Problems: Final Review Intermediate 1

Final Review Intermediate 1
PROBLEMS
Pr. 3-178—Adjusting entries and account classification.
Selected amounts from Trent Company's trial balance of 12/31/10 appear below:
1. Accounts Payable € 160,000
2. Accounts Receivable 150,000
3. Accumulated Depreciation—Equipment 200,000
4. Allowance for Doubtful Accounts 20,000
5. Bonds Payable 500,000
6. Cash 150,000
7. Equipment 840,000
8. Insurance Expense 30,000
9. Interest Expense 10,000
10. Merchandise Inventory 300,000
11. Notes Payable (due 6/1/11) 200,000
12. Prepaid Rent 150,000
13. Retained Earnings 818,000
14. Salaries and Wages Expense 328,000
15. Share Capital–Ordinary 60,000
(All of the above accounts have their standard or normal debit or credit balance.)
Part A. Prepare adjusting journal entries at year end, December 31, 2010, based on the
following supplemental information.
a. The equipment has a useful life of 15 years with no salvage value. (Straight-line method being
used.)
b. Interest accrued on the bonds payable is €15,000 as of 12/31/10.
c. Expired insurance at 12/31/10 is €20,000.
d. The rent payment of €150,000 covered the six months from November 30, 2010 through May
31, 2011.
e. Salaries and wages earned but unpaid at 12/31/10, €22,000.
Part B. Indicate the proper statement of financial position classification of each of the 15
numbered accounts in the 12/31/10 trial balance before adjustments by placing
appropriate numbers after each of the following classifications. If the account title would
appear on the income statement, do not put the number in any of the classifications.
a. Property, plant, and equipment
b. Current assets
c. Equity
d. Non-current liabilities
e. Current liabilities
Solution 3-178
Part A.
a. Depreciation Expense—Equipment (€840,000 – 0)  15 ............... 56,000
Accumulated Depreciation—Equipment ............................. 56,000
b. Interest Expense ........................................................................... 15,000

Interest Payable ................................................................. 15,000
Page 1 of 33 Ehab Abdou (97672930)

c. Prepaid Insurance ......................................................................... 10,000
Insurance Expense (€30,000 - €20,000) ............................ 10,000
d. Rent Expense (€150,000  6)......................................................... 25,000

Prepaid Rent ..................................................................... 25,000
e. Salaries and Wages Expense ....................................................... 22,000

Salaries and Wages Payable ............................................. 22,000
Part B.
a. Property, plant, and equipment—3, 7
b. Current assets—2, 4, 6, 10, 12
c. Equity—13, 15
d. Non-current liabilities—5
e. Current liabilities—1, 11
Pr. 3-180—Adjusting and closing entries.

The following trial balance was taken from the books of Fisk Corporation on December 31, 2010.
Account Debit Credit
Cash $ 12,000
Accounts Receivable 40,000
Note Receivable 7,000
Allowance for Doubtful Accounts $ 1,800
Merchandise Inventory 44,000
Prepaid Insurance 4,800
Furniture and Equipment 125,000
Accumulated Depreciation--F. & E. 15,000
Accounts Payable 10,800
Share Capital–Ordinary 44,000
Retained Earnings 55,000
Sales 280,000
Cost of Goods Sold 111,000
Salaries Expense 50,000
Rent Expense 12,800
Totals $406,600 $406,600
At year end, the following items have not yet been recorded.
a. Insurance expired during the year, $2,000.
b. Estimated bad debts, 1% of gross sales.
c. Depreciation on furniture and equipment, 10% per year.
d. Interest at 6% is receivable on the note for one full year.
*e. Rent paid in advance at December 31, $5,400 (originally charged to expense).
f. Accrued salaries at December 31, $5,800.
Instructions
(a) Prepare the necessary adjusting entries.
(b) Prepare the necessary closing entries.
Solution 3-180
(a) Adjusting Entries
a. Insurance Expense ............................................................... 2,000
Prepaid Insurance ........................................................ 2,000
b. Bad Debt Expense ................................................................ 2,800
Allowance for Doubtful Accounts .................................. 2,800
c. Depreciation Expense .......................................................... 12,500
Accumulated Depreciation--F. & E. .............................. 12,500
d. Interest Receivable ............................................................... 420
Interest Revenue ......................................................... 420
*e. Prepaid Rent ........................................................................ 5,400
Rent Expense .............................................................. 5,400
f. Salaries Expense .................................................................. 5,800
Salaries Payable .......................................................... 5,800
(b) Closing Entries

Sales ........................................................................................... 280,000
Interest Revenue ......................................................................... 420
Income Summary .............................................................. 280,420
Income Summary ......................................................................... 191,500

Salaries Expense ............................................................... 55,800
Rent Expense .................................................................... 7,400
Depreciation Expense ........................................................ 12,500
Bad Debt Expense ............................................................. 2,800
Insurance Expense ............................................................ 2,000
Cost of Goods Sold ............................................................ 111,000
Income Summary ......................................................................... 88,920

Retained Earnings ............................................................. 88,920
Ex. 3-170—Adjusting entries.

