Fall 2007 Exam 2 Key

Fall 2007 Exam 2 Key - MISCH NAME(w FALL 2007"’5...

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Unformatted text preview: MISCH NAME \(w FALL 2007 "’5' FINANCIAL ACCOUNTING EXAM II PROBLEM POSSIBLE POINTS ACTUAL POINTS W 1. Journal Entries/Cost of Goods Sold _ 20% 2- Invento Comutation _ use 3. Accounts Receivable/Bad Debts — 4. Bank Reconciliation ___ 6. Dereciation and Disosition of Assets - l% 7. Quibble Point 01 l l 0‘ 0‘ Total __ 100 NOTE: A. If you are asked for an entry or an amount when none is required, write “no entry” or “zero” in the space provided. B. Round all journal entry amounts to the nearest dollar. C. Partial credit will be given only when supporting computations are shown in good form. D. Calculators with stored-text capabilities are prohibited on this examination. Use of such calculators and/0r possession of any unauthorized materials will result in your receiving a zero on the examination. E. Good Luck! PART I—JOURNAL ENTRIES/COST OF GOODS SOLD (27 POINTS) Oak Corporation had $165,000 of inventory on hand on January 1, 2007. The company uses a FIFO periodic inventory system, accounts for all sales and purchases on the gross method, and computes cost of goods sold monthly. Oak had the following transactions during January. Jan. 2 Established a petty cash fund by writing and cashing a check for $75. Jan. 4 Purchased $22,000 of merchandise on account from Ficus Corporation on terms 1/5, n/25, f.0.b. destination. Jan. 5 Returned $800 of the merchandise purchased from Ficus on the 4th because it was defective, and received a credit memorandum. Jan. 7 Paid the amount due to Ficus. Jan. 9 Made a $61,000 sale on account to Willow Corporation on terms 1/10, n/30, f.o.b. shipping point. Jan. 14 Bought $37,000 of inventory on account from Hickory Corporation on terms 2/10, n/30, f.o.b. shipping point. Jan. 16 Received the amount due from Willow. Jan. 18 Received and paid an invoice from Fir Freight for $51 of shipping charges on the January 14th purchase. Jan. 23 Made a $52,600 cash sale to Dogwood Corporation. Jan. 27 Replenished the petty cash fund. Before replenishment, the petty cash box contained $12 of cash, a $37 voucher for office supplies that had been used during January, and a $29 voucher for advertising charges that had been incurred during January. Additional Information: Oak had $168,400 of inventory on hand at January 31, 2007, based upon a physical count. Required: Using the forms provided on the next page, prepare, in good form, A. The journal entries required on Oak’s books to account for the transactions above. B. The journal entry required on Oak’s books to establish Cost of Goods Sold for the month. PARTL—CONNNUED [2] [N93 [2] [5V2] IZJ [NE] [33 321%} ['53 D M“ w ZKSH 0 9L AM u S p: (3:) 2[§f§§=,f?;“gsee 800 212.‘m :53 PART II—INVENTORY COMPUTATION (15 POINTS) Cherry Corporation had the following information related to inventory in April 2007: 4/1/07 Beg. Inv. 1,500 units @ $21.00/unit = 3,500 4/4/07 Purchased 1,100 units @ $22.50/unit : 24350 4/7/07 Sold 1,050 units @ $30.00/unit 4/12/07 Purchased 1,400 units @ $23.50/unit = 32,900 4/16/07 Sold 1,250 units @ $30.00/unit 4/23/07 Purchased “ligg‘g‘units @ $26.00/unit r 29,000 m 4/28/07 5.000 6A 4,15'60 Sold flmts @ $31.00/un1t Required: WSOLB 1. 