True-False AnswersConceptual

Item
1.
2.
3.
4.
5.

Ans.
Item
F
11.
F
12.
F
13.
T
14.
T
15.
Multiple Choice AnswersConceptual
Item

21.
22.
23.
24.
25.
26.

Ans.
F
T
T
T
F

Ans.

Item
6.
7.
8.
9.
10.

Item

a
d
d
a
b
d

Ans.

27.
28.
29.
30.
31.
32.

d
c
c
b
c
c

Item

33.
34.
35.
36.
37.
38.

Ans.

Item

b
c
c
d
d
d

Ans.
F
F
T
T
F
Ans.

39.
40.
41.
42.
43.
44.

a
b
b
b
c
d

Item
16.
17.
18.
19.
20.

Item

45.
46.
47.
48.
49.
50.

Ans.

b
c
c
d
c
d

Ans.
T
F
T
T
F
Item

51.
52.
53.
54.
55.
56.

Ans.

Item

Ans.

d
d
c
d
d
d

57.
58.
59.
60.

d
d
a
c

True False AnswersConceptual

Item
1.
2.
3.
4.
5.

Ans.
F
T
F
T
F

Item
6.
7.
8.
9.
10.

Ans.
T
F
T
T
F

Item
11.
12.
13.
14.
15.

Ans.
F
F
T
T
F

Item
16.
17.
18.
19.
20.

Ans.
F
T
T
F
F

Multiple Choice AnswersConceptual

Item

Ans.

Item

Ans.

Item

Ans.

Item

Ans.

Item

Ans.

Item

Ans.

Item

Ans.

21.
22.
23.
24.
25.
26.
27.
28.
29.
30.

c
d
c
d
d
a
d
a
c
a

31.
32.
33.
34.
35.
36.
37.
38.
39.
40.

c
b
b
d
c
d
b
d
c
a

41.
42.
43.
44.
45.
46.
47.
48.
49.
50.

c
d
b
b
d
d
c
c
d
b

51.
52.
53.
54.
55.
56.
57.
58.
59.
60.

d
b
a
a
c
c
d
a
b
a

61.
62.
63.
64.
65.
66.
67.
68.
69.
70.

d
d
a
d
c
d
d
d
c
b

71.
72.
73.
74.
75.
76.
77.
78.
79.
80.

b
b
b
c
d
a
c
d
d
a

81.
82.
83.
84.

b
a
c
c

Solutions to those Multiple Choice questions for which the answer is none of these.
42. a company changes its inventory method every few years in order to maximize reported
income (other answers are possible).
45. comparability.
49. change in equity of an entity during a period from transactions and other events and
circumstances from nonowner sources.
61. going concern assumption.
66. an exchange has taken place and the earnings process is virtually complete.

Multiple Choice AnswersCPA Adapted

Item

1.
2.
3.
4.
5.
6.
7.
8.

Ans.

Item

Ans.

Item

Ans.

Item

Ans.

85.
a
87.
b
89.
a
91.
d
86.
b
88.
b
90.
b
92.
d
Materiality constraint.
Consistency characteristic.
Matching principle or going concern assumption.
Monetary unit assumption.
Matching principle or going concern assumption.
Periodicity assumption.
Full disclosure principle.
Economic entity assumption.

1. c 4.
d 7.
h 10.
2. f
5. g
8. a
3. j
6. c
9. b
1. Relevance; reliability
2. feedback value
3. Comparability
4. rational; systematic
5.The materiality convention
True-False AnswersConceptual
Item
Ans.
Item
Ans.
1.
F
6.
T
2.
T
7.
F
3.
F
8.
T
4.
F
9.
F
5.
T
10.
T

Item

93.

Ans.

e 13.
i
11. k
12. h
6. consistency
7. Conservatism
8. full disclosure
9. periodicity
10.
revenue recognition

Multiple Choice AnswersConceptual

Item

11.
12.
13.
14.
15.
16.
17.
18.
19.

No.

Ans.

Item

d
d
d
c
c
a
d
d
c

20.
21.
22.
23.
24.
25.
26.
27.
28.

Answer

Ans.

d
a
d
d
d
b
a
d
a

Item

29.
30.
31.
32.
33.
34.
35.
36.
37.

Ans.

b
c
d
a
a
a
b
a
a

Item

38.
39.
40.
41.
42.
43.
44.
45.
46.

