02 Jan (a) Compute ending inventory,
AC501: Financial Accounting and Reporting
P3-3(Adjusting Entries)
A review of the ledger of Oklahoma Company at December 31, 2008, produces the following data pertaining to the preparation of annual adjusting entries.
(1) Salaries Payable $0. There are eight salaried employees. Salaries are paid every Friday for the current week. Five employees receive a salary of $700 each per week, and three employees earn $500 each per week. December 31 is a Tuesday. Employees do not work weekends. All employees worked the last 2 days of December.
(2) Unearned Rent Revenue $ 369,000. The company began subleasing office space in its new building on November 1. Each tenant is required to make a $ 5,000 security deposit that is not refundable until occupancy is terminated. At December 31, the company had the following rental contracts that are paid in full for the entire term of the lease.
Date
Term
(in months)
Monthly Rent
Number of
Leases
Nov. 1
6
$ 4,000
5
Dec. 1
6
$ 8,500
4
(3) Prepaid Advertising $ 13,200. This balance consists of payments on two advertising contracts. The contracts provide for monthly advertising in two trade magazines. The term of the contracts are shown at the top of page 135.
Contract
Date
Amount
Number of
A650
May 1
$ 6,000
12
B974
Oct. 1
$ 7,200
24
The first advertisement runs in the month in which the contract is signed.
(4) Notes Payable $ 80,000. This balance consists of a note for one year at an annual interest rate of 12%, dated June 1.
Instructions
Prepare the adjusting entries at December 31, 2008. (Show all computations).
P4-2(Balance Sheet Preparation)
Presented below are a number of balance sheet items for Letterman Inc., for the current year, 2008.
Goodwill
$ 125,000
Accumulated depreciation-equipment
$ 292,000
Payroll taxes payable
177, 591
Inventories
239,800
Bonds payable
300,000
Rent payable—short-term
45,000
Discount on bonds payable
15,000
Taxes payable
98,362
Cash
360,000
Long-term rental obligations
480,000
Land
480,000
Common stocks, $ 1 par value
200,000
Notes receivable
545,700
Preferred stock, $ 10 par value
150,000
Notes payable to banks
265,000
Prepaid expenses
87,920
Accounts payable
590,000
Equipment
1,470,000
Retained earnings
?
Trading securities
121,000
Income taxes receivable
97,630
Accumulated depreciation-building
170,200
Unsecured notes payable (long-term)
1,600,000
Building
1,640,000
Instructions
Prepare a classified balance sheet in good form. Common stock authorized was 400,000 shares, and preferred stock authorized was 20,000 shares. Assume that notes receivable and notes payable are short-term, unless stated otherwise. Cost and fair value of trading securities are the same.
P5-1(Multiple-Step Income, Retained Earnings)
Presented below is information related to P. J. Harvey Company for 2008.
Retained earnings balance, January 1, 2008
$ 980,000
Sales for the year
25,000,000
Cost of goods sold
17,000,000
Interest revenue
70,000
Selling and administrative expense
4,700,000
Write-off of goodwill (not tax deductible)
820,000
Income taxes for 2008
905,000
Gain on the sale of investments (normal recurring)
110,000
Loss due to flood damage-extraordinary item (net of tax)
390,000
Loss on the disposition of the wholesale division (net of tax)
440,000
Loss on operations of the wholesale division (net of tax)
90,000
Dividends declared on common stock
250,000
Dividends declared on preferred stock
70,000
Instructions
Prepare a multiple-step income statement and a retained earnings statement. P. J. Harvey Company decided to discontinue its entire wholesale operations and to retain its manufacturing operations. On September 15, P. J. Harvey sold the wholesale operations to Rogers Company. During 2008, there were 300,000 shares of common stock outstanding all year.
P8-2(Bad-Debt Reporting)
Presented below are a series of unrelated situations.
(1) Spock Company’s unadjusted trial balance at December 31, 2008, included the following accounts.
Debit
Credit
Allowance for doubtful accounts
$ 4,000
Net Sales
$ 1,5000,000
Spock Company estimates its bad debt expense to be 1 ½% of net sales. Determine its bad debt expense for 2008.
(2) An analysis and aging of Scotty Corp. accounts receivable at December 31, 2008, disclosed the following:
Amounts estimated to be uncollectible
$ 180,000
Accounts receivable
1,750,000
Allowance for doubtful accounts (per Books)
125,000
What is the net realizable value of Scotty’s receivable at December 31, 2008?
(3) Uhura Co. provides for doubtful account based on 3% of credit sales. The following data are available for 2008.
Credit sales during 2008
$ 2,100,000
Allowance for doubtful accounts 1/1/08
17,000
Collection of accounts written off in prior years
(customer credit was reestablished)
8,000
Customer accounts written off as uncollectible during 2008
30,000
What is the balance in the Allowance for Doubtful Accounts at December 31, 2008?
(4) At the end of the first year of operations, December 31, 2008, Chekov Inc. reported the following information.
Accounts receivable, net of allowance for doubtful accounts
$ 950,000
Customer accounts written off as uncollectible during 2008
24,000
Bad debt expense for 2008
84,000
What should be the balance in accounts receivable at December 31, 2008, before subtracting the allowance for doubtful accounts?
(5) The following accounts were taken from Chappel Inc.’s trial balance at December 31, 2008.
Debit
Credit
Net credit sales
$ 750,000
Allowance for doubtful accounts
$ 14,000
Accounts receivable
410,000
If doubtful accounts are 3% of accounts receivable, determine the bad debt expense to be reported for 2008.
Instructions
Answer the questions related to each of the five independent situations as requested.
P9-6(Dollar-Value LIFO)
Falcon’s Televisions Produces television sets in three categories: portable, mid-size, and flatscreen. On January 1, 2007, Falcon adopted dollar-value LIFO and decided to use a single inventory pool. The company’s January 1 inventory consists of:
Category
Quantity
Cost per Unit
Total Cost
Portable
6,000
$ 100
$ 600,000
Midsize
8,000
250
2,000,000
Flatscreen
3,000
400
1,200,000
17,000
$ 3,800,000
During 2007, the company had the following purchases and sales.
Category
Quantity
Purchased
Cost per Unit
Quantity
Sold
Selling Price
Per Unit
Portable
15,000
$ 120
14,000
$ 150
Midsize
20,000
300
24,000
405
Flatscreen
10,000
460
6,000
600
45,000
44,000
Instructions
(Round to four decimals.)
(a) Compute ending inventory, cost of goods sold, and gross profit.
(b) Assume the company uses three inventory pools instead of one, Repeat instruction (a).
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