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Accounting 23rd Edition Carl S. Warren - Solutions
=+THE RECONCILEMENT OF THIS STATEMENT WITH YOUR RECORDS IS ESSENTIAL.ANY ERROR OR EXCEPTION SHOULD BE REPORTED IMMEDIATELY.Chapter 8 Sarbanes-Oxley, Internal Control, and Cash 393 BANK RECONCILIATION FOR PRECEDING MONTH:Reydell Furniture Company Bank Reconciliation May 31, 20—Cash balance
=+2. Journalize the necessary entries. The accounts have not been closed.
=+3. What is the amount of Cash that should appear on the balance sheet as of June 30?
=+4. Assume that a canceled check for $260 has been incorrectly recorded by the bank as $620. Briefly explain how the error would be included in a bank reconciliation and how it should be corrected.Special Activities
=+During the preparation of the bank reconciliation for New Concepts Co., Peter Fikes, the assistant controller, discovered that City National Bank incorrectly recorded a $710 check written by New Concepts Co. as $170. Peter has decided not to notify the bank but wait for the bank to detect the
=+Discuss whether Peter is behaving in a professional manner.
=+SA 8-1 Ethics and professional conduct in business The following is an excerpt from a conversation between two sales clerks, Ross Maas and Shu Lyons. Both Ross and Shu are employed by Hawkins Electronics, a locally owned and operated electronics retail store.Ross: Did you hear the news?Shu: What
=+Suggest appropriate control procedures that would have prevented or detected the theft of cash.
=+SA 8-2 Internal controls The following is an excerpt from a conversation between the store manager of Yoder Brothers Grocery Stores, Lori Colburn, and Terry Whipple, president of Yoder Brothers Grocery Stores.Terry: Lori, I’m concerned about this new scanning system.Lori: What’s the
=+Suggest ways that Yoder Brothers Grocery Stores could prevent or detect the theft of merchandise as described.
=+SA 8-3 Internal controls Ryan Egan and Jack Moody are both cash register clerks for Organic Markets. Lee Sorrell is the store manager for Organic Markets. The following is an excerpt of a conversation between Ryan and Jack:Ryan: Jack, how long have you been working for Organic Markets?Jack:
=+Ryan: What happens if you’re over at the end of the day?Jack: Lee lets me keep it as long as it doesn’t get to be too large. I’ve not been short in over a year. I
=+usually clear about $20 to $30 extra per day.
=+Discuss this case from the viewpoint of proper controls and professional behavior.
=+SA 8-4 Ethics and professional conduct in business The records of Anacker Company indicate a July 31 cash balance of $9,400, which includes undeposited receipts for July 30 and 31. The cash balance on the bank statement as of July 31 is $6,575. This balance includes a note of $4,000 plus $160
=+On July 3, the cashier resigned, effective at the end of the month. Before leaving on July 31, the cashier prepared the following bank reconciliation:Cash balance per books, July 31 . . . . . . . . . . $ 9,400 Add outstanding checks:No. 1148 . . . . . . . . . . . . . . . . . . . . . . . . . $225
=+Bank reconciliation and internal control Chapter 8 Sarbanes-Oxley, Internal Control, and Cash 395 Subsequently, the owner of Anacker Company discovered that the cashier had stolen an unknown amount of undeposited receipts, leaving only $1,000 to be deposited on July 31. The owner, a close family
=+2. How did the cashier attempt to conceal the theft?
=+3.a. Identify two major weaknesses in internal controls, which allowed the cashier to steal the undeposited cash receipts.
=+b. Recommend improvements in internal controls, so that similar types of thefts of undeposited cash receipts can be prevented.
=+Calculator Tape of Outstanding Checks:0 *2253007501,175 *
=+SA 8-6 Observe internal controls over cash Group Project OccuLogix, Inc., provides treatments for eye diseases, including age-related macular degeneration (AMD). The company’s treatment system, called the RHEO system, consists of an Octonova pump and disposable treatment sets that improve
=+SA 8-7 Cash to monthly cash expenses ratio 2006 2005 2004 2003 Cash as of December 31* $15,536 $41,268 $60,040 $1,239 Net cash flows from operating activities (14,548) (18,710) (5,382) (2,375)*Includes cash equivalents and short-term investments.
=+1. Determine the monthly cash expenses for 2006, 2005, 2004, and 2003. Round to one decimal place.
