Lahore School of Economics

Course Title: FINANCIAL ACCOUNTING 1

Course Number: ACC 101
Degree Program & Year: BBA II
Term: WINTER
Year: 2020
Test: Mid/Final final exam
Test Date: 15/12/2020
Time Allowed: 2hr
Instructor Name MEHER AFZAL
TA Name: student TA

Q1. For a business that uses the allowance method of accounting for uncollectible receivables:

(a) Journalize the entries to record the following:

(1) Record the adjusting entry at December 31, the end of the first fiscal year, to record
the bad debt expense. The accounts receivable account has a balance of $800,000,
and the contra asset account before adjustment has a debit balance of $600. Analysis
of the receivables indicates uncollectible receivables of $18,000.
(2) In March of the next year, the $350 owed by Fronk Co. on account is written off as
uncollectible.
(3) In November of the next year, $200 of the Fronk Co. account is reinstated and
payment of that amount is received.
(4) In December of the next year, $400 is received on the $600 owed by Dodger Co. and
the remainder is written off as uncollectible.

(b) Redo the entries in steps (2), (3), and (4) assuming the company uses the direct write-off
method.
Q2. ABC uses a perpetual inventory system. The following are the merchandising transactions of the
company:

Jan 5--- The Company purchased 50 units of telescopes from XYZ Company at a cost price of $ 100
per unit, for a total of $5000. The terms of purchase were 2/10, n/30.
Jan 10— it returned 5 telescopes to XYZ since the items were defective. XYZ allowed for the full
credit for this return.
Jan 15—ABC Company paid for the account payable within the discount period.
Jan 16—ABC sold 10 telescopes out of its purchases to a regular customer on credit for a sale price
of $125 per unit, for a total of $1250. The terms of sale were 1/10, n/30.
Jan 20—The customer returned 2 telescopes to ABC company since they were of wrong type.
Jan 26—ABC collected its remaining account receivable within discount period.
Required:
Prepare journal entries to record these transactions assuming company records purchases at Net
cost and sales at Gross Invoice price.
Q3. Toys R Us uses perpetual inventory system and it sold 250 units on April 5. The company
records show the following data of toys during the month of March:
Purchase Date Quantity Unit Cost Total Cost
Mar 10 150 $ 25 $ 3750
Mar 16 250 $ 35 $ 8750
April 15 300 $ 40 $ 12000
Total 700 $24,500
Prepare journal entries to record the cost of the toys sold on April 5, assuming the company uses
the:
1) Specific Identification method (100 units sold were purchased on March10 and the
remaining 150 units were purchased on March 16).
2) FIFO
3) LIFO

Q4. Shown below are cash balances for Ruby Transport at August 31, as well as additional data necessary
to answer the questions that follow.
Balance per bank statement $25,650
Balance per depositor’s records $20,631
Additional information
a Outstanding checks: no. 729, $1,790; no. 747, $350; no. 752, $1,115.
b Check no. 742 (for repairs) was written for $568 but erroneously recorded in Ruby’s records
as $865.
c Deposits in transit, $3,220.
d Note collected by the bank and credited to Ruby’s account, $6,900.
e NSF check of C. Craig, one of Ruby’s customers, $2,178.
f Bank service charge for August, $35.
Required:
Make the bank reconciliation statement and prepare the necessary journal entries.

Q5. Best western sells a variety of shoes to retail stores. Issues notes receivables, also adjusts and
closes its accounts at December 31.
Sept 1 received a nine month 10% note or 75000 in settlement of an account receivable.
June 1 collected in full the nine month note including interest.
Required:
1. Prepare journal entries to record receipt, adjustment and collection of the note.

Q6. In March of 2005, ChemCo’s inventory was destroyed by fire. ChemCo’s normal gross profit
ratio is 30% of net sales. At the time of the fire, ChemCo showed the following balances. Calculate
the estimated loss in inventory using the gross profit method.
Sales $ 31,500
Sales returns 1,500
Beginning Inventory 12,000
Net cost of goods purchased 20,500

Q7. On October 1, Sebastian Company acquired new equipment with a fair market value of
$458,000. Sebastian received a trade-in allowance of $92,000 on the old equipment of a similar type
and paid cash of $366,000. The following information about the old equipment is obtained from the
account in the equipment ledger: Cost, $336,000; accumulated depreciation on December 31, the end
of the preceding fiscal year, $220,000; annual depreciation, $20,000. Assuming the exchange has
commercial substance, journalize the entries to record: (a) the current depreciation of the old
equipment to the date of trade-in and (b) the exchange transaction on October 1.

Q8. Solare Company acquired mineral rights for $60,000,000. The diamond deposit is estimated at
6,000,000 tons. During the current year, 2,300,000 tons were mined and sold.
(a) Determine the depletion rate.

(b) Determine the amount of depletion expense for the current year.

(c) Journalize the adjusting entry to recognize the depletion expense.

Q9. Williams Company acquired machinery on July 1, Year 1, at a cost of $130,000. The estimated
useful life of the machinery was 10 years, and the estimated residual value was $10,000. Williams
uses the double-declining-balance method of depreciation. On October 1, Year 4, Williams sold the
equipment for $75,000.
(a) Record the journal entry for the depreciation on this machinery for Year 4.
(b) Record the journal entry for the sale of the machinery.

Q10. Golden Sales has bought $135,000 in fixed assets on January 1 associated with sales equipment.
The residual value of these assets is estimated at $10,000 at the end of their four-year service life.
Golden Sales managers want to evaluate the options of depreciation.
(a) Compute the annual straight-line depreciation and provide the sample depreciation journal entry to
be posted
at the end of each of the years.
(b) Write the journal entries for each year of the service life for these assets using the double-
declining-balance
method. First make the double declining table for the four years.