1) An inexperienced accountant for Tilly Company made the following errors in
recording merchandising transactions.
1>A $270 refund to a customer for faulty merchandise was debited to Sales Revenue
$270 and credited to Cash $270.
2>A $310 credit purchase of supplies was debited to Inventory $310 and credited to
Cash $310.
3>A $190 sales return was debited to Sales Revenue.
4>A cash payment of $40 for freight on merchandise purchases was debited to
Freight-Out $400 and credited to Cash $400.
Instructions
Prepare separate correcting entries for each error, assuming that the incorrect entry is
not reversed. (Omit explanations.)
2) FromZetherz Company produced and sold 50,000 units of product and is operating at
80% of plant capacity. Unit information about its product is as follows:
Sales Price$68
Variable manufacturing cost$42
Fixed manufacturing cost ($600,000 50,000) 12 54
Profit per unit$14
The company received a proposal from a Danish company to buy 10,000 units of
FromZetherz Company’s product for $49 per unit. This is a one-time only order and
acceptance of this proposal will not affect the company’s regular sales. The president of
FromZetherz Company is reluctant to accept the proposal because he is concerned that
the company will lose money on the special order.
Instructions
Prepare a schedule reflecting an incremental analysis of this proposal and indicate the
effect the acceptance of this order might have on the company’s income.
3) If Dolly Company had net income of $550,000 in 2015 and it experienced a 25%
increase in net income over 2014, what was its 2014 net income?
4) When the allowance method is used to account for uncollectible accounts, the
______________ is credited when an account is determined to be uncollectible.
5) The budget components for Birk Company for the quarter ended June 30 appear
below. Birk sells trash cans for $12 each. Budgeted production for the next three
months is:
April26,000 units
May46,000 units
June29,000 units
Birk desires to have trash cans on hand at the end of each month equal to 20 percent of
the following months budgeted sales in units. On March 31, Birk had 4,000 completed
units on hand. Five pounds of plastic are required for each trash can. At the end of each
month, Birk desires to have 10 percent of the following months production material
needs on hand. At March 31, Birk had 13,000 pounds of plastic on hand. The materials
used in production costs $0.60 per pound. Each trash can produced requires 0.10 hours
of direct labor.
Instructions
Compute the cost of the plastic inventory at the end of May.
SO: 3, Bloom: AP,
6) Which of the following costs are variable?
7) On March 9, Phillips gave Jackson Company a 60-day, 12% promissory note for
$5,200. Phillips honors the note on May 9 . Record the collection of the note and
interest by Jackson assuming that no interest has been accrued.
8) Chain Inc. provided the following information:
AprilMayJune
Projected merchandise purchases$92,000$80,000 $66,000
Chain pays 40% of merchandise purchases in the month purchased and 60% in the
following month.
General operating expenses are budgeted to be $31,000 per month of which
depreciation is $3,000 of this amount. Chain pays operating expenses in the month
incurred.
Chain makes loan payments of $4,000 per month of which $450 is interest and the
remainder is principal.
Instructions
Calculate budgeted cash disbursements for May.
9) On March 1, 2014, Landon Company acquired real estate on which it planned to
construct a small office building. The company paid $90,000 in cash. An old warehouse
on the property was razed at a cost of $7,600; the salvaged materials were sold for
$1,700. Additional expenditures before construction began included $1,100 attorney’s
fee for work concerning the land purchase, $4,000 real estate broker’s fee, $7,800
architect’s fee, and $14,000 to put in driveways and a parking lot.
Instructions
Determine the amount to be reported as the cost of the land.