1.024 ENBJMV. Assuming that Cherry uses a PERIODIC inventory system, compute COST OF GOODS SOLD AND ENDING INVENTORY in dollars under the following methods: (Note: unit costs should be rounded to the nearest int) A. Weighted Average Periodic: i) COST OF GOODS SOLD 44,133; (1.5 Points) ii) ENDING INVENTORY (in dollars) 33 5g (1.5 Points) B. FIFO Periodic: i) COST OF GOODS SOLD 4158(1) (1.5 Points) ii) ENDING INVENTORY (in dollars) 5Q (2‘23 (1 Point) C. LIFO Periodic: i) COST OF GOODS SOLD 80.860 (1.5 Points) ii) ENDING INVENTORY (in dollars) 33 2'10 (1 Point) Assuming that Cherry uses a PERPETUAL inventory system, compute COST OF GOODS SOLD under the following methods: A. FIFO Perpetual: i) COST OF GOODS SOLD H4343 (1 Point) B. LIFO Perpetual: i) COST OF GOODS SOLD 80 359 (4 Points) Assuming that Cherry uses Perpetual LIFO and makes all sales on account, prepare the journal entry (entries) that Cherry would have recorded on April 16, 2007. (2 Points) DATE ACCOUNT — ‘ ' rel“ I'm-I ! Es lam” u lu-lM-_3 soc _c(m a? m NZ» —3,,, — - - - _ _ PART II—CONTINUED (SUPPORTING COMPUTATIONS) WE'iG‘H-Wsz; AVERAng Paloma: (V5) m coggz 3,33%; (0. 23.03: (V17 (‘3 ENB.’N\J‘. 1,924 e, 2303: FIFO Pskyomc/ PERPETUAL: Cogs: llsooe ZLOO = IIIOQ e 22.50 = q :f'Lc L1 PO PEQIQQI (L 1 aogs: 1,000 a 29.00 ” (‘2 23.50 : Hooe 23.50 = 9719 Q 22.50 7— L) P0 P52 PES'T'LJRL. Mi.“ 4/ =(— L; / I (a 4/28 SEC» JNV~ LSOOQ 2Loo {5006 21.00 LSQUG 11130 :15 fl) ‘ 5,000 " (V2) (1/7,) 0’2) 31,500 2%,?50 I8 232, ——+~._.. 31%82 2B,OQC> m2) 32,0100 we 2} 9&0 NZ) mp...— 803533 q /~+ mm Illooezzse {152$} ‘ ‘3 509 2250 SO 622$ 506’ 225?.) 2303 UNIT (.03 T’ ENb.lMV.Z 500062 29.00 a 29,000 Hz) (024 e 23.50 = H wow ('12) 104$)..- EmuMuw'. I,sooe 2100:" 31.500 ('52) I2# @ 22.50 = 2*«0 (‘2) Eligfim ‘4 f / 3 fifigéfgémw m __ég_c,_§_mm_ Ifiooeza‘SD I,OOOGZB.OO 23, [02$ ‘1 I fligzgéfizégf“ 19,3745 Kgoflag 150:»: 23.50 ) I) \ [I 1 4332321533 (loom 25539 24389 _; ‘M @2350 05 PART III—ACCOUNTS RECEIVABLE/BAD DEBTS (14 POINTS) On January 1, 2007, Maple Corporation had normal balances of $256,000 in Accounts Receivable and $8,700 in the Allowance for Bad Debts. During 2007, the company made $950,000 of sales on account; made $79,500 of cash sales; received $843,800 on account, and wrote offa $10,900 receivable from Cedar Corporation. Required: A. Prepare the journal entry that Maple would have recorded to write—off the Cedar receivable. (2 Points) B. Assuming that Maple accounts for bad debts on the basis of 4% of accounts receivable, prepare the adjusting entry for Bad Debt Expense at 12/31/07, and use T-accounts to compute the ending balances in the company’s Accounts Receivable and Allowance for Bad Debts accounts at 12/31/07. (6 Points) DATE ACCOUNT DEBIT CREDIT we — l/l 255,000 950,000 (1%.) PART III—CONTINUED C. Without regard to your answer in part (B) above, assuming that Cherry accounts for bad debts on the basis of 2.5% of credit sales, prepare the adjusting entry for Bad Debt Expense at 12/31/07, and prepare the balance sheet disclosure related to Accounts Receivable that would appear on the company’s 12/31/07 balance sheet. (6 Points) DATE ACCOUNT DEBIT CREDIT Io:r Bk T ._ paw: We W} A I A1; _. .’