shipping point, was received and entered December 30.. The invoice shows that the merchandise was shipped December 29, and the receiving report indicates the merchandise was received Jan
Trang 1COMPREHENSIVE EXAMINATION B
PART 2 (Chapters 7–9)
Problem B-I — Multiple Choice — Cash and Receivables
Choose the best answer for each of the following questions and enter the identifying
letter in the space provided
1 When should the loss on an uncollectible account receivable be recorded as
an expense for accrual accounting purposes?
a When it is determined that an account cannot be collected
b In the same period in which the sale on account occurs
c When the balance is past due for more than 3 months
d When a lawyer indicates that collection efforts would cost more than the account is worth
2 How should unearned discounts, finance charges, and interest included in the
face amount of installment accounts receivable be presented in the balance sheet?
a As a current liability
b As a deduction from the related installment accounts receivable
c Within the net amount of installment accounts receivable
d As an addition to the related installment accounts receivable
3 Durler Company's account balances at December 31 for Accounts
Receivable and the related Allowance for Doubtful Accounts are $800,000 and $13,000, respectively From an analysis of accounts receivable, it is estimated that $28,000 of the December 31 receivables will be uncollectible After adjustment for the above facts, the net realizable value of accounts receivable would be
a $800,000
b $787,000
c $759,000
d $772,000
4 Which group of items listed below should be included in the cash account?
a Silver coins, postage stamps, demand deposits, personal checks
b Promissory notes, demand deposits, money orders, silver coins
c Money orders, postdated checks, personal checks, time deposits
d Silver coins, money orders, demand deposits, personal checks
5 Which of the following methods of accounting for uncollectible accounts does
not properly match costs with revenues?
a Percentage of sales
b Percentage of receivables
c Direct write-off
d Aging schedule
Trang 26 Certain information relative to the 2012 operations of Ball Co follows:
Accounts receivable, January 1, 2012 $48,000
Accounts receivable collected during 2012 92,000
Cash sales during 2012 24,000
Inventory, January 1, 2012 36,000
Inventory, December 31, 2012 33,000
Purchases of inventory during 2012 80,000
Gross profit on sales 27,000
What is Ball's accounts receivable balance at December 31, 2012?
a $36,000
b $42,000
c $48,000
d $66,000
Problem B-II — Lower of Cost or Market
Presented below is data relative to the 12/31/12 inventory of Lance Company:
Number Units Original Cost Total Current Item In Inventory Per Unit Original Cost Replacement Cost
A 5,000 $1.09 $5,450 $1.08
B 5,000 1.30 6,500 1.15
C 5,000 1.50 7,500 1.05
D 5,000 1.60 8,000 1.65
E 5,000 1.80 9,000 1.70 Total 25,000 $36,450
Upper Lower Inventory Limit Limit Designated Valuation
Item ("Ceiling") ("Floor") Market (Totals)
A
B
C
D
E
Total
Additional Data:
Selling price is $2.00/unit for all items Disposal costs amount to 10% of selling price and
a "normal" profit is 35% of selling price
Instructions
Complete the last four columns above
Trang 3Problem B-III — Notes Receivable
On December 31, 2011 Berry Corporation sold some of its product to Flynn Company, accepting a 3%, four-year promissory note having a maturity value of $500,000 (interest payable annually on December 31) Berry Corporation pays 6% for its borrowed funds Flynn Company, however, pays 8% for its borrowed funds The product sold is carried
on the books of Berry at a manufactured cost of $310,000 Assume Berry uses a perpetual inventory system
Instructions
(a) Prepare the journal entries to record the transaction on the books of Berry Corporation at December 31, 2011 (Assume that the effective interest method is used Use the interest tables below and round to the nearest dollar.)
