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principles financial accounting

Financial Accounting A Business Perspective 7th Edition Roger H. Hermanson, James Don Edwards - Solutions

Sally Stillwagon owns a hardware store; she sells items for cash and on account. During 1998, which seemed to be a typical year, some of her company's operating data and other data were as follows:A national credit card agency has tried to convince Stillwagon that instead of carrying her own
Jim Perry operates a large fruit and vegetable stand on the outskirts of a city. In a typical year he sells \(\$ 600,000\) of goods to regular customers. His sales are \(40 \%\) for cash and \(60 \%\) on credit. He carries all of the credit himself. Only after a customer has a \(\$ 300\) unpaid
Refer to the annual reports of The Coca-Cola Company, Maytag Corporation, The Limited, Inc., and John H. Harland Company in the annual report booklet. For the most recent year shown, calculate accounts receivable turnover and the number of days' sales in accounts receivable for each company and
In groups of two or three students, write a two-page, double-spaced paper on one of the following topics:Which is better-the percentage-of-sales method or the percentage-of-receivables method?Why not eliminate bad debts by selling only for cash?Why allow customers to use credit cards when credit
"Lapping" of accounts receivable has been used to conceal the fact that payments received on accounts receivable have been "borrowed" and used by an employee for personal use. With one or two other students, research this topic in the library. Write a paper to your instructor describing how this
In a group of two or three students, visit a fairly large company in your community to investigate the effectiveness of its management of accounts receivable. Inquire about its credit and sales discount policies, collection policies, and how it establishes the amount for the adjusting entry for
Visit the following Internet site:\section*{http://www.networth.galt.com}Click on Morningside Profiles to check out some mutual funds. You might start by clicking on some of the Premier Partners appearing on the screen (e.g., Dreyfus, INVESCO, or Kaufmann funds). Then follow some of the other
\section*{Visit Procter \& Gamble's site at:}\section*{http://www.pg.com}Procter \& Gamble markets more than 300 brands to nearly five billion consumers in over 140 countries. Click on any items that deal with financial news, annual report summary, stock quote, and anything else that looks
a. Candle Carpet Company engaged in the following transactions in August 1999:Aug. 2 Sold merchandise on account for \(\$ 300,000\); terms \(2 / 10, n / 30\), FOB shipping point, freight collect.18 Received payment for the sale of August 2.20 A total of \(\$ 10,000\) of the merchandise sold on
Edwardo Auto Parts Company and Spoon Company engaged in the following transactions with each other during August 1999:Aug. 15 Edwardo Auto Parts Company purchased merchandise on account with a list price of \(\$ 192,000\) from Spoon Company. Trade discounts of \(20 \%\) and \(10 \%\) were allowed.
Gardner Company engaged in the following transactions in June 1999, the company's first month of operations:June 1 Stockholders invested \(\$ 384,000\) cash and \(\$ 144,000\) of merchandise inventory in the business in exchange for capital stock.3 Merchandise was purchased on account, \(\$
Organized on May 1, 1999, Noah Cabinet Company engaged in the following transactions:May 1 The stockholders invested \(\$ 900,000\) in this new business by purchasing capital stock 1 Purchased merchandise on account from String Company, \(\$ 46,800\); terms 3 Sold merchandise for cash, \(\$
The following data are for Bayer Lamp Company:1. Depreciation expense on the store building is $8,800. 2. Depreciation expense on the store fixtures is $22,240. 3. Accrued sales salaries are $5,600. 4. Insurance expired in 1999 is $10,000. 5. Cost of merchandise inventory on hand December 31, 1999,
a. Spencer Sporting Goods Company engaged in the following transactions in April 1999:Apr. 1 Sold merchandise on account for \(\$ 288,000\); terms \(2 / 10, n / 30\), FOB shipping point, freight collect\(5 \$ 43,200\) of the goods sold on account on April 1 were returned for a full credit. Payment
Mars Musical Instrument Company and Tiger Company engaged in the following transactions with each other during July 1999 :July 2 Mars Musical Instrument Company purchased merchandise on account with a list price of \(\$ 48,000\) from Tiger Company. The terms were 3/EOM, n/60, FOB shipping point,
