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business
principles financial accounting

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

Refer to the data in Problem 7-5A.a. Using LIFO perpetual inventory procedure, prepare the journal entries for the purchases and sales (Cost of Goods Sold entry only).b. Repeat a using LIFO periodic inventory procedure, including closing entries. (Note: You may want to refer to the Appendix in
The following data relate to the beginning inventory, purchases, and sales of Braxton Company for the year 1999:Requireda. 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)
Welch Company accounts for a product it sells using LIFO periodic inventory procedure. Product data for the year ended December 31, 1998, follow. Merchandise inventory on January 1 was 3,000 units at \(\$ 14.40\) each.Requireda. Compute the gross margin earned on sales of this product for 1998.b.
The accountant for Gentry Company prepared the following schedule of the company's inventory at December 31, 1998, and used the LCM method applied to total inventory in determining cost of goods sold:Requireda. State whether this approach is an acceptable method of inventory measurement and show
As part of a loan agreement with a local bank, Brazos Company must present quarterly and cumulative income statements for the year 1998. The company uses periodic inventory procedure and marks its merchandise to sell at a price yielding a gross margin of \(30 \%\). Selected data for the first six
Cobb Company records show the following information for 1999:Compute the estimated year-end inventory balance at cost using the retail method of estimating inventory. Cost Retail Sales $350,400 Purchases. $270,000 420,000 Transportation-in 26,280 Merchandise inventory, January 1 12,000 17,400
Two sisters, Susan Green and Carol Lewis, were interested in starting part-time business activities to supplement their family incomes. Both heard a presentation by the manufacturer of an exercise device and decided to become a distributor of this exerciser. Green's sales territory is Cobb County,
Connie Dalton owns and operates a sporting goods store. On February 2, 1998, the store suffered extensive fire damage, and all of the inventory was destroyed. Dalton uses periodic inventory procedure and has the following information in her accounting records, which were undamaged:Dalton's gross
Refer to the financial statements of The Coca-Cola Company in the annual report booklet. Describe how inventory values are determined (see Footnote 1). Also, determine the inventory turnover rate for 1996 .
Respond in writing to the following questions based on the ethics case concerning Terry Dorsey on page 271:a. Do you believe that Terry's scheme will work?b. What would you do if you were Terry's accountant?c. Comment on each of Terry's points of justification.
In teams of two or three students, interview the manager of a merchandising company (in person or by speakerphone). Inquire about inventory control methods, inventory costing methods, and any other information about the company's inventory procedures. As a team, write a memorandum to your
In a team of two or three students, locate and visit a nearby retail store that uses perpetual inventory procedure and a computerized inventory management system. Investigate how the system works by interviewing a knowledgeable person in the company. Write a report to your instructor and make a
With a small group of students, identify and visit a retail store that uses periodic inventory procedure and uses the retail inventory method for preparing interim (monthly or quarterly) financial reports. Discover how the retail inventory method is applied and how the end-ofyear inventory amount
Visit the National Association of State Boards of Accountancy website at: http://www.nasba.org/stateB.htm Find the address of the state board of accountancy in your state. Also check out some of the information provided at websites of other state boards by clicking on any sites that appear at the
Visit the Lexis-Nexis website at:\section*{http://www.lexis-nexis.com}Determine the kinds of information that can be obtained at this site. Specifically, what kinds of products and services are available? What is the background of Lexis-Nexis? What pricing information is available for using its
Cash includes coin, currency, postdated checks, money orders, and money on deposit with banks.
To effectively manage its cash, a company should make certain that enough cash is available to pay bills as they come due.
The cash balance on the bank statement is usually equal to the cash balance in the depositor's books.
A deposit in transit requires an entry in the depositor's books after the bank reconciliation is prepared.
For control purposes, a company should issue checks for every payment, regardless of its amount.
The objectives of the internal control structure of a company include all of the following except:a. Compliance with company policies and federal law.b. Protection of its assets.c. Increase in accuracy and reliability of accounting data.d. Guarantee of a certain level of profit.e. Evaluation of
The adjusted cash balance is:a. \(\$ 1,794.60\).b. \(\$ 1,719.60\).c. \(\$ 1,638.00\).d. \(\$ 1,713.00\).e. \(\$ 1,876.20\).
In a bank reconciliation, deposits in transit should be:a. Deducted from the balance per books.b. Deducted from the balance per bank statement.c. Added to the balance per ledger.d. Added to the balance per bank statement.e. Disregarded in the bank reconciliation.
After the bank reconciliation is prepared, the entry to record bank service charges would have a credit to:a. Bank Service Charge Expense.b. Cash.c. Petty Cash.d. Cash Short and Over.e. None of the above.
