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ACC423 Week 5 E20-7 E22-19 P20-4 P22-6

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E20-7 The following defined pension data of Rydell Corp. apply to the year 2012.

Projected benefit obligation, 1/1/12 (before amendment)  560,000
Plan assets, 1/1/12  546,200
Pension liability  13,800
On January 1, 2012, Rydell Corp., through plan amendment, 
grants prior service benefits having a present value of  120,000
Settlement rate 9%
Service cost  58,000
Contributions (funding)  65,000
Actual (expected) return on plan assets  52,280
Benefits paid to retirees  40,000
Prior service cost amortization for 2012  17,000

Instructions
For 2010, prepare a pension worksheet for Rydell Corp. that shows the journal entry for pension expense and the year-end balances in the related pension accounts

E22-19 A partial trial balance of Dickinson Corporation is as follows on December 31, 2012.

Dr.Cr.
Supplies  2,500
Salaries and Wages Payable  1,500
Interest Receivable  5,100
Prepaid Insurance  90,000
Unearned Rent  -  
Interest Payable  15,000

Additional adjusting data:
1. A physical count of supplies on hand on December 31, 2012, totaled $1,100.
2. Through oversight, the Salaries and Wages Payable account was not changed during 2012. Accrued
salaries and wages on December 31, 2012, amounted to $4,400.
3. The Interest Receivable account was also left unchanged during 2012. Accrued interest on investments amounts to $4,350 on December 31, 2012.
4. The unexpired portions of the insurance policies totaled $65,000 as of December 31, 2012.
5. $24,000 was received on January 1, 2012, for the rent of a building for both 2012 and 2013. The entire amount was credited to Rent Revenue.
6. Depreciation for the year was erroneously recorded as $5,000 rather than the correct figure of
$50,000.
7. A further review of depreciation calculations of prior years revealed that depreciation of $7,200 was
not recorded. It was decided that this oversight should be corrected by a prior period adjustment.

Instructions
(a) Assuming that the books have not been closed, what are the adjusting entries necessary at December 31, 2012? (Ignore income tax considerations.)
(b) Assuming that the books have been closed, what are the adjusting entries necessary at December 31, 2012? (Ignore income tax considerations.)

P20-4 Gordon Company sponsors a defined benefit

pension plan. The following information related to the pension plan is available for 2012 and 2013.

20122013
Plan assets (fair value), December 31 $699,000$849,000
Projected benefit obligation, January 1 700,000800,000
Pension asset/liability, January 1 140000
Prior service cost, January 1 250,000240,000
Service cost 60,00090,000
Actual and expected return on plan assets 24,00030,000
Amortization of prior service cost 10,00012,000
Contributions (funding) 115,000120,000
Accumulated benefit obligation, December 31 500,000550,000
Interest/settlement rate 9%9%

Instructions
(a) Compute pension expense for 2012 and 2013.
(b) Prepare the journal entries to record the pension expense and the company’s funding of the pension
plan for both years.

P22-6  On December 31, 2012, before the books were closed, the management and accountants of Madrasa Inc. made the following determinations about three depreciable assets.

1. Depreciable asset A was purchased January 2, 2009. It originally cost $540,000 and, for depreciation
purposes, the straight-line method was originally chosen. The asset was originally expected to be
useful for 10 years and have a zero salvage value. In 2012, the decision was made to change the depreciation method from straight-line to sum-of-the-years’ digits, and the estimates relating to useful
life and salvage value remained unchanged.

2. Depreciable asset B was purchased January 3, 2008. It originally cost $180,000 and, for depreciation
purposes, the straight-line method was chosen. The asset was originally expected to be useful for 15
years and have a zero salvage value. In 2012, the decision was made to shorten the total life of this
asset to 9 years and to estimate the salvage value at $3,000.

3. Depreciable asset C was purchased January 5, 2008. The asset’s original cost was $160,000, and this
amount was entirely expensed in 2008. This particular asset has a 10-year useful life and no salvage
value. The straight-line method was chosen for depreciation purposes.

Additional data:
1. Income in 2012 before depreciation expense amounted to $400,000.
2. Depreciation expense on assets other than A, B, and C totaled $55,000 in 2012.
3. Income in 2011 was reported at $370,000.
4. Ignore all income tax effects.
5. 100,000 shares of common stock were outstanding in 2011 and 2012.

Instructions
(a) Prepare all necessary entries in 2012 to record these determinations.
(b) Prepare comparative retained earnings statements for Madrasa Inc. for 2011 and 2012. The company had retained earnings of $200,000 at December 31, 2010.

P22-6 Madrasa Inc

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On December 31, 2012, before the books were closed, the
management and accountants of Madrasa Inc. made the following determinations about three depreciable assets.

1. Depreciable asset A was purchased January 2, 2009. It originally cost $540,000 and, for depreciation
purposes, the straight-line method was originally chosen. The asset was originally expected to be
useful for 10 years and have a zero salvage value. In 2012, the decision was made to change the depreciation method from straight-line to sum-of-the-years’ digits, and the estimates relating to useful
life and salvage value remained unchanged.

2. Depreciable asset B was purchased January 3, 2008. It originally cost $180,000 and, for depreciation
purposes, the straight-line method was chosen. The asset was originally expected to be useful for 15
years and have a zero salvage value. In 2012, the decision was made to shorten the total life of this
asset to 9 years and to estimate the salvage value at $3,000.

3. Depreciable asset C was purchased January 5, 2008. The asset’s original cost was $160,000, and this
amount was entirely expensed in 2008. This particular asset has a 10-year useful life and no salvage
value. The straight-line method was chosen for depreciation purposes.

