Formulas Current Ratio = Current Assets / Current Liabilities Debt-to-assets ratio = Total Liabilities / Total
Question:
Formulas
Current Ratio = Current Assets / Current Liabilities
Debt-to-assets ratio = Total Liabilities / Total Assets
Asset turnover ratio = Net Sales Revenue / Average Total Assets
Net profit margin ratio = Net Income / Net Sales Revenue
Gross profit percentage = (Net Sales Revenue - Cost of Goods Sold) / Net Sales Revenue Inventory turnover ratio = Cost of Goods Sold / Average Inventory
Days to Sell = 365 / Inventory Turnover Ratio
Earnings Per Share Ratio = Net Income / Avg Number of Shares Outstanding Return on Equity Ratio = Net Income / Average Shareholders' Equity Price Earnings Ratio = Current Share Price / Earnings per Share
Problem 2:
Ballad Company's annual accounting year ends on June 30. It is June 30, 2020, and all of the 2020 entries except the following adjusting journal entries have been made.
Required:
Prepare the adjusting journal entries that are required on June 30, 2020. [5 marks]
a) On March 31, 2020, Ballad paid a six-month premium for property insurance in the amount of $6,000 for insurance coverage starting on that date. Cash was credited and Prepaid Insurance was debited for this amount.
Account Names | Debit | Credit |
b) On June 1, 2020, Ballad collected two months' maintenance revenue of $550. At that date, Ballad debited Cash and credited Deferred Maintenance Revenue for $550. One half of it has now been earned but not yet recorded.
Account Names | Debit | Credit |
c) Depreciation must be recognized on a service truck that was purchased on December 1, 2019. Annual depreciation is calculated to be $3,600.
Account Names | Debit | Credit |
d) Cash of $4,200 was collected on May 1, 2020, for services to be rendered evenly over the next year, beginning on May 1. Deferred Service Revenue was credited when the cash was received. Some of it has now been earned but not yet recorded.
Account Names | Debit | Credit |
e) On June 30, 2020, the company completed the work on a contract for an out-of-province company for $8,500 payable by the customer within 30 days. No cash has been collected and no journal entry has been made for this transaction.
Account Names | Debit | Credit |
Problem 3: [40 minutes, 23 marks]
University Books (UB) is a retail store that purchases textbooks from publishers, and then sells these textbooks to students on campus for use in their registered classes. The April 2020 transactions are listed below.
Required:
1. Prepare journal entries for UB to record the business transactions described below. Ignore income taxes. [12 marks]
? On April 1st, UB placed an order with McGraw-Hill to purchase 140 accounting textbooks at a per unit cost of $100 each, under terms 2/10, n/30. The textbooks were received the same day.
Account Names | Debit | Credit |
? On April 4th, UB returned 40 of the accounting textbooks to the publisher as they did not come with the Connect access code attached to the book.
Account Names | Debit | Credit |
? On April 5th, UB complained to McGraw Hill about the condition of the accounting textbooks, as some of them were damaged slightly during shipping. McGraw Hill granted UB an allowance of $500.
Account Names | Debit | Credit |
? On April 6th, UB paid McGraw-Hill for the amount owing on the accounting textbooks.
Account Names | Debit | Credit |
? On April 7th, UB sold 80 of the accounting textbooks for $140 each under terms 2/10, n/30. 40% of the sales were paid with either cash or credit card while the other 60% was put on account.
Account Names | Debit | Credit |
? On April 8th, 10 accounting textbooks were returned by students to UB, as the students had decided after the first week of classes, accounting was not for them, and luckily they hadn't taken the textbook out of its packaging yet. UB reimbursed the students with cash as these students had paid cash when they originally bought the textbooks.
Account Names | Debit | Credit |
? On April 10th, UB received cash from 35% of the sales on account from April 7th.
Account Names | Debit | Credit |
? On April 15th, UB paid employees $800, $300 of which related to work done in March and $500 for wages up to April 15th.
Account Names | Debit | Credit |
? On April 20th, UB received cash from the remaining 65% of the sales on account for April 7th.
Account Names | Debit | Credit |
? On April 30th, UB received their monthly utility bill for $400 and will pay this in May.
Account Names | Debit | Credit |
2. Prepare a multistep income statement for the month of April 2020 that would be used for internal reporting purposes given the transactions listed above. The company's tax rate is 25%. [10 marks]
$ | |
3. Calculate UB's gross profit percentage and compare it to UB's online competitor who has a gross profit percentage of 20%. Who is better off? [1 mark]
Problem 4: [23 minutes, 10 marks]
Bondi Ltd. uses a perpetual inventory system and has the following data available for inventory, purchases, and sales for a recent year:
Activity | Units | Purchase Price (per unit) | Sales Price (per unit) |
Beginning inventory | 150 | $5.50 | |
Purchase 1, Jan. 20 | 675 | 6.00 | |
Sale 1 | 395 | $10.80 | |
Sale 2 | 325 | 11.00 | |
Purchase 2, Mar. 15 | 690 | 6.10 | |
Sale 3 | 370 | 11.00 | |
Sale 4 | 200 | 11.50 | |
Purchase 3, Sept. 18 | 250 | 6.30 | |
Sale 5 | 260 | 11.90 |
Required:
1. Compute the cost of goods available for sale before taking into account any sales. [1 mark]
2. Compute the cost of ending inventory and the cost of goods sold using the specific identification method. Assume the ending inventory is made up of 40 units from beginning inventory, 30 units from purchase 1, 80 units from purchase 2, and 40 units from purchase 3. [2 marks]
3. An inventory count took place at the end of the year and indicated that 190 units are left on hand. Compute the cost of ending inventory and the cost of goods sold using the FIFO inventory costing method. [2 marks]
4. If the company uses FIFO and the Net Realizable Value of ending inventory is $6.00 per unit, is a write-down of inventory necessary? Why or why not? [1 mark]
5. If a write-down is necessary, calculate how much this write-down would be for and then record the necessary journal entry. [3 marks]
Account Names | Debit | Credit |
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6. What is the conceptual justification for valuing inventory at the lower of cost and net realizable value? [1 mark]
Please, please, provide all the answers accurately with step-by-step explanations.
Thank you!
Financial Accounting
ISBN: 9781264229734
11th Edition
Authors: Robert Libby, Patricia Libby, Frank Hodge