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intermediate accounting volume 1
Accounting Volume 1 8th Canadian Edition Charles T. Horngren, Walter T. Harrison, M. Suzanne Oliver, Peter R. Norwood, Jo-Ann L. Johnston - Solutions
7–4 Assign account numbers (from the list that follows) to the accounts of LP Gas Co. Identify the headings, which are not accounts and would not be assigned an account number.Assets LP, Capital Current Assets LP, Withdrawals Inventory Revenues Accounts Payable Selling Expenses Numbers from which
Starter 7–2 Identify each of the following items as an element of a computerized accounting system (c), a manual accounting system (m), or both (b).1. The trial balance transferred to or entered on the work sheet.2. Automatic posting to the general ledger.3. The use of UPC codes for inventory.4.
7–1 Suppose you have invested your life savings in a company that prints rubberized logos on T-shirts. The business is growing fast, and you need a better accounting information system. Consider the features of an effective system, as discussed on pages 343–344. Which do you regard as most
15. Assume that posting is completed. The trial balance shows no errors, but the sum of the individual accounts payable does not equal the Accounts Payable control balance in the general ledger. What two errors could cause this problem?
14. Posting from the journals of McKedrick Realty is complete.But the total of the individual balances in the accounts payable subsidiary ledger does not equal the balance in the Accounts Payable control account in the general ledger. Does this necessarily indicate that the trial balance is out of
13. What is the purpose of balancing, or reconciling, the ledgers?
12. Describe how to use the sales journal to account for sales tax collected from customers.
11. At what two times is posting done from a special journal?What items are posted at each time?
10. The accountant for Bannister Co. posted all amounts correctly from the cash receipts journal to the general ledger. However, she failed to post three credits to customer accounts in the accounts receivable subsidiary ledger. How would this error be detected?
9. Graff Company’s sales journal has one amount column headed Accounts Receivable Dr and Sales Revenue Cr.In this journal, 86 transactions are recorded. How many posting references or (✓) appear in the journal? State what each posting reference represents.
8. What is a control account, and how is it related to a subsidiary ledger? Name two common control accounts.
7. Describe the two advantages that special journals have over recording all transactions in the general journal.
6. Name four special journals used in accounting systems.For what type of transaction is each designed?
5. Describe the function of menus in a computerized accounting system.
4. Why might the number 112 be assigned to Accounts Receivable and the number 1120708 to Carl Erickson, a customer?
3. What accounting categories correspond to the account numbers 1, 2, 3, 4, and 5 in the chart of accounts in a typical computerized accounting system?
2. Distinguish batch computer processing from online computer processing.
1. Describe the five criteria of an effective accounting system.
10. The individual accounts in the accounts receivable subsidiary ledger identify (p. 353)a. Payeesb. Debtorsc. Amounts to be paidd. Suppliers
9. Every transaction recorded in the cash payments journal includes a (p. 360)a. Debit to Accounts Payableb. Debit to an Other Accountc. Credit to Inventoryd. Credit to Cash
8. Entries in the purchases journal are posted to the (p. 360)a. General ledger onlyb. General ledger and the accounts payable subsidiary ledgerc. General ledger and the accounts receivable subsidiary ledgerd. Accounts receivable subsidiary ledger and the accounts payable subsidiary ledger
7. Every transaction recorded in the cash receipts journal includes a (p. 354)a. Credit to Cashb. Debit to Accounts Receivablec. Debit to Sales Discountsd. Debit to Cash
6. Centex Sound Systems purchased inventory costing$8,000 from Sony on account. Where should Centex record this transaction, and what account is credited? (p. 358)a. Cash payments journal; credit Cashb. Sales journal; credit Sales Revenuec. Purchases journal; credit Accounts Payabled. General
5. Special journals help most by (p. 351)a. Limiting the number of transactions that have to be recordedb. Reducing the cost of operating the accounting systemc. Improving accuracy in posting to subsidiary ledgersd. Easing the preparation of the financial statements
4. A company uses a sales journal, a purchases journal, a cash receipts journal, a cash payments journal, and a general journal. A sales return for credit would be recorded in the (p. 363)a. Sales journalb. General journalc. Sales return and allowances journald. Cash payments journale. Accounts
3. The account number 211031 most likely refers to (p. 347)a. Liabilitiesc. Accounts Payableb. Current liabilitiesd. An individual supplier
2. Which feature of an effective information system is most concerned with safeguarding assets? (p. 343)a. Controlc. Flexibilityb. Compatibilityd. Reports that meet users’ needse. Favourable cost/benefit relationship
1. Why does a jewellery store need an accounting system that is different from what a physician uses? (pp. 343–344)a. They have different kinds of employees.b. They have different kinds of journals and ledgers.c. They have different kinds of business transactions.d. They work different hours.