Additional data:
1. Income in 2012 before depreciation expense amounted to $400,000.
2. Depreciation expense on assets other than A, B, and C totaled $55,000 in 2012.
3. Income in 2011 was reported at $370,000.
4. Ignore all income tax effects.
5. 100,000 shares of common stock were outstanding in 2011 and 2012.

Instructions
(a) Prepare all necessary entries in 2012 to record these determinations.
(b) Prepare comparative retained earnings statements for Madrasa Inc. for 2011 and 2012. The company had retained earnings of $200,000 at December 31, 2010.

P20-4 Gordon Company sponsors a defined

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Gordon Company sponsors a defined benefit

pension plan. The following information related to the pension plan is available for 2012 and 2013.

  2012 2013
Plan assets (fair value), December 31  $699,000 $849,000
Projected benefit obligation, January 1  700,000 800,000
Pension asset/liability, January 1  140000
Prior service cost, January 1  250,000 240,000
Service cost  60,000 90,000
Actual and expected return on plan assets  24,000 30,000
Amortization of prior service cost  10,000 12,000
Contributions (funding)  115,000 120,000
Accumulated benefit obligation, December 31  500,000 550,000
Interest/settlement rate  9% 9%

Instructions
(a) Compute pension expense for 2012 and 2013.
(b) Prepare the journal entries to record the pension expense and the company’s funding of the pension
plan for both years.

E22-19 Dickinson Corporation

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A partial trial balance of Dickinson Corporation is as follows on December 31, 2012.


  Dr. Cr.
Supplies   2,500
Salaries and Wages Payable   1,500
Interest Receivable   5,100
Prepaid Insurance   90,000
Unearned Rent   -  
Interest Payable   15,000

Additional adjusting data:
1. A physical count of supplies on hand on December 31, 2012, totaled $1,100.
2. Through oversight, the Salaries and Wages Payable account was not changed during 2012. Accrued
salaries and wages on December 31, 2012, amounted to $4,400.
3. The Interest Receivable account was also left unchanged during 2012. Accrued interest on investments amounts to $4,350 on December 31, 2012.
4. The unexpired portions of the insurance policies totaled $65,000 as of December 31, 2012.
5. $24,000 was received on January 1, 2012, for the rent of a building for both 2012 and 2013. The entire amount was credited to Rent Revenue.
6. Depreciation for the year was erroneously recorded as $5,000 rather than the correct figure of
$50,000.
7. A further review of depreciation calculations of prior years revealed that depreciation of $7,200 was
not recorded. It was decided that this oversight should be corrected by a prior period adjustment.

Instructions
(a) Assuming that the books have not been closed, what are the adjusting entries necessary at December 31, 2012? (Ignore income tax considerations.)
(b) Assuming that the books have been closed, what are the adjusting entries necessary at December 31, 2012? (Ignore income tax considerations.)

E20-7 Rydell Corp. apply

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The following defined pension data of Rydell Corp. apply to the year 2012.


E19-12 Costs that do not change in total despite

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E19-12 CVP definitions [15 min]
Consider the following terms and definitions

1. Costs that do not change in total despite wide changes in volume.
2. The sales level at which operating income is zero: Total revenues equal total costs.
3. Drop in sales a company can absorb without incurring an operating loss.
4. Combination of products that make up total sales.
5. Sales revenue minus variable costs.
6. Describes how costs change as volume changes.
7. Costs that change in total in direct proportion to changes in volume.
8. The band of volume where total fixed costs remain constant and the variable

a. Breakeven
b. Contribution margin
c. Cost behavior
d. Margin of safety
e. Relevant range
f. Sales mix
g. Fixed costs
h. Variable costs

E18-19 Refer to Exercise 18-17. For 2013, Elton’s managers

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E18-19 Using activity-based costing to make decisions [15–20 min]
Refer to Exercise 18-17. For 2013, Elton’s managers have decided to use the same
indirect manufacturing costs per wheel rim that they computed in 2012. In addition
to the unit indirect manufacturing costs, the following data are budgeted for the
company’s standard and deluxe models for 2013:

Sales price 800.00 940.00
Direct materials 31.00 50.00
Direct labor 45.00 56.00

Because of limited machine-hour capacity, Elton can produce either 2,000 standard
rims or 2,000 deluxe rims.

Requirements
1. If Elton’s managers rely on the ABC unit cost data computed in E18-17, which
model will they produce? Carry each cost to the nearest cent. (Ignore operating
expenses for this calculation.)
2. If the managers rely on the single-allocation-base cost data, which model will
they produce?
3. Which course of action will yield more income for Elton?

E18-18 Dino Dog Collars uses activity-based costing

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E18-18 Using activity-based costing to make decisions [10 min]
Dino Dog Collars uses activity-based costing. Dino’s system has the following features:

Allocation Base
Purchasing  Number of purchase orders $65.00 per purchase order
Assembling Number of parts $ 0.36 per part
Packaging Number of finished collars $ 0.25 per collar

Each collar has 4 parts; direct materials cost per collar is $9. Direct labor cost is $4
per collar. Suppose Animal Hut has asked for a bid on 25,000 dog collars. Dino will
issue a total of 150 purchase orders if Animal Hut accepts Dino’s bid.

Requirements
1. Compute the total cost Dino will incur to purchase the needed materials and
then assemble and package 25,000 dog collars. Also compute the cost per collar.
2. For bidding, Dino adds a 40% markup to total cost. What total price will the
company bid for the entire Animal Hut order?
3. Suppose that instead of an ABC system, Dino has a traditional product costing system
that allocates indirect costs other than direct materials and direct labor at the
rate of $9.60 per direct labor hour. The dog collar order will require 12,000 direct
labor hours. What total price will Dino bid using this system’s total cost?
4. Use your answers to Requirements 2 and 3 to explain how ABC can help Dino
make a better decision about the bid price it will offer Animal Hut.

