor collections
4. evaluate the liquidity of receivables
5. accelerate cash receipts from receivables when necessary
Bad debt expense is a ____ account while AFDA is a _____ account
Edward Corporation had net credit sales during the year of $800,000 and cost of goods sold of $500,000. The balance in receivables at the beginning of the year was $100,000 and at the end of the year was $150,000. The balance of total assets at the beginning of the year was $1,000,000 and at the end of the year was $1,500,000. How much is the accounts receivables turnover?
ATR= net credit sales/avg net A/R
800k/ (100k+150k)/2 = 6.4
the company collected the equivalent of its average accounts receivable 6.4 times during the year
The accounts receivable turnover ratio measures the _____ of receivables
Bright Electronics uses the *percentage of receivables method* for estimating bad debts expense. The Accounts Receivable balance is $100,000 at year-end and the total credit sales were $800,000. Management estimates that 4% of receivables will be uncollectible. What adjusting entry will be recorded if the Allowance for Doubtful Accounts has a credit balance of $800 before adjustment?
100k x 4% = 4000
800 AFDA credit bal already there
to get to 4000:
Debit bad debt exp 3200
Credit AFDA 3200
Which of the following should be classified as an “other” receivable?
Oak Company uses the percentage-of-receivables method for recording bad debts expense. The accounts receivable balance is $80,000 at year-end. The total credit sales were $2,500,000 for the year. Management estimates that 3.5% of receivables will be uncollectible. What adjusting entry should be made if the Allowance for Doubtful Accounts has a debit balance of $100 before the year-end adjusting entry for Bad Debt Expense?
80k x 3.5% = 2800
AFDA has a 100 *debit* balance (should be credit)
Debit bad debt exp 2900
Credit AFDA 2900
Schmidt Co. holds Murphy Inc.’s $10,000, 120-day, 6% note. What is the entry to be made by Schmidt Co. when the note is collected, assuming no interest has previously been accrued?
int= 10000 x 6% x 120/360 = 200
Debit cash 10200
Credit N/R 10000
Credit int revenue 200
What is the maturity value of a $25,000, 12%, 3-month note receivable dated March 1?
int = principal x int rate x time
= 25000 x 12% x 3/12 = 750
maturity value= 25750
Laurel Company factors $400,000 of receivables to Hardy Factors. Hardy Factors assesses a 3% fee on the amount of receivables sold. Laurel Co. factors its receivables to Hardy Factors regularly. What journal entry does Laurel Co. make when the factoring occurs?
400000 x 3% = 12000
Debit cash 388000
Debit service charge 12000
Credit A/R 400000
Cash (net) realizable value is measured as _____
=cash (net) realizable value
Short-term notes receivable are reported in the current assets section of the balance sheet at
Cash realizable value
Companies report accounts receivable, short-term notes receivable, and other receivables in the current asset section of the balance sheet at their _____
expected cash realizable value
A company holds a 60-day, 7%, $25,000 note, but the maker of the note *failed to pay* on the maturity date. What will the journal entry be?
Debit A/R 25315
Credit N/R 25000
Credit int rev 315
Good Stuff Retailers accepted $50,000 of Wells Fargo Visa credit card charges for merchandise sold on July 1. Wells Fargo charges 5% for its credit card use. What should Good Stuff Retailers’ journal entry be?
Debit Cash 47500
Debit Serv charge 2500
Credit sales 50000
On January 1, Putnam Wholesale Company’s Allowance for Doubtful Accounts had a credit balance of $18,000. During the year, it had net credit sales of $750,000 and it had $30,000 of uncollectible accounts receivable that were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage-of-receivables basis). If the accounts receivable balance at December 31 was $200,000, what is the required *credit adjustment* to the Allowance for Doubtful Accounts at December 31?
Credit bal is 18k but 30k of uncollectibles were written off, so add 30k to AFDA *debit* bal
unadjusted AFDA bal is 12k debit
balance should be 10% of A/R so it should be 20k of credit
the credit adjustment needed to give AFDA a 20k credit bal is 32000
The two methods for accounting uses for uncollectible accounts are _____
the direct write-off method and the allowance method for uncollectible accounts.
Star Corporation sells its goods on terms of 2/10, n/30. It has a receivables turnover ratio of 7.50. What is its average collection period (also known as the days in receivable ratio)?
