Solutions for Final Test 1

SOLUTIONS FOR FINAL TEST 1

QUESTION 1 (30 Marks)
1. FIFO:
Cost of Merchandise
Purchase Inventory
Date Sold
Q UC TC Q UC TC Q UC TC
Jan 1 770 50 38,500
Feb 19 420 41 17,220 770 50 38,500
420 41 17,220
Mar 17 260 25 6,500 770 50 38,500
420 41 17,200
260 25 6,500
Mar 20 770 50 38,500 420 41 17,220
260 25 6,500
Aug 22 180 49 8,820 420 41 17,220
260 25 6,500
180 49 8,820
Aug 31 585 42 24,570 420 41 17,220
260 25 6,500
180 49 8,820
585 42 24,570
Sep 3 420 41 30 25 750
230 25 180 49 8,820
585 42 24,570
Total 61,470 34,140
* Sales = 770 x 75 + 650 x 75 = 106,500
* Gross profits = Sales – Total cost of goods sold = 106,500 – 61,470 = 45,030
2. LIFO:
Cost of Merchandise
Purchase Inventory
Date Sold
Q UC TC Q UC TC Q UC TC
Jan 1 770 50 38,500
Feb 19 420 41 770 50 38,500
420 41 17,220
Mar 17 260 25 770 50 38,500
420 41 17,200
260 25 6,500
Mar 20 260 25 6,500 680 50 34,000
420 41 17,220
90 50 4,500

Financial Accounting 1
Solutions for Final Test 1

Aug 22 180 49 8,820 680 50 34,000

180 49 8,820
Aug 31 585 42 24,570 680 50 34,000
180 49 8,820
585 42 24,570
Sep 3 585 42 24,5470 680 50 34,000
65 49 3,185 115 49 5,635
Total 55,975 39,635
* Sales = 770 x 75 + 650 x 75 = 106,500
* Gross profits = Sales – Total cost of goods sold = 50,525
3. Average:
𝐵𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 × 𝑈𝑛𝑖𝑡 𝑐𝑜𝑠𝑡+𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑠 × 𝑈𝑛𝑖𝑡 𝑐𝑜𝑠𝑡
* Unit cost =
𝐵𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦+𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑠
38,500+17,220+6,500+8,820+24,570
= = 43.16
770+420+260+180+585

* Total Cost of merchandise sold = (770 + 650) x 43.16 = 61,287

* Ending inventory: (770 + 420 + 260 – 770 + 180 + 585 – 650) x 43.16 = 34,312
* Sales: 106,500
* Gross profits: 106,500 – 61,287 = 45,231
QUESTION 2 (20 Marks)
a & b: Journalize these transactions
Date Direct Write-off Method Allowance Method
Mar Dr. Bad Debt Expense 4,000 Dr. Allowance for DA 4,000
13 Cr. Accounts Receivable – B Hall 4,000 Cr. Accounts Receivable – B Hall 4,000
Apr Dr. Cash 3,500 Dr. Cash 3,500
19 Cr. Accounts Receivable – M Ra. 3,500 Cr. Accounts Receivable – M Ra. 3,500
Dr. Bad Debt Expense 5,000 Dr. Allowance for DA 5,000
Cr. Accounts Receivable – M Ra. 5,000 Cr. Accounts Receivable – M Ra. 5,000
Jul 9 Dr. AR – B Hall 4,000 Dr. AR – B Hall 4,000
Cr. Bad Debt Expense 4,000 Cr. Allowance for DA 4,000
Dr. Cash 4,000 Dr. Cash 4,000
Cr. Accounts Receivable – B Hall 4,000 Cr. Accounts Receivable – B Hall 4,000
Nov Dr. Bad Debt Expense 9,130 Dr. Allowance for DA 9,130
23 Cr. AR – Rai Quinn 1,400 Cr. AR – Rai Quinn 1,400
Cr. AR – P Newman 850 Cr. AR – P Newman 850
Cr. AR – Ned Berry 3,900 Cr. AR – Ned Berry 3,900
Cr. AR – Mary Adams 2,300 Cr. AR – Mary Adams 2,300
Cr. AR – Nichole Chapin 680 Cr. AR – Nichole Chapin 680