On January 1, 2010, Bailey Industries had stock

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E16-20 (EPS: Simple Capital Structure) On January 1, 2010, Bailey Industries had stock outstanding
as follows.

6% Cumulative preferred stock, $100 par value,
issued and outstanding 10,000 shares.................... $1,000,000
Common stock, $10 par value, issued and
outstanding 200,000 shares ......................................2,000,000
To acquire the net assets of three smaller companies, Bailey authorized the issuance of an additional
170,000 common shares. The acquisitions took place as shown below.


Date of Acquisition  Shares Issued 
Company A April 1, 2012  60,000
Company B July 1, 2012  80,000
Company C October 1, 2012  30,000

On May 14, 2012, Bailey realized a $90,000 (before taxes) insurance gain on the expropriation of investments originally purchased in 2000.
On December 31, 2012, Bailey recorded net income of $300,000 before tax and exclusive of the gain.

Instructions
Assuming a 40% tax rate, compute the earnings per share data that should appear on the financial statements of Bailey Industries as of December 31, 2012. Assume that the expropriation is extraordinary.

Charles Austin of the controller’s office of Thompson Corporation

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P16-7 (Computation of Basic and Diluted EPS) Charles Austin of the controller’s office of Thompson Corporation was given the assignment of determining the basic and diluted earnings per share values for the year ending December 31, 2013. Austin has compiled the information listed below.
1. The company is authorized to issue 8,000,000 shares of $10 par value common stock. As of December 31, 2012, 2,000,000 shares had been issued and were outstanding.


Melton Corporation is preparing the comparative financial

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P16-6 (Basic EPS: Two-Year Presentation) Melton Corporation is preparing the comparative financial
statements for the annual report to its shareholders for fiscal years ended May 31, 2010, and May 31, 2011.

The income from operations for each year was $1,800,000 and $2,500,000, respectively. In both years, the company incurred a 10% interest expense on $2,400,000 of debt, an obligation that requires interest-only payments for 5 years. The company experienced a loss of $600,000 from a fire in its Scotsland facility in February 2011, which was determined to be an extraordinary loss. The company uses a 40% effective tax rate for income taxes.

The capital structure of Melton Corporation on June 1, 2009, consisted of 1 million shares of common
stock outstanding and 20,000 shares of $50 par value, 6%, cumulative preferred stock. There were no
preferred dividends in arrears, and the company had not issued any convertible securities, options, or
warrants. On October 1, 2009, Melton sold an additional 500,000 shares of the common stock at $20 per share. Melton distributed a 20% stock dividend on the common shares outstanding on January 1, 2010. On December 1, 2010, Melton was able to sell an additional 800,000 shares of the common stock at $22 per share. These were the only common stock transactions that occurred during the two fiscal years.

Instructions
(a) Identify whether the capital structure at Melton Corporation is a simple or complex capital structure,
and explain why.
(b) Determine the weighted-average number of shares that Melton Corporation would use in calculating
earnings per share for the fiscal year ended
(1) May 31, 2010.
(2) May 31, 2011.
(c) Prepare, in good form, a comparative income statement, beginning with income from operations,
for Melton Corporation for the fiscal years ended May 31, 2010, and May 31, 2011. This statement
will be included in Melton’s annual report and should display the appropriate earnings per share
presentations.

Elton Company manufactures wheel rims

Price: $2.50


E18-17 Product costing in an activity-based costing system [20–30 min]
Elton Company manufactures wheel rims. The controller budgeted the following
ABC allocation rates for 2012:

Materials handling Number of parts 4.00
Machine setup Number of setups 500
Insertion of parts Number of parts 23.00
Finishing Finishing hours 50.00

The number of parts is now a feasible allocation base because Elton recently purchased
bar coding technology. Elton produces two wheel rim models: standard and
deluxe. Budgeted data for 2012 are as follows:

Parts per rim 6.0 9.0
Setups per 500 rims 17.0 17.0
Finishing hours per rim 5.0 6.5
Total direct labor hours per rim 6.0 7.0

The company expects to produce 500 units of each model during the year.

Requirements
1. Compute the total budgeted indirect manufacturing cost for 2012.
2. Compute the ABC indirect manufacturing cost per unit of each model. Carry
each cost to the nearest cent.
3. Prior to 2012, Elton used a direct labor hour single-allocation-base system.
Compute the (single) allocation rate based on direct labor hours for 2012. Use
this rate to determine the indirect manufacturing cost per wheel rim for each
model, to the nearest cent.

Turbo Champs, Corp., uses activity-based

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E18-16 Product costing in an activity-based costing system [15–20 min]
Turbo Champs, Corp., uses activity-based costing to account for its motorcycle manufacturing
process. Company managers have identified three supporting manufacturing
activities: inspection, machine setup, and machine maintenance. The budgeted
activity costs for 2012 and their allocation bases are as follows:

Inspection 6000
Machine setup 32000
Machine maintenance 5000
Total 43000

Turbo Champs expects to produce 20 custom-built motorcycles for the year.
The motorcycles are expected to require 100 inspections, 20 setups, and
100 maintenance hours.

Requirements
1. Compute the cost allocation rate for each activity.
2. Compute the indirect manufacturing cost of each motorcycle.

Auto Chassis Company’s Work

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E17-22 Using the Work in process inventory account [15–20 min]
June production generated the following activity in Auto Chassis Company’s Work
in process inventory account:

Jun 1 Bal 20,000
Direct materials used 31,000
Direct labor assigned to jobs 33,000
Manufacturing overhead allocated to jobs 13,000

Additionally, Auto has completed Jobs 142 and 143, with total costs of $38,000 and
$36,000, respectively.

