224 Spring 2007 Exam 2 Key

224 Spring 2007 Exam 2 Key - MISCH NAME 5 5 SPRING 2007...

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Unformatted text preview: MISCH NAME 5% 5% SPRING 2007 FINANCIAL ACCOUNTING EXAM II ACTUAL POINTS _— 20-25 :— 20 a ”is *0 "5 ___ '5'20 “W5 82-HO_ 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 (25 POINTS) Charlie Brown, Inc. began 2007 with normal balances of $21,000 in inventory and $125 in petty cash, uses a PERIODIC inventory system, accounts for depreciation on a straight-line basis, accounts for all purchases and sales on the gross method, and computes Cost of Goods Sold and depreciation monthly. During January 2007, the company had the following transactions: Jan. 2 Paid $50,000 to purchase land and a warehouse . The warehouse is expected to last 3 years, with no residual value. The land has an estimated fair value of $36,000, and the warehouse has an estimated fair value of $24,000. Jan. 4 Bought 1,500 units of inventory at $12 per unit from Linus, Inc. on terms 1/10, n/30, f.o.b. shipping point. Jan. 6 Received an invoice from Kanga transport for $65 of shipping costs on the January 4“1 purchase. The invoice is due in 30 days. Jan. 8 Made a $24,000 sale on account to Heffalump Corporation on terms 1/5, n/20, f.o.b. destination. Jan. 9 Paid the amount due to Linus Corporation. Jan. 11 Received and paid an invoice from Roo transport for $30 of shipping costs on the January 8th sale. Jan. 13 Heffalump returned merchandise valued at $2,000 because the company no longer wanted the merchandise. Charlie Brown issued a credit memorandum for the appropriate amount. Because the merchandise was not defective, Heffalump was required to pay for the shipping costs on the return. Jan. 18 Recorded a cash sale of $6,200. I an. 24 Bought $7,900 of inventory on account from Schroeder Company on terms 2/ 10, n/30. Jan. 27 Received the amount due from Heffalump. Jan. 31 Noted that the petty cash box contained cash of $11 and vouchers for $41 for postage stamps and $72 for office supplies. All of the postage stamps and office supplies were used during the month. The company replenished the petty cash box. Jan. 31 Recorded depreciation expense for January. Additional Information: Charlie Brown took a physical inventory on January 31St and found $29,470 of inventory on hand. Required: Using the forms provided on the next page, prepare, in good form, A. The journal entries required on Charlie Brown’s books to account for the transactions above. B. The journal entry required on Charlie Brown’s books to establish Cost of Goods Sold for the month. PAKTL—CONTDRED 1) /2 \ «Iv 3 .lJ J 7) .lJ U 2 1w. V2 nu. V2 Ifl 1; Mb MU 1.7.» V2 up .— 5/ TL VL II I I) I: II: II DI (L 2 I. f. T. E rL [ rL E §\’.\/|\J. 23 ZlJ E .‘vlk/z) 7)) .|I\,.\.J 11'?) [ 77) 7>\J 7C4 E 3) p m. u 9 4 b. a . “A O. 4 , o O. A. .‘ A O t .24.- m .553.- 3‘. ACCOUNT (AL A p o . . o o. PART II—-—INVENTORY COMPUTATION (16 POINTS) Woodstock Corporation has the following information related to inventory for January 2007. The company makes all sales and purchases on account. 