Assets Cash $500,000 Accounts Receivable 700,000 Inventory 300,000 Property, Pla
ID: 2517525 • Letter: A
Question
Assets
Cash $500,000
Accounts Receivable 700,000
Inventory 300,000
Property, Plant & Equipment 900,000
Accumulated Depreciation (100,000)
Total Assets $2,300,000
Liabilities & Equity
Accounts Payable $300,000
Notes Payable 1,000,000
Common Stock 500,000
Retained Earnings 500,000
Total Liabilities & Equity $2,300,000
Journal Entries for January 2013
Transaction 1: Sales Return
The buyer returns merchandise to the seller.
Journal Entry: Dr. Cr.
Sales Returns & Allowances 22,000
Accounts Receivable 22,000
Transaction 2: Sales Discounts
Description: Recorded collection within 2/10, n/30 period.
Journal Entry: Dr. Cr.
Cash 24,500
Sales Discounts 500
Accounts Receivable 25,000
Journal Entry: Dr. Cr.
Cash 155,000
Sales Revenue 155,000
Transaction 4: Cost Flow Assumption
Recorded cost of goods sold under one of the cost flow assumptions.
Journal Entry: Dr. Cr.
Cost of Goods Sold 45,000
Inventory 45,000
Transaction 5: Recording Estimated Uncollectible
Description: The credit manager estimates that $16,000 of sales will be uncollectible.
Journal Entry: Dr. Cr.
Bad Debts Expense 16,000
Allowance for Doubtful Accounts 16,000
Transaction 6: Write-off of an uncollectible account
Description: The credit manager authorizes a write-off of a $5,500 balance owed by a customer.
Journal Entry: Dr. Cr.
Allowance for Doubtful Accounts 5,500
Accounts Receivable 5,500
Transaction 7: Depreciation Expense
Recorded depreciation expense under one of the depreciation methods.
Journal Entry: Dr. Cr.
Depreciation Expense 12,000
Accumulated Depreciation 12,000
Transaction 8: Investment by Stockholders
Description: Invested $55,000 cash in the business in exchange for common stock.
Journal Entry: Dr. Cr.
Cash 55,000
Common Stock 55,000
Transaction 9: Dividends
Description: The corporation pays a dividend of $4,700 in cash to the stockholders.
Journal Entry: Dr. Cr.
Dividends 4,700
Cash 4,700
Transaction 10: Purchase of Equipment
Description: Purchases computer equipment for $7,800 cash.
Journal Entry: Dr. Cr.
Equipment 7,800
Cash 7,800
Transaction 11: Purchase of Supplies on Credit
Description: Purchases $4,800 of inventory on credit.
Journal Entry: Dr. Cr.
Inventory 4,800
Accounts Payable 4,800
Questions 13 to 15 cover the inventory methods:
13. January 1, 2013: Purchased 10 units at $6
January 15, 2013: Purchased 10 units at $9
Sold 14 units: What is the cost of goods sold under LIFO?
A. $114
B. $120
C. $126
D. $132
14. January 1, 2013: Purchased 10 units at $6
January 15, 2013: Purchased 10 units at $9
Sold 13 units: What is the cost of goods sold under FIFO?
A. $81
B. $87
C. $93
D. $99
15. January 1, 2013: Purchased 10 units at $6
January15, 2013: Purchased 10 units at $9
Sold 8 units: What is the cost of goods sold under average-cost?
A. $50
B. $55
C. $60
D. $65
Use the following information for questions 16 to 20:
Cost: $10,000
Salvage $1,000
Useful life: 5 years
Units over life: 36,000
16. What is the depreciation expense under straight-line?
A. $1,700
B. $1,800
C. $1,900
D. $2,000
Explanation / Answer
Answer 13) A. $114
Explanation
Cost of goods sold under LIFO = (10 units * $9) + (4 units * $6) = $90 + $24 = $114
Answer 14 ) B. $87
Explanation
Cost of goods sold under FIFO = (10 units * $6) + (3 units * $9) = $60 + $27 = $87
Answer 15) C. $60
Explanation
Average cost per unit = [(10 units * $6) + (10 units * $9)] / 10 units + 10 units = $150 / 20 units = $7.50
Cost of goods sold under average-cost = Units sold * Average cost per unit = 8 units * $7.50 = $60
Answer 16) B. $1,800
Explanation
Depreciation expense under straight-line = ( Cost - Salvage value) / Useful life = ($10,000 - $1,000) / 5 = $1,800