(b) Make all appropriate entries for 2012 on the books of Berry Corporation
(c) Make all appropriate entries for 2013 on the books of Berry Corporation
For Use on Problem B-III
Table 1 Future Value of 1 Periods 2% 3% 4% 6% 8%
1 1.02000 1.03000 1.04000 1.06000 1.08000
2 1.04040 1.06090 1.08160 1.12360 1.16640
3 1.06121 1.09273 1.12486 1.19102 1.25971
4 1.08243 1.12551 1.16986 1.26248 1.36049
5 1.10408 1.15927 1.21665 1.33823 1.46933
Table 2 Present Value of 1 Periods 2% 3% 4% 6% 8%
1 0.98039 0.97087 0.96154 0.94340 0.92593
2 0.96117 0.94260 0.92456 0.89000 0.85734
3 0.94232 0.91514 0.88900 0.83962 0.79383
4 0.92385 0.88849 0.85480 0.79209 0.73503
5 0.90573 0.86261 0.82193 0.74726 0.68058
Table 3 Future Value of Ordinary Annuity of 1 Periodic Rents 2% 3% 4% 6% 8%
1 1.00000 1.00000 1.00000 1.00000 1.00000
2 2.02000 2.03000 2.04000 2.06000 2.08000
3 3.06040 3.09090 3.12160 3.18360 3.24640
4 4.12161 4.18363 4.24646 4.37462 4.50611
5 5.20404 5.30914 5.41632 5.63709 5.86660
Trang 4Table 4 Present Value of Ordinary Annuity of 1 Periodic Rents 2% 3% 4% 6% 8%
1 0.98039 0.97087 0.96154 0.94340 0.92593
2 1.94156 1.91347 1.88609 1.83339 1.78326
3 2.88388 2.82861 2.77509 2.67301 2.57710
4 3.80773 3.71710 3.62990 3.46511 3.31213
5 4.71346 4.57971 4.45182 4.21236 3.99271
Trang 5Problem B-IV — FIFO vs LIFO
In comparing and contrasting FIFO vs LIFO inventory procedures, the following listing
was developed You are to complete the tabulation with an answer of "YES" or "NO" as
demonstrated by the first item Any combination of yes-no answers is possible in each
situation
FIFO LIFO
0 Usually matches the actual physical flow of goods Yes No _
1 Emphasizes the income statement in that it matches the more
recent costs with revenue _ _
2 Defers tax payments in times of rising prices _ _
3 Possibility of liquidating the base may be a significant negative
aspect _ _
4 Will probably not be adopted if prices are expected to decline _ _
5 Emphasizes the balance sheet in that the more recent costs
are contained in the inventory account _ _
6 Can use price indexes to cost layers _ _
7 Switching to this method could cause problems in the equity
markets, with loan covenants, etc _ _
8 Income figure more accurately reflects cash available for
dividends, investments, etc _ _
9 Tends to smooth income in periods of fluctuating prices _ _
10 Income figure is more "real" in that it doesn't contain "paper
profits." _ _
11 A change to this method must be justified (i.e., to the auditor)
other than solely on the basis of the tax effect _ _
Trang 612 Perpetual inventory results may be different from periodic
inventory results _ _
13 Is acceptable to the IRS (i.e., for income tax purposes) _ _
14 Gives lower profits when prices rise _ _
15 In a period of rising prices has an adverse effect on assets,
working capital, and stockholders' equity _ _
16 Quick inventory turnover may have somewhat of a mitigating
effect on some of the method's claimed disadvantages _ _
17 Improves cash flow in periods of rising prices _ _
18 If used for tax purposes, it must be used for financial reporting
purposes _ _
19 Somewhat opens door for profit manipulation and may cause
poor purchase decisions _ _
20 Is a current value, rather than a historical cost, valuation method _ _
Problem B-V — Year-end Inventory Cutoff
Abel Company's business year ends on December 31 Listed below are purchase
transactions which occurred during the last few days of 2012 or during the first few days
of 2013 The inventory, determined by physical count, was taken after the close of
business on December 31, 2012 The only adjusting entry recorded to date has been to
enter the December 31 physical inventory on the books and to remove the beginning
inventory
Instructions
(a) On the accompanying chart, indicate the effect of each of these transactions on the
ending inventory and on reported net income for 2012, by writing the words
overstated, understated, or no effect in the appropriate column Both columns must
be answered for each transaction
(b) Prepare all necessary correcting entries for 2012
(c) Indicate which of the correcting entries must be reversed in 2011 by preparing the
necessary reversing entries
Trang 712/31/12
Physical 2012
1 An invoice for $9,000, terms f.o.b shipping point, was received
and entered December 30 The invoice shows that the
merchandise was shipped December 29, and the receiving
report indicates the merchandise was received January 2 _
2 An invoice for $300, terms f.o.b shipping point, was received
and entered December 30 The invoice shows that
merchandise was shipped December 29, and the receiving
report shows the merchandise was received December 31 _
3 An invoice for $4,000, terms f.o.b shipping point, was
received and entered January 2 The invoice shows the
merchandise was shipped December 30, and the receiving
report indicates the merchandise was received December 31 _
4 An invoice for $800, terms f.o.b destination, was received and
entered December 30 The receiving report shows the
merchandise was received January 2 _
5 An invoice for $500, terms f.o.b destination, was received and
