MGCR 211 INTRODUCTION TO FINANCIAL ACCOUNTING FALL 2017

ASSIGNMENT 2

1. L&S Sales Limited had the following transactions in June 2018. L&S uses a perpetual
inventory system and its cost of goods sold is 40% of the selling price.
1. Sales on account for June 2018 were $120,000.
2. $168,000 was received as payments on account during the month. This included
$7,500 from Mini- Store Inc., which had previously been written off.
3. L&S received returned merchandise of $4,000 from a customer. The merchandise
was unopened and was returned to the store shelves. The customer's account was
credited for the full amount.
4. Colville Co. Limited contacted the credit department because it was having difficulty
making payments on its account. On June 15, they signed a 5%, 2-month note for
the balance in their account ($24,000).
5. On June 30, the company advanced $6,000 to an employee. There is no interest on
the amount and it is due in 6 months.
6. Based on a review of the aged accounts receivable, the accountant estimates that
$16,000 will be uncollectible. The balance in the Allowance for Doubtful Accounts at
May 31, 2018 was a credit of $5,000.
7. The balance in accounts receivable at June 1, 2018 was $210,000. There were no
other receivables at June 1, 2018.

Instructions
(a) Prepare entries for the above transactions and any month end adjustments and
accruals required. (8)
(b) Calculate the balances and show how the receivables will be shown on the
statement of financial position at June 30, 2018. (4)
2. Brinkley Corporation uses the perpetual inventory system and the allowance method for
estimating uncollectible accounts.

Instructions
Prepare entries to record the following transactions for a company that uses the
perpetual inventory method: (6)
Jan 5 Sold merchandise to Amy Ward for $1,500, terms n/15. The merchandise
cost $900.
Apr 15 Received partial payment of $500 from Amy Ward.
Aug 21 Wrote off as uncollectible the balance of the Amy Ward account when she
declared bankruptcy.
Oct 5 Received a cheque for $350 from Amy Ward. No further collections are
expected.

3. Caring Clinic purchased a new surgical laser for $88,000. The estimated residual value
is $4,000. The laser has a useful life of six years and the clinic expects to use it 10,000
hours. It was used 1,700 hours in year 1; 2,300 hours in year 2; 2,500 hours in year 3;
1,500 hours in year 4; 1,600 hours in year 5; 400 hours in year 6.

Instructions
(a) Calculate the annual depreciation for each of the six years under each of the
following methods: (6)
1. straight-line.
2. units-of-production.
(b) If you were the administrator of the clinic, which method would you deem as more
appropriate? Justify your answer. (2)
(c) Which method would result in the lower reported net income for the first two years?
Which method would result in the lower total reported net income over the six-year
period? (2)