Accounting for Income Taxes

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					INTERMEDIATE ACCOUNTING 321            AUG. 1, 2007     TAD MILLER
CASH - ACCOUNTS RECEIVABLE - INVENTORY                                                                 TEST   02

                                                      Cash
1. CASH EQUIVALENTS Instead of 'cash,' most companies report 'cash and cash equivalents.' Briefly define
   cash equivalents.

cash equivalents are cash and short-term highly liquid investments that are both (a) readily convertible to
known amounts of cash , and (b) so near their maturity that they present insignificant risk from changes in
interest rates.




2. Bank Overdrafts MILLER MOTOR CO. has written paychecks that exceed the balance in the checking
   account it uses for payroll at First Bank. MILLER MOTOR CO. also has a savings other account with a
   very large balance at First Bank. In which classification or classifications of the balance sheet should we
   report the (1) payroll checking account and (2) the savings account ?
The payroll checking account and the savings account should be netted and reported as cash in the current
asset section of the balance sheet.




3. PETTY C ASH MILLER MOTOR CO. maintains a $250 petty cash fund. The petty cash drawers contains
   the following items. Prepare the entry you would make to replenish the petty cash drawer:

        98.00 coin and currency                               37.00          Postage expense
        37.00 receipts for postage stamps                    119.00          Entertainment expense
       119.00 receipts for lunches with clients                         4.00       Over and short
                                                                      152.00       Cash
       254.00
                                                  OR         250.00          Petty cash
                                                                      250.00       Cash
                                                              98.00          Cash
                                                              37.00          Postage expense
                                                             119.00          Entertainment expense
                                                                        4.00       Over and short
                                                                      250.00       Petty cash
4. BANK RECONCILIATION The Balance per Bank Statement is $17,394.60. Calculate the correct cash
   balance.
in addition, you are given the following information             17,394.60 10,944.90
        1,225.00 Deposit in transit                                1,225.00
        5,839.70 Outstanding checks                               -5,839.70
        1,800.00 credit memo for a note the bank                               1,800.00
                 collected on our behalf
          105.00 interest income credited to our account                         105.00
           70.00 returned check NSF                                              -70.00



                                                                 12,779.90 12,779.90




5. BANK RECONCILIATION The balance per the Gen. Ledger $10,944.90. Calculate the correct cash balance?

in addition, you are given the following information             17,394.60    10,944.90
        1,225.00 Deposit in transit                               1,225.00
        5,839.70 Outstanding checks                              -5,839.70
        1,800.00 credit memo for a note the bank                               1,800.00
                 collected on our behalf
          105.00 interest income credited to our account                        105.00
           70.00 returned check NSF                                             -70.00



                                                                 12,779.90    12,779.90




6. Bank Reconciliation Given the information in the previous problems, prepare the entry you would make
   as a result of the bank reconciliation.

       Cash                              1,835.00
       Accounts receivable                  70.00
          Note receivable                           1,800.00
          Interest income                             105.00

OR     Cash                              1,800
          Note receivable                              1,800
       Cash                                105
          Interest income                               105
       Accounts receivable                   70
          Cash                                           70
                                                    Receviables
7. TRADE R ECEIVABLES Describe the difference between Trade Discounts and Sales (or cash) Discounts.

Trade discounts are typically based on the quantity sold. They are used to encourage customers to buy in
greater quantities.

Sales discounts or cash discounts are used to encourage customers to pay more quickly




   RECEIVABLES – NET METHOD On July10th we sold merchandise with an invoice price of $30,000 having
   terms 3/10 n/30. Prepare the following three entries
8. On July 10th to record the sale
9. On July 13th when the customer returns goods having an invoice price of $4,000
10. On July 18th when we receive a $10,000 check from the customer

       accounts receivable           29,100.00
          sales                                  29,100.00

       sales returns                  3,880.00
           accounts receivable                    3,880.00

       cash                          10,000.00
          accounts receivable                    10,000.00




11. BAD DEBT EXPENSE / ALLOWANCE FOR DOUBTFUL ACCOUNTS MILLER MOTOR CO. had $1,250,000
    credit sales. Accounts Receivable had a $209,600 debit balance and Allowance for Doubtful Accounts had
    an $4,280 credit balance, before adjustments. Prepare the entry to record Allowance for Doubtful
    Accounts if MILLER MOTOR CO ages accounts receivables to estimate uncollectible accounts.
  amount       age    est % uncollectibe                            Bad debt expense          6,060
                                                                      allow for uncollectible         6,060
   150,000    < 30           2.0%                  3,000
    30,000    31-60          5.0%                  1,500
    20,000    61-90       10.0%                    2,000
      9,600    >90        40.0%                    3,840
   209,600                                        10,340 requitred balance
                                                   4,280 existing debit balance
                                                   6,060 adjustment
12. BAD DEBT EXPENSE / ALLOWANCE FOR DOUBTFUL ACCOUNTANTS MILLER 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?



       bad debt expense          75,000.00                            36,000     debit bal
          allowance for doubtful           75,000.00                  75,000     credit entry
                                                                      39,000     credit balance



