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					Chapter 4

Metal Music Ltd is a retail store specialising in musical instruments and consumables for
rock and metal musicians. At the beginning of February 2010, the ledger of Metal Music
Ltd showed Cash $2,500; Inventory $1,700; and Share Capital $4,200. The following
transactions were completed during February:

Feb.   6         Purchased electric guitars from Guitars R Us Ltd $840, terms 3/7, n/30.
       7         Paid freight on Guitars R Us Ltd purchase $40.
       8         Sold inventory to customers $900, terms n/30. The inventory cost $600.
       10        Received credit of $84 from Guitars R Us Ltd fro a guitar that was
returned.
       11        Purchased guitar strings from Strings N Things for cash $300
       13        Paid Guitars R Us Ltd in full.
       14        Purchased Guitar straps and leads from Musical Importers Ltd $500, terms
                 2/7, n/60.
            15   Received cash refund of $50 from Strings N Things for damaged inventory
                 that was returned.
            17   Paid freight on Musical Importers Ltd purchase $30.
            18   Sold inventory to customers $900, terms n/30. The cost of the inventory
                 was $530.
            20   Received $500 in cash from customers in settlement of their accounts.
            21   Paid Strings N Things Ltd in full.
            27   Granted an allowance of $30 to a customer for a guitar strap that was
                 faulty.
            28   Received cash payments on account from customers $500.

The chart of accounts for Metal Music Ltd includes Cash, Accounts Receivable,
Inventory, Accounts Payable, Share Capital, Sales, Sales Returns and Allowances, and
Cost of Goods Sold.

Required:

(a)     Journalise the February transactions.
(b)     Using T accounts, enter the beginning balances in the ledger accounts and post the
        April transactions
(c)     Prepare a trial balance on 28 February 2010.
(d)     Prepare an income statement up to Gross Profit.

Solution            (60 min.)

      (a)                                       General Journal

Date             Account Titles                                   Debit           Credit
Feb         6    Inventory                                         840
                Accounts Payable                    840

    7    Inventory                             40
              Cash                                   40

    8    Accounts Receivable                  900
              Sales                                 900

         Cost of Goods Sold                   600
               Inventory                            600
[
    10   Accounts Payable                      84
              Inventory                              84

    11   Inventory                            300
              Cash                                  300
    13   Accounts Payable ($840 - $84)        756
              Discount received ($756 x 3%)          23
              Cash                                  733

    14   Inventory                            500
              Accounts Payable                      500

    15   Cash                                  50
                Inventory                            50

    17   Inventory                             30
              Cash                                   30

    18   Accounts Receivable                  900
              Sales                                 900

         Cost of Goods Sold                   530
               Inventory                            530

    20   Cash                                 500
                Accounts Receivable                 500

    21   Accounts Payable                     500
              Discount received ($500 x 2%)          10
                        Cash                                                    490

         27      Sales Returns and Allowances                        30
                       Accounts Receivable                                       30

         28      Cash                                               500
                        Accounts Receivable                                     500

(b)

                                              Cash
          Opening balance             2,500           7- Feb Inventory                 40
   15-Feb Inventory                      50          11- Feb Inventory                300
  20- Feb Accounts receivable           500          13- Feb Accounts payable         733

  30- Feb Accounts receivable           500          17- Feb Inventory                 30
                                                     21- Feb Accounts payable         490

                                                            Closing balance      1,957
                                      3,550                                      3,550
              Opening balance         1,957


                                    Accounts Receivable
      8- Feb Sales                      900       20- Feb Cash                     500
             Sales                      900       27- Feb Sales returns             30
                                                  28- Feb Cash                     500
                                                          Closing balance          770
                                      1,800                                      1,800
              Opening balance           770



                                         Inventory
             Opening balance          1,700           8-Feb COGS                      600
       6-Feb Accounts payable           840          10-Feb Accounts payable           84
       7-Feb Cash                        40          15-Feb Cash                       50
      11-Feb Cash                       300          18-Feb COGS                      530
      14-Feb Accounts payable           500
      17-Feb Cash                        30
                                                            Closing balance      2,146
                                      3,410                                      3,410
              Opening balance         2,146
                                Accounts Payable
10-Feb Inventory                   84         6-Feb Inventory                  840
13-Feb Discount and cash          756        14-Feb Inventory                  500
21-Feb Discount and cash          500

