ACCT2206 CHP 4 to 7 Midterm Review Solution PDF

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Midterm review solution...

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CHAPTER 4 REVIEW SOLUTION Required # 1: PumpkinCo. Statement of Comprehensive Income For the year ended October 31, 2011 Sales Less: Sales discounts Sales returns and allowances Net sales Cost of goods sold Gross profit Operating expenses General and administrative expenses Selling expenses Income from operations Other revenues (expenses) Dividend revenue (non-taxable revenue) Loss on sale of land Interest expense Loss due to tornado damage Impairment of goodwill (not tax deductible)

$ 2,500 1,700

182,000 4,200 177,800 88,680 89,120

18,890 12,090

30,980 58,140

5,000 (7,850) (2,500) (1,370) (700)

(7,420)

Income before income taxes and discontinued operations Income taxes (50,720 -5,000+700)*30% Income before discontinued operations Gain from discontinued operations, net of tax of $3,000

50,720 13,926 36,794 7,000

Net income

43,794

Other comprehensive income Unrealized holding gain on investments designated through OCI, net of tax of $750

1,750

Comprehensive income

45,544

Earnings per Share: Income before discontinued operations Discontinued operations Net income

(36,794 / 100,000) (7,000 / 100,000) (43,794 / 100,000)

$ $ $

0.37 0.07 0.44

$

47,000

Required # 2: PumpkinCo. Statement of Retained Earnings For the year ended October 31, 2011 Retained earnings, November 1, 2010 as previously reported Cumulative effect on prior years resulting from retrospective adoption of new accounting policy, net of tax of $2,340 Balance, November 1, 2010 as restated

(5,460) 41,540

Add: Net income Less: Dividends declared

43,794 (1,200)

Retained earnings, October 31, 2011

84,134

CHAPTER 5 REVIEW SOLUTION Westwood Inc Balance Sheet December 31, 2011 Assets Current Assets Cash Temporary Investments Accounts Receivable

$

41,000 5,000

192,000

Less

Allowance for Doubtful Accounts Inventory Prepaid Insurance Total Current Assets

8,700

183,300 226,500 6,800 462,600

Long Term Investments Long Term Investments in Shares Property Plant and Equipment Land Building

478,000

95,000 362,600

Less

Accumulated Depreciation-Building

240,000

122,600

Construction in Progress Total Property Plant and Equipment

50,000 267,600

Intangibles Franchises (net)

3,000

TOTAL ASSETS

$

Liabilities Current Liabilities Accounts Payable Wages Payable Notes Payable Current Portion of Bond Payable Total Current Liabilties

$

1,211,200

155,000 53,000 85,000 20,000 313,000

Long Term Liabilities Bonds Payable Total Liabilities

158,200 471,200

Shareholders' Equity Contributed Capital Common Shares; 100,000 shares authorized, 75,0000 issued and outstanding Retained Earnings* Accumulated Other Comprehensive Income** Total Shareholders' Equity

500,000 140,000 100,000 740,000

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

* Retained Earning openining Adjustment to temporary investments Adjusted Retained Earnings

138,000 2,000 140,000

** Accumulated OCI opening Adjustment to LT investments Adjusted Accumulated OCI

45,000 55,000 100,000

1,211,200

CHAPTER 7 REVIEW SOLUTION – BANK RECONCILIATION NOODLE CAFE Bank Reconciliation December 31, 2011 Bank statement balance ..................................... Add: Deposit of Dec. 31 in transit .......................... Error ..............................................................

Deduct: Outstanding cheques: #197 ............................. $ 8,000 #199 ............................. 22,500 Adjusted bank balance .......................................

$50,860 3,140 20,000 $74,000

30,500 $43,500

Book balance...................................................... Add: Error (435 - 345) .......................... $ 90 Note Rec’ble................................ 30,000 *Less: Fee .............................. 20 Interest revenue.......................... 150 Deduct: NSF – Leon Company .................... $ 4,200 Service charge ............................. 100 Error (6,180 – 1,680) .................... 4,500 Adjusted book balance ........................................

