Ass xam (4-6)

1.

Santa Fe Company purchased merchandise for resale from Mesa Company with an invoice price of $15,900 and credit terms of 2/10, n/60. The merchandise had cost Mesa $10,844. Santa Fe paid within the discount period. Assume that both buyer and seller use a perpetual inventory system.

  

1.	Prepare the entries that Santa Fe should record for the above transactions.

Transaction	General Journal	Debit	Credit
1	Merchandise inventory	15,900
	Accounts payable		15,900
2	Accounts payable	15,900
	Merchandise inventory		318
	Cash		15,582

2.	Prepare the entries that Mesa should record for the above transactions.

Transaction	General Journal	Debit	Credit
1	Accounts receivable	15,900
	Sales		15,900
2	Cost of goods sold	10,844
	Merchandise inventory		10,844
3	Cash	15,582
	Sales discounts	318
	Accounts receivable		15,900

3.

Assume that the buyer borrowed enough cash to pay the balance on the last day of the discount period at an annual interest rate of 8% and paid it back on the last day of the credit period. Compute how much the buyer saved by following this strategy. (Use 365 days a year. Do not round intermediate calculations.)

	Savings from discount taken $318

Explanation:

1.

Cash payment:

Merchandise inventory = [$15,900 × 2%] = $318

3.

Amount borrowed to pay with discount	$	15,582
Annual rate of interest	×	8	%
Interest per year	$	1,246.56

Interest per day ($1,246.56 / 365 days) = $3.42

Savings from discount taken ($15,900 − $15,582)	$	318.00
Interest paid on 50-day loan (50 days × $3.42)		(171.00	)
Net savings from borrowing to pay in discount period	$	147.00

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2.

The following supplementary records summarize Tosca Company's merchandising activities for year 2015. Assume Tosca Company uses a perpetual inventory system.   Cost of merchandise sold to customers in sales transactions $ 189,000     Merchandise inventory, December 31, 2014 27,443     Invoice cost of merchandise purchases 193,763     Shrinkage determined on December 31, 2015 830     Cost of transportation-in 1,938     Cost of merchandise returned by customers and restored to inventory 3,000     Purchase discounts received 1,550     Purchase returns and allowances 3,800

Record the summarized activities in the T-accounts below.

	Merchandise Inventory Balance, Dec. 31, 2014 27,443 Purchase discounts received 1,550 Invoice cost of purchases 193,763 Purchase returns and allowances 3,800 Returns by customers 3,000 Cost of sales transactions 189,000 Transportation-in 1,938 Shrinkage 830 Balance, Dec. 31, 2015 30,964

	Cost of Goods Sold Cost of sales transactions 189,000 Returns by customers 3,000 Shrinkage 830 Balance, Dec. 31, 2015 186,830

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3.

Following are the merchandising transactions for Chilton Systems.

  

1.	On November 1, Chilton Systems purchases merchandise for $2,500 on credit with terms of 2/5, n/30, FOB shipping point; invoice dated November 1.
2.	On November 5, Chilton Systems pays cash for the November 1 purchase.
3.	On November 7, Chilton Systems discovers and returns $125 of defective merchandise purchased on November 1 for a cash refund.
4.	On November 10, Chilton Systems pays $125 cash for transportation costs with the November 1 purchase.
5.	On November 13, Chilton Systems sells merchandise for $2,700 on credit. The cost of the merchandise is $1,350.
6.	On November 16, the customer returns merchandise from the November 13 transaction. The returned items are priced at $275 and cost $138; the items were not damaged and were returned to inventory.

  

Journalize the above merchandising transactions for Chilton Systems assuming it uses a perpetual inventory system.

