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Posting a revenue journal The revenue journal for Sapling Consulting Inc. follows. The accounts receivable controlling account has a July 1, 2016, balance of 625 consisting of an amount due from Aladdin Co. There were no collections during July. a. Prepare a T account for the accounts receivable customer accounts. b. Post the transactions from the revenue journal to the customer accounts, and determine their ending balances. c. Prepare T accounts for the accounts receivable and fees earned accounts. Post control totals to the two accounts, and determine the ending balances. d. Prepare a schedule of the customer account balances to verify the equality of the sum of the customer account balances and the accounts receivable controlling account balance. e. How might a computerized system differ from a revenue journal in recording revenue transactions?Accounts receivable subsidiary ledger The revenue and cash receipts journals for Mirage Productions Inc. follow. The accounts receivable control account has a August 1, 2016, balance of 4,230 consisting of an amount due from Celestial Studios Inc. Prepare a listing of the accounts receivable customer balances and verify that the total agrees with the ending balance of the accounts receivable controlling account.Revenue and cash receipts journals Transactions related to revenue and cash receipts completed by Sycamore Inc. during the month of December 2016 are as follows: Dec. 2. Issued Invoice No. 512 to Cadence Co., 775. 4. Received cash from CMI Inc. , on account, for 230. 8. Issued Invoice No. 513 to Gabriel Co., 300. 12. Issued Invoice No. 514 to Ells Inc., 910. 19. Received cash from Ells Inc., on account, 605. 20. Issued Invoice No. 515 to Electronic Central Inc., 195. 28. Received cash from Marshall Inc. for services provided, 160. 29. Received cash from Cadence Co. for Invoice No. 512 of December 2. 31. Received cash from McCleary Co. for services provided, 110. Prepare a single-column revenue journal and a cash receipts journal to record these transactions. Use the following column headings for the cash receipts journal : Fees Earned Cr. , Accounts Receivable Cr., and Cash Dr. Place a check mark () in the Post. Ref. column to indicate when the accounts receivable subsidiary ledger should be posted.Revenue and cash receipts journals Lasting Summer Inc. has 2,510 in the October 1 balance of the accounts receivable account consisting of 1,060 from Champion Co. and 1,450 from Wayfarer Co. Transactions related to revenue and cash receipts completed by Lasting Summer Inc. during the month of October 2016 are as follows: Oct. 3. Issued Invoice No. 622 for services provided to Palace Corp., 2,890. 5. Received cash from Champion Co., on account, for 1,060. 8. Issued Invoice No. 623 for services provided to Sunny Style Inc., 1,940. 12. Received cash from Wayfarer Co., on account, for 1,450. 18. Issued Invoice No. 624 for services provided to Amex Services Inc., 2,970. 23. Received cash from Palace Corp. for Invoice No. 622 of October 3. 28. Issued Invoice No. 625 to Wayfarer Co., on account, for 900. 30. Received cash from Rogers Co. for services provided, 120. a. Prepare a single-column revenue journal and a cash receipts journal to record these transactions. Use the following column headings for the cash receipts journal: Fees Earned Cr., Accounts Receivable Cr., and Cash Dr. Place a check mark () in the Post. Ref. column to indicate when the accounts receivable subsidiary ledger should be posted. b. Prepare a listing of the accounts receivable customer balances and verify that the total of the accounts receivable customer balances equals the balance of the accounts receivable controlling account on October 31, 2016. c. Why does Lasting Summer Inc. use a subsidiary ledger for accounts receivable?Identify postings from purchases journal Using the following purchases journal, identify each of the posting references, indicated by a letter, as representing (1) a posting to a general ledger account, (2) a posting to a subsidiary ledger account, or (3) that no posting is required:Identify postings from cash payments journal Using the following cash payments journal, identify each of the posting references, indicated by a letter, as representing (1) a posting to a general ledger account, (2) a posting to a subsidiary ledger account, or (3) that no posting is required.5.13EX 5.14EX 5.15EX Accounts payable subsidiary ledger The cash payments and purchases journals for Outdoor Artisan Landscaping Co. follow. The accounts payable control account has an June 1, 2016, balance of 2,230, consisting of an amount owed to Augusta Sod Co. Prepare a schedule of the accounts payable creditor balances, and determine that the total agrees with the ending balance of the accounts payable controlling account.5.17EX 5.18EX 5.19EX 5.20EX Cash receipts journal The following cash receipts journal headings have been suggested for a small firm. List the errors you find in the headings. CASH RECEIPTS JOURNAL Page 12 Date Account Credited Post. Ref. Fees Earned Cr. Accts. Rec. Cr. Cash Cr. Other Accounts Dr.Computerized accounting systems Most computerized accounting systems use electronic forms to record transaction information , such as the invoice form illustrated at the top of Exhibit 7 in this chapter. a. Identify the key input fields (spaces) in an electronic invoice form. b. What accounts are posted from an electronic invoice form? c. Why aren't special journal totals posted to control accounts at the end of the month in an electronic accounting system?5.23EX 5.24EX 5.25EX 5.26EX 5.27EX Revenue journal; accounts receivable subsidiary and general ledgers Sage Learning Centers was established on July 20, 2016, to provide educational services. The services provided during the remainder of the month are as follows: July 21. Issued Invoice No. 1 to J. Dunlop for 115 on account. 22. Issued Invoice No. 2 to K. Tisdale for 350 on account. 24. Issued Invoice No. 3 to T. Quinn for 85 on account. 25. Provided educational services, 300, to K. Tisdale in exchange for educational supplies. 27. Issued Invoice No. 4 to F. Mintz for 225 on account. 30. Issued Invoice No. 5 to D. Chase for 170 on account. 30. Issued Invoice No. 6 to K. Tisdale for 120 on account. 31. Issued Invoice No. 7 to T. Quinn for 105 on account. Instructions 1. Journalize the transactions for July, using a single-column revenue journal and a two-column general journal. Post to the following customer accounts in the accounts receivable ledger, and insert the balance immediately after recording each entry: D. Chase; J. Dunlop; F. Mintz; T. Quinn; K. Tisdale. 2. Post the revenue journal and the general journal to the following accounts in the general ledger, inserting the account balances only after the last postings: 12 Accounts Receivable 13 Supplies 41 Fees Earned 3. a. What is the sum of the balances of the customer accounts in the subsidiary ledger at July 31? b. What is the balance of the accounts receivable controlling account at July 31? 4. Assume Sage Learning Centers began using a computerized accounting system to record the sales transactions on August 1. What are some of the benefits of the computerized system over the manual system?Revenue and cash receipts journals; accounts receivable subsidiary and general ledgers Transactions related to revenue and cash receipts completed by Albany Architects Co. during the period November 230, 2016, are as follows: Nov. 2. Issued Invoice No. 793 to Ohr Co., 5,650. 5. Received cash from Mendez Co. for the balance owed on its account. 6. Issued Invoice No. 794 to Rahal Co., 2,450. 13. Issued Invoice No. 795 to Shilo Co., 3,980. Post revenue and collections to the accounts receivable subsidiary ledger. 15. Received cash from Rahal Co. for the balance owed on November 1. 16. Issued Invoice No. 796 to Rahal Co., 6,500. Post revenue and collections to the accounts receivable subsidiary ledger. 19. Received cash from Ohr Co. for the balance due on invoice of November 2. 20. Received cash from Rahal Co. for balance due on invoice of November 6. 22. Issued Invoice No. 797 to Mendez Co., 8,040. 25. Received 3,000 note receivable in partial settlement of the balance due on the Shilo Co. account. 30. Recorded cash fees earned, 13,270. Post revenue and collections to the accounts receivable subsidiary ledger. Instructions 1. Insert the following balances in the general ledger as of November 1: 2. Insert the following balances in the accounts receivable subsidiary ledger as of November 1: 3. Prepare a single-column revenue journal (p. 40) and a cash receipts journal (p. 36). Use the following column headings for the cash receipts journal: Fees Earned Cr., Accounts Receivable Cr., and Cash Dr. The Fees Earned column is used to record cash fees. Insert a check mark () in the Post. Ref. column when recording cash fees. 4. Using the two special journals and the two-column general journal (p. 1), journalize the transactions for November. Post to the accounts receivable subsidiary ledger, and insert the balances at the points indicated in the narrative of transactions. Determine the balance in the customers account before recording a cash receipt. 5. Total each of the columns of the special journals, and post the individual entries and totals to the general ledger. Insert account balances after the last posting. 6. Determine that the sum of the customer balances agrees with the accounts receivable controlling account in the general ledger. 7. Why would an automated system omit postings to a controlling account as performed in step 5 for Accounts Receivable?Purchases, accounts payable subsidiary account, and accounts payable ledger Sterling Forest Landscaping designs and installs landscaping. The landscape designers and office staff use office supplies, while field supplies (rock, bark, etc.) are used in the actual landscaping. Purchases on account completed by Sterling Forest Landscaping during October 2016 are as follows: Oct. 2. Purchased office supplies on account from Meade Co., 400. 5. Purchased office equipment on account from Peach Computers Co., 3,980. 9. Purchased office supplies on account from Executive Office Supply Co., 320. 13. Purchased field supplies on account from Yamura Co., 1,420. 14. Purchased field supplies on account from Omni Co., 2,940. 17. Purchased field supplies on account from Yamura Co., 1,890. 24. Purchased field supplies on account from Omni Co., 3,880. 29. Purchased office supplies on account from Executive Office Supply Co., 310. 31. Purchased field supplies on account from Omni Co., 1,800. Instructions 1. Insert the following balances in the general ledger as of October 1: 2. Insert the following balances in the accounts payable subsidiary ledger as of October 1: Executive Office Supply Co. 390 Meade Co. 780 Omni Co. Peach Computers Co. Yamura Co. 3. Journalize the transactions for May, using a purchases journal (p. 30) similar to the one illustrated in this chapter. Prepare the purchases journal with columns for Accounts Payable, Field Supplies, Office Supplies, and Other Accounts. Post to the creditor accounts in the accounts payable subsidiary ledger immediately after each entry. 4. Post the purchases journal to the accounts in the general ledger. 5. a. What is the sum of the creditor balances in the subsidiary ledger at May 31? b. What is the balance of the accounts payable controlling account at May 31? 6. What type of e-commerce application would be used to plan and coordinate transactions with suppliers?Purchases and cash payments journals; accounts payable subsidiary and general ledgers AquaFresh Water Testing Service was established on April 16, 2016. AquaFresh uses field equipment and field supplies (chemicals and other supplies) to analyze water for unsafe contaminants in streams, lakes, and ponds. Transactions related to purchases and cash payments during the remainder of April are as follows: April 16. Issued Check No. 1 in payment of rent for the remainder of April, 3,500. 16. Purchased field supplies on account from Hydro Supply Co., 5,340. 16. Purchased field equipment on account from Pure Equipment Co., 21,450. 17. Purchased office supplies on account from Best Office Supply Co., 510. 19. Issued Check No. 2 in payment of field supplies, 3,340, and office supplies, 400. Post the journals to the accounts payable subsidiary ledger. 23. Purchased office supplies on account from Best Office Supply Co., 660. 23. Issued Check No. 3 to purchase land, 140,000. 24. Issued Check No. 4 to Hydro Supply Co. in payment of April 16 invoice, 5,340. 26. Issued Check No. 5 to Pure Equipment Co. in payment of April 16 invoice, 21,450. Post the journals to the accounts payable subsidiary ledger. 30. Acquired land in exchange for field equipment having a cost of 12,000. 30. Purchased field supplies on account from Hydro Supply Co., 7,650. 30. Issued Check No. 6 to Best Office Supply Co. in payment of April 17 invoice, 510. 30. Purchased the following from Pure Equipment Co. on account: field supplies, 1,340, and field equipment, 4,700. 30. Issued Check No. 7 in payment of salaries, 29,400. Post the journals to the accounts pay able subsidiary ledger. Instructions 1. Journalize the transactions for April. Use a purchases journal and a cash payments journal, similar to those illustrated in this chapter, and a two-column general journal. Use debit columns for Field Supplies, Office Supplies, and Other Accounts in the purchases journal. Refer to the following partial chart of accounts: 11 Cash 19 Land 14 Field Supplies 21 Accounts Payable 15 Office Supplies 61 Salary Expense 17 Field Equipment 71 Rent Expense At the points indicated in the narrative of transactions, post to the following accounts in the accounts payable subsidiary ledger: Best Office Supply Co. Hydro Supply Co. Pure Equipment Co. 2. Post the individual entries (Other Accounts columns of the purchases journal and the cash payments journal and both columns of the general journal) to the appropriate general ledger accounts. 