Solutions Midterm Review Practice Problem Workshop 2 Practice

Solutions Midterm Review Practice Problem Workshop 2 Practice Problem Midterm Review Fall 2019 / E. Djoewanda

Solutions Q 1 Gator Investments Income Statement Service revenue $127, 600 Expenses: Advertising Salaries Utilities Interest Total expenses 33, 500 65, 100 15, 500 3, 500 117, 600 Net income R – E = NI CS + R. E = Total S. E $ 10, 000 Gator Investments Statement of Stockholders’ Equity Beginning balance Issuance of common stock Add: Net income Less: Dividends Ending balance Practice Problem Midterm Review Fall 2019 / E. Djoewanda Common Stock $100, 000 11, 000 $111, 000 Retained Earnings $30, 300 10, 000 (5, 200) $35, 100 Total Stockholders’ Equity $130, 300 11, 000 10, 000 (5, 200) $146, 100

Solutions Q 1 (continued) Assets Cash Equipment Buildings Total assets Gator Investments Balance Sheet $ 5, 500 27, 000 150, 000 $182, 500 Liabilities Accounts payable Notes payable Total liabilities Stockholders’ Equity Common stock Retained earnings Total stockholders’ equity Total liabilities and stockholders’ equity A = L + S. E Practice Problem Midterm Review Fall 2019 / E. Djoewanda $ 6, 400 30, 000 36, 400 111, 000 35, 100 146, 100 $182, 500

Solutions Q 2 Inventory items Hammers Saws Screwdrivers Drills 1 -gallon paint cans Paint brushes Total Quantity 110 60 120 50 150 170 Cost Per unit $ 6. 00 11. 00 3. 00 22. 00 5. 00 7. 00 Adjustment Cost of Goods Sold Inventory 290 Cost Per unit $ 6. 00 11. 00 3. 00 22. 00 5. 00 7. 00 Total Cost $ 660 360 1, 100 750 1, 190 $4, 720 NRV per unit $ 7. 00 9. 00 21. 00 6. 00 Lower of Cost and NRV per unit $ 6. 00 9. 00 21. 00 5. 00 Total $ 660 540 240 1, 050 750 8. 00 7. 00 1, 190 $4, 430 Practice Problem Midterm Review Fall 2019 / E. Djoewanda 290

Solutions Q 3 (1) Jul. 1, 2015 Cash Notes Payable (Borrow cash) (2) Dec. 31, 2015 Interest Expense Interest Payable (Adjust interest payable) Debit Credit 15, 000 Debit Credit 900 = $150 (or 1% of $15, 000) per month x 6 months (Jul. – Dec. ) (3) Jan. 1, 2015 Adjustment Beginning balance Interest incurred but not paid Ending balance Dec. 31, 2015 Interest Payable $ 0 900 Interest Expense $ 0 900 $900 Practice Problem Midterm Review Fall 2019 / E. Djoewanda

Solutions Q 4 Age group Not yet due 0 -90 days past due 91 -180 days past due More than 180 days past due Total Amount receivable $40, 000 16, 000 11, 000 13, 000 $80, 000 December 31, 2018 Bad Debt Expense Allowance for Uncollectible Accounts (Estimate future bad debts) ($17, 950 − $5, 000 = $12, 950) Estimated percent uncollectible 4% 20% 25% 80% Debit Credit 12, 950 Practice Problem Midterm Review Fall 2019 / E. Djoewanda Estimated amount uncollectible $ 1, 600 3, 200 2, 750 10, 400 $17, 950

Solutions Q 4 (continued) July 19, 2019 Allowance for Uncollectible Accounts Receivable (Write off actual bad debts) 8, 000 8, 000 September 30, 2019 Accounts Receivable 8, 000 Allowance for Uncollectible Accounts 8, 000 (Re-establish account previously written off) September 30, 2019 Cash 8, 000 Accounts Receivable 8, 000 (Receive cash on account) Practice Problem Midterm Review Fall 2019 / E. Djoewanda

Solutions Q 5 (a) Cash Service Revenue (Provide services for cash) Debit Credit 17, 000 (b) Prepaid Insurance 4, 200 Cash 4, 200 (Purchase prepaid insurance with cash) (c) Equipment 20, 000 Cash 20, 000 (Purchase equipment with cash) (d) Cash Notes Payable (Obtain bank loan) 30, 000 Practice Problem Midterm Review Fall 2019 / E. Djoewanda

Solutions Q 6 April 25 Accounts Receivable Service Revenue (Provide services on account) Debit 3, 200 Credit 3, 200 April 27 Debit Credit Sales Allowances 700 Accounts Receivable 700 (Record sales allowance for credit sale) April 30 Debit Credit Cash 2, 500 Accounts Receivable 2, 500 (Collect cash on account less sales allowance) Service revenue Less: Sales allowances Net sales $3, 200 (700) $2, 500 Practice Problem Midterm Review Fall 2019 / E. Djoewanda

