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The debits and credits from two transactions are presented in the following creditors (suppliers) account: Describe each transaction and the source of each posting.4PEBMcHale Company does business in two customer segments, Retail and Wholesale. The following annual revenue information was determined from the accounting systems invoice information: Prepare horizontal and vertical analyses of the segments. Round to one decimal place.5PEBUsing the following revenue journal for Bowman Cleaners Inc., identify each of the posting references, indicated by a letter, as representing (1) posting to general ledger accounts or (2) posting to subsidiary ledger accounts:Based on the data presented in Exercise 5-1, assume that the beginning balances for the customer accounts were zero, except for Tillman Inc., which had a 590 beginning balance. In addition, there were no collections during the period. a. Set up a T account for Accounts Receivable and T accounts for the four accounts needed in the customer ledger. b. Post to the T accounts. c. Determine the balance in the accounts. d. Prepare a listing of the accounts receivable customer balances as of May 31, 20Y3.Assuming the use of a two-column (all-purpose) general journal, a revenue journal, and a cash receipts journal as illustrated in this chapter, indicate the journal in which each of the following transactions should be recorded: a. Receipt of cash refund from overpayment of taxes. b. Adjustment to record accrued salaries at the end of the year. c. Providing services on account. d. Investment of additional cash in the business by the owner. e. Receipt of cash on account from a customer. f. Receipt of cash for rent. g. Receipt of cash from sale of office equipment. h. Sale of used office equipment on account, at cost, to a neighboring business. i. Closing of drawing account at the end of the year. j. Providing services for cash.Assuming the use of a two-column (all-purpose) general journal, a purchases journal, and a cash payments journal as illustrated in this chapter, indicate the journal in which each of the following transactions should be recorded: a. Payment of six months rent in advance. b. Purchase of an office computer on account. c. Purchase of office supplies on account. d. Adjustment to record depreciation at the end of the month. e. Adjustment to record accrued salaries at the end of the period. f. Purchase of services on account. g. Adjustment to prepaid rent at the end of the month. h. Purchase of office equipment for cash. i. Adjustment to prepaid insurance at the end of the month. j. Purchase of office supplies for cash. k. Advance payment of a one-year fire insurance policy on the office.The debits and credits from three related transactions are presented in the following customers account taken from the accounts receivable subsidiary ledger: Describe each transaction and identify the source of each posting.Horizon Consulting Company had the following transactions during the month of October: a. Record the October revenue transactions for Horizon Consulting Company in the following revenue journal format: b. What is the total amount posted to the accounts receivable and fees earned accounts from the revenue journal for October? c. What is the October 31 balance of the Pryor Corp. customer account assuming a zero balance on October 1?The revenue journal for Sapling Consulting Inc. follows. The accounts receivable controlling account has a July 1, 20Y2, 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?8ETransactions related to revenue and cash receipts completed by Sycamore Inc. during the month of March 20Y8 are as follows: 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.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 20Y5 are as follows: 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, 20Y5. c. Why does Lasting Summer Inc. use a subsidiary ledger for accounts receivable?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:12E13EGuardian Services Inc. had the following transactions during the month of April: a. Record the June purchase transactions for Guardian Services Inc. in the following purchases journal format: b. What is the total amount posted to the accounts payable and office supplies accounts from the purchases journal for April? c. What is the April 30 balance of the Officemate Inc. creditor account assuming a zero balance on April 1?15EThe cash payments and purchases journals for Outdoor Artisan Landscaping follow. The accounts payable control account has a June 1, 20Y1, 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.Transactions related to purchases and cash payments completed by Wisk Away Cleaning Services Inc. during the month of May 20Y5 are as follows: Prepare a purchases journal and a cash payments journal to record these transactions. The forms of the journals are similar to those illustrated in the text. Place a check mark () in the Post. Ref. column to indicate when the accounts payable subsidiary ledger should be posted. Wisk Away Cleaning Services Inc. uses the following accounts:Happy Tails Inc. has a September 1, 20Y4, accounts payable balance of 620, which consists of 320 due Labradore Inc. and 300 due Meow Mart Inc. Transactions related to purchases and cash payments completed by Happy Tails Inc. during the month of September 20Y4 are as follows: a. Prepare a purchases journal and a cash payments journal to record these transactions. The forms of the journals are similar to those used in the text. Place a check mark () in the Post. Ref. column to indicate when the accounts payable subsidiary ledger should be posted. Happy Tails Inc. uses the following accounts: b. Prepare a listing of accounts payable creditor balances on September 30, 20Y4. Verify that the total of the accounts payable creditor balances equals the balance of the accounts payable controlling account on September 30, 20Y4. c. Why does Happy Tails Inc. use a subsidiary ledger for accounts payable?After Bunker Hill Assay Services Inc. had completed all postings for March in the