= 365/7.5 = 48.67 days
Which of the following accounts is debited when a company factors its accounts receivable?
Loss on Sale of Accounts Receivable
Service Charge Expense
Service charge expense
An analysis and aging of the accounts receivable of Raja Company at December 31 reveal the following data before year-end adjusting entries: Accounts receivable, $800,000; Allowance for doubtful accounts balance before adjustment (credit balance), $12,000; Amounts expected to become uncollectible, $65,000. How much is the cash realizable value (i.e., net realizable value) of the accounts receivable at December 31, after adjusting entries?
Cash realizable value= A/R – AFDA
AFDA unadjusted: 12k credit
Expected AFDA: 65k
800k- 65k = 735k net realizable value
Kensington Company sold $7,000 of merchandise to customers who charged their purchases with a bank credit card. Kensington’s bank charges it a 5% fee. What is the journal entry?
debit Cash 6650
debit Service charge 350
Credit sales 7000
The following information relates to the beginning of the year:
Accounts receivable, $245,000
Allowance for doubtful accounts (credit balance), $12,250
During the current year, sales on account were $1,100,000 and collections on account were $990,000. Also during the current year, the company wrote off $14,000 in uncollectible accounts. At year-end, an analysis of outstanding accounts receivable indicated that the allowance for doubtful accounts should have a $17,000 credit balance so the company records the appropriate year-end adjusting entry. How much did the cash realizable value *change* during the current year?
End A/R: 245k+ (1.1m-990k) -14k = 341k
CRV: 341k – 17k = 324k end bal
Beg CRV: 245k-12250= 232750
End CRV 324k – Beg CRV 232750 = 91250 increase in cash realizable value
When an account is written off as uncollectible, ______ decreases
Which of the following is the correct adjusting journal entry for the bank account holder when notified of a bank debit memorandum for a monthly service charge of $30?
Debit misc expense 30
Credit cash 30
An office supply store has a cashier who is also the accounts receivable clerk for the company. Which internal control principle is violated?
Segregation of duties
Triple Company collected the following information to prepare its September bank reconciliation: Cash balance per books, December 31, $75,750. Note receivable of $4,200 plus $300 of interest collected, $4,500. Outstanding checks, $14,500. Deposits in transit, $10,250. Triple Company erroneously recorded a $320 outflow as a $230 cash outflow. The bank erroneously subtracted $750 from Triple Company’s checking account. The bank should have subtracted the money to a different customer’s account. Bank service charges, $50. NSF check, $500. How much is the adjusted cash balance per books on December 31?
Cash bal per books 75750
+notes collected by bank (incl interest) 4500
-NSF check 500
-service charge 50
-company error 90
=adj cash bal per books 79610
Barker Company collected the following information to prepare its June bank reconciliation: Cash balance per bank, June 30, $43,800. Note receivable of $3,800 plus $200 of interest collected, $4,000. Outstanding checks, $4,900. Deposits in transit, $2,300. Bank service charges, $50. NSF check, $450. How much is the adjusted cash balance per bank on June 30?
cash bal per bank 43800
+deposits in transit 2300
-outstanding checks 4900
=adj cash bal per bank 41200
Which of the following is not a principle of internal control?
Collusion between employees
Segregation of duties
Bonding of employees
collusion between employees
Under which of the following do computer programs that limit unauthorized access to certain files fall?
Independent internal verification
Human resource controls
For which of the following errors should the appropriate amount be added to the cash balance per bank statement on a company’s bank reconciliation?
-A deposit of $10,000 was incorrectly recorded by bank as a deposit of $1,000.
-A check written by the company for $1,200 was incorrectly recorded by the company as $120.
-A check written by the company for $980 was incorrectly recorded on the company’s books as $890.
-A check written by the company for $110 was incorrectly recorded on the company’s books as $101.
Cash bal per bank records *bank* errors
A deposit of $10,000 was incorrectly recorded by bank as a deposit of $1,000.
The Sarbanes-Oxley Act requires all publicly traded U.S. companies to maintain an adequate system of ________
Which one of the following is not a physical control?
