224 Fall 2006 Exam 2 Key

224 Fall 2006 Exam 2 Key - MISCH NAME Eé FALL 2006...

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Unformatted text preview: MISCH NAME Eé% FALL 2006 FINANCIAL ACCOUNTING EXAM II PROBLEM POSSIBLE POINTS ACTUAL POINTS 1. Journal Entries/Cost of Goods Sold — -_— 3. Accounts Receivable/Bad Debts “ 4. Bank Reconciliation “ 6 De ureciation and DIS osition of Assets 7. Multile Chorce 8. Quibble Point — 22 _ 17 _ _ — 15 — 17 — 03 _ 01 _ _ _ 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/or possession of any unauthorized materials will result in your receiving a zero on the examination. B. Good Luck! PART I—JOURNAL ENTRIES/COST OF GOODS SOLD/MERCHANDISING CLOSING ENTRIES (22 POINTS) ‘ Nevada, Inc. uses a PERIODIC inventory system, accounts for all purchases and sales on the gross method, and computes Cost of Goods Sold monthly. The company’s December 31, 2005 balance sheet showed an inventory balance of $47,200. During January 2006, the company had the following transactions: Jan. 3 Jan. 4 Jan. 5 Jan. 10 Jan. 11 Jan. 12 Jan. 13 Jan. 17 Jan. 18 Jan. 23 Jan. 29 Sold merchandise to Iowa, Inc. on account for $14,400, on terms 2/10, n/30, f.o.b. destination. Established a $75 petty cash fund. Received and paid a $60 invoice from South Dakota Shipping for transportation costs on the merchandise sold on January 3rd. Bought $3 6,500 of inventory on account from Kansas Corporation on terms 1/10, n/30, f.o.b. shipping point. Received the amount due from Iowa. Received a $95 invoice from Tennessee Transportation for the freight charges on the inventory bought on January 10m. The bill is due on February 9th. Returned $1,000 of the merchandise bought on January 8th to Kansas because it was defective, and received a debit memorandum for that amount. Because the goods were defective, Kansas paid the shipping charges on the returned merchandise. Sold $31,700 of inventory to Georgia, Inc. on terms 1/5, n/30, f.o.b. shipping point. Paid the amount owed to Kansas Corporation. Bought $16,300 of merchandise for cash from New Jersey Corporation. Noted that the petty cash box had $6.00 of cash remaining, and vouchers of $19.00 for office supplies that had been used during the month, $14.00 for a reimbursement to an employee for long distance phone charges relating to business calls the employee had made at a sales conference, and $38.00 for flowers that the company had sent to a customer who was celebrating a 25th anniversary. Replenished the petty cash fund and recorded the necessary journal entry. In addition, at January 31“, Nevada took a physical inventory and determined that it had $71,400 of inventory on hand. Required: A. Using the form provided on the next page, prepare, in good form, the journal entries required on Nevada’s books to account for the transactions above. Using the form provided on the next page, prepare, in good form, the journal entry required on Nevada’s books to establish Cost of Goods Sold for the month. PARTL—CONTDRED 1 MU 7.. .1) 1:. j I ..r . 2 2 V2 J flu 1., V2 1.. “ X E W W 2 % W 3 E 3 2 4 A .1 J 1...?!4 «(3‘). a} 1/3 «.I)\J wI)|J .(J RSI/III] «’3 W’s‘fj . . . a A In a. . I Iw \; . . . n a m D .- I ACCOUNT 4 2 PART II—INVENTORY COMPUTATION (17 POINTS) California Corporation began 2006 with 1,000 units of inventory that cost $14.25 each. The company makes all sales on account. During January the company had the following inventory transactions: Date Purchases Sales 1/3/06 760 units @ $13.90 1/7/06 600 units @ $16.25 1/10/06 1,100 [email protected] $13.50 1/15/06 1,250 units @ $16.00 1/17/06 920 units @ $13.30 1/24/06 430 units @ $15.80 1/29/06 460 units @ $13.00 Required: 1. Assuming that California 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 cent) A. Weighted Average Periodic: . i) COST OF GOODS SOLD 3. [25 (2 Points) ii) ENDING INVENTORY (in dollars) 26 :15“; (1.5 Points) B. FIFO Periodic: i) COST OF GOODS SOLD 3| 533 (1.5 Points) ii) ENDING INVENTORY (in dollars) 2L, 0:“! ( 1.5 Points) C. LIFO Periodic: i) COST OF GOODS SOLD 30 31% (1.5 Points) ii) ENDING INVENTORY (in dollars) 23 515:1 (1.5 Points) 2. Assuming that California uses a PERPETUAL inventory system, compute COST OF GOODS SOLD under the following methods: A. FIFO Perpetual: i) COST OF GOODS SOLD 31 83:] (1 Point) B. LIFO Perpetual: i) COST OF GOODS SOLD 30 394 (4 Points) 3. Assuming that California uses LIFO Perpetual, prepare the journal entry/entries that California would have recorded on January 24m. (2.5 Points) PART II—CONTINUED (SUPPORTING COMPUTATIONS) 5‘48 0. Wm. Ave. sztomcx "“Q‘TENO“ = 13. (as/LINN" (y27 (IVZ) dogs: 2,280 x 13405 = 31,122 [31,;243 Emulmv: \fluo x 13.405 = 2a,=+s<+ Lzoflsu (Va 0) Fzr‘o Pm¥om¢\ a! s gags: z‘oooeg 34.25 = M‘zso (V2) Emulmx 4boe 13.00: 5mm W 4906 lino = bolsw ”1) <3on I3,30-= *2.2-3.