Present, in journal form, the adjustments that would be made on July 31, 2011, the end of the fiscal
year, for each of the following.
1. The supplies inventory on August 1, 2010 was €7,350. Supplies costing €20,150 were acquired
during the year and charged to the supplies inventory. A count on July 31, 2011 indicated
supplies on hand of €8,810.
2. On April 30, a ten-month, 9% note for €20,000 was received from a customer.
*3. On March 1, €12,000 was collected as rent for one year and a nominal account was credited.
Solution 3-170
1. Supplies Expense ................................................................... 18,690
Supplies ........................................................................ 18,690
2. Interest Receivable ................................................................. 450

Interest Revenue .......................................................... 450
*3. Rent Revenue ......................................................................... 7,000

Unearned Revenue ...................................................... 7,000

PROBLEMS
Pr. 4-146—Income statement.
Presented below is information (in thousands) related to Chen Company.
Retained earnings, December 31, 2010 ¥ 650,000

Sales 1,400,000
Selling and administrative expenses 240,000
Loss on disposal of component (pre-tax) 290,000
Cash dividends declared on common stock 33,600
Cost of goods sold 780,000
Gain resulting from computation error on depreciation charge in 2009 (pre-tax) 520,000
Rent revenue 120,000
Impairment loss 90,000
Interest expense 10,000
Instructions
Prepare in good form an income statement for the year 2011. Assume a 30% tax rate and that
there were 80,000 ordinary shares outstanding during the year.
Solution 4-146
Chen Company
INCOME STATEMENT
For the Year Ended December 31, 2011
Sales ¥1,400,000
Gross profit 620,000
Selling and administrative expenses 240,000
Other income and expense 120,000
Impairment loss 90,000
Income from operations 410,000
Income before taxes 400,000
Income taxes (120,000)
Income from continuing operations 280,000
Discontinued operations, net of applicable income taxes of ¥87,000 (203,000)
Net income ¥ 77,000
Per share—
Income from continuing operating ¥ 3.50
Discontinued operations net of tax (2.54)
Net income ¥ 0.96

Pr. 4-147—Income statement form.
Wilcox Corporation had income from continuing operations of $800,000 (after taxes) in 2011. In
addition, the following information has not been considered.
1. A machine was sold for $140,000 cash during the year at a time when its book value was
$110,000. (Depreciation has been properly recorded.) The company often sells machinery of
this type.
2. Wilcox decided to discontinue its stereo division in 2011. During the current year, the loss on
the disposal of this component of the business was $150,000 less applicable taxes.
Instructions
Present in good form the income statement of Wilcox Corporation for 2011 starting with "income
from continuing operations." Assume that Wilcox's tax rate is 30% and 200,000 ordinary shares
were outstanding during the year.
Solution 4-147
Wilcox Corporation
Partial Income Statement
Income from continuing operations $821,000*

Discontinued operations
Loss on disposal of a component of a business,
$150,000, less applicable income taxes, $45,000 (105,000)
Net income $716,000
Per share—Income from cont. operations $4.11
Discontinued operations, net of tax (0.53)
Net income $3.58
*Income from cont. operations (unadjusted) $800,000
Gain on sale of machinery (after tax) 21,000
Income from cont. operations (adjusted) $821,000

Shown below is an income statement for 2011 that was prepared by a poorly trained bookkeeper
of Howell Corporation.
Howell Corporation
INCOME STATEMENT
December 31, 2011
Sales revenue $945,000
Investment revenue 19,500
Cost of merchandise sold (408,500)
Selling expenses (145,000)
Administrative expense (215,000)
Interest expense (13,000)
Income before special item 183,000
Special item
Loss on disposal of a component of the business (30,000)
Net income tax liability (45,900)
Net income $107,100
Instructions
Prepare a multiple-step income statement for 2011 for Howell Corporation that is presented in
accordance with IFRS (including format and terminology). Howell Corporation has 50,000 ordinary
shares outstanding and has a 30% income tax rate on all tax related items. Round all earnings per
share figures to the nearest cent.
Solution 4-148
Howell Corporation
INCOME STATEMENT
Sales $945,000
Selling expenses $145,000
Administrative expenses 215,000 360,000
Other income: Investment revenue 19,500
Income before income taxes 183,000
Income taxes 54,900
Loss from discontinued operations, net of applicable income tax of $9,000 21,000
Net income $107,100
Per share of share—

Income from continuing operations $2.56
Discontinued operations loss net of tax (0.42)
Net income $2.14


Presented below is an income statement for Kinder Company for the year ended December 31,
2011.
Kinder Company
Income Statement
Net sales $800,000

Costs and expenses:
Selling, general, and administrative expenses 70,000
Other, net 20,000 730,000
Income taxes 21,000
Net income $ 49,000
Additional information:
1. "Selling, general, and administrative expenses" included a charge of $7,000 for impairment of
intangibles.
2. "Other, net" consisted of interest expense, $10,000, and a discontinued operations loss of
$10,000 before taxes. If the loss had not occurred, income taxes for 2011 would have been
$24,000 instead of $21,000.
3. Kinder had 20,000 ordinary shares outstanding during 2011.
Instructions
Prepare a corrected income statement, including the appropriate per share disclosures.

Solution 4-149
Kinder Company
Income Statement
Net sales $800,000

Gross profit $160,000
Selling, general, and administrative expenses 63,000
Other income and expense
Loss on impairment 7,000
Income before taxes 80,000
Income taxes 24,000
Loss on disposal of component 10,000
Less applicable taxes 3,000 7,000
Net income $ 49,000
Per share—
Income from continuing operations $2.80
Discontinued operations, net of tax (0.35)
Net income $2.45

Pr. 4-150—Income statement and retained earnings statement.
Wang Corporation's capital structure consists of 50,000 ordinary shares. At December 31, 2011 an
analysis of the accounts and discussions with company officials revealed the following information:
Sales ¥1,100,000
Purchase discounts 18,000
Purchases 642,000
Loss on discontinued operations (net of tax) 42,000
Selling expenses 128,000
Cash 60,000
Accounts receivable 90,000
Share capital 200,000
Accumulated depreciation 180,000
Dividend revenue 8,000
Inventory, January 1, 2011 152,000
Inventory, December 31, 2011 125,000
Unearned service revenue 4,400
Accrued interest payable 1,000
Land 370,000
Patents 100,000
Retained earnings, January 1, 2011 290,000
General and administrative expenses 150,000
Dividends declared 29,000
Allowance for doubtful accounts 5,000
Notes payable (maturity 7/1/14) 200,000
Machinery and equipment 450,000
Materials and supplies 40,000
Accounts payable 60,000
The amount of income taxes applicable to ordinary income was ¥48,600, excluding the tax effect of
the discontinued operations loss which amounted to ¥18,000.
Instructions
(a) Prepare an income statement.
(b) Prepare a retained earnings statement.

