Question 4
Garmin Ltd. uses the periodic inventory system and had the following inventory information available:
Units Unit Cost Total Cost
Jan 1 Beginning inventory 100 $4 $ 400
20 Purchase 500 $5 2,500
Jul 25 Purchase 100 $6 600
Nov 20 Purchase 300 $7 2,100
1,000 $5,600
A physical count of inventory on December 31 showed that there were 350 units on hand.
Instructions
Answer the following independent questions and show calculations supporting your answers.
(a) Assume that the company uses FIFO. The value of the ending inventory at December 31 is $__________.
(b) Assume that the company uses average cost. The value of the ending inventory on December 31 is $__________.
(c) Determine the difference in the amount of profit that the company would have reported if it had used FIFO instead of average cost. Would profit have been greater or less?
Question 5
Broadway Limited had an $800 credit balance in Allowance for Doubtful Accounts at December 31, 2015, before the current year's provision for uncollectible accounts. An aging of the accounts receivable revealed the following:
Estimated Percentage
Uncollectible
Current Accounts....................................... ... $150,000 1%
1-30 days past due..................................... ....... 15,000 3%
31-60 days past due................................... ......... 8,000 6%
61-90 days past due................................... ......... 5,000 12%
Over 90 days past due............................... ... 6,000 30%
Total Accounts Receivable........................ ... $184,000
Instructions
(a) Prepare the adjusting entry at December 31, 2015, to recognize bad debts expense.
(b) Assume the same facts as above except that the Allowance for Doubtful Accounts account had a $800 debit balance before the current year's provision for uncollectible accounts. Prepare the adjusting entry for the current year's bad debts.
Question 6
L&S Sales Limited had the following transactions in June 2015. L&S uses a perpetual inventory system and its cost of goods sold is 40% of the selling price.
1. Sales on account for June 2015 were $120,000.
2. $168,000 was received as payments on account during the month. This included $7,500 from Mini- Store Inc., which had previously been written off.
3. L&S received returned merchandise of $4,000 from a customer. The merchandise was unopened and was returned to the store shelves. The customer's account was credited for the full amount.
4. Colville Co. Limited contacted the credit department because it was having difficulty making payments on its account. On June 15, they signed a 5%, 2-month note for the balance in their account ($24,000).
5. On June 30, the company advanced $6,000 to an employee. There is no interest on the amount and it is due in 6 months.
6. Based on a review of the aged accounts receivable, the accountant estimates that $16,000 will be uncollectible. The balance in the Allowance for Doubtful Accounts at May 31, 2015 was a credit of $5,000.
7. The balance in accounts receivable at June 1, 2015 was $210,000. There were no other receivables at June 1, 2015.
Instructions
(a) Prepare entries for the above transactions and any month end adjustments and accruals required.
(b) Calculate the balances and show how the receivables will be shown on the statement of financial position at June 30, 2015.
Ques 4 | |||
a) | |||
Units | costs | total | |
300 | 7 | 2100 | |
50 | 6 | 300 | |
350 | 2400 | ||
b) | |||
350*5600/1000= | 1960 | ||
c) | |||
FIFO | W.avg | ||
cost of goods sold | 3200 | 3640 | |
100*4+500*5+50*6 | 650*5600/1000 | ||
hence profit will be greater by | 440 | ||
if we use FIFO | |||
Ques 5 | |||
a) | |||
Bad debt expense | 4030 | ||
allowance for doubtful accounts | 4030 | ||
4830-800 | |||
current | 150000 | 1% | 1500 |
1-30 past due | 15000 | 3% | 450 |
31-60 days past due | 8000 | 6% | 480 |
61-90 days past due | 5000 | 12% | 600 |
over 90 days past due | 6000 | 30% | 1800 |
4830 | |||
b) | |||
Bad debt expense | 5630 | ||
allowance for doubtful accounts | 5630 | ||
4830+800 |
Ques 6
a)
1. Accounts Receivable.120,000
Sales . 120,000
Cost of Goods Sold ($120,000 x 40%) .... 48,000
Inventory ......... 48,000
2. Accounts Receivable...........7,500
Allowance for Doubtful Accounts ........... 7,500
Cash ........................ 168,000
Accounts Receivable.........168,000
3. Sales Returns and Allowances.... 4,000
Accounts Receivable........ 4,000
Inventory ($4,000 × 40%)... 1,600
Cost of Goods Sold ..... 1,600
4. Notes Receivable..... 24,000
Accounts Receivable.......... 24,000
Interest Receivable ($24,000 × 5% × 0.5/12) ..... 50
Interest Revenue...........50
5. Other Receivables (Employee Advance).. 6,000
Cash...................6,000
6. Bad Debt Expense ........... 3,500
Allowance for Doubtful Accounts ... 3,500
($5,000 credit + $7,500 credit = $12,500 unadjusted; balance
should be $16,000; therefore, debit of $3,500 required)
b)
Balance sheet (partial) | ||
current assets | ||
accounts receivable | 141500 | |
(210000+120000-168000+7500-4000-24000) | ||
less:allowance | 16000 | 125500 |
notes receivable | 24000 | |
other receivables | 6000 | |
interest receivable | 50 |
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