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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
14. Manley Company’s inventory has a cost of $54,000 at the end of the year, and the net realizable value of the inventory is $65,000. At which amount should the company report the inventory on its balance sheet? Suppose the net realizable value of the inventory is $51,000 instead of $65,000. At
13. Briefly describe the influence that the concept of conservatism has on accounting for inventory.
12. How does the consistency characteristic affect accounting for inventory?
11. Your accounting instructor tells you that companies should use the specific identification method to most accurately value items that have been sold and transferred to cost of goods sold, yet most companies do not use this method. Why not?
10. Describe the impact on cost of goods sold of using the FIFO method as opposed to the weighted-average-cost method of valuing ending inventory when the price of inventory purchases is rising. Which method provides a more accurate value of the goods remaining in ending inventory at the end of an
9. Which inventory costing method produces the ending inventory valued at the most current cost?
8. Briefly describe the two generally accepted inventory costing methods. During a period of rising prices, which method produces the higher reported income?Which produces the lower reported income?
7. What two items determine the cost of ending inventory?
6. If beginning inventory is $88,000, purchases total$218,000, and cost of goods sold is $230,000, how much is ending inventory?
5. If beginning inventory is $120,000, purchases total$270,000, and ending inventory is $125,000, how much is cost of goods sold?
4. What is the role of the physical count of inventory in(a) the perpetual inventory system and, (b) the periodic inventory system?
3. Identify the accounts debited and credited in the standard purchase and sale entries under (a) the perpetual inventory system, and (b) the periodic inventory system.
2. Suppose your business deals in expensive jewellery.Which inventory system should you use to achieve good internal control over the inventory? If your business is a hardware store that sells low-cost goods, which inventory system would you be likely to use? Why would you choose this system?
1. Why is merchandise inventory so important to a retailer or wholesaler?
10. Suppose a SportChek location suffered a fire loss and needs to estimate the cost of the goods destroyed. Beginning inventory was $200,000, net purchases totalled$1,200,000, and sales came to $2,000,000. SportChek’s normal gross margin is 45 percent. Use the gross margin method to estimate the
9. At December 31, 2010, McAdam Company understated ending inventory by $20,000. How does this error affect cost of goods sold and net income for 2010? (pp. 312–314)a. Overstates cost of goods sold, understates incomeb. Understates cost of goods sold, overstates net incomec. Overstates both cost
8. Which of the following is most closely linked to accounting conservatism? (p. 311)a. Consistency principleb. Disclosure principlec. Materiality conceptd. Lower-of-cost-and-net-realizable-value rule
7. Suppose Lauder Company used the weighted-averagecost method and the periodic inventory system. Use the Lauder data in question 3 to compute the cost of the company’s inventory on hand at June 30. Round unit cost to the nearest cent. (p. 309)a. $410.00b. $420.80c. $820.00d. $841.60
6. Which inventory costing method results in the lowest net income during a period of rising inventory costs?(pp. 307–308)a. Specific-unit costb. First-in, first out (FIFO)c. Weighted-average costd. None of the above
5. Lauder’s journal entry (entries) on June 14 is (are)(p. 305)a. Accounts Receivable......... 1,960 Inventory ........................ 1,960b. Accounts Receivable......... 4,000 Sales Revenue ................ 4,000c. Cost of Goods Sold ........... 1,960 Inventory ........................ 1,960d.
4. After the purchase on June 22 in question 3, what is Lauder’s cost of the inventory on hand if the company is using the FIFO inventory costing method? (p. 304)a. $1,200c. $2,960b. $1,760d. $2,880
3. Assume Lauder Company began June with 10 units of inventory that cost a total of $760. During June, Lauder purchased and sold goods as follows:Jun. 8 Purchase: 30 units at $80 14 Sale: 25 units at $160 22 Purchase: 20 units at $88 27 Sale: 30 units at $160 Assume Lauder uses the FIFO inventory
2. Which inventory costing method assigns to ending inventory the latest—the most recent—costs incurred during the period? (p. 304)a. Specific-unit costc. Average costb. First-in, first-out (FIFO)d. None of the above
1. Suppose a store made sales of $1,000,000 and ended the year with inventories totalling $100,000. Cost of goods sold was $600,000. Total operating expenses were$270,000. How much net income did the chain store earn for the year? (pp. 301–302)a. $130,000c. $400,000b. $900,000d. $630,000
3. Sun-Rype Products Ltd. is a manufacturer and distributor of juice-based beverages and fruit-based snacks. On the balance sheet, the company reports an inventory figure and the detail is provided in the notes to the financial statements. What amounts are shown on the balance sheets for the