Solution 4-150
Wang Corporation
INCOME STATEMENT
Sales ¥1,100,000
Cost of goods sold:
Merchandise inventory, Jan. 1 ¥152,000
Purchases ¥642,000
Less purchase discounts 18,000
Net purchases 624,000
Merchandise available for sale 776,000
Less merchandise inv., Dec. 31 125,000

Selling expenses 128,000
General and administrative expenses 150,000 278,000
Other income and expense:
Dividend revenue 8,000
Income taxes 48,600
Loss on disposal, less applicable taxes of $18,000 42,000
Net income ¥ 71,400
Per share of share capital—

Income from continuing operations ¥2.27
Discontinued operations, (0.84)
Net income ¥1.43
Wang Corporation
RETAINED EARNINGS STATEMENT
Retained earnings, January 1, 2011 ¥290,000

Add: Net income ¥71,400
Deduct: Dividends declared 29,000 42,400
Retained earnings, December 31, 2011 ¥332,400

PROBLEMS
Pr. 5-130—Statement of financial position presentation.

The following statement of financial position was prepared by the bookkeeper for Kraus Company
as of December 31, 2012.
Kraus Company
Statement of Financial Position
as of December 31, 2012
Investments £ 76,300 Shareholders' equity £218,500

Equipment (net) 96,000 Non-current liabilities 100,000
Patents 32,000 Accounts payable 75,000
Inventories 57,000
Accounts receivable (net) 52,200
Cash 80,000
£393,500 £393,500
The following additional information is provided:

1. Cash includes the cash surrender value of a life insurance policy £9,400, and a bank overdraft
of £2,500 has been deducted.
2. The net accounts receivable balance includes:
(a) accounts receivable—debit balances £60,000;
(b) accounts receivable—credit balances £4,000;
(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 share capital–ordinary, trading £19,000 and available-for-
sale £48,300, and franchises £9,000.
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 statement of financial position in good form (shareholders' equity details can be
omitted.)

Solution 5-130
Kraus Company
As of December 31, 2012
Assets
Investments
Available-for-sale securities £48,300
Cash surrender value 9,400 £57,700
Property, plant, and equipment

Equipment 135,000 (5)
Less accumulated depreciation 40,000 95,000
Intangible assets
Patents 32,000
Franchises 9,000 41,000
Current assets
*Equipment held for sale 1,000 (4)
Inventories 60,000 (3)
Accounts receivable £ 57,000 (2)
Less: Allowance for doubtful accounts 3,800 53,200
Trading securities 19,000
Cash 73,100 (1)
Total current assets 206,300
Total assets £400,000
Equity and Liabilities

Shareholders' equity £ 218,500
Non-current liabilities £100,000
Current liabilities
Accounts payable £ 79,000 (6)
Bank overdraft 2,500
Total current liabilities 81,500
Total liabilities 181,500
Total liabilities and shareholders' equity £400,000
(1) (£80,000 – £9,400 + £2,500)

(2) (6£0,000 – £3,000)
(3) (£57,000 + £3,000)
(4) (£5,000 – £4,000)
(5) (£96,000 + £40,000 – £5,000 + £4,000)
(6) (£75,000 + £4,000)
*An alternative is to show it as an other asset.

Pr. 5-131—Statement of financial position presentation.
Given the following account information for Leong Corporation, prepare a statement of financial
position in report form for the company as of December 31, 2012. All accounts have normal
balances.
Equipment ¥ 40,000
Interest Expense 2,400
Interest Payable 600
Retained Earnings ?
Dividends 50,400
Land 137,320
Inventory 102,000
Bonds Payable 78,000
Notes Payable (due in 6 months) 14,400
Share capital–ordinary 60,000
Accumulated Depreciation - Eq. 10,000
Prepaid Advertising 5,000
Revenue 331,400
Buildings 80,400
Supplies 1,860
Taxes Payable 3,000
Utilities Expense 1,320
Advertising Expense 1,560
Salary Expense 53,040
Salaries Payable 900
Accumulated Depr. - Bld. 15,000
Cash 30,000
Depreciation Expense,
Building & Equipment 8,000

Solution 5-131
Leong Corporation
December 31, 2012
Assets
Property, Plant and Equipment
Land ¥137,320
Building ¥ 80,400
Accumulated depreciation - building (15,000) 65,400
Equipment 40,000
Accumulated depreciation -equipment (10,000) 30,000
Total Property, Plant and Equipment ¥232,720
Current Assets
Inventory 102,000
Supplies 1,860
Prepaid advertising 5,000
Cash 30,000
Total Current Assets 138,860
Total assets ¥ 371,580
Equity & Liabilities

Equity
Share capital-ordinary ¥60,000
Retained earnings (¥265,080*- ¥50,400) 214,680
Total shareholders' equity ¥ 274,680
Non-current liabilities
Bond payable 78,000
Current Liabilities
Notes payable ¥ 14,400
Taxes payable 3,000
Salaries payable 900
Interest payable 600
Total current liabilities 18,900
Total liabilities 96,900
Total liabilities & stockholders' equity ¥ 371,580
*¥331,400 - ¥53,040 - ¥8,000 - ¥2,400 - ¥1,560 - ¥1,320