The entry to replenish the petty cash fund for disbursements made for stamps includes:a. A credit to Petty Cash.b. A credit to Postage Expense.c. A debit to Accounts Payable.d. A credit to Cash.e. None of the above.
Why should a company establish an internal control structure?
Why are mechanical devices used in an internal control structure?
Identify some features that could strengthen an internal control structure.
Name several control documents used in merchandise transactions
What are the four objectives sought in effective cash management?
List four essential features of internal control over cash receipts.
The bookkeeper of a given company was stealing cash received from customers in payment of their accounts. To conceal the theft, the bookkeeper made out false credit memos indicating returns and allowances made by or granted to customers. What feature of internal control would have prevented the
List six essential features of internal control over cash disbursements.
What types of items cause the balance per ledger and the balance per bank statement to disagree?
"The difference between a company's Cash account balance and the balance on its bank statement is usually a matter of timing." Do you agree or disagree? Why?
Explain how transfer bank accounts can help bring about effective cash management.
Describe the operation of a petty cash fund and its advantages. Indicate how control is maintained over petty cash transactions.
When are entries made to the Petty Cash account?
Real World Question From the consolidated balance sheet of The Coca-Cola Company in the annual report booklet, identify the total 1996 cash and marketable securities. Explain the definition of cash equivalents and marketable securities in accordance with footnote 1 -Accounting Policies.
Real World Question Based on the financial statements of Maytag Corporation contained in the annual report booklet, what was the 1996 ending cash and cash equivalents balance? What percentage of current assets does the amount of cash and cash equivalents represent for each of the two years shown?
Real World Question Based on the financial statements of The Limited, Inc., in the annual report booklet, what was the 1996 ending cash and cash equivalents balance? What percentage of current assets does the amount of cash and cash equivalents represent for each of the two years shown?
Real World Question Based on the financial statements of John H. Harland Company contained in the annual report booklet, what was the 1996 ending shortterm investments balance? How does this compare with the preceding year?
State whether each of the following statements about internal control is true or false:a. Those employees responsible for safeguarding an asset should maintain the accounting records for that asset.b. Complete, accurate, and up-to-date accounting records should be maintained.c. Whenever possible,
Concerning internal control, which one of the following statements is correct? Explain.a. Broadly speaking, an internal control structure is only necessary in large organizations.b. The purposes of internal control are to check the accuracy of accounting data, safeguard assets against theft,
The bank statement for Yarley Company at the end of August showed a balance of \(\$ 12,862\). Checks outstanding totaled \(\$ 3,937\), and deposits in transit were \(\$ 5,990\). If these amounts are the only pertinent data available to you, what was the adjusted balance of cash at the end of August?
From the following data, prepare a bank reconciliation and determine the correct available cash balance for Reed Company as of October 31, 1999. Balance per bank statement, October 31, 1999. Ledger account balance, October 31, 1999.. $13,974 8,088 Proceeds of a note collected by bank not yet
The following is a bank reconciliation for Brian Company as of August 31, 1999.Prepare the journal entry or entries needed to adjust or correct the Cash account. Balance per bank statement, August 31, 1999. Ado: Deposit in transit. Less: Outstanding checks Adjusted balance, August 31, 1999. Balance
On March 1 of the current year, Shelbey Company had outstanding checks of \(\$ 15,000\). During March, the company issued an additional \(\$ 57,000\) of checks. As of March 31, the bank statement showed \(\$ 48,000\) of checks had cleared the bank during the month. What is the amount of outstanding
Matson Company's bank statement as of August 31, 1999, shows total deposits into the company's account of \(\$ 15,000\) and a total of 14 separate deposits. On July 31, deposits of \(\$ 410\) and \(\$ 330\) were in transit. The total cash receipts for August were \(\$ 19,000\), and the company's
Holder Company deposits all cash receipts intact each day and makes all payments by check. On October 31, after all posting was completed, its Cash account had a debit balance of \(\$ 4,325\). The bank statement for the month ended on October 31 showed a balance of \(\$ 3,988\). Other data are:1.
On August 31, 1999, Brighton Company's petty cash fund contained coins and currency of \(\$ 260\), an IOU from an employee of \(\$ 30\), and vouchers showing expenditures of \(\$ 120\) for postage, \(\$ 52\) for taxi fare, and \(\$ 138\) to entertain a customer. The Petty Cash account shows a
Use the data in Exercise 8-9. What entry would have been required if the amount of coin and currency had been \(\$ 247.20\) ? Which of the accounts debited would not appear in the income statement?
