ACCT 1201 Lecture Notes - Uptodate, Income Statement

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taupewhale876

26 Jun 2014

School

Northeastern University

Department

Accounting

Course

ACCT 1201

Professor

Ganesh Krishnamoorthy

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Document Summary

Cost principle requires inventory to be recorded at the price paid of the consideration given: invoice price, freight-in, inspection costs, preparation costs, any purchase returns and allowances or purchase discounts taken are subtracted. Goods available for sale = beginning inventory + purchases. Cost of goods sold = goods available for sale - ending inventory. Beginning inventory + net purchases = ending inventory + cost of goods sold = goods. Perpetual inventory system - purchase transactions recorded directly in an inventory account: inventory updated after every transaction, sales require two entries: (1) retail sales and (2) cost of goods sold. Periodic inventory system - no up-to-date record of inventory is maintained during the year: inventory updated at end of accounting period, sales require one entry to record retail sale. Inventory costing methods - can use different methods for different types of inventory. First-in, first-out (fifo) - highest when prices are rising: ending inventory approximates current replacement cost.

Related Questions

Czar was authorized to issue 3,000,000 shares of $1 par Common Stock but has only issued 520,000 shares of common stock as of 12/31/2018. No new shares were issued during 2018.

1. On the âAdjusting Journal Entriesâ worksheet, prepare in journal entry form all adjusting and correcting journal entries based on the following information. All information was provided to you as of 12/31/2018. (Round all numbers to the nearest dollar). Label journal entries a through t.

P- On 2,1, 2018, Czar rented a portion of one store to Pellston Inc. The contract was for 15 months and Czar required all of the cash up front. The rent is being earned equally each month. This is the only item in which rent is being earned by the company.

Q- Czar started to lease some new retail space in 2018 and added shelving and fixtures to this leased space. Based on your review of invoices, the previous accountant capitalized the cost of fixtures but did not capitalize the shipping and installation costs of $2,815. These costs were expensed and recorded as a miscellaneous selling expense. Czar has decided to use double declining balance (DDB) depreciation for this item and to take a full year of depreciation in the year of acquisition. The leasehold improvements have a useful life of 15 years with a salvage value of $12,000.

R- Czar uses the FIFO Inventory Method in valuing inventory. The inventory balance of $340,000 was based on a physical count at 12/31/2018. Based on your analysis, you have noted that $10,000 of marketing games that belonged to Pellston Inc. was included in the account. You also note that $5,600 of goods shipped to Czar f.o.b. destination were in transit on December 31, 2018 and included in the physical count.

Czar Incorporated
End of Period Worksheet
For the Year Ended December 31, 2018
	Unadjusted				Adjusted
Account Title	Trial Balance		Adjustments		Trial Balance
	DR	CR	DR	CR	DR	CR
Cash	264,000	-
Accounts Receivable	555,984	-
Allowance for Doubtful Accounts	-	13,600
Interest Receivable	-	-
Merchandise Inventory	340,000	-
Prepaid Insurance	-	-
LIFO Reserve	-	25,600
Prepaid Advertising	-	-
Prepaid Rent	13,600	-
Office Supplies	4,800	-
Note Receivable	20,000
Available for Sale Securities	300,000	-
Office Building	3,000,000	-
Accumulated Depreciation - Office Building	-	70,000
Storage Building	1,020,000	-
Accumulated Depreciation - Storage Building	-	-
Land	600,000	-
Leasehold Improvements	180,000	-
Accumulated Depreciation - Leasehold Improvements	-	-
Office Equipment	260,000	-
Accumulated Depreciation - Office Equipment	-	52,000
Patent	120,000	-
Accounts Payable	-	276,000
Sales Tax Payable	-	-
Salaries Payable	-	113,600
Payroll Taxes Payable	-	20,000
Interest Payable	-	-
Income Tax Payable	-	-
Unearned Rent Revenue	-	-
Loan Payable - First Trust	-	520,000
Loan Payable - Coldwell Bank	-	1,600,000
Common Stock	-	520,000
Additional Paid in Capital	-	1,599,000
Retained Earnings	-	736,000
Accumulated Other Comprehensive Income	-	20,000
Dividends	67,800	-
Sales	-	3,622,560
Sales Returns and Allowances	33,800	-
Sales Discounts	15,400	-
Cost of Goods Sold	1,583,600	-
Sales Salaries Expense	349,120	-
Office Salaries Expense	219,200	-
Advertising Expense	12,800	-
Depreciation Expense - Office Building	-
Depreciation Expense - Leasehold Improvements	-	-
Depreciation Expense - Office Equipment	-	-
Leasing Expense - Stores	105,600	-
Miscellaneous Selling Expense	18400	-
Research & Development Expense	12,000
Rent Expense - Storage Facility	-	-
Insurance Expense	12,000	-
Office Supplies Expense	28,000	-
Miscellaneous Administrative Expense	7,336	-
Rent Revenue	-	60,000
Interest Revenue on Note Receivable	-	-
Dividend Revenue on AFS Securities	-	20,000
Interest Expense	-	-
Bad Debt Expense	28,000	-
Amortization Expense	-	-
Income Tax Expense	-	-
Payroll Taxes Expense	96,920	-
Rebate Expense	-	-
Unrealized holding loss	-	-
Depreciation Expense-Storage Building	-	-
Loss on Impairment	-	-
Rebate Liability	-	-
Restricted Cash for Future Expansion	-	-
	9,268,360	9,268,360

