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18. 116.In preparing closing entries for a merchandising company, the Income Summary account will be...116.In preparing closing entries for a merchandising company, the Income Summary account will be credited for the balance of
a.sales revenue.
b.inventory.
c.sales discounts.
d.freight-out.
117.A merchandising company using a perpetual system may record an adjusting entry by
a.debiting Income Summary.
b.crediting Income Summary.
c.debiting Cost of Goods Sold.
d.debiting Sales Revenue.
118.The operating cycle of a merchandiser is
a.always one year in length.
b.generally longer than it is for a service company.
c.about the same as for a service company.
d.generally shorter than it is for a service company.
119.When the physical count of Rosanna Company inventory had a cost of $4,300 at year end and the unadjusted balance in Inventory was $4,500, Rosanna will have to make the following entry:
a.Cost of Goods Sold..................................200
Inventory...........................................200
b.Inventory...........................................200
Cost of Goods Sold........................................200
c.Income Summary....................................200
Inventory...........................................200
d.Cost of Goods Sold..................................4,500
Inventory...........................................4,500
120.Arquette Company's financial information is presented below.
Sales$ ????Cost of Goods Sold270,000
Sales Returns and Allowances20,000Gross Profit????
Net Sales450,000
Sales Gross Profit
a.$470,000$180,000
b.$430,000$180,000
c.$470,000$210,000
d.$430,000$210,000
121.The sales revenue section of an income statement for a retailer would not include
a.Sales discounts.
b.Sales revenue.
c.Net sales.
d.Cost of goods sold.
122.The operating expense section of an income statement for a wholesaler would not include
a.freight-out.
b.utilities expense.
c.cost of goods sold.
d.insurance expense.
123.Income from operations will always result if
a.the cost of goods sold exceeds operating expenses.
b.revenues exceed cost of goods sold.
c.revenues exceed operating expenses.
d.gross profit exceeds operating expenses.
124.Indicate which one of the following would appear on the income statement of both a merchandising company and a service company.
a.Gross profit
b.Operating expenses
c.Sales revenues
d.Cost of goods sold
125.Conrad Company reported the following balances at June 30, 2013:
Sales$10,800
Sales Returns and Allowances400
Sales Discounts200
Cost of Goods Sold5,000
Net sales for the month is
a.$5,200.
b.$10,200.
c.$10,400.
d.$10,800.
19. Part One: In 2015, Patsy Jackson opened Patsy’s Posies, a small retail shop selling floral...
Part One: In 2015, Patsy Jackson opened Patsy’s Posies, a small retail shop selling floral arrangements. On December 31, 2016, her accounting records show the following:
Sales revenue …………………………………………………………………………………….. $53,000
Utilities for shop ……………………………………………………………………………………. $ 1,100
Inventory on December 31, 2016 ……………………………………………………………. $ 9,100
Inventory on January 1, 2016 ………………………………………………………………… $12,000
Rent for shop ……………………………………………………………………………………….. $ 4,600
Sales commissions ……………………………………………………………………………….. $ 4,000
Purchases of merchandise ……………………………………………………………………. $36,000
Requirement
Prepare an income statement for Patsy’s Posies, a merchandiser, for the year ended December 31, 2016.
Part Two: Patsy’s Posies was so successful that Patsy decided to manufacture her own brand of floral supplies: Floral City Manufacturing. At the end of December 2017, her accounting records show the following:
Utilities for plant …………………………………………………………………………………. $ 4,900
Delivery expense ……………………………………………………………………………….. $ 1,500
Sales salaries expense ……………………………………………………………………….. $ 4,300
Plant janitorial services ……………………………………………………………………….. $ 1,350
Work in process inventory, December 31, 2017 ……………………………………… $ 5,000
Finished goods inventory, December 31, 2016 ……………………………………………….. 0
Finished goods inventory, December 31, 2017 ………………………………………. $ 2,500
Sales revenue ………………………………………………………………………………… $ 104,000
Customer service hotline expense ………………………………………………………… $ 1,400
Direct labor ………………………………………………………………………………………. $ 23,000
Direct material purchases …………………………………………………………………… $ 30,000
Rent on manufacturing plant ………………………………………………………………… $ 9,600
Raw materials inventory, December 31, 2016 ………………………………………. $ 14,000
Raw materials inventory, December 31, 2017 ………………………………………… $ 8,000
Work in process inventory, December 31, 2016 ………………………………………………. 0
Requirements
1. Calculate the Cost of Goods Manufactured for Floral City Manufacturing for the year ended December 31, 2017.
2. Prepare an income statement for Floral City Manufacturing for the year ended December 31, 2017.
3. How does the format of the income statement for Floral City Manufacturing differ from the income statement of Patsy’s Posies?