Financial Accounting 2
Solutions for Final Test 1

Dec No Entry Dr. Bad Debt Expense 35,125

31 Cr. Allowance for DA 35,125
b. On December 31:
Notes: Estimate of uncollectible accounts = Accounts Receivable x Expected %
uncollectible
December 31, 2016
Age of Accounts Expected Percent Estimate of
Accounts
Receivable Uncollectible uncollectible accounts
Receivable
$616,000 Not Yet due 0.9% 5,544
$298,000 1 to 30 days past due 1.65% 4,917
$64,000 31 to 60 days past due 6.15% 3,936
$41,000 61 to 90 days past due 31.00% 12,710
$9,200 Over 90 days past due 64.00% 5,888
Total 32,995
Post to T accounts to find the amount of adjusting entry:
Allowance for Doubtful Accounts
Mar. 13 4,000 Jan. 1 Balance 12,000
Apr. 19 5,000 Jun. 9 4,000
Nov. 23 9,130
Dec. 31 Unadjusted Balance 2,130
Dec. 31 Adjusting Entry 35,125
Dec. 31 Adjusted Balance 32,995

Bad Debt Expense

Dec. 31 Adjusting Entry 35,125

QUESTION 3 (10 Marks)

a. Straight-line method: Depreciation expense = (67,000 – 4,000)/10 = 6,300
b. Units of production method: Cost per unit: (67,000 – 4,000)/420,000 = 0.15.
Depreciation expense in the first year: 29,900 x 0.15 = 4,485
QUESTION 4 (20 Marks)
a. Prepare journal entries:
Jan 1 Dr. Treasury Stock 112,500
Cr. Cash 112,500
Jan 5 Dr. Cash Dividends 121,500

Financial Accounting 3
Solutions for Final Test 1

Cr. Dividends Payable 121,500

Feb 28 Dr. Dividends Payable 121,500
Cr. Cash 121,500
Jul 6 Dr. Cash 48,952
Cr. Treasury Stock 42,200
Cr. Paid-in Capital
from Sales of Treasury Stock 6,752
Aug 22 Dr. Cash 61,864
Dr. Paid-in Capital
from Sale of Treasury Stock 8,436
Cr. Treasury Stock 70,300
Sep 5 Dr. Cash Dividends 135,000
Cr. Dividends Payable 135,000
Oct 28 Dr. Dividends Payable 135,000
Cr. Cash 135,000
Dec 31 Dr. Income Summary 131,500
Cr. Retained Earnings 131,500
b. Prepare a statement of retained earnings
Rocklin Co.
Retained Earnings Statement
For the year ended December 31, 2017
Retained Earnings, January 1, 2017 460,000
Net income 388,000
Less dividends:
Common stock 256,500
Preferred stock (if any)
Increase in retained earnings 131,500
Retained earnings, December 31, 2017 591,500

Financial Accounting 4
Solutions for Final Test 1

QUESTION 5 (20 Marks)

JVC, Inc.
Statement of Cash Flows
For the year ended December 31, 2016
Cash flows from operating activities:
Net income 51,000
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation 26,000
Decrease in accounts receivable 18,000
Increase in inventory (4,000)
Increase in accounts payable 13,000
Decrease in accrued liabilities (13,000)
Net cash flow from operating activities 91,000
Cash flows from investing activities:
Acquisition of plant assets (100,000)
Cash receipt from sale of land 28,000
Net cash flow used for investing activities (72,000)
Cash flows from financing activities:
Cash receipt from issuance of common stock 29,000
Payment of note payable (18,000)
Payment of dividends (8,000)
Net cash flow provided by financing activities 3,000
Increase in cash 22,000
Cash at the beginning of the year 8,000
Cash at the end of the year 30,000
Noncash investing and financing activities:
Acquisition of plant assets by issuing note payable 18,000

Financial Accounting 5