Requirements
1. Prepare the journal entry for production completed in June.
2. Post the journal entry made in Requirement 1. Compute the ending balance in
the Work in process account on June 30.
3. Prepare the journal entry to record the sale (on credit) of Job 143 for $46,000.
Also, prepare the journal entry to record Cost of goods sold for Job 143.
4. What is the gross profit on Job 143? What other costs must gross profit cover?

The manufacturing records for Krazy Kayaks at

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E17-21 Allocating manufacturing overhead [15–20 min]
The manufacturing records for Krazy Kayaks at the end of the 2012 fiscal year show
the following information about manufacturing overhead:
4
Overhead allocated to production . . . . . . . .$ 405,900
Actual manufacturing overhead costs . . . . . .$ 428,000
Overhead allocation rate for the year . . . . . .$ 41 per machine hour

Requirements
1. How many machine hours did Krazy Kayaks use in 2012?
2. Was manufacturing overhead over- or underallocated for the year and by
how much?
3. Prepare the journal entry to close out the over- or underallocated overhead

E16-21 Flow of costs through a manufacturer’s

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E16-21 Flow of costs through a manufacturer’s inventory accounts [15–20 min]
Consider the following data for a manufacturer:

Direct materials inventory . . . . $29,000 $32,000
Work in process inventory . . . . 44,000 37,000
Finished goods inventory . . . . . 19,000 24,000
Purchases of direct materials . . .            77,000
Direct labor . . . . . . . . . . . . . . .              87,000
Manufacturing overhead . . . . .              45,000

Requirement
1. Compute cost of goods manufactured and cost of goods sold.

The journal entry to record a credit sale is

Price: $14.99


These are Multiple Choice Questions

Question 1

1. Freight terms that require the buyer to pay the freight cost
2. Sales less sales returns and allowances and sales discounts.
3. Detailed inventory records are maintained in this inventory system?
4. When a perpetual inventory system is used, the acquisition of merchandise inventory is debited to this account?
5. Sales Returns and Allowances and Sales Discounts have normal debit balances and both are?
6. Indicates those people authorized to sign checks.
7. Anything that a bank will accept for deposit.
8. Mechanical and electronic control devices.
9. One who issues a check.
10. An extensive network of approvals by authorized individuals.

A. Bank signature card
B. Maker
C. Cash
D. Merchandise inventory
E. Cash registers, garment senors, and burglar alarms are examples
F. Voucher system
G. FOB shipping point
H. Specific identification method
I. Contra revenue account
J. Net sales

Question 2

A business that buys and sells goods rather than performing services to earn a profit

Net sales less cost of goods sold.

Requires a physical count of goods on hand to compute cost of goods sold.

Measures the number of times inventory sold during the period.

Title of goods transfers when the goods are delivered to the buyer.

One to whom a check is payable.

Two or more employees circumventing prescribed procedures.

Prevent a transaction from being recorded more than once.

Checks which have been paid by the depositor's bank.

Checks which have been returned by the maker's bank for lack of funds.

A- Periodic inventory system
B- FOB destination
C- Inventory turnover
D- NSF checks
E- Collusion
F- Merchandiser
G- Canceled checks
H- Gross profit
I- Prenumbered documents
J- Payee

3. Detailed records of goods held for resale are not maintained under a
Answer
perpetual inventory system.
periodic inventory system.
double entry accounting system.
single entry accounting system.

4. The journal entry to record a credit sale is
Cash Sales
Cash Service Revenue
Accounts Receivable Service Revenue
Accounts Receivable
Sales

5.  In a perpetual inventory system, a return of defective merchandise by a cash customer is recorded by crediting

6. A merchandising company using a perpetual system will make

7. Rudolf Diesel Company's inventory records show the following data:
Units Unit Cost
Inventory January 1 5,000 $9.00
Purchases June 18 4,500 $8.00
November 8 3,000 $7.00
A physical inventory on December 31 shows 3,000 units on hand. Under the FIFO method, the December 31 inventory is

$21,000.
$21,750.
$24,000.
$27,000.

8. Use the following information :
July 1 Beginning Inventory 10 units @ $120
5 Purchases 60 units @ $112
14 Sale 40 units
21 Purchases 30 units @ $115
30 Sale 28 units

Assuming that a periodic inventory system is used, what is the amount allocated to ending inventory on a LIFO basis?

$3,664
$3,674
$7,696
$7,706

9. A buyer would record a payment within the discount period under a perpetual inventory system by crediting

10. Cartier Company purchased inventory from Pissaro Company. The shipping costs were $400 and the terms of the shipment were FOB shipping point. Cartier uses a perpetual inventory system. Cartier would have the following entry regarding the shipping charges:

11. When opening a bank checking account, a signature card

12. A physical count of inventory is taken at the end of an accounting period under a periodic system in order to

13. Cash equivalents are highly liquid investments that can be converted into a specific amount of cash with maturities of

14. After gross profit is calculated, operating expenses are deducted to determine

15. The consistent application of an inventory costing method is essential for

16. At April 30, Beckett Company has the following bank information: cash balance per bank $4,600; outstanding checks $280; deposits in transit $550; credit memo for interest $10; bank service charge $20. What is Beckett’s adjusted cash balance on April 30?

