Assets

Cash $500,000

Accounts Receivable 700,000

Inventory 300,000

Property, Plant & Equipment 900,000

Accumulated Depreciation (100,000)

Total Assets $2,300,000

Liabilities & Equity

Accounts Payable $300,000

Notes Payable 1,000,000

Common Stock 500,000

Retained Earnings 500,000

Total Liabilities & Equity $2,300,000

Journal Entries for January 2013

Transaction 1: Sales Return

The buyer returns merchandise to the seller.

Journal Entry: Dr. Cr.

Sales Returns & Allowances 22,000

Accounts Receivable 22,000

Transaction 2: Sales Discounts

Description: Recorded collection within 2/10, n/30 period.

Journal Entry: Dr. Cr.

Cash 24,500

Sales Discounts 500

Accounts Receivable 25,000

Journal Entry: Dr. Cr.

Cash 155,000

Sales Revenue 155,000

Transaction 4: Cost Flow Assumption

Recorded cost of goods sold under one of the cost flow assumptions.

Journal Entry: Dr. Cr.

Cost of Goods Sold 45,000

Inventory 45,000

Transaction 5: Recording Estimated Uncollectible

Description: The credit manager estimates that $16,000 of sales will be uncollectible.

Journal Entry: Dr. Cr.

Bad Debts Expense 16,000

Allowance for Doubtful Accounts 16,000

Transaction 6: Write-off of an uncollectible account

Description: The credit manager authorizes a write-off of a $5,500 balance owed by a customer.

Journal Entry: Dr. Cr.

Allowance for Doubtful Accounts 5,500

Accounts Receivable 5,500

Transaction 7: Depreciation Expense

Recorded depreciation expense under one of the depreciation methods.

Journal Entry: Dr. Cr.

Depreciation Expense 12,000

Accumulated Depreciation 12,000

Transaction 8: Investment by Stockholders Description: Invested $55,000 cash in the business in exchange for common stock. Journal Entry: Dr. Cr.

Cash 55,000

Common Stock 55,000

Transaction 9: Dividends

Description: The corporation pays a dividend of $4,700 in cash to the stockholders.

Journal Entry: Dr. Cr.

Dividends 4,700

Cash 4,700

Transaction 10: Purchase of Equipment

Description: Purchases computer equipment for $7,800 cash.

Journal Entry: Dr. Cr.

Equipment 7,800

Cash 7,800

Transaction 11: Purchase of Supplies on Credit

Description: Purchases $4,800 of inventory on credit.

Journal Entry: Dr. Cr.

Inventory 4,800

Accounts Payable 4,800

Questions 13 to 15 cover the inventory methods:

13. January 1, 2013: Purchased 10 units at $6

January 15, 2013: Purchased 10 units at $9

Sold 14 units: What is the cost of goods sold under LIFO?

A. $114

B. $120

C. $126

D. $132

14. January 1, 2013: Purchased 10 units at $6

January 15, 2013: Purchased 10 units at $9

Sold 13 units: What is the cost of goods sold under FIFO?

A. $81

B. $87

C. $93

D. $99

15. January 1, 2013: Purchased 10 units at $6

January15, 2013: Purchased 10 units at $9

Sold 8 units: What is the cost of goods sold under average-cost?

A. $50

B. $55

C. $60

D. $65

Use the following information for questions 16 to 20:

Cost: $10,000

Salvage $1,000

Useful life: 5 years

Units over life: 36,000

16. What is the depreciation expense under straight-line?

A. $1,700

B. $1,800

C. $1,900

D. $2,000