=+2. Determine the ratio of cash to monthly expenses as of December 31, 2006, 2005, 2004, and 2003. Round to one decimal place.
=+3. Based on (1) and (2), comment on OccuLogix’s ratio of cash to monthly operating expenses for 2006, 2005, 2004, and 2003.
Compliance with laws and regulations (answer C) is an objective, not an element, of internal control. The control environment (answer A), monitoring (answer B), control procedures (answer D), risk assessment, and information and communication are the five elements of internal control.
=+Stewart Co.'s beginning inventory and purchases during the year ended December 31, 2010, were as follows:Unit Total Units Cost Cost January 1 Inventory 1,000$50.00$ 50,000 March 10 Purchase 1,200 52.50 63,000 June 25 Sold 800 units August 30 Purchase 800 55.00 44,000 October 5 Sold 1,500 units
=+1. Determine the cost of inventory on December 31, 2010, using the perpetual inven-tory system and each of the following inventory costing methods:a. first-in, first-outb. last-in, first-out
=+2. Determine the cost of inventory on December 31, 2010, using the periodic inven-tory system and each of the following inventory costing methods:a. first-in, first-outb. last-in, first-outc. average cost
=+3. Appendix: Assume that during the fiscal year ended December 31, 2010, sales were$290,000 and the estimated gross profit rate was 40%. Estimate the ending inven-tory at December 31, 2010, using the gross profit method.
=+2. The following units of a particular item were purchased and sold during the period:Beginning inventory 40 units at $20 First purchase 50 units at $21 Second purchase 50 units at $22 First sale 110 units Third purchase 50 units at $23 Second sale 45 units
=+What is the cost of the 35 units on hand at the end of the period as determined under the perpetual inventory system by the LIFO costing method?A. $715 C. $700 B. $705 D. $805
=+3. The following units of a particular item were available for sale during the period:Beginning inventory 40 units at $20 First purchase 50 units at $21 Second purchase 50 units at $22 Third purchase 50 units at $23
=+What is the unit cost of the 35 units on hand at the end of the period as determined under the periodic inventory system by the FIFO costing method?A. $20 B. $21 C. $22 D. $23
=+10. Can a company change its method of costing inventory? Explain.
=+11. Because of imperfections, an item of merchandise cannot be sold at its normal selling price.
=+ How should this item be valued for financial statement purposes?
=+13. The inventory at the end of the year was understated by $12,750.
=+(a) Did the error cause an overstatement or an understatement of the gross profit for the year?
=+(b) Which items on the balance sheet at the end of the year were overstated or understated as a result of the error?
=+Three identical units of Item WH4 are purchased during June, as shown below.Cost flow methods Beginning inventory, purchases, and sales for Item CJ10 are as follows:Item WH4 Units Cost June 3 Purchase 1 $ 30 10 Purchase 1 36 19 Purchase 1 42 __ ____ Total 3 $108 __ ____ __ ____ Average cost per
=+Determine the gross profit for June and ending inventory on June 30 using the (a)
=+first-in, first-out (FIFO); (b) last-in, first-out (LIFO); and (c) average cost methods.Item JC07 Units Cost Aug. 7 Purchase 1 $ 80 13 Purchase 1 84 25 Purchase 1 88 __ ____ Total 3 $252 __ ____ __ ____ Average cost per unit $ 84 ($252 ____ 3 units) ____ Assume that one unit is sold on August
=+Determine the gross profit for August and ending inventory on August 31 using the
=+(a) first-in, first-out (FIFO); (b) last-in, first-out (LIFO); and (c) average cost methods.July 1 Inventory 100 units at $8 8 Sale 90 units 15 Purchase 125 units at $12 25 Sale 60 units
=+Assuming a perpetual inventory system and using the first-in, first-out (FIFO) method,
=+determine (a) the cost of merchandise sold on July 25 and (b) the inventory on July 31.Apr. 1 Inventory 30 units at $70 8 Sale 18 units 15 Purchase 25 units at $72 24 Sale 15 units
=+Assuming a perpetual inventory system and using the first-in, first-out (FIFO) method,
=+determine (a) the cost of merchandise sold on April 24 and (b) the inventory on April 30?
