Fall 08 solution

Fall 08 solution - ACCOUNTANCY 321 Fall 2008 EXAM II...

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ACCOUNTANCY 321 Fall 2008 EXAM II Solutions I. A. Cancellation of the voucher payable prevents the resubmission of an invoice for double payment . B. Separating the duties of approving invoices for payment and signing checks prevents the payment of fictitious invoices . C. Prenumbering and periodically accounting for all purchase orders prevents unauthorized purchases . D. Periodically taking a physical inventory verifies the accuracy of recorded inventory amounts and detects inventory losses . E. Requiring two signatures on checks for large amounts prevents large disbursements for questionable reasons . F. Requiring that a copy of the receiving report be routed through the inventory stores department prior to going to accounts payable verifies that items received were placed in inventory and establishes the liability to pay for the item . G. Requiring a regular reconciliation of the bank account by someone other than the person responsible for writing checks detects unauthorized disbursements . H. Maintaining an approved supplier list and checking that all purchase orders are issued only to suppliers on that list ensures the purchase of quality goods and prevents violations of laws or company policy . 1
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II. The problem states that the sale consisted of a down payment and seven equal INSTALLMENTS. This is clearly an installment sale. A. Method 1: (1) Name: Accrual basis or Point of Sale method (2) Gross profit recognized on September 1, 2009 Sales $80,000 Cost of Goods Sold (50,000) Gross Profit $30,000 Gross profit recognized on December 1, 2009 ZERO gross profit ALTERNATIVE ANSWER : Income before taxes is $2,100 because of: Interest Income = (70,000)(12%)(3/12) = $2,100 (3) When the Accrual basis (point of sale method) should be used As long as the Potocki Company can reasonably estimate uncollectible amounts from the sale , the accrual basis (point of sale method) should be used. 2
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Method 2: (1) Name: Installment Sales method (2) Gross profit recognized on September 1, 2009 Gross profit rate = 30,000/80,000 = 37.5% Gross profit recognized = (10,000)(37.5%) = $3,750 Gross profit recognized on December 1, 2009 Gross profit recognized = (10,000)(37.5%) = $3,750 ALTERNATIVE ANSWER : Income before taxes is $5,850 because of:
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Fall 08 solution - ACCOUNTANCY 321 Fall 2008 EXAM II...

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