UMUC acct301 WEEK 3 HOMEWORK

UMUC acct301 WEEK 3 HOMEWORK

Partial information follows about net sales, net purchases,
cost of goods sold, gross profit, total expenses, and net income for Slabaugh
Company. Compute the missing values.

NET
SALES
Sales $9,00,000
Sales
discounts 20,000
Sales
returns and allowances
?
Net
sales
7,35,000

NET
PURCHASES
Purchases $3,50,000
Freight-in 20,000
Purchase
discounts ?
Purchase
returns and allowances
2,500
Net
purchases 4,13,500

COST OF
GOODS SOLD
Beginning
inventory $85,400
Ending
inventory
74,500
Cost
of goods sold ?

GROSS
PROFIT
Gross
profit ?

TOTAL
EXPENSES
Rent $36,000
Salaries 1,45,700
Utilities 12,300
Freight-out ?
Other 24,100
Total
expenses 2,42,200

NET
INCOME
Net
income ?

Dine-Corp International publishes ratings and reviews of the
world’s finest restaurants. Following
are facts you need to prepare Dine-Corp’s March bank reconciliation:

Balance per company records at end of month $72,644.12
Bank service charge for the month 44.00
NSF check returned with bank statement 1,440.66
Note collected by the bank during the month 45,000.00
Outstanding checks at month end 31,553.57
Interest on note collected during the month 4,500.00
Balance per bank at end of month 1,44,223.99
Deposit in transit at month end 7,989.04

“Prepare journal entries for each of the following
transactions:

On
December 1, 20X5, Musaka received a 10%, 1-year, note receivable from
Lambert. This note was issued in payment
for a $24,000 outstanding account receivable.
On
December 31, 20X5, Musaka recorded an end-of-year adjusting entry to record
accrued interest on the note receivable.
On November 30, 20X6, Lambert
paid Musaka the full amount due on the note receivable.

“How would the November 30 entry differ if Lambert
defaulted on the payment?

Rocks Shoes is a three-year old company that started out
producing specialty shoes for rock climbing and mountaineering. The shoe’s unique styling has made them a hit
with climbing enthusiasts, and the company is now growing rapidly. Rocks needs additional capital to expand its
manufacturing capacity, and it plans to sell additional shares of stock to raise
money.
During its first three years in operation, Rocks used the
direct-write off method to account for uncollectible accounts. Information about sales, write-offs, and the
company’s income follows:
Sales Write-offs Net Income

Year 1 $24,00,000 $- $1,00,000
Year 2 6,300,000 24,000 3,00,000
Year 3 12,900,000 1,11,000 5,50,000

“Rocks is required to have audited financial statements
prior to offering its shares of stock for sale.
This will require the company to recomputed its income under generally
accepted accounting principles for each of the three prior years. The only item that requires adjustment is the
treatment of uncollectible accounts.

Rocks estimates that 3% of sales ultimately prove to be
uncollectible — 1% in the year following a sale, and 2% in the year
thereafter.”

(a) Prepare
the journal entries that were used by Rocks for each year under the direct
write-off method.
(b) Determine
if the actual write-offs are aligning with the estimates provided by
Rocks. Why does GAAP require an
allowance method for uncollectible?
(c) Prepare
the journal entries that would have been made each year had the percentage of
sales technique been used to establish an allowance account. Be sure to include entries to both establish
the allowance and record the write offs.
(d) How much
is the corrected net income for each year?
Will the reduction in income potentially impact the amount of capital
that can be raised?

“Elizabeth Egbert owns a galvanizing plant. Customers bring in their fabricated steel
products (like light poles, towers, trailers, etc.), and Egbert dips them into
a heated vat of molten zinc. The zinc
bonds to the metal and produces a highly durable corrosion resistant product.


Egbert’s primary inventory is molten zinc purchased from
suppliers in large blocks of solid material.
These blocks are immersed in the heated vat and will melt together with
the zinc already in the pool. Egbert
generally keeps the vat relatively full, and it is never allowed to cool.
Egbert started the year 20X8 with 500,000 pounds of zinc in
the pool. During the year Egbert
purchased 2,800,000 pounds of zinc. At
year’s end, the pool contained 520,000 pounds of zinc.
(a) How much
zinc was used during 20X8?
(b) Accountants
frequently refer to “goods available for sale.” Is this concept the same as ending
inventory? How much zinc, in pounds, was
“available for sale?”
(c) If the
beginning inventory cost $1.25 per pound, and purchases during 20X8 cost $1.50
per pound, how much is the “cost of goods available for sale”?
(d) In
preparing financial statements for 20X8, to what financial statement elements
will the amount you calculated in part (c) be allocated?
(e) If Egbert
uses FIFO, how much should be attributed to ending inventory and how much to
cost of goods sold?
(f) If Egbert
uses LIFO, how much should be attributed to ending inventory and how much to
cost of goods sold?
(g) What will
be the difference in profitability between choosing the FIFO and LIFO
methods? Does is seem reasonable the
choice of accounting method can change the reported profit?

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