Pr. 5-132—Statement of cash flows preparation.
Selected financial statement information and additional data for Stanislaus Co. is presented below.
Prepare a statement of cash flows for the year ending December 31, 2012
December 31
2011 2012
Land € 58,800 € 21,000
Equipment .............................................. 504,000 789,600
Inventory ................................................ 168,000 201,600
Accounts receivable (net) ....................... 84,000 151,200
Cash....................................................... 42,000 63,000
TOTAL ........................................ €856,800 €1,226,400
Share capital–ordinary............................ €420,000 € 487,200

Retained earnings .................................. 67,200 205,800
Notes payable - Long-term ..................... 168,000 302,400
Notes payable - Short-term .................... 67,200 29,400
Accounts payable ................................... 50,400 86,000
Accumulated depreciation ...................... 84,000 115,600
TOTAL ........................................ €856,800 €1,226,400
Additional data for 2012:

1. Net income was €235,200.
2. Depreciation was €31,600.
3. Land was sold at its original cost.
4. Dividends of €96,600 were paid.
5. Equipment was purchased for €84,000 cash.
6. A long-term note for €201,600 was used to pay for an equipment purchase.
7. Share capital–ordinary was issued to pay a €67,200 long-term note payable.

Solution 5-132
Stanislaus Co.
Statement of Cash Flows
For the year ended December 31, 2012
Net Income €235,200

Cash flow from operating activities
Depreciation expense €31,600
Increase in accounts receivable (67,200)
Increase in inventory (33,600)
Increase in accounts payable 35,600
Decrease in short-term notes payable (37,800) (71,400)
Net cash provided by operating activities 163,800
Cash flow from investing activities

Purchase equipment (84,000)
Sale of land 37,800
Net cash used by investing activities (46,200)
Cash flow from financing activities

Payment of cash dividend (96,600)
Net increase in cash 21,000
Cash at beginning of year 42,000
Cash at end of the year €63,000
Noncash investing and financing activities

Payment of long-term note payable with issuance of €67,200 of share capital–ordinary
Long-term note issued as payment of equipment purchase, €201,600

Pr. 5-133—Statement of cash flows preparation.
Selected financial statement information and additional data for Johnston Enterprises is presented
below. Prepare a statement of cash flows for the year ending December 31, 2012
Johnston Enterprises
Statement of Financial Position and Income Statement Data
December 31, December 31,
2012 2011___
Property, Plant, and Equipment HK$1,241,000 HK$1,122,000
Less: Accumulated Depreciation (476,000) (442,000)
765,000 680,000
Current Assets:
Inventory 391,000 340,000
Accounts Receivable 238,000 306,000
Cash 153,000 119,000
Total Current Assets 782,000 765,000
Total Assets HK$1,547,000 HK$1,445,000
Shareholders' Equity:
Share capital–ordinary HK$ 510,000 HK$ 467,500
Retained Earnings 374,000 340,000
Total Shareholders' Equity 884,000 807,500
Non-Current Liabilities:
Bonds Payable 340,000 391,000
Current Liabilities:
Accounts Payable 187,000 102,000
Notes Payable 51,000 68,000
Income Tax Payable 85,000 76,500
Total Current Liabilities 323,000 246,500
Total Liabilities 663,000 637,500
Total Liabilities & Shareholders' Equity HK$1,547,000 HK$1,445,000
Sales HK$1,615,000 HK$1,513,000

Less Cost of Goods Sold 731,000 731,000
Gross Profit 884,000 782,000
Expenses:
Depreciation Expense 153,000 136,000
Salary Expense 391,000 357,000
Interest Expense 34,000 34,000
Loss on Sale of Equipment 17,000 0
Income Before Taxes 289,000 255,000
Less Income Tax Expense 119,000 102,000
Net Income HK$ 170,000 HK$ 153,000
Additional Information:
During the year, Johnston sold equipment with an original cost of HK$153,000 and accumulated
depreciation of HK$119,000 and purchased new equipment for HK$272,000.

Solution 5-133
Johnston Enterprises
Statement of Cash Flows
Net Income HK$ 170,000
Cash flow from operating activities

Depreciation expense HK$153,000
Loss on sale of equipment 17,000
Decrease in accounts receivable 68,000
Increase in inventory (51,000)
Increase in accounts payable 85,000
Decrease in notes payable (17,000)
Increase in tax payable 8,500 263,500
Net cash provided by operating activities 433,500
Cash flow from investing activities

Sale of equipment 17,000
Purchase of equipment (272,000)
Net cash used by investing activities (255,000)
Cash flow from financing activities

Retirement of bonds payable (51,000)
Issuance of share capital–ordinary 42,500
Payment of dividends (136,000)**
Net cash used by financing activities (144,500)
Net increase in cash 34,000

Beginning cash 119,000
Cash at end of year HK$153,000
**Beginning R/E  Net income  Dividends  Ending R/E

HK$340,000  HK$170,000  Dividends  HK$374,000
Dividends  HK$136,000

PROBLEMS
Pr. 7-159—Entries for bad debt expense.
The trial balance before adjustment of Risen Company reports the following balances:
Dr. Cr.
Accounts receivable $100,000
Allowance for doubtful accounts $ 2,500
Sales (all on credit) 750,000
Sales returns and allowances 40,000
Instructions
(a) Prepare the entries for estimated bad debts assuming that doubtful accounts are estimated to
be (1) 6% of gross accounts receivable and (2) 1% of net sales.
(b) Assume that all the information above is the same, except that the Allowance for Doubtful
Accounts has a debit balance of $2,500 instead of a credit balance. How will this difference
affect the journal entries in part (a)?
Solution 7-159
(a) (1) Bad Debt Expense ......................................................... 3,500
Allowance for Doubtful Accounts ........................ 3,500
Gross receivables $100,000
Rate 6%
Total allowance needed 6,000
Present allowance (2,500)
Bad debt expense $ 3,500
(2) Bad Debt Expense ......................................................... 7,100

