Use the following statement to prepare closing entries

Subject: Business    / Accounting
Question

Problem 5.8 Interiors With Oohs and Aahs sells custom home décor. Following is the corporation’s income statement. Use this statement to prepare closing entries. No dividends were declared during the period.

INTERIORS WITH OOHS AND AAHS

Income Statement

For the Year Ending December 31, 20X4

Revenues

Sales $8,87,654

Less: Sales discounts $4,667

Sales returns and allowances 9,880 14,547

Net sales $8,73,107

Cost of goods sold

Beginning inventory, Jan. 1 $1,82,343

Add: Purchases $5,93,356

Freight-in 21,090

$6,14,446

Less: Purchase discounts $3,501

Purchase returns & allowances 19,009 22,510

Net purchases 5,91,936

Goods available for sale $7,74,279

Less: Ending inventory, Dec. 31 1,99,055

Cost of goods sold 5,75,224

Gross profit $2,97,883

Expenses

Salaries $1,88,000

Insurance 9,152

Utilities 7,760

Freight-out 2,434

Depreciation 13,773 2,21,119

Net income $76,764

Problem 5.03 Hanna Sports is a retailer that specializes in athletic equipment. The corporate strategy is to focus on towns with a population of less than 25,000 people, thereby avoiding head-to-head competition with large retail chains. Following is Hanna’s adjusted trial balance for the year 20X7. Hanna’s ending inventory is $525,525.

HANNA SPORTS CORPORATION

Adjusted Trial Balance

As of December 31, 20X7

Debits Credits

Cash $6,44,909 $-

Accounts receivable 3,33,654 –

Inventory, Jan. 1 4,33,477 –

Equipment 4,88,765 –

Accumulated depreciation – 1,44,895

Accounts payable – 1,11,888

Loan payable – 5,00,900

Capital stock – 2,50,000

Retained earnings, Jan. 1 – 3,22,433

Dividends 25,000 –

Sales – 36,65,667

Sales discounts 23,112 –

Sales returns and allowances 1,44,367 –

Purchases 21,98,560 –

Purchase discounts – 1,14,432

Purchase returns and allowances – 26,341

Freight-in 73,091 –

Selling expenses 1,85,312 –

Rent expense 2,62,000 –

Interest expense 60,400 –

Salaries expense 2,00,700 –

Depreciation expense 63,209 –

$51,36,556 $51,36,556

(a) Prepare a comprehensive income statement.

(b) Prepare closing entries.

Problem 5.01 “Tic Toc Clock Shop reported the following merchandising-related transactions during June. Tic Tock Clock Shop records all purchases “”gross,”” and credit terms are precisely followed on both purchases and sales.

Prepare journal entries to record each transaction.”

03-Jun Purchased $4,000 of clocks on account from Swiss Time, F.O.B. destination, terms 1/10, n/30.

05-Jun Sold a $1,500 clock to Janci Holgren on account, terms 2/10, n/eom. The customer picked up the clock from the shop.

09-Jun Paid the amount due for the purchase of June 3.

11-Jun Purchased $8,000 of clocks on account from Melbourne Clockworks, F.O.B. shipping point, terms 2/10, n/30. Freight charges of $460 were prepaid by Melbourne and added to the invoice. No discount is permitted on the freight charges.

19-Jun Sold a $3,500 clock on account, terms 2/10, n/eom. Tic Toc sold the clock F.O.B. destination, and paid the freight charges of $330.

23-Jun The customer of June 19 called to report that the clock was received damaged. An agreement was reached to reduce the invoice by 20%.

27-Jun Paid Melbourne Clockworks for the purchase of June 11.

27-Jun Janci Holgren paid for the purchase of June 5.

28-Jun The customer of June 19 paid the balance due.

Problem 6.03 Dine-Corp International publishes ratings and reviews of the world’s finest restaurants. Following are facts you need to prepare Dine-Corp’s March bank reconciliation:

Balance per company records at end of month $72,644.12

Bank service charge for the month 44.00

NSF check returned with bank statement 1,440.66

Note collected by the bank during the month 45,000.00

Outstanding checks at month end 31,553.57

Interest on note collected during the month 4,500.00

Balance per bank at end of month 1,44,223.99

Deposit in transit at month end 7,989.04

Problem 6.04 Daniel Scott is an audit manager with the accounting firm of Nelson & Riley, CPAs. As part of the routine audit procedures for one of the firm’s clients, Daniel instructed Wanda Mullins, a newly hired staff auditor, to obtain a bank statement directly from the client’s bank and prepare an independent reconciliation of the Cash account. Wanda did a great job and presented Daniel with the following reconciliation. Daniel has now forwarded this document directly to you, with a request that you prepare proposed adjusting entries that need to be recorded by the client.