current year (20Y4), the sum of the balances in the following accounts payable ledger did not agree with the 36,600 balance of the controlling account in the general ledger: Assuming that the controlling account balance of 36,600 has been verified as correct, (a) determine the error(s) in the preceding accounts and (b) prepare a listing of accounts payable creditor balances (from the corrected accounts payable subsidiary ledger).20E21EMost 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 arent special journal totals posted to control accounts at the end of the month in an electronic accounting system?23EFor each of the following companies, determine what they primarily sell and whether their e-commerce strategy is primarily business-to-consumer (B2C), business-to-business (B2B), or both. Use the Internet to investigate each companys site in conducting your research. a. Amazon.com b. Dell Inc. c. DuPont d. Intuit Inc. e. L.L. Bean, Inc. f. W.W. Grainger, Inc.25E26E27ESage Learning Centers was established on July 20 to provide educational services. The services provided during the remainder of the month are as follows: 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: 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?Transactions related to revenue and cash receipts completed by Crowne Business Services Co. during the period April 230 are as follows: Post revenue and collections to the accounts receivable subsidiary ledger. Instructions 1. Insert the following balances in the general ledger as of April 1: 2. Insert the following balances in the accounts receivable subsidiary ledger as of April 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 April. 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?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 are as follows: 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: 3. Journalize the transactions for October, 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 October 31? b. What is the balance of the accounts payable controlling account at October 31? 6. What type of e-commerce application would be used to plan and coordinate transactions with suppliers?4PAThe transactions completed by Revere Courier Company during December, the first month of the fiscal year, were as follows: Instructions 1. Enter the following account balances in the general ledger as of December 1: 2. Journalize the transactions for December, 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.Guardian Security Services was established on January 15 to provide security services. The services provided during the remainder of the month are as follows: Instructions 1. Journalize the transactions for January, 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: Amber Waves Co.; Carson Co.; Hopkins Co.; Murphy Co.; Qwik-Mart Co. 2. Post the revenue journal to the following accounts in the general ledger, inserting the account balances only after the last postings: 3. a. What is the sum of the balances of the customer accounts in the subsidiary ledger at January 31? b. What is the balance of the accounts receivable controlling account at January 31? 4. Assume Guardian Security Services began using a computerized accounting system to record the sales transactions on February 1. What are some of the benefits of the computerized system over the manual system?Transactions related to revenue and cash receipts completed by Sterling Engineering Services during the period June 230 are as follows: 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: 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 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 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 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?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 are as follows: 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: 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?4PBThe transactions completed by AM Express Company during March, the first month of the fiscal year, were as follows: Instructions 1. Enter the following account balances in the general ledger as of March 1: 2. Journalize the transactions for March, 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 twocolumn 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 rale 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.3CPThe 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: Im 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?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.For the past few years, your client, Omni Care, has operated a small medical practice. Omni Cares current annual revenues are 945,000. 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: 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?1DQCan 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?What is the meaning of (a) 1/15, n/60; (b) n/30; (c) n/eom?5DQ6DQ7DQName 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.9DQAssume 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 be disclosed separately on the income statement. What account would be debited for the abnormal inventory shrinkage?1PEA1PEBHalibut 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?Hoffman Company purchased merchandise 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?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.Journalize the following merchandise transactions: a. Sold merchandise on account, 92,500 with terms 1/10, n/30. The cost of the merchandise sold was 55,500. b. Received payment less the discount. c. Issued a credit memo for returned merchandise that was sold for 10,400 terms n/30. The cost of the merchandise returned was 6,500.4PEAJournalize the following merchandise transactions: a. Sold merchandise on account, 92,500 with terms 1/10, n/30. The cost of the merchandise sold was 55,500. b. Received payment less the discount. c. Issued a credit memo for returned merchandise that was sold for 10,400 terms n/30. The cost of the merchandise returned was 6,500.5PEA5PEB6PEAJournalize the following merchandise transactions: a. Sold merchandise on account, 92,500 with terms 1/10, n/30. The cost of the merchandise sold was 55,500. b. Received payment less the discount. c. Issued a credit memo for returned merchandise that was sold for 10,400 terms n/30. The cost of the merchandise returned was 6,500.Assume the following data for Lusk Inc. before its year-end adjustments: Journalize the adjusting entries for the following: a. Estimated customer allowances b. Estimated customer returnsPE 6-7B Customer allowances and returns