3. Total each of the columns of the purchases journal and the cash payments journal, and post the appropriate totals to the general ledger. (Because the problem does not include transactions related to cash receipts, the cash account in the ledger will have a credit balance.) 4. Prepare a schedule of the accounts payable creditor balances. 5. Why might AquaFresh consider using a subsidiary ledger for the field equipment?All journals and general ledger; trial balance The transactions completed by Revere Courier Company during December 2016, the first month of the fiscal year, were as follows: Dec. 1. Issued Check No. 610 for December rent, 4,500. 2. Issued Invoice No. 940 to Capps Co., 1,980. 3. Received check for 5,100 from Trimble Co. in payment of account. 5. Purchased a vehicle on account from Boston Transportation, 39,500. 6. Purchased office equipment on account from Austin Computer Co., 4,800. 6. Issued Invoice No. 941 to Dawar Co., 5,680. 9. Issued Check No. 611 for fuel expense, 800. 10. Received check from Sing Co. in payment of 4,850 invoice. 10. Issued Check No. 612 for 360 to Office To Go Inc. in payment of invoice. 10. Issued Invoice No. 942 to Joy Co., 2,140. 11. Issued Check No. 613 for 3,240 to Essential Supply Co. in payment of account. 11. Issued Check No. 614 for 650 to Porter Co. in payment of account. 12. Received check from Capps Co. in payment of 1,980 invoice of December 2. 13. Issued Check No. 615 to Boston Transportation in payment of 39,500 balance of December 5. 16. Issued Check No. 616 for 40,900 for cash purchase of a vehicle. 16. Cash fees earned for December 1-16, 21,700. 17. Issued Check No. 617 for miscellaneous administrative expense, 600. 18. Purchased maintenance supplies on account from Essential Supply Co., 1,750. 19. Purchased the following on account from McClain Co.: maintenance supplies, 1,500; office supplies, 325. 20. Issued Check No. 618 in payment of advertising expense, 1,990. 20. Used 3,600 maintenance supplies to repair delivery vehicles. 23. Purchased office supplies on account from Office To Go Inc., 440. 24. Issued Invoice No. 943 to Sing Co., 6,400. 24. Issued Check No. 619 to S. Holmes as a personal withdrawal, 3,200. 25. Issued Invoice No. 944 to Dawar Co., 5,720. 25. Received check for 4,100 from Trimble Co. in payment of balance. 26. Issued Check No. 620 to Austin Computer Co. in payment of 4,800 invoice of December 6. 30. Issued Check No. 621 for monthly salaries as follows: driver salaries, 16,900; office salaries, 7,600. 31. Cash fees earned for December 17-31, 19,700. 31. Issued Check No. 622 in payment for office supplies, 310. Instructions 1. Enter the following account balances in the general ledger as of December 1: 2. Journalize the transactions for December 2016, using the following journals similar to those illustrated in this chapter: cash receipts journal (p. 31), purchases journal (p. 37, with columns for Accounts Payable, Maintenance Supplies, Office Supplies, and Other Accounts), single column revenue journal (p. 35), cash payments journal (p. 34), and two-column general journal (p. 1). Assume that the daily postings to the individual accounts in the accounts payable subsidiary ledger and the accounts receivable subsidiary ledger have been made. 3. Post the appropriate individual entries to the general ledger. 4. Total each of the columns of the special journals, and post the appropriate totals to the general ledger; insert the account balances. 5. Prepare a trial balance.5.1BPR Revenue and cash receipts journals; accounts receivable subsidiary and general ledgers Transactions related to revenue and cash receipts completed by Sterling Engineering Services during the period June 230, 2016, are as follows: June 2. Issued Invoice No. 717 to Yee Co., 1,430. 3. Received cash from Auto-Flex Co. for the balance owed on its account. 7. Issued Invoice No. 718 to Cooper Development Co., 670. 10. Issued Invoice No. 719 to Ridge Communities, 2,840. Post revenue and collections to the accounts receivable subsidiary ledger. 14. Received cash from Cooper Development Co. for the balance owed on June 1. 16. Issued Invoice No. 720 to Cooper Development Co., 400. Post revenue and collections to the accounts receivable subsidiary ledger. 18. Received cash from Yee Co. for the balance due on invoice of June 2. 20. Received cash from Cooper Development Co. for invoice of June 7. 23. Issued Invoice No. 721 to Auto-Flex Co., 860. 30. Recorded cash fees earned, 4,520. 30. Received office equipment of 1,800 in partial settlement of balance due on the Ridge Communities account. Post revenue and collections to the accounts receivable subsidiary ledger. Instructions 1. Insert the following balances in the general ledger as of June 1: 2. Insert the following balances in the accounts receivable subsidiary ledger as of June 1: Auto-Flex Co. 1,670 Cooper Development Co. 980 Ridge Communities Yee Co. 3. Prepare a single-column revenue journal (p. 40) and a cash receipts journal (p. 36). Use the following column headings for the cash receipts journal: Fees Earned Cr., Accounts Receivable Cr., and Cash Dr. The Fees Earned column is used to record cash fees. Insert a check mark (P) in the Post. Ref. Column when recording cash fees. 4. Using the two special journals and the two-column general journal (p. 1) journalize the transactions for June. Post to the accounts receivable subsidiary ledger, and insert the balances at the points indicated in the narrative of transactions. Determine the balance in the customers account before recording a cash receipt. 5. Total each of the columns of the special journals, and the post the individual entries and total to the general ledger. Insert account balances after the last posting. 6. Determine that the sum of the customer accounts agrees with the accounts receivable controlling account in the general ledger. 7. Why would an automated system omit postings to a control account as performed in step 5 for Accounts Receivable?Purchases, accounts payable account, and accounts payable subsidiary ledger Plumb Line Surveyors provides survey work for construction projects. The office staff use office supplies, while surveying crews use field supplies. Purchases on account completed by Plumb Line Surveyors during May 2016 are as follows: May 1. Purchased field supplies on account from Wendell Co., 3,240. 3. Purchased office supplies on account from Lassiter Co., 340. 8. Purchased field supplies on account from Tri Cities Supplies, 4,500. 12. Purchased field supplies on account from Wendell Co., 3,670. 15. Purchased office supplies on account from J-Mart Co., 500. 19. Purchased office equipment on account from Accu-Vision Supply Co., 8,150. 23. Purchased field supplies on account from Tri Cities Supplies, 2,450. 26. Purchased office supplies on account from J-Mart Co., 265. 30. Purchased field supplies on account from Tri Cities Supplies, 3,040. Instructions 1. Insert the following balances in the general ledger as of May 1: 2. Insert the following balances in the accounts payable subsidiary ledger as of May 1: Accu-Vision Supply Co. 3,900 J-Mart Co. 730 Lassiter Co. 515 Tri Cities Supplies Wendell Co. 3. Journalize the transactions for May, using a purchases journal (p. 30) similar to the one illustrated in this chapter. Prepare the purchases journal with columns for Accounts Payable, Field Supplies, Office Supplies, and Other Accounts. Post to the creditor accounts in the accounts payable subsidiary ledger immediately after each entry. 4. Post the purchases journal to the accounts in the general ledger. 5. a. What is the sum of the creditor balances in the subsidiary ledger at May 31? b. What is the balance of the accounts payable controlling account at May 31? 6. What type of e-commerce application would be used to plan and coordinate transactions with suppliers?5.4BPR All journals and general ledger; trial balance The transactions completed by AM Express Company during March 2016, the first month of the fiscal year, were as follows: Mar. 1. Issued Check No. 205 for March rent, 2,450. 2. Purchased a vehicle on account from McIntyre Sales Co., 26,900. 3. Purchased office equipment on account from Office Mate Inc., 1,570. 5. Issued Invoice No. 91 to Ellis Co., 7,000. 6. Received check for 7,950 from Chavez Co. in payment of invoice. 7. Issued Invoice No. 92 to Trent Co., 9,840. 9. Issued Check No. 206 for fuel expense, 820. 10. Received check for 10,000 from Sajeev Co. in payment of invoice. 10. Issued Check No. 207 to Office City in payment of 450 invoice. Mar. 10. Issued Check No. 208 to Bastille Co. in payment of 1,890 invoice. 11. Issued Invoice No. 93 to Jarvis Co., 7,200. 11. Issued Check No. 209 to Porter Co. in payment of 415 invoice. 12. Received check for 7,000 from Ellis Co. in payment of March 5 invoice. 13. Issued Check No. 210 to McIntyre Sales Co. in payment of 26,900 invoice of March 2. 16. Cash fees earned for March 1-16, 26,800. 16. Issued Check No. 211 for purchase of a vehicle, 28,500. 17. Issued Check No. 212 for miscellaneous administrative expense, 4,680. 18. Purchased maintenance supplies on account from Bastille Co., 2,430. 18. Received check for rent revenue on office space, 900. 19. Purchased the following on account from Master Supply Co. Maintenance supplies, 2,640, and office supplies, 1,500. 20. Issued Check No. 213 in payment of advertising expense, 8,590. 20. Used maintenance supplies with a cost of 4,400 to repair vehicles. 21. Purchased office supplies on account from Office City, 990. 24. Issued Invoice No. 94 to Sajeev Co., 9,200. 25. Received check for 14,000 from Chavez Co. in payment of invoice. 25. Issued Invoice No. 95 to Trent Co., 6,300. 26. Issued Check No. 214 to Office Mate Inc. in payment of 1,570 invoice of March 3. 27. Issued Check No. 215 to J. Wu as a personal withdrawal, 4,000. 30. Issued Check No. 216 in payment of driver salaries, 33,300. 31. Issued Check No. 217 in payment of office salaries, 21,200. 31. Issued Check No. 218 for office supplies, 600. 31. Cash fees earned for March 17-31, 29,400. Instructions 1. Enter the following account balances in the general ledger as of March 1: 2. Journalize the transactions for March 2016, using the following journals similar to those illustrated in this chapter: single-column revenue journal (p. 35), cash receipts journal (p. 31), purchases journal (p. 37, with columns for Accounts Payable, Maintenance Supplies, Office Supplies, and Other Accounts), cash payments journal (p. 34), and two-column general journal (p. 1). Assume that the daily postings to the individual accounts in the accounts payable subsidiary ledger and the accounts receivable subsidiary ledger have been made. 3. Post the appropriate individual entries to the general ledger. 4. Total each of the columns of the special journals, and post the appropriate totals to the general ledger; insert the account balances. 5. Prepare a trial balance.Ethics in Action Netbooks Inc. provides accounting applications for business customers on the Internet for a monthly subscription. Netbooks customers run their accounting system on the Internet; thus, the business data and accounting software reside on the servers of Netbooks Inc. The senior management of Netbooks believes that once a customer begins to use Netbooks, it is very difficult to cancel the service. That is, customers are locked in because it is difficult to move the business data from Netbooks to another accounting application even though the customers own their own data. Therefore, Netbooks has decided to entice customers with an initial low monthly price that is half the normal monthly rate for the first year of services. After a year, the price will be increased to the regular monthly rate. Netbooks management believes that customers will have to accept the full price because customers will be locked in after one year of use. a.Discuss whether the half-price offer is an ethical business practice. b.Discuss whether customer lock-in is an ethical business practice.Manual vs. computerized accounting systems The following conversation took place between Durable Construction Co.s bookkeeper, Kyle Byers, and the accounting supervisor, Sarah Nelson: Sarah. Kyle, Im thinking about bringing in a new computerized accounting system to replace our manual system. I guess this means that you will need to learn how to do computerized accounting. Kyle: What does computerized accounting mean? Sarah; I'm not sure, but youll need to prepare for this new way of doing business. Kyle; Im not so sure we need a computerized system. Ive been looking at some of the sample reports from the software vendor. It looks to me as if the computer will not add much to what we are already doing Sarah. What do you mean? Kyle: Well look at these reports. This Sales by Customer Report looks like our revenue journal, and the Deposit Detail Report looks like our cash receipts journal. Granted, the computer types them, so they look much neater than my special journals, but I dont see that were gaining much from this change. Sarah: Well, surely theres more to it than nice looking reports. Ive got to believe that a computerized system will save us time and effort someplace. Kyle: I dont see how. We still need to key transactions into the computer. If anything, there may be more work when Its all said and done. Do you agree with Kyle? Why might a computerized environment be preferred over the manual system?Accounts receivable and accounts payable A subsidiary ledger is used for accounts receivable and accounts payable. Thus, transactions that are made on account are posted to the individual customer or creditor accounts. a.Why do companies use subsidiary ledgers for accounts payable and accounts receivable? b.Identify another account that could benefit from using a subsidiary ledger.Design of accounting systems For the past few years, your client, Omni Care, has operated a small medical practice. Omni Cares current annual revenues are 5945,000. Because the accountant has been spending more time each month recording all transactions in a two-column journal and preparing the financial statements, Omni Care is considering improving the accounting system by adding special journals and subsidiary ledgers. Omni Care has asked you to help with this project and has compiled the following information: Type of Transaction Estimated Frequency per Month Fees earned on account 240 Purchase of medical supplies on account 190 Cash receipts from patients on account 175 Cash payments on account 160 Cash receipts from patients at time services are provided 120 Purchase of office supplies on account 35 Purchase of magazine subscriptions on account 5 Purchase of medical equipment on account 4 Cash payments for office salaries 3 Cash payments for utilities expense 3 1.Briefly discuss the circumstances under which special journals would be used in place of a two-column (all-purpose) journal. Include in your answer your recommendations for Omni Cares medical practice. 