1/1/07 Beg. Inv. 3,000 units @ $12.00/unit = 310,000 1/7/07 Purchased 2,000 units @ $14.25/unit = 221,500 1/11/07 Sold 3,400 units @ $20.00/unit 1/15/07 Purchased 3,800 units @ $15.00/unit = 51,000 1/27/07 Sold 1,700 units @ $20.00/unit 1/30/07 Sold 600 units @ $21.00/unit 1/31/07 Purchased 1,200 units @$15.50/unit = 18,000 10,000 LIA 140,100 40C7A «3002 5MB Required: ‘1' 3’00 END "PM 1. Assuming that Woodstock 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. FIFO Periodic: i) COST OF GOODS SOLD =15 w; ' (1.5 Points) ii) ENDING INVENTORY (in dollars) (,5 100 (1.5 Points) LIFO Periodic: i) COST OF GOODS SOLD 8§ $5 (1.5 Points) ii) ENDING INVENTORY (in dollars) 53 525 (1 Point) Weighted Average Periodic: i) COST OF GOODS SOLD 35 55+ (2 Points) ii) ENDING INVENTORY (in dollars) QC 2:; 5 (1.5 Points) Assuming that Woodstock uses a PERPETUAL inventory system, compute COST OF GOODS SOLD under the following methods: A. B. FIFO Perpetual: i) COST OF GOODS SOLD T15 Q1; (1 Point) LIFO Perpetual: i) COST OF GOODS SOLD 1‘3 8g; (4 Points) Assuming that Woodstock uses Perpetual LIFO, prepare the journal entry that Woodstock would have recorded on January 15‘“, 2007 for the purchase. (2 Points) PART II—CONTINUED (SUPPORTING COMPUTATIONS) FIF—O P51210510: AOGS'. aloooe 12.00 : 310,000 HE) 2,0008 14.25 = 28,500 ”2'1 400 e 15.00 = 12050011? 215,030 L1Fo P67210010: 400$: 1,2009 15.50 = 18,1000 112) 3,800 e 15.00 = 579000 0/2) #0061. 14.25 = 99:15 (V2.1 ”m2; W‘1'T:.Avs.. PEQOcTémc, UNIT“ (03?: ' fits/10,000 7 “-1.01 405,3; 5300 c 14.01 = 21%}; Emuhxwa 4,300e 14.01: fOZ'JB (1) (11 (v21 (1) F11=0 PERPETUAL: 5P<ME A5 F1FO P92101310 L11=0 Rexpmg: 1/1/o=1 Mat/0:1 .L/J‘S/O‘f 1131/03; 40;) s 3'cQo €12.00 2,000 $14.25 3,800Q1SOO 1,200e1550 (I) (0 1/11/01 {1 qgg>e1zoo m ‘15, 300 1, 400 9.1200 25 0) 1/24/04 __ _____ (1,1oo> 0 15,00 25,500 1,000 012.00 as 2,100 e 15.00 11> 1/30/04 (1,037 €15.00 _ 11% 1,1,00611200 a5 1.53ga 15.00 120005.50 1‘1, Zoo 22, 500 18, 1:03 ~~~~~~~~~~~~~ ,__\l/~" '“mN‘w-m _~-__;._. ._ ~M*-~ , Em: 1m: 90,300 Emu. lNVs. 1,2000 15.50: 3,100 e;15.00= END. 1w '. 3000 Q 12.00 2 1, 300 e 14.25 H 18,000 :16; 500 ‘(o§ 10C) (a) (1) 319,000 (V2) £525 (5) _SH 525 PART III~ACCOUNTS RECEIVABLE/BAD DEBTS (16 POINTS) Schroeder Corporation began 2006 with normal balances of $43 1,000 in accounts receivable and $18,100 in the allowance for bad debts. During the year, the company made cash sales of $165,000 and sales on account of $3,200,000, wrote off a $13,700 receivable from Peppermint Patty, and collected $3,219,000 on account. Required: A. Prepare a summary journal entry to account for Schroeder’s sales in 2006. (2 Points) 123 B. Use a T-account to compute the ending balance in the company’s Accounts Receivable at December 31, 2006. (2 points) All? 1/! W l '3! im :/ [23 0.99% (‘4) E‘ACH I EAL iz/e) 3%, 300 C. Prepare the adjusting entry required at December 31, 2006 to account for bad debts and use a T—account to compute the ending balance in the company’s Allowance account, assuming that the company accounts for bad debts on the basis of 0.9% of credit sales. (5 Points) - T-Account: (V2) ( v; [2.] 4,‘-IOO 2%, $00 ('2) 33,200 12/3; BAL.