The following data for June 1999 are for Rusk Company's first month of operations:June 1 Rusk Company was organized, and the stockholders invested \(\$ 1,008,000\) cash, \(\$ 336,000\) of merchandise inventory, and a \(\$ 288,000\) plot of land in exchange for capital stock.4 Merchandise was
The Western Wear Company, a wholesaler of western wear clothing, sells to retailers. The company entered into the following transactions in May 1999:The inventory on hand at the close of business on May 31 is \(\$ 299,040\).From the data given for The Western Wear Company:\section*{Additional data
The following data are for Leone Lumber Company:1. A total of $3,400 of the prepaid insurance has expired. 2. An inventory of supplies showed that $1,700 are still on hand. 3. Prepaid rent expired during the year is $50,600. 4. Depreciation expense on store equipment is $8,800. 5. Accrued sales
Candy's Shirts, Inc., has an opportunity to purchase 40,000 shirts with the logo of the 2000 Olympics in January 1998. Candy, who is not currently in business, is considering buying these shirts and then renting a display cart from which to sell these shirts (called a kiosk) in an Australian
Perkin-Elmer is one of the leaders in the life science systems and analytical instrument markets. Using the following information from Perkin-Elmer's 1996 annual report, calculate the gross margin percentage and write an explanation of what the results mean. ($ thousands) Net revenues 1996
Refer to the consolidated statements of income of The Coca-Cola Company in the annual reports booklet. Identify the 1996 net operating revenues; cost of goods sold; gross profit; selling, administrative, and general expenses; and operating income. Do the results of 1996 compare favorably with those
Based on the ethics case related to World Auto Parts Corporation on page 228, respond in writing to the following questions:a. Do you agree that the total impact of this practice could be as much as \(\$ 10\) million?b. Are the small suppliers probably better off going along with the practice?c. Is
In teams of two or three students, go to the library to locate one merchandising company's annual report for the most recent year. Calculate the company's gross margin percentage for each of the most recent three years. As a team, write a memorandum to the instructor showing your calculations and
In a team of two or three students, contact a variety of businesses in your area and inquire as to the types of sales discount terms they offer to credit customers and the types of purchase discount terms they are offered by their suppliers. Calculate the approximate annual rate of interest implied
In a team of two or three students, obtain access to several annual reports of companies in different industries. Examine their income statements and identify differences in their for- mats. Discuss these differences within your group and then present your findings in a report to your instructor.
Visit the Coca-Cola Company website at:\section*{http://www.cocacola.com}Browse around the site for interesting information. How does the information at this website differ from the information you can find in the annual reports booklet that came with this text? What did you like about the site and
Visit the Accounting Professionals Resource Center site at:http://www.kentis.com Check out some of the news items at this site. Also look at anything else that looks interesting. Write a brief summary of some of the news items and summarize what else is available at this site. Turn in your report
Overstated ending inventory results in an overstatement of cost of goods sold and an understatement of gross margin and net income.
In a period of rising prices, FIFO results in the lowest cost of goods sold.
Under LCM, inventory is written down to market value when the market value is less than the cost, and inventory is written up to market value when the market value is greater than the cost.
Under the gross margin method, an estimate must be made of gross margin to determine estimated cost of goods sold and estimated ending inventory.
To use the retail inventory method, both cost and retail prices must be known for the goods available for sale.
Under perpetual procedure, cost of goods sold is determined as a result of the closing entries made at the end of the period.
On July 1, 1999, Jack Company began the accounting period with inventory of 3,000 units at \(\$ 30\) each. During the period, the company purchased an additional 5,000 units at \(\$ 36\) each and sold 4,600 units. Assume the use of periodic inventory procedure for Questions 1-6.Cost of ending
Cost of goods sold using FIFO is :a. \(\$ 165,600\).b. \(\$ 150,000\).c. \(\$ 147,600\).d. \(\$ 122,400\).e. None of the above
Cost of ending inventory using LIFO is:a. \(\$ 104,400\).b. \(\$ 114,750\).c. \(\$ 156,000\).d. \(\$ 122,400\).e. None of the above.