Assume the following data for Casper Company before its year-end adjustments:
Journalize the adjusting entries for the following:
Estimated customer allowances
Estimated customer returns
Financial statement data for years ending December 31, 2019 and 2018, for Latchkey Company follow: a. Determine the asset turnover for 2019 and 2018. b. Does the change in the asset turnover from 2018 to 2019 indicate a favourable or an unfavorable trend?Financial statement data for years ending December 31, 2019 and 2018, for Edison Company follow: a. Determine the asset turnover for 2019 and 2018. b. Does the change in the asset turnover from 2018 to 2019 indicate a favourable or an unfavorable trend?During the current year, merchandise is sold for 31,850,000. The cost of the merchandise sold is 24,206,000. 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.For a recent year, Best Buy reported sales of 40,339 million. Its gross profit was 9,047 million. What was the amount of Best Buys cost of merchandise sold?Monet Paints Co. is a newly organized business with a list of accounts arranged in alphabetical order, as follows: Construct a chart of accounts, assigning account numbers and arranging the accounts in balance sheet and income statement order, as illustrated in Exhibit 2. Each account number is three digits: the first digit is to indicate the major classification (1 for assets, for example); the second digit is to indicate the subclassification (11 for current assets, for example); and the third digit is to identify the specific account (110 for Cash, 112 for Accounts Receivable, 114 for Merchandise Inventory, etc.).4EA retailer is considering the purchase of 500 units of a specific item from either of two suppliers. Their offers are as follows: Supplier One: 40 a unit, total of 20,000, 1/10, n/30, no charge for freight. Supplier Two: 39 a unit, total of 19,500, 2/10, n/30, plus freight of 500. Which of the two offers, Supplier One or Supplier Two, yields the lower price?The debits and credits for four related entries for a purchase of 40,000, terms 2/10, n/30, are presented in the following T accounts. Describe each transaction.7E8EJournalize the entries for the following transactions: a. Sold merchandise for cash, 116,300. The cost of the merchandise sold was 72,000. b. Sold merchandise on account, 755,000. The cost of the merchandise sold was 400,000. c. Sold merchandise to customers who used MasterCard and VISA, 1,950,000. The cost of the merchandise sold was 1,250,000. d. Sold merchandise to customers who used American Express, 330,000. The cost of the merchandise sold was 230,000. e. Paid 81,500 to National Clearing House Credit Co. for service fees for processing MasterCard, VISA, and American Express sales.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.The debits and credits for four related entries for a sale of 15,000, terms 1/10, n/30, are presented in the following T accounts. Describe each transaction.12E13EShowcase 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 check for the amount due from Balboa Co.15E16EJournalize the entries to record the following selected transactions: a. Sold 62,800 of merchandise on account, subject to a sales tax of 5%. The cost of the merchandise sold was 37,500. b. Paid 39,650 to the state sales tax department for taxes collected.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.Paragon Tire Co.s perpetual inventory records indicate that 2,780,000 of merchandise should be on hand on March 31, 2019. The physical inventory indicates that 2,734,800 of merchandise is actually on hand. Journalize the adjusting entry for the inventory shrinkage for Paragon Tire Co. for the year ended March 31, 2019.Assume the following data for Oshkosh Company before its year-end adjustments: Journalize the adjusting entries for the following: a. Estimated customer refunds and allowances b. Estimated customer returnsZell Company had sales of 1,800,000 and related cost of merchandise sold of 1,150,000 for its first year of operations ending December 31, 2019. Zell Company provides customers a refund for any returned or damaged merchandise. At the end of the year, Zell Company estimates that customers will request refunds and allowances for 1.5% of sales and estimates that merchandise costing 16,000 will be returned. Assume that on February 3, 2020, Anderson Co. returned merchandise with a selling price of 5,000 for a cash refund. The returned merchandise originally cost Zell Company 3,100. (a) Journalize the adjusting entries on December 31, 2019, to record the expected customer refunds, allowances, and returns. (b) Journalize the entries to record the returned merchandise and cash refund to Anderson Co.For the fiscal year, sales were 191,350,000 and the cost of merchandise sold was 114,800,000. a. What was the amount of gross profit? b. If total operating expenses were 18,250,000, could you determine net income? c. Is Customer Refunds Payable an asset, liability, or owners equity account, and what is its normal balance? d. Is Estimated Returns Inventory an asset, liability, or owners equity account, and what is its normal balance?