2.Assume that Omni Care has decided to use a revenue journal and a purchases journal. Design the format for each journal, giving special consideration to the needs of the medical practice. 3.Which subsidiary ledgers would you recommend for the medical practice?Communication Internet-based accounting software is a recent trend in business computing. Major software firms such as Oracle, SAP, and NetSuite are running their core products on the Internet using cloud computing. NetSuite is one of the most popular small-business Internet-based accounting systems. Go to NetSuite Inc.s website at www.netsuite.com. Read about the product and prepare a memo to management defining cloud-based accounting. Also outline the advantages and disadvantages of using cloud-based accounting compared to running software on a companys internal computer network.What distinguishes a merchandising business from a service business?Can a business earn a gross profit but incur a net loss? Explain.The credit period during which the buyer of merchandise is allowed to pay usually begins with what date?4DQ 5DQ 6DQ Who bears the freight when the terms of sale are (a) FOB shipping point, (b) FOB destination?Name four accounts that would normally appear in the chart of accounts of a merchandising business but would not appear in the chart of accounts of a service business.Audio Outfitter Inc., which uses a perpetual inventory system, experienced a normal inventory shrinkage of 13,675. What accounts would be debited and credited to record the adjustment for the inventory shrinkage at the end of the accounting period?Assume that Audio Outfitter Inc. in Discussion Question 9 experienced an abnormal inventory shrinkage of 98,600. Audio Outfitter Inc. has decided to record the abnormal inventory shrinkage so that it would he disclosed separately on the income statement. What account would be debited for the abnormal inventory shrinkage?A Gross profit During the current year, merchandise is sold for 615,000 cash and 4,110,000 on account. The cost of the merchandise sold is 2,835,000. What is the amount of the gross profit?Gross profit During the current year, merchandise is sold for 18.300 cash and 295,700 on account. The cost of the merchandise sold is 188,000. What is the amount of the gross profit?Purchases transactions Halibut Company purchased merchandise on account from a supplier for 18,600, terms 2/10, n/30. Halibut Company returned 5,000 of the merchandise and received full credit. a.If Halibut Company pays the invoice within the discount period, what is the amount of cash required for the payment? b.What account is credited by Halibut Company to record the return?Purchases transactions Hoffman Company purchased merchandi.se on account from a .supplier for 65,000, terms 1/10, n/30. Hoffman Company returned 7,500 of the merchandise and received full credit. a.If Hoffman Company pays the invoice within the discount period, what is the amount of cash required for the payment? b.What account is debited by Hoffman Company to record the return?6.3APE 6.3BPE Sales transactions Journalize the following merchandise transactions: a.Sold merchandise on account, 72,500 with terms 2/10, n/30. The cost of the merchandise sold was 43,500. b.Received payment less the discount. c.Issued a credit memo for returned merchandise that was sold for 2,300 terms n/30. The cost of the merchandise returned was 1,600.6.4BPE 6.5APE 6.5BPE Inventory shrinkage Castle Furnishings Companys perpetual inventory records indicate that 675,400 of merchandise should be on hand on November 30, 2016. The physical inventory indicates that 663,800 of merchandise is actually on hand. Journalize the adjusting entry for the inventory shrinkage for Castle Furnishings Company for the year ended November 30, 2016. Assume that the inventory shrinkage is a normal amount.Inventory shrinkage Hahn Flooring Companys perpetual inventory records indicate that 1,333,150 of merchandise should be on hand on December 31, 2016. The physical inventory indicates that 1,309,900 of merchandise is actually on hand. Journalize the adjusting entry for the inventory shrinkage for Hahn Flooring Company for the year ended December 31, 2016. Assume that the inventory shrinkage is a normal amount.6.7APE 6.7BPE Determining gross profit During the current year, merchandise is sold for 4,885,000. The cost of the merchandise so ld is 3,028,700. a. What is the amount of the gross profit? b. Compute the gross profit percentage (gross profit divided by sales). c. Will the income statement necessarily report a net income? Explain.6.2EX Chart of accounts Monet Paints Co. is a newly organized business with a list of accounts arranged in alphabetical order, as follows: Accounts Payable Accounts Receivable Accumulated DepreciationOffice Equipment Accumulated DepreciationStore Equipment Advertising Expense Cash Cost of Merchandise Sold Delivery Expense Depreciation ExpenseOffice Equipment Depreciation ExpenseStore Equipment Income Summary Insurance Expense Interest Expense Kailey Garner, Capital Kailey Garner, Drawing Land Merchandise Inventory Miscellaneous Administrative Expense Miscellaneous Selling Expense Notes Payable Office Equipment Office Salaries Expense Office Supplies Office Supplies Expense Prepaid Insurance Rent Expense Salaries Payable Sales Sales Salaries Expense Store Equipment Store Supplies Store Supplies Expense Construct a chart of accounts, assigning account numbers and arranging the accounts in balance sheet and income statement order, as illustrated in Exhibit 9. Each account number is three digits: the first digit is to indicate the major classification (1 for assets , and so on); the second digit is to indicate the subclassification (11 for current assets , and so on); and the third digit is to identify the specific account (110 for Cash, 112 for Accounts Receivable, 114 for Merchandise Inventory, 115 for Store Supplies, and so on).Purchase-related transactions The Stationery Company purchased merchandise on account from a supplier for 28,900, terms 1/ 10, n/ 30. The Stationery Company returned 6,100 of the merchandise and received full credit. a. What is the amount of cash required for the payment? b. Under a perpetual inventory system, what account is credited by The Stationery Company to record the return?Purchase-related transactions A retailer is considering the purchase of 250 units of a specific item from either of two suppliers . Their offers are as follows: Supplier One: 400 a unit, total of 100,000, 1/10, n/ 30, no charge for freight. Supplier Two: 399 a unit, total of 99,750, 2/ 10, n/ 30, plus freight of 975. Which of the two offers, Supplier One or Supplier Two, yields the lower price?6.5EX Purchase-related transactions Warwicks Co.. a womens clothing store, purchased 75,000 of merchandise from a supplier on account, terms FOB destination, 2/10, n/30. Warwicks returned 9,000 of the merchandise, receiving a credit memo, and then paid the amount due within the discount period. Journalize Warwicks entries to record (a) the purchase, (b) the merchandise return, and (c) the payment.Purchase-related transactions Journalize entries for the following related transactions of South Coast Heating Air Company: a. Purchased 48,000 of merchandise from Atlas Co. on account, terms 1/ 10, n / 30. b. Paid the amount owed on the invoice within the discount period. c. Discovered that 7,500 of the merchandise purchased in (a) was defective and returned items , receiving credit. d. Purchased 6 ,000 of merchandise from Atlas Co. on account, terms n/ 30. e. Received a refund from Atlas Co. for return in (c) less the purchase in (d).Sales-related transactions, including the use of credit cards Journalize the entries for the following transactions: a. Sold merchandise for cash, 30,000. The cost of the merchandise sold was 18,000. b. Sold merchandise on account, 258,000. The cost of the merchandise sold was 154,800. c. Sold merchandise to customers who used MasterCard and VISA, 160 ,000. The cost of the merchandise sold was 96,000. d. Sold merchandise to customers who used American Express, 72,000. The cost of the merchandise sold was 43,200. e. Received an invoice from National Clearing House Credit Co. for 8,800, representing a service fee paid for processing MasterCard, VISA, and American Express sales.6.9EX Sales-related transactions After the amount due on a sale of 28,000, terms 2/10, n/eom, is received from a customer within the discount period, the seller consents to the return of the entire shipment for a cash refund. The cost of the merchandise returned was 16,800. (a) What is the amount of the refund owed to the customer? (b) Journalize the entries made by the seller to record the return and the refund.6.11EX 6.12EX Determining amounts to be paid on invoices Determine the amount to be paid in full settlement of each of the following invoices, assuming that credit for returns and allowances was received prior to payment and that all invoices were paid within the discount period:Sales-related transactions Showcase Co., a furniture wholesaler, sells merchandise to Balboa Co. on account, 254,500, terms n/30. The cost of the merchandise sold is 152,700. Showcase Co. issues a credit memo for 30,000 for merchandise returned prior to Balboa Co. paying the original invoice. The cost of the merchandise returned is 17,500. Journalize Showcase Co.s entries for (a) the sale, including the cost of the merchandise sold; (b) the credit memo, including the cost of the returned merchandise; and (c) the receipt of the chock for the amount due from Balboa Co.Purchase-related transactions Based on the data presented in Excrd.sc 6-14, journalize Ha I boa Co.s entries for (a) the purchase, (b) the return of the merchandise for credit, and (c) the payment of the invoice.6.17EX 6.18EX Normal balances of merchandise accounts What is the normal balance of the following accounts: (a) Cost of Merchandise Sold, (b) Customer Refunds Payable, (c) Delivery Expense, (d) Estimated Returns Inventory, (e) Merchandise Inventory, (f) Sales, (g) Sales Tax Payable.6.20EX Income statement for merchandiser The following expenses were incurred by a merchandising business during the year. In which expense section of the income statement should each be reported: (a) selling. (b)administrative, or (c) other? 1. Advertising expense 2. Depreciation expense on office equipment 3. Insurance expense on office equipment 4. Interest expense on notes payable 5. Rent expense on office building 6. Salaries of office personnel 7. Salary of sales manager 8. Sales supplies used Determining amounts for items omitted from income statement Two items are omitted in each of the following four lists of income statement data. Determine the amounts of the missing items, identifying them by letter.6.23EX 6.24EX 6.25EX 6.26EX 6.27EX Closing entries; net income Based on the data presented in Exercise 6-23, journalize the closing entries.Closing entries On July 31, 2016, the balances of the accounts appearing in the ledger of Serbian Interiors Company, a furniture wholesaler, are as follows: Prepare the July 31, 2016, closing entries for Serbian Interiors Company.Ratio of sales to assets The Home Depot reported the following data (in millions) in its recent financial statements: a. Determine the ratio of sales to assets for The Home Depot for Year 2 and Year 1. Round to two decimal places. b. What conclusions can be drawn from these ratios concerning the trend in the ability of The Home Depot to effectively use its assets to generate sales?6.31EX Rules of debit and credit for periodic inventory accounts Complete the following table by indicating for (a) through (g) whether the proper answer is debit or credit: Account Increase Decrease Normal Balance Purchases debit (a) (b) Purchases Discounts credit (c) credit Purchases Returns and Allowances (d) (e) (f) Freight In debit (g) debit Journal entries using the periodic inventory system The following selected transactions were completed by Air Systems Company during January of the current year. Air Systems Company uses the periodic inventory system. Jan. 2. Purchased 18,200 of merchandise on account, FOB shipping point, terms 2/15, n/30. 5. Paid freight of 190 on the January 2 purchase. 6. Returned 2,750 of the merchandise purchased on January 2. 