ADM 1340 Lecture 5: Chapter 5 (Qiu Chen)
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Periodic inventory system. Each of the following four horizontal lines represents data taken from a separate multiple-step income statement. Insert the missing amounts in the space (empty box) provided. Indicate any net loss by placing brackets around the amount.
Hint: Not all parts of the income statement are shown, so be careful with your arithmetic.
Beginning Inventory | Purchases | Cost of Goods Available for Sale | Ending Inventory | Cost of Goods Sold | |
a. | $180,000 | $325,000 | $80,000 |
Sales (Revenue) | Cost of Goods Sold | Gross Profit | Operating Expenses | Net Income | |
b. | $240,000 | $145,000 | $32,000 |
Revenue (Sales) | Cost of Goods Available for Sale | Ending Inventory | Cost of Goods Sold | Gross Profit | Operating Expenses | Net Income | |
c. | $515,000 | $240,000 | $145,000 | $225,000 | $145,000 |
. For each question below, circle the best answer from the choices given. (
1 : Under the periodic inventory system the purchases of merchandise are recorded at their selling prices.
a. True b. False
2 : Inventory shrinkage does not include the loss of merchandise through shoplifting.
a. True b. False
3 : Only under the periodic inventory system is a physical count of the inventory necessary.
a. True b. False
4 : It is not possible to have more inventory at the end of a period then at the beginning of a period.
a. True b. False
5) True and false. Indicate whether each of the following is True (T) or False (F). (5 POINTS)
T F 1. US Treasury bills that mature within 120 days are cash equivalents.
T F 2. Financial assets describe not just cash, but all assets that are easily and directly convertible into known amounts of cash.
T F 3. Good cash mgmt. dictates that any cash and checks received each day should be deposited the same day.
T F 4. The income statement approach to estimating Bad debts Expense emphasizes the aging of accounts receivable and the adjustment of the Allowance for Doubtful Accounts account to the level of the estimated uncollectible amount.
T F 5. When I use the allowance method for accounts receivable, I will recognize a Bad Debt Expense at the same time the account is taken off the Accounts Receivable Subsidiary Ledger.
. For each question below, circle the best answer from the choices given.
1. Which of the following items would cause the ending balance on the bank statement to be larger than the ending balance of cash shown in the accounting records (checkbook)?
A) Bank service charges.
B) Deposits in transit.
C) Outstanding checks.
D) NSF check from one of the depositor's customers.
2. When a bank reconciliation has been satisfactorily completed, the only related entries to be made in the companyâs records are:
A) To correct errors made by the bank in recording the dollar amounts of cash transactions during the period.
B) To reconcile items explaining the difference between the balance per books and the balance per bank stmt.
C) To record outstanding checks and bank service charges.
D) To record items explaining the difference between the balance per accounting records and the adj. cash bal.
3. The Allowance for Doubtful Accounts represents:
A) Cash set aside to make up for bad debt losses.
B) The amount of uncollectible accounts written off to date.
C) The difference between total credit sales and collections on credit sales.
D) The difference between the face value of A/R and the net realizable value of A/R.
4. In preparing a bank reconciliation, a service charge shown on the bank statement should be:
A) Added to the balance per the bank statement.
B) Deducted from the balance per the bank statement.
C) Added to the balance per the depositor's records.
D) Deducted from the balance per the depositor's records.
5. During preparation of a bank reconciliation, outstanding checks should be:
A) Added to the balance per the bank statement.
B) Deducted from the balance per the bank statement.
C) Added to the balance per the depositor's records.
D) Deducted from the balance per the depositor's records.
Bank reconciliation. Indicate what effect each situation will have on the bank reconciliation process (Match the situation with the bank reconciliation process below by placing the number of the process next to the situation). Note that there are more situations than processes, so some processes may be used more than once, but not all processes have to be used. Only one process is required for each situation. Hint: Determine if Cash is increasing or decreasing
Process
Deduct from bank balance 2. Add to bank balance
3. Deduct from checkbook balance 4. Add to checkbook balance
Situation
_______ Bank received $2,750 from one of your customers (Terms: Cash in advance)
_______ Bank collection (wire) fee was $15
_______ Check number 111 was outstanding for $55
_______ A $400 check was written, but recorded on the books as $40
_______ Interest received from your bank for the month was $16.55
Project 2: Review of Merchandising Cycle
[The following information applies to the questions displayed below.]