Solutions Q 7 November 16 Accounts Receivable 14, 000 Sales Revenue 14, 000 (Sell inventory on account) Cost of Goods Sold 9, 640 Inventory 9, 640 (Cost of inventory sold) ($9, 640 = ($94 × 60 units) + ($100 × 40 units)) November 24 Cash 12, 600 Sales Revenue 12, 600 (Sell inventory for cash) Cost of Goods Sold 9, 212 Inventory 9, 212 (Record cost of inventory sold) [$9, 212 = ($100 × 37 units) + ($104 × 53 units)] October 31 Debit Credit Cost of Goods Sold 170 Inventory 170* (Record LIFO adjustment) * Ending inventory using LIFO (1, 598 = $94 × 17 units) is $170 less than ending inventory using FIFO ($1, 768 = $104 × 17 units). Practice Problem Midterm Review Fall 2019 / E. Djoewanda

Solutions Q 8 March 1 Notes Receivable Service Revenue (Provide legal services and accept note) Debit 18, 600 September 1 Cash 19, 716 Notes Receivable Interest Revenue (Receive cash on note receivable and interest) (Interest revenue = $18, 600 x 12% x 6/12) March 1 Legal Fees Expense Notes Payable (Receive legal services and sign note) Debit 18, 600 September 1 Notes Payable 18, 600 Interest Expense 1, 116 Cash (Pay cash on note payable and interest) (Interest expense = $11, 000 x 9% x 6/12) Practice Problem Midterm Review Fall 2019 / E. Djoewanda Credit 18, 600 1, 116 Credit 18, 600 19, 716

Solutions Q 9 FIFO Date Jan. 1 Apr. 9 Oct. 4 Transaction Beginning inventory Purchase Numb er of Unit units Cost 10 $430 22 470 12 400 44 Cost of Goods Sold $4, 300 10, 340 4, 800 $19, 440 Ending Inventory - FIFO Date Oct. 4 Transaction Purchase Numb er of units 6 Unit cost 400 Ending Inventory 2, 400 Practice Problem Midterm Review Fall 2019 / E. Djoewanda

Solutions Q 9 (continued) LIFO Date Jan. 1 Apr. 9 Oct. 4 Numb er of Unit units cost 4 $430 22 470 18 400 44 Cost of Goods Sold $ 1, 720 10, 340 7, 200 $19, 260 Numb er of Unit Transaction units cost Beginning inventory 6 $430 Ending Inventory $2, 580 Transaction Beginning inventory Purchase Ending Inventory - LIFO Date Jan. 1 Practice Problem Midterm Review Fall 2019 / E. Djoewanda

Solutions Q 9 (continued) Weighted-Average Date Transaction Units Cost Jan. 1 Apr. 9 Oct. 4 Jan. 1–Dec. 31 Beginning inventory Purchase Sales 10 22 18 50 44 $430 470 400 Total Cost $ 4, 300 10, 340 7, 200 $21, 840 • Weighted-average cost = $21, 840 / 50 units = $436. 80 • Cost of goods sold = 44 units × $436. 80 = $ 19, 219. 20 • Sales Revenue = 44 * $600 = $26, 400 Gross profit FIFO LIFO $6, 960 $7, 140 Practice Problem Midterm Review Fall 2019 / E. Djoewanda Weightedaverage $7, 180. 80

Solutions Q 10 May 2 Debit Credit No entry May 7 Accounts Receivable 1, 200 Tour Revenue 1, 200 (Provide guided tour on account) May 9 No entry May 15 Sales Allowances 360 Accounts Receivable 360 (Sales allowance for services on account) (Sales allowance = $1, 200 x 30%) May 20 Cash 789. 60 Sales Discounts 50. 40 Accounts Receivable 840 (Receive cash on account) (Sales discount = $840 x 6%) Total tour revenues Less: Sales allowances Sales discounts Net tour revenues Outdoor Expo Partial Income Statement Practice Problem Midterm Review Fall 2019 / E. Djoewanda $1, 200. 00 (360. 00) (50. 40) $789. 60

Solutions Q 11 * First 340 units purchased are assumed sold * First 400 units purchased are assumed sold Date Aug. 22 Oct. 29 Date Jan. 1 Mar. 8 Aug. 22 Date Oct. 29 Date Jan. 1 Mar. 8 Aug. 22 Oct. 29 Transaction Purchase Transaction Beginning inventory Purchase Transaction Purchase Transaction Beginning inventory Purchase Number of units 30 80 110 Unit cost $600 640 Number of units 150 120 70 340* Unit cost $540 570 600 Number of units 50 Unit cost $640 Number of units 150 120 100 30 400* Unit cost $540 570 600 640 Practice Problem Midterm Review Fall 2019 / E. Djoewanda Ending Inventory $18, 000 51, 200 $69, 200 Cost of Goods Sold $ 81, 000 68, 400 42, 000 $191, 400 Ending Inventory $32, 000 Cost of Goods Sold $ 81, 000 68, 400 60, 000 19, 200 $228, 600

Solutions Q 11 (continued) (a) ending inventory (b) retained earnings (c) cost of goods sold (d) net income Transaction Beginning inventory Purchase Ending Inventory Cost of Goods Sold 2018 Overstatement Understatement Overstatement 2018 81, 000 179, 600 (32, 000) 228, 600 2019 32, 000 214, 600 (14, 000) 232, 600 2019 No Effect Overstatement Understatement Transaction Beginning inventory Purchase Ending Inventory Cost of Goods Sold 2018 81, 000 179, 600 (69, 200) 191, 400 2019 69, 200 214, 600 (14, 000) 269, 800 Correct reporting in 2018 Incorrect reporting in 2018 ($78, 400) Total COGS for 2 years = $461, 200 Practice Problem Midterm Review Fall 2019 / E. Djoewanda