39.
Which of the following is(are) true regarding cost flow assumptions?
40.
Which of the following is NOT an example of an inventory account a manufacturing firm
might use?
41.
The reason for recording a prepaid expense as a current asset is:
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42.
Assume that on September 1, 2016, a 6-month rent payment for $12,000 per month (for a
total of $72,000) was made with respect to a commercial lease that the company entered
into on that date as a tenant. The company took occupancy of the rented space
immediately. The lease term will expire on February 28, 2017. The $72,000 payment was
recorded as a debit to Prepaid Rent on September 1, 2016. The adjusting entry on
December 31, 2016, is as follows:
Essay Questions
43.
On January 1, 2017, the balance in Great Lakes Co.’s Allowance for Bad Debts account
was $15,600. During the year, a total of $10,500 of delinquent accounts receivable were
written off as bad debts. The balance in the Allowance for Bad Debts account at
December 31, 2017, was $21,900.
(a.) What was the total amount of bad debts expense recognized during the year?
(b.) As a result of a comprehensive analysis, it is determined that the December 31, 2017,
balance of Allowance for Bad Debts should be $18,900. Show, in general journal format
the adjustment required.
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44.
Prepare a bank reconciliation for Show Me, Inc., as of June 30 from the following
information:
(a.) The June 30 balance shown on the bank statement is $5,796.
(b.) Outstanding checks at June 30 totaled $330.
(c.) A deposit of $424 made on June 30 was not included in the balance shown on the
bank statement.
(d.) The bank statement contained an adjustment of $410 for a note receivable collected
by the bank on behalf of Show Me, Inc. ($382 principal and $28 interest).
(e.) A bank charge of $34 was made to the account during June. Although the company
was expecting a charge, the amount was not known until the bank statement arrived.
(f.) The bank erroneously charged a $340 check of Shirt, Inc., against the Show Me, Inc.,
bank account.
(g.) The June 30 balance in the general ledger Cash account, before reconciliation, is
$6,026.
(h.) The bank statement included a notice that a customer’s check for $172 that had been
deposited on June 14 had been returned NSF.
Required:
(1.) Prepare the bank reconciliation for Show Me, Inc., as of June 30.
(2.) Prepare the appropriate adjusting entry(ies) or show the reconciling items in a
horizontal model, for Show Me, Inc., related to the bank reconciliation.
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45.
The following is a portion of the current assets section of the balance sheets of The Sweet
Cafe at December 31, 2017 and 2016:
12/31/17
12/31/16
Accounts receivable, less
allowance for bad debts
of $14,400 (for 2017) and
$10,200 (for 2016).
$487,200
$431,600
(a.) If bad debts expense for 2017 totaled $32,800, what was the amount of accounts
receivable written off during the year?
(b.) The December 31, 2017, Allowance account balance includes $6,800 for a past due
account that is not likely to be collected. This account has not been written off. If it had
been written off, what would have been the effect of the write off on:
(1.) The current ratio at December 31, 2017?
(2.) Net income and ROE for the year ended December 31, 2017?
(c.) What do you suppose was the level of The Sweet Cafe’s sales in 2017, compared to
2016? Explain your answer.
46.
Prepare a bank reconciliation for Grace, Inc., as of January 31, from the following
information:
(a.) The January 31 cash balance in the general ledger is $5,088.
(b.) The January 31 balance shown on the bank statement is $4,544.
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(c.) Checks issued but not returned with the bank statement were No. 435 for $452 and
No. 448 for $182.
(d.) A deposit made on January 31 for $1,280 was included in the general ledger balance
but not in the bank statement balance.
(e.) Interest credited to the account during January but not recorded on the company’s
books amounted to $72.
(f.) A bank charge of $24 for printing new checks was made to the account during
January. Although the company was expecting a charge, the amount was not Known until
the bank statement arrived.
(g.) In the process of reviewing canceled checks, it was determined that a check issued to
a supplier in payment of an account payable of $139 was recorded as a $193 cash
disbursement.
Required:
(1.) Prepare the bank reconciliation for Grace, Inc., as of January 31.
(2.) Prepare the appropriate adjusting entry(ies) or show the reconciling items in a
horizontal model for Grace, Inc., related to the bank reconciliation.
47.
The following are data available for Blue Grass for the month of June:
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Sales
2,400
units
Beginning inventory
600
units @
$8.00
Purchases, in chronological
order
1,200
units @
$8.40
800
units @
$8.80
1,000
units @
$9.00
(a.) Calculate cost of goods sold and ending inventory under the following cost flow
assumptions:
(1.) Weighted-average
(2.) FIFO
(3.) LIFO
(b.) Assume net income using the weighted average cost flow assumption was $12,800.
Calculate net income under FIFO and LIFO.
Beginning
inventory
=
=
$8.59
(rounded)
Cost of goods
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48.
The following are data available for Richards Co. for the month of May:
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Sales
1,120
Units
Beginning inventory
200
units @
$1.25
Purchases, in chronological
order
500
units @
$1.30
400
units @
$1.40
700
units @
$1.50
Calculate cost of goods sold and ending inventory under the following cost flow
assumptions:
(1.) Weighted average
(2.) FIFO
(3.) LIFO
dollars; these amounts are common to all three
Purchases
=
=
=
average:
=
$1.39
(rounded)
Cost of goods
sold
(rounded)
Ending
inventory
945
(rounded)
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49.
At the beginning of the year, accounts receivable were $39,000 and the allowance for bad
debts was $2,400. During the year, sales (all on account) were $120,000, cash collections
were $114,000, bad debts expense totaled $1,700, and $2,000 of accounts receivable were
written off as bad debts.
Required:
Calculate the balances at the end of the year for the Accounts Receivable and Allowance
for Bad Debts accounts. (Hint: Use T-accounts to analyze each of these accounts, plug in
the amounts that you know, and solve for the ending balances.)
50.
The Allowance for Bad Debts account had a balance of $20,400 at the beginning of the
year and $24,500 at the end of the year. During the year (including the year–end
adjustment), bad debts expense of $33,600 was recognized.
Required:
Calculate the total amount of past-due accounts receivable that were written off as
uncollectible during the year. (Hint: Make a T-account for the Allowance for Bad Debts
account, plug in the amounts that you know, and solve for the missing amount.)
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51.
Agrico, Inc., accepted a 6-month, 9% (annual rate), $8,000 note from one of its customers
on November 1, 2016; interest is payable with the principal at maturity.
Required:
a. Use the horizontal model or write the journal entry to record the interest earned by
Agrico during its year ended December 31, 2016.
b. Use the horizontal model or write the journal entry to record collection of the note and
interest at maturity.
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52.
a. Use the horizontal model or write the journal entry to record the payment of a one-year
insurance premium of $18,000 on October 1, 2016.
b. Use the horizontal model or write the adjusting entry that will be made at the end of every
month to show the amount of insurance premium “used” that month.
c. Calculate the amount of prepaid insurance that should be reported on the December 31,
2016 balance sheet with respect to this policy.
53.
a. If the beginning balance of the Inventory account and the cost of items purchased or
made during the period are correct, but an error resulted in understating the firm’s ending
inventory balance by $12,000, how would the firm’s cost of goods sold be affected?
b. If management wanted to overstate net income, would ending inventory be understated
or overstated? Explain your answer.