Cost of goods sold using LIFO is:a. \(\$ 155,250\).b. \(\$ 114,000\).c. \(\$ 147,600\).d. \(\$ 165,600\).e. None of the above.
Cost of ending inventory using weighted-average is:a. \(\$ 114,750\).b. \(\$ 157,600\).c. \(\$ 122,400\).d. \(\$ 109,650\).e. None of the above.
Cost of goods sold using weighted-average is:a. \(\$ 147,200\).b. \(\$ 160,350\).c. \(\$ 155,250\).d. \(\$ 114,000\).e. None of the above.
During a period of rising prices, which inventory method might be expected to give the highest net income?a. Weighted-average.b. FIFO.c. LIFO.d. Specific identification.e. Cannot determine.
Why is proper inventory valuation so important?
Why does an understated ending inventory understate net income for the period by the same amount?
Why does an error in ending inventory affect two accounting periods?
What is the meaning of taking a physical inventory?
What is the accountant's responsibility regarding taking a physical inventory?
Which cost elements are included in inventory? What practical problems arise by including the costs of such elements?
Which accounts that are used under periodic inventory procedure are not used under perpetual inventory procedure?
What entries are necessary under perpetual inventory procedure when goods are sold?
Why is there closer control over inventory under perpetual inventory procedure than under periodic inventory procedure?
Why is perpetual inventory procedure being used increasingly in business?
What is the cost flow assumption? What is meant by the physical flow of goods? Does a relationship between cost flows and the physical flow of goods exist, or should such a relationship exist?
Indicate how a company can manipulate its net income if it uses LIFO. Is the same opportunity available under FIFO? Why or why not?
What are the main advantages of using FIFO and LIFO?
Which inventory method is the correct one? Can a company change inventory methods?
Why are ending inventory and cost of goods sold the same under FIFO perpetual and FIFO periodic?
Would you agree with the following statement? Reducing the amount of taxes payable currently is a valid objective of business management and, since LIFO results in such a reduction, all businesses should use LIFO.
What is net realizable value, and how is it used?
Why is it acceptable accounting practice to recognize a loss by writing down an item in inventory to market, but unacceptable to recognize a gain by writing up an inventory item?
Under what conditions would the gross margin method of computing an estimated inventory yield approximately correct amounts?
What are the main reasons for estimating ending inventory?
Should a company rely exclusively on the gross margin method to determine the ending inventory and cost of goods sold for the end-of-year financial statements?
How can the retail method be used to estimate inventory?
Real World Question Based on the notes to the financial statements of Maytag Corporation contained in the annual report booklet, what inventory methods were used?
Real World Question Based on the notes to the financial statements of The Limited, Inc., contained in the annual report booklet, what inventory methods were used?
Real World Question Based on the notes to the financial statements of John H. Harland Company contained in the annual report booklet, what inventory methods were used?
Crocker Company reported annual net income as follows:Analysis of its inventories revealed the following incorrect inventory amounts and these correct amounts:Compute the annual net income for each of the three years assuming the correct inventories had been used. 1997 $484,480 1998. 487,680 1999.
Slate Truck Company manufactures trucks and identifies each truck with a unique serial plate. On December 31, a customer ordered 5 trucks from the company, which currently has 20 trucks in its inventory. Ten of these trucks cost \(\$ 20,000\) each, and the other 10 cost \(\$ 25,000\) each. If Slate
Miami Discount Company inventory records show:The December 31 inventory was 4,200 units. Miami Discount Company uses perpetual inventory procedure. Present a schedule showing the measurement of the ending inventory using FIFO perpetual inventory procedure. Unit Total Units Cost Cost Beginning
Using the data in Exercise 7-3 for Miami Discount Company, present a schedule showing the measurement of the ending inventory using LIFO perpetual inventory procedure.