Date	General Journal	Debit	Credit
Nov 01	Merchandise inventory	2,500
	Accounts payable		2,500
Nov 05	Accounts payable	2,500
	Merchandise inventory		50
	Cash		2,450
Nov 07	Cash	123
	Merchandise inventory		123
Nov 10	Merchandise inventory	125
	Cash		125
Nov 13	Accounts receivable	2,700
	Sales		2,700
Nov 13	Cost of goods sold	1,350
	Merchandise inventory		1,350
Nov 16	Sales returns and allowances	275
	Accounts receivable		275
Nov 16	Merchandise inventory	138
	Cost of goods sold		138

Explanation:

Nov. 5: Merchandise inventory = $2,500 × 0.02 = $50.

Nov. 7: Cash = $125 − ($125 × 0.02) = $123.

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4.

	Case X			Case Y			Case Z
Cash		$	1,950		$	150		$	1,100
Short-term investments			0			0			600
Current receivables			180			430			550
Inventory			1,975			1,860			2,650
Prepaid expenses			200			500			900
Total current assets		$	4,305		$	2,940		$	5,800
Current liabilities		$	2,060		$	1,240		$	3,150

Compute the current ratio and acid-test ratio for each of the above separate cases.

Current Ratio Choose Numerator: Choose Denominator: = Current Ratio Current assets / Current liabilities = Current ratio Case X $4,305 / $2,060 = 2.09 to 1 Case Y $2,940 / $1,240 = 2.37 to 1 Case Z $5,800 / $3,150 = 1.84 to 1 Acid-Test Ratio Choose Numerator: Choose Denominator: = Acid-Test Ratio Quick assets / Current liabilities = Acid-test ratio Case X $2,130 / $2,060 = 1.03 to 1 Case Y $580 / $1,240 = 0.47 to 1 Case Z $2,250 / $3,150 = 0.71 to 1

Explanation:

	Case X			Case Y			Case Z
Current ratio computation:
Current assets		$	4,305		$	2,940		$	5,800
Current liabilities		$	2,060		$	1,240		$	3,150
Current ratio			2.09			2.37			1.84
Acid-test ratio computation:
Cash		$	1,950		$	150		$	1,100
Short-term investments			0			0			600
Current receivables			180			430			550
Quick assets		$	2,130		$	580		$	2,250
Current liabilities		$	2,060		$	1,240		$	3,150
Acid-test ratio			1.03			0.47			0.71

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5.

Walberg Associates, antique dealers, purchased the contents of an estate for $37,800. Terms of the purchase were FOB shipping point, and the cost of transporting the goods to Walberg Associates' warehouse was $1,350. Walberg Associates insured the shipment at a cost of $180. Prior to putting the goods up for sale, they cleaned and refurbished them at a cost of $520.

   

Determine the cost of the inventory acquired from the estate.

	Cost of inventory (estate's contents) Price $37,800 Transportation-in 1,350 Insurance on shipment 180 Cleaning and refurbishing 520 Total cost of inventory $39,850

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Questions 6-9

[The following information applies to the questions displayed below.]

Laker Company reported the following January purchases and sales data for its only product.

Date		Activities	Units Acquired at Cost								Units sold at Retail
Jan.	1	Beginning inventory	350	units	@	$	11.00	=	$	3,850
Jan.	10	Sales										190	units	@	$	19.00
Jan.	20	Purchase	420	units	@	$	10.00	=		4,200
Jan.	25	Sales										345	units	@	$	19.00
Jan.	30	Purchase	290	units	@	$	9.00	=		2,610
		Totals	1,060	units					$	10,660		535	units

Required:

The company uses a perpetual inventory system. For specific identification, ending inventory consists of 525 units, where 290 are from the January 30 purchase, 80 are from the January 20 purchase, and 155 are from beginning inventory.

6.

1.	Complete the table to determine the cost assigned to ending inventory and cost of goods sold using specific identification. (Round cost per unit to 2 decimal places.)

Specific Identification Available for Sale Cost of Goods Sold Ending Inventory Purchase Date Activity Units Unit Cost Units Sold Unit Cost COGS Ending Inventory- Units Cost Per Unit Ending Inventory- Cost Jan. 1 Beginning inventory 350 $11.00 195 $11.00 $2,145 155 $11.00 $1,705 Jan. 20 Purchase 420 $10.00 340 $10.00 $3,400 80 $10.00 $800 Jan. 30 Purchase 290 $9.00 290 $9.00 $2,610 1,060 535 $5,545 525 $5,115

7.

