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Accounting
In auditing the Train Company, you obtain directly from the bank Trains bank statement, canceled checks, and other memoranda which relate to the companys bank account for
The president of Poor Corporation, who likes to have large balances of cash on hand, has recently been reading articles in highly respected financial magazines about very successful businesses. The
When a company has a policy of making sales for which credit is extended, it is reasonable to expect a portion of those sales to be uncollectible. As a result of this, a company must recognize bad
The Moore Company is undergoing a period of financial stress due to the depressed economy. The company is in desperate need of cash. The only liquid asset that the company holds is $500,000 of
Magrath Company has an operating cycle of less than one year and provides credit terms for all of its customers. On April 3, 2007, the company factored, without recourse, some of its accounts
A discrepancy usually will exist between a company’s bank statement balance and its cash records due to the time lag associated with the use of a checking account. The time lag results in many
DGK Company maintains a lockbox account to facilitate the collection of its accounts receivable. All of the company’s cash receipts from credit sales are sent directly to a post office box held in
Cash is an important asset of a company.1. What are the normal components of cash?2. Under what circumstances, if any, do valuation problems arise in connection with cash?
On December 31, 2007, Carme Company had significant amounts of accounts receivable as a result of credit sales to its customers. Carme Company uses the allowance method based on credit sales to
In order to induce prompt payment, the Swope Company offers a cash discount of 2% to customers who make payment on their account within 10 days of the invoice date. The company’s bookkeeper is not
Marie Company has significant amounts of trade accounts receivable as a result of credit sales to its customers. On October 2, 2007, some trade accounts receivable were assigned to Daniel Finance
Hogan Company uses the net method of accounting for sales discounts. Hogan also offers trade discounts to various groups of buyers. On August 1, 2007, Hogan factored some accounts receivable on a
Tidal Company has significant amounts of trade accounts receivable. In March of this year, Tidal assigned specific trade accounts receivable to Herb Finance Company on a with-recourse,
Refer to the financial statements and related notes of the Coca-Cola Company in Appendix A of this book.Required1. What were the cash and cash equivalents at the end of 2004? What does the company
At the end of 2007, the accounting firm for which you work is auditing the books of Debitus Publishing Inc. for the first time. Debitus, a calendar year company, publishes textbooks that are used in
SituationHamilton Company operates in an industry with numerous competitors. It is experiencing a shortage of cash and decides to obtain money from a large bank by using some of its receivables as
Distinguish among the types of inventory accounts used for merchandising and manufacturing companies.
What are the cost components of each of the three inventory accounts of a manufacturing company?
Explain the differences between the perpetual and periodic inventory systems in terms of inventory quantity and cost. Does the use of a perpetual system eliminate the need for taking a physical
What is the general rule used to determine if a company includes an item in inventory? Apply the concept to the accounting for goods in transit and goods on consignment.
Which of the following items does a manufacturing company include in its inventory account? (a) Goods in transit purchased FOB shipping point, invoice received, (b) Raw materials, (c) Goods out on
Which of these costs does a company include in its inventory cost? (a) Sales commissions, (b) Supervisor’s salary, (c) Freight charges, (d) Indirect factory production labor, (e) Storage costs, (f)
Discuss the advantages and disadvantages of the two methods of accounting for purchases discounts taken in regard to management’s needs, inventory cost, and the valuation of accounts payable.
What criteria should a company use to decide between alternative inventory cost flow assumptions? Evaluate the relevance of the LIFO cost flow assumption. Why is LIFO not allowed under international
During a period of rising costs, indicate whether the LIFO cost flow assumption results in a larger or a smaller net income as compared to the FIFO cost flow assumption and explain why. Explain how a
Discuss the cost flow assumptions of the LIFO inventory method. Under what conditions would a company’s ending inventory differ under a perpetual and a periodic LIFO system?
Explain the issue of inventory liquidation when a company uses the LIFO cost flow assumption. Why is this an issue exclusive to LIFO?
Discuss the LIFO and FIFO cost flow assumptions relative to the issue of holding gains (inventory profits).
Explain the dollar-value LIFO method of inventory valuation. What are the advantages of dollar-value LIFO as compared to simple LIFO?
Describe the double-extension and link-chain methods used in dollar-value LIFO and when each should be used.
When a company changes from FIFO to LIFO, what effect does the change have on its net income and working capital of the current period?
What is the impact of LIFO inventory liquidation on a company’s interim financial statements?
Explain what causes an exchange gain or loss and when each occurs.
Multiple Choice Questions1. The moving average inventory cost flow method is applicable to which of the following inventory systems?Periodic Perpetuala. Yes..... Yesb. Yes.....