17. Use the following inventory information
July 1 Beginning Inventory 20 units @ $19 $380
July 7 Purchases 70 units @ $20 1,400
July 22 Purchases 10 units @ $22 220
$2,000
A physical count of merchandise inventory on July 31 reveals that there are 30 units on hand. Using the FIFO inventory method, the amount allocated to cost of goods sold for July is

18. The following information was available for Carton Company at December 31, 2008: beginning inventory $90,000; ending inventory $70,000; cost of goods sold $660,000; and sales $900,000.Carton's days in inventory in 2008 was

19. During August, 2008, Sal's Supply Store generated revenues of $30,000. The company's expenses were as follows: cost of goods sold of $12,000 and operating expenses of $2,000. The company also had rent revenue of $500 and a gain on the sale of a delivery truck of $1,000.Sal's operating income for the month of August, 2008 is

20. A sales invoice is a source document that

21. At May 1, 2008, Treeline Company had beginning inventory consisting of 100 units with a unit cost of $7. During May, the company purchased inventory as follows:200 units at $7 300 units at $8The company sold 500 units during the month for $12 per unit. Treeline uses the average cost method. The value of Treeline's inventory at May 31, 2008 is

22. Cost of goods sold is computed from the following equation:

23. If a check correctly written and paid by the bank for $491 is incorrectly recorded on the company's books for $419, the appropriate treatment on the bank reconciliation would be to

24. The use of remittance advices for mail receipts is an example of

25. An error in the physical count of goods on hand at the end of a period resulted in a $10,000 overstatement of the ending inventory. The effect of this error in the current period is

26. A voucher system is a series of prescribed control procedures

27. In the balance sheet, ending merchandise inventory is reported

28. A credit balance in Cash Over and Short is reported as a(n)

29. Tier II Company uses a periodic inventory system. Details for the inventory account for the month of January, 2008 are as follows:

Balance 1/1/08 200 @ $5.00 $1,000
Purchase 1/15/08 100 @ $5.30 530
Purchase 1/28/08 100 @ $5.50 550
An end of the month (1/31/08) inventory showed that 120 units were on hand. If the company uses FIFO and sells the units for $10 each, what is the gross profit for the month?

30. Control over cash disbursements is generally more effective when

31. The sales revenue section of an income statement for a retailer would not include

32. Internal controls are not designed to safeguard assets from

33. Inventories affect
Answer
only the balance sheet.
only the income statement.
both the balance sheet and the income statement.
neither the balance sheet nor the income statement.

34. Journal entries are required by the depositor for all of the following except
collection of a note receivable.
bank errors.
bank service charges.
an NSF check.

Rudolf Diesel Company's inventory records show

Price: $14.99


These are multiple choices.

1. Financial information is presented below:
Operating Expenses 45,000
Sales Returns and Allowances 13,000
Sales Discounts 6,000
Sales 150,000
Cost of Goods Sold 67,000
Gross profit would be

2. Rudolf Diesel Company's inventory records show the following data:
Units Unit Cost
Inventory January 1 5,000 $9.00
Purchases June 18 4,500 $8.00
November 8 3,000 $7.00
A physical inventory on December 31 shows 3,000 units on hand. Under the FIFO method, the December 31 inventory is

3. Cash equivalents are highly liquid investments that can be converted into a specific amount of cash with maturities of

4. A bank reconciliation should be prepared
whenever the bank refuses to lend the company money.
when an employee is suspected of fraud.
to explain any difference between the depositor's balance per books and the balance per bank.
by the person who is authorized to sign checks.

5. Merchandise inventory is
reported under the classification of Property, Plant, and Equipment on the balance sheet.
often reported as a miscellaneous expense on the income statement.
reported as a current asset on the balance sheet.
generally valued at the price for which the goods can be sold.

6. 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, then the company using

7. The following information was available for Carton Company at December 31, 2008: beginning inventory $90,000; ending inventory $70,000; cost of goods sold $660,000; and sales $900,000.Carton's inventory turnover ratio in 2008 was

8. Cost of goods sold is determined only at the end of the accounting period in
a perpetual inventory system.
a periodic inventory system.
both a perpetual and a periodic inventory system.
neither a perpetual nor a periodic inventory system.

9. Logan Company made a purchase of merchandise on credit from Claude Corporation on August 3, for $6,000, terms 2/10, n/45. On August 10, Logan makes the appropriate payment to Claude. Logan uses a perpetual inventory system. The entry on August 10 for Logan Company is
Accounts Payable 6,000
Cash 6,000

Accounts Payable 5,880
Cash 5,880

Accounts Payable 6,000
Purchases Returns and Allowances 120
Cash 5,880

Accounts Payable 6,000
Merchandise Inventory 120
Cash 5,880

2.5 points

10.In a perpetual inventory system, the amount of the discount allowed for paying for merchandise purchased within the discount period is credited to

11. Net sales is sales less

12. If a check correctly written and paid by the bank for $491 is incorrectly recorded on the company's books for $419, the appropriate treatment on the bank reconciliation would be to

13. All of the following are parties to a check except the

14. On October 4, 2008, Terry Corporation had credit sales transactions of $2,800 from merchandise having cost $1,900. The entries to record the day's credit transactions include a

15. The collection of a $600 account within the 2 percent discount period will result in a

16. Tier II Company uses a periodic inventory system. Details for the inventory account for the month of January, 2009 are as follows:
Units Per Unit Price Total
Balance 1/1/09 200 $5.00 $1,000
Purchase 1/15/09 100 5.30 530
Purchase 1/28/09 100 5.50 550
An end of the month (1/31/09) inventory showed that 120 units were on hand.
If the company uses LIFO, what is the value of the ending inventory?

17. At May 1, 2008, Treeline Company had beginning inventory consisting of 100 units with a unit cost of $7. During May, the company purchased inventory as follows:200 units at $7300 units at $8The company sold 500 units during the month for $12 per unit. Treeline uses the average cost method. The average cost per unit for May is
Answer
$7.00.
$7.50.
$7.60.
$8.00.