Sales $750,000
Sales returns and allowances (40,000)
Net sales 710,000
Rate 1%
Bad debt expense $ 7,100
(b) The percentage of receivables approach would be affected as follows:
Gross receivables $100,000
Rate 6%
Total allowance needed 6,000
Present allowance 2,500
Additional amount required $ 8,500
The journal entry is therefore as follows:

Bad Debt Expense ......................................................... 8,500

Pr. 7-160—Amortization of discount on note.

On December 31, 2010, Green Company finished consultation services and accepted in exchange
a promissory note with a face value of $400,000, a due date of December 31, 2013, and a stated
rate of 5%, with interest receivable at the end of each year. The fair value of the services is not
readily determinable and the note is not readily marketable. Under the circumstances, the note is
considered to have an appropriate imputed rate of interest of 10%.
The following interest factors are provided:

Interest Rate
Table Factors For Three Periods 5% 10%
Future Value of 1 1.15763 1.33100
Present Value of 1 .86384 .75132
Future Value of Ordinary Annuity of 1 3.15250 3.31000
Present Value of Ordinary Annuity of 1 2.72325 2.48685
Instructions
(a) Determine the present value of the note.
(b) Prepare a Schedule of Note Discount Amortization for Green Company under the effective
interest method. (Round to whole dollars.)
Solution 7-160
(a) Present value of interest = $20,000 × 2.48685 = $ 49,737
Present value of maturity value = $400,000 × .75132 = 300,528
$350,265
(b) Green Company
Schedule of Note Discount Amortization
Effective Interest Method
5% Note Discounted at 10% (Imputed)
Cash Effective Unamortized Present

Interest Interest Discount Discount Value
Date (5%) (10%) Amortized Balance of Note
12/31/10 $49,735 $350,265
12/31/11 $20,000 $ 35,027 $15,027 34,708 365,292
12/31/12 20,000 36,529 16,529 18,179 381,821
12/31/13 20,000 38,179* 18,179 0 400,000
$60,000 $109,735 $49,735
*$3 adjustment to compensate for rounding.
Pr. 7-161—Accounts receivable assigned.

Prepare journal entries for Mars Co. for:
(a) Accounts receivable in the amount of $500,000 were assigned to Utley Finance Co. by Mars as
security for a loan of $425,000. Utley charged a 3% commission on the accounts; the interest
rate on the note is 12%.
(b) During the first month, Mars collected $200,000 on assigned accounts after deducting $450 of
discounts. Mars wrote off a $530 assigned account.
(c) Mars paid to Utley the amount collected plus one month's interest on the note.

Solution 7-161
(a) Cash ....................................................................................... 410,000
Finance Charge......................................................................... 15,000
Notes Payable ............................................................... 425,000
(b) Cash ....................................................................................... 200,000

Sales Discounts ........................................................................ 450
Allowance for Doubtful Accounts ............................................... 530
Accounts Receivable ..................................................... 200,980
(c) Notes Payable ........................................................................... 200,000

Interest Expense ....................................................................... 4,250
Cash .............................................................................. 204,250

Pr. 7-162—Factoring Accounts Receivable.
On May 1, Dexter, Inc. factored $800,000 of accounts receivable with Quick Finance on a without
recourse basis. Under the arrangement, Dexter was to handle disputes concerning service, and
Quick Finance was to make the collections, handle the sales discounts, and absorb the credit
losses. Quick Finance assessed a finance charge of 6% of the total accounts receivable factored
and retained an amount equal to 2% of the total receivables to cover sales discounts.
Instructions
(a) Prepare the journal entry required on Dexter's books on May 1.
(b) Prepare the journal entry required on Quick Finance’s books on May 1.
(c) Assume Dexter factors the $800,000 of accounts receivable with Quick Finance on a with
recourse basis instead. Prepare the journal entry required on Dexter’s books on May 1.
Solution 7-162
(a) Cash ............................................................................................. 736,000
Due from Factor (2% × $800,000)................................................. 16,000
Loss on Sale of Receivables (6% × $800,000) ............................. 48,000
Accounts Receivable .................................................... 800,000
(b) Accounts Receivable .................................................................... 800,000

Due to Dexter ..................................................................... 16,000
Financing Revenue ............................................................. 48,000
Cash .................................................................................. 736,000
(c) Cash ............................................................................................. 736,000

Due from Factor .......................................................................... 16,000
Finance Charge.. .......................................................................... 48,000
Accounts Receivable .......................................................... 800,000

Ex. 8-173—FIFO and Average Cost Mitchell Company’s record of transactions for the month of
June was as follows.
Purchases Sales
June 1 (balance on hand) 600 @ $3.00 June 3 (balance on hand) 500 @ $5.00
4 1,500 @ 3.04 9 1,300 @ 5.00
8 800 @ 3.20 11 600 @ 5.50
13 1,200 @ 3.25 23 1,200 @ 5.50
21 700 @ 3.30 27 900 @ 6.00
29 500 @ 3.13 4,500
5,300
Instructions
(a) Assuming that periodic inventory records are kept, compute the inventory at
June 30 using (1) FIFO and (2) average cost.
(b) Assuming that perpetual inventory records are kept in both units and dollars, determine the
inventory at June 30 using (1) FIFO and (2) average cost.
Solution 8-173
(a) 1. FIFO 500 @ 3.13 = $1,565