Company Background & Scenario

The Auto Zone Company is a well-established, publicly-held corporation, operating as a wholesaler in the auto parts industry. Specifically, Auto Zone purchases auto parts from manufacturers and sells them to large business customers. Most purchases and sales are on account, with trade credit terms (specified below).

Youâre a Davenport University student pursuing a bachelorâs degree in business and employed at the Auto Zone Company this semester as an intern. Youâve worked in various departments and on several projects so far, learning a lot about the companyâs business operations. Management seems impressed with your enthusiasm and the quality of your work.

The companyâs accountant has just been called away for a family emergency and will likely be absent for a month or so. The General Manager asks you to take over the accountantâs regular duties on an interim basis. Youâre nervous about doing so, but are confident that what youâve learned in accounting class, plus your personal problem-solving skills, will make this a successful experience. What a great learning opportunity, not to mention an enhancement to your resume!

Part I

Journal Entries

a. Within the "Transactions" worksheet you will find journal entry statements. Use those statements to write the corresponding journal entries. You are to write the journal entries in the proper special journal. The special journals included within this workbook include the Sales Journal, Purchases Journal, Cash Receipts Journal and Cash Payments Journal. Any transaction that does natually work within one of the special journals should be written into the General Journal.

b.Within the "Transactions" worksheet you will find journal entry statements. At the end of this list you will find "adjusting" information. Use this "adjusting" information to write the respective adjusting journal entries. Write all adjusting entries in the worksheet labled "General Journal ADJ".

c. Before starting work, review the entire project: all instructions, business transactions descriptions, workbook sections, check figures, due dates, and submission requirements.

Credit Terms & Inventory Accounting

a. When Auto Zone purchases merchandise from a supplier or vendor on account, they receive credit terms of 2/15, net 30.

b. When Auto Zone sells merchandise to a customer on account, they offer that customer credit terms of 2/30, net 45.

c. Auto Zone uses a perpetual inventory accounting system and a last-in, first-out (LIFO) inventory costing method. Within this workbook there is a worksheet labeled "Inventory Control". You will need to use the "Inventory Control" worksheet to keep a perptual record of your inventory. As part of that process you will be calculating the value of CGS each time you generate a sale. Use the "Inventory Control" worksheet to calcluate your Cost of Goods Sold values.

d. Auto Zone uses the "Gross" method of accounting for purchases and sales. The "Net" method assumes that discounts are taken at the point of sale or purchase.

MAY JOURNAL TRANSACTIONS

May 1

Paid $2,100 to LG for utilities bill that was recorded in April as an Account Payable, Check #1000.

May 1

Purchased 3,000 GPS units on Credit from Yamaha for $35.00 per unit.

May 1

Purchases office supplies from Staples on credit for $1,800

May 1

Signed a one-year 15%, $150,000 note payable with Chase Bank.

May 2

Rented part of the warehouse to a new tenant and received $12,000 for three months rent (May, June, July).

May 2

Sold 2,000 Aux Cords on account to Tesla for $85 per units, Invoice #2000.

May 2

Sold 400 USB Ports for $70 per unit and 1,200 GPS units for $75 per unit on account to Dodge, Invoice #2001.

May 3

Received a bill from the law firm of Davenport Associates for $6,300, payable upon receipt, for bond consulting fees, Check #1001.

May 4

Sold 500 Aux Cords on credit to Buick for $77 per unit, Invoice #2002.