18. At the beginning of the year, Midtown Athletic had an inventory of $400,000. During the year, the company purchased goods costing $1,600,000. If Midtown Athletic reported ending inventory of $600,000 and sales of $2,000,000, the company's cost of goods sold and gross profit rate must be

19. Under a perpetual inventory system, acquisition of merchandise is debited to the

20. Which one of the following inventory methods is often impractical to use?

21. When two or more people get together for the purpose of circumventing prescribed controls, it is called

22. An error in the physical count of goods on hand at the end of a period resulted in a $10,000 overstatement of the ending inventory. The effect of this error in the current period is
Answer
Cost of Goods Sold Net Income
Understated Understated

Cost of Goods Sold Net Income
Overstated Overstated

Cost of Goods Sold Net Income
Understated Overstated

Cost of Goods Sold Net Income
Overstated Understated

23. A voucher system is a series of prescribed control procedures

24. Bryan Company purchased merchandise from Cates Company with freight terms of FOB shipping point. The freight costs will be paid by the

25. Controls that enhance the accuracy and reliability of the accounting records are

26. A sales discount does not

27. Jansen Company gathered the following reconciling information in preparing its April bank reconciliation:
Cash Balance per Books, 4/30 $6,600
Deposits in Transit 900
Notes Receivable and Interest collected by Bank 2,220
Bank Charge for Check Printing 75
Outstanding Checks 4,500
NSF check 420
The adjusted cash balance per books on April 30 is

28. Ace Industries had the following inventory transactions occur during 2008:
The company sold 51 units at $63 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, what is the company's gross profit using FIFO? (rounded to whole dollars)

Answer
$2,441
$2,365
$848
$772

Q 29- Match the item on the right hand side to the appropriate item on the left hand side.

1- Freight terms that require the buyer to pay the freight cost
2. Sales less sales returns and allowances and sales discounts.
3. Detailed inventory records are maintained in this inventory system?
4. When a perpetual inventory system is used, the acquisition of merchandise inventory is debited to this account?
5. Sales Returns and Allowances and Sales Discounts have normal debit balances and both are?
6. Indicates those people authorized to sign checks.
7. Anything that a bank will accept for deposit.
8. Mechanical and electronic control devices.
9. One who issues a check.
10. An extensive network of approvals by authorized individuals.

A. Bank signature card
B. Maker
C. Cash
D. Merchandise inventory
E. Cash registers, garment senors, and burglar alarms are examples
F. Voucher system
G. FOB shipping point
H. Specific identification method
I. Contra revenue account
J. Net sales

30. Match the item on the right hand side to the appropriate item on the left hand side.

A business that buys and sells goods rather than performing services to earn a profit

Net sales less cost of goods sold.

Requires a physical count of goods on hand to compute cost of goods sold.

Measures the number of times inventory sold during the period.

Title of goods transfers when the goods are delivered to the buyer.

One to whom a check is payable.

Two or more employees circumventing prescribed procedures.

Prevent a transaction from being recorded more than once.

Checks which have been paid by the depositor's bank.

Checks which have been returned by the maker's bank for lack of funds.
Answers
A- Periodic inventory system
B- FOB destination
C- Inventory turnover
D- NSF checks
E- Collusion
F- Merchandiser
G- Canceled checks
H- Gross profit
I- Prenumbered documents
J- Payee

31. Which of the following accounts is not closed to Income Summary?

32. When making a payment from the petty cash fund for postage stamps, the following journal entry is made.

33. W.B. Reindeer Company's inventory records show the following data:
Units Unit Cost
Inventory January 1 5,000 $9.00
Purchases: June 18 4,500 8.00
November 8 3,000 7.00
A physical inventory on December 31 shows 2,000 units on hand. W.B. Reindeer sells the units for $12 each. The company has an effective tax rate of 20%. Reindeer uses the periodic inventory method. Under the LIFO method, cost of goods sold is

34. Allowing only designated personnel to handle cash receipts is an example of
establishment of responsibility.
segregation of duties.
documentation procedures.
independent internal verification.

The information below pertains to Barkley Company

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P16-8 (Computation of Basic and Diluted EPS) The information below pertains to Barkley Company
for 2010.

Net income for the year $1,200,000
8% convertible bonds issued at par ($1,000 per bond). Each bond is convertible into
30 shares of common stock. 2,000,000
6% convertible, cumulative preferred stock, $100 par value. Each share is convertible
into 3 shares of common stock. 4,000,000
Common stock, $10 par value 6,000,000
Tax rate for 2010 40%
Average market price of common stock $25 per share
There were no changes during 2010 in the number of common shares, preferred shares, or convertible
bonds outstanding. There is no treasury stock. The company also has common stock options (granted in
a prior year) to purchase 75,000 shares of common stock at $20 per share.

Instructions
(a) Compute basic earnings per share for 2010.
(b) Compute diluted earnings per share for 2010.

P15-3 (Equity Transactions and Statement Preparation) Hatch Company

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P15-3 (Equity Transactions and Statement Preparation) Hatch Company has two classes of capital
stock outstanding: 8%, $20 par preferred and $5 par common. At December 31, 2010, the following accounts were included in stockholders’ equity.

Preferred Stock, 150,000 shares $ 3,000,000
Common Stock, 2,000,000 shares 10,000,000
Paid-in Capital in Excess of Par—Preferred 200,000
Paid-in Capital in Excess of Par—Common 27,000,000
Retained Earnings 4,500,000
The following transactions affected stockholders’ equity during 2011.
Jan. 1 30,000 shares of preferred stock issued at $22 per share.
Feb. 1 50,000 shares of common stock issued at $20 per share.
June 1 2-for-1 stock split (par value reduced to $2.50).
July 1 30,000 shares of common treasury stock purchased at $10 per share. Hatch uses the cost method.
Sept. 15 10,000 shares of treasury stock reissued at $11 per share.
Dec. 31 The preferred dividend is declared, and a common dividend of 50¢ per share is declared.
Dec. 31 Net income is $2,100,000.

Instructions
Prepare the stockholders’ equity section for Hatch Company at December 31, 2010. Show all supporting computations.

