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Questions and Answers of Accounting

Restin Co. uses the gross method to record sales made on credit. On June 1, 2010, it made sales of $50,000 with terms 3/15, n/45. On June 12, 2010, Restin received full payment for the June 1 sale.
Use the information from BE7-2, assuming Restin Co. uses the net method to account for cash discounts. Prepare the required journal entries for Restin Co.
Wilton, Inc. had net sales in 2010 of $1,400,000. At December 31, 2010, before adjusting entries, the balances in selected accounts were: Accounts Receivable $250,000 debit, and Allowance for
Use the information presented in BE7-4 for Wilton, Inc.(a) Instead of estimating the un-collectibles at 2% of net sales, assume that 10% of accounts receivable will prove to be uncollectible.
Milner Family Importers sold goods to Tung Decorators for $30,000 on November 1, 2010, accepting Tung’s $30,000, 6-month, 6% note. Prepare Milner’s November 1 entry, December 31 annual adjusting
Dold Acrobats lent $16,529 to Donaldson, Inc., accepting Donaldson’s 2-year, $20,000, zero-interest-bearing note. The implied interest rate is 10%. Prepare Dold’s journal entries for the initial
On October 1, 2010, Chung, Inc. assigns $1,000,000 of its accounts receivable to Seneca National Bank as collateral for a $750,000 note. The bank assesses a finance charge of 2% of the receivables
Wood Incorporated factored $150,000 of accounts receivable with Engram Factors Inc. on a without-recourse basis. Engram assesses a 2% finance charge of the amount of accounts receivable and retains
Use the information in BE7-9 for Wood. Assume that the receivables are sold with recourse. Prepare the journal entry for Wood to record the sale, assuming that the recourse obligation has a fair
Arness Woodcrafters sells $250,000 of receivables to Commercial Factors, Inc. on a with recourse basis. Commercial assesses a finance charge of 5% and retains an amount equal to 4% of accounts
Use the information presented in BE7-11 for Arness Woodcrafters but assume that the recourse obligation has a fair value of $4,000, instead of $8,000. Prepare the journal entry and discuss the
The financial statements of General Mills, Inc. report net sales of $12,442,000,000. Accounts receivable are $912,000,000 at the beginning of the year and $953,000,000 at the end of the year.
Fin man Company designated Jill Holland as petty cash custodian and established a petty cash fund of $200. The fund is reimbursed when the cash in the fund is at $15. Petty cash receipts indicate
Horton Corporation is preparing a bank reconciliation and has identified the following potential reconciling items. For each item, indicate if it is (1) added to balance per bank statement, (2)
Use the information presented in BE7-15 for Horton Corporation. Prepare any entries necessary to make Horton’s accounting records correct and complete.
Assume that Toni Braxton Company has recently fallen into financial difficulties. By reviewing all available evidence on December 31, 2010, one of Toni Braxton’s creditors, the National American
Bad-Debt Accounting Simms Company has significant amounts of trade accounts receivable. Simms uses the allowance method to estimate bad debts instead of the direct write-off method. During the year,
Various Receivable Accounting Issues Kimmel Company uses the net method of accounting for sales discounts. Kimmel also offers trade discounts to various groups of buyers. On August 1, 2010, Kimmel
Bad-Debt Reporting Issues Clark Pierce conducts a wholesale merchandising business that sells approximately 5,000 items per month with a total monthly average sales value of $250,000. Its annual bad
Basic Note and Accounts Receivable TransactionsPart 1 On July 1, 2010, Wallace Company, a calendar-year company, sold special-order merchandise on credit and received in return an interest-bearing
Bad-Debt Reporting Issues Valasquez Company sells office equipment and supplies to many organizations in the city and surrounding area on contract terms of 2/10, n/30. In the past, over 75% of the
Sale of Notes Receivable Corrs Wholesalers Co. sells industrial equipment for a standard 3-year note receivable. Revenue is recognized at time of sale. Each note is secured by a lien on the equipment
Zero-Interest-Bearing Note Receivable On September 30, 2009, Rolen Machinery Co. sold a machine and accepted the customer’s zero-interest-bearing note. Rolen normally makes sales on a cash basis.