=+Beginning inventory, purchases, and sales for Item VX48 are as follows: Perpetual inventory
=+Assuming a perpetual inventory system and using the last-in, first-out (LIFO) method, determine (a) the cost of merchandise sold on July 25 and (b) the inventory on July 31.Apr. 1 Inventory 30 units at $70 8 Sale 18 units 15 Purchase 25 units at $72 24 Sale 15 units
=+Assuming a perpetual inventory system and using the last-in, first-out (LIFO) method, determine (a) the cost of merchandise sold on April 24 and (b) the inventory on April 30.Jan. 1 Inventory 5 units at $120 $ 600 Feb. 13 Purchase 65 units at $114 7,410 Oct. 30 Purchase 10 units at $119 1,190 __
=+There are 24 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost using (a) the first-in, first-out(FIFO) method; (b) the last-in, first-out (LIFO) method; and (c) the average cost method.Jan. 1 Inventory 60 units at $45 $
=+There are 48 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost using (a) the first-in, first-out(FIFO) method; (b) the last-in, first-out (LIFO) method; and (c) the average cost method.Inventory Unit Unit Item Quantity
=+Hammer & Nails Hardware Store currently uses a periodic inventory system. Alice Asaki, the owner, is considering the purchase of a computer system that would make it feasible to switch to a perpetual inventory system.Alice is unhappy with the periodic inventory system because it does not provide
=+Alice is also concerned about lost sales while a physical inventory is being taken.Hammer & Nails Hardware currently takes a physical inventory twice a year. To minimize distractions, the store is closed on the day inventory is taken. Alice believes that closing the store is the only way to get
=+a. Whenever Fly Away receives a shipment of new inventory, the items are taken directly to the stockroom. Fly Away’s accountant uses the vendor’s invoice to record the amount of inventory received.
=+b. Since the shop carries mostly high-quality, designer luggage, all inventory items are tagged with a control device that activates an alarm if a tagged item is removed from the store.
=+c. Since the display area of the store is limited, only a sample of each piece of luggage is kept on the selling floor. Whenever a customer selects a piece of luggage, the salesclerk gets the appropriate piece from the store’s stockroom. Since all salesclerks need access to the stockroom, it
=+State whether each of these procedures is appropriate or inappropriate. If it is inappropriate, state why.
=+Beginning inventory, purchases, and sales data for portable video CD players are as follows:Apr. 1 Inventory 50 units at $35 5 Sale 40 units 14 Purchase 60 units at $36 21 Sale 35 units 23 Sale 10 units 30 Purchase 75 units at $38
=+The business maintains a perpetual inventory system, costing by the first-in, firstout method. Determine the cost of the merchandise sold for each sale and the inventory balance after each sale, presenting the data in the form illustrated in
=+Assume that the business in Exercise 7-3 maintains a perpetual inventory system, costing by the last-in, first-out method. Determine the cost of merchandise sold for each sale and the inventory balance after each sale, presenting the data in the form illustrated in Exhibit 4.Beginning
=+Assuming that the perpetual inventory system is used, costing by the LIFO method,
=+determine the cost of merchandise sold for each sale and the inventory balance after each sale, presenting the data in the form illustrated in Exhibit 4.March 31, $15,400
=+Assume that the business in Exercise 7-5 maintains a perpetual inventory system, costing by the first-in, first-out method. Determine the cost of merchandise sold for each sale and the inventory balance after each sale, presenting the data in the form illustrated in Exhibit 3.The following
=+There are 50 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost by (a) the first-in, first-out method, (b) the last-in, first-out method, and (c) the average cost method.
=+The units of an item available for sale during the year were as follows:Jan. 1 Inventory 42 units at $60 Mar. 10 Purchase 58 units at $65 Aug. 30 Purchase 20 units at $68 Dec. 12 Purchase 30 units at $70
=+There are 36 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost and the cost of merchandise sold by three methods, presenting your answers in the following form:Cost Inventory Method Merchandise Inventory Merchandise
=+EX 7-9 Periodic inventory by three methods; cost of merchandise sold objs. 2, 4✔a. Inventory,$2,508 Assume that a firm separately determined inventory under FIFO and LIFO and then compared the results.
=+1. In each space below, place the correct sign [less than (), greater than (), or equal(=)] for each comparison, assuming periods of rising prices.a. FIFO inventory ____________ LIFO inventoryb. FIFO cost of goods sold ____________ LIFO cost of goods soldc. FIFO net income ____________ LIFO net
=+2. Why would management prefer to use LIFO over FIFO in periods of rising prices?