13. WRITE OFF     Prepare the entry to write off Wm. Tell’s account which has a balance of $2,500.
14. 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?
Current Assets         $_____0___           increase       decrease       no effect on CA
Net Income             $____0____           increase       decrease       no effect on NI

       allowance for doubtful                 2,500.00
           accounts receivable                2,500.00




                                                 Inventory
15. STAGE OF COMPLETION Manufacturing firms are required to report the stage of completion of their
    inventory. What are the three stages of completion?
       raw materials
work in process
finished goods
PURCHASES – GROSS METHOD - PERPETUAL INVENTORY SYSTEM On July 3rd MILLER 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 4 th. We receive the merchandise on July 5th. Prepare the following entries
16. Prepare the entry to record the purchase with the correct date (xx/xx/2007)
17. On July 10th we returns goods having an invoice price of $12,000
18. On July 12th when we pay $30,000.00 on our account


7/5      inventory                 50,000.00
             accounts payable                  50,000.00
         accounts payable          12,000.00
             inventory                         12,000.00
         accounts payable          38,000.00
             cash                              38,000.00




      PURCHASES – NET METHOD - PERIODIC INVENTORY SYSTEM On July 3rd MILLER 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 4 th. 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/2007)
20. On July 12h when we write a check for $15,000 to pay on our account
21. On July 29th when we write a check to pay the remaining balance in or account



7/3      purchases                 49,000.00
            accounts payable                   49,000.00
         accounts payable          15,000.00
            cash                               15,000.00
         accounts payable          34,000.00
         purchase discount lost       693.88
            cash                               34,693.88
   COST FLOW ASSUMPTIONS - PERIODIC MILLER MOTOR CO. sold 80 units for $25 each. Use the
   following information for the next three problems
22. Prepare the closing entry, using Average Cost / Periodic to calculate Cost of Goods Sold and ending
    Inventory.
23. Use FIFO - Periodic to calculate Cost of Goods Sold and ending Inventory.
24. Use LIFO - Periodic to calculate Cost of Goods Sold and ending Inventory.
               qty       cost                   average             FIFO                   LIFO
                                                                 sold   end             sold   end
beginning        45       12.00          540                        45                     25    20
purchase         30       13.00          390                        30                     30
purchase         25       14.00          350                          5   20               25
available       100                    1,280      $12.80
sold             80                             1,024.00         1,000                  1,040
inventory        20                               256.00                     280                    240


             CoGS             1,024.00
             Inventory          256.00
                    Inventory                      540.00
                    Purchases                      740.00
COST FLOW ASSUMPTIONS - PERPETUAL Use the information presented below to for the next two problems
25. FIFO - PERPETUAL. Calculate Cost of Goods Sold for the month using FIFO perpetual
26. LIFO - PERPETUAL. Calculate Ending Inventory using LIFO perpetual
            Purchases          Sales          average cost                 FIFO                      LIFO
          Qty Cost            Q price
                                        qty      inv      CoGS       qty   inv      CoGS       qty   inv      CoGS
  1-Jul    45 $12 $540
  4-Jul                       30 $25                      360.00      15   12.00    360.00      15   12.00    360.00
 10-Jul    30 $13 $390                   45     570.00                30   13.00                30   13.00
 14-Jul                       40 $25                      506.67       5   13.00    505.00       5   12.00    510.00
 20-Jul    25 $14 $350                   30     413.33                25   14.00                25   14.00
 24-Jul                       10 $25                      137.78      20   14.00    135.00       5   12.00    140.00
                                                275.56                                          15   14.00
                     $1,280
                                                 275.56   1,004.44         280.00   1,000.00         270.00   1,010.00




27. Use AVERAGE COST - PERPETUAL to calculate to prepare the entry for the July 14th sale


       accounts receivable               1,000.00
           sales                                       1,000.00
       cost of goods sold                     506.67
           inventory                                      506.67
28. LOWER OF COST OR MARKET Calculate Market for each of the products in the following table
                           A1      A2     B11    B12      A1        A2        B11         B12
Selling price               50       50     50     50
Normal profit               16      18     18      20
Direct selling costs        10       5      5       0          40        45          45         50 ceiling
Replacement cost            20      46     28      28          20        46          28         28 replace
                                                               24        27          27         30 floor
                                    45
MARKET (fill in)            24             28      30          24        45          28         30 market




                              this is for problems 29 & 30
    qty          cost       market      LoCM extended                         cost         market

          20       85.00         88.00           85.00   1,700.00             1,700.00      1,760.00

          12       75.00         70.00           70.00    840.00                900.00          840.00

          15       65.00         55.00           55.00    825.00                975.00          825.00

          10       55.00         57.00           55.00    550.00                550.00          570.00


.                                                        3,915.00             4,125.00      3,995.00

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.
30. LOWER OF COST OR MARKET Use the information in the above table to calculate Lower of Cost or Market
    using the total inventory method.


                                            market
 part no     qty        cost     market    extended     cost


   101             20    85.00     88.00     1760.00     1,700.00


   201             12    75.00     70.00      840.00      840.00


   301             15    65.00     55.00      825.00      825.00


   401             10    55.00     57.00      570.00      550.00


                                             3995.00     3,915.00

				
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