AFA 300 Chapter Notes - Chapter 8: Disclose, Markdown, Material Handling

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20 Sep 2020

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Chapter 8 cost-based inventories and cost of sales. Right to recovery assets: permitting goods to be returned if not sold: right to recovery asset is limited to portion of a given shipment that is estimated to be returned. If returns can not be estimated, entire sale quantity is right to recovery on the books of the vendor. Items and costs to include in inventory: choice of accounting procedure: periodic versus perpetual systems, cost flow assumptions for measuring cost of sale, application of lower-of-cost-or-nrv valuations. Includes all goods that are: controlled by the company, regardless of physical location. Fob shipping: automatically transfers to purchaser when goods are given to carrier. Include: costs to bring the inventory to present location and condition: cost should be net of any reductions (discounts, rebates, other concessions) Insurance costs on goods in transit: material handling expenses, storage and waste. Sales taxes: hst are not refundable and therefore are not included in cost of inventory.

Related Questions

1. Which statement is normally prepared first? (Points : 3) Income statement Balance sheet Statement of cash flows Retained earnings statement2. When a business borrows money, it incurs a(n) (Points : 3) tax. liability. cash payment. all of these.3. More than 70% of businesses are organized as what type of business? (Points : 3) Not-for-profit Corporation Partnership Sole proprietorship4. Brennan, Inc. had revenues of $234,000, expenses of $175,000, and dividends of $40,000 during 2009. Which of the following statements is correct? (Points : 3) Net income for 2009 totaled $19,000. Net income for 2009 totaled $59,000. Total retained earnings increased by $59,000 during 2009. Total retained earnings decreased by $40,000 during 2009.5. The statement of cash flows is integrated with the balance sheet because (Points : 3) the cash at the beginning of the period plus or minus the cash flows from operating, investing, and financing activities equals the end of period cash reported on the balance sheet. the cash at the beginning of the period plus or minus the net income equals the end of period cash reported on the balance sheet. the cash at the beginning of the period plus or minus assets and liabilities equals the end of period cash reported on the balance sheet. the cash at the beginning of the period plus or minus the cash flows from operating activities equals the end of period cash reported on the balance sheet.6. The basic financial statements do NOT include the (Points : 3) income statement. tax return balance sheet. statement of cash flows.7. A __________ is an economic event that under generally accepted accounting principles affects an element of the financial statements and must be recorded. (Points : 3) framework control set of rules transaction8. The payment of a liability (Points : 3) decreases assets and stockholders' equity. increases assets and decreases liabilities. decreases assets and increases liabilities. decreases assets and decreases liabilities. 9. Co. received $1,000 from Newbie as rent for the use of a building owned by UNI. How does this transaction affect UNI's accounts if UNI recognizes a liability? (Points : 3) Cash is increased and revenue is increased. Cash is increased and revenue is decreased. Cash is increased and unearned revenue is increased. It is not recorded.10. Depreciation Expense and Accumulated Depreciation are classified, respectively, as (Points : 3) expense and contra asset. asset and contra liability. revenue and asset. contra asset and expense.11. Deferred expenses (prepaid expenses) are items initially recorded as assets but are expected to become __________ over time. (Points : 3) Liabilities Assets stockholders%u2019 equity Expenses12. A&M Co. provided services of $1,000,000 to clients on account. How does this transaction affect A&M%u2019s accounts? (Points : 3) Increase accounts receivable and cash by $1,000,000 each Increase accounts receivable and revenues by $1,000,000 each Increase accounts receivable and unearned revenues by $1,000,000 each No effect at this time13. Multiple-step income statements show: (Points : 3) gross profit but not income from operations. neither gross profit nor income from operations. both gross profit and income from operations. income from operations but not gross profit.14. Since merchandise inventory is normally sold within a year, how is it reported on the balance sheet? (Points : 3) As a revenue As the cost of merchandise sold It does not appear on the Balance Sheet As a current asset15. The credit terms of a sale are normally indicated on a(n) (Points : 3) purchase order. invoice. bill of lading. account receivable.16. Inventory shortage is recorded when (Points : 3) merchandise is returned by a buyer. merchandise purchased from a seller is incomplete or short. merchandise is returned to a seller. there is a difference between a physical count of inventory and inventory records. 