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 store 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 usedOne item is omitted in each of the following four lists of income statement data. Determine the amounts of the missing items, identifying them by letter.On March 31, 2019, the balances of the accounts appearing in the ledger of Racine Furnishings Company, a furniture wholesaler, are as follows: a. Prepare a multiple-step income statement for the year ended March 31, 2019. b. Compare the major advantages and disadvantages of the multiple-step and single-step forms of income statements.Identify the errors in the following income statement:Summary operating data for Custom Wire Tubing Company during the year ended April 30, 2019, are as follows: cost of merchandise sold, 6,100,000; administrative expenses, 740,000; interest expense, 25,000; rent revenue, 60,000; sales, 9,332,500; and selling expenses, 1,250,000. Prepare a single-step income statement.From the following list, identify the accounts that should be closed to Tim Button, Capital at the end of the fiscal year under a perpetual inventory system: (a) Accounts Receivable, (b) Cost of Merchandise Sold, (c) Customer Refunds Payable, (d) Estimated Returns Inventory, (e) Merchandise Inventory, (f) Sales, (g) Supplies, (h) Supplies Expense, (i) Tim Button, Drawing, (j) Wages Expense.Based on the data presented in Exercise 6-25, journalize the closing entries. On March 31, 2019, the balances of the accounts appearing in the ledger of Racine Furnishings Company, a furniture wholesaler, are as follows: a. Prepare a multiple-step income statement for the year ended March 31, 2019. b. Compare the major advantages and disadvantages of the multiple-step and single-step forms of income statements.On July 31, 2019, the balances of the accounts appearing in the ledger of Serbian Interiors Company, a furniture wholesaler, are as follows: Prepare the July 31, 2019, closing entries for Serbian Interiors Company.The Home Depot reported the following data (in millions) in its recent financial statements: a. Determine the asset turnover for The Home Depot for Year 2 and Year 1. Round to two decimal places. b. What conclusions can be drawn concerning the trend in the ability of The Home Depot to effectively use its assets to generate sales?Kroger Co., a national supermarket chain, reported the following data (in millions) in its financial statements for a recent year: a. Compute the asset turnover. Round to two decimal places. b. Tiffany Co. is a large North American retailer of jewelry with an asset turnover of 0.86. Why would Tiffanys asset turnover be lower than that of Kroger?Complete the following table by indicating for (a) through (g) whether the proper answer is debit or credit:The following selected transactions were completed by Air Systems Company during January of the current year. Air Systems Company uses the periodic inventory system. Journalize the entries to record the transactions of Air Systems Company.35EThe following data were extracted from the accounting records of Harkins Company for the year ended April 30, 2019: a. Prepare the cost of merchandise sold section of the income statement for the year ended April 30, 2019, using the periodic inventory system. b. Determine the gross profit to be reported on the income statement for the year ended April 30, 2019. c. Would gross profit be different if the perpetual inventory system was used instead of the periodic inventory system?37EBased on the following data, determine the cost of merchandise sold for July:Identify the errors in the following schedule of the cost of merchandise sold for the year ended May 31, 2018:United Rug Company is a small rug retailer owned and operated by Pat Kirwan. After the accounts have been adjusted on December 31, the following selected account balances were taken from the ledger: The estimated cost of merchandise returns from December sales is 20,000. Journalize the closing entries on December 31.The following selected transactions were completed by Capers Company during October of the current year: Instructions Journalize the entries to record the transactions of Capers Company for October.The following selected transactions were completed by Amsterdam Supply Co., which sells office supplies primarily to wholesalers and occasionally to retail customers: Instructions Journalize the entries to record the transactions of Amsterdam Supply Co.3PAThe following selected transactions were completed during August between Summit Company and Beartooth Co.: Instructions Journalize the August transactions for (1) Summit Company and (2) Beartooth Co.The following selected accounts and their current balances appear in the ledger of Clairemont Co. for the fiscal year ended May 31, 2019: Instructions 1. Prepare a multiple-step income statement. 2. Prepare a statement of owners equity. 3. Prepare a balance sheet, assuming that the current portion of the note payable is 50,000. 4. Briefly explain how multiple-step and single-step income statements differ.Selected accounts and related amounts for Clairemont Co. for the fiscal year ended May 31, 2019, are presented in Problem 6-5A. Instructions 1. Prepare a single-step income statement in the format shown in Exhibit 12. 2. Prepare closing entries as of May 31, 2019.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.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.On December 31, 2019, the balances of the accounts appearing in the ledger of Wyman Company are as follows: Instructions 1. Does Wyman Company use a periodic or perpetual inventory system? Explain. 2. Prepare a multiple-step income statement for Wyman Company for the year ended December 31, 2019. The merchandise inventory as of December 31, 2019, was 305,000. The adjustment for estimated returns inventory for sales for the year ending December 31, 2019, was 30,000. 3. Prepare the closing entries for Wyman Company as of December 31, 2019. 4. What would the net income have been if the perpetual inventory system had been used?The following selected transactions were completed by Niles Co. during March of the current year: Instructions Journalize the entries to record the transactions of Niles Co. for March.The following selected transactions were completed by Green Lawn Supplies Co., which sells irrigation supplies primarily to wholesalers and occasionally to retail customers: Instructions Journalize the entries to record the transactions of Green Lawn Supplies Co.The following were selected from among the transactions completed by Essex Company during July of the current year: Instructions Journalize the transactions.The following selected transactions were completed during April between Swan Company and Bird Company: Instructions Journalize the April transactions for (1) Swan Company and (2) Bird Company.The following selected accounts and their current balances appear in the ledger of Kanpur Co. for the fiscal year ended June 30, 2019: Instructions 1. Prepare a multiple-step income statement. 