3. What costs are included in the calculation of finished goods inventory?
2. What valuation method does Sun-Rype use for valuing each category of inventory?Hint: Refer to the significant accounting policies in Note 1.
1. What types of inventory does Sun-Rype have? What was the value of each category at December 31, 2008? At December 31, 2007?
1. The notes are an important part of a company’s financial statements, giving valuable details that would clutter the tabular data presented in the statements. This problem will help you learn to use a company’s inventory notes. Refer to the Sun-Rype Products Ltd. financial statements and the
1. Alpine Camping Supplies is nearing the end of its first year of operations. The company uses the periodic inventory method and made inventory purchases of $176,250 during the year as follows:January 150 units at $165 = $ 24,750 July 600 units at $195 = 117,000 November 150 units at $230 = 34,500
6–2C It is Monday morning. You heard on the morning news that a client of your public accounting firm, Mainland Electronics, had a fire the previous Friday night that destroyed its office and warehouse, and you concluded that inventory records as well as inventory probably perished in the fire.
6–1C An anonymous source advised Canada Revenue Agency (CRA) that Jim Chaney, owner of Chaney Grocery Store, has been filing fraudulent tax returns for the past several years. You, a tax auditor with CRA, are in the process of auditing Chaney Grocery Store for the year ended December 31, 2010.
6–14B Booth Sales uses the perpetual inventory system for the purchase and sale of inventory and had the following information available on August 31, 2010:Required 1. Calculate the cost of goods sold and the cost of the ending inventory for August under each of the following inventory costing
6–13B Refer to the information in Problem 6–12B. Assume that the company uses a perpetual inventory system. Also assume that monthly purchases of inventory occur on the first day of each month.Required 1. Determine the cost of the department’s ending inventory at December 31, 2010, under(a)
Problem 6–12B Pinton Industrial Supplies distributes industrial equipment. The company’s fiscal year ends on December 31, 2010. One department in the company had 50 items that cost $540 each on hand at October 1, 2010. During the quarter, the department purchased merchandise on account as shown
Problem 6–10B Assume Falcon Linen Stores estimates its inventory by the gross margin method when preparing monthly financial statements (it uses the periodic method otherwise). For the past two years, the gross margin has averaged 40 percent of net sales. Assume further that the company’s
Problem 6–9B The books of Hayes Windows and Siding show these data (in thousands):2010 2009 2008 Net sales revenue......................... $270 $205 $180 Cost of goods sold:Beginning inventory................ $ 49 $ 41 $ 52 Net purchases........................... 146 101 98 Cost of goods
Problem 6–8B Deck Building Supplies has recently been plagued with declining sales. The rate of inventory turnover has dropped, and some of the company’s merchandise is gathering dust. At the same time, competition has forced Deck Building Supplies to lower the selling prices of its inventory.
Problem 6–7B The Canvas Company (TCC) began August 2010 with 100 units of inventory that cost $60 each. The sale price of each of those units was $120. During August, TCC completed these inventory transactions:Units Unit Cost Units Sales Price Aug. 3 Sale
Problem 6–6B Ball Hardware Company, which uses a periodic inventory system, began 2010 with 9,000 units of inventory that cost a total of $45,000. During 2010, Ball purchased merchandise on account as follows:Purchase 1 (15,000 units)
Problem 6–5B Comet Appliances and Supply began December with 280 units of inventory that cost $180 each. During December, the store made the following purchases:Dec. 3 430 units at $182 12 190 units at $184 18 420 units at $186 24 426 units at $184 The store uses the periodic inventory system,
Problem 6–4B Chen Hardware Store purchases inventory in crates of merchandise, so each unit of inventory is a crate of tools or building supplies. Assume you are dealing with a single department in the store. Assume the department began the year with an inventory of 40 units that cost a total of
Problem 6–3B Refer to the Pierce Imports situation in Problem 6–2B. Keep all the data unchanged, except that Pierce uses the moving-weighted-average-cost method.Required 1. Prepare a perpetual inventory record at moving-weighted-average cost. Round the average unit cost to the nearest cent and
Problem 6–2B Pierce Imports is a furniture distributor. The following information is for one item of inventory, kitchen chairs, for the month of February. The store purchased and sold merchandise on account as follows:Feb. 1 Opening inventory ...................... 50 chairs at $ 50 3 Purchase
Problem 6–1B Ferrell Lawn Supply, which uses the FIFO method, began March with 200 units of inventory that cost $20 each. During March, Ferrell completed these inventory transactions:Units Unit Cost Unit Sale Price Mar. 2 Purchase 48 $25 8 Sale 160 $72 17 Purchase 96 30 22 Sale 124 80 Required 1.