2.	Determine the cost assigned to ending inventory and to cost of goods sold using weighted average.(Round cost per unit to 2 decimal places.)

Weighted Average - Perpetual: Goods Purchased Cost of Goods Sold Inventory Balance Date # of units Cost per unit # of units sold Cost per unit Cost of Goods Sold # of units Cost per unit Inventory Balance January 1 350 @ $11.00 = $3,850.00 January 10 190 @ $11.00 = $2,090.00 160 @ $11.00 = $1,760.00 January 20 420 @ $10.00 160 @ $11.00 = $1,760.00 420 @ $10.00 = 4,200.00 Average cost 580 @ $10.28 $5,960.00 January 25 345 @ $10.28 = $3,546.60 235 @ $10.28 = $2,415.80 January 30 290 @ $9.00 235 @ $10.28 = $2,415.80 290 @ $9.00 = 2,610.00 Totals $5,636.60 525 @ $9.57 $5,025.80

8.

3.	Determine the cost assigned to ending inventory and to cost of goods sold using FIFO. (Round cost per unit to 2 decimal places.)

Perpetual FIFO: Goods Purchased Cost of Goods Sold Inventory Balance Date # of units Cost per unit # of units sold Cost per unit Cost of Goods Sold # of units Cost per unit Inventory Balance January 1 350 @ $11.00 = $3,850.00 January 10 190 @ $11.00 = $2,090.00 160 @ $11.00 = $1,760.00 January 20 420 @ $10.00 160 @ $11.00 = $1,760.00 420 @ $10.00 = 4,200.00 $5,960.00 January 25 160 @ $11.00 = $1,760.00 @ $11.00 = 185 @ $10.00 = 1,850.00 235 @ $10.00 = $2,350.00 $3,610.00 $2,350.00 January 30 290 @ $9.00 @ $11.00 235 @ $10.00 = 2,350.00 290 @ $9.00 = 2,610.00 Totals $5,700.00 $4,960.00

9.

4.	Determine the cost assigned to ending inventory and to cost of goods sold using LIFO. (Round cost per unit to 2 decimal places.)

Perpetual LIFO: Goods Purchased Cost of Goods Sold Inventory Balance Date # of units Cost per unit # of units sold Cost per unit Cost of Goods Sold # of units Cost per unit Inventory Balance January 1 350 @ $11.00 = $3,850.00 January 10 190 @ $11.00 = $2,090.00 160 @ $11.00 = $1,760.00 January 20 420 @ $10.00 160 @ $11.00 = $1,760.00 420 @ $10.00 = 4,200.00 $5,960.00 January 25 @ $11.00 = $0.00 160 @ $11.00 = $1,760.00 345 @ $10.00 = 3,450.00 75 @ $10.00 = $750.00 $3,450.00 $2,510.00 January 30 290 @ $9.00 160 @ $11.00 = $1,760.00 75 @ $10.00 = 750.00 290 @ $9.00 = 2,610.00 Totals $5,540.00 $5,120.00

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10.

Laker Company reported the following January purchases and sales data for its only product. Date Activities Units Acquired at Cost Units Sold at Retail Jan. 1 Beginning inventory 290  units  @  $9.80 = $ 2,842 Jan. 10 Sales 160  units  @$17.80 Jan. 20 Purchase 360  units  @  $8.80 = 3,168 Jan. 25 Sales 285  units  @$17.80 Jan. 30 Purchase 230  units  @  $7.80 = 1,794     Totals 880  units $ 7,804 445  units

The Company uses a perpetual inventory system. For specific identification, ending inventory consists of 435 units, where 230 are from the January 30 purchase, 80 are from the January 20 purchase, and 125 are from beginning inventory.