28-Feb Closing balance
                                 1,340                                        1,340
                                                        Opening balance           0


                                  Share capital
                                                        Opening balance       4,200



                                         Sales
                                                  8-Feb Accounts receivable    900
                                                 18-Feb Accounts receivable    900
28-Feb Closing balance            1800
                                 1,800                                        1,800
                                                        Opening balance       1,800


                             Sales returns and allowances
27-Feb Accounts receivable           30



                                Discount received
                                              13-Feb Accounts payable           23
                                              21-Feb Accounts payable           10
28-Feb Closing balance              33
                                    33                                          33
                                                     Opening balance            33


                                    COGS
 8-Feb Inventory                  600
18-Feb Inventory                  530

                                                        Closing balance       1,130
                                 1,130                                        1,130
       Opening balance           1,130
(c)
                                                         Metal Music Limited
                                                               Trial Balance
                                                            28 February, 2010

                                                                                Debit              Credit
                Cash                                                            1,957
                Accounts receivable                                               770
                Inventory                                                       2,146
                Accounts payable
                Share capital                                                                       4,200
                Sales                                                                               1,800
                Sales returns and allowances                                         30
                Discount received                                                                       33
                Cost of goods sold                                              1,130
                                                                                6,033               6,033



(d)
                                                        Metal Music Limited
                                                     Income Statement (Partial)
                                               For the Month Ended 28, February 2010

        Sales revenues
              Sales .......................................................................................................$1,800
              Less: Sales returns and allowances ......................................................                        30
              Net sales .................................................................................................$1,770
        Cost of goods sold ........................................................................................... 1,130
        Gross profit ..................................................................................................... $ 640

Ex. 1
Chapter 5

On October 1, Cycle Mania, a bicycle store had an inventory of 15 twelve-speed bicycles at a cost of $150
each. During the month of October the following transactions occurred.
Oct.       3       Purchased 25 bicycles at a cost of $150 each from the Lyons Bicycle Company Ltd, terms
                   n/30.
           6       Sold 12 bicycles to Team Australia at $250 each, terms 2/10, n/30.
           7       Received credit from the Lyons Bicycle Company Ltd for the return of 2 defective bicycles.
           13      Issued a credit to Team Australia for the return of one defective bicycle.
           19      Purchased 10 bicycles from Huffy Bicycle Company Ltd at a cost of $125, terms 2/10,
                   n/30.
           20      Paid freight of $80 on the October 19 purchase.


Instructions

Prepare the journal entries to record the transactions assuming the company uses a periodic inventory
system.


Solution                     (10 min.)

Oct.       3    Purchases .................................................................................................    3,750
                      Accounts Payable .........................................................................                       3,750

           6    Accounts Receivable ...............................................................................            3,000
                     Sales .............................................................................................               3,000

           7    Accounts Payable ....................................................................................           300
                     Purchase Returns and Allowances ................................................                                   300

       13       Sales Returns and Allowances ................................................................                   250
                       Accounts Receivable ....................................................................                         250

       19       Purchases .................................................................................................    1,250
                      Accounts Payable .........................................................................                       1,250

       20       Freight-in .................................................................................................     80
                      Cash ..............................................................................................                80
Ex. 5

The income statement of Pine Supplies Ltd includes the items listed below:

                   Net sales                                            $800,000
                   Gross profit on sales                                 320,000
                   Beginning inventory                                   100,000
                   Discount received                                      15,000
                   Purchase returns and allowances                         8,000
                   Freight-in                                             10,000
                   Operating expenses                                    300,000
                   Purchases                                             520,000

Instructions

Use the appropriate items listed above as a basis for determining:
(a)   Cost of goods sold.
(b)   Cost of goods available for sale.
(c)   Ending inventory.


Solution 5             (20 min.)

(a)     Net sales - Cost of goods sold = Gross profit
        $800,000 - Cost of goods sold = $320,000
        Cost of goods sold = $480,000

(b)     Beginning inventory                                                                   $100,000
        Purchases                                                                  $520,000
        Less:    Discount received                                       $15,000
                 Purchase returns and allowances                           8,000     23,000
        Net Purchases                                                               497,000
        Add:     Freight-in                                                          10,000
        Cost of goods purchased                                                                507,000
        Cost of goods available for sale                                                      $607,000

(c)     Cost of goods available for sale - Ending inventory = Cost of goods sold
        $607,000 - Ending inventory = $480,000
        Ending inventory = $127,000
Ex. 12

Harlow Ltd uses the periodic inventory method and had the following inventory information available:
                                              Units            Unit Cost Total Cost
1/1      Beginning Inventory                     15             $4.00                $ 60
20/1     Purchase                                60             $4.40                   264
25/7     Purchase                                30             $4.20                   126
20/10    Purchase                                45             $4.80                   216
                                                150                                   $666

A physical count of inventory on 31 December revealed that there were 50 units on hand.

