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ORIE_3150_Fall_2008_Homework__2_Solutions

ORIE_3150_Fall_2008_Homework__2_Solutions - Mgwaeg Arias...

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Unformatted text preview: Mgwaeg Arias. rte e @MLk/ ORIE 3150 Homework #2 Due September 16, 2008 l. The following are selected data taken from the financial statements of the Remington Golf Club in Glen Ridge, New Jersey. The club uses the accrual method of accounting. Dues are billed to the members on an annual basis. The club also sells gift certificates, which are recorded as revenue when they are redeemed, not when they are sold. Gift certificates are sold for cash. The club uses a single revenue account to record all 1' CVCHUCS . Dec. 31 2007 Dec. 31 2006 Accounts Receivable $85,750 $90,200 Unearned Revenue $45,800 $50,300 Revenue $2,465,000 $2,228,450 Show journal entries for the net effect of the following events that took place during fiscal year 2007, which ended Dec. 31, 2007. Each section is 5 points, no partial credit. a. All outstanding dues at the end of 2006 were collected from members. [Date] Cash 90,200 Accts Rec. 90,200 b. Unearned revenue at the end of 2006 was all earned in 2007. [Date] Unearned Revenue 5 0,3 00 Revenue 50,300 c. $255,400 in gift certificates were sold in 2007. Some, but not all of them were redeemed. [Date] Cash 255,400 Unearned Revenue 45,800 Revenue 209,600 d. Dues for fiscal 2007 were all billed to members. Some, but not all of the members paid their dues in 2007. [Date] Cash 2,199,350 Accounts Receivable 85,750 Revenue 2,205,100 2. P & H Company has the following account balances following adjustments, and now needs to close all of the nominal (aka temporary, or tSE) accounts at the end of the accounting fiscal year on December 31, 2006. Cash $ 15,000 Dr Accounts Receivable 220,000 Dr Inventory 150,000 Dr Land 280,000 Dr Accounts Payable 70,000 Cr Mortgage Payable 180,000 Cr Contributed Capital 427,000 Cr Retained Earnings, Jan. I 2006 28,000 Cr Sales Revenue 360,000 Cr Cost of Goods Sold 240,000 Dr Selling Expenses 110,000 Dr General and Administrative Expenses 50,000 Dr The list of accounts above shows all nominal accounts and some others. Show the journal entry to close the nominal accounts and find the ending balance (as of Dec. 31, 2006) in Retained Earnings (don’t forget to note whether the balance is a debit or a credit). The tSE accounts are Sales Revenue 360,000 Cr Cost of Goods Sold 240,000 Dr Selling Expenses 110,000 Dr General and Administrative Expenses 5 0,000 Dr The closing entry is: :{V/ Dec. 31, 2006 Sales Revenue 360,000 , X V Income Summary 40,000 / V Cost of Goods Sold 240,000 4, 5V Selling Expenses 110,000 / , 2V V General and Administrative Expenses 50,000 / This is closed to Retained Earnings: Dec. 31, 2006 Retained Earnings 40,000 * Income Summary 40,000 Retained earnings has a $12,000 debit balance Retained Earnings \ \ 28,000 . wt 4 a? (£2 49,000 12,000 Pinetree Motel provides practice in applying the accrual concept. National Association of Accountants provides the opportunity to explore income concepts in the setting of a nonprofit organization. l Problems Problem 3-1 Not an expense for June - not incurred. 1g 3 Expense for June «i— % Expense for June «1» 3 Expense for June or 3 Expense for June %' % Not an expense for June - asset acquired. ”i 3 Problem 3-2 Revenues—$275,000 il/I’i/ a. Expenses —— Cost of goods sold .......... $164,000 4% Rent ................................ 3,300 *3? Salaries ........................... 27,400 :r ’2’ Taxes .............................. 1,3 75 9t” Z“ Other ............................... 50,240 «e 3” 246,315 Net income $28,685 + 8 Problem 3—3 . - e ? Beginning inventory ........ $27,000 1/ g "r % Purchases ......................... 78 000 / :23 Available for sale ............. i igaofi M“ “if Ending inventory ............. [$31,0001W— «1e 37 Cost of oods sold ........... 74 000 g “M“ +3 Problem 3-4 a. (1) Sales .............................. $85,000 Cost of goods sold ........ 45,000 , 6 Gross margin ................. $40,000 fi 29 r5; (2) 47 percent gross margin ($40,000 / $85,000) . '2; (3) 11 percent profit margin (9000/85000) 9““ ' The Woden Corporation had a tax rate of 40 percent ($6,000 / $15,000) on its pretax profit that represented 17.7 percent of its sales ($15,000 / $85,000). The company’s operating expenses were 82.3 percent of sales ($70,000 / $85,000) and its cost of goods sold was 53 percent of sales. The company’s gross margin was 47 percent of sales ($40,000 / $85,000). +§ {f _ 1 Problem 3-5 W 9% 1:; be was Depreciation. Each year for the next 5 years depreciation will be charged to income. No income statement charge. Land is not depreciated. Cost of goods sold. $3,500 charged to current year’s income. $3,500 charged to next year’s income. Subscription expense. $36 charged to current year. $36 charged to next year. Alternatively, $72 charged to current year on grounds $72 is immaterial. Problem 3-6 Asset value: October 1, 20x5 $30,000 December 31, 20X5 26,250 December 31, 20X6 1 1,250 December 31, 20X7 0 Expenses: 20x5 $3,750 ($1,250 x 3 months) 20X6 $15,000 ($1,250 x 12 months) 20x7 $1 1,250 ($1,250 x 9 months) One month’s insurance charge is $1,250 ($30, 000/ 24 months) 30 Questions 1-4 The journal entries and accounts for Questions l—3 are as indicated on the worksheet that follows. (Because only one entry per account is involved, to save space we have used a worksheet here, even though the students were asked to use T~accounts.) The financial statements for Question 4 are shown below. \“W> % W 3 5,, W WW w Qualities, 5 mafia SAVE-MART COMPANY Balance Sheet as of February 28 Assets Current assets: ........................................................................................................ . Cash ................................................................................................................... $ 88,1 10 Accounts receivable ........................................................................................... 127,430 Merchandise inventory ...................................................................................... 298,347 Supplies inventory ............................................................................................. 3,877 Prepaid insurance ............................................................................................... 5,305 Toted current assets ...................................................................................... 523,069 Plant and Equipment: ............................................................................................. Store equipment ................................................................................................. $ 70,970 Less: Accumulated depreciation ........................................................................ 1 21,559) 49,411 Total assets ............................................................................................................. s; g;,g§0 Equities Liabilities Accounts payable ............................................................................................... $ 88,970 Notes and wages payable ................................................................................... 