SP 17 Use the following selected data from Business Solutions’

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SP 17 Use the following selected data from Business Solutions’ income statement for the three months ended March 31, 2012, and from its March 31, 2012, balance sheet to complete the requirements below: computer services revenue, $25,307; net sales (of goods), $18,693; total sales and revenue, $44,000; cost of goods sold, $14,052; net income, $18,833; quick assets, $90,924; current assets, $95,568; total assets, $120,268; current liabilities, $875; total liabilities, $875; and total equity, $119,393.

Required
1. Computethegrossmarginratio(bothwithandwithoutservicesrevenue)andnetprofitmarginratio.
2. Compute the current ratio and acid-test ratio.
3. Compute the debt ratio and equity ratio.
4. What percent of its assets are current? What percent are long term?

SP 16 Santana Rey, owner of Business Solutions, decides to prepare

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SP 16 Santana Rey, owner of Business Solutions, decides to prepare a statement of cash flows for her business. (Although the serial problem allowed for various ownership changes in earlier chapters, we will prepare the statement of cash flows using the following financial data.)



Required
Prepare a statement of cash flows for Business Solutions using the indirect method for the three months ended March 31, 2012. Recall that the owner Santana Rey contributed $25,000 to the business in exchange for additional stock in the first quarter of 2012 and has received $4,800 in cash dividends.

P9-3A At December 31, 2011, Ethan Company reports

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P9-3A At December 31, 2011, Ethan Company reports the following results for its calendar-year.

Cash sales . . . . . . . . . . $1,803,750
Credit sales . . . . . . . . . 3,534,000

In addition, its unadjusted trial balance includes the following items.

Accounts receivable . . . . . . . . . . . . . . . . . . . $1,070,100 debit
Allowance for doubtful accounts . . . . . . . . . 15,750 debit

Required

1. Prepare the adjusting entry for this company to recognize bad debts under each of the following inde- pendent assumptions.
a. Bad debts are estimated to be 2% of credit sales.
b. Bad debts are estimated to be 1% of total sales.
c. An aging analysis estimates that 5% of year-end accounts receivable are uncollectible.

2. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its December 31, 2011, balance sheet given the facts in part 1a.

3. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its December 31, 2011, balance sheet given the facts in part 1c.

SP 11 Review the February 26 and March 25 transactions for Business Solutions

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SP 11 Review the February 26 and March 25 transactions for Business Solutions (SP 5) from Chapter 5.

Feb 26 The company paid cash to Lyn Addie for eight days’ work at $125 per day.
March 25 The company sold merchandise with a $2,002 cost for $2,800 on credit to Wildcat Services, invoice dated March 25.

Required
1. Assume that Lyn Addie is an unmarried employee. Her $1,000 of wages are subject to no deductions other than FICA Social Security taxes, FICA Medicare taxes, and federal income taxes. Her federal income taxes for this pay period total $159. Compute her net pay for the eight days’ work paid on February 26. (Round amounts to the nearest cent.)

2. Record the journal entry to reflect the payroll payment to Lyn Addie as computed in part 1.

3. Recordthejournalentrytoreflectthe(employer)payrolltaxexpensesfortheFebruary26payrollpay- ment. Assume Lyn Addie has not met earnings limits for FUTA and SUTA—the FUTA rate is 0.8%
and the SUTA rate is 4% for Business Solutions. (Round amounts to the nearest cent.)

4. Record the entry(ies) for the merchandise sold on March 25 if a 4% sales tax rate applies.

P13-4 (Payroll Tax Entries) Below is a payroll sheet for Otis Import Company

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P13-4 (Payroll Tax Entries) Below is a payroll sheet for Otis Import Company for the month of September 2010. The company is allowed a 1% unemployment compensation rate by the state; the federal unemployment tax rate is 0.8% and the maximum for both is $7,000. Assume a 10% federal income tax rate for all employees and a 7.65% F.I.C.A. tax on employee and employer on a maximum of $102,000. In addition, 1.45% is charged both employer and employee for an employee’s wages in excess of $102,000 per employee.

Income
Earnings September Tax State Federal
Name to Aug. 31 Earnings Withholding F.I.C.A. U.C. U.C.
B.D. Williams $106,800 $10,800
D. Raye 6,500 700
K. Baker 7,600 1,100
F. Lopez 13,600 1,900
A. Daniels 105,000 13,000
B. Kingston 112,000 16,000

Instructions
(a) Complete the payroll sheet and make the necessary entry to record the payment of the payroll.
(b) Make the entry to record the payroll tax expenses of Otis Import Company.
(c) Make the entry to record the payment of the payroll liabilities created. Assume that the company
pays all payroll liabilities at the end of each month.

SP 10 Selected ledger account balances for Business Solutions

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SP 10 Selected ledger account balances for Business Solutions follow.
For Three Months Ended December 31, 2011
For Three Months Ended March 31, 2012

Office equipment . . . . . . . . . ........$ 8,000 $8,000
Accumulated depreciation—
Office equipment . . . . . . . . . . . . . . .400 800
Computer equipment . . . . . . ........20,000 20,000
Accumulated depreciation— Computer equipment .. . . ........1,250 2,500
Total revenue . . . . . . . . . .. . . ........ 31,284 44,000
Total assets . . . . . . . . . . .. . . ........ 83,460 120,268

Required

1. Assume that Business Solutions does not acquire additional office equipment or computer equipment in 2012. Compute amounts for the year ended December 31, 2012, for Depreciation Expense—Office Equip- ment and for Depreciation Expense—Computer Equipment (assume use of the straight-line method).

2. Given the assumptions in part 1, what is the book value of both the office equipment and the computer equipment as of December 31, 2012?