Instructions

Answer the following independent questions and show computations supporting your answers.
1. Assume that the company uses the FIFO method. The value of the ending inventory at 31 December is
   $__________.
2. Assume that the company uses the Average Cost method. The value of the ending inventory on 31
   December is $__________.
3. Assume that the company uses the LIFO method. The value of the ending inventory on 31 December is
   $__________.
4. Assume that the company uses the FIFO method. The value of the cost of goods sold at 31 December
   is $__________.


Solution 12           (20 min.)

1.   FIFO:     Ending inventory    $237
                45 units @$4.80    =             216
                 5 units @$4.20    =              21
                50 units                        $237

2.   Average Cost: Ending inventory $222
             $666 / 150 = $4.44 per unit x 50 units = $222

3.   LIFO:     Ending Inventory $214
                15 units @$4.00    =            $ 60
                35 units @$4.40    =             154
                50 units                        $214

4.   FIFO:     Cost of goods sold $429
                15 units @$4.00 = $ 60
                60 units @$4.40 =                264
                25 units @$4.20 =                105
               100 units                       $ 429
Chapter 8

Ex. 10

Nelson Word Processing Service Ltd uses the straight-line method of depreciation. The company's fiscal
year end is 31 December. The following transactions and events occurred during the first three years.

2008     July    1   Purchased an IBM computer from the Computer Centre for $6,500 cash plus sales
                     tax of $500, and delivery costs of $250.
         Nov.    3   Incurred ordinary repair costs of $440.
         Dec.   31   Recorded 2005 depreciation on the basis of a four year life and estimated salvage
                     value of $1,250.

2009     Dec.   31   Recorded 2006 depreciation.

2010     Jan.    1   Paid $1,800 for a major upgrade of the computer. This expenditure is expected to
                     increase the operating efficiency and capacity of the computer.

Instructions

Prepare the necessary entries. (Show computations.)


Solution 10          (15 min.)
2008     July    1   Computer Equipment ................................................................          7,250
                          Cash ...............................................................................            7,250
         Nov.    3   Repairs Expense ........................................................................      440
                           Cash ...............................................................................            440
         Dec.   31   Depreciation Expense ...............................................................          750
                           Accumulated Depreciation .............................................                          750
                             [($7,250 - $1,250) / 4 x 1/2]
2009     Dec.   31   Depreciation Expense ...............................................................         1,500
                           Accumulated Depreciation ($6,000 / 4) .........................                                1,500
2010     Jan.    1   Computer Equipment ................................................................          1,800
                          Cash ...............................................................................            1,800
Ex. 13

(a)   Barnes Ltd purchased equipment in 2001 for $80,000 and estimated an $8,000 salvage value at the
      end of the equipment's 10-year useful life. At 31 December, 2009, there was $50,400 in the
      Accumulated Depreciation account for this equipment using the straight-line method of depreciation.
      On March 31, 2010, the equipment was sold for $21,000.

      Prepare the appropriate journal entries to remove the equipment from the books of Barnes Ltd on
      March 31, 2010.

(b)   Lanne Manufacturing sold a delivery truck for $11,000. The delivery truck originally cost $25,000 in
      2002 and $6,000 was spent on a major overhaul in 2007 (charged to Delivery Truck account).
      Accumulated Depreciation on the delivery truck to the date of disposal was $20,000.

      Prepare the appropriate journal entry to record the disposition of the delivery truck.

(c)   Crown Travel Ltd sold office equipment that had a book value of $4,500 for $6,000. The office
      equipment originally cost $15,000 and it is estimated that it would cost $19,000 to replace the office
      equipment.

      Prepare the appropriate journal entry to record the disposition of the office equipment.