. .*- . . " 3 (‘i 0 IA. x. 0253 Balance Sheet Disclosure: éumaxvr" A5395 ("2) Accouwrs RELEth-Viiit 351.500 "’23 l {21,13 L535: ALLOWRNLE? Foul. Em; <21£LSO> (7') l New MR 3.791350 (/1) j PART IV—BANK RECONCILIATION (09 POINTS) 1. For each item listed below, identify how the item would be treated in Walnut Inc.’s June 30, 2007 bank reconciliation to the corrected balance, using the following categories. (Note: categories may be used more than once or not at all): A. an addition to the balance per bank; B. a deduction from the balance per bank; C. an addition to the balance per books; D. a deduction from the balance per books; or E. none of the above. [The item would not appear on the June 3OLh bank reconciliation] 1. $74 of interest earned by Walnut on its checking account, not yet 2. A $4,758 check written by Walnut in June, not yet paid by the bank. 3. A $645 check received by Walnut on account from Chestnut Corporation and deposited in June that was returned by the bank for insufficient funds. 4. A $2l6 payment for utilities that was automatically deducted from Walnut’s account, but which Walnut has not et recorded. 5. A correction of an error made by Walnut, in which it recorded a check that it had written for $795 for June rent expense as if it had been written for $975. 2. Prepare anyjournal entry/entries that would be required on Walnuts books at June 30, 2007, as a result ofthe items above. DATE ACCOUNT DEBIT CREDIT 2 _ — 1mm _ . inlme “ 9 - . — ,. — 2. e _ __ [ASH “I 7 '1. (An [NC 7‘4 5 V‘ A/n. our? to Cksu Leas (ml [M11 U’TIL EXP: 2w / Crest-G 2”" ’3 (ll) (ASH mp Hz) "3 f, Ram", (2)4" ‘30 (I) 8 PART V—INVESTMENTS (17 POINTS) Elm Corporation had the following information related to investments from April 2007 through February 2008. Apr. 13, 2007 Bought 4,000 shares of Pine Company stock at $19.00 per share. The investment is appropriately classified as “Available for Sale” as the shares are intended to be held for 10 months. Oct. 31, 2007 Received a dividend of $0.50 per share from Pine Company. Dec. 4, 2007 Bought 800 shares of Magnolia Corporation stock at $31.00 per share. The shares are properly classified as “Trading Securities” as Elm intends to sell them in less than 3 months. Dec. 31, 2007 Noted that according to the Wall Street Journal, the Pine shares had a market value of $1 8.10 per share and the Magnolia shares had a market value of $3 1 .65 per share. Feb. 12, 2008 Sold the Pine shares for $19.60 per share. Required: 1. Prepare, in good form, thejournal entries necessary on Elm’s books to account for the items above. (13 Points) DEBIT CREDIT DATE ACCOUNT lglllll 0:1- .35 GOO .. l A I lo/3l/o éASi—l (V2) Diwba—Nb lNCOM m (V2 N .r. A: NV"”1€NT‘ m ACuoLJA~ rs / — [,3 —— UNREAU a. mac ANN <Los£ —AF5 $3121.12] — N : awm IN’ 3 (Home-903 ” 1W — Mam. D L .\ gmws ‘" [ASH Moo graham “0 - ._ ‘ — _ A 0 gm; “1 Moo”> , III-l a~ <w llunnllLWI “EMA a.» L m CNM/(LSS>-F‘S , up . {'sz , ’ (V2) k €5.11 1' 1 5N6 , a. f..