90,840 Interest payable .................................................................................................. 865 Total liabilities .............................................................................................. 180,675 Stockholders’ equity: .............................................................................................. Common stock ................................................................................................... $100,000 Retained earnings .............................................................................................. 291,805 391,805 Total equities .......................................................................................................... w QC} t>olo+<> (net 516} I) 7 (:11?ij amt—meg +41 QM +9 Eafig/im \Wg+ bafijeewwwag Mimi es * it’ll: t SW+r I S9 V«W’U WWW , ~ , «1.). ,. ,mwhfiZWwa/w swan“. , , NW“. at..- SAVE-MART COMPANY Income Statement for the Year Ended February 28 Gross sales .............................................................................................................. $988,700 Less: Sales discount ........................................................................................... 3,340 Net sales .................................................................................................................. 985,360 Less: Cost of goods sold ......................................................................................... 604,783 Gross margin .......................................................................................................... 380,577 Less: Expenses Selling expense .................................................................................................. $10,880 Sales salaries ...................................................................................................... 49,480 Miscellaneous general expense .......................................................................... 18,930 Interest Expense ................................................................................................. 7,965 Social security tax expense ................................................................................ 3,400 Depreciation expense ......................................................................................... 10,139 Supplies used ..................................................................................................... 13,603 Insurance expenses ............................................................................................ 7,125 Bank services charges ........................................................................................ 750 Total expenses .............................................................................................. 122,272 Net income .............................................................................................................. m SAVE-MART Worksheet Balances Adjusted F ebrua 28 Ad ustments Balances -—- cr- Cash ............................... 88, 860 88,110 Accounts receivable ....... 127,430 127, 430 Merchandise inventory .. 903,130 (1) 604,783 298,347 Store equipment ............. 70,970 70,970 Supplies inventory ......... 17,480 (3) 13,603 3,877 Prepaid insurance ........... 12,430 (4) 7, 125. 5,305 Accumulated 1 1,420 (2) 10,139 21,559 depreciation ................... Accounts payable 88,970 88,970 Notes and wages 88,500 (6) 2,340 90,840 payable ........................... Interest payable .............. (5) 865 865 « Common stock ............... 100,000 100,000 Retained earnings .......... 33,500 33,500 594,039 335,734 Sales ............................... 988,700 988,700 Sales discounts .............. ' 3,340 ' 3,340 Selling expense .............. p 10,880 10,880 Sales salaries .................. , 47,140 (6) 2,340 49,480 Miscellaneous general expense ....................... , 13,930 ' 18,930 Interest expense ............. 7,100 (5) 865 7,965 Social security tax .......... 3,400 3,400 Bank service charges ..... (7) 750 750 60 Cost of goods sold ......... (1) 604,783 604,783 Depreciation ‘. ................. (2) 10,139 10,139 Supplies expense ........... (3) 13,603 13,603 Insurance expense .......... (4) 7,125 7,125 1,311,09~ 1,31 1,090 639,605 639,605 1,324,434 1,324,434 0 Case 4-3: C oeies Exgress Note: This case is updated from the Eleventh Edition. Approach This is a straightforward complete cycle accounting problem. The transactions and financial statements follow. Some students may develop a cost of sales amount, including wages, supplies, and perhaps some other items. Actually, the case data are not complete enough to know which of Copies Express’ expenses are analogous to cost of goods sold for a manufacturing firm, and which are definitely period expenses (e.g., a portion of utilities). These students’ efforts should not be discouraged at this point, as they are making good efforts to incorporate important concepts despite the limitations in the data presented. Rather, the students’ efforts can be used to raise the question of whether it would be useful for Copies Express to have a gross margin figure, assuming one could be developed with some elaboration of the chart of accounts. Journal Entries (1) Cash ............................................................................................ 176,450 Sales ........................................................................................ 176,450 (2) Accounts Receivable .................................................................. 64,750 Sales ........................................................................................ 64,750 Cash ............................................................................................ 64,750 Accounts Receivable .............................................................. 64,750 (3) Wages and Salaries (expense) .................................................... 85,750 Cash ........................................................................................ 85,750 (4) Heat, Light, and Power (expense) ............................................... 15,000 Cash ........................................................................................ 15,000 (5) Supplies Inventory ..................................................................... 52,600 Cash ........................................................................................ 52,600 (6) Selling and Administration (expense) ......................................... 28,375 Cash ........................................................................................ 28,375 (7) Interest Expense .......................................................................... 2,880 Cash ........................................................................................ 2,880 (8) Bank Loan ................................................................................... 12,000 Cash ........................................................................................ 12,000 (9) Accounts Payable ........................................................................ 10,400 Cash ........................................................................................ 10,400 61 ...
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