2. Prepare a statement of owners equity. 3. Prepare a balance sheet, assuming that the current portion of the note payable is 7,000. 4. Briefly explain how multiple-step and single-step income statements differ.Selected accounts and related amounts for Kanpur Co. for the fiscal year ended June 30, 2019, are presented in Problem 6-5B. Instructions 1. Prepare a single-step income statement in the format shown in Exhibit 12. 2. Prepare closing entries as of June 30, 2019.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.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.On June 30, 2019, 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, 2019. The merchandise inventory as of June 30, 2019, was 508,000. The adjustment for estimated returns inventory for sales for the year ending December 31, 2019, was 33,000. 3. Prepare the closing entries for Simkins Company as of June 30, 2019. 4. What would the net income have been 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, 2019 (unless otherwise indicated), are as follows: During May, the last month of the fiscal year, the following transactions were completed: 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 May, 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). 5. (Optional) Enter the unadjusted trial balance on a 10-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 Balance columns opposite the closing entry. Insert the new balance in the owners capital account. 10. Prepare a post-closing trial balance.1CP2CP4CP5CP6CP1DQWhy 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 costwill yield the lowest annual income tax expense? Explain.Using the following data, how should the merchandise be valued under lower of cost or market?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?The following three identical units of Item A are purchased during April: Assume that one unit is sold on April 30 for 118. Determine the gross profit for April and ending inventory on April 30 using the (a) first-in, first-out (FIFO); (b) last-in, first-out (LIFO); and (c) weighted average cost 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.Beginning inventory, purchases, and sales for Item Widget are as follows: Assuming a perpetual inventory system and using the first-in, first-out (FIFO) method, determine (a) the cost of merchandise sold on March 25 and (b) the inventory on March 31.Beginning inventory, purchases, and sales for Item Delta are as follows: 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.Beginning inventory, purchases, and sales for Item Gidget 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 September 27 and (b) the inventory on September 30.Beginning inventory, purchases, and sales for Item Foxtrot 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 March 27 and (b) the inventory on March 31.Beginning inventory, purchases, and sales for Meta-B1 are as follows: Assuming a perpetual inventory system and using the weighted average method, determine (a) the weighted average unit cost after the July 23 purchase, (b) the cost of the merchandise sold on July 26, and (c) the inventory on July 31.Beginning inventory, purchases, and sales for WCS12 are as follows: 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.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.5PEBOn 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 9.6PEBDuring the taking of its physical inventory on August 31, 2019, Kate Interiors Company incorrectly counted its inventory as 366,900 instead of the correct amount of 378,500. Indicate the effect of the misstatement on Kate Interiors August 31, 2019, balance sheet and income statement for the year ended August 31, 2019.During the taking of its physical inventory on December 31, 2019, Waterjet Bath Company incorrectly counted its inventory as 728,660 instead of the correct amount of 719,880. Indicate the effect of the misstatement on Waterjet Baths December 31, 2019, balance sheet and income statement for the year ended December 31, 2019.Financial statement data for years ending December 31 for Holland Company follow: a. Determine the inventory turnover for 20Y4 and 20Y3. b. Determine the days sales in inventory for 20Y4 and 20Y3. Use 365 days and round to one decimal place. c. Does the change in inventory turnover and the days sales in inventory from 20Y3 to 20Y4 indicate a favorable or an unfavorable trend?Financial statement data for years ending December 31 for Tango Company follow: a. Determine the inventory turnover for 20Y7 and 20Y6. b. Determine the days sales in inventory for 20Y7 and 20Y6. Use 365 days and round to one decimal place. c. Does the change in inventory turnover and the days sales in inventory from 20Y6 to 20Y7 indicate a favorable or an unfavorable trend?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.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 store. b. Because the display area of the store is limited, only a sample of each piece of luggage is kept on the selling 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 mall 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.Beginning inventory, purchases, and sales data for portable game 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 3. b. Based upon the preceding data, would you expect the inventory to be higher or lower using the last-in, first-out method?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 4.Beginning inventory, purchases, and sales data for prepaid cell phones for May are as follows: 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?