(o (‘4) = (V) = (v [email protected] mac: . 4.020 2 sage I350 £__‘i§_§_g_ 2) 31,834 29,042. UFO PQEIODIQ‘. s/ - S . cogs: 44,063 134:0 = snag <12) {:1ququ “magmas: H.250 (43 920 e. mafia: 12,23»; (V2) :HaO'Q Iaao= DOIS‘M (Va) 30065. 13.50:: _1g4_L§£>_('2’2) 2006 13.50: Am_ (V2) a d J “ 30, 3M. 27,5»: FIFO PBZPET‘LJALJ SAME AS FsFo PETR’DDIC. (n) LIFO PC-fi'iPWAL! 555“ ‘W' 1/5 Puma Mo brew 1/»? Poem 1/2? amen l‘omogmzfi ageggqjo ugemm Clam M199. _.4_<_3§.S_ 1/} sewage fim.._ (900)313300) a,3ao_ 1,000 «234.2 ma 6. I390 " 2,085 (I) H.363 0) 1/1550» l.2=fo (lane-1350 51,3293 13.50 ”#135 a! 23 (I) V24 33% 4:0 WWW __ ___, Haozels.3o> 53m 1,0006: M25 hoerafio (A qqogxaao 4906 13.630 gala-mg W Wu.” w V—“N (4,250 13¢: ‘_ 6,5)? :fiac E&BJ|\N. : 215,889 PART III—ACCOUNTS RECEIVABLE/BAD DEBTS (16 POINTS) On January 1, 2006, Ohio had a $635,000 normal balance in Accounts Receivable and a $19,000 normal balance in the Allowance for Bad Debts. During 2006, Ohio had total sales of $4,975,000 of which 30% were for cash; Ohio received $3,220,000 on account from its customers; and Ohio wrote-off a $17,400 receivable from Indiana. Required: A. Prepare the journal entry/entries that Ohio should have recorded for the collections on account during 2006. (2 Points) DATE ACCOUNT DEBIT CREDIT ———fl— — - .45 :V . '3 _m 3 E2] C. Assuming that Ohio accounts for bad debts on the basis of 1% of credit sales, prepare the adjusting entry for Bad Debt Expense at 12/31/06, and compute the Net Realizable Value of Ohio’s accounts receivable at December 31, 2006. (6 Points) 5332. goo x. cl = 54, 825 Net Realizable Value of Accounts Receivable 35 a Q35 1: 21 AIR. «3e30, £00 0) Reucw. (352 325) U) 843,w?5 PART III—CONTINUED D. Without regard to your answer in part (C) above, prepare the adjusting entry for Bad Debt Expense at 12/31/06, and use T-accounts to compute the balances in Ohio’s Accounts Receivable and Allowance for Bad Debts accounts at 12/31/06, assuming that the company accounts for Bad Debts on the basis of 4% of ending accounts receivable. (6 Points) T-Accounts: A Wm ll: (oeslooo 3 ,‘l&2,5C)O[ 1 3,2253,ch l x _.____..__L_.__EL_:LQQ____ :2/3: ammo} l (1) 88C), 100x .o‘i . [‘Vz Emu meoal [‘Vz EACH mat—or: 3 PART IV—BANK RECONCILIATION (9 POINTS) 1. For each item listed below, identify how the item would be treated in Florida Inc.’s May 31, 2006 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 May 31St bank reconciliation] ITEM CATEGORY 1. A $1, 200 check written by Florida for insurance coverage for June through August that was given to the insurance company on Ma 29th, but that did not clear the bank until June 3“. 2. A $650 check returned with the May bank statement marked “insufficient funds,” that had been received from Idaho Produce Corporation (a customer) on May 18th and deposited in the bank the same da . 3. A $50 check processing fee that the bank charged Florida for May which had not yet been recorded by the company at the end of b the month. 4. A $600 check written by the company on May 8 for utilities expense, that was paid by the bank on May 11th and returned 1:” with the Ma bank statement. 5. A correction of an error made by Florida in May, in which the company wrote a $10 check for postage expense, but recorded 4 the check as if it had been written for $100. (I) EACH 2. Prepare any journal entry/entries that would be required on Florida’s books at May 31, 2006, as a result of the items above. PART V—INVESTMENTS (15 POINTS) On December 1, 2006, Maine, Incorporated paid $25,900 for 1,000 shares of New Hampshire common stock and $10,000 for Texas Cattle Corporation 5-year, 8% bonds, with interest payable annually each November 30*. On December 31, 2006, Maine accrued the interest earned on the Texas bonds. Also, at December 31, 2006, the New Hampshire stock was selling for $24.50 per share and the Texas bonds