300 @ 3.30 = 990
$2,555
2. Average Cost
Total cost = $16,695* = $3.15 average cost per unit
Total units 5,300
800 @ 3.15 = $2,520
*Units Price Total Cost
600 @ $3.00 = $1,800
1,500 @ $3.04 = 4,560
800 @ $3.20 = 2,560
1,200 @ $3.25 = 3,900
700 @ $3.30 = 2,310
500 @ $3.13 = 1,565
5,300 $16,695

Solution 8-173 (Continued)
(b) 1. FIFO 500 @ 3.13 = $1,565

300 @ 3.30 = 990
$2,555
2. Average Cost
Purchase Sold Balance

No. of Unit No. of Unit No. of Unit
Date units cost units cost units cost Amount
June 1 600 $3.0000 $1,800
3 500 $3.000 100 3.0000 300
4 1,500 $3.04 1,600 3.0375 4,860
8 800 3.20 2,400 3.0917 7,420
9 1,300 3.0917 1,100 3.0917 3,401
11 600 3.0917 500 3.0917 1,546
13 1,200 3.25 1,700 3.2035 5,446
21 700 3.30 2,400 3.2317 7,756
23 1,200 3.2317 1,200 3.2317 3,878
27 900 3.2317 300 3.2317 969
29 500 3.13 800 3.1675 2,534
Inventory June 30 is $2,534
PROBLEMS
Pr. 8-178—Inventory cut-off.
Vogts Company sells TVs. The perpetual inventory was stated as $28,500 on the books at
December 31, 2010. At the close of the year, a new approach for compiling inventory was used
and apparently a satisfactory cut-off for preparation of financial statements was not made. Some
events that occurred are as follows.
1. TVs shipped to a customer January 2, 2011, costing $5,000 were included in inventory at
December 31, 2010. The sale was recorded in 2011.
2. TVs costing $12,000 received December 30, 2010, were recorded as received on January 2,
2011.
3. TVs received during 2010 costing $4,600 were recorded twice in the inventory account.
4. TVs shipped to a customer December 28, 2010, f.o.b. shipping point, which cost $10,000, were
not received by the customer until January, 2011. The TVs were included in the ending
inventory.
5. TVs on hand that cost $6,100 were never recorded on the books.
Instructions
Compute the correct inventory at December 31, 2010.

Solution 8-178
Inventory per books $28,500
Add: Shipment received 12/30/10 $12,000
TVs on hand 6,100 18,100
46,600
Deduct: TVs recorded twice 4,600

TVs shipped 12/28/10 10,000 14,600
Correct inventory 12/31/10 $32,000
Pr. 8-179—Analysis of errors.

(All sales and purchases are on credit.)
Indicate in each of the spaces provided the effect of the described errors on the various elements
of a company's financial statements. Use the following codes: O = amount is overstated; U =
amount is understated; NE = no effect. Assume a periodic inventory system.
Accounts Accounts Cost of

Receivable Inventory Payable Sales Goods Sold
EXAMPLE: Excluded goods in rented
warehouse from inventory NE U NE NE O
count.
___________________________________________________________________________
1. Goods in transit shipped "f.o.b.
destination" by supplier were
recorded as a purchase but were
excluded from ending inventory.
___________________________________________________________________________
2. Goods held on consignment were
included in inventory count and
recorded as a purchase.
___________________________________________________________________________
3. Goods in transit shipped "f.o.b.
shipping point" were not recorded
as a sale and were included in
ending inventory.
___________________________________________________________________________
4. Goods were shipped and appro-
priately excluded from ending
inventory but sale was not
recorded.
___________________________________________________________________________
Solution 8-179
1. NE NE O NE O
2. NE O O NE NE
3. U O NE U U
4. U NE NE U NE

Ex. 9-145—Lower-of-cost-or-net realizable value.
The December 31, 2010 inventory of Gwynn Company consisted of four products, for which certain
information is provided below.
Estimated Expected Estimated
Product Original Cost Completion Cost Selling Price Cost to sell
A $25 $6 $40 $4
B $42 $12 $58 $8
C $120 $25 $150 $15
D $18 $3 $26 $2
Instructions
Using the lower-of-cost-or-net realizable value approach applied on an individual-item basis,
compute the inventory valuation that should be reported for each product on December 31, 2010.
Solution 9-145
Lower-of-
Net Real. Cost-or-
Product Value Cost NRV
A $30 $25 $25
B $38 $42 $38
C $110 $120 $110
D $21 $18 $18
Ex. 9-146—LCNRV
Pinkel Company uses the LCNRV method, on an individual-item basis, in pricing its inventory
items. The inventory at December 31, 2011, consists of products D,E,F,G,H, and I, Relavant per-
unit data for these products appear below.
Item Item Item Item Item Item
D E F G H I
Estimated selling price €180 €165 €140 €135 €165 €135
Cost 110 120 120 120 75 54
Cost to complete 45 45 35 50 45 45
Selling costs 15 27 15 30 15 30
Instructions
Using the LCNRV rule, determine the proper unit value for statement of financial position reporting
purposes at December 31, 2011, for each of the inventory items above.