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.The following units of an item were available for sale during the year: The firm uses the perpetual inventory system, and there are 31,200 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?8EThe 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 5.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.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.The units of an item available for sale during the year were as follows: There are 1,200 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost by (a) the first-in, first-out method; (b) the last-in, first-out method; and (c) the weighted average cost method.The units of an item available for sale during the year were as follows: There are 2,000 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:Assume that a firm separately determined inventory under FIFO and LIFO and then compared the results. a. In each space 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?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 9.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.Missouri River Supply Co. sells canoes, kayaks, whitewater rafts, and other boating supplies. During the taking of its physical inventory on December 31, 20Y2, Missouri River Supply incorrectly counted its inventory as 233,400 instead of the correct amount of 238,600. a. State the effect of the error on the December 31, 20Y2, balance sheet of Missouri River Supply. b. State the effect of the error on the income statement of Missouri River Supply for the year ended December 31, 20Y2. c. If uncorrected, what would be the effect of the error on the 20Y3 income statement? d. If uncorrected, what would be the effect of the error on the December 31, 20Y3, balance sheet?Fonda Motorcycle Shop sells motorcycles, ATVs, and other related supplies and accessories. During the taking of its physical inventory on December 31, 20Y8, Fonda Motorcycle Shop incorrectly counted its inventory as 337,500 instead of the correct amount of 328,850. a. State the effect of the error on the December 31, 20Y8, balance sheet of Fonda Motorcycle Shop. b. State the effect of the error on the income statement of Fonda Motorcycle Shop for the year ended December 31, 20Y8. c. If uncorrected, what would be the effect of the error on the 20Y9 income statement? d. If uncorrected, what would be the effect of the error on the December 31, 20Y9, balance sheet?During 20Y5, the accountant discovered that the physical inventory at the end of 20Y4 had been understated by 42,750. Instead of correcting the error, however, the accountant assumed that the error would balance out (correct itself) in 20Y5. Are there any flaws in the accountants assumption? Explain.The following data (in millions) were taken from recent annual reports of Apple Inc., a manufacturer of personal computers and related products, and Mattel Inc., a manufacturer of toys, including Barbie, Hot Wheels, and Disney Classics: a. Determine the inventory turnover for Apple and Mattel. Round to one decimal place. b. Would you expect Mattels inventory turnover to be higher or lower than Apples? Why?Kroger, Sprouts Farmers Market, 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 (in millions) information: a. Determine the inventory turnover. Round to two decimal places. b. Determine the days sales in inventory. Round to one decimal place. c. Interpret your results in parts (a) and (b). d. If Kroger had Whole Foods 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?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?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?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?On the basis of the following data, estimate the cost of the merchandise inventory at June 30 by the retail method:The merchandise inventory was destroyed by fire on December 13. The following data were obtained from the accounting records: a. Estimate the cost of the merchandise destroyed. b. Briefly describe the situations in which the gross profit method is useful.Based on the following data, estimate the cost of the ending merchandise inventory:Based on the following data, estimate the cost of the ending merchandise inventory:The beginning inventory at Midnight Supplies and data on purchases and sales for a three-month period ending March 31, 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 as of March 31. 5. Based upon the preceding data, would you expect the inventory using the last-in, first-out method to be higher or lower?The beginning inventory at Midnight 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 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 as of March 31.The beginning inventory for Midnight 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 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.The beginning inventory for Midnight Supplies and data on purchases and sales for a three-month period are shown in Problem 7-1A. Instructions 1. Determine the inventory on March 31 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 March 31 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 March 31 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 nearest cent. 4. Compare the gross profit and the March 31 inventories, using the following column headings:Dymac Appliances uses the periodic inventory system. Details regarding the inventory of appliances at January 1, purchases invoices during the next 12 months, 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: 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.Data on the physical inventory of Ashwood Products Company as of December 31 follow: 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 inventory sheet has been completed as an example.Selected data on merchandise inventory, purchases, and sales for Celebrity Tan Co. and Ranchworks Co. are as follows: 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?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?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.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.