-Locked warehouses for inventories
-Independent bank reconciliations
-Bank safety deposit boxes for important papers
-Safes and vaults to store cash
Independent bank reconciliations
Springer Company listed outstanding checks totaling $4,500 on its September bank reconciliation. In October, the company issued checks totaling $45,700. The October bank statement shows that checks totaling $39,800 cleared the bank. In addition, a check from one of Springer’s customers in the amount of $500 was returned as NSF. The outstanding checks on the October bank reconciliation should total
Beginning outstanding checks (from September), $4,500
+Checks issued during October, $45,700
-Checks that cleared the bank during October, ($39,800)
=Ending outstanding check bal $10,400
don’t include NSF because it was not a check written by springer company
Which of the following statements is false with regards to record-keeping for bank reconciliations?
-Outstanding checks do not require a journal-entry once the bank reconciliation is completed.
-Bank errors do not require a journal-entry once the bank reconciliation is completed.
-Deposits in transit do require a journal-entry once the bank reconciliation is completed.
-NSF checks do require a journal-entry once the bank reconciliation is completed.
Deposits in transit do require a journal-entry once the bank reconciliation is completed.
Deposits in transit are deposits the company presented to the bank before the end of the month that have not yet been posted to the bank account. They will clear in the future periods. No adjusting entry is needed.
As used in a bank reconciliation, how are deposits in transit handled?
-Deducted from the book balance
-Added to the book balance
-Added to the bank balance
-Deducted from the bank balance
added to the bank balance
The five primary components of an internal control system are
1. Control environment
2. Risk assessment
3. Control activities
4. Information and communication
Why might a bank issue a debit memorandum to a depositor’s account?
A debit memorandum causes a ______ in the account balance
Jones Company collected the following information to prepare its July bank reconciliation: Cash balance per books, July 31, $7,000. Deposits in transit, $600. Notes receivable with interest collected by bank, $300. Bank service charges, $45. Outstanding checks, $330. NSF check, $225. How much is the adjusted cash balance per books on July 31?
Cash bal per books 7000
+ notes collected by bank 300
-service charges 45
=adj CBPBook 7030
Internal auditors are employees of the company and _______ evaluate the effectiveness of the company’s internal control systems.
External auditors and public accountants evaluate the internal controls of a company during the audit cycle and it is _______
Double Company collected the following information to prepare its April bank reconciliation: Cash balance per bank, April 30, $71,600. Note receivable of $1,900 plus $200 of interest collected, $2,100. Outstanding checks, $6,400. Deposits in transit, $1,500. Double Company erroneously recorded a $1,200 cash outflow as a $2,100 cash outflow. The bank erroneously added $1,000 to Double Company’s checking account. The bank should have added the money to a different customer’s account. Bank service charges, $10. NSF check, $500. How much is the adjusted cash balance per bank on April 30?
+deposits in transit 1500
-outstanding checks 6400
-bank error 1000
=adj CBPBank 65700
When the buyer pays freight, it’s considered ________ and it’s added to ______
freight in, purchases
When seller pays freight, it’s considered _______ and added to _______
freight out, op expenses
Dorcas Corporation reported sales revenue of $257,000, net income of $45,300, cash of $9,300, and net cash provided by operating activities of $23,200. Accounts receivable have increased at three times the rate of sales during the last 3 years. Explain what is meant by high quality of earnings.
Earnings have high quality if they provide a full and transparent depiction of how a company performed.
On April 5, purchased merchandise from Frost Company for $28,000, terms 1/10, n/30.
On April 8, returned $3,600 of April 5 merchandise to Frost Company.
On April 15, paid the amount due to Frost Company in full.
Prepare the journal entry to record the April 15 transaction listed above on Crisp Co.’s books. Crisp Co. uses a perpetual inventory system.
4/5 Debit inven 28k
Credit A/P 28k
4/8 Debit A/P 3600
Credit inven 3600
4/15 Debit A/P 24400
Credit cash 24156
Credit inven 244
The following transactions are for Solarte Company.
On December 3, Solarte Company sold $500,000 of merchandise to Rooney Co., terms 1/10, n/30. The cost of the merchandise sold was $330,000.
On December 8, Rooney Co. was granted an allowance of $25,000 for merchandise purchased on December 3.
On December 14, Solarte Company received the balance due from Rooney Co.
Describe the journal entry to record the December 14 transaction on the books of Solarte Company. Solarte uses a perpetual inventory system.
