Questions -
Q1) The following information is available for two different types of businesses for the 2016 accounting year. Hopkins CPAs is a service business that provides accounting services to small businesses. Sports Clothing is a merchandising business that sells sports clothing to college students.
Data for Hopkins CPAs
1. Borrowed $47,000 from the bank to start the business.
2. Provided $37,000 of services to clients and collected $37,000 cash.
3. Paid salary expense of $23,700.
Data for Sports Clothing
1. Borrowed $47,000 from the bank to start the business.
2. Purchased $26,000 inventory for cash.
3. Inventory costing $21,800 was sold for $39,000 cash.
4. Paid $3,100 cash for operating expenses.
Required - Prepare an income statement, balance sheet, and statement of cash flows for each of the companies.
Q2) Dan Watson started a small merchandising business in 2016. The business experienced the following events during its first year of operation. Assume that Watson uses the perpetual inventory system.
1. Acquired $32,000 cash from the issue of common stock.
2. Purchased inventory for $25,600 cash.
3. Sold inventory costing $15,000 for $31,000 cash.
Required -
a. Record the events in general journal format.
b. Post the entries to T-accounts.
c. Prepare an income statement for 2016.
d. What is the amount of net cash flow from operating activities for 2016?
Q3) In 2016, Kim Company sold land for $103,000 cash. The land had originally cost $42,000. Also, Kim sold inventory that had cost $186,000 for $287,000 cash. Operating expenses amounted to $36,000.
Required -
a. Prepare a 2016 multistep income statement for Kim Company.
b. Assume that normal operating activities grow evenly by 14% during 2017. Prepare a 2017 multistep income statement for Kim Company.
c. Determine the percentage change in net income between 2016 and 2017.
Q4) The following information was drawn from the 2016 accounting records of Ozark Merchandisers:
1. Inventory that had cost $16,200 was sold for $25,920 under terms 2/20, net/30.
2. Customers returned merchandise to Ozark five days after the purchase. The merchandise had been sold for a price of $624. The merchandise had cost Ozark $480.
3. All customers paid their accounts within the discount period.
4. Selling and administrative expenses amounted to $2,592.
5. Interest expense paid amounted to $220.
6. Land that had cost $6,200 was sold for $7,750 cash.
Required -
a. Determine the amount of net sales.
b. Prepare a multistep income statement.
c. Where would the interest expense be shown on the statement of cash flows?
Operating activities
Investing activities
Financing activities
d. How would the sale of the land be shown on the statement of cash flows?
The full sales price of the land, $7,750, would be shown as a cash inflow from financing activities on the statement of cash flows.
The full sales price of the land, $7,750, would be shown as a cash inflow from investing activities on the statement of cash flows.
The full sales price of the land, $7,750, would be shown as a cash inflow from operating activities on the statement of cash flows.
Q5) The following information was taken from the accounts of Green Market, a small grocery store at December 31, 2016. The accounts are listed in alphabetical order, and all have normal balances.
|
Accounts payable
|
$604
|
|
Accounts receivable
|
404
|
|
Advertising expense
|
200
|
|
Cash
|
414
|
|
Common stock
|
204
|
|
Cost of goods sold
|
600
|
|
Interest expense
|
66
|
|
Merchandise inventory
|
410
|
|
Prepaid rent
|
44
|
|
Retained earnings, 1/1/2016
|
639
|
|
Sales revenue
|
1,040
|
|
Salaries expense
|
170
|
|
Rent expense
|
100
|
|
Gain on sale of land
|
79
|
Required - Prepare an income statement for the year using the single-step and multistep approach.
Q6) Cortez Company sells chairs that are used at computer stations. Its beginning inventory of chairs was 70 units at $85 per unit. During the year, Cortez made two batch purchases of this chair. The first was a 206-unit purchase at $96 per unit; the second was a 244-unit purchase at $102 per unit. During the period, it sold 342 chairs.
Required - Determine the amount of product costs that would be allocated to cost of goods sold and ending inventory, assuming that Cortez uses
a. FIFO:
b. LIFO:
c. Weighted average:
The following information applies to the questions displayed below.
The Shirt Shop had the following transactions for T-shirts for 2016, its first year of operations:
|
Jan. 20
|
Purchased
|
590 units @ $8
|
=
|
$4,720
|
|
Apr. 21
|
Purchased
|
390 units @ $10
|
=
|
3,900
|
|
July 25
|
Purchased
|
470 units @ $13
|
=
|
6,110
|
|
Sept. 19
|
Purchased
|
280 units @ $15
|
=
|
4,200
|
During the year, The Shirt Shop sold 1,380 T-shirts for $24 each.