Ending balance per bank statement $67,700.98

Add: Deposits in transit 13,444.12

Deduct: Outstanding checks

#12221 $16,887.34

#12327 8,550.50

#12329 132.74 (25,570.58)

Correct cash balance $55,574.52

Problem 6.05 Biscay Bay Boats established a petty cash fund for minor day-to-day expenses. Following are activities related to this fund. Prepare the necessary journal entries for petty cash.

(1) Established a $500 petty cash fund by writing a check to “cash,” cashing the check, and placing the proceeds in a petty cash box entrusted to Herman Jones as custodian.

(2) At the end of the month, the petty cash fund contained remaining cash of $127, and receipts for $65 postage, $123 office supplies, and $180 gasoline for company vehicles. Herman is not sure why the fund is short $5. A check payable to cash in the amount of $373 was prepared, and the funds were placed into the box.

(3) At the end of the next month, the petty cash fund contained remaining cash of $35, and receipts for $265 postage, $160 office supplies, and $40 gasoline for company vehicles. A check payable to cash in the amount of $715 was prepared, and the funds were placed into the box. This amount reimburses the fund and increases its balance to $750.

Problem 7.05 Wiggins Corporation utilizes an accounting software package that is capable of producing a detailed aging of outstanding accounts receivable. Following is the aging schedule as of December 31, 20X2.

AGE AMOUNT OUTSTANDING

0 to 30 days $12,00,000

31 to 60 days 7,00,000

61 to 120 days 2,00,000

Over 120 days 25,000

Casper Wiggins has owned and operated Wiggins Corporation for many years and has a very good sense of the probability of collection of outstanding receivables, based on an aging analysis. The following table reveals the likelihood of collection:

AGE PROBABILITY OF COLLECTION

0 to 30 days 98%

31 to 60 days 90%

61 to 120 days 75%

Over 120 days 50%

(a) Prepare an aging analysis and show how accounts receivable and the related allowance for uncollectibles should appear on the balance sheet at December 31.

(b) Prepare the necessary journal entry to update the allowance for uncollectibles, assuming the balance prior to preparing the aging was a $15,000 credit.

(c) Prepare the necessary journal entry to update the allowance for uncollectibles, assuming the balance prior to preparing the aging was a $5,000 debit. How could the allowance account have contained a debit balance?

Problem 7.03 Wangming Lu Energy Company builds specially designed blades for generators used in wind energy farming operations. The company started the year with the following accounts receivable position:

Accounts receivable $105,00,000

Less: Allowance for uncollectibles (3,20,500) $101,79,500

During the year, a customer, Windy Point Power Company, was devastated by an unusually severe storm. At that time, Wangming concluded that it was highly unlikely that Windy Point would ever be able to pay its outstanding balance of $150,000. This account was written off against the allowance account. Much later in the year, Windy Point was rescued by a group of investors who offered to pay $90,000 toward the unpaid balance, provided Wangming would permanently forgive the other $60,000 and resume selling product to Windy Point. Wangming agreed, and has since resumed doing business with Windy Point.

During the year, sales on account amounted to $25,689,000. Collections on account totaled $21,300,500 (excluding the Windy Point collection).

During the year, accounts written-off (not including the Windy Point transaction) were $123,000. At year’s end, a detailed analysis of accounts receivable was performed, and it was concluded that the allowance account should contain a balance of $475,000.

(a) Prepare summary journal entries:

To record the write-off of the Windy Point receivable

To restore the portion of the Windy Point receivable that was collected

To record the collection of the Windy Point receivable

To record sales on account

To record collections on account

To record the write-off of accounts

To establish the correct balance in the allowance for uncollectibles

(b) Prepare a table including column headings for Accounts Receivable, Allowance for Uncollectibles, Net Realizable Value, and Uncollectible Accounts Expense. Show how each entry from part (a) impacts these components. The first one is done as an example on the preprinted worksheet.

Problem 8.04 “Patti Devine owns Devine Decorating. One of her most popular items is the Remind-a-Chime digital clock. This programmable clock issues “”voice-based”” reminders of important events like birthdays, anniversaries, etc.

Following is the Remind-a-Clock inventory activity for January. The clocks on hand at January 1 had a unit cost of $140.