2. What amount was closed to Retained Earnings? What were dividends in 2008?
1. Journalize Sun-Rype’s closing entries for the year ended December 31, 2008, to the line Earnings (loss) before income taxes. You will be unfamiliar with certain revenues and expenses, but you should treat them all similarly. Instead of closing to a Capital account, close to the Retained
3 The employees of Olford Furniture Company made an error when they performed the periodic inventory count at year end, October 31, 2010. Part of one warehouse was not counted and therefore was not included in inventory. (Assume the error is not material, so the October 31, 2010, financial
2 Jeremy Chan has come to you for advice. Earlier this year, he opened a video store in a plaza near the university he had attended. The store rents movies on DVD at very low prices and on special credit for students. Many of the students at the university are co-op students who alternate school
1 Mitch Hopkins owns the Happy Valley Drug Store, which has prospered during its second year of operation. To help Hopkins decide whether to open another pharmacy in the area, his bookkeeper has prepared the current income statement of the business.Hopkins recently read in an industry trade journal
5–2C Michael Clarke is concerned about theft by shoplifters in his chain of three discount stores and has come to your public accounting firm for advice. Specifically, he has several questions he would like you to answer.a. He wonders if there is any inventory system he can use that will allow
5–1C You have been hired recently as an accountant by One Cellular, a small chain of stores that sells wireless products. One of your first activities is to review the accounting system for One Cellular.In your review, you discover that the company determines selling prices by adding a standard
5–17B Selected accounts from the accounting records of Burke Imports at September 30, 2010, are shown below.Cash....................................................................................... $ 14,300 Purchases..............................................................................
5–16B 1. Use the data of Problem 5–15B to prepare Hilton Building Supplies’ multi-step income statement for the year ended July 31, 2010.2. Bev Hilton, owner of the company, strives to earn a gross margin percentage of at least 50 percent and a net income percentage of 20 percent (Net income
5–14B Refer to the data in Problem 5–13B.Required 1. Journalize the adjusting and closing entries of Cozelis Produce Company.2. Determine the December 31, 2010, balance in the Capital account.
5–13B Cozelis Produce Company’s trial balance below pertains to December 31, 2010.Additional data at December 31, 2010:a. Insurance expense for the year should total $21,600.b. Store fixtures have an estimated useful life of 10 years and are expected to have no value when they are retired from
5–12B Coburn Furniture Company, which uses a periodic inventory system, engaged in the following transactions during July of the current year:Jul. 2 Purchased inventory for cash, $6,400, less a quantity discount of $900.5 Purchased store supplies on credit terms of net eom, $1,700.8 Purchased
5–11B The following transactions occurred between Gerson Pharmaceuticals and Arnold Drug Stores during June of the current year.Jun. 6 Arnold purchased $29,400 of merchandise from Gerson on credit terms 2/10, n/30, FOB shipping point. Separately, Arnold paid freight in of $300. Gerson invoiced
5–10B Rees Sports Products has the following account balances (in alphabetical order) on August 31, 2010:Accounts Payable................................................................ $ 41,500 Accounts Receivable........................................................... 44,700 Accumulated
5–9B Ralph Distributors uses the perpetual inventory system to track its inventory purchases and sales. All sales that result in a return, allowance, or discount are tracked in separate accounts in order to give management the proper information to control operations. The following information is
5–8B The adjusted trial balance of Harrison Trading Company at September 30, 2010, appears below.Required 1. Journalize Harrison Trading Company’s closing entries.2. Compute the gross margin percentage and the rate of inventory turnover for 2010.Inventory on hand at September 30, 2009, was
5–7B 1. Use the data of Problem 5–6A to prepare Hilton Building Supplies’ multi-step income statement for the year ended July 31, 2010.2. Bev Hilton, owner of the company, strives to earn a gross margin of at least 50 percent and a net income of 20 percent (Net income percentage Net income
5–6B Selected accounts of Hilton Building Supplies, at July 31, 2010, are listed in alphabetical order below. For simplicity, all operating expenses are summarized in the accounts Selling Expenses and General Expenses.Accounts Payable................... $ 51,000 Inventory: July 31, 2010 ........
5–5B Refer to the data in Problem 5–4B.Required 1. Journalize the adjusting and closing entries of Cozelis Produce Company.2. Determine the December 31, 2010, balance in the Capital account.
