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BRAC University BRAC Business School (MBA Program) Financial Accounting and Analysis Final Exam, Total Marks: 40, Time: 2 hours 1.a. Explain the difference between the terms FOB shipping point and FOB destination. b. At the beginning of the current season on April 1, the ledger of Gage Pro Shop showed Cash $3,000, Inventory $4,000, and Owner’s Capital $7,000. These transactions occurred during April 2017. Apr. 5 Purchased golf bags, clubs, and balls on account from Tiger Co. $1,200, FOB shipping point, terms 2/10, n/60. 7 Paid freight on Tiger Co. purchases $50. 9 Received credit from Tiger Co. for merchandise returned $100. 10 Sold merchandise on account to customers $600, terms n/30. 12 Purchased golf shoes, sweaters, and other accessories on account from Classic Sportswear $450, terms 1/10, n/30. 14 Paid Tiger Co. in full. 17 Received credit from Classic Sportswear for merchandise returned $50. 20 Made sales on account to customers $600, terms n/30. 21 Paid Classic Sportswear in full. 27 Granted credit to customers for clothing that had flaws $35. 30 Received payments on account from customers $600. Prepare journal entries. (2+10=12) 2.a. In a period of rising prices, the inventory reported in Bert Company’s balance sheet is close to the current cost of the inventory. Ernie Company’s inventory is considerably below its current cost. Identify the inventory cost flow method being used by each company. Which company has probably been reporting the higher gross profit? b. Gerald D. Englehart Company uses a perpetual inventory system. The company has the same inventory, purchases, and sales data for the month of March as shown earlier: Inventory: March 1

200 units @ $4.00

$ 800

Purchases: March 10

500 units @ $4.50

2,250

March 20

400 units @ $4.75

1,900

March 30

300 units @ $5.00

Sales:

March 15 500 units

1,500

March 25 400 units The physical inventory count on March 31 shows 500 units on hand. Instructions: Under a perpetual inventory system, determine the cost of inventory on hand at March 31 and the cost of goods sold for March under (a) FIFO, (b) LIFO, and (c) moving-average cost. (3+8=11)

3. a. What is the difference between an account receivable and a note receivable? Discuss about the two bases that may be used in estimating uncollectible accounts. b. The ledger of Nuro Company at the end of the current year shows Accounts Receivable $250,000, Sales Revenue $1,500,000, and Sales Returns and Allowances 2% of sales. Instructions (a) If Nuro uses the direct write-off method to account for uncollectible accounts, journalize the adjusting entry at December 31, assuming Nuro determines that Willie’s $2,900 balance is uncollectible. (b) If Allowance for Doubtful Accounts has a debit balance of $4,300 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 2 % of net sales, and (2) 8% of accounts receivable. (c) If Allowance for Doubtful Accounts has a debit balance of $410 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 0.75% of net sales and (2) 6% of accounts receivable. (2+8=1-0)

4. Enter the following adjustments on the worksheet and complete the worksheet. (1) Unbilled and uncollected revenue for services performed at July 31 were $2,700. (2) Depreciation on equipment for the month was $500. (3) One-twelfth of the insurance expired (Total premium for one year is $2400). (4) An inventory count shows $600 of cleaning supplies on hand at July 31 (Ledger balance of inventory shows $1800) (5) Accrued but unpaid employee salaries were $1,000. (6) Unearned revenue amounted to $260 has been earned. (7) Withdraw $5,600 cash for personal use but has not been recorded.

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