Solution 9-146
Net
Realizable.
Item Value Cost LCNRV
D €120* €110 €110
E 93 120 93
F 90 120 90
G 55 120 55
H 105 75 75
1 60 54 54
*Estimated selling price – Estimated selling costs and cost to
complete = €180 – €45 – €15 = €120.
Ex. 9-147—LCNRV—Journal Entries

Dover Company began operations in 2010 and determined its ending inventory at cost and at a
LCNRV at December 31, 2010, and December 31, 2011. This information is presented below.
Cost Net Realizable Value
12/31/10 £520,000 £485,000
12/31/11 615,000 585,000
Instructions
(a) Prepare the journal entries required at December 31, 2010, and December 31, 2011,
assuming that the inventory is recorded at LCNRV, using a perpetual inventory system and
the cost-of-goods-sold method.
(b) Prepare the journal entries required at December 31, 2010, and December 31, 2011,
assuming that the inventory is recorded at cost, using a perpetual system and the loss
method.
(c) Which of the two methods above provides the higher net income in each year?
Solution 9-147
(a) 12/31/10 Cost of Goods Sold …………………………………35,000
Allowance to Reduce
Inventory to NRV…………………….. 35,000
12/31/11 Allowance to Reduce

Inventory to NRV……………………………..5,000
Costs of Goods Sold………………… 5,000
₤35,000 – (₤615,000 – ₤585,000)
(b) 12/31/10 Loss Due to Decline of

Inventory to NRV……………………………35,000
Allowance to Reduce
Inventory to NRV………….. 35,000

Solution 9-147 cont.
12/31/11 Allowance to Reduce

Inventory to NRV……………………………..5,000
Recovery or Inventory Loss………… 5,000
(c) Both methods provide the same net income.
Ex. 9-150—Gross profit method.

An inventory taken the morning after a large theft discloses $60,000 of goods on hand as of March
12. The following additional data is available from the books:
Inventory on hand, March 1 $ 84,000

Purchases received, March 1 – 11 63,000
Sales (goods delivered to customers) 120,000
Past records indicate that sales are made at 50% above cost.
Instructions
Estimate the inventory of goods on hand at the close of business on March 11 by the gross profit
method and determine the amount of the theft loss. Show appropriate titles for all amounts in your
presentation.
Solution 9-150
Beginning Inventory $ 84,000
Purchases 63,000
Goods Available 147,000
Goods Sold ($120,000 ÷ 150%) 80,000
Estimated Ending Inventory 67,000
Physical Inventory 60,000
Theft Loss $ 7,000

On January 1, a store had inventory of $48,000. January purchases were $46,000 and January
sales were $90,000. On February 1 a fire destroyed most of the inventory. The rate of gross profit
was 25% of cost. Merchandise with a selling price of $5,000 remained undamaged after the fire.
Compute the amount of the fire loss, assuming the store had no insurance coverage. Label all
figures.
Solution 9-151
Beginning Inventory $ 48,000
Purchases 46,000
Goods available 94,000
Cost of sale ($90,000 ÷ 125%) (72,000)
Estimated ending inventory 22,000
Cost of undamaged inventory ($5,000 ÷ 125%) (4,000)
Estimated fire loss $18,000

Utley Co. prepares monthly income statements. Inventory is counted only at year end; thus, month-
end inventories must be estimated. All sales are made on account. The rate of mark-up on cost is
20%. The following information relates to the month of May.
Accounts receivable, May 1 $21,000

Accounts receivable, May 31 27,000
Collections of accounts during May 90,000
Inventory, May 1 45,000
Purchases during May 58,000
Instructions
Calculate the estimated cost of the inventory on May 31.
Solution 9-152
Collections of accounts $ 90,000
Add accounts receivable, May 31 27,000
Deduct accounts receivable, May 1 (21,000)
Sales during May $ 96,000
Inventory, May 1 $ 45,000

Purchases during May 58,000
Goods available 103,000
Cost of sales ($96,000 ÷ 120%) (80,000)
Estimated cost of inventory, May 31 $ 23,000

Ex. 9-153—Retail Inventory Method.
Presented below is information related to Kuchinsky Company.
Cost Retail
Beginning inventory € 280,000 € 390,000
Purchases 1,820,000 3,000,000
Markups 130,000
Markup cancellations 20,000
Markdowns 47,000
Markdown cancellations 7,000
Sales 3,150,000
Instructions
Compute the inventory by the conventional retail inventory method.
Solution 9-153
Cost Retail
Beginning inventory……………………………. € 280,000 € 390,000
Purchases………………………………………. 1,820,000 3,000,000
Totals……………………………………….. 2,100,000 3,390,000
Add: Net marksups
Markups………………………………………. € 130,000
Markup cancellations………………………… (20,000) 110,000
Totals……………………………………………… €2,100,000 3,500,000
Deduct: Net markdowns

Markdowns…………………………………… 47,000
Markup cancellations………………………… (7,000) 40,000
Sales price of goods available………………….. 3,460,000
Deduct: Sales…………………………………….. 3,150,000
Ending Inventory ay retail……………………….. € 310,000
€2,100,000
Cost-to-retail ratio =  60%
€3,500,000
Ending inventory at cost = 60% × €310,000 = €186,000

Pr. 9-155—Gross profit method.
On December 31, 2010 Felt Company's inventory burned. Sales and purchases for the year had
been $1,400,000 and $980,000, respectively. The beginning inventory (Jan. 1, 2010) was
$170,000; in the past Felt's gross profit has averaged 40% of selling price.
Instructions
Compute the estimated cost of inventory burned, and give entries as of December 31, 2010 to
close merchandise accounts.
Solution 9-155
Beginning inventory $ 170,000
Add: Purchases 980,000
Cost of goods available 1,150,000
Sales $1,400,000
Less 40% (560,000) 840,000
Estimated inventory lost $ 310,000
Sales............................................................................................... 1,400,000
Income Summary ................................................................ 1,400,000
Cost of Goods Sold ......................................................................... 840,000

Fire Loss ......................................................................................... 310,000
Inventory ............................................................................. 170,000
Purchases ........................................................................... 980,000
Pr. 9-156—Retail inventory method.