13. Sold merchandise on account. 37,300, FOB destination, 1/10, n/30, The cost of merchandise sold was 22,400. 15. Paid freight of 215 for the merchandise sold on January 13 17. Paid for the purchase of January 2 less the return and discount. 23. Received payment on account for the sale of January 13 less the discount. Journalize the entries to record the transactions of Air Systems Company.6.34EX 6.35EX Appendix Cost of merchandise sold Based on the following data, determine the cost of merchandise sold for November: Merchandise inventory, November 1 28,000 Merchandise inventory, November 30 31,500 Purchases 475,000 Purchases returns and allowances 15,000 Purchases discounts 9,000 Freight in 7,000 6.37EX Appendix Cost of merchandise sold Identify the errors in the following schedule of the cost of merchandise sold for the year ended May 31, 2016:6.39EX Purchase-related transactions using perpetual inventory system The following selected transactions were completed by Capers Company during October of the current year: Oct 1. Purchased merchandise from UK Imports Co., 14,448, terms FOB destination, n/30. 3. Purchased merchandise from Hoagie Co., 9,950, terms FOB shipping point, 2/10, n/com. Prepaid freight of 220 was added to the invoke. 4. Purchased merchandise from Taco Co., 13,650, terms FOB destination, 2/10, n/30. 6. Issued debit memo to Taco Co. for 4,550 of merchandise returned from purchase on October 4. 13. Paid Hoagie Co. for invoice of October 3- 14. Paid Taco Co. for invoice of October 4 less debit memo of October 6. 19. Purchased merchandise from Veggie Co., 27,300. terms FOB shipping point, n/com. 19. Paid freight of 400 on October 19 purchase from Veggie Co. 20. Purchased merchandise from Caesar Salad Co., 22,000. terms FOB destination, 1/10, n/30. 30. Paid Caesar Salad Co. for invoice of October 20. 31. Paid UK Imports Co. for invoice of October 1. 31 Paid Veggie Co. for invoice of October 19. Instructions Journalize the entries to record the transactions of Capers Company for October.Sales-related transactions using perpetual inventory system The following selected transactions were completed by Amsterdam Supply Co., which sells office supplies primarily to wholesalers and occasionally to retail customers: Mar. 2. Sold inerchandi.se on account to Equinox Co., 18,900, terms FOB destination, 1/10, n/30. The cost of the merchandise sold was 13,300. 3. Sold merchandise for 511.350 plus 6% sales tax to retail cash customers. The cost of merchandise sold was 7,000. 4. Sold merchandise on account to Empire Co., 55,400, terms FOB shipping point. n/eom. The cost of merchandise sold was 33,200. 5. Sold merchandise for 30,000 plus 6% sales tax to retail customers who used MasterCard. The cost of merchandise sold was 19,400. 12. Received check for amount due from Equinox Co. for sale on March 2. 14. Sold merchandise to customers who used American Express cards, 13,700. The cost of merchandise sold was 8,350. 16. Sold merchandise on account to Targhee Co., 27,500. terms FOB shipping point, 1/10, n/30. The cost of merchandise sold was 16,000. 18. Issued credit memo for 4,800 to Targhee Co. for merchandise returned from sale on March 16. The cost of the merchandise returned was 2,900. 19. Sold merchandise on account to Vista Co., 8,250. terms FOB shipping point, 2/10, n/30. Added 75 to the invoice for prepaid freight. The cost of merchandise sold was 5,000. 26. Received check for amount due from Targhee Co. for sale on March 16 less credit memo of March 18. 28. Received check for amount due from Vista Co. for sale of March 19. 31. Received check for amount due from Empire Co. for sale of March 4. 31. Paid Fleetwood Delivery Service 5,600 tor delivery of merchandise in March to customers under shipping terms of FOB destination. Apr. 3. Paid City Bank 940 for service fees for handling MasterCard and American Express sales during March. 15. Paid 6,544 to state sales tax division for taxes owed on sales. Instructions Journalize the entries to record the transactions of Amsterdam Supply Co.Sales-related and purchase-related transactions using perpetual inventory system The following were selected from among the transactions completed by Babcock Company during November of the current year: Nov. 3 Purchased merchandise on account from Moonlight Co., list price 85,000, trade discount 25%, terms FOB destination, 2/10, n/30. 4. Sold merchandise for cash, 37,680. The cost of the merchandise sold was 22,600. 5. Purchased merchandise on account from Papoose Creek Co., 47,500, terms FOB shipping point, 2/10, n/30, with prepaid freight of 810 added to the invoice. 6. Returned 13,500 C18,000 list price less trade discount of 25%) of merchandise purchased on November 3 from Moonlight Co. 8. Sold merchandise on account to Quinn Co., 15,600 with terms n/15. The cost of the merchandise sold was 9,400. 13. Paid Moonlight Co. on account for purchase of November 3, less return of November 6. 14. Sold merchandise on VISA, 236,000. The cost of the merchandise sold was 140,000. 15. Paid Papoose Creek Co. on account for purchase of November 5. 23. Received cash on account from sale of November 8 to Quinn Co. 24. Sold merchandise on account to Rabel Co., 56,900, terms 1/10, n/30. The cost of the merchandise sold was 34,000. 28. Paid VISA service fee of 3,540. 30. Paid Quinn Co. a cash refund of 6,000 for returned merchandise from sale of November 8. The cost of the returned merchandise was 3,300. Instructions Journalize the transactions.Sales-related and purchase-related transactions for seller and buyer using perpetual inventory system The following selected transactions were completed during August between Summit Company and Beartooth Co.: Aug. 1. Summit Company sold merchandise on account to Beartooth Co., 48,000, terms FOB destination, 2/ 15, n/ eom. The cost of the merchandise sold was 28,800. 2. Summit Company paid freight of 1,150 for delivery of merchandise sold to Beartooth Co. on August 1. 5. Summit Company sold merchandise on account to Beartooth Co., 66,000, terms FOB shipping point, n/ eom. The cost of the merchandise sold was 40,000. 9. Beartooth Co. paid freight of 2,300 on August 5 purchase from Summit Company. Aug. 15. Summit Company sold merchandise on account to Beartooth Co., 58,700, terms FOB shipping point, 1/ 10, n/ 30. Summit Company paid freight of 1,675, which was added to the invoice. The cost of the merchandise sold was 35,000. 16. Beartooth Co. paid Summit Company for purchase of August 1. 25. Beartooth Co. paid Summit Company on account for purchase of August 15. 31. Beartooth Co. paid Summit Company on account for purchase of August 5. Instructions Journalize the August transactions for (1) Summit Company and (2) Beartooth Co.Multiple-step income statement and report form of balance sheet The following selected accounts and their current balances appear in the ledger of Clairemont Co. for the fiscal year ended May 31, 2016: Instructions 1. Prepare a multiple-step income statement. 2. Prepare a statement of owners equity. 3. Prepare a report form of balance sheet, assuming that the current portion of the note payable is 50,000. 4. Briefly explain (a) how multiple-step and single-step income statements differ and (b) how report-form and account-form balance sheets differ.6.6APR Purchase-related transactions using periodic inventory system Selected transactions for Capers Company during October of the current year are listed in Problem 6-1A. Instructions Journalize the entries to record the transactions of Capers Company for October using the periodic inventory system.Sales-related and purchase-related transactions using periodic inventory system Selected transactions for Babcock Company during November of the current year are listed in Problem 6-3A. Instructions Journalize the entries to record the transactions of Babcock Company for November using the periodic inventory system.6.9APR Appendix Periodic inventory accounts, multiple-step income statement, closing entries On December 31, 2016, the balances of the accounts appearing in the ledger of Wyman Company are as follows: Instructions 1. Does Wyman Company u se a periodic or perpetual inventory system? Explain. 2. Prepare a multiple-step income statement for Wyman Company for the year ended December 31, 2016. The merchandise inventory as of December 31, 2016, was 305,000. 3. Prepare the closing entries for Wyman Company as of December 31, 2016. 4. What would be the net income if the perpetual inventory system had been used?Purchase-related transactions using perpetual inventory system The following selected transactions were completed by Niles Co. during March of the current year: Mar. 1. Purchased merchandise from Haas Co., 43,250, terms FOB shipping point, 2/10, n/eom. Prepaid freight of 650 was added to the invoice. 5. Purchased merchandise from Whitman Co., 19,175, terms FOB destination, n/30. 10. Paid Haas Co. for invoice of March 1. 13. Purchased merchandise from Jost Co., 15,550, terms FOB destination, 2/10, n/30. 14. Issued debit memo to Jost Co. for 3,750 of merchandise returned from purchase on March 13. 18. Purchased merchandise from Fairhurst Company, 13,560, terms FOB shipping point, n/com. 18. Paid freight of 140 on March 18 purchase from Fairhurst Company. 19. Purchased merchandise from Bickle Co., 6,500, terms FOB destination, 2/10, n/30. 23. Paid Jost Co. for invoice of March 13 less debit memo of March 14. 29. Paid Bickle Co. for invoice of March 19. 31. Paid Fairhurst Company for invoice of March 18. 31. Paid Whitman Co. for invoice of March 5. Instructions Journalize the entries to record the transactions of Niles Co. for March.Sales-related transactions using perpetual inventory system The following selected transactions were completed by Green Lawn Supplies Co., which sells irrigation supplies primarily to wholesalers and occasionally to retail customers: July l. Sold merchandise on account to landscapes Co., 33,450, terms FOB shipping point, n/eom. The cost of merchandise sold was 20,000. 2. Sold merchandise for 86,000 plus 8% .sales lax to retail cash customers. The cost of merchandise sold was 51,600. 5. Sold merchandise on account to Peacock Company, 17,500, terms FOB destination, 1/10, n/30. The cost of merchandise sold was 10,000. 8. Sold merchandise for 5112,000 plus 8% sales tax to retail customers who used VISA cards. The cost of merchandise sold was 67,200. 13. Sold merchandise to customers who used MasterCard cards, 96,000. The cost of merchandise sold was 57,600. 14. Sold merchandise on account to Loeb Co., 16,000, terms FOB shipping point, 1/10, n/30. The cost of' merchandise sold was 9,000. 15. Received check for amount due from Peacock Company for sale on July 5. 16. Issued credit memo for 3,000 to Loeb Co. for merchandise returned from sale on July 14. The cost of the merchandise returned was 1,800. 18. Sold merchandise on account to Jennings Company. 11,350, terms FOB shipping point, 2/10, n/30. Paid 475 for freight and added it to the invoice. The cost of merchandise sold was 6,800. 24. Received check for amount due from Loeb Co. for sale on July 14 less credit memo of July 16. 28. Received check for amount due from Jennings Company for sale of July 18. 31. Paid Black Lab Delivery Service 8,550 for delivery of merchandise in July to customers under shipping terms of FOB destination. 31. Received check for amount due from Landscapes Co. for sale of July 1. Aug. 3. Paid Hays Federal Bank 3,770 for service fees for handling MasterCard and VISA sales during July. 10. Paid 41,260 to state sales tax division for taxes owed on sales. Instructions Journalize the entries to record the transactions of Green Lawn Supplies Co.Sales-related and purchase-related transactions using perpetual inventory system The following were selected from among the transactions completed by Essex Company during July of the current year: July 3. Purchased merchandise on account from Hamling Co., list price 72,000, trade discount 15%, terms FOB shipping point, 2/10, n/30, with prepaid freight of 1,450 added to the invoice. 5. Purchased merchandise on account from Kester Co., 33,450, terms FOB destination, 2/10, n/30. 6. Sold merchandise on account to Parsley Co., 36,000, terms n/15. The cost of the merchandise sold was 25,000. 7. Returned 6,850 of merchandise purchased on July 5 from Kester Co. 13. Paid Hamling Co. on account for purchase of July 3- 15. Paid Kester Co. 011 account for purchase of July 5, less return of July 7. 21. Received cash on account from sale of July 6 to Parsley Co. 21. Sold merchandise on MasterCard, 108,000. The cost of the merchandise sold was 64,800. 22. Sold merchandise on account to Tabor Co., 16,650, terms 2/10, n/30. The cost of the merchandise sold was 10,000. 23. Sold merchandise for cash, 91,200. The cost of the merchandise sold was 55,000. 28. Paid Parsley Co. a cash refund of 7,150 for returned merchandise from sale of July 6. The cost of the returned merchandise was 4,250. 31. Paid MasterCard service fee of 1,650. Instructions Journalize the transactions.6.4BPR Multiple-step income statement and report form of balance sheet The following selected accounts and their current balances appear in the ledger of Kanpur Co. for the fiscal year ended June 30, 2016: Instructions 1. Prepare a multiple-step income statement. 2. Prepare a statement of owners equity. 3. Prepare a report form of balance sheet, assuming that the current portion of the note payable is 7,000. 