Download 2138 Exam 2

NAME:_______________________
BUS 321 - Intermediate Financial Accounting 1
Burnett – Fall Quarter 2013
Exam 1
This exam is scheduled to be 110 minutes long. Please make sure you have 7 pages including this
page. Do not start working on this exam until instructed to do so. This is a closed book, closed notes
exam. The use of any electronic device other than a dedicated calculator (i.e., any device that
performs functions other than arithmetic operations) constitutes unauthorized assistance. Students
found to be in possession of such a device during the exam will be given a score of zero.
Cash
1. CASH EQUIVALENTS Instead of 'cash,' most companies report 'cash and cash equivalents.' Briefly define
cash equivalents and state two examples.
2. BANK RECONCILIATION The Balance per Bank Statement is $17,394.60. Calculate the correct cash
balance.
in addition, you are given the following information
1,225.00 Deposit in transit
5,839.70 Outstanding checks
1,800.00 credit memo for a note the bank
collected on our behalf
105.00 interest income credited to our account
70.00 returned check NSF
3. BANK RECONCILIATION The balance per the Gen. Ledger $10,944.90. Calculate the correct cash balance?
in addition, you are given the following information
1,225.00 Deposit in transit
5,839.70 Outstanding checks
1,800.00 credit memo for a note the bank
collected on our behalf
105.00 interest income credited to our account
70.00 returned check NSF
4. Bank Reconciliation Given the information in the previous problems, prepare the entry you would make
as a result of the bank reconciliation.
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Receivables
5. TRADE RECEIVABLES Describe the difference between Trade Discounts and Sales (or cash) Discounts.
RECEIVABLES – NET METHOD On July10th we sold merchandise with an invoice price of $30,000 having
terms 3/10 n/30 (ignore cost of goods sold/inventory). Prepare the following three entries:
6. On July 10th to record the sale
7. On July 13th when the customer returns goods having an invoice price of $4,000
8. On July 18th when we receive a $10,000 check from the customer.
9. RECEIVABLES – GROSS VS. NET METHOD Conceptually, which method of initial measurement of accounts
receivable better represents the economic substance of a credit sales transaction that offers terms 2/10,
n/30? Please explain why to earn any points. It may help to begin by describing the economic substance of
the transaction.
10. BAD DEBT EXPENSE / ALLOWANCE FOR DOUBTFUL ACCOUNTS BURNETT MOTOR CO. had $1,250,000
credit sales. Accounts Receivable had a $209,600 debit balance and Allowance for Doubtful Accounts had
a $4,280 credit balance, before adjustments. Prepare the entry to record Allowance for Doubtful Accounts
if BURNETT MOTOR CO ages accounts receivables to estimate uncollectible accounts.
amount
age
est % uncollectibe
150,000
< 30
2.0%
30,000
31-60
5.0%
20,000
61-90
10.0%
9,600
>90
40.0%
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11. BAD DEBT EXPENSE / ALLOWANCE FOR DOUBTFUL ACCOUNTANTS BURNETT MOTOR CO. ended the
year with accounts receivable of $1,300,000 and a $36,000 debit balance in Allowance for Doubtful
Accounts. Credit Sales totaled $5,000,000. We calculate Bad Debt Expense based on an estimate that 1.5%
of net credit sales will prove uncollectible. What will be the balance in the Allowance for Doubtful
Accounts after the adjustment?
12. WRITE OFF Prepare the entry to write off Wm. Tell’s account which has a balance of $2,500 assuming
the company uses the allowance method.
13. What effect does the entry to write off Wm. Tell’s account have on Total Current Assets?
What dollar effect will the entry have on Net Income (ignore income taxes)?
Current Assets
$________
increase
decrease
no effect on CA
Net Income
$_______
increase
decrease
no effect on NI
Use this information to calculate ratios
for the following problem.
12/31/09 12/31/08
Sales
Cost of goods sold
Gross profit
Accounts receivable
Inventory
4,800.00
2,880.00
1,920.00
600.00
450.00
4,750.00
3,000.00
1,750.00
583.60
510.00
14. ACCOUNTS RECEIVABLE For 2009, calculate the 1) average collection period (assume a 365 day year) and
2) receivables turnover ratio.
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SALE OF RECEIVABLES Use the following information to answer the following two questions. On June 30,
2013, Blondie Fixtures was considering alternatives to bolster its cash position. Option One called for
transferring $400,000 in accounts receivable to Dogwood Finance Company without recourse for a 5% fee.