Solution 13                          (15 min.)
(a)      Depreciation Expense ........................................................................................             1,800
               Accumulated Depreciation—Equipment ................................................                                              1,800
                 (To record depreciation expense for the first 3 months of
                 2004. $7,200 x 1/4 = $1,800)

         Cash    .............................................................................................................. 21,000
         Loss on Disposal ................................................................................................             6,800
         Accumulated Depreciation—Equipment ($50,400 + $1,800) ...........................                                            52,200
               Equipment ...............................................................................................                       80,000
                 (To record sale of equipment at a loss)

(b)      Cash ................................................................................................................. 11,000
         Accumulated Depreciation—Delivery Truck ....................................................                                 20,000
              Delivery Truck ........................................................................................                          31,000
                 (To record disposition on delivery truck at book value)

(c)      Cash   .............................................................................................................. 6,000
         Accumulated Depreciation—Office Equipment ................................................                                  10,500
              Office Equipment ....................................................................................                            15,000
              Gain on Disposal .....................................................................................                            1,500
                (To record disposal of office equipment at a gain)
Ex. 27

The Tolbert Corporation purchased equipment on 1 January, 2008, for $60,000. It is estimated that the
equipment will have a $5,000 salvage value at the end of its 5-year useful life. It is also estimated that the
equipment will produce 100,000 units over its 5-year life.

Instructions
Answer the following independent questions.
1.   Calculate the amount of depreciation expense for the year ended 31 December, 2008, using the
     straight-line method of depreciation.
2.   If 16,000 units of product are produced in 2008 and 24,000 units are produced in 2009, what is the
     book value of the equipment at 31 December, 2009? The company uses the units-of-activity
     depreciation method.


Solution 27           (15 min.)

                                C - S $60,000 - $5,000
1. Straight - line method:                             $11,000 per year.
                                Years        5

                                      C - S $60,000 - $5,000
2. Units - of - activity method :                            $.55 per unit
                                      Units   100,000 units

     2008       16,000 units x $.55              =     $ 8,800
     2009       24,000 units x $.55              =      13,200
     Accumulated Depreciation                    =     $22,000
     Cost of asset                                     $60,000
     Less: Accumulated Depreciation                     22,000
     Book value at 31 December, 2009                   $38,000
Chapter 13
Ex. 10

From the account balances listed below, prepare a schedule of cost of goods manufactured for Seamless
Manufacturing Ltd for the month ended 31 December 2009.

                                                                         Account Balances
      Finished Goods Inventory, 31 December                                    $42,000
      Factory Supervisory Salaries                                              12,000
      Income Tax Expense                                                          18,000
      Raw Materials Inventory, 1 December                                         12,000
      Work In Process Inventory, 31 December                                      35,000
      Sales Salaries Expense                                                      14,000
      Factory Depreciation Expense                                                 5,000
      Finished Goods Inventory, 1December                                         35,000
      Raw Materials Purchases                                                     60,000
      Work In Process Inventory, 1 December                                       30,000
      Factory Utilities Expense                                                    4,000
      Direct Labour                                                               70,000
      Raw Materials Inventory, 31 December                                        19,000
      Sales Returns and Allowances                                                 5,000
      Indirect Labour                                                             21,000



Solution 10 (12–16 min.)
                               SEAMLESS MANUFACTURING LTD
                                Cost of Goods Manufactured Schedule
                               for the month ended 31 December 2009

Work in process, 1 December                                                                       $ 30,000
Direct materials
    Raw materials inventory, 1 December                                              $12,000
    Raw materials purchases                                                           60,000
    Total raw materials available for use                                             72,000
    Less: Raw materials inventory, 31 December                                        19,000
    Direct materials used                                                             53,000
Direct labour                                                                         70,000
Manufacturing overhead
    Indirect labour                                                   $21,000
    Factory supervisory salaries                                       12,000
    Factory depreciation expense                                        5,000
    Factory utilities expense                                           4,000
    Total manufacturing overhead                                                      42,000
Total manufacturing costs                                                                          165,000
Total cost of work in process                                                                      195,000
Less: Work in process, 31 December                                                                  35,000
Cost of goods manufactured                                                                        $160,000
Chapter 16


Ex. 3

Pink Floyd Ltd has budgeted the following unit sales:
                  2010                                   Units
                  January                                10,000
                  February                                8,000
                  March                                   9,000
                  April                                  11,000
                  May                                    15,000
The finished goods units on hand on 31 December 2009, was 2,000 units. Each unit
requires 3 kilograms of raw materials, which is estimated to cost an average of $4 per
kilogram. It is the company's policy to maintain a finished goods inventory at the end of
each month equal to 20% of next month's anticipated sales. They also have a policy of
maintaining a raw materials inventory at the end of each month equal to 30% of the
kilograms needed for the following month's production. There were 8,640 kilograms of
raw materials on hand at 31 December 2006.
Instructions
For the first quarter of 2007, prepare (1) a production budget and (2) a direct materials budget.




