Question

5248,000 225,000 756,400 754.358 Cash Marketable Equity Securities (Note 1) Accounts Receivable-Net (Note 2) Inventories (Note 3) Total Current Assets 374,000 954,950 102,000 Investment in Nowell Co.(15-percent owned) Investment in Knight Co.(25-percent owned) Total Investments 377.000 110,000 743,000 110,000 743,000 1,961,852 267.600) 1,151,692 Total Plant Assets at Cost Plant Assets-Net Total Assets IABILITIES AND SHAREHOLDERS' EQUITY $140,000 535,157 118,000 $100,000 493.296 75,000 40,000 Notes Payable Accounts Payable Rental Fees Received in Advance Income Taxes Payable Total Current Liabilities 1,172,924 1.166,635 Bonds Payable-Net (Note 4) Notes Payable Total Noncurrent Liabilities Total Liabilities Shareholders' Equity Common Stock, $10 par value Additional Paid-In Capital-Common Retained Earnings Accumulated Other Comprehensive Income (Loss) 1,000,000 128,000 132,000 1,650,000 591,600 240,000 2,451,600 1,230,000 Treasury Stock (Note 5) Total Shareholders' Equity 3,221.850$4.577.39 Total Liabilities and Shareholders' Equity 19 Revenues Sales Revenue Realized gain on Marketable Equity Securities Unrealized gain on Marketable Equity Securities Rental Revenue (Note 2) Dividend Revenue Equity in Eamings of Unconsolidated Aftiliates (Nowell & Knigho) $2,000,000 20,000 50,000 150,000 4,000 76.000 $2,300,000 Total Revenues and Gains S1,300,000 657,704 115,010 13,000 64.286 Cost of Goods Sold Operating Expense Interest Expense (on Bonds and Notes Payable) Loss on Sale of Equipment Income Tax Expense 2.150.000 150.000 Total Expenses and Losses Net Income Note 1: Marketable Equity Securities (common stock of unaffiliated companies) are passively held by No Name and available for sale. Sales Revenue (not to Rental Revenue, which arises from the receivable relate to Note 2: Accounts rental of excess warehouse space) and are reported net of an allowance for u $74,800 as uncollectible during Year 2 totaled $37,800. ncollectible accounts of Year 1, and $154,650 on December 31, Year 2. Specific accounts written off on December 31, me Corporation uses the LIFO Cost Flow Assumption. If the inventory had been carried on Note 3: NoNa at#0 basis, it would have exceeded the amounts on a LIFO basis by $240,000 on December 31, Year 1 and by $300,000 on December 31, Year 2 Note 4: Bonds payable on the balance sheet have a $1,000,000 maturity value and are 1 semi ennuel coupon bonds (with interest payable every June 30 and December 31) The bonds were 0%, 16-year issued on January 1, Year 1 at a market rate of interest of 8% for an issue price of $1,178,736. Note S: There were 2,000 shares of Treasury Stock on hand on December 31, Year 2. All of these were purchased at the same price during Year 2 and none were sold during Year 2. NoName uses the cost method to account for Treasury Stock. Note 6: Nowell Company did not pay any cash dividends in Year 1 or Year 2. NoName did not make an additional cash investment or sell any portion of its investment in Knight or Nowell during Year 2 NoName uses the equity method to account for its investments in both Nowell and Knight. to answer the following questions. NoName is a merchandising company. NoName follows USG Balance Sheet and Income Statement are attached at the end of your exam. NOTE: The Balance Sheet is in proper form, but the Income Statement lists all revenue and gain subtracts all expenses and losses. Show your work and clearly label your answers. 1. Calculate NoName's gross profit for Year 2. (3 pts) 2. Calculate COGS for Year 2 if NoName had used FIFO instead of LIFO. Read Note 3. (3 pts) 1,300, 3. What did NoName record for bad debt expense in Year 2? Note 2. (2 pts) 4. How much rent revenue was received in cash by NoName during Year 2? (3pts)

Answer 1

Calculation of Gross Profit for NoName Ans1 Sales Revenue Less: Cost of Goods sold Gross Profit 2,000,000 (1,300,000) 700,000 The hint to calculate gross profit is to imagine the Trading Account All those items that would ideally be presented in Trading Account would be used to compute gross profit In the revenue part -All other revenue except from sales revenue would go in Profit and Loss Account In the expense part - All other expense including operatin expense would go in Profit and Loss Account (except COGS)

Ans 2 COGS as per LIFO basis 1,300,000 If FIFO basis was used, Opening Inventory would have been exceeded by S 240,000 Closing Inventory would have been exceeded by S 300,000 Particulars Opening inventory Add: Purchases Less: Closing inventory COGS LIFO 240,000 300,000 COGS would be S 1,240,000 as per FIFO method

Ans 3 Bad debts expense for the year Opening Provision for bad debts Add: Provision made during the year (ba 117,650 Less: Provision utilised to write-off Accc(37,800) Given in Note 2 Closing Provision for bad debts 74,800 Given in Note 2 154,650 Given in Note 2 Alternatively 1 Opening provision 2 Less: Provision utilised for writing off sp 3 Balance in provision account 4 Closing balance required to be maintaine 74,800 (37,800) 37,000 154,650 Given in Note 2 Bad debt expense to be created in P&L 117,650 (4-3)

Ans 4As per Note 2, Accounts receivable balance includes only amounts received from sales revenue and not rental revenue. Also there is no other head which specifies that there is a receivable balance of rent In absence of any specific information, we assume the entire rent charged to Income statement has been received in cash during the year Therefore rent amount received in cash $150,000