Part Three: Show the ending inventories that would appear on these balance sheets:
1. Patsy’s Posies at December 31, 2016
2. Floral City Manufacturing at December 31, 2017
20. Joey Cuono started his own consulting firm, Cuono Company, on June 1, 2014. The trial balance at...
Joey Cuono started his own consulting firm, Cuono Company, on June 1, 2014. The trial balance at June 30 is shown below.
21. X Ltd sells 8,000 units of its products at a loss of Rs. 16,000. Variable Cost per unit is Rs. 12...
X Ltd sells 8,000 units of its products at a loss of Rs. 16,000. Variable Cost per unit is Rs. 12 and the Total Fixed Cost is Rs. 48,000.
Calculate:
1. P/V Ratio.
2. The number of units to be sold to earn a profit of Rs. 10,000.
3. The amount of profit from a sale of 20,000 units.
22. On April 1, 2009, a company paid the $1,350 premium on a three-year insurance pol...continues
On April 1, 2009, a company paid the $1,350 premium on a three-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the year ended December 31, 2009?
A) $1,350.
B) $450.
C) $1,012.50.
D) $337.50.
E) $37.50.
23. 10-63 Retailer Budget D. Tomlinson Retail seeks your assistance in developing cash and other...
10-63 Retailer Budget D. Tomlinson Retail seeks your assistance in developing cash and other budget information for May, June, and July. The store expects to have the following balances at the end of April:
Cash $ 5,500
Accounts receivable 437,000
Inventories 309,400
Accounts payable 133,055
The firm follows these guidelines in preparing its budgets:
• Sales. All sales are on credit with terms of 3/10, n/30. Tomlinson bills customers on the last day of each month. The firm books receivables at gross amounts and collects 60 percent of the bill- ings within the discount period, 25 percent by the end of the month, and 9 percent by the end of the second month. The firm’s experience suggests that 6 percent is likely to be uncollectible and is written off at the end of the third month.
• Purchases and expenses. All purchases and expenses are on open account. The firm pays its payables over a two-month period with 54 percent paid in the month of purchase. Each month’s units of ending inventory should equal 130 percent of the next month’s cost of sales. The cost of each unit of inventory is $20. Selling and general and administrative expenses, of which $2,000 is depreciation, equal 15 percent of the current month’s sales.
Actual and projected sales follow:
Month
March Dollars
$354,000 Units
11,800 Month
June Dollars
342,000 Units
11,400
April 363,000 12,100 July 360,000 12,000
May 357,000 11,900 August 366,000 12,200
Required
1. Prepare schedules showing budgeted purchases for May and June.
2. Prepare a schedule showing budgeted cash disbursements during June.
3. Prepare a schedule showing budgeted cash collections during May.
4. Determine gross and net balances of accounts receivable on May 31.
24. Southeast Shoe distributor, Inc. Identification of tests of controls for the revenue cycle (Sales...
Southeast Shoe distributor, Inc. Identification of tests of controls for the revenue cycle (Sales and cash receipts) Mark S. Beasley · Frank A. Buckless· Steven M. Glover · Douglas F. Prawitt LEARNING OBJECTIVES After completing and discussing this case you should be able to [1] Recognize common documents and records used to record transactions in the revenue cycle [2] Recognize common control activities used to process transactions in the revenue cycle [3] Identify client control activities that reduce the likelihood of material misstatements [4] Link client control activities to management assertions [5] Identify tests of controls for each control activity identified INTRODUCTION Southeast Shoe Distributor (SSD) is a closely owned business that was founded ten years ago by Stewart Green and Paul Williams. SSD is a distributor that purchases and sells men’s, women’s, and children’s shoes to retail shoe stores located in small to midsize communities. The company’s basic strategy is to obtain a broad selection of designer label and name brand merchandise at low prices and resell the merchandise to small one-location retail stores that have difficulty obtaining reasonable quantities of designer and name brand merchandise. The company is able to keep the cost of merchandise low by (1) selectively purchasing large blocks of production over-runs, over-orders, mid- and late-season deliveries and last season’s stock from manufacturers and other retailers at significant discounts, (2) sourcing in-season name brand and branded designer merchandise directly from factories in Brazil, Italy, and Spain, and (3) negotiating favorable prices with manufacturers by ordering merchandise during off-peak production periods and taking delivery at one central warehouse. During the year the company purchased merchandise from over 50 domestic and international vendors, independent resellers, manufacturers and other retailers that frequently had excess inventory. Designer