Question No. 1:
On November 1, 2014 Stars Co. sold merchandise to Planets Company having a sale price of $5,000 with terms of 3/10, n30, FOP Shipping point.
Nov 3Damaged goods of $200 were returned to stars Co. From Planets Co.
Nov 9Stars Co. received payment from Planets Co. for the amount of $3,000 of its balance to Stars Co.
Nov 30Stars received a check for the balance due from Planets Co.
Instructions: Journalize the above transactions in stars Company’s Journal assuming:
- The company uses the gross method to record the cash discount.
- The company uses the net method to record the cash discount.
(Gross Method)General Journal
Date / Accounts / Dr. / Cr.Nov 1 / Accounts Receivables / 5,000
Sales Revenue / 5,000
Nov 3 / Sales Returns and allowance / 200
Accounts Receivables / 200
Nov 9 / Cash / 2,910
Sales Discount (3,000 × 3%) / 90
Accounts Receivables / 3,000
Nov 30 / Cash ( 5,000 – 200 – 3,000 ) / 1,800
Accounts Receivables / 1,800
(Net Method)General Journal
Date / Accounts / Dr. / Cr.Nov 1 / Accounts Receivables ( 5,000 × 97%) / 4,850
Sales Revenue / 4,850
Nov 3 / Sales Returns and allowance ( 200 × 97% ) / 194
Accounts Receivables / 194
Nov 9 / Cash ( 3,000 × 97% ) / 2,910
Accounts Receivables / 2,910
Nov 30 / Cash ( 1,746 ÷ 97%) [2] / 1,800
Sales Discount forfeited ( Difference) [3] / 54
Accounts Receivables ( 4,850 – 194 – 2,910) [1] / 1,746
Question No. 2: (15%)
The Trial balance before adjustments of stor Company reports the following balances:
Dr. / Cr.Accounts receivable / $120,000
Allowance for doubtful accounts / $ 4,000
Sales (all on credit ) / 800,000
Sales returns and allowance / 30,000
Sales discount / 10,000
Instructions:
- Journalize the adjusting entry for bad debt expenses under the following assumption:
- The uncollectible accounts are estimated to be 6% of outstanding accounts receivable.
Accounts Titles / Dr. / Cr.
Bad Debt Expenses / 3,200
Allowance for Doubtful Accounts / 3,200
1-Requires Allowance = 120,000 × 6% = $7,200
2-Bad Debt Expenses = $7,200 - $4,000 = $3,200
The balance of “Allowance for Doubtful Accounts” is =$ 7,200
- Assume that all the information above is the same, except that the allowance for doubtful accounts has a debit balance of $3,000 instead of a credit balance and that had debts expenses is estimated to be 6% of outstanding accounts receivable.
Accounts Titles / Dr. / Cr.
Bad Debt Expenses / 10,200
Allowance for Doubtful Accounts / 10,200
1-Requires Allowance = 120,000 × 6% = $7,200
2-Bad Debt Expenses = $7,200 + $3,000 = $10,200
The balance of “Allowance for Doubtful Accounts” is = $ 7,200
- Assume that all the information above is the same, except that the bad debts expenses is estimated to be 1% of net credit sales
Accounts Titles / Dr. / Cr.
Bad Debt Expenses / 10,200
Allowance for Doubtful Accounts / 10,200
1-Net Credit Sales = $800,000 – 30,000 – 10,000 = $760,000
2-Bad Debt Expenses = $760,000 × 1% = $7,600
The balance of “Allowance for Doubtful Accounts” is = $4,000 + $ 7,600 = $11,600
Question No. 3:
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 revenue19,500
Cost of merchandise sold(408,500)
Selling expenses(145,000)
Administrative expense(215,000)
Interest expense (13,000)
Income before special item183,000
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
Howell Corporation
INCOME STATEMENT
For the Year Ended December 31, 2011
Sales $945,000
Cost of goods sold 408,500
Gross profit 536,500
Selling expenses $145,000
Administrative expenses 215,000 360,000
Other income: Investment revenue 19,500
Income from operations 196,000
Interest expense 13,000
Income before income taxes 183,000
Income taxes 54,900
Income from continuing operations 128,100
Loss from discontinued operations, net of applicable income tax of $9,000 21,000
Net income $107,100
Question No. 4:
Inventory information for part 311 of Monique Aaron Corp. Discloses the following information for the month of June:
June 1Balance 300 units at $10
June 10Purchased 800 units at $12
June 11Sold 200 units at $24
June 15Sold 500 units at $25
June 20 Purchased 500 units at $13
June 27sold 300 units at $27
Instructions:
1-Assuming that periodic inventory method is used, compute the cost of goods sold and ending inventory and gross profit under (1) FIFO (2) Average
Gross Profit
FIFO / AverageSales Revenue / 25,400 / 25,400
(-) Cost of goods Sold / 11,400 / 11,938
(=) Gross Profit / 14,000 / 13,462
Sales revenue = (200 × $24 ) + (500 × $25 ) + (300 × $27 ) = $25,400