The Fujita Company produces a single product. Costs accumulated at the end of the period are as follows:Assume the beginning raw material inventory to be $67,400, the beginning finished goods
The Gravais Company made two purchases on December 29, 2007. One purchase for $3,000 was shipped FOB destination, and the second for $4,000 was shipped FOB shipping point. Neither purchase had been
The following are several items that the controller of the Golosow Company has questioned regarding their inclusion in Inventory:1. An invoice has been received for goods ordered. The goods were
A retailer of washing machines receives a rebate of $25 per machine purchased if total purchases exceed 1,000 units. On reviewing the inventory records in December, it discovers that it has purchased
The Hirsch Company buys inventory for $20,000 on terms of 2/10, n/30. It pays within the discount period.RequiredPrepare the journal entries to record the purchase and the payment under both the(1)
The Nelson Company bought inventory for $50,000 on terms of 2/15, n/60. It pays for the first $37,500 of inventory purchased within the discount period and pays for the remaining $12,500 two months
The Nevens Company uses a periodic inventory system. During November the following transactions occurred:RequiredCompute the cost of goods sold for November and the inventory at the end of November
The perpetual inventory records of the Park Company indicate the following transactions in the month of June:RequiredCompute the cost of goods sold for June and the inventory at the end of June,
The Frate Company was formed on December 1, 2006. The following information is available from Frate's inventory records for Product Ply:A physical inventory on March 31, 2007 shows 1,600 units on
The inventory records of the Riedel Company showed the following transactions for the fiscal period ended June 30:RequiredCompute the ending inventory and the cost of goods sold under the LIFO cost
A company adopted the LIFO method when its inventory was $1,800. One year later its ending inventory was $2,100 and costs had increased 5% during the year.RequiredWhat is the ending inventory using
On January 1, 2006 the Sato Company adopted the dollar-value LIFO method of inventory costing. The company's ending inventory records appear as follows:RequiredCompute the ending inventory for the
The Belstock Company manufactures one product. On December 31, 2006 Belstock adopted the dollar-value LIFO inventory method. The inventory on that date, using the dollar-value LIFO inventory method,
The Acute Company manufactures a single product. On December 31, 2006 Acute adopted the dollar-value LIFO inventory method. It computes the inventory on that date using the dollar-value LIFO
The Stone Shoe Company adopted dollar-value LIFO on January 1, 2007. The company produces four products and uses a single inventory pool. The company's beginning inventory consists of the
The Grimstad Company uses FIFO for internal reporting purposes and LIFO for financial reporting and income tax purposes. At the end of 2007 the following information was obtained from the inventory
The following values were obtained from the inventory records of the Harris Company, which has a fiscal year ending on December 31:Inventory, January 1, 2007, LIFO ..... $80,000Inventory, March 31,
On January 15, 2007, the Searle Company, a U.S. company, acquired machinery on credit from a British company for £12,000. The company paid for the machine on January 30, 2007. The exchange rates on
On June 21, 2007, the Livingston Company, a U.S. company, sold merchandise on credit to a Swiss company for 25,000 francs. The company received payment for the merchandise on July 10, 2007. The
As the auditor of the Hayes Company for the year ended December 31, 2007, you found the following transactions occurred near its closing date:1. Merchandise received on January 8, 2008, and costing
The inventory on hand at the end of 2007 for the Reddall Company is valued at a cost of $87,450. The following items were not included in this inventory:1. Purchased goods in transit, under terms FOB
As an accountant for the Lee Company, your supervisor gave you the following calculations of the gross profit for the first quarter:The three alternative cost flow assumptions are FIFO, Average, and
On April 11, Edwards Construction Company purchased inventory for $20,000 on terms of 2/10, n/30. It pays the account balance on April 21.Required1. Prepare the journal entries to record the purchase
The Garrett Company has the following transactions during the months of April and May:The cost of the inventory on April 1 is $5, $4, and $2 per unit, respectively, under the FIFO, average, and LIFO
The Totman Company has the following transactions during the months of January and February:The cost of the inventory at January 1 is $24, $23, and $15 per unit, respectively, under the FIFO,
The Habicht Company was formed in 2006 to produce a single product. The production and sales for the next four years were as follows:Required1. Determine the gross profit for each year under each of
On January 1, 2004 Grover Company changed its inventory cost flow method to the LIFO cost method from the FIFO cost method for its raw materials inventory. It made the change for both financial
The Olson Company adopted the dollar-value LIFO method for inventory valuation at the beginning of 2006. The following information about the inventory at the end of each year is available from the
The Kwestel Company adopted the dollar-value LIFO method for inventory valuation at the beginning of 2006. The following information about the inventory at the end of each year is available from the
The Webster Company adopted dollar-value LIFO on January 1, 2007. The company produces three products: X, Y, and Z. The company's beginning inventory consisted of the following:During 2007, the
The Kelly Company adopted dollar-value LIFO on January 1, 2006 using two inventory pools, each of which includes two types of inventory items. The following information about the inventory at the end