Required:

1.	Complete comparative income statements for the month of January for Laker Company for the four inventory methods. Assume expenses are $3,000, and that the applicable income tax rate is 39%. (Do not round your Intermediate calculations.)

	LAKER COMPANY Income Statements For Month Ended January 31 Specific Weighted Identification Average FIFO LIFO Sales $7,921 $7,921 $7,921 $7,921 Cost of goods sold 4,081 4,152 4,206 4,076 Gross profit 3,840 3,769 3,715 3,845 Expenses 3,000 3,000 3,000 3,000 Income before taxes 840 769 715 845 Income tax expense 328 300 279 330 Net income $512 $469 $436 $515

2.	Which method yields the highest net income?

LIFO 

3.	Does net income using weighted average fall between that using FIFO and LIFO?

Yes 

4.	If costs were rising instead of falling, which method would yield the highest net income?

FIFO 

Explanation:

1. Sales (445 units × $17.80 price) = $7,921 2. LIFO method results in the highest net income of $515.

3. Weighted average net income of $469 falls between the FIFO net income of $436 and the LIFO net income of $515. 4. If costs were rising instead of falling, then the FIFO method would yield the highest net income.

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11.

Martinez Company's ending inventory includes the following items.

		Per Unit
Product	Units	Cost		Market
Helmets	32	$	60	$	64
Bats	25		114		82
Shoes	46		105		101
Uniforms	50		46		46

Required:

Compute the lower of cost or market for ending inventory applied separately to each product. Per Unit Total Product Units Cost Market Cost Market LCM applied to: Products Helmets 32 $60 $64 $1,920 $2,048 $1,920 Bats 25 114 82 2,850 2,050 2,050 Shoes 46 105 101 4,830 4,646 4,646 Uniforms 50 46 46 2,300 2,300 2,300 $11,900 $11,044 $10,916 ----------------------------------------------------------------------------------------------------------------------------------- 12. Cruz Company uses LIFO for inventory costing and reports the following financial data. It also recomputed inventory and cost of goods sold using FIFO for comparison purposes. 2015 2014   LIFO inventory $ 320   $ 270     LIFO cost of goods sold 900   840     FIFO inventory 390   295     FIFO cost of goods sold 855   —     Current assets (using LIFO) 380   350     Current liabilities 180   160   Required: 1. Compute its current ratio, inventory turnover, and days' sales in inventory for 2015 using (a) LIFO numbers and (b) FIFO numbers. (Round your answers to 1 decimal place.)

(a) Compute its current ratio, inventory turnover, and days' sales in inventory for 2015 using LIFO numbers. Numerator / Denominator = Ratio Current ratio $380.0 / $180.0 = 2.1 to 1 Inventory turnover $900.0 / $295.0 = 3.1 times Days' sales in inventory $320.0 / $900.0 x 365 = 129.8 days (b) Compute its current ratio, inventory turnover, and days' sales in inventory for 2015 using FIFO numbers. Numerator / Denominator = Ratio Current ratio $450.0 / $180.0 = 2.5 to 1 Inventory turnover $855.0 / $342.5 = 2.5 times Days' sales in inventory $390.0 / $855.0 x 365 = 166.5 days

Explanation:

LIFO ratio computations

LIFO current ratio (2015) = $380 / $180 = 2.1

LIFO inventory turnover (2015) = $900 / [($320 + $270) / 2] = 3.1

LIFO days' sales in inventory (2015) = ($320 / $900) × 365 = 129.8 days FIFO ratio computations FIFO current ratio (2015) = $450* / $180 = 2.5 FIFO inventory turnover (2015) = $855 / [($390 + $295) / 2] = 2.5 FIFO days' sales in inventory (2015) = ($390 / $855) × 365 = 166.5 days