(\/Z‘} W~\\K"” PART III—CONTINUED D. Without regard to your answer in part (C) above, prepare the adjusting entry required at December 31, 2006 and prepare the company’s balance sheet disclosure related to Accounts Receivable at December 31, 2006, assuming that the company accounts for bad debts on the basis of 5.2% of ending accounts receivable. (5 Points) Balance Sheet Disclosure: Amaraam- Assert—s: (V1) LrTs'grLgrEom] 1 l [PM Accoums EECE’N ma LE. 338,3oo 0A) J Less: Anuowmca Fora. EN: bets-rs (2032) 0/2) Ner- Na 5=r=t|58% F. Briefly discuss one reason that a company might prefer to estimate bad debts on the percentage of credit sales and one reason that a company might prefer to estimate bad debts on the percentage of accounts receivable. Note: At least one of your answers must demonstrate knowledge and understanding of the conceptual framework. (2 Points) ' PART IV—BANK RECONCILIATION (9 POINTS) Lucy Enterprises has the following information related to cash for the month of January 2007: Balance per 1/31/07 bank statement $62,365 Balance per 1/31/07 general ledger $64,373 Bank service fee for January $ 125 Insufficient funds check returned by the bank, that the company received from Woozle on account $ 346 January checks not yet cleared by the bank $ 1,739 January deposits not yet recorded by the bank $ 4,156 In addition, review of the January bank statement and company records revealed that: 1) the company had recorded a $649 check received from a customer (Owl) on account with a debit to Accounts Payable of $649 and a credit to Cash of $649, and 2) that the bank had deducted twice a $418 check that Lucy had written to Piglet Paper Company for supplies. Required: Using the forms provided on the next page: A. Prepare a bank reconciliation to the correct balance at 1/31/07, in good form. B. Prepare the journal entry/entries required on Lucy’s books at 1/31/07. PART IV (CONTINUED): A. ’ LUCY ENTERPRISES BANK RECONCILIATION JANUARY 31,2007 BALANCE. PEK BANK éZ,3L=S “’37 Abba Deposits m T‘RPxNSIT‘ A, Isa, ”/17 Zomaznom or 13mm ERROR _ 4:8 0‘) éufisa Dame—3 arsflwmmq 4141—1443 <I =139> (V2) (Omar BALANCE, I/31/o=l- 4512620 (V2) BALANCE PER. BOOKS 44,318 ”2) ADD: Zomec’l‘loxx) OF [0. ERRQK 4’23; (0 4,5,5“ DEDUCT! BANK SERVICE. FEES «25> ('23 NSF ARE—CK .__4.33_g>_ (V2) AOKEECT BALANCE, !/3)/O=F (as 200 (V1) NJ NOT BALANCING! = ("/7_) B. JOURNAL ENTRY/ENTRIES ACCOUNT ' DEBIT —_ j W —_ “—1? “"21 —-fl_ ; PART V—INVESTMENTS (16 POINTS) Presented below are Linus Corporation’s transactions related to investments from December 2006 through April 2007. Dec. 1, 2006 Purchased 4, 500 shares of Blanket Company stock for $16 per share, and $20, 000 of Great Pumpkin Company 12% bonds at face value The bonds mature on November 30, 2009 and pay interest annually each November 30th Dec. 31, 2006 Accrued interest on the Great Pumpkin bonds. Dec. 31, 2006 Noted that according to the Wall Street Journal, the Blanket Company shares were worth $14.80 per share and the Great Pumpkin bonds were worth $21,200. April 4, 2007 Sold 3,800 of the Blanket Company shares for $14.50 per share. Required: 1. Prepare, in good form, the journal entries necessary on Linus Corporation’s books at December 1, 2006, December 31, 2006, and April 4, 2007 to account for the items above. Assume that the Blanket Company shares are appropriately classified as a 5-12 