5–2B The following transactions occurred between Gerson Pharmaceuticals and Arnold Drug Stores during June of the current year.Jun. 8 Arnold purchased $29,400 of merchandise from Gerson on credit terms 2/10, n/30, FOB shipping point. Separately, Arnold paid freight in of $600. Gerson invoiced
5–1B Iris Optical is a regional chain of optical shops. The company offers a large selection of eyeglass frames, and Iris Optical stores provide while-you-wait service. Iris Optical has launched a vigorous advertising campaign promoting its two-for-the-price-of-one frame sale.Required Iris
5–16A 1. Use the data of Problem 5–15A to prepare Powell Distributors’ multi-step income statement for the year ended May 31, 2010.2. Corry Powell, owner of the company, strives to earn a gross margin of at least 50 percent and a net income of 20 percent (Net income percentage Net income
5–15A Items from the accounts of Powell Distributors at May 31, 2010, follow, listed in alphabetical order. The General Expenses account summarizes all operating expenses.Accounts Payable................... $ 51,000 Interest Revenue .................... $ 600 Accounts Receivable .............
5–14A Refer to the data in Problem 5–13A.Required 1. Journalize the adjusting and closing entries.2. Determine the December 31, 2010, balance of Capital for Stuart’s Fine Gems.
5–13A The trial balance of Stuart’s Fine Gems pertains to December 31, 2010, and is shown here.Additional data at December 31, 2010:a. Rent expense for the year, $24,000.b. The equipment has an estimated useful life of 10 years and is expected to have no value when it is retired from service.c.
5–12A Singh Distributing Company engaged in the following transactions during May of the current year:May 3 Purchased office supplies for cash, $5,500.7 Purchased inventory on credit terms of 3/10, net eom, $40,000.May 8 Returned 10 percent of the inventory purchased on May 7. It was not the
5–11A The following transactions occurred between King Pharmaceuticals and Hall Drug Store during February of the current year.Feb. 6 Hall purchased $50,000 of merchandise from King on credit terms 2/10, n/30, FOB shipping point. Separately, Hall paid a $2,000 bill for freight in. King invoiced
5–10A Extreme Adventures has the following account balances (in alphabetical order) on July 31, 2010:Accounts Payable................................................................ $ 10,800 Accounts Receivable........................................................... 11,600 Accumulated
5-9 Esposito Distributors uses the perpetual inventory system to track its inventory purchases and sales. All sales that result in a return, allowance, or discount are tracked in separate accounts in order to give management the proper information to control operations. The following information is
5–8A The adjusted trial balance of Propp Products at November 30, 2010, is shown on the next page.Required 1. Journalize Propp Products’ closing entries.2. Compute the gross margin percentage and the rate of inventory turnover for 2010.Inventory on hand one year ago was $21,400. For 2009, Propp
5–7A 1. Use the data of Problem 5–6A to prepare Powell Distributors’ multi-step income statement for the year ended May 31, 2010.2. Corry Powell, owner of the company, strives to earn a gross margin of at least 50 percent and a net income of 20 percent (Net income percentage Net income Net
5–6A Items from the accounts of Powell Distributors at May 31, 2010, follow, listed in alphabetical order. The General Expenses account summarizes all operating expenses.Accounts Payable................... $ 51,000 Interest Payable ........................ $ 2,800 Accounts Receivable
5–5A Refer to the data in Problem 5–4A.Required 1. Journalize the adjusting and closing entries.2. Determine the December 31, 2010, Capital balance for Stuart’s Fine Gems.
5–4A The trial balance of Stuart’s Fine Gems pertains to December 31, 2010, and is shown below.Additional data at December 31, 2010:a. Rent expense for the year, $24,000.b. The equipment has an estimated useful life of 10 years and is expected to have no value when it is retired from service.c.
5–3A Singh Distributing Company engaged in the following transactions during May of the current year:May 3 Purchased office supplies for cash, $5,500.7 Purchased inventory on credit terms of 3/10, net eom, $38,000.8 Returned 25 percent of the inventory purchased on May 7. It was not the inventory
5–2A The following transactions occurred between King Pharmaceuticals and Hall’s Drug Store during February of the current year. Both companies use the perpetual inventory system.Feb. 6 Hall purchased $60,000 of merchandise from King on credit terms of 2/10, n/30, FOB shipping point.
