Exercise 5.23 LO 5, 6, 7

Transaction analysis—various accounts

Prepare an answer sheet with the column headings shown here. For each of the following transactions or adjustments, indicate the effect of the transaction or adjustment on the appropriate balance sheet category and on net income by entering for each account affected the account name and amount and indicating whether it is an addition (+) or a subtraction (−).

Transaction A, has been done as an illustration. Net income is not affected by every transaction. In some cases, only one column may be affected because all of the specific accounts affected by the transaction are included in that category.

Current Assets / Current Liabilities / Stockholders’ Equity / Net Income
A) Accrued interest income of $30 on a note receivable. Interest Receivable + 30 Interest Income + 30 / Interest
Receivable
+ 30 / Interest
Income
+ 30
B)Recorded estimated bad debts in the amount of $1,400. / Bad debits
-$2,200 / Bad debits
-$2,200
C)Wrote off an overdue account receivable of $1,040
D)Converted a customer’s $2,400 overdue account receivable into a note.
E)Accrued $96 of interest earned on the note (in d).
F)Collected the accrued interest (in e).
G)Recorded $8,000 of sales, 70% of which were on account.
H)Recognized cost of goods sold in the amount of $6,400.

Problem 5.25LO 3

Bank reconciliation—compute Cash account balance and bank statement balance before reconciling items Beckett Co. received its bank statement for the month ending June 30, 2016, and reconciled the statement balance to the June 30, 2016, balance in the Cash account. The reconciled balance was determined to be $9,600. The reconciliation recognized the following items:

  1. Deposits in transit were $4,200
  2. Outstanding checks totaled $6,000
  3. Bank service charges shown as a deduction on the bank statement were $100.
  4. An NSF check from a customer for $800 was included with the bank statement. Beckett Co. had not been previously notified that the check had been returned NSF.
  5. Included in the canceled checks was a check written for $790. However, it had been recorded as a disbursement of $970.

Required:

a. What was the balance in Beckett Co.’s Cash account before recognizing any of the preceding reconciling items?

Cash Account

Reconciled balance / $9,600
NSF / -$800
Check recording error / -$180
Total / $8,620

b. What was the balance shown on the bank statement before recognizing any of the preceding reconciling items?

Bank Balance

Reconciled Balance / $9,600
Check recording error (interest earned) / -$180
Outstanding Checks / -$6,000
Deposits in transit / +$4,200
Total / $7,620

Problem 5.34 LO 7, 8

Cost flow assumptions—FIFO and LIFO using periodic and perpetual systems The inventory records of Cushing, Inc., reflected the following information for the year ended December 31, 2016:

Number of Units / Unit Cost / Total Cost
Purchases:
Inventory 1/01 / 100 / $26 / $2,600
May 30 / 160 / 30 / 4,800
September 28 / 200 / 32 / 6,400
Goods available for sale / 460 / $13,800
Sales:
April 10 / (70)
June 11 / (150)
November 1 / (190)
Inventory, December 31 / 50

Required:

a. Assume that Cushing, Inc., uses a periodic inventory system. Calculate cost of goods sold and ending inventory under FIFO and LIFO.

FIFOLIFO

100@$26 / $2,600
160@$30 / $4,800
200@$32 / $6,400
Available: 460 / $13,800
(50)
Ending: 410
@ $ / $
@ $ / $
@ $ / $
@ $ / $
$

b. Assume that Cushing, Inc., uses a perpetual inventory system. Calculate cost of goods sold and ending inventory under FIFO and LIFO.

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c. Explain why the FIFO results for cost of goods sold and ending inventory are the same in your answers to parts a and b, but the LIFO results are different.

d. Explain why the results from the LIFO periodic calculations in part a,cannot possibly represent the actual physical flow of inventory items.