— \3 .u N: J PART V—INVESTMENTS (Continued) 2. Prepare, in good form, the balance sheet presentation related to investments as it would appear on Elm’s books at December 31, 2007. (Ignore Cash.) (3 Points) [mam—r ASSETS (lg) leIE’STMEm-r m ’mkqu SE’éUIZITIEiE 25,321: M) A l/ ‘ CA lNV‘EET‘MENT’ N ABS $ezulztrnas ‘12, woo (‘3 l“””&’ l V; A M w," J s‘T‘OCLJ‘mLJLEES ’ E'cpu gm I ( 3 \‘ cArgQOflK’MAMt/Lfifl I 4 UNQERUEE'B H’Dummq 61mm /1Loss 5 -' AFiS < 3, coo» 5 '/7, Am J 3. Compute the total effect of the investment transactions on the company’s net income for 2007: 2006 Net Income 2+ $2 0 @decrease (circle one) (1 Point) m 10 PART VI—DEPRECIATION AND DISPOSITION OF ASSETS (17 POINTS) On January 2, 2005, Birch, Inc. bought a machine for $320,000. The machine was expected to last for 5 years or 500,000 units, and to have a $60,000 salvage value at the end of5 years. Birch produced 90,000 units with the machine in 2005, 160,000 units in 2006, 130,000 units in 2007, and 50,000 units in 2008, before selling the machine on July 15‘, for $45,000. Birch has a December 31St year-end and makes adjusting entries annually. Required: A. Assuming that Birch uses the STRAIGHT-LINE method of depreciation for all years, compute 2007 Depreciation Expense and the balance in Accumulated Depreciation at December 31, 2007. 2007 Depreciation Expense :2, 0(1) (1.5 Points) 3&9 : 5210mm” 12/31/07 Accumulated Depreciation .5 (2' 000 (1.5 PointS) (52.000 x 31 B. Without regard to your answer in (A), assuming that Birch uses the UNITS-OF-PRODUCTION method of depreciation for all years, compute 2007 depreciation expense and prepare the balance sheet disclosure related to the machine for December 31, 2007. §399§5;&s€22 u M; 3 I "a - - . woo ewe, ‘ f Z/uw‘“ V 130113 s 2007 Deprec1ation Expense (oqflpoo (2 Pomts) Q ’ 3 I L Partial Balance Sheet: (2 Points) P12 OPERT‘V; PL. NJT} ANB Ecpm miter“? (m E T me 1' 3053 M ALPINE azo/OQD {"13 LESS: ACLUM DEREK, : barren-«i £5 “1 6:0ng (‘2 MET—- M Ami no a: 12 L100 C. Without regard to your answers in (A) or (B), assuming that Birch uses the DOUBLE-DECLINING— BALANCE method of depreciation for all years, compute 2007 depreciation expense and the book value of the machine at December 31, 2007. 2007 Depreciation Expense m, 930 (2.5 Points) 12/31/07 Book Value “#20 (1.5 Points) _r LE ..- Adm. Rmfléusg iz/sclos 32c>,ooo>< .4 {28,000 m Izapoo 192,000 12/31/06; 1‘12ka x.'-l Rigor) (If-Ls 201413,“) “5,200 mar/m \\5,Zoox.4. ‘lcpao (I) zsofiéa [GONZO 11 PART VI—DEPRECIATION AND DISPOSITION OF ASSETS (Continued) D. Continuing with the double-declining-balance example from part (C), prepare, in good form, anyjournal entry (entries) necessary at July 1, 2008 (the date of sale). Assume that the company made all required ACLLJMLJLA a; I‘_ ZE—ZJFX‘S’I ‘ 5 ( AcauMuLm-Erx c ago/Sm a; f (I (' M CHINE 12 ...
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This note was uploaded on 04/15/2008 for the course ACC 224 taught by Professor Misch during the Fall '07 term at Pepperdine.

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Fall 2007 Exam 2 Key - MISCH NAME(w FALL 2007"’5...

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