May 4

Purchased 2,100 USB Ports on credit from Shure for $45 per unit.

May 5

Paid for office supplies purchased at Staples on May 1st, Check #1002.

May 7

Sold 200 GPS units on account to Chevrolet for $49 per unit, Invoice #2003.

May 8

Issued 4,750 shares of common stock for $13 per share

May 11

Purchased 1,875 GPS units on credit from Sony for $25 per unit.

May 11

The Board of Directors declared a cash dividend of $7 per share for shareholders of record on May 13th, payable on May 17th.

May 12

Paid in full for the May 1 purchase from Yamaha, Check #1003.

May 13

Received and paid expense reports for travel and entertainment totaling $1,500, Check #1004.

May 13

Took advantage of a special deal to purchase 1,500 Aux Cords on account from Panasonic for $42 per unit.

May 15

Received payment in full from Tesla for the May 2nd sale.

May 15

Sold 1,050 USB Ports on credit to Chevrolet for $57 per unit, Invoice #2004.

May 16

Received payment from Buick for $125,000 of the $300,000 owed from April 5.

May 17

Paid the dividend that was declared on May 11th, Check #1005.

May 17

Check # 1006 was issued for payroll: $14,900 for salaries and $5,100 for wages.

May 20

Issued a credit to Chevrolet for the return of 150 defective units from the May 7th sale. These units has a cost basis of $35 per unit.

May 20

Returned the 150 defective units received from Chevrolet to Yamaha.

May 22

Purchased a $500 international phone card for one of the sales representative's upcoming European business trip, Check #1008.

May 23

Issued bonds payable at face value for $420,000

May 23

Purchased 2,080 USB Ports from Shure for $41 per unit paying in cash, Check #1009

May 24

Check #1010 was issued for payroll: $14,900 for salaries and $5,100 for wages.

May 25

Hired and paid a consultant $50,000 to devise a marketing plan. Auto Zone's management felt this was necessary to develop brand awareness. Check #1011.

May 26

While inspecting the May 11th purchase, it was discovered that the GPS units were programmed for Asia instead of North America. Auto Zone returned the entire order to Sony.

May 27

A bankruptcy judge disallowed Auto Zone's claim for $25,000 due from Jeep. Management Decided to write off this accounts receivable.

May 27

Sold 500 USB Ports on credit to GMC for $61 per unit, Invoice #2005.

May 29

Paid in full for the purchase from Panasonic on May 13, Check #1012.

May 29

Received payment in full from GMC for the May 27th transaction.

May 30

Auto Zone is behind in its mortgage payments to Fifth Third Bank. Paid a total of $20,000 ($5,000 principal and $15,000 interest), Check #1013.

May 31

Paid the first month's principal payment of $12,500 on the note payable. In addition, paid one month's interest, Check #1007

*All purchases on account terms of 2/15, n/30

**All credit sales have terms of 2/30, n/45

May Month-end Adjustments:

( A )

The Company took a physical count of Office Supplies on May 30 and found the following the value of inventory on hand to be $2,500. The beginning inventory was $3,200. Write the adjusting journal entry.

( B )

Auto Zone estimates bad debt expense on a monthly basis rather than waiting until year-end. The company uses the allowance method. Based on recent industry estimates, Auto Zone estimates that the allowance account should be 7.5% of accounts receivable. The ending AR balance is $850,000. At the end of the month (prior to this journal entry) there is a CREDIT balance of $19,000 in the Allowance for Doubtful Accounts account. Write the necessary adjusting entry.

( C )

The Balance of $23,000 in the prepaid insurance account at the beginning of May represents 5 months of coverage. Record the amount of insurance for May.

( D )

The Company took a physical inventory count on May 30 and found the following inventory on hand to be $100,641. The ending balance in the Inventory account (before this adjusting entry) was $128,947. Write the necessary adjusting entry.

( E )

Auto Zone has earned two months of the prepaid rent received from their tenant at the beginning of May.

( F )

Depreciation on the company's fixed assets for the month of May is as follows:

1. The furniture and equipment for the office was purchased last year for $7,350. these assets have a 5 year life, an expected salvage value of $500, and are depreicated using straight-line method.

2. The furniture and equipment for the warehouse was purchased a few years ago for $30,000. These assets have a 8-year life, an expected salvage value of $5,000, and are depreciated using the straight-line method.

Shoe:

GPS

Beginning Inventory (BI)

Purchases

Sales

Ending Inventory (EI)