4. Briefly explain (a) how multiple-step and single-step income statements differ and (b) how report-form and account-form balance sheets differ.6.6BPR Purchase-related transactions using periodic inventory system Selected transactions for Niles Co. during March of the current year are listed in Problem 6-1B. Instructions Journalize the entries to record the transactions of Niles Co. for March using the periodic inventory system.Sales-related and purchase-related transactions using periodic inventory system Selected transactions for Essex Company during July of the current year are listed in Problem 6-3B. Instructions Journalize the entries to record the transactions of Essex Company for July using the periodic inventory system.6.9BPR Appendix Periodic inventory accounts, multiple-step income statement, closing entries On June 30, 2016, the balances of the accounts appearing in the ledger of Simkins Company are as follows: Instructions 1. Does Simkins Company use a periodic or perpetual inventory system? Explain. 2. Prepare a multiple-step income statement for Simkins Company for the year ended June 30, 2016. The merchandise inventory as of June 30, 2016, was 508,000. 3. Prepare the closing entries for Simkins Company as of June 30, 2016. 4. What would be the net income if the perpetual inventory system had been used?Palisade Creek Co. is a merchandising business that uses the perpetual inventory system. The account balances for Palisade Creek Co. as of May 1, 2016 (unless otherwise indicated), are as follows: During May, the last month of the fiscal year, the following transactions were completed: May 1. Paid rent for May, 5,000. 3. Purchased merchandise on account from Martin Co., terms 2/10, n/30, FOB shipping point, 36,000. 4. Paid freight on purchase of May 3, 600. 6. Sold merchandise on account to Korman Co., terms 2/10, n/30, FOB shipping point, 68,500. The cost of the merchandise sold was 41,000. 7. Received 22,300 cash from Halstad Co. on account. 10. Sold merchandise for cash, 54,000. The cost of the merchandise sold was 32,000. 13. Paid for merchandise purchased on May 3. 15. Paid advertising expense for last half of May, 11,000. 16. Received cash from sale of May 6. 19. Purchased merchandise for cash, 18,700. 19. Paid 33,450 to Buttons Co. on account. 20. Paid Korman Co. a cash refund of 13,230 for returned merchandise from sale of May 6. The invoice amount of the returned merchandise was 13,500 and the cost of the returned merchandise was 8,000. Record the following transactions on Page 21 of the journal: 20. Sold merchandise on account to Crescent Co., terms 1/10, n/30, FOB shipping point, 110,000. The cost of the merchandise sold was 70,000. 21. For the convenience of Crescent Co., paid freight on sale of May 20, 2,300. 21. Received 42,900 cash from Gee Co. on account. May 21. Purchased merchandise on account from Osterman Co., terms 1/10, n/30, FOB destination, 88,000. 24. Returned of damaged merchandise purchased on May 21, receiving a credit memo from the seller for 5,000. 26. Refunded cash on sales made for cash, 7,500. The cost of the merchandise returned was 4,800. 28. Paid sales salaries of 56,000 and office salaries of 29, 000. 29. Purchased store supplies for cash, 2,400. 30. Sold merchandise on account to Turner Co., terms 2/10, n/30, FOB shipping point, 78,750. The cost of the merchandise sold was 47,000. 30. Received cash from sale of May 20 plus freight paid on May 21. 31. Paid for purchase of May 21, less return of May 24. Instructions 1. Enter the balances of each of the accounts in the appropriate balance column of a four-column account. Write Balance in the item section, and place a check mark () in the Posting Reference column. Journalize the transactions for July, starting on Page 20 of the journal. 2. Post the journal to the general ledger, extending the month-end balances to the appropriate balance columns after all posting is completed. In this problem, you are not required to update or post to the accounts receivable and accounts payable subsidiary ledgers. 3. Prepare an unadjusted trial balance. 4. At the end of May, the following adjustment data were assembled. Analyze and use these data to complete (5) and (6). f. The adjustment for customer returns and allowances is 60,000 for sales and 35,000 for cost of merchandise sold. 5. (Optional) Enter the unadjusted trial balance on a IO-column end-of-period spreadsheet (work sheet), and complete the spreadsheet. 6. Journalize and post the adjusting entries. Record the adjusting entries on Page 22 of the journal. 7. Prepare an adjusted trial balance. 8. Prepare an income statement, a statement of owners equity, and a balance sheet. 9. Prepare and post the closing entries. Record the closing entries on Page 23 of the journal. Indicate closed accounts by inserting a line in both the Balance columns opposite the closing entry. Insert the new balance in the owners capital account. 10. Prepare a post-closing trial balance.6.1CP Purchases discounts and accounts payable Rustic Furniture Co. is owned and operated by Cam Pfeifer. The following is an excerpt from a conversation between Cam Pfeifer and Mitzi Wheeler, the chief accountant for Rustic Furniture Co.: Cam: Mitzi, Ive got a question about this recent balance sheet. Mitzi: Sure, whats your question? Cam: Well, as you know, Im applying for a bank loan to finance our new store In Garden Grove, and I noticed that the accounts payable are listed as 320,000. Mitzi: Thats right. Approximately 275,030 of that represents amounts due our suppliers, and the remainder is miscellaneous payables to creditors for utilities, office equipment, supplies, etc. Cam: Thats what I thought. But as you know, we normally receive a 2% discount from our suppliers for earlier payment, and we always try to take the discount. Mitzi: Thats right. I cant remember the last time we missed a discount. Cam: Well, in that case, it seems to me the accounts payable should be listed minus the 2% discount. Lets list the accounts payable due suppliers as 310,500 rather than 320,000. Every little bit helps. You never know. It might make the difference between getting and not getting the loan. How would you respond to Cam Pfeifers request?6.3CP 1DQ Why is it important to take a physical inventory periodically when using a perpetual inventory system?Do the terms FIFO, LIFO, and weighted average refer to techniques used in determining quantities of the various classes of merchandise on hand? Explain.If merchandise inventory is being valued at cost and the price level is decreasing, which of the three methods of costingFIFO, LIFO, or weighted average costwill yield (a) the highest inventory cost, (b) the lowest inventory cost, (c) the highest gross profit, and (d) the lowest gross profit?Which of the three methods of inventory costingFIFO, LIFO. or weighted average costwill in general yield an inventory cost most nearly approximating current replacement cost?If inventory is being valued at cost and the price level is steadily rising, which of the three methods of costingFIFO, LIFO, or weighted average cost will yield the lowest annual income tax expense? Explain.Using the following data, how should the merchandise be valued under lower of cost or market? Original cost 1,350 Estimated selling price 1,475 Selling expenses 180 The inventory at the end of the year was understated by 14,750. (a) Did the error cause an overstatement or an understatement of the gross profit for the year? (b) Which items on the balance sheet at the end of the year were overstated or understated as a result of the error?Hutch Co. sold merchandise to Bibbins Company on May 31, FOB shipping point. If the merchandise is in transit on May 31, the end of the fiscal year, which company would report it in its financial statements? Explain.A manufacturer shipped merchandise to a retailer on a consignment basis. If the merchandise is unsold at the end of the period, in whose inventory should the merchandise be included?Cost flow methods The following three identical units of Item BZ1810 are purchased during November: Assume that one unit is sold on November 30 for 90. Determine the gross profit for November and ending inventory on November 30 using the (a) first-in, first-out (FIFO); (b) last-in, first-out (LIFO); and (c) weighted average cost methods.Cost flow methods The following three identical units of Item Beta are purchased during June: Assume that one unit is sold on June 27 for 110. Determine the gross profit for June and ending inventory on June 30 using the (a) first-in, first-out (FIFO); (b) last-in, first-out (LIFO); and (c) weighted average cost methods.Perpetual inventory using FIFO Beginning inventory, purchases, and sales for Item ProX2 are as follows: Assuming a perpetual inventory system and using the first-in, first -out (FIFO) method , determine (a ) the cost of merchandises old on January 25 and (b) the inventory o n January 31.Perpetual inventory using FIFO Beginning inventory, purchases, and sales for Item Delta are as follows: July 1 Inventory 50 units at 15 7 Sale 44 units 15 Purchase 90 units at 18 24 Sale 40 units Assuming a perpetual inventory system and using the first-in, first-out (FIFO) method, determine (a) the cost of merchandise sold on July 24 and (b) the inventory on July 31.Perpetual inventory using LIFO Beginning inventory, purchases, and sale s for Item Zebra 9x are as follows: Assuming a perpetual inventory system and using the last-in, first-out (LIFO) method, determine (a) the cost of merchandise sold on April 27 and (b) the inventory on April 30.Perpetual inventory using LIFO Beginning inventory, purchases, and sales for Item Foxtrot are as follows: Mar. 1 Inventory 270 units at 18 8 Sale 225 units 15 Purchase 375 units at 20 27 Sale 240 units Assuming a perpetual inventory system and using the Last-in. find-out (LIFO) method, determine (a) the cost of merchandise sold on March 27 and (b) the inventory on March 31.Perpetual inventory using weighted average Beginning inventory, purchases, and sales for 30xT are as follows: Assuming a perpetual inventory system and using the weighted average method, determine (a) the weighted average unit cost after the May 23 purchase, (b) the cost of the merchandise sold on May 26, and (c) the inventory on May 31.Perpetual inventory using weighted average Beginning inventory, purchases, and sales for WCS12 are as follows: Oct. 1 Inventory 300 units at 8 13 Sale 175 units 22 Purchase 375 units at 10 29 Sale 280 units Assuming a perpetual inventory system and using the weighted average method, determine (a) the weighted average unit cost after the October 22 purchase, (b) the cost of the merchandise sold on October 29, and (c) the inventory on October 31.Periodic inventory using FIFO, LIFO, and weighted average cost methods The units of an item available for sale during the year were as follows: There are 14 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost using (a) the first-in, first-out (FIFO) method; (b) the last-in, first-out (LIFO) method; and (c) the weighted average cost method.Periodic inventory using FIFO, LIFO, and weighted average cost methods The units of an item available for sale during the year were as follows: There are 57 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost using (a) the first-in, first-out (FIFO) method; (b) the last-in, first-out (LIFO) method; and (c) the weighted average cost method.Lower-of-cost-or-market method On the basis of the following data, determine the value of the inventory at the lower of cost or market. Apply lower of cost or market to each inventory item, as shown in Exhibit 10.7.6BPE 7.7APE 7.7BPE 7.8APE 7.8BPE Control of inventories Triple Creek Hardware Store currently uses a periodic inventory system. Kevin Carlton, the owner, is considering the purchase of a computer system that would make it feasible to .switch to a perpetual inventory system. Kevin is unhappy with the periodic inventory system because it does not provide timely information on inventory levels. Kevin has noticed on several occasions that the store runs out of good-selling items, while too many poor-selling items are on hand. Kevin is also concerned about lost sales while a physical inventory is being taken. Triple Creek Hardware currently takes a physical inventory twice a year. To minimize distractions, the store is closed on the day inventory is taken. Kevin believes that closing the store is the only way to get an accurate inventory count. Will switching to a perpetual inventory system strengthen Triple Creek Hardwares control over inventory items? Will switching to a perpetual inventory system eliminate the need for a physical inventory count? Explain.Control of inventories Hardcase Luggage Shop is a small retail establishment located in a large shopping mall. This shop has implemented the following procedures regarding inventory items: a. Because the shop carries mostly high quality, designer luggage, all inventory items are tagged with a control device that activates an alarm if a tagged item is removed from the More. b. Because the display area of the store is limited, only a sample of each piece of luggage is kept on the wiling floor. Whenever a customer selects a piece of luggage, the salesclerk gets the appropriate piece from the stores stockroom. Because all salesclerks need access to the stockroom, it is not locked. The stockroom is adjacent to the break room used by all null employees. c. Whenever Hardcase Luggage Shop receives a shipment of new inventory, the items are taken directly to the stockroom. Hardcases accountant uses the vendors invoice to record the amount of inventory received. State whether each of these procedures is appropriate or inappropriate. If it is inappropriate, explain why.Perpetual inventory using FIFO Beginning inventory, purchases, and sales data for portable DVD players are as follows: The business maintains a perpetual inventory system, costing by the first-in, first-out method. a. Determine the cost of the merchandise sold for each sale and the inventory balance after each sale, presenting the data in the form illustrated in