ACCT-3110 Lecture Notes - Lecture 7: Current Liability, Trial Balance, Financial Statement
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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
X_SUP
X_SUP Paddle board (X_SUP) company sells stand-up paddle boards(SUPs) & accessories. X_SUP had a great 2014 and anticipates abanner year in 2015. To prepare for 2015 the owners, asked you tocreate pro forma financial statements for 2015.
They would like 2 sets of pro-formas.
One that shows the company operating as it has been (theBusiness-As-Usual scenario),
The Second set that shows financing need if they could takesupplier 2% discounts. To take the discounts they would have to payAccounts Payable in 10 days, so the year-end A/P balance would be10-days of COGS. Inventory and COGS would be 2% lower than in thebusiness-as-usual scenario.
Assumption for Business-As-Usual Scenario
Sales from 2014 to 2015 increase by 25% COGS remain at 70% ofSales GA&S Expense increases to $145,000 Interest Expense willbe 8.5% of the year-end Bank Loan balance Depreciation Expense willbe $10,000 in 2015 X_SUP will purchase $30,000 of long-termdepreciable assets in 2015 Cash, Accounts Receivable, AccountsPayable and Inventory will be the same %-of-Sales in 2015 as theywere in 2014. Common Stock is unchanged. All profits (Net Income)are retained to finance future growth. Bank Loan is the plugfigure. If this is negative then Cash becomes the plug figure.
Assumption for 2% Discount-Pay in 10-daysScenario
Use the assumptions above for the Business-As-Usual scenarioexcept: COGS will be 98% of the BAU COGS because of the 2% supplierdiscount. Inventory and A/Payable must be adjusted for the 2%discount. Inventory will be based on the 2% discount. AccountsPayable will be 10-days of COGS at year-end (Use a 365-day year)Interest Expense will be 8.5% of the year-end Bank Loan balance.Bank Loan is the plug figure. If this is negative then Cash becomesthe plug figure.
Assignment:
Create the pro forma financial statements and highlight the loanneed.
X_SUP | |||
Income Statement | 2014Actual | 2015 ProForma | 2015 ProForma (10 -day AP) |
Sales | 550,000.00 | ||
COGS | 385,000.00 | ||
Gross Margin | 165,000.00 | ||
GA&S Expense | 110,000.00 | ||
Interest Expense | 7,300.00 | ||
Depreciation Expense | 7,500.00 | ||
Taxable Income | 40,200.00 | ||
Taxes (30%) | 12,060.00 | ||
Net Income | 28,140.00 | ||
Balance Sheet | |||
Assets | 2014Actual | 2015 ProForma | 2015 ProForma (10 -day AP) |
Cash | 5,500.00 | ||
A/Receivables | 22,000.00 | ||
Inventory | 167,500.00 | ||
Total Current Assets | 195,000.00 | ||
Net Fixed Assets | 80,000.00 | ||
Total Assets | 275,000.00 | ||
Liabilities & Equity | 2014 | ||
A/Payable | 39,600.00 | ||
Bank Loan (8.5%) | 86,000.00 | ||
Total Current Liabilities | 125,600.00 | ||
Common Stock | 40,000.00 | ||
Retained Earnings | 109,400.00 | ||
Total Liabilities & Equity | 275,000.00 | 343,750.00 |
Solve the following QS and Exercises from your textbook in chapter 8.
QS 8-1
Internal control objectives
An internal control system consists of all policies and procedures used to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies. Evaluate each of the following statements and indicate which are true and which are false regarding the objectives of an internal control system.