5–1A Canadian Tire is one of the largest retailers in Canada. The hardware department of Canadian Tire purchases tools from many well-known manufacturers. Canadian Tire uses a sophisticated perpetual inventory system.Required You are the manager of a Canadian Tire store. Write a memo to a new
1. Parkhurst Bearing Company makes all sales of industrial bearings under terms of FOB shipping point. The company usually receives orders for sales approximately one week before shipping inventory to customers. For orders received late in December, Bob Parkhurst, the owner, decides when to ship
5–28 Haupt Consulting performs systems consulting. Haupt Consulting has also begun selling accounting software. During January 2011, the business completed these transactions:Jan. 2 Completed a consulting engagement and received cash of $7,200.2 Prepaid three months’ office rent, $3,000.Jan. 7
5–27 Rees Distributors uses the periodic inventory system. Rees reported these amounts at May 31, 2010:Inventory, May 31, 2009........ $29,000 Freight In................................. $ 4,000 Inventory, May 31, 2010........ 31,000 Sales Revenue......................... 190,000 Purchases (of
5–26 For the year ended December 31, 2010, Home Distributors, a retailer of home-related products, reported net sales of $859,000 and cost of goods sold of $450,000. The company’s balance sheet at December 31, 2009 and 2010, reported inventories of $346,000 and $335,000, respectively. What were
5–25 Supply the missing income statement amounts in each of the following situations: Sales Sales Discounts Net Beginning Net Gross Sales Inventory Purchases Inventory Goods Sold Margin Ending Cost of $24,100 (a) $23,400 $8,800 $16,700 $9,900 20,600 $500 (c) 6,400 10,800 (b) $7,800 (d) $11,100
5–24 The periodic inventory records of Vallarta Video Sales include these accounts at December 31, 2010:Purchases ........................................................ $152,500 Purchase Discounts ....................................... 6,800 Purchase Returns and Allowances.............. 8,600
5–23 Refer to the business situation in Exercise 5–22. Journalize the transactions of Northern Gems Ltd., which uses the periodic inventory system. Explanations are not required.5–24 The periodic inventory records of Vallarta Video Sales include these accounts at December 31, 2010:Purchases
5–22 On April 30, 2010, Duncan Jewellers purchased inventory of $45,000 on account from Northern Gems Ltd., a jewellery importer. Terms were 3/15, net 45. On receiving the goods, Duncan checked the order and found $5,500 of unsuitable merchandise. Therefore, Duncan returned the merchandise to
5–20 Journalize, without explanations, the following transactions of McBride Auto Parts, a distributor, during the month of June 2010:Jun. 3 Purchased $16,800 of inventory under terms of 2/10, n/eom and FOB shipping point.7 Returned $1,600 of defective merchandise purchased on June 3.9 Paid
5–19 Networking Systems earned sales revenue of $66 million in 2010. Cost of goods sold was$35 million, and net income reached $8 million, Networking’s highest ever. Total current assets included inventory of $7.0 million at December 31, 2010. Last year’s ending inventory was $6.6 million.
5–18 Prepare Vallarta Video Sales’ single-step income statement for 2010, using the data from Exercise 5–17. Compute the gross margin percentage, and compare it with last year’s value of 49 percent for Vallarta Video. Does this two-year trend suggest better or worse profitability during the
5–17 Selected amounts from the accounting records of Vallarta Video Sales for the year ended December 31, 2010, follow:Required 1. Prepare the business’s multi-step income statement for the year ended December 31, 2010.2. Compute the rate of inventory turnover for the year. The inventory
5–16 Refer to Exercise 5–15. After completing Wells Decorating Centre’s income statement for the year ended December 31, 2010, compute these ratios to evaluate Wells Decorating Centre’s performance:• Gross margin percentage• Inventory turnover (ending inventory one year earlier, at
5–15 Use the data in Exercise 5–14 to prepare the multi-step income statement of Wells Decorating Centre for the year ended December 31, 2010.
5–14 The Trial Balance and Adjustments columns of the work sheet of Wells Decorating Centre include these accounts and balances at December 31, 2010.Required Compute the adjusted balance for each account that must be closed. Then journalize Wells Decorating Centre’s closing entries at December
5–13 Just Candy’s accounts at December 31, 2010, included these unadjusted balances:Inventory......................................................... $ 7,800 Cost of Goods Sold........................................ 62,400 Sales Revenue................................................. 93,600
5–12 McClelland Hardware Store’s accounting records (partial) carried the following accounts at December 31, 2010:Required Note: For simplicity, all operating expenses have been summarized in the accounts Selling Expenses and General and Administrative Expenses.1. Journalize all of this
5–11 Supply the missing income statement amounts in each of the following situations: Sales $94,500 Sales Discounts Net Sales Cost of Goods Sold Gross Margin $2,200 $92,300 $56,700 (a) 99,500 (b) 95,520 (c) $36,000 68,700 2,100 (d) 37,700 (e) (f) 3,500 52,500 18,600
5–10 Refer to the business situation in Exercise 5–9. Journalize the transactions of Northern Gems Ltd. Northern’s gross margin is 45 percent, so cost of goods sold is 55 percent of sales.Explanations are not required.