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 30 inventories using the following column headings: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: 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.Data on the physical inventory of Katus Products Co. as of December 31 follow: 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.Selected data on merchandise inventory, purchases, and sales for Jaffe Co. and Coronado Co. are as follows: 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 details 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?Sizemo Elektroniks sells semiconductors that are used in games and small toys. The company has been extremely successful in recent years, recording an increase in earnings each of the past six quarters. At the end of the current quarter, Jay Shulz, the companys staff accountant, calculated the ending inventory for the semiconductors and was surprised to find that the quantity of the Hayden 537X model had not changed during the quarter. Jay confirmed his calculation with the inventory control manager, who indicated that sales of the Hayden 537X had stopped when the Hayden 637X semiconductor was released early in the quarter. Jay researched the issue further and found that the Hayden 637X semiconductor has the same applications as the Hayden 537X, but has more computing power and a lower cost than the 537X. Jay e-mailed this information to Tina Vereen, the chief financial officer, and recommended that the company apply the lower-of-cost-or-market method to the Hayden 537X semiconductors in inventory. Later that day, Tina e-mailed Jay back, instructing him not to apply the lower-of-cost-or-market method to the 537X inventory because the company is under considerable pressure to maintain its track record of earnings growth, and a lower-of-cost-or-market adjustment would result in a significant decline in earnings this quarter. Reluctantly, Jay followed Tinas instructions. Evaluate the decision not to apply the lower-of-cost-or-market method in the current quarter. 1. Who benefits from this decision? 2. Who is harmed by this decision? 3. Are Jay and Tina acting in an ethical manner? Explain.Anstead Co. is experiencing a decrease in sales and operating income for the fiscal year ending October 31. Ryan Frazier, controller of Anstead Co., has suggested that all orders received before the end of the fiscal year be shipped by midnight, October 31, even if the shipping department must work overtime. Because Anstead Co. ships all merchandise FOB shipping point, it would record all such shipments as sales for the year ending October 31, thereby offsetting some of the decreases in sales and operating income. Discuss whether Ryan Frazier is behaving in a professional manner.Golden Eagle Company began operations on April 1 by selling a single product. Data on purchases and sales for the year are as follows: Purchases: Sales: The president of the company, Connie Kilmer, has asked for your advice on which inventory cost flow method should be used for the 32,000-unit physical inventory that was taken on December 31. The company plans to expand its product line in the future and uses the periodic inventory system. Write a brief memo to Ms. Kilmer comparing and contrasting the LIFO and FIFO inventory cost flow methods and their potential impacts on the companys financial statements.The following is an excerpt from a conversation between Paula Marlo, 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.Target Corp. sells merchandise primarily through its retail stores. On the other hand, Amazon .com uses its e-commerce services, features, and technologies to sell its products through the Internet. Recent balance sheet inventory disclosures for Target and Amazon.com (in millons) are as follows: a. Determine the inventory turnover for Target and Amazon.com. Round to two decimal places. b. Determine the days sales in inventory for Target and Amazon.com. Use 365 days and round to one decimal place. c. Interpret your results.7CP1DQWhy should the employee who handles cash receipts not have the responsibility for maintaining the accounts receivable records? Explain.3DQWhy should the responsibility for maintaining the accounting records be separated from the responsibility for operations? Explain.Assume that Brooke Miles, accounts payable clerk for West Coast Design Inc., stole 48,350 by paying fictitious invoices for goods that were never received. The clerk set up accounts in the names of the fictitious companies and cashed the checks at a local bank. Describe a control procedure that would have prevented or detected the fraud.6DQ7DQ8DQ9DQ10DQ1PEA1PEB2PEA2PEB3PEA3PEB4PEA4PEBFinancial data for Otto Company follow: a. Compute the ratio of cash to monthly cash expenses. b. Interpret the results computed in (a).5PEB1E2E3EPacific Bank provides loans to businesses in the community through its Commercial Lending Department. Small loans (less than 100,000) may be approved by an individual loan officer, while larger loans (greater than 100,000) must be approved by a board of loan officers. Once a loan is approved, the funds are made available to the loan applicant under agreed-upon terms. Pacific Bank has instituted a policy whereby its president has the individual authority to approve loans up to 5,000,000. The president believes that this policy will allow flexibility to approve loans to valued clients much quicker than under the previous policy. As an internal auditor of Pacific Bank, how would you respond to this change in policy?5EAn employee of JHT Holdings, Inc., a trucking company, was responsible for resolving roadway accident claims under 25,000. The employee created fake accident claims and wrote settlement checks of between 5,000 and 25,000 to friends or acquaintances acting as phony victims. One friend recruited subordinates at his place of work to cash some of the checks. Beyond this, the JHT employee also recruited lawyers, whom he paid to represent both the trucking company and the fake victims in the bogus accident settlements. When the lawyers cashed the checks, they allegedly split the money with the corrupt JHT employee. This fraud went undetected for two years. Why would it take so long to discover such a fraud?7E8E9E10E11EThe actual cash received from cash sales was 18,371, and the amount indicated by the cash register total was 18,400. Journalize the entry to record the cash receipts and cash sales.The actual cash received from cash sales was 71,315, and the amount indicated by the cash register total was 71,220. Journalize the entry to record the cash receipts and cash sales.