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1. Determine Cash Balance
2. Recording Bad Debts
3. Inventoriable Costs–Error Adjustments
4. (FIFO, LIFO and Average Cost Determination)
1.
(Determine Cash Balance)
Presented below are a number of independent situations.
For each individual situation, determine the amount that should be reported as cash.
| 1. |
Checking account balance
$ 925,000; certificate of deposit $1,400,000; cash advance to subsidiary of $980,000; utility deposit paid to gas company $180. $ |
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2. |
Checking account balance $ 500 ,000; an overdraft in special checking account at same bank as normal checking account of $17,000; cash held in a bond sinking fund $200,000; petty cash fund $300; coins and currency on hand $1,350. $ |
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3. |
Checking account balance $590,000; postdated check from customer $11,000; cash restricted due to maintaining compensating balance requirement of $100,000; certified check from customer $9, 800 ; postage stamps on hand $620. $ |
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4. |
Checking account balance at bank $42,000; money market balance at mutual fund (has checking privileges) $48,000; NSF check received from customer $800. $ |
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5. |
Checking account balance $ 700 ,000; cash restricted for future plant expansion $500,000; short-term Treasury bills $180,000; cash advance received from customer $ 900 (not included in checking account balance); cash advance of $7,000 to company executive, payable on demand; refundable deposit of $26,000 paid to federal government to guarantee performance on construction contract. | $ |
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2. Recording Bad Debts)
3. At the end of 2010 Sorter Company has accounts receivable of $900,000 and an allowance for doubtful accounts of $40,000. On January 16, 2011, Sorter Company determined that its receivable from Ordonez Company of $8,000 will not be collected, and management authorized its write-off.
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(a) |
Prepare the journal entry for Sorter Company to write off the Ordonez receivable. |
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Description/Account |
Debit |
Credit |
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4.
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(b) |
What is the net realizable value of Sorter Company’s accounts receivable before the write-off of the Ordonez receivable? |
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5.
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(c) |
What is the net realizable value of Sorter Company’s accounts receivable after the write-off of the Ordonez receivable? |
3. Inventoriable Costs–Error Adjustments)
Werth Company asks you to review its December 31, 2010, inventory values and prepare the necessary adjustments to the books. The following information is given to you.
1. Werth uses the periodic method of recording inventory. A physical count reveals $234,890 of inventory on hand at December 31, 2010.
2. Not included in the physical count of inventory is $10,420 of merchandise purchased on December 15 from Browser. This merchandise was shipped f.o.b. shipping point on December 29 and arrived in January. The invoice arrived and was recorded on December 31.
3. Included in inventory is merchandise sold to Bubbey on December 30, f.o.b. destination. This merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale on account for $12,800 on December 31. The merchandise cost $7,350, and Bubbey received it on January 3.
4. Included in inventory was merchandise received from Dudley on December 31 with an invoice price of $15,630. The merchandise was shipped f.o.b. destination. The invoice, which has not yet arrived, has not been recorded.
5. Not included in inventory is $8,540 of merchandise purchased from Minsky Industries. This merchandise was received on December 31 after the inventory had been counted. The invoice was received and recorded on December 30.
6. Included in inventory was $10,438 of inventory held by Werth on consignment from Jackel Industries.
7. Included in inventory is merchandise sold to Sims f.o.b. shipping point. This merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale for $18,900 on December 31. The cost of this merchandise was $11,520, and Sims received the merchandise on January 5.
8. Excluded from inventory was a carton labeled “Please accept for credit.” This carton contains merchandise costing $
1,500
which had been sold to a customer for $2,
600
. No entry had been made to the books to reflect the return, but none of the returned merchandise seemed damaged.
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Determine the proper inventory balance for Werth Company at December 31, 2010. |
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Prepare any correcting entries to adjust inventory to its proper amount at December 31, 2010. Assume the books have not been closed. |
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(To reverse sale entry in 2010.) |
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(To record purchase of merchandise in 2010.) |
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(To record merchandise returned.) |
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4. (
FIFO
,
LIFO
and
Average Cost
Determination)
LoBianco Company’s record of transactions for the month of April was as follows.
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Purchases |
Sales |
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April 1 |
(Balance on hand) |
600 |
@ $6.00 |
April 3 |
500 |
@ $10.00 |
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4 |
1,500 |
@ $6.08 |
9 |
1,300 |
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8 |
800 |
@ $6.40 |
11 |
@ $11.00 |
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13 |
1,200 |
@ $6.50 |
23 |
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21 |
700 |
@ $6.60 |
27 |
900 |
@ $12.00 |
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29 |
@ $6.79 |
4,500 |
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5,300 |
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Assuming that periodic inventory records are kept in units only, compute the inventory at April 30 using (1) LIFO and (2) average cost. |
| LIFO | |
| Average Cost |
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Assuming that perpetual inventory records are kept in dollars, determine the inventory using (1) FIFO and (2) LIFO. |
| FIFO |
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Compute cost of goods sold assuming periodic inventory procedures and inventory priced at FIFO. |
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Cost of goods sold |
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(d) |
In an inflationary period, which inventory method–FIFO, LIFO, average cost–will show the highest net income? |
