E7-2 (Determine Cash Balance) Presented below are anumber of independent situations.
Instructions
For each individual situation, determine the amount that should bereported as cash. If the item(s) is not reported as cash, explainthe rationale.
1. Checking account balance $925,000; certificate of deposit$1,400,000; cash advance to subsidiary of $980,000; utility depositpaid to gas company $180.
2. Checking account balance $500,000; an overdraft in specialchecking account at same bank as normal checking account of$17,000; cash held in a bond sinking fund $200,000; petty cash fund$300; coins and currency on hand $1,350.
3. Checking account balance $590,000; postdated check from customer$11,000; cash restricted due to maintaining compensating balancerequirement of $100,000; certified check from customer $9,800;postage stamps on hand $620.
4. Checking account balance at bank $42,000; money market balanceat mutual fund (has checking privileges) $48,000; NSF checkreceived from customer $800.
5. Checking account balance $700,000; cash restricted for futureplant expansion $500,000; short-term Treasury bills $180,000; cashadvance received from customer $900 (not included in checkingaccount balance); cash advance of $7,000 to company executive,payable on demand; refundable deposit of $26,000 paid to federalgovernment to guarantee performance on construction contract.
E7-8 (Recording Bad Debts) At the end of 2010 SorterCompany has accounts receivable of $900,000 and anallowance for doubtful accounts of $40,000. On January 16, 2011,Sorter Company determined that its receivable from Ordonez Companyof $8,000 will not be collected, and management authorized itswrite-off.
Instructions
(a) Prepare the journal entry for Sorter Company to write off theOrdonez receivable.
(b) What is the net realizable value of Sorter Company’s accountsreceivable before the write-off of the Ordonez receivable?
(c) What is the net realizable value of Sorter Company’s accountsreceivable after the write-off of the Ordonez receivable?
E8-5 (Inventoriable Costs—Error Adjustments) Werth Companyasks you to review its December 31, 2010, inventory valuesand prepare the necessary adjustments to the books. The followinginformation is given to you.
1. Werth uses the periodic method of recording inventory. Aphysical count reveals $234,890 of inventory on hand at December31, 2010.
2. Not included in the physical count of inventory is $10,420 ofmerchandise purchased on December 15 from Browser. This merchandisewas shipped f.o.b. shipping point on December 29 and arrived inJanuary. The invoice arrived and was recorded on December 31.
3. Included in inventory is merchandise sold to Bubbey on December30, f.o.b. destination. This merchandise
was shipped after it was counted. The invoice was prepared andrecorded as a sale on
account for $12,800 on December 31. The merchandise cost $7,350,and Bubbey received it on January 3.
4. Included in inventory was merchandise received from Dudley onDecember 31 with an invoice price of $15,630. The merchandise wasshipped f.o.b. destination. The invoice, which has not yet arrived,has not been recorded.
5. Not included in inventory is $8,540 of merchandise purchasedfrom Minsky Industries. This merchandise was received on December31 after the inventory had been counted. The invoice was receivedand recorded on December 30.
6. Included in inventory was $10,438 of inventory held by Werth onconsignment from Jackel Industries.
7. Included in inventory is merchandise sold to Sims f.o.b.shipping point. This merchandise was shipped after it was counted.The invoice was prepared and recorded as a sale for $18,900 onDecember 31. The cost of this merchandise was $11,520, and Simsreceived the merchandise on January 5.
8. Excluded from inventory was a carton labeled “Please accept forcredit.” This carton contains merchandise costing $1,500 which hadbeen sold to a customer for $2,600. No entry had been made to thebooks to reflect the return, but none of the returned merchandiseseemed damaged.
Instructions
(a) Determine the proper inventory balance for Werth Company atDecember 31, 2010.
(b) Prepare any correcting entries to adjust inventory to itsproper amount at December 31, 2010. Assume the books have not beenclosed.
E8-14 (FIFO, LIFO, and Average Cost Determination) LoBiancoCompany’s record of transactions for
the month of April was as follows.
Purchases Sales
April 1 (balance on hand) 600 @ $6.00 April 3 500 @ $10.00
4 1,500 @ 6.08 9 1,300 @ 10.00
8 800 @ 6.40 11 600 @ 11.00
13 1,200 @ 6.50 23 1,200 @ 11.00
21 700 @ 6.60 27 900 @ 12.00
29 500 @ 6.79 4,500
5,300
Instructions
(a) Assuming that periodic inventory records are kept, compute theinventory at April 30 using (1) LIFO and (2) average cost.
(b) Assuming that perpetual inventory records are kept in bothunits and dollars, determine the inventory at April 30 using (1)FIFO and (2) LIFO.
(c) Compute cost of goods sold assuming periodic inventoryprocedures and inventory priced at FIFO.
(d) In an inflationary period, which inventory method—FIFO, LIFO,average cost—will show the highest net income?
P7-1 (Determine Proper Cash Balance) Francis Equipment Co.closes its books regularly on December 31, but at the endof 2010 it held its cash book open so that a more favorable balancesheet could be prepared for credit purposes. Cash receipts anddisbursements for the first 10 days of January were recorded asDecember transactions. The information is given on the nextpage.
1. January cash receipts recorded in the December cash book totaled$45,640, of which $28,000 represents cash sales, and $17,640represents collections on account for which cash discounts of $360were given.
2. January cash disbursements recorded in the December checkregister liquidated accounts payable of $22,450 on which discountsof $250 were taken.
3. The ledger has not been closed for 2010.
4. The amount shown as inventory was determined by physical counton December 31, 2010.
The company uses the periodic method of inventory.
E8-25 (Dollar-Value LIFO) Presented below is informationrelated to Martin Company.
Ending Inventory Price
Date (End-of-Year Prices) Index
December 31, 2007 $ 80,000 100
December 31, 2008 111,300 105
December 31, 2009 108,000 120
December 31, 2010 122,200 130
December 31, 2011 147,000 140
December 31, 2012 176,900 145
Instructions
Compute the ending inventory for Martin Company for 2007 through2012 using the dollar-value LIFO method.
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