Cash and Receivables

Exercise 7-9 (Computing Bad Debts and preparing Journal Entries) The trial balance before adjustment of Estefan Inc. shows the following balances.

Dr                                 Cr

Account receivable                                                         $80,000

Allowances for doubtful Accounts                                         1,750

Sales revenue (net, all on credit)                                                                          $580,000

Instructions: Give the entry for estimated bad debts assuming that the allowance is to provide for doubtful accounts on the basis of (a.) 4% of gross accounts receivable and (b.) 5% of gross, accounts receivables and allowance for doubtful accounts has a $1,700 credit balance.

Exercise 7-25  (Bank Reconciliation and Adjusting Entries) Aragon company has just received the August 31,2019, bank statements, which is summarized below.

Country National Bank                                               Disbursements       Receipts               Balance

Balance, August 1                                                                                                               $9,369

Deposits during August                                                                             $32,200                 41,569

Note collected for depositor, including $40 interest                                       1,040                     42,609

Checks cleared during August                                  $34,500                                                   8,109

Bank service charges                                                       20                                                    8,089

Balance, August 31                                                                                                                 8,089

The general ledger cash accounts contained the following entries for the months of August.

Cash

Balance, August 1          10,050                                                 Disbursement in August             35,403

Receipts during August    35,000

Deposits in transit at August 31 are $3,800 and checks outstanding at August 31 total $1,550. Cash on hand at August 31 is $310. The bookkeeper improperly entered one check in the books at $146.50 which was written for $164.50 for supplies (expense); it cleared the bank during the month of August.

Instructions:

1. Prepare a bank reconciliation dated August 31, 2019, proceeding to a correct balance.
2. Prepare any entries necessary to make the books correct and complete.
3. What a amount of cash should be reported in the August 31 statement of financial positions?

Exercise 8-8 (Periodic versus Perpetual Entries) Chippewas Company sells one product. Presented below is information for January for Chippewas Company.

Jan. 1 Inventory 100 units at $6 each

4 Sale                      80 units at $8 each

11 Purchase          150 units at $6.50 each

13 Sale                    120 units at $8.75

20 Purchase           160 units at $7 each

27 Sale                    100 units at $9 each

Chippewas uses the FIFO cost flow assumption. All purchases and sales are on account.

Instructions

1. Assume Chippewas uses a periodic system. Prepare all necessary journal entries, including the end of the month closing entry, to record cost of good sold. A physical count indicates that the ending inventory for January is 110 units.
2. Compare gross profit using the periodic system.
3. Assume the Chippewas uses a perpetual system. Prepare all necessary journal entries.\
4. Compute gross profit using the perpetual system.

Exercise 8-11 (Compute FIFO and Average Cost – Periodic) The following information is related to radios for the couples company for the month of July.

Units                       Units          Selling

Date             Transaction    Units in         Cost          Total        Sold          Price                 Total

July 1            Balance          100             $4.10         $410

6          Purchase          800                4.30        3,440

7           Sale                                                                300            $7.00                $2,100

10        Sale                                                                 300               7.30                  2,190

12         Purchase         400             4.51             1,804

15        Sale                                                                 200            7.40                 1,480

18       Purchase         300             4.60             1,380

22        Sale                                                                 400            7.40                  2,960

25        Purchase       500               4.58             2,290

30        Sale              ____                               ____       200           7.50                  1,500

Totals           2,100                              $9,324     1,400                                $10,230

Instructions

1. Assuming that the periodic inventory method is used, compute the inventory cost at July 31 under each of the following cost flow assumptions. (ignore taxes)

1.FIFO

2.Weighted- average

1. Answer the following question.

1.Which of the following of the methods used above will yield the highest figure for gross profit for the income statement? Explain why.

2. Which of the method used above will yield the highest figure for ending inventory for the statement of financial position? Explain why.

Exercise 18-18 (FIFO, LIFO and Average-Cost Determination) Keyser Company’s record of transaction for the month of April is as follow.

Purchase                                                                           Sales

April 1 (balance on hand   600 @   $6.00                                      April 3     500 @      $10.00

4                            1,500@   6.08                                             9     1,300 @        10.00

8                             800 @    6.40                                             11     600 @        11.00

13                            1,200 @   6.50                                             23    1,200           11.00

21                            700 @     6.60                                            27     900 @          12.00

29                             500 @ 6.79                                                       ___

___                                                               4,500

5,300

Instructions

1. Assuming that period inventory records are kept, compute the inventory at April 30 using (1) LIFO and (2) average-cost.
2. Assuming that perpetual inventory records are kept in both units and dollars, determine the inventory at April 30 using (10 FIFO and (2) LIFO.
3. Compute cost of goods sold assuming periodic inventory procedures and inventory priced at FIFO
4. In an inflationary period, which inventory method – FIFO, LIFO, or average -cost will show the highest net income?

Exercise 18-23 (FIFO, LIFO -Periodic) Tom Brady Shop began operations on January 2, 2019. The following stock record for footballs was taken records at the end of the year.

Units                             Unit invoice                    Gross invoice

Date          Voucher         Terms               Received                     Cost                             Amount

1/15          10624           Net 30               50                                 $20                               $1,000

3/15           11437          1/5, net 30         65                                 16                                 1,040

6/20      21332              1/10, net 30       90                                 15                                 1,350

9/12      27644              1/10, net 30       84                                 12                                 1,008

11/24    31269              1/10, net 30       76                                 11                                 836

Totals                                       ___                                                                   ___

365                                                                   $5,234

A physical inventory on December 31, 2019 reveals that 110 footballs were in stock. The bookkeeper informs that all the discounts were taken. Assume that Tom Brady shop uses the invoice price less discount for recording purchases.

Instruction

1. Compute the December 31, 2019 inventory using the FIFO method. (Round all the unit costs to two decimal places.)
2. Compute the 2019 cost of goods sold using the LIFO method.
3. What method would you recommend to the owner to minimize income taxes in 2019 using the inventory information for footballs as a guide?