were selling for $10,200, according to the Wall Street Journal. On January 14, 2007, Maine sold the Texas bonds for $10,150. Required: 1. Prepare, in good form, thejournal entries necessary on Maine’s books at December 1, 2006, December 31, 2006, and January 14, 2007 to account for the information above, assuming that the investment in New Hampshire common stock will be held for two years and is appropriately accounted for as “Available for Sale” and that the investment in Texas Cattle Bonds is appropriately accounted for as a “Trading Security.” (9.5 Points) 2. Prepare the balance sheet presentation that would be required in Maine’s financial statements at December 31, 2006 related to the investments. (Ignore cash.) (3 points) z/A: '/ W In veg-WENT m 1711\qu {gcuatmt-z's 3‘ 2) )o,zoo Z) lmem- Renew ABLE (9? L/r iNVEST'MENTS 30/1) (‘4) iNVE‘ST‘ME’MI‘ no AFS Seaman-meta 24,500 Smcmmmeas’ Eqwm/t ”i (.5, vi) LiMKEfiLiEEEE HDLNNG, 37mm 1541.953) —AF~’S 3 <’.LIOO> k_4~(\J r4! L.) PART V—INVESTMENTS (Continued) 3. Briefly explain how and why the accounting treatment differs for bonds that are classified as “held to maturity” in comparison to bonds that are classified as “trading securities.” (2.5 Points) 1) l : b6 RE‘ NOT‘ u"Kt:- To MAE" m v? — 10 PART VI—DEPRECIATION AND DISPOSITION OF ASSETS (17 POINTS) On January 2, 2005, Michigan Meatpacking Corporation purchased a delivery truck for $25,000, a sausage making machine for $40,000, and a packaging machine for $38,000. Additional information related to these items follows: DESCRIPTION PURCHASE ESTIMATED ESTIMATED DEPRECIATION PRICE SALVAGE USEFUL LIFE METHOD VALUE EMPLOYED Machine $ 40,000 $ 5,000 3 Years Balance --— Machine $ 38,000 $ 3,000 500,000 nacka_es Production Additional Information: Michigan has a December 315tyear-end, made all appropriate adjusting entries for depreciation in 2005, and processed 60,000 packages in 2005; 175,000 packages in 2006; and 120,000 packages in 2007 before disposing of the packaging machine. Required: A. Compute the amount of depreciation expense that Michigan would have recorded in 2006 related to the delivery truck and compute the book value of the delivery truck at 12/31/06. (3 Points) 2006 Depreciation Expense on the Delivery Truck 4 500 ( ”2) 12/31/06 Book Value of the Delivery Truck H, 000 (ll/2) 33.2953331999 = 4_ 500/WQ_ (, 72) ('z) (0 Al 25,000 - “1,000 5 “$7000 B. Compute the amount of depreciation expense that Michigan would have recorded in 2006 related to the sausage machine and prepare the balance sheet presentation related to the sausage machine that would have appeared in Michigan’s 12/31/2006 balance sheet: (5 Points) 2006 Depreciation Expense on the Sausage Machine § 333 [5] 40,600 X 2/3 r 219$?“ 201an 13,333 2 : 2%, cl mega x /3 a, 37:33 35,000 5,000 Property, Plant and Equipment: <' 7-) Sims/«ea MACHINE. 40,000 0/2.) Less. ACCUN. DEPI’C- W m E L2] Na- SAUSAGE Mfimme '5, 000 ('2) C. Compute the amount of depreciation expense that Michigan would have recorded in 2006 related to the packaging machine and compute the book value of the packaging machine at 12/31/06. (3.5 Points) 2006 Depreciation Expense on the Packaging Machine l2I 250 [2] 12/31/06 Book Value of the Packaging Machine 2 I, 550 [1V2] 3§000j300o .J 04 4,0le x.0=’r= 4,200 38,000 ('é) 500,000 ' 1:5,wa .o-+ =12,2=So WU) ( i) ( n 21, 550 11 PART VI—CONTINUED D. On August 1, 2007, Michigan sold the packaging machine for $13,700. Prepare, in good form, any journal entry or entries required on Michigan’s books at August 1, 2007. (5.5 Points) ACCOUNT 12 PART VII—MULTIPLE CHOICE (1 Question @ 3 POINTS) Write the letter of the best answer on the line next to the question. _A__1. On September 1, 2006, Utah Corporation bought land, building, and equipment for a total purchase price of $2,000,000. Prior to making the purchase, Utah had the items appraised, and was told that the land had a fair value of $450,000; the building had a fair value of $1,200,000; and the equipment had a fair value of $750,000. The entry to account for this purchase should include: A debit to Land for $3 75,000. A debit to Building for $1,200,000. A debit to Equipment for $900,000. A credit to Gain on Purchase for $400,000. None of the above. The debit to Equipment would be for 9130.0“? 13 ...
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