London Company had a beginning inventory of 160 units at \(\$ 24\) (total \(=\$ 3,840\) ) and the following inventory transactions during 1998:1. January 8 , sold 40 units.2. January 11 , purchased 80 units at \(\$ 30.00\).3. January 15 , purchased 80 units at \(\$ 32.00\).4. January 22 , sold 80
Kettle Company made the following purchases of Product A in its first year of operations:The ending inventory that year consisted of 2,400 units. Kettle uses periodic inventory procedure.a. Compute the cost of the ending inventory using each of the following methods:(1) FIFO, (2) LIFO, and (3)
The following are selected transactions and other data of the Custer Company:1. Purchased 20 units @ \(\$ 360\) per unit on account on September 18, 1999.2. Sold 6 units on account for \(\$ 576\) per unit on September 20,1999 .3. Discovered a shortage of \(\$ 2,640\) at year-end after a physical
Following are selected transactions of Gamble Company:1. Purchased 100 units of merchandise at \(\$ 240\) each; terms \(2 / 10, n / 30\).2. Paid the invoice in transaction 1 within the discount period.3. Sold 80 units at \(\$ 384\) each for cash.4. Purchased 100 units at \(\$ 360\); terms \(2 / 10,
Wells Company had the following transactions during February:1. Purchased 135 units at \(\$ 65\) on account.2. Sold 108 units at \(\$ 90\) on account.3. Purchased 170 units at \(\$ 75\) on account.4. Sold 122 units at \(\$ 95\) on account.5. Sold 67 units at \(\$ 100\) on account.The beginning
Following are inventory data for 1999 for Kintech Company:1. January 1 inventory on hand, 400 units @ \(\$ 28.80\).2. January sales were 80 units.3. February sales totaled 120 units.4. March 1, purchased 200 units @ \$30.24.5. Sales for March through August were 160 units.6. September 1, purchased
A company purchased 1,000 units of a product at \(\$ 12.00\) and 2,000 units at \(\$ 13.20\). It sold all of these units at \(\$ 18.00\) each at a time when the current cost to replace the units sold was \(\$ 13.80\). Compute the amount of gross margin under FIFO that LIFO supporters would call
Clayton Company's inventory was 12,000 units with a cost of \(\$ 160\) each on January 1, 1999 . During 1999, numerous units were purchased and sold. Also during 1999, the purchase price of this product fell steadily until at year-end it was \(\$ 120\). The inventory at year-end was 18,000 units.
Levi Motor Company owns a luxury automobile that it has used as a demonstrator for eight months. The auto has a list or sticker price of \(\$ 85,000\) and cost Levi \(\$ 75,000\). At the end of the fiscal year, the auto is on hand and has an expected selling price of \(\$ 80,000\). Costs expected
Pure Sound Systems used one sound system as a floor model. It cost \(\$ 3,600\) and had an original selling price of \(\$ 4,800\). After six months, the sound system was damaged and replaced by a newer model. The sound system had an estimated selling price of \(\$ 2,880\), but when the company
Your assistant has compiled the following data:Calculate the dollar amount of the ending inventory using the LCM method, applied on an item-by-item basis, and the amount of the decline from cost to lower-of-cost-or-market. Quantity Unit Unit Total Total Item (units) Cost Market Cost Market ABCD 300
Use the data in Exercise 7-15 to compute the cost of the ending inventory using the LCM method applied to the total inventory.
Tilley-Mill Company takes a physical inventory at the end of each calendar-year accounting period to establish the ending inventory amount for financial statement purposes. Its financial statements for the past few years indicate an average gross margin on net sales of \(25 \%\). On July 18, a fire
Ryan Company takes a physical inventory at the end of each calendar-year accounting period. Its financial statements for the past few years indicate an average gross margin on net sales of \(30 \%\).On June 12, a fire destroyed the entire store building and the inventory. The records in a fireproof
Victoria Falls Company, Inc., records show the following account balances for the year ending December 31, 1999:Using these data, compute the estimated cost of ending inventory using the retail method of inventory valuation. Cost Retail Beginning inventory Purchases Transportation-in. Sales...