Reporting of Notes Receivable, Interest, and Sale of Receivables On July 1, 2010, Mores an Company sold special-order merchandise on credit and received in return an interest-bearing note receivable
Accounting for Zero-Interest-Bearing Note Soon after beginning the year-end audit work on March 10 at Engone Company, the auditor has the following conversation with the controller. CONTROLLER: The
Receivables Management as the manager of the accounts receivable department for Beavis Leather Goods, Ltd., you recently noticed that Kelly Collins, your accounts receivable clerk who is paid
Bad-Debt Reporting Marvin Company is a subsidiary of Hughes Corp. The controller believes that the yearly allowance for doubtful accounts for Marvin should be 2% of net credit sales. The president,
Determining Cash Balance The controller for Weinstein Co. is attempting to determine the amount of cash and cash equivalents to be reported on its December 31, 2010, balance sheet. The following
Determine Cash Balance Presented below is a number of independent situations. For each individual situation, determine the amount that should be reported as cash. If the item(s) is not reported as
Financial Statement Presentation of Receivables Patriot Company shows a balance of $241,140 in the Accounts Receivable account on December 31, 2010. The balance consists of the following. Illustrate
Determine Ending Accounts Receivable your accounts receivable clerk, Mary Herman, to whom you pay a salary of $1,500 per month, has just purchased a new Buick. You decided to test the accuracy of
Record Sales Gross and Net On June 3, Bolton Company sold to Arquette Company merchandise having a sale price of $2,000 with terms of 2/10, n/60 f.o.b. shipping point. An invoice totaling $90, terms
Recording Sales Transactions Presented below is information from Lopez Computers Incorporated. July 1 Sold $30,000 of computers to Smallwood Company with terms 3/15, n/60. Lopez uses the gross method
Recording Bad Debts Sandel Company reports the following financial information before adjustments. Prepare the journal entry to record bad debt expense assuming Sandel Company estimates bad debts
Recording Bad Debts At the end of 2010 Sorter Company has accounts receivable of $900,000 and an allowance for doubtful accounts of $40,000. On January 16, 2011, Sorter Company determined that its
Computing Bad Debts and Preparing Journal Entries the trial balance before adjustment of Estefan Inc. shows the following balances. Give the entry for estimated bad debts assuming that the allowance
Bad-Debt Reporting the chief accountant for Dolly wood Corporation provides you with the following list of accounts receivable written off in the current year. Dolly wood Corporation follows the
Bad Debts'Aging Puckett, Inc. includes the following account among its trade receivables. Age the balance and specify any items that apparently require particular attention atyear-end.
Journalizing Various Receivable Transactions Presented below is information related to Sanford Corp. July 1 Sanford Corp. sold to Legler Co. merchandise having a sales price of $10,000 with terms
Assigning Accounts Receivable On April 1, 2010, Prince Company assigns $500,000 of its accounts receivable to the Third National Bank as collateral for a $300,000 loan due July 1, 2010. The
Journalizing Various Receivable Transactions the trial balance before adjustment for Sinatra Company shows the following balances. Using the data above, give the journal entries required to record
Transfer of Receivables with Recourse Bryant Inc. factors receivables with a carrying amount of $200,000 to Warren Company for $190,000 on a with recourse basis. The recourse provision has a fair
Transfer of Receivables with Recourse Gringo Corporation factors $250,000 of accounts receivable with Winkler Financing, Inc. on a with recourse basis. Winkler financing will collect the
Transfer of Receivables without Recourse SEK Corp. factors $400,000 of accounts receivable with Mays Finance Corporation on a without recourse basis on July 1, 2010. The receivables records are
Note Transactions at Unrealistic Interest Rates On July 1, 2010, Rantoul Inc. made two sales.1. It sold land having a fair market value of $900,000 in exchange for a 4-year zero-interest-bearing
Notes Receivable with Unrealistic Interest Rate On December 31, 2009, Hurly Co. performed environmental consulting services for Cascade Co. Cascade was short of cash, and Hurly Co. agreed to accept a
Analysis of Receivables Presented below is information for Grant Company.1. Beginning-of-the-year Accounts Receivable balance was $15,000.2. Net sales (all on account) for the year were $100,000.