17. The bank reconciliation (Points : 3) should be prepared by an employee who records cash transactions. is part of the internal control system. is for information purposes only. is sent to the bank for verification.18. A special cash fund used to make small payments that occur frequently is called a(n) (Points : 3) operating expenses fund. change fund. market fund. petty cash fund.19. The objectives of internal control are to (Points : 3) control the internal organization of the accounting department personnel and equipment. provide reasonable assurance that assets are safeguarded, information is processed accurately, and laws and regulations are complied with. prevent fraud and promote the social interest of the company. provide control over %u201Cinternal-use only%u201D reports and employee internal conduct.20. When a firm uses internal auditors, it is adhering to which of the following internal control elements? (Points : 3) Risk assessment Proofs and security measures Monitoring Separating responsibilities for related operations21. What type of account is Allowance for Doubtful Accounts? (Points : 3) Contra asset Asset Revenue Expense22. Merchandise inventory is reported on the balance sheet in the section entitled (Points : 3) current assets. fixed assets. current liabilities. stockholders' equity.23. Receivables are usually a significant portion of (Points : 3) total current liabilities. total liabilities. total current assets. total assets.24. The inventory data for an item for November are: Nov.1 Inventory 25 units at $20 10 Purchased 30 units at $21 30 Purchased 10 units at $22 Sold 35 unitsUsing the first-in, first-out method, what is the cost of the merchandise inventory of 30 units on November 30? (Points : 3) $640 $605 $623 $66025. All amounts paid to get an asset in place and ready for use are referred to as (Points : 3) capital expenditures. revenue expenditures. residual value. cost of an asset.26. Fixed assets are ordinarily presented in the balance sheet (Points : 3) at current market values. at replacement costs. at cost less accumulated depreciation. in a separate section along with intangible assets.27. Goodwill is (Points : 3) amortized similar to other intangibles. only written down if an impairment in value occurs. charged to expense immediately. amortized over 40 years or its economic life, whichever is shorter.28. If a capital expenditure is treated as a revenue expenditure, then (Points : 3) expenses are overstated and owners' equity is understated. expenses are overstated and assets are overstated. expenses are understated and owners' equity is overstated. net income is overstated and owners' equity is understated.29. A bond indenture is (Points : 3) a contract between the corporation issuing the bonds and the underwriters selling the bonds. the amount due at the maturity date of the bonds. a contract between the corporation issuing the bonds and the bondholders. the amount for which the corporation can buy back the bonds prior to the maturity date.30. Gross earnings for a payroll period less payroll deductions are referred to as (Points : 3) overtime pay. bonus pay. gross pay. net pay.31. How is treasury stock shown on the balance sheet? (Points : 3) As an asset As a decrease in stockholders' equity As an increase in stockholders' equity Treasury stock is not shown on the balance sheet.32. Current liabilities are (Points : 3) due but not receivable for more than one year. due but not payable for more than one year. due and receivable within one year. due and payable within one year.33. The total earnings of an employee for a payroll period are referred to as (Points : 3) take-home pay. pay net of taxes. net pay. gross pay.34. Where is interest expense listed on the income statement? (Points : 3) Other expense section Cost of merchandise sold Operating expenses Interest expense is on the balance sheet, not the income statement.35. A corporation has 50,000 shares of $100 par value stock outstanding. If the corporation issues a 4-for-1 stock split, the number of shares outstanding after the split will be (Points : 3) 200,000 shares. 50,000 shares. 250,000 shares. 12,500 shares.

sangriaporpoise636

INSTRUCTIONS: PLEASE SELECT THE CORRECT ANSWER CHOICE

Use the following balance sheet information from Aggie Health and Fitness Centersâ month-end financial statements dated August 31, 2016 and open t-accounts for each balance sheet line item. Then use the enclosed TRANSACTIONS AND ADDITIONAL INFORMATION to complete the General Journal, Ledger, Worksheet and Financial Statements for the second month of operations. Use the Perpetual Inventory method as discussed in class for all sales of merchandise.

