ACCT 351 Practice Final AND Solutions for W 2015.doc -...

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Practice Final Exam Questions Fall 2015 Intermediate Financial Accounting 1 ACCT 351 Question 1 PART A The records of Gigantic Discount Stores Inc. provided the following data for 2015: Gross Sales $800,000 Sales returns 2,000 Markups 9,000 Markup cancellations 5,000 Markdowns 7,000 Markdown cancellations 3,000 Purchases: At retail value 850,000 At cost 459,500 Purchase returns: At retail value 4,000 At cost 2,200 Freight-in (on purchases) 7,000 Beginning inventory: At retail value 80,000 At cost 45,000 REQUIRED: Estimate the valuation of ending inventory and cost of goods sold using the gross margin method. Last year’s gross margin was 51%.
PART B Majestic Stores Incorporated, a dealer in radio and television sets, buys large quantities of a television model that costs $500. The contract reads that if 200 or more are purchased in a year, a rebate of $20 per set will be made. On December 15, the records showed that 150 sets had been purchased, purchases had been recorded as 150 x 500 = $75,000. All these units had been sold. 50 more sets were ordered FOB destination. The sets were received on December 22, and a request for the rebate was made. The rebate cheque arrived January 20, after Majestic’s books were closed for the year. Furthermore the supplier provides terms of 2/10 n/30. Majestic has a policy of always paying invoices within the discount period. Discounts are recorded as a credit to an interest income account. Further investigation reveals that freight of $1,500 was paid to acquire the sets purchased during the year, including the last 50 sets. REQUIRED: A) Calculate the ending inventory value at December 31, 2015. (2 marks) B) What entry should be made on December 31 relative to the rebate? (2 marks) C) What entry should be made on January 20? (1 mark)
Solution:
PART B Solution: A) Cost per unit of inventory ................................................................................. $500.00 Less: 2% discount ............................................................................................. (10.00) Less: quantity rebate ........................................................................................ (20.00) Plus: Freight $1500 ÷ 200 ................................................................................. 7.50 477.50 Inventory level .................................................................................................... 50 units Total cost ............................................................................................................. $ 23,875 B) Accounts receivable (200 × $20) .......................................................... 4,000 Purchase allowances* ............................................................... 4,000 Because receipt of the rebate is certain, receivables, inventory and cost of goods sold should reflect the net cost. *This credit may be recorded to purchases, purchase allowances, or, assuming a perpetual system is used, to cost of goods sold and inventory. If we assume that the second purchase of TVs has not been sold, the credit will be $3,000 to cost of sales and $1,000 to inventory. Some students may debit accounts payable, but the question does state that a cheque is received from the supplier in January, meaning that accounts are not netted. C) Cash .............................................................................................. 4,000 Accounts receivable (consistent with requirement 2) ................... 4,000

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