Murobayashi
July Brandi 25, 2011
ACC 422
Week 2 Individual Assignment
Exercise 7-2
1. Checking account balance $925,000; certificate of deposit $1,400,000; cash advance to
subsidiary of $980,000; utility deposit paid to gas company $180.
Cash:
$925,000
Certificate of deposit is an investment, cash advance is a receivable and the utility deposit is
also a receivable.
2. Checking account balance $600,000; an overdraft in special checking account at same bank
as normal checking account of $17,000; cash held in a bond sinking fund $200,000; petty
cash fund $300; coins and currency on hand $1,350.
Cash:
$584,650
Cash held in a bond sinking fund is restricted cash and would be reported on the noncurrent
asset section of the balance sheet.
3. Checking account balance $590,000; postdated check from customer $11,000; cash restricted
due to maintaining compensating balance requirement of $100,000; certified check from
customer $9,800; postage stamps on hand $620.
Cash:
$599,800
Postdated check is a receivable, cash restricted is a noncurrent asset, and postage stamps is a
prepaid expense.
4. Checking account balance at bank $37,000; money market balance at mutual fund (has
checking privileges) $48,000; NSF check received from customer $800.
Cash:
$85,000
NSF check is a receivable
5. Checking account balance $700,000; cash restricted for future plant expansion $500,000;
short-term Treasury bills $180,000; cash advance received from customer $900 (not included
in checking account balance); cash advance of $7,000 to company executive, payable on
demand; refundable deposit of $26,000 paid to federal government to guarantee performance
on construction contract.
Cash:
$700,900
Cash restricted is a noncurrent asset, short-term treasury bills are an investment, cash
advance received from customer is payable, cash advance to executive is a receivable and
refundable deposit is a receivable.
Exercise 7-8
(a) Prepare the journal entry for Aramis Company to write off the Ramirez receivable.
Allowance for doubtful accounts
6,000
Accounts Receivable
6,000
Brandi Murobayashi
July 25, 2011
ACC 422
(b) What is the net realizable value of Aramis Companys accounts receivable before the writeoff of the Ramirez receivable?
Accounts Receivable
800,000
Less: Allowance
40,000
Net realizable value
$ 760,000
(c) What is the net realizable value of Aramis Companys accounts receivable after the writeoff of Ramirez the receivable?
Accounts Receivable
794,000
Less: Allowance
34,000
Net realizable value
$ 760,000
Question 13
FIFO, weighted average, and LIFO methods are often used instead of specific identification for
inventory valuation purposes. Compare these methods with the specific identification method,
discussing the theoretical propriety of each method in the determination of income and asset
valuation.
Under the FIFO method the first goods purchased are the goods that are recognized. Therefore,
inventory is stated at the latest cost. Under the weighted average method, goods arent
specifically identified. The weighted average method assumes that sales are proportional and
there may be a delay of costs recognized. Under the LIFO method the last goods purchased are
the first goods recognized. LIFO can be misleading because during times of inflation, it reduces
net income therefore reducing income taxes. Under the specific identification method every item
sold is individually matched with the inventory cost. The specific inventory method would be
the most accurate method however it may be too costly and impractical to use for companies
with a lot of inventory.
Exercise 8-5
Part A
Inventory
12/15/07
12/31/07
12/31/07
12/31/07
Inventory on consignment
1/5/07
Returned merchandise
Inventory December 31, 2007
Part B
$ 234,890
13,420
8,540
(10,438)
(10,520)
1,500
$ 237,392
Brandi Murobayashi
July 25, 2011
ACC 422
12/31/07
Sales
12,800
Accounts Receivable
12,800
(To reverse entry - fob destination rcvd by cust 01/03/08)
12/31/07
12/31/07
Purchases
Accounts Payable
(To record merchandise purchase)
15,630
Sales Return and Allowances
Accounts Receivable
(To record returned merchandise)
2,600
15,630
2,600
Exercise 8-14
Part A
(1)
LIFO:
(2)
Average cost:
Units
600
100
Price
$6.00
$6.08
Units
600
1,500
800
1,200
700
500
5,300
Price
$6.00
$6.08
$6.40
$6.50
$6.60
$6.79
$33,655
5,300
=
Cost
3,600
608
$4,208
Cost
3,600
9,120
5,120
7,800
4,620
3,395
$33,655
$6.35
700
Part B
(1)
FIFO
(2)
LIFO
$6.35
$4,445
500
200
700
100
100
500
700
$6.79
$6.60
3,395
1,320
$4,715
600
608
3,395
$4,603
$6.00
$6.08
$6.79
Brandi Murobayashi
July 25, 2011
ACC 422
Part C
Merchandise available for sale
Less inventory
Cost of goods sold
33,655
4,715
$28,940
Part D
In an inflationary period, which inventory method-FIFO, LIFO, average cost-will show the
highest net income? FIFO