3. Compute the three-month total asset turnover for Business Solutions as of March 31, 2012. Use total rev- enue for the numerator and average the December 31, 2011, total assets and the March 31, 2012, total assets for the denominator. Interpret its total asset turnover if competitors average 2.5 for annual periods. (Round turnover to two decimals.)

SP 9 Santana Rey, owner of Business Solutions

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SP 9 Santana Rey, owner of Business Solutions, realizes that she needs to begin accounting for bad debts expense. Assume that Business Solutions has total revenues of $44,000 during the first three months of 2012, and that the Accounts Receivable balance on March 31, 2012, is $22,867.

Required

1. Prepare the adjusting entry needed for Business Solutions to recognize bad debts expense on March 31, 2012, under each of the following independent assumptions (assume a zero unadjusted balance in the Allowance for Doubtful Accounts at March 31).
a. Bad debts are estimated to be 1% of total revenues. (Round amounts to the dollar.)
b. Bad debts are estimated to be 2% of accounts receivable. (Round amounts to the dollar.)

2. Assume that Business Solutions’ Accounts Receivable balance at June 30, 2012, is $20,250 and that one account of $100 has been written off against the Allowance for Doubtful Accounts since March 31, 2012. If S. Rey uses the method prescribed in Part 1b, what adjusting journal entry must be made
to recognize bad debts expense on June 30, 2012?

3. Should S. Rey consider adopting the direct write-off method of accounting for bad debts expense
rather than one of the allowance methods considered in part 1? Explain.

SP 8 Santana Rey receives the March bank statement

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SP 8 Santana Rey receives the March bank statement for Business Solutions on April 11, 2012. The March 31 bank statement shows an ending cash balance of $67,566. A comparison of the bank statement with the general ledger Cash account, No. 101, reveals the following.

a. S. Rey notices that the bank erroneously cleared a $500 check against her account in March that she did not issue. The check documentation included with the bank statement shows that this check was actually issued by a company named Business Systems.

b. On March 25, the bank issued a $50 debit memorandum for the safety deposit box that Business Soultions agreed to rent from the bank beginning March 25.

c. On March 26, the bank issued a $102 debit memorandum for printed checks that Business Solutions
ordered from the bank.

d. On March 31, the bank issued a credit memorandum for $33 interest earned on Business Solutions’
checking account for the month of March.

e. S. Rey notices that the check she issued for $128 on March 31, 2012, has not yet cleared the bank.

f. S. Rey verifies that all deposits made in March do appear on the March bank statement.
g. The general ledger Cash account, No. 101, shows an ending cash balance per books of $68,057 as of March 31 (prior to any reconciliation).

Required
1. Prepare a bank reconciliation for Business Solutions for the month ended March 31, 2012.
2. Prepare any necessary adjusting entries. Use Miscellaneous Expenses, No. 677, for any bank charges. Use Interest Revenue, No. 404, for any interest earned on the checking account for the month of March.

Check (1) Adj. bank bal. $67,938


SP 7 Assume that Santana Rey expands Business Solutions’ accounting system

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SP 7 Assume that Santana Rey expands Business Solutions’ accounting system to include special journals. Page 310

Required

1. Locate the transactions related to January through March 2012 for Business Solutions in Chapter 5.

2. Enter the Business Solutions transactions for January through March in a sales journal like that in Exhibit 7.5 (insert “n/a” in the Invoice column), a cash receipts journal like that in Exhibit 7.7, a pur- chases journal like that in Exhibit 7.9 (use Computer Supplies heading instead of Office Supplies), and a cash disbursements journal like that in Exhibit 7.11 (insert “n/a” in the Check Number column), or a general journal. Number journal pages as page 2. If the transaction does not specify the name of the
payee, state “not specified” in the Payee column of the cash disbursements journal.

3. The transactions on the following dates should be journalized in the general journal: January 5, 11, 20, 24, and 29 (no entry required) and March 24. Do not record and post the adjusting entries for the end of March.

CCC4 Cookie Creations is gearing up for the winter holiday season

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Continuing Cookie Chronicle

(Note: This is a continuation of the Cookie Chronicle from Chapters 1 through 3.)

CCC4 Cookie Creations is gearing up for the winter holiday season. During the month
of December 2011, the following transactions occur.

Dec. 1 Natalie hires an assistant at an hourly wage of $8 to help with cookie making
and some administrative duties.
5 Natalie teaches the class that was booked on November 25. The balance outstanding
is received.
8 Cookie Creations receives a check for the amount due from the neighborhood
school for the class given on November 30.
9 Cookie Creations receives $750 in advance from the local school board for five
classes that the company will give during December and January.
15 Pays the cell phone invoice outstanding at November 30.
16 Issues a check to Natalie’s brother for the amount owed for the design of the
website.
19 Receives a deposit of $60 on a cookie class scheduled for early January.
23 Additional revenue earned during the month for cookie-making classes amounts
to $4,000. (Natalie has not had time to account for each class individually.)
$3,000 in cash has been collected and $1,000 is still outstanding. (This is in addition
to the December 5 and December 9 transactions.)

and so on ...

Instructions

Using the information that you have gathered and the general ledger accounts that you
have prepared through Chapter 3, plus the new information above, do the following.
(a) Journalize the above transactions.
(b) Post the December transactions. (Use the general ledger accounts prepared in Chapter 3.)
(c) Prepare a trial balance at December 31, 2011.
(d) Prepare and post adjusting journal entries for the month of December.
(e) Prepare an adjusted trial balance as of December 31, 2011.
(f ) Prepare an income statement and a retained earnings statement for the 2-month period
ending December 31, 2011, and a classified balance sheet as of December 31, 2011.
(g) Prepare and post closing entries as of December 31, 2011.
(h) Prepare a post-closing trial balance.

Check figures
(c) Totals $8,160
(e) Totals $8,804
(f) Net income $3,211
(h) Totals $6,065