Rock Company has a \(\$ 450\) petty cash fund. The following transactions occurred in December:Prepare any necessary journal entries for these transactions. Dec. 2 The petty cash fund was increased to $1,350. 8 Petty Cash Voucher No. 318 for $14.20 delivery expense was prepared and paid. The fund
The following data pertain to England Company:1. Balance per the bank statement dated June 30,1999 , is \(\$ 30,000\).2. Balance of the Cash in Bank account on the company books as of June 30, 1999, is \(\$ 8,795\).3. Outstanding checks as of June 30, 1999, total \(\$ 14,300\).4. Bank deposit of
The bank statement of Irish Company's checking account with the 2nd National Bank shows:The following additional data are available 1. Balance per ledger account as of July 31 was \(\$ 128,209\).2. A credit memo included with the bank statement indicated the collection of a note by the bank for
Transactions involving the petty cash fund of Sonar Company during 1999 are as follows:Required Present journal entries for these transactions. Use the Cash Short and Over account for any shortage or overage in the fund. Mar. 1 Established a petty cash fund of $750, which will be under the control
Sun Company has decided to use a petty cash fund. Transactions involving this fund in 1999 follow:Required Prepare journal entries for all of these transactions. June 4 Set up a petty cash fund of $225. 22 When the fund had a cash amount of $31.35, the custodian of the fund was reimbursed for
The following June 30, 1999, bank reconciliation pertains to Tiffany Company:Tiffany's July bank statement follows:The cash receipts deposited in July, including receipts of July 31, amounted to \(\$ 5,178.30\). Tiffany wrote these checks in July:The cash balance per the ledger on July 31, 1999,
The following information pertains to Hughes Company as of May 31, 1999 1. Balance per bank statement as of May 31,1999 , was \(\$ 59,410\).2. Balance per Hughes Company's Cash account at May 31, 1999, was \(\$ 60,904\).3. A late deposit on May 31 did not appear on the bank statement, \(\$
The following transactions pertain to the petty cash fund of Carrington Company during 1999:Present journal entries to record these transactions. Use the Cash Short and Over account for any shortage or overage in the fund. Nov. 2 A $450 check is drawn, cashed, and the cash placed in the care of the
The following transactions relate to the petty cash fund of Jarvis Wrecking Company in 1999:Required Prepare the journal entries to record these transactions. Apr. 1 The petty cash fund is set up with a $350 cash balance. 19 Because the money in the fund is down to $70.20, the fund is replenished.
Required Prepare the journal entries to record these transactions.The cash receipts deposited in July, including receipts of July 31, amounted to \(\$ 5,178.30\). Tiffany wrote these checks in July:The cash balance per the ledger on July 31, 1999, was \(\$ 30,766.37\).Prepare a bank reconciliation
The following transactions pertain to the petty cash fund of Carrington Company during 1999:Present journal entries to record these transactions. Use the Cash Short and Over account for any shortage or overage in the fund. Nov. 2 A $450 check is drawn, cashed, and the cash placed in the care of the
The following transactions relate to the petty cash fund of Jarvis Wrecking Company in 1999:Required Prepare the journal entries to record these transactions. Apr. 1 The petty cash fund is set up with a $350 cash balance. 19 Because the money in the fund is down to $70.20, the fund is replenished.
During a national emergency, a managerial accountant was called back to active duty with the U.S. Army. An acquaintance of the accountant forged papers and assumed the identity of the accountant. He obtained a position in a small company as the only accountant. Eventually he took over from the
John Billings was set up in business by his father, who purchased the business of an elderly acquaintance wishing to retire. One of the few changes in personnel made by Billings was to install a college classmate as the office manager-bookkeeper-cashier-sales manager. During the course of the year,
The outstanding checks of Brothers Company at November 30, 1999, were:During December, Brothers issued checks numbered 3681-3720; and all of these checks cleared the bank except 3719 and 3720 for \(\$ 963\) and \(\$ 726\), respectively. Checks 3678,3679 , and 3680 also cleared the bank.The bank
In Reader's Digest's 1996 Annual Report, under Report of Management, the chairman and chief executive officer and the executive vice president and chief financial officer stated: The company maintains a system of internal accounting controls designed to provide reasonable assur- ance. at reasonable
Determine the 1996 and 1995 quick ratios for the John H. Harland Company based on its annual report in the annual report booklet. Comment on the results.
After reading the ethics case on page 315 , discuss the ethical situation at the City Club Restaurant. Describe the steps the owners could take to end John Blue's wage supplement scheme.