Exhibit 4. b. Based upon the preceding data, would you expect the inventory to be higher or lower using the last-in, first-out method?Perpetual inventory using LIFO Assume that the business in Exercise 7-3 maintains a perpetual inventory system, costing by the last-in, first-out method. Determine the cost of merchandise sold for each sale and the inventory balance after each sale, presenting the data in the form illustrated in Exhibit 5.Perpetual inventory using LIFO Beginning inventory, purchases, and sales data for prepaid cell phones for May are as follows: Inventory Purchases Sales May 1 1,550 units at 44 May 10 20 720 units at 45 1,200 units at 48 May 12 14 31 1,200 units 830 units 1,000 units a. Assuming that the perpetual inventory system is used, costing by the LIFO method, determine the cost of merchandise sold for each sale and the inventory balance after each sale, presenting the data in the form illustrated in Exhibit 4. b. Based upon the preceding data, would you expect the inventory to be higher or lower using the first-in, first-out method?Perpetual inventory using FIFO Assume that the business in Exercise 7-5 maintains a perpetual inventory system, costing by the first-in, first-out method. Determine the cost of merchandise sold for each sale and the inventory balance after each sale, presenting the data in the form illustrated in Exhibit 3.FIFO and LIFO costs under perpetual inventory system The following units of an item were available for sale during the year: Beginning inventory 3,600 units at 4.00 Sale 2,400 units at 8.00 First purchase 8,000 units at 4.20 Sale 6,000 units at 8.00 Second purchase 7,500 units at 4.40 Sale 5,500 units at 8.00 The firm uses the perpetual inventory system, and there are 5,200 units of the item on hand at the end of the year. What is the total cost of the ending inventory according to (a) FIFO, (b) LIFO?Weighted average cost flow method under perpetual inventory system The following units of a particular item were available for sale during the calendar year: The firm uses the weighted average cost method with a perpetual inventory system. Determine the cost of merchandise sold for each sale and the inventory balance after each sale. Present the data in the form illustrated in Exhibit 6.Weighted average cost flow method under perpetual inventory system. The following units of a particular item were available for sale during the calendar year: Jan. 1 Inventory 4,000 units at 20 Apr. 19 Sale 2,500 units June 30 Purchase 6,000 units at 24 Sept 2 Sale 4,500 units Nov. 15 Purchase 1,000 units at 25 The firm uses the weighted average cost method with a perpetual inventory system. Determine the cost of merchandise sold for each sale and the inventory balance after each sale. Present the data in the form illustrated in Exhibit 5.Perpetual inventory using FIFO Assume that the business in Exercise 7-9 maintains a perpetual inventory system. Determine the cost of merchandise sold for each sale and the inventory balance after each sale, assuming the first-in, first-out method. Present the data in the form illustrated in Exhibit 3.Perpetual inventory using LIFO Assume that the business in Exercise 7-9 maintains a perpetual inventory system. Determine the cost of merchandise sold for each sale and the inventory balance after each sale, assuming the last-in, first-out method. Present the data in the form illustrated in Exhibit 4.7.12EX Periodic inventory by three methods; cost of merchandise sold The units of an item available for sale during the year were as follows: There are 104 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost and the cost of merchandise sold by three methods, presenting your answers in the following form:Comparing inventory methods Assume that a firm separately determined inventory under FIFO and LIFO and then compared the results. a.In each s pace that follows, place the correct sign [less than ( ), greater than (), or equal (=)] for each comparison, assuming periods of rising prices. 1. FIFO inventory LIFO inventory 2. FIFO cost of merchandise sold LIFO cost of merchandise sold 3. FIFO net income LIFO net income 4. FIFO income taxes LIFO income taxes b.Why would management prefer to use LIFO over FIFO in periods of rising prices?Lower-of-cost-or-market inventory On the basis of the following data, determine the value of the inventory at the lower of cost or market. Assemble the data in the form illustrated in Exhibit 10.Merchandise inventory on the balance sheet Based on the data in Exercise 7-15 and assuming that cost was determined by the FIFO method, show how the merchandise inventory would appear on the balance sheet.7.17EX 7.18EX Error in inventory During 2016, the accountant discovered that the physical inventory at the end of 2015 had been understated by 42,750. Instead of correcting the error, however, the accountant assumed that the error would balance out (correct itself) in 2016. Are there any flaws in the accountants assumption? Explain.Inventory turnover The following data (in thousands) were taken from recent annual reports of Apple Inc. , a manufacturer of personal computers and related products, and American Greetings Corporation, a manufacturer and distributor of greeting cards and related products : a. Determine the inventory turnover for Apple and American Greetings. Round to one decimal place. b. Would you expect American Greetings inventory turnover to be higher or lower than Apples? Why?Inventory turnover and number of days' sales in inventory Kroger, Safeway Inc. , and Whole Foods Markets, Inc. are three grocery chains in the United States. Inventory management is an important aspect of the grocery retail business. Recent balance sheets for these three companies indicated the following merchandise inventory information: The cost of goods sold for each company was: a. Determine the number of days sales in inventory (use 365 days and round to the nearest day) and the inventory turnover (round to one decimal place) for the three companies. b. Interpret your results in p art (a). c. If Kroger had Whole Foods number of days sales in inventory, how much additional cash flow (rounded to nearest million) would have been generated from the smaller inventory relative to its actual average inventory position?Retail method A business using the retail method of inventory costing determines that merchandise inventory at retail is 1,235,000. If the ratio of cost to retail price is 54%, what is the amount of inventory to be reported on the financial statements?Retail method A business using the retail method of inventory costing determines that merchandise inventory at retail is 396,400. If the ratio of cost to retail price is 61%, what is the amount of inventory to be reported on the financial statements?Retail method A business using the retail method of inventory costing determines that merchandise inventory at retail is 775,000. If the ratio of cost to retail price is 66%, what is the amount of inventory to be reported on the financial statements?Retail method On the basis of the following data, estimate the cost of the merchandise inventory at June 30 by the retail method: Cost Retail June 1 Merchandise inventory 165,000 275,000 June 130 Purchases (net) 2,361,500 3,800,000 June 130 Sales 3,550,000 Gross profit method The merchandise inventory was destroyed by fire on December 13. The following data were obtained from the accounting records: Jan. 1 Merchandise inventory 350,000 Jan. 1-Dec. 31 Purchases (net) 2,950,000 Sales 4,440,000 Estimated gross profit rate 35% a. Estimate the cost of the merchandise destroyed. b. Briefly describe the situations in which the gross profit method is useful.Gross profit method Based on the following data, estimate the cost of the ending merchandise inventory: Sales 9,250,000 Estimated gross profit rate 36% Beginning merchandise inventory 180,000 Purchases (net) 5,945,000 Merchandise available for sale 6,125,000 Gross profit method Based on the following data, estimate the cost of the ending merchandise inventory: Sales 1,450,000 Estimated gross profit rate 42% Beginning merchandise inventory 100,000 Purchases (net) 860,000 Merchandise available for sale 960,000 FIFO perpetual inventory The beginning inventory at Funky Party Supplies and data on purchases and sales for a three-month period ending March 31, 2016, are as follows: Instructions 1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 4, using the first-in, first-out method. 2. Determine the total sales and the total cost of merchandise sold for the period. Journalize the entries in the sales and cost of merchandise sold accounts. Assume that all sales were on account. 3. Determine the gross profit from sales for the period. 4. Determine the ending inventory cost as of March 31, 2016. 5. Based upon the preceding data, would you expect the inventory using the last-in first-out method to be higher or lower?LIFO perpetual inventory The beginning inventory at Funky Party Supplies and data on purchases and sales for a three-month period are shown in Problem 7-1A. Instructions 1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 5, using the last-in, first-out method. 2. Determine the total sales, the total cost of merchandise sold, and the gross profit from sales for the period. 3. Determine the ending inventory cost as of March 31, 2016.Weighted average cost method with perpetual inventory The beginning inventory for Funky Party Supplies and data on purchases and sales for a three-month period are shown in Problem 7-1A. Instructions 1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 6, using the weighted average cost method. 2. Determine the total sales, the total cost of merchandise sold, and the gross profit from sales for the period. 3. Determine the ending inventory cost as of March 31, 2016.7.4APR 7.5APR Lower-of-cost-or-market inventory Data on the physical inventory of Ashwood Products Company as of December 31 follow: Inventory Item Inventory Quantity Market Value per Unit (Net Realizable Value) B12 38 57 E41 18 180 G19 33 126 L88 18 550 N94 400 7 P24 90 18 R66 8 250 T33 140 20 Z16 15 752 Quantity and cost data from the last purchases invoice of the year and the next-to-the-last purchases invoice are summarized as follows: Instructions Determine the inventory at cost as well as at the lower of cost or market, using the first-in, first-out method. Record the appropriate unit costs on the inventory sheet and complete the pricing of the inventory. When there are two different unit costs applicable to an item, proceed as follows: 1. Draw a line through the quantity and insert the quantity and unit cost of the last purchase. 2. On the following line, insert the quantity and unit cost of the next-to-the-last purchase. 3. Total the cost and market columns and insert the lower of the two totals in the Lower of C or M column. The first item on the inventtory sheet has been completed as an example.Retail method; gross profit method Selected data on merchandise inventory, purchases, and sales for Celebrity Tan Co. and Ranchworks Co. are as follows: Cost Retail Celebrity Tan Merchandise Inventory, August 1 300,000 575,000 Transactions during August: Purchases(net) 2,149,000 3,375,000 Sales 3,170,000 Ranchworks Co. Merchandise Inventory, May 1 880,000 Transactions during May through November: Purchases(net) 9,500,000 Sales 15,800,000 Estimated gross profit rate 38% Instructions 1.Determine the estimated cost of the merchandise inventory of Celebrity Tan Co. on August 31 by the retail method, presenting details of the computations. 2. a.Estimate the cost of the merchandise inventory of Ranchworks Co. on November 30 by the gross profit method, presenting details of the computations. b.Assume that Ranchworks Co. took a physical inventory on November 30 and discovered that 369,750 of merchandise was on hand. What was the estimated loss of inventory due to theft or damage during March through November?FIFO perpetual inventory The beginning inventory of merchandise at Dunne Co. and data on purchases and sales for a three-month period ending June 30 are as follows: Instructions 1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 3, using the first-in, first-out method. 2. Determine the total sales and the total cost of merchandise sold for the period. Journalize the entries in the sales and cost of merchandise sold accounts. Assume that all sales were on account. 3. Determine the gross profit from sales for the period. 4. Determine the ending inventory cost on June 30. 5. Based upon the preceding data, would you expect the inventory using the last-in, first-out method to be higher or lower?LIFO perpetual inventory The beginning inventory for Dunne Co. and data on purchases and sales for a three-month period are shown in Problem 7-1B. Instructions 1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 4, using the last-in. first-out method. 2. Determine the total sales, the total cost of merchandise sold, and the gross profit from sales for the period. 3. Determine the ending inventory cost on June 30.Weighted average cost method with perpetual inventory The beginning inventory for Dunne Co. and data on purchases and sales for a three-month period are shown in Problem 7-1B. Instructions 1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 5, using the weighted average cost method. 2. Determine the total sales, the total cost of merchandise sold, and the gross profit from sales for the period. 3. Determine the ending inventory cost on June 30.Periodic inventory by three methods The beginning inventory for Dunne Co. and data on purchases and sales for a three-month period are .shown in Problem 7-1B Instructions 1. Determine the inventory on June 30 and the cost of merchandise sold for the three-month period, using the first-in, first-out method and the periodic inventory system. 