INVENTORIES

PROBLEM 3EFFECT OF EVENTS ON A HORIZONTAL STATEMENTS MODEL (20 points)

Acacia, Co. was started on January 1, 2014. The company experienced the following events during its first year of operation.

1.Acquired $80,000 cash from the issue of common stock.

2.Received $40,000 cash for providing law services to customers.

3.Paid $9,500 for salary expenses.

4.Borrow $21,000 cash from the bank.

5.Paid $10,000 cash to purchase land.

6.Acquired $35,000 cash from the issue of additional common stock.

7.Paid $3,200 cash dividends to the stockholders.

8.Purchase additional land for $11,000 cash

9.Paid $9,300 for other operating expenses.

10.Determined that the market value of the land is $27,000.

Required:

a.Record these evets in a horizontal statement model. Also, in the Cash Flows column,

classify the cash flows as operating activities (OA), investing activities (IA), or financing activities (FA).

b.What is the net income earned in 2014?

c.What is the amount of total assets at the end of 2014?

d.What is the net cash flow from operating activities for 2014?

e.What is the net cash flow from investing activities for 2014?

f.What is the net cash flow from financing activities for 2014?

g.What is the cash balance at the end of 2014?

h.As of the end of year 2014, what percentage of total assets were provided by creditors, investors, and retained earnings?

i.What is the balance in the retained earnings account immediately after event 5 is recorded?

PROBLEM 4Effect of accruals and deferrals on financial statements: the horizontal statements model (20 Points)

Diamond & T, CPA, experienced the following transactions in 2015, the first year of operations:

1. Acquiring $20,000 cash by issuing common stocks.
2. Purchased $4,500 of office supplies on account.
3. Accepted $27,000 cash on July 1, 2015, for services to be performed evenly over the next 12 months.
4. Performed accounting services for cash of $66,000.
5. Paid cash for salaries expense of $18,500.
6. Paid a cash dividend to the stockholders of $9,000.
7. Paid $1,200 of the amount due on accounts payable.
8. Determined that at the end of the accounting period, $1,025 of office supplies remained on hand.
9. On December 31, 2015, recognized the revenue that had been earned for services performed in accordance with Transaction 3.

Required

A.Show the effects of the events on the financial statements. (Income Statement, Stock Holder's Equity, Balance Sheet and Cash Flow).

PROBLEM 5 Effect of purchase returns and allowances and purchase discounts on the financial statements: perpetual system (net method) (20 Points)

The following events were completed by Chris Toy Shop in September 2015:

Required:

a.Record each event in an accounting equation.

b.Illustrate an income statement for the month ending September 30.

c.Illustrate balance sheet for the month ending September 30.

d.Illustrate statement of cash flows for the month ending September 30.

MULTIPLE CHOICE (10 Points)

1.Merchandising business

a.generate revenue by selling goods

b.include wholesale and retail companies

c.Manufacture the goods that they sell.

d.Both A and B.

2.How is the balance sheet of a merchandising firm different from the balance sheet of a service business?

a.It include the asset, Account Receivable.

b.It reports the cost of goods sold.

c.It includes the asset, Merchandise Inventory.

d.It reports various period costs.

3.Cost of Goods sold is reported:

a.As an asset on the balance sheet.

b.As a direct reduction of equity on the statement of changes in stockholders' equity.

c.As an addition t Sales revenue on the Income statement.

d.As an expense on the Income statement.

4.Stars Company uses the perpetual inventory method. Stars sold goods that cost $3,500 for $7,200. If the sale was made to a customer on account, the sale will:

a.Increase total assets by $3,700.

b.Increased total liabilities by $7,200.

c.Increased total liabilities by $3,500.

d.Increased total assets by $7,200.

5.The credit terms, 2/10, n/30 indicate that a:

a.Ten percent discount can be deducted if the invoice is paid within two days following the date of sale.

b.Two percent discount can be deducted for a period up to thirty days following the date of Tale.

c.Two percent discount can be deducted if the invoice is paid by the tenth day following the date of the sale.

d.Two percent discount can be deducted if the invoice is paid after the tenth day following the sale, but before the thirtieth day.

6.The term "FOB shipping point" means

a.The seller's responsibilities ends at the destination

b.The seller of the merchandise pays the shipping cost.

c.The buyer of the merchandise is responsible for transportation costs.

d.The buyer does not assume owner ship until the goods are received.

7.The term "FOB "destination" means

a.The seller of the merchandise is responsible for transportation costs.

b.The seller's relinquishes ownership at the shipping point.

c.The buyer of the merchandise pays the shipping costs.

d.The buyer assumes responsibility at the shipping point.

8.Rose Company maintains perpetual inventory records. The company's inventory account had a $5,500 balance as of December 31, 2012. On that date, a physical count of inventory showed only $5,300 of merchandise in stock. The write-down to recognize the missing inventory will

a.Decreased assets.

b.Increased expense.

c.Decreased equity.

d.All of these.

9.Kehoe Co. uses a periodic inventory system. The company had beginning inventory of $400 and ending inventory of $200. Kehoe's cost of goods sold was $1,600. Based on this information, Kehoe must have purchased inventory amounting to:

a.$1,400

b.$1,600

c.$1,800

d.$2,200

10.Hanson Company uses a periodic inventory system. For 2015, its beginning inventory was $74,000; purchases of inventory were $328,000; and inventory at the end of the period was $89,000. What was the amount of Hanson's cost of goods sold for 2015?

a.$343,000

b.$328,000

c.$313,000

d.$165,000