-purchase R+A 25000
=Net purchases 475000
Debit cash 47500
Credit A/R 475000
Columbia Bank and Trust is considering giving Gallup Company a loan. Before doing so, it decides that further discussions with Gallup’s accountant may be desirable. One area of particular concern is the Inventory account, which has a year-end balance of $275,000. Discussions with the accountant reveal the following.
i. Gallup sold goods costing $65,000 to Bazil Company FOB shipping point on December 28. The goods are not expected to reach Bazil until January 12. The goods were not included in the physical inventory because they were not in the warehouse.
ii. The physical count of the inventory did not include goods costing $90,000 that were shipped to Gallup FOB destination on December 27 and were still in transit at year-end.
iii. Gallup received goods costing $33,000 on January 2. The goods were shipped FOB shipping point on December 26 by Lynch Co. The goods were not included in the physical count.
Determine the correct inventory amount on December 31.
1. 65000 already included in inven so don’t change it
2. 90000 should not be changed because it was already taken out of inventory
3. add 33000 to inventory because FOB ship means we owned the goods when they were shipped on Dec 26
=308k correct inven
On December 1, Quality Electronics has three DVD players left in stock. All are identical, all are priced to sell at $105. One of the three DVD players left in stock, with serial #1012, was purchased on June 1 at a cost of $53. Another, with serial #1045, was purchased on November 1 for $48. The last player, serial #1056, was purchased on November 30 for $42. Calculate the cost of goods sold using the FIFO periodic inventory method, assuming two of the three DVD players were sold by the end of December, Quality Electronics’ year-end.
add up first two
48+53= 101 COGS
Mateo Inc. had the following inventory situations to consider at January 31, its year-end.
(i) Goods held on consignment for Schrader Corp. since December 12.
(ii) Goods shipped on consignment to Lyman Holdings Inc. on January 5.
(iii) Office supplies on hand at January 31.
Identify whether the items should be included or not included in inventory.
ii should be included on the first company’s inventory (the company wanting to consign their good) but not the second company’s inventory
At the beginning of the current period, Griffey Corp. had balances in Accounts Receivable of $200,000 and in Allowance for Doubtful Accounts of $6,000 (credit). During the period, it had net credit sales of $800,000 and collections of $763,000. It wrote off as uncollectible accounts receivable of $7,000. However, a $3,100 account previously written off as uncollectible was recovered before the end of the current period. Uncollectible accounts are estimated to total $25,000 at the end of the period. What is the net realizable value of the receivables at the end of the period?
Net realizable value= A/R-AFDA
Beg A/R 200k
(3100 not included bc the writeoff was recovered)
AFDA (given) 25000
230k-25k= 205k NRV
Companies want to have a ______ days in receivable ratio
1. Selling receivables to a factor.
2. Reviewing company ratings in The Dun and Bradstreet Reference Book of American Business.
3. Collecting information on competitors’ payment period policies.
4. Preparing monthly accounts receivable aging schedule and investigating problem accounts.
5. Calculating the accounts receivable turnover and average collection period.
Match each of the activities listed above with a purpose pf the activity listed below.
(a) Determine to whom to extend credit.
(b) Establish a payment period.
(c) Monitor collections
(d) Evaluate the liquidity of receivables
(e) Accelerate cash receipts from receivables when necessary
What are the correct matches?
1. E, selling receivables to a factor can accelerate cash receipts from receivables
2. A, reviewing company ratings can help determine if we should extend credit to them or not
3. B, collecting info on competitor’s payment policies can help us determine what our payment period should be
4. C, Preparing monthly A/R aging schedule and investigating problem accounts can help us monitor our collections
5. D, calculating A/R turnover and avg collection period will help us determine the liquidity of our receivables
Kimbrel Corp. significantly reduced its requirements for credit sales. As a result, sales during the current year increased dramatically. It had receivables at the beginning of the year of $38,000 and ending receivables of $176,000. Credit sales were $413,000. Determine cash collections during the period.
Beg A/R 38k
+Credit sales 413k
=End A/R 176k
On December 31, 2013, when its Allowance for Doubtful Accounts had a debit balance of $1,200, Hunt Co. estimates that 7% of its accounts receivable balance of $100,000 will become uncollectible and records the necessary adjustment to Allowance for Doubtful Accounts. On May 11, 2014, Hunt Co. determined that J. Byrd’s account was uncollectible and wrote off $1,200. On June 12, 2014, Byrd paid the amount previously written off. Prepare the journal entry for December 31, 2013.