$22,080

30,220 $52,300

8,800 $43,500

* May also be shown as a deduct rather than a reduction to the note receivable/ Part 2 Dec. 31

Accounts Receivable – Connie Sneddon ........................................................ Cash ........................................................................................................ To correct error.

4,500

Accounts Receivable – Leon Company .......................................................... Cash ........................................................................................................ To reinstate customer account re NSF cheque.

4,200

Cash ............................................................................................................ Accounts Payable – CT Financial ............................................................... To correct error.

90

Bank Service Charges Expense ...................................................................... Cash ........................................................................................................ To record December bank charges.

100

Collection Expense........................................................................................ Cash ............................................................................................................ Note Receivable ....................................................................................... Interest Revenue ...................................................................................... To record collection of note and interest less collection expense.

20 30,130

4,500

4,200

90

100

30,000 150

CHAPTER 7 REVIEW SOLUTION –RECEIVABLES Question # 1

Age of accounts Accounts receivable $600,000 Estimated percent uncollectible $ uncollectible

1).

61-90 Days $160,000 $140,000 2.00% 6.00%

1-30 Days 31-60 Days $280,000 0.50% 1,400.00

3,200.00

8,400.00

Over 90 Days $20,000 50.00% TOTAL 10,000.00 23,000.00

AFDA 17,800 5,200 23,000

Dr. Bad debt expense Cr. AFDA

5,200 5,200

2). Accounts receivable, net of allowance for doubtful accounts of $23,000 -orAccounts receivable $ 600,000 Less: allowance for doubtful accounts 23,000 577,000 3).

AFDA 1800 24,800 23,000

Dr. Bad debt expense Cr. AFDA

24,800 24,800

$ 577,000

Question # 2 Sept.

Sept.

Sept.

Sept.

Sept.

Sept.

Sept.

Sept.

Sept.

6

9

11

15

18

27

30

30

30

Allowance for doubtful accounts .................................................................. Accounts Receivable – Irma Good............................................................. To write-off Irma good uncollectible amount.

25,200

Allowance for doubtful accounts .................................................................. Accounts Receivable – Tony Goad ............................................................ To write-off Tony Goad uncollectible amount.

38,400

Allowance for doubtful accounts .................................................................. Accounts Receivable – Kay Walsh ............................................................. To write-off Kay Walsh uncollectible amount.

18,240

Accounts Receivable – Irma Good ................................................................. Allowance for doubtful accounts .............................................................. Cash ............................................................................................................ Accounts Receivable – Irma Good............................................................. To reinstate Irma Good’s account and to record cash collected.

18,000

Accounts Receivable-Tony Goad ................................................................... Allowance for doubtful accounts .............................................................. Cash ............................................................................................................ Accounts Receivable – Tony Goad ............................................................ To reinstate Irma Good’s account and to record cash collected.

30,000

Allowance for doubtful accounts Accounts Receivable – Dave Campbell To write-off Dave Campbell uncollectible amount.

10,080

25,200

38,400

18,240

18,000 18,000 18,000

30,000 30,000 30,000

10,080

Accounts Receivable (85% x 1,440,000) Cash (15% x 1,440,000) Sales revenue To record sales for September 2010

1,224,000 216,000

Cash ............................................................................................................ Accounts Receivable................................................................................. To record collections for September 2010.

1,202,400

Bad debt expense ......................................................................................... Allowance for doubtful accounts .............................................................. To adjust AFDA to aging analysis. (150,000 – 101,280)

41,520

Accounts receivable 1,374,000 25,200 38,400 18,240 18,000 18,000 30,000 30,000 10,080 1,224,000 1,202,400 1,303,680

1,440,000

1,202,400

41,520

AFDA 145,200 25,200 38,400 18,240 18,000 30,000 10,080 101,280 48,720 150,000

Required # 2: Entry would be: 8% of credit sales or 8% x (1,440,000*85%) = 97,920 Dr. Bad debt expense Cr. AFDA

97,920 97,920...