Option Two calls for Blondie to transfer the $400,000 in receivables to Dogwood with recourse. Dogwood's
charges a 4% fee for receivables factored with recourse. Option Two meets the conditions to be considered a
sale, but Blondie estimates a $3,000 recourse liability. Under either option, Dogwood will immediately remit
90% of the factored receivables to Blondie, and retain 10%. When Dogwood collects the remaining
receivables, it remits the amount, less the fee, to Blondie. Blondie estimates that the fair value of the final 10%
of the receivables is $25,000 (ignoring the factoring fee).
15. Prepare any necessary journal entry or entries if receivables are factored under Option One.
16. Prepare any necessary journal entry or entries if receivables are factored under Option Two.
Inventory
17. WHAT’S INCLUDED IN INVENTORY? The Tucson Corporation's fiscal year ends on December 31. Tucson
determines inventory quantity by a physical count of inventory on hand at the close of business on
December 31. The company's controller has asked for your help in deciding if the following items should
be included in the ending inventory. Please state next to each item include or exclude.
1. Goods purchased from a vendor shipped f.o.b. shipping point on December 24 that arrived on January 4.
2. Goods shipped f.o.b. shipping point on December 27 arrived at the customer's location on January 4.
3. Goods purchased from a vendor shipped f.o.b. destination on December 27 that arrived on January 5.
4. Freight charges on goods purchased in 3.
5. Merchandise held on consignment for Masterwear, Inc.
18. LOWER OF COST OR MARKET
US GAAP requires inventory to be valued at the lower of cost or market (LCM). Why?
Please explain what the floor is in LCM and why it exists?
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PURCHASES – GROSS METHOD - PERPETUAL INVENTORY SYSTEM On July 3rd, 2013 BURNETT MOTOR CO.
purchased merchandise with an invoice price of $50,000 having terms 2/10 n/60 fob destination. The supplier
shipped the merchandise on July 4th. We receive the merchandise on July 5th. Prepare the following three
entries:
19. Prepare the entry to record the purchase with the correct date (xx/xx/2013).
20. On July 10th we return goods having an invoice price of $12,000.
PURCHASES – NET METHOD - PERIODIC INVENTORY SYSTEM On July 3rd, 2013 BURNETT MOTOR CO.
purchased merchandise with an invoice price of $50,000 having terms 2/10 n/60 fob shipping point. The
supplier shipped the merchandise on July 4th. We receive the merchandise on July. 5th. Prepare the
following three entries:
21. Prepare the entry to record the purchase with the correct date (xx/xx/2013).
22. On July 12h when we write a check for $15,000 to pay on our account.
23. On July 29th when we write a check to pay the remaining balance in or account.
COST FLOW ASSUMPTIONS - PERIODIC BURNETT MOTOR CO. sold 80 units for $25 each. Use the
following information for the next two problems:
qty
beginning
purchase
purchase
15
30
55
available
sold
inventory
100
80
20
cost
15.00
13.00
12.00
225
390
660
1,275
24. Prepare the closing entry, using Average Cost / Periodic to calculate Cost of Goods Sold and ending
Inventory.
25. Use LIFO - Periodic to calculate Cost of Goods Sold and ending Inventory.
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COST FLOW ASSUMPTIONS - PERPETUAL Use the information presented below to for the next two problems:
Qty
2-Jan
Purchases
Cost
10
qty
15 150
4-Jan
14-Jan
35
20
5
20
25
20
10
20
13 455
15-Jan
24-Jan
Sales
price
12 240
28-Jan
26. FIFO - PERPETUAL. Calculate Cost of Goods Sold for the month using FIFO perpetual.
27. LIFO - PERPETUAL. Calculate Ending Inventory using LIFO perpetual.
28. LOWER OF COST OR MARKET Calculate Market for each of the products in the following table
A1
A2
B11
B12
Selling price
50
50
50
50
Normal profit
16
10
20
18
5
46
18
5
28
20
0
28
Direct selling costs
Replacement cost
MARKET (fill in)
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part no
qty
cost
market
101
20
85.00
88.00
201
12
75.00
70.00
301
15
65.00
55.00
401
10
55.00
57.00
29. LOWER OF COST OR MARKET Use the information in the above table to calculate Lower of Cost or Market
on an item by item basis. What amount is total ending inventory?
30. LOWER OF COST OR MARKET Assume that the company in question 29 uses an Allowance for Loss on
Inventory for LCM adjustments. The company has two options for how to report the reduction on the
income statement. Please write the journal entry to record the LCM adjustment in question 29 for each
option and state when each option is preferred.
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