2. Determine the inventory on June 30 and the cost of merchandise sold for the three-month period, using the last-in, first-out method and the periodic inventory system. 3. Determine the inventory on June 30 and the cost of merchandise sold for the three- month period, using the weighted average cost method and the periodic inventory system. Round the weighted average unit cost to the dollar. 4. Compare the gross profit and June 50 inventories using the following column headings: FIFO LIFO Weighted Average Sales Cost of merchandise Gross profit Inventory, March 30 Periodic inventory by three methods Pappas Appliances uses the periodic inventory system. Details regarding the inventory of appliances at January 1, purchases invoices during the year, and the inventory count at December 31 are summarized as follows: Instructions 1.Determine the cost of the inventory on December 31 by the first-in, first-out method. Present data in columnar form, using the following headings: Model Quantity Unit Cost Total Cost If the inventory of a particular model comprises one entire purchase plus a portion of another purchase acquired at a different unit cost, use a separate line for each purchase. 2.Determine the cost of the inventory on December 31 by the last-in, first-out method, following the procedures indicated in (1). 3.Determine the cost of the inventory on December 31 by the weighted average cost method, using the columnar headings indicated in (1). 4.Discuss which method (FIFO or LIFO) would be preferred for income tax purposes in periods of (a) rising prices and (b) declining prices.Lower-of-cost-or-market inventory Data on the physical inventory of Katus Products Co. as of December 31 follow: Inventory Item Inventory Quantity Market Value per Unit (Net Realizable Value) A54 37 56 C77 24 178 F66 30 132 H83 21 545 K12 375 5 Q58 90 18 S36 8 235 V97 140 20 Y88 17 744 Quantity and cost data from the last purchases invoice of the year and the next-to-the-last purchases invoice are summarized as follows: Instructions Determine the inventory at cost as well as at the lower of cost or market, using the first-in, first-out method. Record the appropriate unit costs on the inventory sheet and complete the pricing of the inventory. When there are two different unit costs applicable to an item: 1. Draw a line through the quantity and insert the quantity and unit cost of the last purchase. 2. On the following line, insert the quantity and unit cost of the next-to-the-last purchase. 3. Total the cost and market columns and insert the lower of the two totals in the LCM column. The first item on the inventory sheet has been completed as an example.Retail method; gross profit method Selected data on merchandise inventory, purchases, and sales for Jaffe Co. and Coronado Co. are as follows: Cost Retail Jaffe Co. Merchandise Inventory, February 1 400,000 615,000 Transactions during February: Purchases(net) 4,055,000 5,325,000 Sales 5,100,000 Coronado Co Merchandise Inventory, May 1 400,000 Transactions during May through October: Purchases(net) 3,150,000 Sales 4,750,000 Estimated gross profit rate 35% Instructions 1.Determine the estimated cost of the merchandise inventory of Jaffe Co. on February 28 by the retail method, presenting details of the computations. 2. a.Estimate the cost of the merchandise inventory of Coronado Co. on October 31 by the gross profit method, presenting de tails of the computations. b.Assume that Coronado Co. took a physical inventory on October 31 and discovered that 366,500 of merchandise was on hand. What was the estimated loss of inventory due to theft or damage during May through October?7.1CP LIFO and inventory flows The following is an excerpt from a conversation between Paula Mario, the warehouse manager for Musick Foods Wholesale Co., and its accountant, Mike Hayes Musick Foods operates a large regional warehouse that supplies produce and other grocery products to grocery stores in smaller communities. Paula: Mike, can you explain whats going on here with these monthly statements? Mike: Sure, Paula. How can I help you? Paula: I dont understand this last-in, first-out inventory procedure. It just doesnt make sense. Mike: Well, what it means is that we assume that the last goods we receive are the first ones sold. So the inventory consists of the items we purchased first. Paula: Yes, but thats my problem, it doesnt work that way! We always distribute the oldest produce first. Some of that produce is perishable! We cant keep any of it very long or itll spoil. Mike: Paula, you dont understand. We only assume that the products we distribute are the last ones received. We dont actually have to distribute the goods in this way. Paula: I always thought that accounting was supposed to show what really happened. It all sounds like make believe to me! Why not report what really happens? Respond to Paulas concerns.Costing inventory Golden Eagle Company began operations in 2016 by selling a single product. Data on purchases and sales for the year were as follows: On January 4, 2017, the president of the company, Connie Kilmer, asked for your advice on costing the 32,000-unit physical inventory that was taken on December 31, 2016. Moreover, since the firm plans to expand its product line, she asked for your advice on the use of a perpetual inventory system in the future. 1. Determine the cost of the December 31, 2016, inventory under the periodic system, using the (a) first-in, first-out method, (b) last-in, first-out method, and (c) weighted average cost method. 2. Determine the gross profit for the year under each of the three methods in (1). 3. Explain varying viewpoints why each of the three inventory costing methods may best reflect the results of operations for 2016. b. Which of the three inventory costing methods may best reflect the replacement cost of the inventory on the balance sheet as of December 31, 2016? c. Which inventory costing method would you choose to use for income tax purposes? Why? d. Discuss the advantages and disadvantages of using a perpetual inventory system. From the data presented in this case, is there any indication of the adequacy of inventory levels during the year?Inventory ratios for Dell and HP Dell Inc. and Hewlett-Packard Development Company, L.P. (HP) are both manufacturers of computer equipment and peripherals. However, the two companies follow two different strategies. Dell follows primarily a build-to-order strategy, where the consumer orders the computer from a Web page. The order is then manufactured and shipped to the customer within days of the order. In contrast, HP follows a build-to-stock strategy, where the computer is first built for inventory, then sold from inventory to retailers, such as Best Buy. The two strategies can be seen in the difference between the inventory turnover and number of days sales in inventory ratios for the two companies. The following financial statement information is provided for Dell and HP for a recent fiscal year (in millions): a. Determine the inventory turnover ratio and the number of days sales in inventory ratio for each company. Use 365 days and round to one decimal place. b. Interpret the difference between the ratios for the two companies.Comparing inventory ratios for two companies Tiffany Co. is a high-end jewelry retailer, while Amazon.com uses its e-commerce services, features, and technologies to sell its products through the Internet. Recent balance sheet inventory disclosures for Tiffany and Amazon.com (in millons) are as follows: The cost of merchandise sold reported by each company was as follows: a. Determine the inventory turnover and number of days sales in inventory for Tiffany and Amazon.com. Use 365 days and round to two decimal places. b. Interpret your results.7.6CP 1DQ Why should the employee who handles cash receipts not have the responsibility for maintaining the accounts receivable records? Explain.3DQ Why should the responsibility for maintaining the accounting records be separated from the responsibility for operations? Explain.5DQ 6DQ The balance of Cash is likely to differ from the bank statement balance. What two factors are likely to be responsible for the difference?8DQ 9DQ (a) How are cash equivalents reported in the financial statements? (b) What are some examples of cash equivalents?Internal control elements Identify each of the following as relating to (a) the control environment, (b) control procedures, or (c) monitoring: 1. Hiring of external auditors to review the adequacy of controls 2. Personnel policies 3. Safeguarding inventory in a locked warehouse 8.1APE 8.2BPE 8.2APE 8.3APE 8.3BPE 8.4APE 8.4BPE 8.5APE 8.5BPE Sarbanes-Oxley internal control report Using Wikipedia (www.wikipedia.com), look up the entry for Sarbanes-Oxley Act. Look over the table of contents and find the section that describes Section 404. What does Section 404 require of managements internal control report?8.2EX 8.3EX 8.4EX 8.5EX 8.6EX 8.7EX 8.8EX 8.9EX 8.10EX 8.11EX 8.12EX 8.13EX Internal control of cash payments Abbe Co. is a small merchandising company with a manual accounting system. An investigation revealed that in spite of a sufficient bank balance, a significant amount of available cash discounts had been lost because of failure to make timely payments. In addition, it was discovered that the invoices for several purchases had been paid twice. Outline procedures for the payment of vendors invoices so that the possibilities of losing available cash discounts and of paying an invoice a second time will be minimized 8.15EX 8.16EX 8.17EX 8.18EX 8.19EX 8.20EX 8.21EX 8.22EX 8.23EX 8.24EX 8.25EX Cash to monthly cash expenses ratio El Dorado Inc. has monthly cash expenses of l68,500. On December 31, the cash balance is 1,415,400. a. Compute the ratio of cash to monthly cash expenses. b. Based on (a), what are the implications for El Dorado Inc.?8.27EX 8.28EX 8.1APR 8.2APR 8.3APR 8.4APR 8.5APR 8.1BPR 8.2BPR 8.3BPR 8.4BPR 8.5BPR Ethics in Action During the preparation of the bank reconciliation for Building Concepts Co., Joel Knolls, the assistant controller, discovered that Lone Peak National Bank incorrectly recorded a 3,290 check written by Building Concepts Co. as 329. Joel has decided no t to notify the bank but wait for the bank to detect the error. Joel plans to record the 2,961 error as Other Income if the bank fails to detect the error within the next three months. Discuss whether Joel is behaving in a professional manner.8.2CP 8.3CP 8.4CP 8.5CP 8.7CP What are the three classifications of receivables?Dans Hardware is a small hardware store in the rural township of Twin Bridges. It rarely extends credit to its customers in the form of an account receivable. The few customers who are allowed to carry accounts receivable are long-time residents of Twin Bridges with a history of doing business at Dans Hardware. What method of accounting for uncollectible receivables should Dans Hardware use? Why?What kind of an account (asset, liability, etc.) is Allowance for Doubtful Accounts, and is its normal balance a debit or a credit?After the accounts are adjusted and closed at the end of the fiscal year, Accounts Receivable has a balance of 673,400 and Allowance for Doubtful Accounts has a balance of 11,900. Describe how the accounts receivable and the allowance for doubtful accounts are reported on the balance sheet.A firm has consistently adjusted its allowance account at the end of the fiscal year by adding a fixed percent of the periods sales on account. After seven years, the balance in Allowance for Doubtful Accounts has become very large in relation to the balance in Accounts Receivable. Give two possible explanations.Which of the two methods of estimating uncollectibles provides for the most accurate estimate of the current net realizable value of the receivables?Neptune Company issued a note receivable to Sailfish Company, (a) Who is the payee? (b) What is the title of the account used by Sailfish Company in recording the note?If a note provides for payment of principal of 85,000 and interest at the rate of 6%, will the interest amount to 5,100? Explain.The maker of a 240,000, 6%, 90-day note receivable failed to pay the note on the due date of November 30. What accounts should be debited and credited by the payee to record the dishonored note receivable?The note receivable dishonored in Discussion Question 9 is paid on December 30 by the maker, plus interest for 30 days at 9%. What entry should be made to record the receipt of the payment?9.1APE Direct write-off method Journalize the following transactions, using the direct write-off method of accounting for uncollectible receivables: Oct. 2. Received 600 from Rachel Elpel and wrote off the remainder owed of 1,350 as uncollectible. Dec. 20. Reinstated d1e account of Rachel Elpel and received 1,350 cash in full payment.Allowance method Journalize the following transactions, using the allowance method of accounting for uncollectible receivables: June 2. Received 1,200 from Melissa Crone and wrote off the remainder owed of 4,000 as uncollectible. Oct. 9. Reinstated the account of Melissa Crone and received 4,000 cash in full payment.Allowance method Journalize the following transactions, using the allowance method of accounting for uncollectible receivables: Oct. 2. Received 600 from Rachel Elpel and wrote off the remainder owed of 1,350 as uncollectible. Dec. 20. Reinstated the account of Rachel Elpel and received 1,350 cash in full payment.Percent of sales method At the end of the current year, Accounts Receivable has a balance of 1,975,000; Allowance for Doubtful Accounts has a credit balance of 19,670; and sales for the year total 28,550,000. Bad debt expense is estimated at of 1% of sales. Determine (a) the