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ACC1002X Financial Accounting

Semester 2 of Academic Year 2015-2016
SOLUTIONS to Optional Questions
CHAPTER 7: 7-36, 7-39, 7-62, 7-70

7-36 Amounts are in millions of dollars.

Perpetual
Dr. Accounts receivable*
Cr. Sales revenue

19
19

Dr. Cost of goods sold
16
Cr. Merchandise inventory
16
* Could be a debit to cash if sales were for cash.

Periodic
Dr. Accounts receivable
Cr. Sales revenue

19
19

No entry

7-39
1.

Invoice price
Add: Freight-in
Deduct: Purchase allowance
Deduct: Cash discount
Total cost of steel acquired
*2% × ($195,000 – $10,000)

$195,000
10,000
(10,000)
(3,700)*
$191,300

2.

Dr. Purchases (or Inventory)*
195,000
Cr. Accounts payable
195,000
*The debit is to Purchases under the periodic inventory method and to Inventory under
the perpetual inventory system.
Dr. Freight-in
Cr. Accounts payable (or cash)

10,000

Dr. Accounts payable
Cr. Purchase returns and allowances

10,000

Dr. Accounts payable
Cr. Cash discounts on purchases
Cr. Cash

10,000

10,000
185,000
3,700
181,300

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O is used for overstated.750.7-62 1. the error would be offset in the second year. a. 2. The income tax will be lower by . Beginning inventory* Ending inventory* Cost of goods sold Gross margin Income before income taxes Income tax expense Net income (In Thousands) 20X1 20X2 N O $10 O $10 N U 10 O 10 O 10 U 10 O 10 U 10 O 4 U 4 O 6 U 6 *The ending inventory for 20X1 becomes the beginning inventory for 20X2.000 = $11. 7-70 1.950 = $4. U for understated. The income tax will be lower by . retained earnings would be correct at the end of the second year.000 = $25. See Exhibit 7-70 on the following page. Income before income taxes will be lower under LIFO than under FIFO: $149. and N for not affected.000 – $124.950 – $124.000.950.000 = $8. assuming no change in the 40% income tax rate. 2.183. Therefore.35 × $11. b. However. Page 2 of 3 .000 at the end of the first year. Income before income taxes will be lower under LIFO than under weightedaverage: $135. Retained earnings would be overstated by $6.35 × $25.

050 $135.000 196. 150 units: 150 @ $600 or 100 @ $400 = $40.000 Page 3 of 3 .000 $295.000 $124.EXHIBIT 7-70 FIFO Net revenue from sales (150 @ $900) + (160 @ $1. 100 @ $400 Purchases (200 @ $500) + (160 @ $600) Cost of goods available for sale.000 ÷ 460) or 150 @ $513 or 100 @ $400 = $40.000 $295. 2002.950 65.000 236.000 65.000 76.000 196.000 236.000 40.000 50 @ $500 = 25. January 31.000 Cost of goods sold Gross margin LIFO Weighted Average Specific Identification $295.000 40.000 196.000 171.000 171.000 $149.000 $124.000 236.000 159. 2003.000 $295.000 50 @ $500 = 25. February 1.950 146.000 40.000 196.000 90.000 236. 460 units Deduct: Inventory.000 or 150 @ ($236.000) Deduct cost of products sold: Inventory.000 40.