COMM 201

Assignment 5

1.Part A

The accountant of Loyola Inc. is concerned about the inventory in its bookstore. A physical count at May 31, showed that $10,000 inventory (at cost) was on hand. The following information for the year then ended is available.

At RetailAt Cost

Sales for the year$62,500

Sales Returns2,500

Opening Inventory14,500$10,000

Purchases for the year55,00039,000

Purchases returns3,0002,000

Transportation In1,000

Required:

1.Calculate the estimated ending inventory at retail.

2.Calculate the cost percentage (ratio of cost to retail).

3.Calculate the May 31, 19X8 estimated ending inventory at cost.

4.Why is the inventory calculate in question 3 different from the physical count at

May 31?

Part B

The comptroller of Sir George Corp. is calculating the amount of inventory lost during the year ended May 31, 19X8. A physical count was not made at May 31 due to circumstances beyond his control. The following information for the year then ended is available from the general ledger.

Sales for the year$50,000

Sales Returns5,000

Opening Inventory6,000

Purchases for the year35,000

Purchases Returns3,000

Purchases Discounts2,000

Transportation In1,500

Delivery Expense1,000

Depreciation Expense – Truck400

Insurance Expense100

The following are partial income statements of Sir George Corp. for years 19X5 to 19X7 (amounts are in thousands of dollars):

19X519X619X7Total

Sales$20$30$40$

Cost of Goods Sold102030

Gross Profit

Required:

Using the gross profit method, calculate the May 31, 19X8 estimated ending inventory at cost.

  1. The following balances appear in the unadjusted trial balance of Juneau Inc. at its year-end, December 31, 19X3.

Account Balances

DebitCredit

Accounts Receivable$100,000

Allowance for Uncollectible Accounts$5,000

Sales (all on credit)600,000

Juneau uses the balance sheet method of calculating its Allowance for Doubtful Accounts account. At December 31, 19X3, it estimates that three percent of accounts receivable would not be collected.

Juneau had the following transactions during 19X4:

  1. Accounts receivable worth $9,000 were written off.
  2. Credit sales amounted to $800,000
  3. Collections of accounts receivable amounted to $700,000
  4. Juneau collected $2,000 in 19X4 that was previously written off in 19X3. This amount is not included in the collection of accounts receivable described in c.
  5. At year-end, Juneau estimated that the amount of doubtful accounts at December 31, 19X4 was $10,000

Required:

a.Prepare all journal entries required for 19X3 and 19X4

b.If Juneau had used the income statement method of estimating uncollectible accounts, calculate the balance in the Allowance for Doubtful Accounts account at December 31, 19X3 and 19X4. Assume that Juneau estimated doubtful accounts to be one percent of sales for both years.

3.Paper book shop Ltd effectively controls its cash by depositing receipts on a daily basis and making all disbursements by cheque. After all the posting for the month of November was completed, the cash balance in the general ledger was $4,209. The statement received from the Bank of Nova Scotia showed the balance to be $4,440. The following data are available for the purpose of reconciling these balances:

  1. Cash receipts for November 30 amounting to $611 have been placed in the night depository and do not appear on the bank statement.
  2. Bank memos previously not available to Paper Book are included with the bank statement. A debit memo for an NSF cheque, originally received as payment for an account receivable of $130 is included. A debit memo for bank charges of $6 is also included. A credit memo advises Paper Book Shop Ltd that $494 has been deposited to the account, ($500 less a bank charge of $6). This represents the net proceeds of a collection the bank had made on behalf of Paper Book Shop Ltd. On a $500 note.
  3. Cheques written during November but not included with the vouchers are no. 1154, $32; no. 1192, $54; no. 1193, $83; no. 1194, $109.
  4. Cheque no. 1042 is returned with the bank statement. The cheque was made for $494, the correct amount owing for office expense. The cheque was recorded in the books as $548.
  5. Cheques outstanding for at the end of October included cheques no. 1014 for $152 and no. 1016 for $179. Cheque no. 1016 was paid in the bank statement; cheque no. 1014 was not.

Required:

  1. Prepare a bank reconciliation at November 30.
  2. Prepare the necessary adjusting journal entries required to make the Cash account agree with the bank reconciliation adjusted cash balance at November 30.