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Unformatted text preview: H. Sander Econ 1363 Midterm #1 W 9: 7
The Hammond Company adopted LIFO when it was formed on January 1, 1987. 5
company has had the following pumhases and sales of its single inventory item: Problem I (15 mins.) In u: Units Cost Units Sale Price
Year Purchased per unit SLlcl mung
1987 10,000 $5 8,000 $12
1988 12,000 6 9,000 13
1989 15,000 8 14,000 16 In December, 1990, the controller realized that because of an unexpected increase in demand the
company had sold 22,000 units, but had only purchased 18,000 units during the year. In 1990 each unit
had been sold for $19, and each unit purchased had cost $10. The income tax rate is 30%. R_equ_iuai 1. If the company makes no additional purchases in 1990, how much will be the LIFO liquidation
profit that it has to report? 2. If the company purchases an additional 7,000 units in December, 1990, how much income tax
will the company save, compared to FIFO? ' i. 3. If the company purchases the additional 7,000 units, how much income tax has the company saved over the 4-year period by using LIFO instead of the FIFO cost ﬂow assumption? Problem 11 (15 mins.) The following information (prior to adjustment) is available from the accounting records of the Bradford
Company on December 31, 1989: Cash Sales $84,000
Net credit sales 262.5%) Total sales (net) $346,500
Accounts receivable ' 126,300 Allowance for doubtful accounts 3,150 (debit) Required (A) Prepare journal entries to record the estimate of Bradford’s bad debt expense for 1989 assuming: 1. Bad debts are estimated to be 1.5% of total sales (net).
2. Bad debts are estimated to be 2% of net credit sales.
3. Bad debts are estimated to be 6% of gross accounts receivable. (B) Discuss the theoretical pros and cons of each approach suggested above and suggest 2 other
approaches that could be used and what would be the primary attribute of these new approaches. Beginning inventory $18,000
Freight-in — Net markups 600
Net markdowns 1,144
Sales 94,056 Reguiﬂ
Compute the ending inventory by the man inventory method, using the following cost flow assumptions: 1. Lower of cost or market conventional ‘ ‘ ‘ ' i ‘
2. LIFO without adjustment cost price increases ‘
3. LIFO with considering a 10% increase in prices during the current year Problem IV (15 mins.)
On September 30, Sutton Company engaged in the following transactions: sans-w ~.. a; . I. Obtained a $20,000, 30-day, 12% loan from ‘First National Bank. The company pledged $20,000
of accounts receivable as security for the loan. factored
A. Joumalize each of the above transactions on September 30. B. Assume the company had $100,000 of receivables on September 30 and none were collected in
October. Show the balance sheet accounts that should appear for the above at October 31. Show
both liabilities and assets that are warranted. Dec. 31. 1983 ‘ 1.00 71% $155,000 Dec. 31, 1984 1.04 74% ' 188,600
Dec. 31, 1985 1.12 64% 192,500
Dec. 31, 1986 1.10 60% 194,200
Dec. 31, 1987 1.14 67% 195,800 When practicing LIFO accounting there are several versions of application. List four of these
versions and state the reasons why they are desirable: ‘ ’ -’ ' ‘ ‘ ” Describe why a company conducts bank reconciliatons and what are the primary attributes of the
bank to book version. Describe how a petty cash system should-be run and when dO‘expEnséi‘get recorded surrounding
the expenditures from the petty cash system. - ~ , ...
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This note was uploaded on 01/31/2010 for the course ECON 136B taught by Professor Anderson during the Spring '08 term at UCSB.
- Spring '08