=+EX 7-10 Comparing inventory methods obj. 5 On the basis of the following data, determine the value of the inventory at the lower of cost or market. Assemble the data in the form illustrated in Exhibit 8.Inventory Unit Unit Commodity Quantity Cost Price Market Price Aquarius 20 $ 80 $ 92 Capricorn
=+EX 7-12 Merchandise inventory on the balance sheet obj. 6 Based on the data in Exercise 7-11 and assuming that cost was determined by the FIFO method, show how the merchandise inventory would appear on the balance sheet.Montana White Water Co. sells canoes, kayaks, whitewater rafts, and other
=+a. State the effect of the error on the December 31, 2010, balance sheet of Montana White Water.
=+b. State the effect of the error on the income statement of Montana White Water for the year ended December 31, 2010.
=+Boss Motorcycle Shop sells motorcycles, ATVs, and other related supplies and accessories. During the taking of its physical inventory on December 31, 2010, Boss Motorcycle Shop incorrectly counted its inventory as $195,750 instead of the correct amount of$188,200.
=+a. State the effect of the error on the December 31, 2010, balance sheet of Boss Motorcycle Shop.
=+b. State the effect of the error on the income statement of Boss Motorcycle Shop for the year ended December 31, 2010.
=+During 2010, the accountant discovered that the physical inventory at the end of 2009 had been understated by $11,900. Instead of correcting the error, however, the accountant assumed that an $11,900 overstatement of the physical inventory in 2010 would balance out the error.
=+Are there any flaws in the accountant’s assumption? Explain.
=+On the basis of the following data, estimate the cost of the merchandise inventory at
=+April 30 by the retail method:Cost Retail April 1 Merchandise inventory $ 180,000 $ 300,000 April 1–30 Purchases (net) 1,200,000 2,000,000 April 1–30 Sales (net) 2,025,000 The merchandise inventory was destroyed by fire on October 11. The following data
=+were obtained from the accounting records:Jan. 1 Merchandise inventory $ 260,000 Jan. 1–Oct. 11 Purchases (net) 1,900,000 Sales (net) 3,200,000 Estimated gross profit rate 40%
=+a. Estimate the cost of the merchandise destroyed.
=+b. Briefly describe the situations in which the gross profit method is useful.
=+Based on the following data, estimate the cost of ending merchandise inventory:Sales (net) $4,800,000 Estimated gross profit rate 40%Beginning merchandise inventory $ 250,000 Purchases (net) 2,900,000 __________ Merchandise available for sale $3,150,000 __________ __________ Based on the
=+The following data were taken from recent annual reports of Apple Computer, Inc., a manufacturer of personal computers and related products, and American Greetings Corporation, a manufacturer and distributor of greeting cards and related products:Apple American Greetings Cost of goods sold
=+a. Determine the inventory turnover for Apple and American Greetings. Round to one decimal place.
=+b. Would you expect American Greetings’ inventory turnover to be higher or lower than Apple’s? Why?
=+Kroger, Safeway Inc., and Winn-Dixie Stores Inc. are three grocery chains in the United States. Inventory management is an important aspect of the grocery retail business.Recent balance sheets for these three companies indicated the following merchandise inventory information:Merchandise
=+a. Determine the number of days’ sales in inventory and inventory turnover for the three companies. Round to the nearest day and one decimal place.b. Interpret your results in (a).
=+c. If Safeway had Kroger’s number of days’ sales in inventory, how much additional cash flow (round to nearest million) would have been generated from the smaller inventory relative to its actual average inventory position?Problems Series A
=+The beginning inventory of merchandise at Waldo Co. and data on purchases and sales for a three-month period are as follows:Number Per Date Transaction of Units Unit Total March 3 Inventory 60 $1,500 $ 90,000 8 Purchase 120 1,800 216,000 11 Sale 80 5,000 400,000 30 Sale 50 5,000 250,000 April 8
=+and number of days’sales in inventory Chapter 7 Inventories 345 Instructions
=+1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 3, using the first-in, firstout method.
=+2. Determine the total sales and the total cost of merchandise sold for the period.Journalize the entries in the sales and cost of merchandise sold accounts. Assume that all sales were on account.
=+3. Determine the gross profit from sales for the period.
=+4. Determine the ending inventory cost.
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