Q7-9) Required
a. Compute the amount of ending inventory The Shirt Shop would report on the balance sheet, assuming the following cost flow assumptions: (1) FIFO, (2) LIFO, and (3) weighted average.
b. Record the above transactions in general journal form and post to T-accounts using (1) FIFO, (2) LIFO, and (3) weighted average. Use a separate set of journal entries and T-accounts for each method. Assume all transactions are cash transactions.
c. Compute the difference in gross margin between the FIFO and LIFO cost flow assumptions.
Q10) The following information pertains to Hagen Metal Work's ending inventory for the current year:
|
Item
|
Quantity
|
Unit Cost
|
Unit Market Value
|
|
C
|
270
|
$ 14
|
$ 11
|
|
D
|
260
|
16
|
15
|
|
K
|
72
|
12
|
15
|
|
M
|
65
|
9
|
15
|
Required -
a. Determine the value of the ending inventory using the lower-of-cost-or-market rule applied to (1) each individual inventory item and (2) the inventory in aggregate.
b. Prepare any necessary journal entries, assuming the decline in value is immaterial, using the (1) individual method and (2) aggregate method. Hagen Metal Works uses the perpetual inventory system.
Q11) A substantial portion of inventory owned by Prentiss Sporting Goods was recently destroyed when the roof collapsed during a rainstorm. Prentiss also lost some of its accounting records. Prentiss must estimate the loss from the storm for insurance reporting and financial statement purposes. Prentiss uses the periodic inventory system. The following accounting information was recovered from the damaged records:
|
Beginning inventory
|
$203,100
|
|
Purchases to date of storm
|
395,200
|
|
Sales to date of storm
|
603,900
|
The value of undamaged inventory counted was $85,602. Historically Prentiss' gross margin percentage has been approximately 18 percent of sales.
Required - Estimate the following:
a. Gross margin in dollars.
b. Cost of goods sold in dollars.
c. Ending inventory.
d. Amount of lost inventory.
Q12. Han's Supplies' bank statement contained a $470 NSF check that one of its customers had written to pay for supplies purchased.
Required -
a. Show the effects of recognizing the NSF check on the financial statements by recording the appropriate amounts in a horizontal statements model like the following one: (In the Cash Flow column, use the initials OA to designate operating activity, IA for investing activity, FA for financing activity and NA to indicate the element is not affected by the event. Enter any decreases to account balances with a minus sign.)
b. Is the recognition of the NSF check on Han's books an asset source, use, or exchange transaction?
Asset source
Asset use
Asset exchange
c. Suppose the customer redeems the check by giving Han $490 cash in exchange for the bad check. The additional $20 paid a service fee charged by Han. Show the effects on the financial statements in the horizontal statements model.
d. Is the receipt of cash referenced in Requirement c an asset source, use, or exchange transaction?
$490 Asset use, $20 Asset source
$470 Asset exchange, $20 Asset source
$470 Asset source, $20 Asset use
$470 Asset use, $20 Asset exchange
$470 Asset source, $20 Asset exchange
Q13) Record in general journal form the adjusting entry for the NSF check and the entry for redemption of the check by the customer.
The following information is available for Trinkle Company for the month of June:
1. The unadjusted balance per the bank statement on June 30 was $54,142.
2. Deposits in transit on June 30 were $2,680.
3. A debit memo was included with the bank statement for a service charge of $6.
4. A $3,185 check written in June had not been paid by the bank.
5. The bank statement included a $1,250 credit memo for the collection of a note. The principal of the note was $1,215, and the interest collected amounted to $35.
Q14) Determine the true cash balance as of June 30.
Nickleson Company had an unadjusted cash balance of $7,931 as of May 31. The company's bank statement, also dated May 31, included a $76 NSF check written by one of Nickleson's customers. There were $558 in outstanding checks and $210 in deposits in transit as of May 31. According to the bank statement, service charges were $80, and the bank collected a $1,200 note receivable for Nickleson. The bank statement also showed $16 of interest revenue earned by Nickleson.
Required - Determine the true cash balance as of May 31. (Hint: It is not necessary to use all of the preceding items to determine the true balance.)
Q15) Chen Company established a $325 petty cash fund on January 1, 2016.
Required -
a. Is the establishment of the petty cash fund an asset source, use, or exchange transaction?
Asset source
Asset use
Asset exchange
b. Record the establishment of the petty cash fund in a horizontal statements model like the following one: (In the Cash Flow column, use the initials OA to designate operating activity, IA for investing activity, FA for financing activity, and NA for not affected. Enter any decreases to account balances with a minus sign.)
c. Record the establishment of the fund in general journal format.