Accounting 10
Exam 2 (Chapters 5-7 and 8 Part 1)-Version B
Spring 2017
Name
I. Timmy Turner Company had the following transactions related to the purchase of merchandise
inventory during the month of May:
4 Purchased merchandise costing $8,200 on account from Cosmo Co., terms 3/10, n/30, FOB Shipping
Point. Timmy Turner Company paid $150 of shipping charges to Vicky Delivery.
6 Returned damaged merchandise purchased on May 4 costing $300 to Cosmo Co. for credit.
10 Purchased merchandise costing $9,700 on account from Wanda Co., terms 1/15, n/45, FOB
Destination. Wanda Company paid $200 of shipping charges to Vicky Delivery.
11 Based on a competitor’s lower price, Wanda Co. agreed to reduce the cost of the merchandise
purchased on May 10 by $700.
14 Paid Cosmo Co. the amount due.
25 Paid Wanda Co. the amount due.
Timmy Turner Company maintains an accounts payable subsidiary ledger.
REQUIRED:
A. In the attached general journal, give the journal entries required to record the May transactions,
assuming that Timmy Turner Company uses the perpetual inventory method.
B. What is the cost of goods purchased for May?
C. What would change if Timmy Turner did not pay Cosmo Co. back until June 1? D. 1. Timmy uses an accounts payable subsidiary ledger. Describe how Timmy should post these journal
entries to the accounts. 2. What is the content and purpose of a Schedule of Accounts Payable? II. Han Solo Co. had the following transactions related to the sale of merchandise inventory during the
month of June:
5 Sold merchandise costing $5,500 for $11,000 on account to Jabba Co., terms 2/10, n/30, FOB
Shipping Point. Jabba Co. paid $180 of shipping charges to Skywalker Delivery Co.
6 Jabba returned $800 of merchandise sold on June 5 (cost $400) for credit.
12 Sold merchandise costing $6,100 for $12,200 on account to Kenobi Co., terms 2/10, n/30, FOB
Destination. Han Solo Co. paid $200 of freight charges to Skywalker Delivery Co.
14 In order to match a competitor’s price, Han Solo agreed to reduce the sales price of the
merchandise sold to Kenobi on June 14 by $500.
15 Received the amount due from Jabba Co..
22 Received the amount due from Kenobi Co..
Han Solo Co. maintains an accounts receivable subsidiary ledger.
REQUIRED:
A. In the attached general journal, give the journal entries to record the June transactions, assuming that
Han Solo Co. uses the perpetual inventory method.
B. What are net sales for June? III. Listed below is the adjusted trial balance of Enterprise Company at the end of
December 31, 2017. Enterprise Company uses the perpetual inventory method.
DR
CR
Cash
1,200
Accounts Receivable
450
Supplies
85
Prepaid Insurance
800
Merchandise Inventory
210
Equipment
14,000
Accum. Depr. – Equip.
6,000
Buildings
44,000
Accum. Depr. – Bldngs.
24,000
Land
8,000
Accounts Payable
980
Salaries Payable
565
Interest Payable
300
Long-Term Notes Payable
16,000
Common Stock
15,000
Retained Earnings
4,100
Dividends Declared
8,000
Sales
95,600
Sales Returns & Allowances
2,700
Sales Discounts
1,400
Cost of Goods Sold
64,050
Selling Expenses
9,850
Administrative Expenses
7,450
Miscellaneous Revenues
1,250
Interest Expense
1,600
Totals
163,795
163,795
REQUIRED:
A. Compute the following amounts:
Income Statement:
Net Sales
Gross Profit
Gross Profit Rate
Operating income
Net Income
Statement of Retained Earnings:
Ending Retained Earnings
Balance Sheet:
Current Assets
Current Liabilities
Plant Assets
Long-Term Liabilities
Total Assets
Total Liabilities
Total Stockholders’ Equity
Total Liabilities &
Stockholders’ Equity
B. If the beginning merchandise inventory was $270, the purchases were $65,990, the purchase
returns and allowances were $2,440, the purchase discounts were $1,110 and the freight-in charges
were $1,550, prepare a schedule of cost of goods sold on the back page of the exam. IV. The following information is available from the general ledger of Bart Company on March 31:
Number of Per Unit
Total
Units
Cost
Cost
Beginning Merchandise Inventory, March 1
900
$9 $
8,100
Purchases:
March 6
1,300
$10 $ 13,000
March 19
1,200
$11 $ 13,200
March 25
1,600
$12 $ 19,200
Goods Available for Sale
5,000
$ 53,500 It is determined that on March 31, 1,800 units remain on hand.