and name brand footwear sold by the company during the year include the following: Amalfi, Clarks, Dexter, Fila, Florsheim, Naturalizer, and Rockport. At the present time, SSD has one warehouse located in Atlanta, Georgia. Last year SSD had 123 retail shoe store customers and had net sales of $7,311,214. Sales are strongest in the second and fourth calendar year quarters with the first calendar year quarter substantially weaker than the rest. BACKGROUND SSD is required to have an audit of its annual financial statements to fulfill requirements of loan agreements with financial institutions. This audit is to be completed in accordance with the AICPA professional standards for the audit of nonpublic companies. Your audit firm is currently planning for the Fiscal 2014 audit in accordance with these professional standards. SSD has the following general ledger accounts related to sales and cash collection activities:
In accordance with the professional standards, Susan Mansfield, audit manager, reviewed SSD’s control environment, risk assessment process, and monitoring system and has assessed them as strong. Bill Zander, staff auditor, reviewed SSD’s information system and control activities related to sales and cash receipts and prepared the enclosed flowcharts (referenced in the top right hand corner as R 30-1, R 30-2, R 30-3, and R 30-4). The number and size of sales returns and allowances and write-offs of specific customer accounts is relatively small. Thus Susan has decided there is no need to document SSD’s policies nor perform tests of controls for these two business activities. As the audit senior, you have been assigned responsibility for (1) identifying internal control activities that assure that transactions, accounts and disclosures related to sales and cash collection activities are not materially misstated and (2) identifying tests of controls that would test the design and operating effectiveness of internal control activities identified for sales and cash collection activities.
[1] Identify "what could go wrong" with SSD's sales and cash receipts activities by completing step 5 of the audit program R 1-1. Document your work in audit schedules R 1-1, R 31-1, R 31-2, and R 31-3 (Note: number what could go wrong similar to the examples provided).
[2] Identify SSD’s control activities by completing step 6 of the audit program R 1-1. Document your work in audit schedules R 1-1, R 32-1, R 32-2, and R 32-3 (Note: you should assume that only the control activities identified in the flowcharts exist and number your control activities similar to the activity provided).
[3] Identify potential tests of controls by completing step 7 of the audit program R 1-1. Document your work in audit schedules R 1-1, R 40-1, R 40-2, and R 40-3 (Note: number your tests similar to the example provided).
[4] Complete step 8 of the audit program R 1-1 by identifying any internal control deficiencies SSD may have and document your work in audit schedule R 1-1 and R 33.
[5] How would your work differ if SSD was a public company? What other factors would you need to consider?
[6] For each internal control deficiency you listed in audit schedule R 33 (requirement 4), identify at least one control activity that would remediate the deficiency.
[7] Describe the importance of SSD’s control activities given its large number of customers and vendors.
25. LIFO Perpetual Inventory The beginning inventory at Dunne Co. and data on purchases and sales for...
LIFO Perpetual Inventory The beginning inventory at Dunne Co. and data on purchases and sales for a three-month period are as follows:
LIFO Perpetual Inventory The beginning inventory at Dunne Co. and data on purchases and sales for a three-month period are as follo Number Transaction of Units Per Unit Tota Date Apr. 3 Inventory 54 $225 $12,150 8 Purchase 108 29,160 270 54,000 750 11 Sale 72 750 30 Sale 45 33,750 May 8 Purchase 300 90 27,000 54 750 10 Sale 40,500 750 20,250 19 Sale 27 330 28 Purchase 90 29,700 42,660 June 5 Sale 54 790 56,880 16 Sale 72 790 21 Purchase 360 58,320 162 81 28 Sale 790 63,990
26. WACC AND OPTIMAL CAPITAL BUDGET Adams Corporation is considering four average risk projects with...
WACC AND OPTIMAL CAPITAL BUDGET Adams Corporation is considering four average risk projects with the following costs and rates of return:
The company estimates that it can issue debt at a rate of rd = 10%, and its tax rate is 30%. It can issue preferred stock that pays a constant dividend of $5 00 per year at $49 00 per share. Also, its common stock currently sells for $36 00 per share; the next expected dividend, D1 is $3 50; and the dividend is expected to grow at a constant rate of 6% per year. The target capital structure consists of 75% common stock, 15% debt, and 10% preferred stock.
a. What is the cost of each of the capital components?
b. What is Adams’ WACC?
c. Only projects with expected returns that exceed WACC will be accepted. Which projects should Adams accept?