Wallyâs Widget Company (WWC) incorporated near the end of 2011. Operations began in January of 2012. WWC prepares adjusting entries and financial statements at the end of each month. Balances in the accounts at the end of January are as follows: |
Cash | $ | 21,320 | Unearned Revenue (45 units) | $ | 5,250 | ||
Accounts Receivable | $ | 12,350 | Accounts Payable (Jan Rent) | $ | 3,100 | ||
Allowance for Doubtful Accounts | $ | (1,800) | Notes Payable | $ | 15,000 | ||
Inventory (50 units) | $ | 4,250 | Contributed Capital | $ | 6,800 | ||
Retained Earnings â Feb 1, 2012 | $ | 5,970 | |||||
⢠| WWC establishes a policy that it will sell inventory at $175 per unit. |
⢠| In January, WWC received a $5,250 advance for 45 units, as reflected in Unearned Revenue. |
⢠| WWCâs February 1 inventory balance consisted of 50 units at a total cost of $4,250. |
⢠| WWCâs note payable accrues interest at a 12% annual rate. |
⢠| WWC will use the FIFO inventory method and record COGS on a perpetual basis. |
February Transactions | |
02/01 | Included in WWCâs February 1 Accounts Receivable balance is a $1,600 account due from Kit Kat, a WWC customer. Kit Kat is having cash flow problems and cannot pay its balance at this time. WWC arranges with Kit Kat to convert the $1,600 balance to a note, and Kit Kat signs a 6-month note, at 12% annual interest. The principal and all interest will be due and payable to WWC on August 1, 2012. |
02/02 | WWC paid a $950 insurance premium covering the month of February. The amount paid is recorded directly as an expense. |
02/05 | An additional 160 units of inventory are purchased on account by WWC for $12,000 â terms 2/15, n30. |
02/05 | WWC paid Federal Express $320 to have the 160 units of inventory delivered overnight. Delivery occurred on 02/06. |
02/10 | Sales of 130 units of inventory occurred during the period of 02/07 â 02/10. The sales terms are 2/10, net 30. |
02/15 | The 45 units that were paid for in advance and recorded in January are delivered to the customer. |
02/15 | 15 units of the inventory that had been sold on 2/10 are returned to WWC. The units are not damaged and can be resold. Therefore, they are returned to inventory. Assume the units returned are from the 2/05 purchase. |
02/16 | WWC pays the first 2 weeks wages to the employees. The total paid is $2,600. |
02/17 | Paid in full the amount owed for the 2/05 purchase of inventory. WWC records purchase discounts in the current period rather than as a reduction of inventory costs. |
02/18 | Wrote off a customerâs account in the amount of $1,900. |
02/19 | $6,200 of rent for January and February was paid. Because all of the rent will soon expire, the February portion of the payment is charged directly to expense. |
02/19 | Collected $9,800 of customersâ Accounts Receivable. Of the $9,800, the discount was taken by customers on $7,000 of account balances; therefore WWC received less than $9,800. |
02/26 | WWC recovered $580 cash from the customer whose account had previously been written off (see 02/18). |
02/27 | A $850 utility bill for February arrived. It is due on March 15 and will be paid then. |
02/28 | WWC declared and paid a $750 cash dividend. |
Adjusting Entries: |
02/29 | Record the $2,600 employee salary that is owed but will be paid March 1. |
02/29 | WWC decides to use the aging method to estimate uncollectible accounts. WWC determines 8% of the ending balance is the appropriate end of February estimate of uncollectible accounts. |
02/29 | Record February interest expense accrued on the note payable. |
02/29 | Record one monthâs interest earned Kit Katâs note (see 02/01). feb 15c. Record the 15 units of inventory returned |
Feb 15d. Record the sales return and allowance. (keep getting this one wrong)
Feb 29b.WWC decides to use the aging method to estimate uncollectible accounts. WWC determines 8% of the ending balance is the appropriate end of February estimate of uncollectible accounts