Transfer of Receivables Use the information for Grant Company as presented in E7-20. Grant is planning to factor some accounts receivable at the end of the year. Accounts totaling $10,000 will be
Petty Cash Mc Mann, Inc. decided to establish a petty cash fund to help ensure internal control over its small cash expenditures. The following information is available for the month of April.1. On
Petty Cash The petty cash fund of Teasdale's Auto Repair Service, a sole proprietorship, contains the following. The general ledger account Petty Cash has a balance of $300. Prepare the journal entry
Bank Reconciliation and Adjusting Entries Kipling Company deposit all receipts and make all payments by check. The following information is available from the cash records. (a) Prepare a bank
Bank Reconciliation and Adjusting Entries Aragon Company has just received the August 31, 2010, bank statement, which is summarized below. The general ledger Cash account contained the following
Impairments on December 31, 2010, Iva Majoli Company borrowed $62,092 from Paris Bank, signing a 5-year, $100,000 zero-interest-bearing note. The note was issued to yield 10% interest. Unfortunately,
Impairments On December 31, 2010, Conchita Martinez Company signed a $1,000,000 note to Sauk City Bank. The market interest rate at that time was 12%. The stated interest rate on the note was 10%,
Journalize Various Accounts Receivable Transactions the balance sheet of Starsky Company at December 31, 2010, includes the following.Notes receivable
Assigned Accounts Receivable—Journal Entries Salen Company finances some of its current operations by assigning accounts receivable to a finance company. On July 1, 2010, it assigned, under
Notes Receivable with Realistic Interest Rate On October 1, 2010, Arden Farm Equipment Company sold a pecan-harvesting machine to Valco Brothers Farm, Inc. In lieu of a cash payment Valco Brothers
Notes Receivable Journal Entries On December 31, 2010, Oakbrook Inc. rendered services to Begin Corporation at an agreed price of $102,049, accepting $40,000 down and agreeing to accept the balance
Comprehensive Receivables Problem Braddock Inc. had the following long-term receivable account balances at December 31, 2009.Note receivable from sale of division
Income Effects of Receivables Transactions Sandburg Company requires additional cash for its business. Sandburg has decided to use its accounts receivable to raise the additional cash and has asked
Petty Cash, Bank Reconciliation Bill Jovi is reviewing the cash accounting for Nott leman, Inc., a local mailing service. Jovi?s review will focus on the petty cash account and the bank
Bank Reconciliation and Adjusting Entries the cash account of Aguilar Co. showed a ledger balance of $3,969.85 on June 30, 2010. The bank statement as of that date showed a balance of $4,150. Upon
Bank Reconciliation and Adjusting Entries Presented below is information related to Haselhof Inc. Balance per books at October 31, $41,847.85; receipts $173,523.91; disbursements $164,893.54. Balance
Loan Impairment Entries On January 1, 2010, Botosan Company issued a $1,200,000, 5-year, zero-interest-bearing note to National Organization Bank. The note was issued to yield 8% annual interest.
Determine Proper Cash Balance Francis Equipment Co. closes its books regularly on December 31, but at the end of 2010 it held its cash book open so that a more favorable balance sheet could be
Bad-Debt Reporting Presented below are a series of unrelated situations. 1. Helen Company’s unadjusted trial balance at December 31, 2010, included the following accounts.
Bad-Debt Reporting—Aging Mani Low Corporation operates in an industry that has a high rate of bad debts. Before any year-end adjustments, the balance in Mani low’s Accounts Receivable account
Bad-Debt Reporting from inception of operations to December 31, 2010, Fortner Corporation provided for uncollectible accounts receivable under the allowance method: provisions were made monthly at
Bad-Debt Reporting Presented below is information related to the Accounts Receivable accounts of Gulistan Inc. during the current year 2010. 1. An aging schedule of the accounts receivable as of
In what ways are the inventory accounts of a retailing company different from those of a manufacturing company?
Why inventories should be included in(a) A statement of financial position and(b) The computation of net income?
