Lecture05-TQ-B-Solutions - Solutions to Lecture 5 Tutorial...

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Lecture05-TQ-B-Solutions.docx Page 1 Solutions to Lecture 5 – Tutorial Questions Tutorial List: 5-1, 5-2, 5-3, 5-4 , 5-5, 5-6, 5-7 , 5-8 5-1. The letters FOB mean Free on Board. FOB shipping point means that goods are placed free on board the carrier by the seller. The buyer then pays the freight and debits Merchandise Inventory. FOB destination means that the goods are placed free on board to the buyer’s place of business. Thus, the seller pays the freight and debits Freight-out. 5-2. Agree. In accordance with the revenue recognition principle, sales revenues are generally considered to be earned when the goods are transferred from the seller to the buyer; that is, when the exchange transaction occurs. The earning of revenue is not dependent on the collection of credit sales. 5-3. (a) Cost of Goods Sold 900 Merchandise Inventory 900 (b) Sales 108,000 Income Summary 108,000 Income Summary 92,800 Cost of Goods Sold (TL60,000 + TL900) 60,900 Operating Expenses 29,000 Sales Returns and Allowances 1,700 Sales Discounts 1,200 Income Summary (TL108,000 – TL92,800) 15,200 Retained Earnings 15,200
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Lecture05-TQ-B-Solutions.docx Page 2 5-4. An inexperienced accountant for Blaufuss Company made the following errors in recording merchandising transactions. 1. A $175 refund to a customer for faulty merchandise was debited to Sales $175 and credited to Cash $175. 2. A $180 credit purchase of supplies was debited to Merchandise Inventory $180 and credited to Cash $180. 3. A $110 sales discount was debited to Sales. 4. A cash payment of $20 for freight on merchandise purchases was debited to Freight-out $200 and credited to Cash $200. Instructions Prepare separate correcting entries for each error, assuming that the incorrect entry is not reversed. Ans: 1. Sales Returns and Allowances ................................. 175 Sales .................................................................. 175 2. Supplies ...................................................................... 180 Cash ........................................................................... 180 Accounts Payable ............................................ 180 Merchandise Inventory .................................. 180 3. Sales Discounts .......................................................... 110 Sales .................................................................. 110 4. Merchandise Inventory ............................................ 20 Cash ........................................................................... 180 Freight-out ....................................................... 200 Remarks: Instead of the above answer, you may try the following approach: (1) Reverse the original wrong entry (2) Journalize the correct entry. e.g. 1. Cash ........................................................................... 175 Sales .................................................................. 175 Sales Returns and Allowances ................................. 175 Cash .................................................................. 175 Anyway, you cannot just “delete” a wrong entry in the accounting record.
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Lecture05-TQ-B-Solutions.docx Page 3 5-5 Tarp Department Store is located in midtown Platteville. During the past several years, net income has been declining because of suburban shopping centers. At the end of the company’s fiscal year on November 30, 20X1, the following accounts appeared in two of its trial balances. Unadjusted Adjusted Accounts Payable 25,200 £ 25,200 £ SFP L Accounts Receivable 30,500 30,500 SFP A Accumulated Depr.-Delivery Equip. 10,000 15,000 SFP A Accumulated Depr.-Store Equipment 24,000 32,000 SFP A Cash 6,000 6,000 SFP A Cost of Goods Sold 507,000 507,000 I/S Delivery Expense 6,500 6,500 I/S Delivery Equipment 46,000 46,000 SFP A Depr. Expense - Delivery Equipment 5,000 I/S Depr. Expense - Store Equipment 8,000 I/S Dividends 10,000 10,000 RES Insurance Expense 7,000 I/S Interest Expense 6,400 6,400 I/S Interest Revenue 8,000 8,000 I/S Mechandise Inventory 29,000 29,000 SFP A Notes payable 37,000 37,000 SFP L Prepaid Insurance 10,500 3,500 SFP A Property Tax Expense 2,800 I/S I/S Property Taxes Payable 2,800 SFP L Rent Expense 15,000 15,000 I/S
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