REQUIRED:
Determine the total cost of the goods sold for March and the total cost of the ending inventory units
on March 31, assuming that Bart Company uses:
A. First-in, First-out Costing (FIFO)
B. Last-in, First-out Costing (LIFO)
C. Weigthed Average Costing V. Bart Corporation’s September 30 bank reconciliation included the following information:
Deposits in Transit $815 and Outstanding Checks #341 $85; #342 $115;
#343 $220; and #344 $490.
The following information is available for the month of October:
AMERICAN NATIONAL BANK OF SPRINGFIELD
Denver, CO 48201-250 (313)-999-9999
Depositor Name: Bart Corporation
For Period: October 1 through October 31
Account Number: 999-9999991
Monthly Summary:
Beginning Balance, October 1
$
2,215
Total Deposits and Other Credits
$
5,560
Total Checks Paid and Other Debits
$
(2,550)
Ending Balance, October 31
$
5,225
Deposits Received:
Other Credits:
Date
Amount
Date
Description
Amount
Oct 1 $
815
Oct 18
Collection of a $660 note plus $40
$
685.00
10
950
interest less a $15 transaction fee
17
1,020
24
940 Other Debits:
31
1,150
Date
Description
Amount
Checks Paid:
Oct 24
NSF Check written by Apu Corp.
$
175
Check No.
Amount
#341
85
Oct 31
Monthly Service Charge
10
#342
115
#346
75
#347
315
#350
210
#351
95
#353
1,470
Bart’s general ledger cash account for October appeared as follows:
CASH
Beg. Balance $
2,120
Cash Receipts:
Cash Payments:
10/7
950
75 Ck No. 346
10/14
1,020
315 Ck No. 347
10/21
940
440 Ck No. 348
10/28
1,150
180 Ck No. 349
10/31
1,210
210 Ck No. 350
95 Ck No. 351
65 Ck No. 352
1,440 Ck No. 353*
End. Balance $
4,570
*Upon comparison with the bank statement, it is discovered that check number 353, correctly
written for $1,470 for the purchase of supplies was incorrectly journalized and posted
by Bart as $1,440.
REQUIRED:
A. Prepare a bank reconciliation for Bart Corporation for October 31 on the attached workpaper.
B. Prepare any necessary adjusting journal entries in the attached general journal. Problem V Workpaper
A.
Bart Corporation
Bank Reconciliation
As of October 31 B.
GENERAL JOURNAL
Date Account Titles DR CR VI. On November 1, 2016, Lisa Corporation lent $9,000 cash to Homer Corporation,
accepting Homer’s $9,000, 6%, 7-month note. Lisa received the maturity amount
from Homer on June 1, 2017.
Lisa Corporation prepares financial statements quarterly–every three months on the
following four dates: March 31, June 30, September 30 and December 31.
REQUIRED:
Give all required entries to account for the note for Lisa Corporation for 2016
and 2017. GENERAL JOURNAL
Date Account Titles DR CR VII.Short Answer
A. Under what circumstances is an adjusting entry necessary for the Merchandise inventory? B. Why is gross profit information considered to be useful information to financial statement readers? C. List three differences between the single step income statement and the multi-step income statement. D. Describe how the specific identification costing method works. What is a major advantage and
a major disadvantage of this method? E. A company makes it a practice to sell all of the old inventory from the shelves before re-stocking
the shelves with new inventory. Must this company use first-in, first-out costing? Explain. F. Name two advantages of the weighted average costing method as compared to the FIFO and
LIFO methods. G. In a period of declining prices, which method would give the highest cost of ending inventory? The
highest gross profit? H. Inventories must be reported on the balance sheet at the lower of cost or market value. What is
the meaning of "market value"? What effect does using the lower of cost or market value have
on the income statement? What future uncertainty are we trying to be conservative about with this
lower of cost or market value rule? I. Marsha, Jan, and Cindy work for a family physician, Dr. Brady. Dr. Brady is knowledgeable about
office management pactices and has segregated the cash receipt duties as follows: Marsha opens the
mail and prepares three copies of a listing of the checks received from patients. She sends one copy
of the list to Jan. Jan then deposits the checks in the bank and gives a copy of the despoit slip to
Cindy. Cindy records the cash receipts in the general journal and posts the payments to the customer’s
accounts receivable. About once amonth, the three go out for an expensive lunch. They pay for the
lunch as follows: Marsha leaves one of the customer’s checks off the listing. She gives the check to
Jan. Jan endorses the back of the check and cashes it at the bank. To make sure that the customer
still gets credit for the payment, Cindy posts a credit to the customer’s account receivable, describing
it as a "service fee adjustment"; Cindy then debits the Service evenue account (instead of Cash). The
three justify their actions by the relatively low wages they are paid by Dr. Brady and the knowledge
that Dr. Brady will likely never miss the money.
List three internal control weaknesses and how they could be improved.