What is the difference between a perpetual inventory and a physical inventory? If a company maintains a perpetual inventory, should its physical inventory at any date be equal to the amount indicated
Mishima, Inc. indicated in a recent annual report that approximately $19 million of merchandise was received on consignment. Should Mishima, Inc. report this amount on its balance sheet? Explain.
What is a product financing arrangement? How should product financing arrangements be reported in the financial statements?
Where, if at all, should the following items be classified on a balance sheet?(a) Goods out on approval to customers.(b) Goods in transit that were recently purchased f.o.b. destination.(c) Land held
At the balance sheet date Clarkson Company held title to goods in transit amounting to $214,000. This amount was omitted from the purchases figure for the year and also from the ending inventory.
Define “cost” as applied to the valuation of inventories.
Distinguish between product costs and period costs as they relate to inventory.
Ford Motor Co. is considering alternate methods of accounting for the cash discounts it takes when paying suppliers promptly. One method suggested was to report these discounts as financial income
Zonker Inc. purchases 500 units of an item at an invoice cost of $30,000. What is the cost per unit? If the goods are shipped f.o.b. shipping point and the freight bill was $1,500, what is the cost
Specific identification is sometimes said to be the ideal method of assigning cost to inventory and to cost of goods sold. Briefly indicate the arguments for and against this method of inventory
FIFO, weighted-average, and LIFO methods are often used instead of specific identification for inventory valuation purposes. Compare these methods with the specific identification method, discussing
How might a company obtain a price index in order to apply dollar-value LIFO?
Describe the LIFO double-extension method. Using the following information compute the index at December 31, 2010, applying the double-extension method to a LIFO pool consisting of 25500 units of
As compared with the FIFO method of costing inventories, does the LIFO method result in a larger or smaller net income in a period of rising prices? What is the comparative effect on net income in a
What is the dollar-value method of LIFO inventory valuation? What advantage does the dollar-value method have over the specific goods approach of LIFO inventory valuation? Why will the traditional
Explain the following terms.(a) LIFO layer.(b) LIFO reserve.(c) LIFO effect.
On December 31, 2009, the inventory of Powhattan Company amounts to $800,000. During 2010, the company decides to use the dollar-value LIFO method of costing inventories. On December 31, 2010, the
In an article that appeared in the Wall Street Journal, the phrases “phantom (paper) profits” and “high LIFO profits” through involuntary liquidation were used. Explain these phrases.
Included in the December 31 trial balance of Rivera Company are the following assets.Cash $ 190,000
Matlock Company uses a perpetual inventory system. Its beginning inventory consists of 50 units that cost $34 each. During June, the company purchased 150 units at $34 each, returned 6 units for
Stallman Company took a physical inventory on December 31 and determined that goods costing $200,000 were on hand. Not included in the physical count were $25,000 of goods purchased from Pelzer
Bienvenu Enterprises reported cost of goods sold for 2010 of $1,400,000 and retained earnings of $5,200,000 at December 31, 2010. Bienvenu later discovered that its ending inventories at December 31,
Amsterdam Company uses a periodic inventory system. For April, when the company sold 600 units, the following information is available. Compute the April 30 inventory and the April cost of goods sold
Data for Amsterdam Company are presented below. Compute the April 30 inventory and the April cost of goods sold using the FIFOmethod.
Data for Amsterdam Company are presented below. Compute the April 30 inventory and the April cost of goods sold using the LIFOmethod.
Midori Company had ending inventory at end-of-year prices of $100,000 at December 31, 2009; $119,900 at December 31, 2010; and $134,560 at December 31, 2011. The year-end price indexes were 100 at
Arna, Inc. uses the dollar-value LIFO method of computing its inventory. Data for the past 3 years follow.Year Ended December 31 Inventory at Current-year
Inventoriable Costs Presented below is a list of items that may or may not be reported as inventory in a company’s December 31 balance sheet.1. Goods sold on an installment basis (bad debts can be
Inventoriable Costs in your audit of Garza Company, you find that a physical inventory on December 31, 2010, showed merchandise with a cost of $441,000 was on hand at that date. You also discover the

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