*$380 + ($390 – $320) ----------------------------------------------------------------------------------------------------------------------------------- Questions 13-14 [The following information applies to the questions displayed below.]  Vibrant Company had $1,020,000 of sales in each of three consecutive years 2014–2016, and it purchased merchandise costing $560,000 in each of those years. It also maintained a $320,000 physical inventory from the beginning to the end of that three-year period. In accounting for inventory, it made an error at the end of year 2014 that caused its year-end 2014 inventory to appear on its statements as $300,000 rather than the correct $320,000. 13. Required: 1. Determine the correct amount of the company’s gross profit in each of the years 2014–2016. VIBRANT COMPANY Comparative Income Statements 2014 2015 2016 3-year total Sales $1,020,000 $1,020,000 $1,020,000 $3,060,000 Cost of goods sold Beginning inventory $320,000 $320,000 $320,000 Cost of purchases $560,000 560,000 560,000 Goods available for sale 880,000 880,000 880,000 Ending inventory 320,000 320,000 320,000 Cost of goods sold 560,000 560,000 560,000 1,680,000 Gross profit $460,000 $460,000 $460,000 $1,380,000

14.

2.	Prepare comparative income statements to show the effect of this error on the company's cost of goods sold and gross profit for each of the years 2014–2016.

VIBRANT COMPANY Comparative Income Statements 2014 2015 2016 3-year total Sales $1,020,000 $1,020,000 $1,020,000 $3,060,000 Cost of goods sold Beginning inventory $320,000 $300,000 $320,000 Cost of purchases 560,000 560,000 560,000 Goods available for sale 880,000 860,000 880,000 Ending inventory 300,000 320,000 320,000 Cost of goods sold 580,000 540,000 560,000 1,680,000 Gross profit $440,000 $480,000 $460,000 $1,380,000

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15.

Waupaca Company establishes a $320 petty cash fund on September 9. On September 30, the fund shows $78 in cash along with receipts for the following expenditures: transportation-in, $53; postage expenses, $69; and miscellaneous expenses, $118. The petty cashier could not account for a $2 shortage in the fund. The company uses the perpetual system in accounting for merchandise inventory.

Prepare (1) the September 9 entry to establish the fund, (2) the September 30 entry to reimburse the fund, and (3) an October 1 entry to increase the fund to $370. Date General Journal Debit Credit Sept 9 Petty cash 320 Cash 320 Sept 30 Merchandise inventory 53 Postage expense 69 Miscellaneous expenses 118 Cash short and over 2 Cash 242 Oct 01 Petty cash 50 Cash 50 ----------------------------------------------------------------------------------------------------------------------------------- 16. Wright Company deposits all cash receipts on the day when they are received and it makes all cash payments by check. At the close of business on May 31, 2015, its Cash account shows a $29,500 debit balance. The company’s May 31 bank statement shows $27,800 on deposit in the bank. a. The May 31 bank statement included a $200 debit memorandum for bank services; the company has not yet recorded the cost of these services. b. Outstanding checks as of May 31 total $6,600. c. May 31 cash receipts of $7,200 were placed in the bank’s night depository after banking hours and were not recorded on the May 31 bank statement. d. In reviewing the bank statement, a $500 check written by Smith Company was mistakenly drawn against Wright’s account. e. A debit memorandum for $400 refers to a $400 NSF check from a customer; the company has not yet recorded this NSF check. Prepare a bank reconciliation for the company using the above information. WRIGHT COMPANY Bank Reconciliation May 31, 2015 Bank statement balance $27,800 Book balance $29,500 Add: Add: Deposit of May 31 $7,200 Bank error 500 7,700 35,500 29,500 Deduct: Deduct: Outstanding checks $6,600 Bank service charge $200 NSF check 400 6,600 600 Adjusted bank balance $28,900 Adjusted book balance $28,900

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17.

Barga Co. reported net sales for 2014 and 2015 of $660,000 and $749,000, respectively. Its year-end balances of accounts receivable follow: December 31, 2014, $59,000; and December 31, 2015, $93,000.

(a)	Complete the below table to calculate the days' sales uncollected at the end of each year. (Do not round intermediate calculations and round your "Days' Sales Uncollected" answer to 1 decimal place.)