7% of 100k is 7000
+ 1200 debit bal in AFDA
Debit Bad debt exp 8200
Credit AFDA 8200
On January 6, Aaron Co. sells merchandise on account to Foley Inc. for $9,000, terms 2/10, n/30. On January 16, Foley pays the amount due. Prepare Aaron Company’s January 16th journal-entry.
seller’s journal entry for cash collection w/ discount
Debit cash 8820
Debit sales disc 180
Credit A/R 9000
On May 10, Renn Company sold merchandise for $4,000 and accepted the customer’s First Business Bank Master card. At the end of the day, the First Business Bank Master card receipts were deposited in the company’s bank account. First Business Bank charges a 2.9% service charge for credit card sales. Prepare the entry on Renn Company’s books to record the sale of merchandise.
seller’s jounal entry for cash collection w/ serv charge
Debit cash 3884
Debit serv charge exp 116
Credit sales rev 4000
Nov. 1 Loaned $60,000 cash to B. Carr on a 12·month, 7% note.
Dec. 11 Sold goods to R. P. Kiner, Inc., receiving a $3,600, 90-day, 8% note.
Dec. 16 Received a $12,000, 180-day, 9% note to settle an open account from M. Adcock.
Dec. 31 Accrued interest revenue on all notes receivable.
What are the journal entries for these?
11/1 Debit N/R 60000
Credit cash 60000
12/11 Debit N/R 3600
Credit Sales rev 3600
12/16 Debit N/R 12000
Credit A/R 12000
12/31 Debit Int receivable
Credit int revenue
On January 10, Allison Milo uses her Crawford Co. credit card to purchase merchandise from Crawford Co. for $1,700. On February 10, Milo is billed for the amount due of $1,700. On February 12, Milo pays $1,000 on the balance due. On March 10, Milo is billed for the amount due, including interest at 1.5% per month on the unpaid balance as of February 12. Prepare the entries on Crawford Co.’s books related to the transaction that occurred on March 10. (Omit cost of goods sold entries.)
1/10 Debit A/R 1700
Credit sales rev 1700
2/12 debit Cash 1000
credit A/R 1000
3/10 Debit A/R 10.50 (1.5% x 700)
Credit int rev 10.50
The ledger of Wainwright Company at the end of the current year shows Accounts Receivable $78,000; Credit Sales $810,000; and Sales Returns and Allowances $40,000. If Allowance for Doubtful Accounts has a credit balance of $500 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be 6% of accounts receivable.
6% of 78k = 4680
AFDA currently has 500 credit
Debit bad debt exp 4180
Credit AFDA 4180
Bank employees use a system known as the “maker-checker” system. An employee will record an entry in the appropriate journal, and then a supervisor will verify and approve the entry. These days, as all of a bank’s accounts are computerized, the employee first enters a batch of entries into the computer, and then the entries are posted automatically to the general ledger account after the supervisor approves them on the system. Access to the computer system is password-protected and task-specific, which means that the computer system will not allow the employee to approve a transaction or the supervisor to record a transaction. Identify the principles of internal control inherent in the “maker-checker” procedure used by banks.
segregation of duties and physical controls
The cash records of Downs Company show the following for July: The June 30 bank reconciliation indicated that deposits in transit total $450. During July, the general ledger account Cash shows deposits of $16,800, but the bank statement indicates that only $15,600 in deposits were received during the month. Compute the deposits in transit at July 31.
Deposits per bank in July 15600
-Deposits in transit 450
= 15150 deposited in july
Deposits per books in July 16800
-Amt deposited in July 15150
=Deposits in transit 1650
A check for $300 to a creditor on account that cleared the bank in August was journalized and posted for $30. Journalize the adjusting entry associated with the check that was posted incorrectly.
Debit A/P 270
Credit Cash 270
The following control procedures are used in Kelton Company for over-the-counter cash receipts. (i) Each store manager is responsible for interviewing applicants for cashier jobs. They are hired if they seem honest and trustworthy. (ii) All over-the-counter receipts are registered by three clerks who share a cash register with a single cash drawer. For each procedure, identify the control principle that is violated.
(i) Human resource controls—Cashiers are not bonded and no background checks.
(ii) Establishment of responsibility—Inability to establish responsibility for cash on a specific clerk.