Problem 6–14A Toffler Auto Parts uses the perpetual inventory system for the purchase and sale of inventory and had the following information available on November 30, 2010:Cost or Selling Price Purchases and Sales Number of Units per Unit Nov. 1 Balance of inventory 3,900 $20 7 Purchased 6,000
Problem 6–13A Refer to the information in Problem 6–12A. Assume that the company uses a perpetual inventory system. Also assume that monthly purchases of inventory occur on the first day of each month.Required 1. Determine the cost of the department’s ending inventory at December 31, 2010,
Problem 6–12A Sherman Office Supplies distributes office furniture. The company’s fiscal year ends on December 31, 2010. On September 30, 2010, one department in the company had in inventory 20 office suites that cost $1,800 each. During the quarter, the department purchased merchandise on
Problem 6–11A Burrows Shoe Company has a periodic inventory system and uses the gross margin method of estimating inventories for interim financial statements. The company had the following account balances for the fiscal year ended August 31, 2010:Inventory: Sept. 1, 2009
Problem 6–10A Sweeney Stores estimates its inventory by the gross margin method when preparing monthly financial statements (Sweeney Stores uses the periodic method otherwise). For the past two years, gross margin has averaged 30 percent of net sales. The business’s inventory records for its
Problem 6–9A The accounting records of Webb Music Stores show these data (in thousands):2010 2009 2008 Net sales revenue......................... $426 $366 $378 Cost of goods sold:Beginning inventory................ $ 36 $ 60 $ 96 Net purchases........................... 276 240 216 Cost of goods
Problem 6–8A Chesley Home Furniture has recently been plagued with lacklustre sales. The rate of inventory turnover has dropped, and some of the business’s merchandise is gathering dust.At the same time, competition has forced the business to lower the selling prices of its inventory.It is now
Problem 6–7A Thunder Performance Tire began June with 50 units of inventory that cost $132 each. During June, Thunder Performance Tire completed these inventory transactions:Unit Unit Cost Unit Selling Price Jun. 2 Purchase ........................................ 12 $135 8 Sale
Problem 6–6A Rupert Products, which uses a periodic inventory system, began 2010 with 6,000 units of inventory that cost a total of $90,000. During 2010, Rupert Products purchased merchandise on account as follows:Purchase 1 (10,000 units at $14 per unit)................................ $140,000
Problem 6–5A Sharpe Framing Co. began March with 73 units of inventory that cost $50 each. During the month, Sharpe made the following purchases:Mar. 4 113 units at $48 12 81 units at $49 19 167 units at $52 25 44 units at $54 The company uses the periodic inventory system, and the physical count
Problem 6–4A Prairie Hardware operates a store in Red Deer, Alberta. The company began 2010 with an inventory of 50 power nailers that cost $4,000 in total. During the year, the company purchased merchandise on account as follows:March (60 units at
Problem 6–3A Refer to the Acme Distributors situation in Problem 6–2A. Keep all the data unchanged, except assume that Acme uses the moving-weighted-average-cost method.Required 1. Prepared a perpetual inventory record at moving-weighted-average cost. Round the average unit cost to the nearest
Problem 6–2A Acme Distributors purchases inventory in crates of merchandise.Assume the company began January with an inventory of 20 units that cost $300 each.During the month, the company purchased and sold merchandise on account as shown.Jan. 10 Purchased 30 units at $320.15 Sold 40 units at
6–1A Markham Leather, a distributor of leather products, uses the FIFO method for valuing inventories. It began August with 50 units of an inventory item that cost $80 each. During August, the store completed these inventory transactions:Units Unit Cost Unit Sale Price Aug. 3 Sale
1.1 During 2009, Bryant Electronics changed to the weighted-average-cost method of accounting for inventory. Suppose that during 2010, Bryant Electronics changes back to the FIFO method, and in the following year switches back to the weighted-average-cost method again.Required 1. What would you
Exercise 6–22 Central Glass Products Ltd. is a leading provider of bottles for the brewing industry. Suppose the company recently reported these figures.Required Evaluate Central Glass’s operations during 2010 in comparison with 2009. Consider sales, gross margin, operating income, and net