With a small group of students, visit a large local company to inquire about its internal control structure. Specifically, discover how it protects its assets against theft and waste, ensures compliance with company policies and federal laws, evaluates performance of its personnel, and ensures
With one or two other students, locate and visit two companies that maintain petty cash funds. Interview the custodians of those funds to identify the controls that are used to manage those funds. Write a report to your instructor comparing the controls used, pointing out any differences between
"Kiting" of bank accounts has been used to conceal shortages in bank accounts. With one or two other students, research this topic in the library. Write a paper to your instructor describing how this technique works and the steps that can be taken to detect it once it occurs and to prevent it in
Visit the following site\section*{http://www.aetna.com/audit/}Aetna is the 42 nd largest company on the Fortune 500 list and is one of the world's largest insurance and financial services. Browse around this site to learn about Aetna's internal control department and its approach to their work.
Visit the Securities and Exchange website and find the EDGAR database at:\section*{http://www.sec.gov/edgarhp.htm}EDGAR stands for the Electronic Data Gathering, Analysis, and Retrieval system. What is its purpose? What kinds of information can be found at this site? Select a company of your choice
The percentage-of-sales method estimates the uncollectible accounts from the ending balance in Accounts Receivable True-False
Under the allowance method, uncollectible accounts expense is recognized when a specific customer's account is written off.True-False
Bank credit card sales are treated as cash sales because the receipt of cash is certain.True-False
Liabilities result from some future transaction.True-False
Current liabilities are classified as clearly determinable, estimated, and contingent.True-False
A dishonored note is removed from Notes Receivable, and the total amount due is recorded in Accounts Receivable. True-False
When an interest-bearing note is given to a bank when taking out a loan, the difference between the cash proceeds and the maturity amount is debited to Discount on Notes Payable True-False
Which of the following statements is false?a. Any existing balance in the Allowance for Uncollectible Accounts is ignored in calculating the uncollectible accounts expense under the percentage-of-sales method except that the allowance account must have a credit balance after adjustment.b. The
Hunt Company estimates uncollectible accounts using the percentage-of-receivables method and expects that \(5 \%\) of outstanding receivables will be uncollectible for 1999. The balance in Accounts Receivable is \(\$ 200,000\), and the allowance account has a \(\$ 3,000\) credit balance before
Which type of company typically has the longest op erating cycle?a. Service company.b. Merchandising company.c. Manufacturing company.d. All equal.
Maxwell Company records its sales taxes in the same account as sales revenues. The sales tax rate is \(6 \%\).At the end of the current period, the Sales account has a balance of \(\$ 265,000\). The amount of sales tax payable is:a. \(\$ 12,000\)b. \(\$ 15,000\)c. \(\$ 15,900\)d. \(\$ 18,000\).
Dawson Company sells fax machines. During 1999, the company sold 2,000 fax machines. The company estimates that \(5 \%\) of the machines require repairs under warranty. To date, 30 machines have been repaired. The estimated average cost of warranty repairs per defective fax machine is \(\$ 200\).
To compute interest on a promissory note, all of the following elements must be known except:a. The face value of the note.b. The stated interest rate.c. The name of the payee.d. The life of the note.e. None of the above.
Keats Company issued its own \(\$ 10,000,90\)-day, noninterest-bearing note to a bank. If the note is discounted at \(10 \%\), the proceeds to Keats are:a. \(\$ 10,000\).b. \(\$ 9,000\).c. \(\$ 9,750\).d. \(\$ 10,250\).e. None of the above.
In view of the difficulty in estimating future events, would you recommend that accountants wait until collections are made from customers before recording sales revenue? Should they wait until known accounts prove to be uncollectible before charging an expense account?
The credit manager of a company has established a policy of seeking to completely eliminate all losses from uncollectible accounts. Is this policy a desirable objective for a company? Explain.
What are the two major purposes of establishing an allowance for uncollectible accounts?
In view of the fact that it is impossible to estimate the exact amount of uncollectible accounts receivable for any one year in advance, what exactly does the Allowance for Uncollectible Accounts account contain after a number of years?
What must be considered before adjusting the allowance for uncollectible accounts under the percentage-of-receivables method?
How might information in an aging schedule prove useful to management for purposes other than estimating the size of the required allowance for uncollectible accounts?
For a company using the allowance method of accounting for uncollectible accounts, which of the following directly affects its reported net income: (1) the establishment of the allowance, (2) the writing off of a specific account, or (3) the recovery of an account previously written off as
Why might a retailer agree to sell by credit card when such a substantial discount is taken by the credit card agency in paying the retailer?
Define liabilities, current liabilities, and long-term liabilities.
What is an operating cycle? Which type of company is likely to have the shortest operating cycle, and which is likely to have the longest operating cycle? Why?
Describe the differences between clearly determinable, estimated, and contingent liabilities. Give one or more examples of each type.

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