Aggie Health and Fitness Center

Balance Sheet

As of August 31, 2016

Assets: Liabilities:

Cash $4,500 Accounts Payable $2,900

Accounts Receivable 6,500 Salaries Payable 5,600

Inventory â Concessions 1,100 Interest Payable 1,375

Supplies 400 Unearned Revenue 500

Prepaid Insurance 4,400 Note Payable 330,000

Total Current Assets 16,900 Total Current Liabilities 340,375

Land 80,000 Stockholderâs Equity

Building 408,000 Common Stock 245,500

Equipment 67,200 Retained Earnings 3,563

Furniture and Fixtures 20,016 Total Liab. and SHE $589,438

Accumulated Depreciation (2,678)

Total Assets $589,438

Fiscal Year

Aggie Health and Fitness Center was established as a business in August 2016. Aggie Health and Fitness Center follows a fiscal year end of July 31.

Inventories

Inventories consist of concessions available for resale to members. These concessions consist of energy drinks, nutritional supplements, etc. Inventories are valued on a first-in, first-out basis, using the perpetual method. (Note: The Center plans to expand its inventory during September to include logo-based apparel.)

Prepaid Insurance

Aggie Health and Fitness Center carries property insurance through Good Hands Insurance Co. The Center purchased a 12 month policy on August 1, 2016 for $4,800.

Fixed Assets

Property and Equipment are stated on the basis of historical cost.

Land and Building: The Land and Building was a group purchase made on August 1, 2016. The total purchase price amounted to $488,000. On the date of purchase the land was appraised at $80,000 and the building was appraised at $408,000. The Health and Fitness Center paid $158,000 down and signed a $330,000, 12-month, 5% note for the balance. Depreciation on the building is computed using the straight-line basis with no salvage value. The life of the building is estimated to be 20 years.

Equipment and Furniture and Fixtures: All equipment and furniture and fixtures were purchased for cash on August 1, 2016. Both equipment and furniture and fixtures are depreciated using the straight-line method of depreciation. No salvage value is anticipated. The useful life of the equipment is 8 years. The useful life of the furniture and fixtures is 6 years.

The book values of these assets are presented below:

Land $80,000 $80,000

Building 408,000

Less: Accumulated Depr 1,700 406,300

Equipment 67,200

Less: Accumulated Depr 700 66,500

Furniture and Fixtures 20,016

Less: Accumulated Depr 278 19,738

Net Plant, Property, and Equipment $572,538

Unearned Revenue

The balance in the unearned revenue account is due to the sale of gift certificates redeemable for massage therapy.

Revenue Recognition

The Company recognizes service revenue upon providing services for customers. Sales revenue is recognized upon customer receipt of goods. Revenue for gift certificate sales is recognized at redemption. (Note: all memberships sold during the first month of operations were for one month only).

Instructions

Use the following TRANSACTIONS AND ADDITIONAL INFORMATION to complete the General Journal, Ledger, Worksheet and Financial Statements for the second month of operations for Aggie Health & Fitness Center (The Fitness Center). Use the Perpetual Inventory method as discussed in class for all sales of merchandise.

TRANSACTIONS:

TRANSACTION #	DATE	TRANSACTION DESCRIPTION
1	Sept 1	Purchased a 3-month advertising campaign to be broadcast on local radio stations during the months of September, October and November. Paid $1,500 in advance for this ad campaign.
2	Sept 1	Sold 160, twelve-month memberships to the Fitness Center for $420 each. All membership dues were collected in cash.
3	Sept 2	Purchased office supplies for $325 on an open account from Kelliâs Office Supplies. The Fitness Center has 30 days to pay for the supplies.
4	Sept 3	Purchased on account a total of 180 shirts with an embroidered Aggie Health and Fitness Center logo from C & C Creations at a price of $14 per shirt. These shirts are available for resale to customers.
5	Sept 4	Paid wages due to employees on August 31
6	Sept 5	Purchased flowers for the reception desk for $54 cash
7	Sept 6	Purchased concessions for $5,200 on account from Advocare Distributing, Inc. These concessions consist of energy drinks, nutritional supplements, etc., and are available for resale to customers
8	Sept 7	Provided 50 hours of personal training services to members. Fees are charged at a rate of $45 an hour. The total amount was billed to individual memberâs accounts
9	Sept 10	Paid the total amounts due to Kelliâs Office Supplies for the Sept. 2 transaction and C&C Creations for the Sept. 3 transaction
10	Sept 12	Sold thirty-five shirts to a corporate member, Allen & Associates for $36 each. Collected $500 in cash and the balance is owed to the Fitness Center on account
11	Sept 13	The owners of the company invested an additional $18,000 into Aggie Health and Fitness Center in exchange for common stock
12	Sept 14	Gift certificates totaling $300 were redeemed for massage therapy performed
13	Sept 15	The concessions stand reported sales of merchandise for $5,400 for the first half of the month. The concessions that were sold had an original cost of $2,320. All of these transactions were billed directly to each memberâs account
14	Sept 15	For the first half of September, provided 22 hours of massage therapy at a rate of $75/hour. Billed the individual membersâ accounts for services provided
15	Sept 16	Received $6,775 for services previously billed to customerâs accounts
16	Sept 16	Paid wages and salaries of $4,700 to Aggie Health and Fitness Center employees
17	Sept 17	Purchased on account additional concessions for $2,100 from Advocare Distributing
18	Sept 20	Paid $5,680 on accounts payable
19	Sept 21	Collected the balance of what was owed on account from Allen & Associates for the Sept. 12 transaction
20	Sept 22	Sold forty-seven shirts to individual customers for $40 each. Collected 30% in cash, the balance is owed to Aggie Health and Fitness Center on account
21	Sept 23	Received a utility bill that totaled $535 for the month. It is due October 12
22	Sept 24	Sold a gift certificate for $100 cash. The gift certificate is valid for one year and is redeemable for a 60 -minute massage
23	Sept 26	Cash sales of shirts: 30 shirts sold at $40 each
24	Sept 27	Aggie Health and Fitness Center paid a dividend of $4,000 to its shareholders
25	Sept 28	Received $4,225 for services previously billed to customersâ accounts
26	Sept 29	Purchased additional equipment for $28,000; paid $5,000 in cash and signed a two year, 4% note for the balance
27	Sept 29	Fees for massage therapy for the last half of September totaled $4,900. All of these transactions were collected in cash. Fees for personal training given during the last half of September amounted to $7,200. Fifty percent of the personal training fees were collected in cash
28	Sept 30	âCredit sales for concessions during the last half of September totaled $1,900. âCash sales for concessions during the last half of September totaled $480. âCost of the concessions sold during the last half of September was $1,015

ADDITIONAL INFORMATION:

1.Depreciation expense for the month of September should be calculated using the straight-line method.

2.At the end of the month, a physical count was taken of the Fitness Centerâs inventories.

It revealed the following information:

a.Sixty of the shirts for resale were on hand at September 30.

b.Concession merchandise still on hand as of September amounted to $4,990.

3. Salaries earned by employees but unpaid on September 30 totaled $5,115.

4. Office Supplies still on hand on September totaled $100.

What is the correct adjusting journal entry for Insurance Expense/Prepaid Insurance?

Insurance Expense	400
Prepaid Insurance	400

Prepaid Insurance	400
Insurance Expense	400

Insurance Expense	4,800
Prepaid Insurance	4,800

Insurance Expense

800

Prepaid Insurance

Please select the correct letter choice.

800

What is the correct adjusting journal entry for Interest Expense/Interest Payable?

Interest Payable	2,750
Interest Expense	2,750

Interest Expense	2,750
Interest Payable	2,750

Interest Expense	1,375
Interest Payable	1,375

Interest Payable

1,375

Interest Expense