amount of the adjusting entry for uncollectible accounts; (b) the adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts , and Bad Debt Expense; and (c) the net realizable value of accounts receivable.Percent of sales method At the end of the current year, Accounts Receivable has a balance of 3,460,000, Allowance for Doubtful Accounts has a debit balance of 12,500, and sales for the year total 46,300,000. Bad debt expense is estimated at of 1% of sales. Determine (a) the amount of the adjusting entry for uncollectible accounts; (b) the adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt Expense; and (c) the net realizable value of accounts receivable.Analysis of receivables method At the end of the current year, Accounts Receivable has a balance of 1,975,000; Allowance for Doubtful Accounts has a credit balance of 19,670; and sales for the year total 28,550,000. Using the aging method, the balance of Allowance for Doubtful Accounts is estimated as 225,000. Determine (a) the amount of the adjusting entry for uncollectible accounts; (b) the adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts , and Bad Debt Expense; and (c) the net realizable value of accounts receivable.Analysis of receivables method At the end of the current year, Accounts Receivable has a balance of 3,460,000, Allowance for Doubtful Accounts has a debit balance of 12,500, and sales for the year total 46,300,000. Using the aging method, the balance of Allowance for Doubtful Accounts is estimated as 245,000. Determine (a) the amount of the adjusting entry for uncollectible accounts; (b) the adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt Expense; and (c) the net realizable value of accounts receivable.Note receivable Guzman Company received a 60-day, 5% note for 54,000 dated July 12 from a customer on account. a. Determine the due date of the note. b. Determine the maturity value of the note. c. Journalize the entry to record the receipt of the payment of the note at maturity.Note receivable Prefix Supply Company received a 120-day, 8% note for 450,000, dated April 9, from a customer on account. a. Determine the due date of the note. b. Determine the maturity value of the note. c. journalize the entry to record the receipt of the payment of the note at maturity.9.6APE 9.6BPE 9.1EX Nature of uncollectible accounts MGM Resorts International owns and operates hotels and casinos including the MGM Grand and the Bellagio in Las Vegas, Nevada. As of a recent year, MGM reported accounts receivable of 592,937,000 and allowance for doubtful accounts of 101, 207,000 Johnson Johnson manufactures and sells a wide range of healthcare products including Band-Aids and Tylenol. As of a recent year, Johnson Johnson reported accounts receivable of 11,775,000, 000 and allowance for doubtful accounts of 466,000,000. a. Compute the percentage of the allowance for doubtful accounts to the accounts receivable for MGM Resorts International. Round to one decimal place. b. Compute the percentage of the allowance for doubtful accounts to the accounts receivable for Johnson Johnson. Round to one decimal place. c. Discuss possible reasons for the difference in the two ratios computed in (a) and (b).Entries for uncollectible accounts, using direct write-off method Journalize the following transactions in the accounts of Midwest Medical Co., a medical equipment company that uses the direct write-off method of accounting for uncollectible receivables: Feb. 3. Sold merchandise on account to Dr. Jill Hall, 17,340. The cost of the merchandise sold was 9,500. Sept. 10. Received 5,000 from Dr. Jill Hall and wrote off the remainder owed o n the sale of February 3 as uncollectible. Dec. 21. Reinstated the account of Dr. Jill Hall that had been written off on September 10 and received 12,340 cash in full payment.Entries for uncollectible receivables, using allowance method Journalize the following transactions in the accounts of Dining Interiors Company, a restaurant supply company that uses the allowance method of accounting for uncollectible receivables: Apr. 2. Sold merchandise on account to Peking Palace Co., 4 1,900. The cost of the merchandise sold was 2 4,850. June 9. Received 10,000 from Peking Pal ace Co. and wrote off the remainder owed on the sale of April 2 as uncollectible. Oct. 31. Reinstated the account of Peking Palace Co. that had been written off on June 9 and received 31,900 cash in full payment.Entries to write off accounts receivable Creative Solutions Company, a computer consulting firm, has decided to write off the 11,750 balance of an account owed by a customer, Wil Treadwell. Journalize the entry to record the write-off, assuming that (a) the direct write-off method is used and (b) the allowance method is u sed.Providing for doubtful accounts At the end of the current year, the accounts receivable account has a debit balance of 1,400,000 and sales for the year total 15,350,000. Determine the amount of the adjusting entry to provide for doubtful accounts under each of the following assumptions: a. The allowance account before adjustment has a debit balance of 23,000. Bad debt expense is estimated at of 1 % of sales. b. The allowance account before adjustment has a debit balance of 23,000. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of 125,000. c. The allowance account before adjustment has a credit balance of 14,500. Bad debt expense is estimated at of 1 % of sales. d. The allowance account before adjustment has a credit balance of 14,500. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of 180,000.Number of days past due Toot Auto Supply distributes new and used automobile parts to local dealers throughout the Midwest. Toots credit terms are n/30. As of the end of business on October 31, the following accounts receivable were past due: Account Due Date Amount Avalanche Auto August 8 12,000 Bales Auto October 11 2,400 Derby Auto Repair June 23 3,900 Luckys Auto Repair September 2 6,600 Pit Stop Auto September 19 1,100 Reliable Auto Repair July 15 9,750 Trident Auto August 24 1,800 Valley Repair Tow May 17 4,000 Determine the number of days each account is past due as of October 31.Aging of receivables schedule The accounts receivable clerk for Waddell Industries prepared the following partially completed aging of receivables schedule as of the end of business on August 31: The following accounts were unintentionally omitted from the aging schedule and not included in the preceding subtotals: Customer Balance Due Date Builders Industries 44,500 May 1 Elkhorn Company 21,000 June 20 Granite Creek Inc. 7,500 July 13 Lockwood Company 14,000 September 9 Teton Company 13,000 August 7 a. Determine the number of days past due for each of the preceding accounts as of August 31. b. Complete the aging of receivables schedule by adding the omitted accounts to the bottom of the schedule and updating the totals.Estimating allowance for doubtful accounts Waddell Industries has a past history of uncollectible accounts, as follows. Estimate the allowance for doubtful accounts, based on the aging of receivables schedule you completed in Exercise 9-8. Age Class Percent Uncollectible Not past due 3% 1-30 days past due 4 31-60 days past due 15 61-90 days past due 35 Over 90 days past due 80 EX 9-8 Aging of receivables schedule OBJ. 4 The accounts receivable clerk for Waddell Industries prepared the following partially completed aging of receivables schedule as of the end of business on August 31: The following accounts were unintentionally omitted from the aging schedule and not included in the preceding subtotals: Customer Balance Due Date Builders Industries 44,500 May 1 Elkhorn Company 21,000 June 20 Granite Creek Inc. 7,500 July 13 Lockwood Company 14,000 September 9 Teton Company 13,000 August 7 a. Determine the number of days past due for each of the preceding accounts as of August 31. b. Complete the aging of receivables schedule by adding the omitted accounts to the bottom of the schedule and updating the totals.Adjustment for uncollectible accounts Using data in Exercise 9-9, assume that the allowance for doubtful accounts for Waddell Industries has a credit balance of 6,350 before adjustment on August 31. Journalize the adjusting entry for uncollectible accounts as of August 31. Reference: EX 9-9 Estimating allowance for doubtful accounts OBJ. 4 Waddell Industries has a past history of uncollectible accounts, as follows. Estimate the allowance for doubtful accounts, based on the aging of receivables schedule you completed in Exercise 9-8. Age Class Percent Uncollectible Not past due 3% 1-30 days past due 4 31-60 days past due 15 61-90 days past due 35 Over 90 days past due 80 EX 9-8 Aging of receivables schedule OBJ. 4 The accounts receivable clerk for Waddell Industries prepared the following partially completed aging of receivables schedule as of the end of business on August 31: The following accounts were unintentionally omitted from the aging schedule and not included in the preceding subtotals: Customer Balance Due Date Builders Industries 44,500 May 1 Elkhorn Company 21,000 June 20 Granite Creek Inc. 7,500 July 13 Lockwood Company 14,000 September 9 Teton Company 13,000 August 7 a. Determine the number of days past due for each of the preceding accounts as of August 31. b. Complete the aging of receivables schedule by adding the omitted accounts to the bottom of the schedule and updating the totals.Estimating doubtful accounts Selbys Bike Co. is a wholesaler of motorcycle supplies. An aging of the companys accounts receivable on December 31, 2016, and a historical analysis of the percentage of uncollectible accounts in each age category are as follows: Estimate what the proper balance of the allowance for doubtful accounts should be as of December 31, 2016.Entry for uncollectible accounts Using the data in Exercise 9-11, assume that the allowance for doubtful accounts for Selbys Bike Co. had a debit balance of 7,200 as of December 31, 2016. Journalize the adjusting entry for uncollectible accounts as of December 31, 2016. EX 9-11 Estimating doubtful accounts OBJ. 4 Selbys Bike Co. is a wholesaler of motorcycle supplies. An aging of the companys accounts receivable on December 31, 2016, and a historical analysis of the percentage of uncollectible accounts in each age category are as follows: Estimate what the proper balance of the allowance for doubtful accounts should be as of December 31, 2016.Entries for bad debt expense under the direct write-off and allowance methods The following selected transactions were taken from the records of Shipway Company for the first year of its operations ending December 31: a. Journalize the transactions under the direct write-off method. b. Journalize the transactions under the allowance method. Shipway Company uses the percent of credit sales method of estimating uncollectible accounts expense. Based on past history and industry averages, % of credit sales are expected to be uncollectible. Shipway Company recorded 3,778,000 of credit sales during the year. c. How much higher (lower) would Shipway Companys net income have been under the direct write-off method than under the allowance method?Entries for bad debt expense under the direct write-off and allowance methods The following selected transactions were taken from the records of Rustic Tables Company for the year ending December 31: a. Journalize the transactions under the direct write-off method. b. Journalize the transactions under the allowance method, assuming that the allowance account had a beginning credit balance of 36,000 on January 1 and the company uses the analysis of receivables method. Rustic Tables Company prepared the following aging schedule for its accounts receivable: c.How much higher (lower) would Rustic Tables net income have been under the direct write-off method than under the allowance method?Effect of doubtful accounts on net income During its first year of operations, Macks Plumbing Supply Co. had sales of 3,250,000, wrote off 27,800 of accounts as uncollectible using the direct write-off method, and reported net income of 487,500. Determine what the net income would have been if the allowance method had been used and the company estimated that 1% of sales would be uncollectible.Effect of doubtful accounts on net income Using the data in Exercise 9-15, assume that during the second year of operations, Macks Plumbing Supply Co. had sales of 4,100,000, wrote off 34,000 of accounts as uncollectible using the direct write-off method, and reported net income of 600,000. a. Determine what net income would have been in the second year if the allowance method (using 1% of sales) had been used in both the first and second years. b. Determine what the balance of the allowance for doubtful accounts would have been at the end of the second year if the allowance method had been used in both the first and second years. Hint: Use an Allowance for Doubtful Accounts T account.Entries for bad debt expense under the direct write-off and allowance methods Casebolt Company wrote off the following accounts receivable as uncollectible for the first year of its operations ending December 31: Customer Amount Shawn Brooke 4,650 Eve Denton 5,180 Art Malloy 11,050 Cassie Yost 9,120 Total 30,000 a. Journalize the write-offs under the direct write-off method. b. Journalize the write-offs under the allowance method. Also, journalize the adjusting entry for uncollectible accounts. The company recorded 5,250,000 of credit sales during the year. Based on past history and industry averages, % of credit sales are expected to be uncollectible. c. How much higher (lower) would Casebolt Companys net income have been under the direct write-off method than under the allowance method?

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