Exercise 6–21 For each of the following situations, identify the inventory method that you are using or would prefer to use, or, given the use of a particular method, state the strategy that you would follow to accomplish your goal.a. Inventory costs are increasing. Your business uses the FIFO
Exercise 6–20 Consider the January 2011 transactions for Haupt Consulting Company that were presented in Chapter 5.Jan. 2 Completed a consulting engagement and received cash of $7,200.2 Prepaid three months’ office rent, $3,000.7 Purchased 100 units of software inventory on account, $1,900,
Exercise 6–19 Tanya’s Designs has three lines of women’s sportswear: Teenage, Young Woman, and Mature. The selling price of each item is double its cost price. On May 18, 2010, Tanya’s Designs had a fire that destroyed the entire inventory. Sales for the period January 1 to May 18 were:
Exercise 6–18 Bathurst Company began April with inventory of $200,000. The business made net purchases of $600,000 and had net sales of $900,000 before a fire destroyed the company’s inventory.For the past several years, Bathurst Company’s gross margin on sales has been 40 percent. Estimate
Exercise 6–17 Determine whether each of the actions on the next page in buying, selling, and accounting for inventories is ethical or unethical. Give your reason for each answer.1. Spartan Corporation knowingly overstated purchases to produce a high figure for cost of goods sold (low amount of
Exercise 6–16 Janet Klein, accountant of Portage Electronics Ltd., learned that Portage Electronics’ $24 million cost of inventory at the end of last year was overstated by $3.6 million. She notified the company president, Eric Moffat, of the accounting error and the need to alert the
Exercise 6–15 Maple Bay Marine Supply reported the comparative income statement for the years ended September 30, 2010 and 2009, shown below.During 2010, accountants for the company discovered that ending 2009 inventory was overstated by $3,600. Prepare the corrected comparative income statement
Exercise 6–14 Provence Bakery reported sales revenue of $128,000 and cost of goods sold of $71,000.Compute Provence Bakery’s correct gross margin if the company made each of the following accounting errors. Show your work.a. Ending inventory is overstated by $3,000.b. Ending inventory is
6–13 Valley Tool Company’s income statement for the month ended August 31, 2010, reported the following data:Income Statement Sales revenue .............................................................. $320,000 Cost of goods sold:Beginning
6–12 Robertson Garden Supplies, which uses a perpetual inventory system and the FIFO method, has these account balances at December 31, 2010, prior to releasing the financial statements for the year:The company has determined that the net realizable value of the December 31, 2010, ending
6–11 This exercise tests your understanding of the three inventory methods. In the space provided, write the name of the inventory method that best fits the description. Assume that the cost of inventory is rising.__________a. Provides the same result for ending inventory in a periodic and in a
6–10 1. Supply the missing income statement amounts for each of the following companies for the year ended December 31, 2010:2. Prepare the income statement for Dolan Co., which uses the periodic inventory system.Dolan’s operating expenses for the year were $8,700. Company Net Sales Beginning
6–9 Kelso Electrical’s inventory records for industrial switches indicate the following at November 30, 2010:Nov. 1 Beginning inventory .................................... 14 units at $80 8 Purchase......................................................... 4 units at $85 15
6–8 Balkin Office Products markets the ink used in inkjet printers. Balkin started the year with 10,000 containers of ink (moving-weighted-average cost of $9 each; FIFO cost of $8 each).During the year, Balkin purchased 80,000 containers of ink at $11 on the first day of its fiscal year and sold
6–7 Refer to the Carson Tackle Shop data in Exercise 6–6. Assume that Carson is using a periodic inventory system. Inventory on hand at December 31, 2010, was $48,000, based on the physical count.Required 1. Journalize Carson Tackle Shop’s inventory transactions for the year in the periodic
6–6 Carson Tackle Shop’s accounting records yield the following data for the year ended December 31, 2010.Inventory: January 1, 2010 ...................................... $ 24,000 Purchases of inventory (on account) ..................... 147,000 Sales of inventory—80 percent on account, 20
6–5 Use your results from Exercises 6–2 and 6–4 to calculate the gross margin for The Music Store under both the FIFO and the moving-weighted-average-cost methods. Explain why the gross margin is higher under the moving-weighted-average-cost method.