	Days' Sales Uncollected Choose Numerator: / Choose Denominator: x Days = Days' Sales Uncollected Accounts receivable / Net sales x 365 = Days' sales uncollected 2014: $59,000 / $660,000 x 365 = 32.6 days 2015: $93,000 / $749,000 x 365 = 45.3 days

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18.

Aug.	1	Purchased merchandise from Arotek Company for $7,000 under credit terms of 1/10, n/30, FOB destination, invoice dated August 1.
	5	Sold merchandise to Laird Corp. for $4,900 under credit terms of 2/10, n/60, FOB destination, invoice dated August 5. The merchandise had cost $3,499.
	8	Purchased merchandise from Waters Corporation for $6,300 under credit terms of 1/10, n/45, FOB shipping point, invoice dated August 8. The invoice showed that at Sheng’s request, Waters paid the $240 shipping charges and added that amount to the bill. (Hint: Discounts are not applied to freight and shipping charges.)
	9	Paid $290 cash for shipping charges related to the August 5 sale to Laird Corp.
	10	Laird returned merchandise from the August 5 sale that had cost Sheng $583 and been sold for $817. The merchandise was restored to inventory.
	12	After negotiations with Waters Corporation concerning problems with the merchandise purchased on August 8, Sheng received a credit memorandum from Waters granting a price reduction of $951.
	14	At Arotek's request, Sheng paid $470 cash for freight charges on the August 1 purchase, reducing the amount owed to Arotek.
	15	Received balance due from Laird Corp. for the August 5 sale less the return on August 10.
	18	Paid the amount due Waters Corporation for the August 8 purchase less the price reduction granted.
	19	Sold merchandise to Tux Co. for $4,200 under credit terms of 1/10, n/30, FOB shipping point, invoice dated August 19. The merchandise had cost $2,915.
	22	Tux requested a price reduction on the August 19 sale because the merchandise did not meet specifications. Sheng sent Tux a $700 credit memorandum to resolve the issue.
	29	Received Tux's cash payment for the amount due from the August 19 sale.
	30	Paid Arotek Company the amount due from the August 1 purchase.

   

Prepare journal entries to record the above merchandising transactions of Sheng Company, which applies the perpetual inventory system. Date General Journal Debit Credit Aug 01 Merchandise inventory 7,000 Accounts payable—Arotek 7,000 Aug 05 Accounts receivable—Laird 4,900 Sales 4,900 Aug 05 Cost of goods sold 3,499 Merchandise inventory 3,499 Aug 08 Merchandise inventory 6,540 Accounts payable—Waters 6,540 Aug 09 Delivery expense 290 Cash 290 Aug 10 Sales returns and allowances 817 Accounts receivable—Laird 817 Aug 10 Merchandise inventory 583 Cost of goods sold 583 Aug 12 Accounts payable—Waters 951 Merchandise inventory 951 Aug 14 Accounts payable—Arotek 470 Cash 470 Aug 15 Cash 4,001 Sales discounts 82 Accounts receivable—Laird 4,083 Aug 18 Accounts payable—Waters 5,589 Merchandise inventory 53 Cash 5,536 Aug 19 Accounts receivable—Tux 4,200 Sales 4,200 Aug 19 Cost of goods sold 2,915 Merchandise inventory 2,915 Aug 22 Sales returns and allowances 700 Accounts receivable—Tux 700 Aug 29 Cash 3,465 Sales discounts 35 Accounts receivable—Tux 3,500 Aug 30 Accounts payable—Arotek 6,530 Cash 6,530 Explanation: Aug. 15 Sales discounts: [($4,900 – $817) × 2%] = $82  Collected receivable within 2% discount period. 18  Merchandise inventory: (1% × [$6,300 − $951]) = $53  Cash: ([100% − 1%] × [$6,300 − $951]) + $240 shipping = $5,536 29  Sales discounts: ($4,200 − $700) × 1% = $35 30  Accounts payable—Arotek: ($7,000 − $470) = $6,530