Solution 3        (25–30 min.)

(1)                                              PINK FLOYD LTD
                                              Production Budget
                                    for the quarter ending 31 March 2010

                                                            January         February         March
Total
Expected unit sales                                           10,000           8,000           9,000
Desired ending finished goods units                            1,600           1,800           2,200*
Total required units                                        11,600            9,800          11,200
Less: Beginning finished goods units                           2,000           1,600           1,800
Required production units                                      9,600           8,200           9,400
                                                              27,200

*April units: 11,000 × 20%.
(2)                                        PINK FLOYD LTD
                                          Direct Materials Budget
                                   for the quarter ending 31 March 2010

                                                       January February      March   Total
Units to be produced                                       9,600            8,200      9,400
Direct materials per unit                                   × 3               × 3        × 3
Total kilograms needed for production                     28,800            24,600     28,200
Desired ending direct materials (kg)                       7,380             8,460     10,620**
Total materials required                                  36,180            33,060     38,820
Less: Beginning direct materials (kg)                      8,640             7,380      8,460
Direct materials purchases                                27,540            25,680     30,360
Cost per kilogram                                          × $4              × $4       × $4
Total cost of direct materials purchases                $110,160          $102,720   $121,440     $334,320

**April units: 11,800 × 3 = 35,400 × 30%.
Ex. 6

Credence Ltd is preparing its direct labour budget for 2010 from the following production budget based on
a calendar year:
                        Quarter                       Units
                          1                           40,000
                          2                           20,000
                          3                           30,000
                          4                           50,000
Each unit requires 1.5 hours of direct labour. The union contract provides for a 10%
increase in wage rate to $11 per hour on 1 October.


Instructions
Prepare a direct labour budget for 2007.



Solution 6        (15–20 min.)
                                                CREDENCE LTD
                                               Direct Labour Budget
                                      for the year ending 31 December 2010
                                                                     Quarter
                                                  1              2             3         4
Total
Units to be produced                              40,000         20,000        30,000     50,000
Direct labour time (hours) per unit               × 1.5          × 1.5         × 1.5      × 1.5
Total required direct labour hours                60,000         30,000        45,000     75,000
Direct labour cost per hour                       × $10*         × $10         × $10      × $11
Total direct labour cost                        $600,000       $300,000      $450,000   $825,000     $2,175,000
*$11 ÷ 110% = $10.
Ex. 12

Beatles Ltd has budgeted sales revenue as follows:
                                     Budgeted Sales Revenues
                  January                        $ 65,000
                  February                         90,000
                  March                           110,000
                  April                            50,000
                  May                              55,000
                  June                             30,000
Past experience has indicated that 80% of sales each month are on credit and that
collection of credit sales occurs as follows: 60% in the month of sale, 30% in the month
following the sale, and 5% in the second month following the sale. The other 5% is
uncollectable.

Instructions

Prepare a schedule which shows expected cash receipts from sales for the months of April, May, and June.

Solution 12       (20–25 min.)

                                              BEATLES LTD
                                     Expected Cash Receipts from Sales
                                       for the quarter ended 30 June

                                                                   April             May
June
February sales
     Credit sales: ($90,000 × .80 × .05)                          $ 3,600

March sales
      Credit sales:
            ($110,000 × .80 × .30)                                  26,400
            ($110,000 × .80 × .05)                                                   $ 4,400
April sales
      Credit sales:
            ($50,000 × .80 × .60)                                   24,000
            ($50,000 × .80 × .30)                                                     12,000
            ($50,000 × .80 × .05)                                                                          $ 2,000
      Cash sales: ($50,000 × .20)                                   10,000

May sales
    Credit sales:
          ($55,000 × .80 × .60)                                                       26,400
          ($55,000 × .80 × .30)                                                                             13,200
    Cash sales: ($55,000 × .20)                                                       11,000

June sales
      Credit sales: ($30,000 × .80 × .60)                                                                   14,400
      Cash sales: ($30,000 × .20)                                                                            6,000
Total cash receipts                                               $64,000            $53,800               $35,600

				
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