3 (TCO B) Adjusting entries: Wizard
Industries purchase $12,000 of merchandise on February 1, 2010, subject to a
trade discount of 10% and with credit terms of 3/15/, n/60. It returned $3,000
(gross price before trade or cash discount) on February 4. The invoice was
paid on February 13. Assuming that Wizard uses the perpetual method for
recording merchandise transactions, prepare the necessary journal entries to
record the purchase, return, and payment using the gross method. For each
journal entry write DR for debit and CR for credit.

4 (TCO B) Adjusting entries: When the
accounts of Upside Down Inc. are examined, the adjusting data listed below are
uncovered on December 31, the end of annual fiscal period. The prepaid
insurance account shows a debit of $12,000, representing the cost of a 2-year
fire insurance policy dated August 1 of the current year. On November 1, Rental
Revenue was credited for $3,000, representing revenue from a sub-rental for a
3-month period beginning on that date. Interest of $3,000 has accrued on notes
payable. You are to prepare the missing adjusting entry. For each journal entry
write DR for debit and CR for credit.

5(TCO C) Presented below is information
related to Square Company.

Retained earnings,
December 31, 20X2

$2,750,000

Sales

2,000,000

Selling and
administrative expenses

240,000

Hurricane loss
(pre-tax) on plant (extraordinary item)

250,000

Cash dividends
declared on common stock

33,600

Cost of goods
sold

960,000

Gain resulting from computation
error on depreciation charge in 20X1
(pre-tax)

2,000,000

Other
revenue

80,000

Other expenses

50,000

Instructions: Prepare in good form a multiple-step income statement for the
year 2011. Assume a 30% tax rate and that 100,000 shares of common stock were
outstanding during the year.

6(TCO D) The following balance sheet was
prepared by the bookkeeper for Diamone Company as of December 31, 201x Diamond
Company.
Balance Sheet as of December 31, 201X is as follows.

Cash

$90,000

Accounts payable

$75,000

Accounts receivable
(net)

42,200

Long-term
liabilities

100,000

Inventories

57,000

Stockholders’ equity

218,500

Investments

76,300

Equipment (net)

96,000

Patents

32,000

$393,500

$393,500

The following additional information is provided.
(1) Cash includes the cash surrender value of a life insurance policy $5,000
and a bank overdraft of $4,000 has been deducted.
(2)The net accounts receivable balance includes

(a) accounts receivable debit balances $50,000;
(b) accounts receivable credit balances $0; and
(c) allowance for doubtful accounts $3,800.

(3) Inventories do not include goods costing $3,000 shipped out on consignment.
Receivables of $3,000 were recorded on these goods.
(4) Investments include investments in common stock, trading $13,000,
available-for-sale $46,300, and franchises $17,000.
(5) Equipment costing $5,000 with accumulated depreciation $4,000 is no longer
used and is held for sale. Accumulated depreciation on the other equipment is
$40,000.
Instructions:
Prepare a balance sheet in good form (stockholders’ equity details can be
omitted).

7(TCO E) Jack Sawyer is presently leasing a
copier from John Office Equipment Company. The lease requires 11 annual
payments of $3,500 at the end of each year and provides the leaser (John) with
an 8% return on its investment. You may use the following 8% interest factors.

9 Periods

10 Periods

11 Periods

Future Value of 1,

1.99900,

2.15892,

2.33164

Present Value of 1,

.50025,

.46319,

.42888

Future Value of,

12.48756,

14.48656

16.64549

Ordinary Annuity of
1

Present Value of

6.24689

6.71008

7.13896

Ordinary Annuity of
1

Present Value of

6.74664

7.24689

7.71008

Annuity Due of 1

Instructions
(a) Assuming the computer has an 11-year life and will have no salvage value at
the expiration of the lease, what was the original cost of the copier to John?
(b) What amount would each payment be if the 11 annual payments are to be made
at the beginning of each period?

8(TCO F) Northville Paper and Paint
deposits all receipts and makes all payments by check. The following
information is available from the cash records.
April 30
BANK RECONCILIATION

Balance per bank

$26,746

Add: Deposits in
transit

2,100

Deduct: Outstanding
checks

(3,800)

Balance per books

$25,046

Month of May Results

Per Bank

Per Books

Balance May 31

$27,995

$24,355

May deposits

10,000

12,889

May checks

11,100

16,080

May note collected

3,000

-0-

(not included in April
deposits)

May bank service
charge

35

-0-

May NSF check of a
customer

900

-0-

returned by the bank

(recorded by bank as
a charge)

Calculate the following amounts.
(1) Deposits in transit on May 31
(2) Outstanding checks on May 31

9(TCO G) Steve Company was formed on
December 1, 2010. The following information is available from Steve’s inventory
record for Product X.

Units

Unit Cost

January 1, 2011
(beginning inventory)

1,500

$19.00

Purchases:

January 5, 2011

2,600

$20.00

January 25, 2011

2,400

$21.00

February 16, 2011

1,000

$22.00

March 15, 2011

2,300

$24.00

A physical inventory on March 31, 2011, shows 2,800 units on hand.
Instructions:
Prepare schedules to compute the ending inventory at March 31, 2011, under each
of the following inventory methods.
(a) FIFO
(b) LIFO
(c) Weighted-average
Show supporting computations in good form.

10-(TCO G) In your audit of Garza Company,
you find that a physical inventory on December 31, 2010, showed merchandise
with a cost $471,000 was on hand at that date. You also discover the
following items were all excluded from the inventory count.
•Merchandise of $61,000, which was shipped by Garza as f.o.b. shipping
point. The buyer is the Bontemps Company.
•Merchandise costing $33,000, which was on consignment. The consignee is
the Proctor Company.
•Merchandise costing $95,000, which was shipped by Garza f.o.b. destination to
a customer on December 29, 2010. The customer was scheduled to receive the
merchandise on January 2, 2011.
•Merchandise costing $103,000 shipped by a vendor f.o.b. destination on
December 30, 2010, and received by Garza on January 4, 2011.
•Merchandise costing $85,000 shipped by a vendor f.o.b. shipping point on
December 31, 2010, and received by Garza on January 5, 2011.
Based on the above information, calculate the amount that should appear on
Garza’s balance sheet at December 31, 2010, for inventory.

11-(TCO H) On January 2, Year 1, Logan Co.
purchased a manufacturing machine for $864,000. The machine has an 8 ­year
estimated life and a $144,000 estimated salvage value. Logan expects to
manufacture 1,800,000 units over the life of the machine. During Year 2, Logan
manufactured 300,000 units.
Instructions:
Calculate the Year 2 depreciation expense using (1) straight-line depreciation
and (2) sum-of-the-years’-digits depreciation depreciation.