Date Purchases Sales Units on Hand

01-Jan 40

05-Jan 60 units @ $150 each 100

16-Jan 70 units @ $255 each 30

23-Jan 90 units @ $170 each 120

28-Jan 55 units @ $295 each 65

(a) If Devine uses the first-in, first-out (FIFO) inventory method (periodic approach), what values would be assigned to ending inventory and cost of goods sold? How much is gross profit?

(b) If Devine uses the last-in, first-out (LIFO) inventory method (periodic approach), what values would be assigned to ending inventory and cost of goods sold? How much is gross profit?

(c) If Devine uses the weighted-average inventory method (periodic approach), what values would be assigned to ending inventory and cost of goods sold? How much is gross profit?

Problem 8.06 “B. J. Stewart Furniture Company had the following transactions relating to the purchase and sale of leather sofas. There was no beginning inventory.

“Purchased 100 units on account at $1,000 per unit

Sold 75 units for cash at $2,000 per unit

Customers returned 3 defective units for cash refunds

Stewart returned the 3 defective units to its supplier for credit on account”

(a) Assuming Stewart uses a periodic inventory system, what journal entries would be needed to record the preceding activity?

(b) Assuming Stewart uses a periodic inventory system, show the calculation of gross profit. You may assume that Stewart conducted a physical count of ending inventory and confirmed that 25 were still on hand.

(c) Assuming Stewart uses a perpetual inventory system, what journal entries would be needed to record the preceding activity?

(d) Assuming Stewart uses a perpetual inventory system, show the calculation of gross profit. If Stewart uses a perpetual system, would there be any need to perform a periodic physical count of leather sofas on hand?

Problem 8.08 “Carson’s Camera Store has a number of video recording cameras in stock. All units are priced to provide a normal profit margin of $150. Some of these units are quite old. Carson’s has concluded that some “”lower-of-cost-or-market”” adjustments may be needed, and has gathered the following unit pricing data:

“Beta CamCorder, $900 cost, $950 replacement cost, $300 selling price

VHS CamCorder, $800 cost, $250 replacement cost, $500 selling price

DVD CamCorder, $400 cost, $375 replacement cost, $400 selling price

Blu-Ray CamCorder, $600 cost, $750 replacement cost, $800 selling price”

(a) What unit value should be attached to each type of camera, assuming item-by-item application of the lower-of-cost-or-market rule?

(b) Assuming an item-by-item application of the lower-of-cost-or-market rule, what journal entry is needed to reduce the Beta CamCorder? 11 such units remain in stock.

(c) As a general rule, is the item-by-item approach required? Is the item-by-item approach the most “conservative?”

(d) If an item of inventory is written down, but subsequently recovers in value during a subsequent year, can it be written back up?

Problem 8.09 “Aurora Wedding Gowns was burglarized in May of 20X5. It is unclear how many dresses were stolen. Aurora and its insurance company are currently working to estimate the dollar value of the stolen goods in order to reach a financial settlement under the existing property insurance policy

Aurora’s tax return prepared at the end of 20X4 revealed that the company ended 20X4 with a total inventory of $189,000. Aurora uses the same inventory accounting methods for tax and accounting purposes.

The insurance company has contacted Aurora’s suppliers and confirmed Aurora’s claim that purchases for 20X5, prior to the date of the burglary, were $376,000. All inventory was purchased, FOB destination.

20X5 Sales taxes collected by Aurora and remitted to the state, prior to the date of the theft, were $48,000. The sales tax rate is 6% of sales.

An inventory was taken immediately after the burglary and the cost of dresses in stock was $123,000.

Aurora consistently sells dresses at a gross profit margin of 45%.

Use the gross profit method to estimate the dollar value of stolen dresses.

Problem 8.10 “The Quilting Pad is a retail store that sells materials for custom quilts. The store has a quilting room where quilters gather to sew and visit.

The store’s inventory consists of bolts of fabrics, spools of thread, and trays of various batting and backing material. Customers generally select what they need, and pay for what they use. The retail price of goods is clearly marked on the bolts, spools, and trays. The Quilting Pad has virtually no problem with theft or shortages of inventory.

It is virtually impossible to track inventory in any detailed fashion. The store simply marks up all goods by a constant percentage. The mark up formula has been consistently applied to all items in inventory for many years.

The Quilting Pad uses the retail inventory technique. Following is information for 20X7:

Beginning inventory at cost $46,800

Beginning inventory at retail 78,000

Cost of purchases of inventory during the year 2,30,000

At the end of the year, the Quilting Pad’s inventory was physically counted and it was determined that $100,000 was the retail value of goods on hand.

Calculate the cost to retail percentage by analyzing the beginning inventory data. Apply the retail method to estimate the sales and gross profit for 20X7.
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