month available for sale investment, and that company intends to hold the Great Pumpkin bonds to maturity. (11 Points) 10 PART V—INVESTMENTS (Continued) 2. Prepare, in good form, the balance sheet presentation related to investments as it would appear on Linus Corporation’s books at December 31, 2006. (Ignore Cash.) (4 Points) lame—NT A5533: (‘4‘; lNVL—TSTMENT’ m APE: 5E<L3KlTiES (papa: m lNTE‘REET Rgzcawmaiz ZOO 0/2) LOMGVTEEM lNVESTMENTZS' (A) lMVEamaNT 1N HTM sezumrierg 20,000 05) Smnxmemazs’ ECFUI’P/ 0/2) UMRE'ALIZ’E‘I: HDLblNg ©AIN/4LoSS) ‘AFS (@400) (2) 3. Compute the total effect of the investment transactions on the company’s net income for 2006: 2006 Net Income zgx; @ decrease (circle one) (1 Point) M 11 PART VI—DEPRECIATION AND DISPOSITION OF ASSETS (17 POINTS) On January 2, 2004, Snoopy, Inc. bought a machine for $300,000. The machine was expected to last for 5 years or 100,000 units, and to have a residual value of $60,000 at the end of its useful life to the company. The machine was used to produce 17,000 units in 2004, 24,000 units in 2005, 22,000 units in 2006, 15,000 units in 2007, and 14,000 units in 2008. Snoopy has a December 31St year-end and makes adjusting entries annually. Required: A. C. 1. Assuming that Snoopy uses STRAIGHT-LINE depreciation for all years, and prepared all necessary journal entries for depreciation in 2004, 2005, and 2006, compute 2007 Depreciation Expense and the book value of the machine at December 31, 2007. 2007 Depreciation Expense 33 m (1 Point) I ( I) ()7 a — 12/31/07 Book Value I of, am (125‘Points) 500/000 ”1 21°00 sooooo— (9000:; = agape/m. (1) 5 Without regard to your answer in (A), assuming that Snoopy uses DOUBLE-DECLINING BALANCE depreciation for all years, and prepared all necessary journal entries for depreciation in 2004, 2005, and 2006, compute 2007 depreciation expense and prepare the balance sheet disclosure related to the machine at December 31, 2007. 2007 Depreciation Expense g goo (3 Points) L3] Partial Balance Sheet: (2 Points) Pnomw, PLANT, Am: EqauiPME‘NT ('1) MAQHNE 300me (a) LEssx AaaunauLm—a; Bea—Preeazmou ggqooggz Na Na" MMHPMC—E 40,000 (a) 200% 300,000 x %"5 = Izqooo 120,009 150.000 (1) 2005 180,000 x 2/52 32,003 Hzpoo log/00c: "40 2004., 1083,0015 x :45: 45,200 235,200 (94,800 ("A 2007+ 4,800 240,000 (90,000 m Without regard to your answers in (A) or (B), assuming that Snoopy uses UNITS-OF-PRODUCTION depreciation for all years and prepared all necessary journal entries for depreciation in 2004, 2005, and 2006, compute 2007 depreciation expense and the balance in accumulated depreciation that would appear on the company’s balance sheet at December 31, 2007. (V2) (0 r. 2007 Depreciation Expense 3h Qgg (1.5 Points) Iepooe 2H0 2. 12/31/07 Accumulated Depreciation Balance {a} 2g; (~1-.5 Points) 18,0000 2.40 (I) (t) Boom-(90000 ___ gala/unn- loopoc: 12 PART VI—DEPRECIATION AND DISPOSITION OF ASSETS (Continued) D. Continuing with the UNITS-OF-PRODUCTION assumption from part (C), assuming that Snoopy sold the machine for $89,000 on August 1, 2008, prepare, in good form, any journal entry (entries) necessary at August 1, 2008. (5.5 Points) DATE l3 ...
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