Harris Company reported net income of \(\$ 312,000\) for \(1998, \$ 324,000\) for 1999 , and \(\$ 348,000\) for 2000, using the incorrect inventory amounts shown for December 31, 1998, and 1999. Recently Harris corrected these inventory amounts. Harris used the correct December 31, 2000 , inventory
An examination of the financial records of Jersey Company on December 31, 1998, disclosed the following with regard to merchandise inventory for 1998 and prior years:1. December 31,1994 , inventory was correct.2. December 31, 1995, inventory was understated \(\$ 50,000\).3. December 31, 1996,
High Surf Company sells the Ultra-Light model wind surfer and uses the specific identification method to account for its inventory. The Ultra-Lights are identical except for identifying serial numbers. On August 1, 1998, the company had three Ultra-Lights that cost \(\$ 14,000\) each in its
The inventory records of Coral Company show the following:Jan. 1 Beginning inventory consists of 12 units costing \(\$ 48\) per unit.5 Purchased 15 units @ \(\$ 49.92\) per unit.10 Sold 9 units @ \$108 per unit.12 Sold 7 units @ \$108 per unit.20 Purchased 20 units @ \(\$ 50.16\) per unit.22
Following are data for Dandy Company for the year 1999:a. Compute the ending inventory as of December 31,1999 , assuming use of perpetual inventory procedure, under each of the following methods: (1) FIFO, (2) LIFO, and (3) weighted-average (carry unit cost to four decimal places and round total
Refer to the data in Problem 7-5.a. Give the journal entries to record the purchases and sales (Cost of Goods Sold entry only) for the year under FIFO perpetual.b. Give the journal entries to record the purchases for the year and necessary year-end entries to charge Income Summary with the cost of
Following are data related to a product of Coen Company for the year 1999:a. Assuming use of perpetual inventory procedure, compute the ending inventory and cost of goods sold under each of the following methods: (1) FIFO, (2) LIFO, and (3) weighted-average (carry unit cost to four decimal places
Star Company accounts for its inventory using the LIFO method under periodic inventory procedure. Data on purchases, sales, and inventory for the year ended December 31, 1998, are:During \(1998,16,000\) units were sold for \(\$ 1,280,000\), leaving an inventory on December 31 , 1998 , of 7,000
Data on the ending inventory of Jannis Company on December 31, 1998, are:a. Compute the ending inventory applying the LCM method to the total inventory.b. Determine the ending inventory by applying the LCM method on an item-by-item basis. Item Unit Unit Quantity Cost Market 8,400 $3.20 $3.12 2
The sales and cost of goods sold for Lively Company for the past five years were as follows:To secure a loan, Lively Company has been asked to present current financial statements. However, the company does not wish to take a complete physical inventory as of July 31, 1998.Requireda. Indicate how
Apple Company's records contained the following inventory information for 1999:Required Compute the estimated year-end inventory balance at cost using the retail method of inventory valuation. Cost Retail Sales $420,000 Purchases $396,000 582,000 Purchase returns 8,400 12,000 Transportation-r
Kelley Company reported net income of \(\$ 358,050\) for \(1998, \$ 371,400\) for 1999 , and \(\$ 325,800\) for 2000, using the incorrect inventory amounts shown for December 31, 1998, and 1999. Recently, Kelley corrected the inventory amounts for those dates. Kelley used the correct December 31,
An examination of the financial records of Lanal Company on December 31, 1998, disclosed the following with regard to merchandise inventory for 1998 and prior years:1. December 31, 1994, inventory was correct.2. December 31,1995 , inventory was overstated \(\$ 200,000\).3. December 31,1996 ,
Brett Company sells minicomputers and uses the specific identification method to account for its inventory. On November 30, 1999, the company had 46 Orange III minicomputers on hand that were acquired on the following dates and at these stated costs:Brett sold 36 Orange III computers at \(\$
The inventory records of Thimble Company show the following:Assume all purchases and sales are made on credit.Using FIFO perpetual inventory procedure, prepare the appropriate journal entries for March. Mar. 1 Beginning inventory consists of 10 units costing $40 per unit. 3 Sold 5 units at $94 per
The following purchases and sales for Ripple Company are for April 1999. There was no inventory on April 1.a. Compute the ending inventory as of April 30, 1998, using perpetual inventory procedure, under each of the following methods: (1) FIFO, (2) LIFO, and (3) weighted-average (carry unit cost to

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