5–9 On April 30, 2010, Duncan Jewellers purchased inventory of $45,000 on account from Northern Gems Ltd., a jewellery importer. Terms were 3/15, n/45. On receiving the goods Duncan checked the order and found $5,500 worth of items that were not ordered. Therefore, Duncan returned this amount of
5–8 As the proprietor of Willow Auto Service, you receive the invoice on the next page from a supplier (GST has been disregarded).Required 1. Journalize the transaction required on May 14, 2010.2. The L912 Belted-bias tires were ordered by mistake and therefore were returned to ABC.Journalize the
5–7 Journalize, without explanations, the following transactions of Current Fashion Distributors, a wholesaler, during the month of June 2010:Jun. 3 Purchased $14,500 of inventory from a manufacturer under terms of 2/10, n/eom and FOB shipping point.7 Returned $2,700 of defective merchandise
5–6 Nike sells $600,000 of sporting goods to The Bay under credit terms of 2/10, net 30 on April 10, 2010. Nike’s cost of the goods is $420,000, and it receives the appropriate amount of cash from The Bay on April 20, 2010.Journalize Nike’s transactions on April 10, 2010, and April 20, 2010.
5–5 Suppose The Bay purchases $600,000 of sporting goods on account from Nike on April 10, 2010. Credit terms are 2/10, net 30. The Bay pays electronically, and Nike receives the money on April 20, 2010.Journalize The Bay’s (a) purchase and (b) cash payment transactions. What was The Bay’s
5–4 Suppose SportChek reported cost of goods sold totalling $750 million. Ending inventory was $325 million, and beginning inventory was $290 million. How much inventory did SportChek purchase during the year?
5–3 The Wholesale Company began the year with inventory of $12,000. During the year, the company purchased $136,000 of goods and returned $9,000 due to damage. At year end, the Inventory balance was $17,000. The Wholesale Company uses the periodic inventory system.Compute The Wholesale
5–2 The Electronics Store reported the information shown below.Required 1. Is The Electronics Store a merchandising entity, a service business, or both? How can you tell? List the items in The Electronics Store financial statements that influence your answer.2. Compute The Electronics Store’s
5–1 The following characteristics are related to either periodic inventory or perpetual inventory systems.A. Purchases of inventory are journalized to an asset account at the time of purchase.B. Purchases of inventory are journalized to an expense account at the time of purchase.C. Inventory
5–17 Suppose Ronny’s Clothing purchased T-shirts on account for $18,130. Credit terms are 1/15, n/45. Ronny’s Clothing paid within the discount period.a. If Ronny’s Clothing uses a periodic inventory system, when will the purchase of inventory be recorded as an expense—when it is
5–16 Minit Company began the year with inventory of $8,000. During the year, Minit purchased $90,000 of goods and returned $6,000 due to damage. Minit also paid freight charges of $1,000 on inventory purchases. At year end, Minit’s inventory based on the physical inventory count stood at
5–15 Liz Claiborne, Inc., sells $80,000 of women’s sportswear to The Bay under credit terms of 2/10, net 30 on August 1, 2010. Liz Claiborne’s cost of goods sold is $38,000, and Liz Claiborne receives the appropriate amount of cash from The Bay on August 10, 2010. Assume Liz Claiborne, Inc.,
5–14 Suppose Toys Unlimited buys $200,000 of LEGO® toys on credit terms of 3/15, n/45. Some of the goods are damaged in shipment, so Toys Unlimited returns $25,000 of the merchandise to LEGO®. Assuming Toys Unlimited uses a periodic inventory system, how much must Toys Unlimited pay LEGO®a.
5–13 Refer to the Northern Communications situation in Starters 5–11 and 5–12.Compute the gross margin percentage and rate of inventory turnover for 2010. One year earlier, at December 31, 2009, Northern’s inventory balance was $600.
5–12 Use the data in Starter 5–11 to prepare Northern Communications’ classified balance sheet at December 31, 2010. Use the report format with all headings.
5–11 Suppose Northern Communications reported these figures in its December 31, 2010, financial statements:Cash....................................................................................... $ 7,600 Total operating expenses ................................................... 7,000
5–10 Chandler RV Accessories’ accounting records include the following accounts at December 31, 2010:Cost of Goods Sold ......... $410,000 Accumulated Amortization $300,000 Accounts Payable............ 24,000 Cash........................................ 20,000 Advertising Expense ...... 20,000
Starter 5–9 Patio Furniture’s Inventory account at year end showed a debit balance of$75,000. A physical count of inventory showed goods on hand of $73,500.Journalize the adjusting entry.
5–8 Use the data in Starter 5–7 to compute Pearson Education’sa. Net sales revenueb. Gross margin
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