When you undertook the preparation of the financial statements for Telfer Company at January 31,
2011, the following data were available:
At Cost At Retail
Inventory, February 1, 2010 $70,800 $ 98,500
Markdowns 35,000
Markups 63,000
Markup cancellations 10,000
Purchases 219,500 294,000
Sales 345,000
Purchases returns and allowances 4,300 5,500
Sales returns and allowances 10,000
Instructions
Compute the ending inventory at cost as of January 31, 2011, using the retail method which
approximates lower of cost or net realizable value. Your solution should be in good form with
amounts clearly labeled.

Solution 9-156
At Cost At Retail
Beginning inventory, 2/1/10 $ 70,800 $ 98,500
Purchases $219,500 $294,000
Less purchase returns 4,300 215,200 5,500 288,500
Totals $286,000 387,000
Add markups (net) 53,000
Totals 440,000
Deduct markdowns (net) 15,000
Sales price of goods available 425,000
Sales less sales returns 335,000
Ending inventory, 1/31/11 at retail $ 90,000
Ending inventory at cost: Ratio of cost to retail =
$286,000 ÷ $440,000 = 65%;
$90,000 × 65% = $58,500 $ 58,500

Pr. 9-157—Retail inventory method.

Presented below is information related to Carpenter Inc.
Cost Retail
Inventory, 12/31/10 $375,000 $ 550,000
Purchases 1,369,000 2,050,000
Purchase returns 90,000 120,000
Purchase discounts 27,000 –
Gross sales (after employee discounts) – 2,110,000
Sales returns – 145,000
Markups – 180,000
Markup cancellations – 60,000
Markdowns – 65,000
Freight-in 63,000 –
Employee discounts granted – 12,000
Loss from breakage (normal) – 8,000
Instructions
Assuming that carpenter Inc. uses the conventional retail inventory method, compute the cost of its
ending inventory at December 31, 2011.
Solution 9-157
Cost Retail
Beginning Inventory…………………….. $ 375,000 $ 550,000
Purchases……………………………….. 1,369,000 2,050,000
Purchase returns………………………… (90,000) (120,000)
Purchase discounts……………………… (27,000) –
Freight-in………………………………….. 63,000 –
Markups…………………………………… $ 180,000 –
Markup cancellations……………………. (60,000) 120,000
Totals…………………………………. $1,690,000 2,600,000
Markdowns……………………………….. (65,000) –
Markdown cancellations………………… 30,000 (35,000)
Sales………………………………………. (2,110,000) –
Sales returns……………………………… 145,000 (1,965,000)
Inventory losses due to breakage………. (8,000)
Employee discounts……………………… (12,000)
Ending inventory at retail………………… $ 580,000
$1,690,500
Cost-to-retail ratio =  65%
$2,600,000
Ending inventory at cost: $580,000 x 65% = $377,000

Problems: Final Review Intermediate 1

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What adjusting entries were made?

What adjusting entries were made?

What accounts were classified as which type of account?

What accounts were classified as which type of account?

Final Review Intermediate 1

b. Interest Expense ........................................................................... 15,000

Page 1 of 33 Ehab Abdou (97672930)

d. Rent Expense (€150,000  6)......................................................... 25,000

e. Salaries and Wages Expense ....................................................... 22,000

Pr. 3-180—Adjusting and closing entries.

(b) Closing Entries

Income Summary ......................................................................... 191,500

Income Summary ......................................................................... 88,920

Ex. 3-170—Adjusting entries.

2. Interest Receivable ................................................................. 450

*3. Rent Revenue ......................................................................... 7,000

Page 3 of 33 Ehab Abdou (97672930)

Retained earnings, December 31, 2010 ¥ 650,000

Page 4 of 33 Ehab Abdou (97672930)

Income from continuing operations $821,000*

Page 5 of 33 Ehab Abdou (97672930)

Per share of share—

Page 6 of 33 Ehab Abdou (97672930)

Pr. 4-149—Income statement.

Net sales $800,000

Page 7 of 33 Ehab Abdou (97672930)

Net sales $800,000

Page 8 of 33 Ehab Abdou (97672930)

Page 9 of 33 Ehab Abdou (97672930)

Gross profit 449,000

Per share of share capital—

Retained earnings, January 1, 2011 ¥290,000

Page 10 of 33 Ehab Abdou (97672930)

Pr. 5-130—Statement of financial position presentation.

Investments £ 76,300 Shareholders' equity £218,500

The following additional information is provided:

Page 11 of 33 Ehab Abdou (97672930)

Property, plant, and equipment

Equity and Liabilities

(1) (£80,000 – £9,400 + £2,500)

*An alternative is to show it as an other asset.

Page 12 of 33 Ehab Abdou (97672930)

Page 13 of 33 Ehab Abdou (97672930)

Equity & Liabilities

*¥331,400 - ¥53,040 - ¥8,000 - ¥2,400 - ¥1,560 - ¥1,320

Page 14 of 33 Ehab Abdou (97672930)

Share capital–ordinary............................ €420,000 € 487,200

Additional data for 2012:

Page 15 of 33 Ehab Abdou (97672930)

Net Income €235,200

Cash flow from investing activities

Cash flow from financing activities

Noncash investing and financing activities

Page 16 of 33 Ehab Abdou (97672930)

Total Assets HK$1,547,000 HK$1,445,000

Total Liabilities 663,000 637,500

Total Liabilities & Shareholders' Equity HK$1,547,000 HK$1,445,000

Sales HK$1,615,000 HK$1,513,000

Page 17 of 33 Ehab Abdou (97672930)