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.15E16E17E18E19E20E21E22E23E24EMattel, Inc., designs, manufactures, and markets toy products worldwide. Mattels toys include Barbie fashion dolls and accessories, Hot Wheels, and Fisher-Price brands. For a recent year, Mattel reported the following net cash flows from operating activities (in thousands): Explain why Mattel reported negative net cash flows from operating activities during the first and second quarters and a large positive cash flow for the fourth quarter, with overall net positive cash flow for the year.El Dorado Inc. has monthly cash expenses of 168,500. 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.?27EAmicus Therapeutics, Inc., is a biopharmaceutical company that develops drugs for the treatment of various diseases, including Parkinsons disease. Amicus Therapeutics reported the following financial data (in thousands) for three recent years: a. Determine the monthly cash expenses for Year 3, Year 2, and Year 1. Round to one decimal place. b. Determine the ratio of cash to monthly cash expenses for Year 3, Year 2, and Year 1 as of December 31. Round to one decimal place. c. Based on (a) and (b), comment on Amicus Therapeutics ratio of cash to monthly operating expenses for Year 3, Year 2, and Year 1.1PA2PA3PA4PA5PA1PB2PB3PB4PB5PBTehra Dactyl is an accountant for Skeds, Inc., a footwear and apparel company. The companys revenue and net income have increased by more than 100% over the past three years. During the same period, Tehra and her colleagues in the Accounting Department have not received a raise or salary increase. Frustrated by not receiving a raise while the company has thrived, Tehra has begun submitting expense reimbursements for personal purchases. Tehra has a good relationship with her supervisor, and he simply signs off on Tehras expense reimbursements. Tehra suspects that he knows she is submitting personal expenses for reimbursement and is looking the other way because Tehra has not received a raise in the past three years. Are Tehra and her supervisor acting in an ethical manner? Why or why not?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 not 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.5CP6CP7CP8CP9CPWhat 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?Journalize the following transactions, using the direct write-off method of accounting for uncollectible receivables: Apr. 15. Received 800 from Jean Tooley and wrote off the remainder owed of 1,200 as uncollectible. Aug. 7. Reinstated the account of Jean Tooley and received 1,200 cash in full payment.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 the account of Rachel Elpel and received 1,350 cash in full payment.Journalize the following transactions, using the allowance method of accounting for uncollectible receivables: Apr. 15. Received 800 from Jean Tooley and wrote off the remainder owed of 1,200 as uncollectible. Aug. 7. Reinstated the account of Jean Tooley and received 1,200 cash in full payment.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.At the end of the current year, Accounts Receivable has a balance of 3,750,000, Allowance for Doubtful Accounts has a credit balance of 22,750, and sales for the year total 48,400,000. 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.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.At the end of the current year, Accounts Receivable has a balance of 3,750,000, Allowance for Doubtful Accounts has a credit balance of 22,750, and sales for the year total 48,400,000. Using the aging method, the balance of Allowance for Doubtful Accounts is estimated as 390,000. 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.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.Lundquist Company received a 60-day, 9% note for 28,000, dated July 23, 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.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.Financial statement data for years ending December 31 for Chiro-Solutions Company follow: a. Determine the accounts receivable turnover for 20Y2 and 20Y1. b. Determine the days sales in receivables for 20Y2 and 20Y1. Use 365 days and round to one decimal place. c. Does the change in accounts receivable turnover and the days sales in receivables from 20Y1 to 20Y2 indicate a favorable or unfavorable change?Financial statement data for years ending December 31 for Robinhood Company follow: a. Determine the accounts receivable turnover for 20Y9 and 20Y8. b. Determine the days sales in receivables for 20Y9 and 20Y8. Use 365 days and round to one decimal place. c. Does the change in accounts receivable turnover and the days sales in receivables from 20Y8 to 20Y9 indicate a favorable or unfavorable change?1EMGM 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 570,348,000 and allowance for doubtful accounts of 89,789,000. Johnson Johnson manufactures and sells a wide range of health care products including Band-Aid bandages and Tylenol. As of a recent year, Johnson Johnson reported accounts receivable of 11,002,000,000 and allowance for doubtful accounts of 268,000,000. 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).Journalize the following transactions in the accounts of Champion Medical Co., a medical equipment company that uses the direct write-off method of accounting for uncollectible receivables: Jan. 19. Sold merchandise on account to Dr. Dale Van Dyken, 30,000. The cost of the merchandise sold was 20,500. July 7. Received 12,000 from Dr. Dale Van Dyken and wrote off the remainder owed on the sale of January 19 as uncollectible. Nov. 2. Reinstated the account of Dr. Dale Van Dyken that had been written off on July 7 and received 18,000 cash in full payment.