____ | 1. | Separation of recordkeeping for assets from the custody over assets is intended to reduce theft and fraud. |
____ | 2. | The primary objective of internal control procedures is to safeguard the business against theft from government agencies. |
____ | 3. | The main objective of internal control procedures is best accomplished by designing an operational system with managerial policies that protect the assets from waste, fraud, and theft. |
____ | 4. | Separating the responsibility for a transaction between two or more individuals or departments will not help prevent someone from creating a fictitious invoice and paying the money to herself or himself. |
QS 8-2
Cash and equivalents
Choose from the following list of terms/phrases to best complete the following statements.
a. | Cash |
b. | Cash equivalents |
c. | Outstanding check |
d. | Liquidity |
e. | Bank reconciliation |
f. | Current assets |
____ | 1. | The category includes currency and coins along with amounts on deposit in bank accounts, checking accounts, and savings accounts. |
____ | 2. | The term __________ refers to a companyâs ability to pay for its near-term obligations |
____ | 3. | The __________ category includes short-term highly liquid investment assets that are readily convertible to a known cash amount and sufficiently close to their due dates so that their market value is not sensitive to interest rate changes. |
QS 8-3
Internal control for cash
A good system of internal control for cash provides adequate procedures for protecting both cash receipts and cash disbursements. Identify each of the following statements as either true or false regarding this protection.
____ | a. | A basic guideline for safeguarding cash is that all cash receipts be deposited weekly or monthly. |
____ | b. | A voucher system of control is a control system exclusively for cash receipts. |
____ | c. | A basic guideline for safeguarding cash is to separate the duties of those who have custody of cash from those who keep cash records. |
____ | d. | A petty cash system is not a control procedure for safeguarding cash. |
QS 8-4
Petty cash accounting
1. | The petty cash fund of the Brooks Agency is established at $150. At the end of the current period, the fund contained $28 and had the following receipts: film rentals, $24; refreshments for meetings, $46 (both expenditures to be classified as Entertainment Expense); postage, $30; and printing, $22. Prepare journal entries to record (a) establishment of the fund and (b) reimbursement of the fund at the end of the current period. |
2. | Identify the two events from the following that cause a Petty Cash account to be credited in a journal entry. |
____ | a. | Fund amount is being reduced | |
____ | b. | Fund amount is being increased | |
____ | c. | Fund is being eliminated | |
____ | d. | Fund is being established |
Exercise 8-13A
Documents in a voucher system
Match each document in a voucher system in column one with its description in column two.
Document
1. | Purchase requisition |
2. | Purchase order |
3. | Invoice |
4. | Receiving report |
5. | Invoice approval |
6. | Voucher |
Description
____ | A. | An itemized statement of goods prepared by the vendor listing the customerâs name, items sold, sales prices, and terms of sale. |
____ | B. | An internal file used to store documents and information to control cash disbursements and to ensure that a transaction is properly authorized and recorded. |
____ | B. | An internal file used to store documents and information to control cash disbursements and to ensure that a transaction is properly authorized and recorded. |
____ | C. | A document used to place an order with a vendor that authorizes the vendor to ship ordered merchandise at the stated price and terms. |
____ | D. | A checklist of steps necessary for the approval of an invoice for recording and payment; also known as a check authorization. |
____ | E. | A document used by department managers to inform the purchasing department to place an order with a vendor. |
____ | F. | A document used to notify the appropriate persons that ordered goods have arrived, including a description of the quantities and condition of goods. |
Exercise 8-14B
Record invoices at gross or net amounts
Piere Imports uses the perpetual system in accounting for merchandise inventory and had the following transactions during the month of October. Prepare entries to record these transactions assuming that Piere Imports records invoices (a) at gross amounts and (b) at net amounts.
Oct. | 2 | Purchased merchandise at a $3,000 price, invoice dated October 2, terms 2/10, n/30. |
10 | Received a $500 credit memorandum (at full invoice price) for the return of merchandise that it purchased on October 2. | |
17 | Purchased merchandise at a $5,400 price, invoice dated October 17, terms 2/10, n/30. | |
27 | Paid for the merchandise purchased on October 17, less the discount. | |
31Paid for the merchandise purchased on October 2. Payment was delayed because the invoice was mistakenly filed for payment today. This error caused the discount to be lost. Please provide all the answer thank you |