6–4 Refer to The Music Store inventory data in Exercise 6–2. Assume that the store uses the moving-weighted-average-cost method. Prepare The Music Store’s perpetual inventory record for the guitars on the moving-weighted-average-cost basis. Round average cost per unit to the nearest cent and
6–3 After preparing the FIFO perpetual inventory record in Exercise 6–2, journalize The Music Store’s May 8 purchase of inventory on account and the cash sale on May 17 (sale price of each guitar was $800).
6–2 The Music Store carries a large inventory of guitars and other musical instruments. The store uses the FIFO method and a perpetual inventory system. Company records indicate the following for a particular line of guitars:Date Item Quantity Unit Cost May 1 Balance
6–1 Reguly Company buys transformers from manufacturers and sells them to utility companies.The units are costly, and the company keeps track of them by using serial numbers. On April 1, the company had two transformers in stock:Serial Number Unit Cost 2010901 $27,500 2010905 29,600 During the
6–11 Dream Carpets began the year with inventory of $700,000. Inventory purchases for the year totalled $3,200,000. Sales revenue for the year was$7,000,000 and the gross margin was 50 percent. How much is Dream Carpets’estimated cost of ending inventory? Use the gross margin method.Starter
6–10 Refer back to the Van Dyke Cycles’ inventory data in Starter 6–9. The ending inventory balance is stated correctly at the end of 2011. What would be the effect on cost of goods sold and gross margin for the year ended December 31, 2011?
6–9 Van Dyke Cycles uses a periodic inventory system. The inventory data for the year ended December 31, 2010, follow.Sales revenue............................................................................... $150,000 Cost of goods sold:Beginning inventory
6–8 Park Dry Goods uses a periodic inventory system. Park completed the following inventory transactions during April, its first month of operations:Apr. 1 Purchased 10 shirts at $50 each 7 Sold 6 shirts for $80 each 13 Purchased 3 shirts for $55 each 21 Sold 2 shirts at $85 each Compute Park’s
6–7 Answer these questions in your own words:1. Why does FIFO produce the lower cost of goods sold during a period of rising prices?2. Why does moving-weighted-average costing produce the higher cost of goods sold during a period of rising prices?3. Which inventory costing method—FIFO or
6–6 Use the Casio Cycles data in Starter 6–3 to journalizea. The June 16 purchase of inventory on account.b. The June 30 sale of inventory on account. Casio sold each bicycle for$240.c. Cost of goods sold under the moving-weighted-average-cost method.
6–5 Use the Casio Cycles’ data in Starter 6–3 to prepare a perpetual inventory record for the moving-weighted-average-cost method. Round average cost per unit to the nearest cent and all other amounts to the nearest dollar.
6–4 Use the Casio Cycles data in Starter 6–3 to journalizea. The June 16 purchase of inventory on account.b. The June 30 sale of inventory on account. Casio sold each bicycle for $240.c. Cost of goods sold under FIFO.
6–3 Casio Cycles uses the FIFO inventory method. Casio started June with 10 bicycles that cost $190 each. On June 16, Casio bought 20 bicycles at $200 each.On June 30, Casio sold 25 bicycles. Prepare Casio’s perpetual inventory record.
6–2 Refer to the information in Starter 6–1. Calculate the gross margin for the month of August.
6–1 Fairhill Company has the following items in its inventory on August 1:Serial Number Cost 661 $18,200 665 18,600 668 17,400 675 21,900 The company uses the specific-unit-cost method for costing inventory.During August, it sold units 661 and 668 for $30,000 each, and purchased unit 676 for
18. The retail method of estimating inventory seems simple but in reality can be difficult to apply. Why is this so?
17. Afire destroyed the inventory of Bronk Supplies, but the accounting records were saved. The beginning inventory was $63,000, purchases for the period were $136,500, and sales were $240,000. Bronk’s customary gross margin is 40 percent of sales. Use the gross margin method to estimate the cost
16. Identify two important methods of estimating inventory amounts.
15. Gabriel Products accidentally overstated its ending inventory by $10,000 at the end of Period 1. Is the gross margin of Period 1 overstated or understated? Is the gross margin of Period 2 overstated, understated, or unaffected by the Period 1 error? Is the total gross margin for the two periods
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