On January 1, 2007 Lucas Distributors, Inc., adopted the dollar-value LIFO inventory method for income tax and external financial reporting. However, Lucas continued to use the FIFO inventory method
The Hammond Company adopted LIFO when it was formed on January 1, 2005. Since then, the company has had the following purchases and sales of its single inventory item:In December 2008, the controller
The following information for 2007 is available for the Marino Company:1. The beginning inventory is $100,000.2. Purchases of $300,000 were made on terms of 2/10, n/30. Eighty percent of the
You are engaged in an audit of the Roche Mfg. Company for the year ended December 31, 2007. To reduce the workload at year-end, the company took its annual physical inventory under your observation
The Allen Company is a wholesale distributor of automotive replacement parts. Initial amounts taken from Allens accounting records are as follows:Inventory at December 31, 2007 (based on
In January Broome, Inc., requested and secured permission from the Commissioner of Internal Revenue to compute inventories under the lastin, first-out (LIFO) method and elected to determine inventory
Part a. A company may compute inventory under one of various cost flow assumptions. Among these assumptions are first-in, first-out (FIFO) and last-in, first-out (LIFO). In the past, some companies
Taylor Company, a household appliances dealer, purchases its inventories from various suppliers. Taylor has consistently stated its inventories at the lower of cost (FIFO) or market.Required1. Taylor
Happlia Co. imports expensive household appliances. Each model has many variations and each unit has an identification number. Happlia pays all costs for getting the goods from the port to its
The Atgar Corporation records all purchases and the corresponding liabilities net of cash discounts. Whenever it pays after the discount period, it credits cash for the full amount of the invoice,
The Auge Company annually purchases 1,000 tons of raw material at a cost of $100,000 with terms of 2/10, n/30. Freight costs amount to $10,000 and storage and handling costs to $7,500.Required1. What
A company should determine cost for inventory purposes by the inventory cost flow method most clearly reflecting its periodic income.Required1. Explain the fundamental cost flow assumptions of the
The 1970s were a period of historically high inflation. The 1976 financial statements of the Ford Motor Company included the following note: Note 1 (in part): Inventory valuation. Inventories are
The Kelly Company uses FIFO. It has experienced rising costs for the last 5 years and expects that trend to continue. The King Company increased the number of LIFO pools it uses to account for its
Robin Smith is considering buying shares in the Mah Company. The company has reported an increase in net income this year. On careful reading of the notes to the financial statements, Robin learns
Gasper Company has transactions with companies in many countries. It purchases components from companies in Korea and several European countries and sells its products throughout the world. The CEO
Refer to the financial statements and related notes of the Coca-Cola Company in Appendix A of this book.Required1. Which inventory method(s) does the company use? Explain why you think the company
Textbook publishers provide a copy of a particular book to each professor who is making a decision about adopting a book for the class. These books may be solicited by the professor or may be
Situation To pump up sales of all brands, Philip Morris is moving aggressively to ship extra cases of cigarettes into distributors’ warehouses and record them as sales, a practice generally known
Situation The Fenimore Manufacturing Company uses the average cost method. It has followed a policy of expensing all its manufacturing cost variances. It is considering a change in its policy that
Define the terms cost and market as used in the lower of cost or market inventory valuation rule.
Define the upper and lower constraints used in the lower of cost or market rule. What is the purpose of each constraint?
How may a company apply the lower of cost or market method to its inventory?
What arguments may be used against the lower of cost or market rule?
Under what conditions does a company anticipate price declines?
How, and under what conditions, does a company recognize a purchase obligation or a product financing arrangement in its financial statements?
What are the exceptions to historical cost valuation of inventory allowed under generally accepted accounting principles? Under what conditions is each allowed?
Describe four situations in which the gross profit method of estimating inventory would be useful.
What is the basic assumption underlying the gross profit method? How may the gross profit percentage for the prior year be modified to provide a better estimate of the inventory value?
What are the necessary conditions for the retail inventory method to provide valid results?
Explain the meaning of the following terms: markup, additional markup, markup cancellation, net markup, markdown, markdown cancellation, net markdown.
Describe how a company computes the cost-to-retail ratio for the following cost flow assumptions: FIFO, average cost, LIFO, lower of average cost or market. Why do the different methods approximate
What assumptions are necessary for the lower of cost or market retail inventory method to actually produce an inventory value equal to the lower of average cost or market?
The retail inventory method indicated an inventory value of $80,000. A physical inventory indicated a value of $70,000. Suggest possible causes of this discrepancy.
Indicate the effect of each of the following errors on a company’s balance sheet and income statement of the current and succeeding years:a. The ending inventory is overstated.b. Merchandise
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