entered December 29 The receiving report indicates that the
merchandise was received December 31 _
6 An invoice for $1,500, terms f.o.b destination, was received
and entered January 2 The receiving report indicates the
merchandise was received December 31 _
7 Merchandise costing $12,000 and with a selling price of
$18,000 was on consignment to Maris Distributing Company
and was on that company's premises on December 31 No
entry has been made for the consignment _
Trang 8Problem B-VI — Conventional and LIFO Retail Method.*
*Note to Instructor Part B is based on Appendix 9-A
A Landmark Book Store uses the conventional retail method
Instructions
Given the following data, prepare a neat, labeled schedule showing the computation of
the cost of inventory on hand at 12/31/12
Cost Retail Inventory 1/1/12 $ 28,900 $ 40,000
Purchases Returns 9,000 20,000
Purchase Discounts 7,000
Sales (Gross) 615,000
Sales Returns 15,000
Employee Discounts 5,000
Freight-in 23,500
Freight-out 50,000
Loss from Breakage 2,500
Markup Cancellations 18,000
Markdown Cancellations 8,500
B Landmark Book Store has decided to switch to the LIFO retail method for the period
beginning 1/1/13
Instructions
Prepare a schedule showing the computation of the 12/31/13 inventory under the LIFO
retail method adjusted for price level changes (i.e., dollar-value LIFO Retail.) Without
prejudice to your answer in requirement A above, assume that the 12/31/12 inventory
computed under the LIFO Retail method was $40,000 and $27,500 at retail and cost,
respectively, for purposes of this requirement Data for 2013 follows:
Cost Retail Purchases (net) $360,000 $485,000
Sales (net) 402,000
Markups (net) 30,000
Markdowns (net) 15,000
2012 Price Index 100
2013 Price Index 120
Trang 9Problem B-VII — Multiple Choice — Inventory
For each of the following questions, select the letter of the statement which best answers
the question and write it on the line to the left of the question
1 Wade Company estimates the cost of its physical inventory at March 31 for
use in an interim financial statement The rate of markup on cost is 25% The following account balances are available:
Inventory, March 1 $1,000,000
Purchases during March 500,000 Purchase returns 26,000
Sales during March 850,000 The estimate of the cost of inventory at March 31 would be
a $624,000
b $680,000
c $794,000
d $836,500
2 Most methods of pricing inventories are in accord with generally accepted
accounting principles and generally are permissible for income tax purposes The method that must be used for financial reporting purposes if used for tax purposes is
a moving average
b weighted average
c LIFO
d FIFO
3 A company has been using the FIFO cost method of inventory valuation since
it was started 10 years ago Its 2012 ending inventory was $120,000, but it would have been $90,000 if LIFO had been used Thus, if LIFO had been used, this company's income before taxes would have been
a $30,000 less in 2012
b $30,000 less over the 10-year period
c $30,000 greater over the 10-year period
d $30,000 greater in 2012
4 Why are inventories included in the computation of net income?
a To determine cost of goods sold
b To determine sales revenue
c To determine merchandise returns
d Inventories are not included in the computation of net income
5 On December 31, 2012, Hill Company, which sells only one product, adopted
the periodic last-in, first-out method of inventory valuation The inventory was valued at $40,000 on the December 31, 2012 balance sheet The number of items in its inventory remained constant during 2013 The December 31,
2013 inventory valuation would be
a less than $40,000 if prices were steadily decreasing
b less than $40,000 if prices were steadily increasing
c greater than $40,000 if prices were steadily increasing
d $40,000 regardless of any price changes
Trang 10*6 Kramer Company values its inventory by using the retail method (LIFO basis,
stable prices) The following information is available for the year 2012
Cost Retail Beginning inventory $ 78,000 $140,000 Purchases 368,000 628,000 Freight-in 16,000
Markups (net) — 18,000 Markdowns (net) — 6,000
At what amount would Kramer Company report its ending inventory?
a $95,700
b $96,000
c $100,300
d $102,000
Trang 11Solutions — Comprehensive Examination B Problem B-I — Solution
1 b 4 d
2 c 5 c
3 d 6 b
Solutions to computational Multiple Choice Questions
3 $800,000 – $28,000 = $772,000
6 $80,000 + $3,000 + $27,000 – $24,000 + $48,000 – $92,000 = $42,000
Problem B-II — Solution
Upper Lower Inventory Limit Limit Designated Valuation
Item ("Ceiling") ("Floor") Market (Totals)
A $1.80 $1.10 $1.10 $5,450
B 1.80 1.10 1.15 5,750
C 1.80 1.10 1.10 5,500
D 1.80 1.10 1.65 8,000
E 1.80 1.10 1.70 8,500
Problem B-III — Solution
(a) 12/31/11
Notes Receivable 500,000
Discount on Notes Receivable 82,803
Sales Revenve 417,197
Computation of Present Value of Note: (using 8%)
$500,000 × 73503 = $367,515 15,000 × 3.31213 = 49,682 Present value of note 417,197
Face value of note 500,000
Amount of discount $ 82,803
12/31/11
Cost of Goods Sold 310,000
Inventory 310,000