27. IRR Refer to Problem 11-1. What is the project’s IRR? Problem 11-1 NPV Project K costs $52,125,...
IRR Refer to Problem 11-1. What is the project’s IRR?
Problem 11-1
NPV Project K costs $52,125, its expected cash inflows are $12,000 per year for 8 years, and its WACC is 12%. What is the project’s NPV?
28. Please help Wilton, Inc had net sales on 2012 of $1,400,000. At December 31, 2012, before adjusting entries
Wilton, Inc had net sales on 2012 of $1,400,000. At December 31, 2012, before adjusting entries, the balances in selected accounts were: Accounts Receivable $ 250,000 debit, and Allowance for Doubtful Accounts $2,400 credit. If Wilton estimates that 2 % of net sales will prove to be uncollectible, p...
29. What are the major characteristics of plant assets?
1. What are the major characteristics of plant assets?
2. Mickelson Inc. owns land that it purchased on January 1, 2000, for $450,000. At December 31, 2012, its current value is $770,000 as determined by appraisal. At what amount should Mickelson report this asset on its December 31, 2012, balance sheet? Explain.
3. Name the items, in addition to the amount paid to the former owner or contractor, that may properly be included as part of the acquisition cost of the following plant assets.
(a) Land.
(b) Machinery and equipment.
(c) Buildings.
30. Breakeven point
The following information is for Barnett Corporation:
Product X:Revenue per unit $10,000
Variable cost 2.50
Product Y:Revenue $15.00
Variable cost 5.00
1. For Barnette Corporation, what is the breakeven point assuming the sale mix consists of two units of Product X and one unit of Product Y
2. What is Barnett Corporation's operating income, assuming the actual sales total 150,000 units assuming the same sales mix as above: two units of Product X and one unit of Product Y.
31. The following information is available for October for Barton Company. Beginning inventory $3...
The following information is available for October for Barton Company.
Beginning inventory $350,000
Net purchases 1,050,000
Net sales 2,100,000
Percentage markup on cost 66.67%
A fire destroyed Barton’s October 31 inventory, leaving undamaged inventory with a cost of $21,000. Using the gross profit method, the estimated ending inventory destroyed by fire is
$700,000.
$119,000.
$539,000.
$560,000.
32. The Rest-a-Lot chair company manufacturers a standard recliner. During February, the firm's Assem...
The Rest-a-Lot chair company manufacturers a standard recliner. During February, the firm's Assembly Department started production of 75,000 chairs. During the month, the firm completed 80,000 chairs, and transferred them to the Finishing Department. The firm ended the month with 10,000 chairs in ending inventory. There were 15,000 chairs in beginning inventory. All direct materials costs are added at the beginning of the production cycle and conversion costs are added uniformly throughout the production process. Beginning work in process was 30% complete as to conversion costs, while ending work in process was 80% complete as to conversion costs. Beginning inventory: Manufacturing costs added during the accounting period: Prepare a complete process costing schedule using WEIGHTED AVERAGE Prepare a complete set of journal entries for Feb. Assume that OH is allocated at 39% of DL$.
33. How would revenue from sales of goods and services be classified? (a) Operating outflow. (b)...
How would revenue from sales of goods and services be classified?
(a) Operating outflow.
(b) Operating inflow.
(c) Investing inflow.
(d) Financing inflow.
34. The adjusted trial balance columns of Falcetto Company’s worksheet for the year ended December 31,...
The adjusted trial balance columns of Falcetto Company’s worksheet for the year ended December 31, 2010, are as follows.
Debit Credit
Cash 14,500 Accumulated Depreciation 18,000
Accounts Receivable 11,100 Notes Payable 25,000
Merchandise Inventory 29,000 Accounts Payable 10,600
Prepaid Insurance 2,500 Larry Falcetto, Capital 81,000
Store Equipment 95,000 Sales 536,800
Larry Falcetto, Drawing 12,000 Interest Revenue 2,500
Sales Returns and Allowances 6,700 673,900
Sales Discounts 5,000
Cost of Goods Sold 363,400
Freight-out 7,600
Advertising Expense 12,000
Salaries Expense 56,000
Utilities Expense 18,000
Rent Expense 24,000
Depreciation Expense 9,000
Insurance Expense 4,500
Interest Expense 3,600
673,900
Instructions
Prepare a multiple-step income statement for Falcetto Company