Ans.

Item

Ans.

Item

Ans.

d
c
a
d
c
d
c
d
d

47.
48.
49.
50.
51.
52.
53.
54.
*55.

d
b
c
b
b
c
c
c
d

*56.
*57.
*58.
*59.
*60.

c
c
c
d
d

Derivation

61.

$40,000 - $21,000 = $19,000.

62.

$50,000 - $32,000 = $18,000.

63.

$13,500 x 4/12 = $4,500.

64.

$18,000 x 7/12 = $10,500.

*65.

3/12 x $6,400 = $1,600.

*66.

17/24 x $3,600 = $2,550.

67.

2/12 x 9% x $20,000 = $300.

68.

$12,500 $700 = $11,800.

69.

$900,000 x 1% = $9,000.

*70.

7/12 x $18,000 = $10,500.

71.

1/12 x 8% x $90,000 = $600.

72.

$30,000 x 8% = $2,400.

*73.

*74.

$200,000 - $120,000 = $80,000.

*75.

$36,000 + $39,000 + $43,000 + $42,000 = $160,000.

*76.

$7,500 + $65,500 - $9,100 = $63,900.

*77.

$4,200 + $85,500 - $8,900 = $80,300.

*78.

$7,600 $1,500 + $1,100 = $7,200.

*79.

$10,400 + $300 = $10,700.

*80.

$33,900 $2,900 + $3,700 = $34,700.

*81.

$120,200 $10,600 + $12,300 = $121,900.

*82.

*83.

$58,000 + $1,200 $18,000 + $10,000 = $51,200.

*84.

$92,000 $9,000 + $7,200 = $90,200 (purchases).

$10,400 + $90,200 $9,700 = $90,900.

No.

Answer

Derivation

85.

($600,000 $200,000) 12% 4/12 = $16,000.

86.

$380,000 + $570,000 + $350,000 = $1,300,000.

87.

$0, none of the $90,000 is earned.

88.

$400,000 12% 2/12 = $8,000.

89.

$1,600,000 9/12 10% = $120,000.

90.

$10,000 + ($180,000 10 3) = $64,000.

91.

$8,500 + ($40,000 15%) = $14,500.

92.

1,000 $50 = $50,000.

*93.

Conceptual.

*94.

$1,100,000 + $350,000 $530,000 $13,000 = $907,000.

*95.

$360,000 $50,000 + $70,000 $10,000 = $370,000.

*96.

$1,050,000 + $75,000 + $30,000 = $1,155,000.

1.

Supplies Expense ..................................................................

Supplies Inventory .......................................................

18,690

2. Interest Receivable .................................................................

Interest Revenue .........................................................

450

*3. Rent Revenue ........................................................................

Unearned Revenue ......................................................

7,000

18,690

450

7,000

1. Prepaid Insurance ...................................................................

Cash ............................................................................
Insurance Expense ..................................................................
Prepaid Insurance ........................................................
2. Cash

.....................................................................................
Unearned Rent ............................................................
Unearned Rent ........................................................................
Rent Revenue ..............................................................

1.

3,000
12,000
12,000
4,000
4,000

$ 3,700
$2,500
1,900
600
5,000
$(1,300)

RYAN FINANCIAL PLANNERS

Statement of Retained Earnings
For the Month Ended December 31, 2007

Retained earnings, December 1 .....................................................

Less: Net loss ................................................................................
Dividends .............................................................................
Retained earnings, December 31 ...................................................

3.

8,000
3,000

RYAN FINANCIAL PLANNERS

Income Statement
For the Month Ended December 31, 2007

Revenues
Service revenue .......................................................................
Expenses
Depreciation expense...............................................................
Rent expense ...........................................................................
Office supplies expense ...........................................................
Total expenses ......................................................................
Net loss ..........................................................................................

2.

8,000

$ 4,400
$1,300
2,500

3,800
$600

RYAN FINANCIAL PLANNERS

Balance Sheet
December 31, 2007
Assets

Cash ..............................................................................................
Accounts receivable .......................................................................
Office supplies ...............................................................................
Office equipment ............................................................................
Less: Accumulated depreciationoffice equipment .......................
Total assets.............................................................................
Liabilities and Stockholders Equity
Liabilities

$ 4,400
2,200
1,800
$15,000
4,000

11,000
$19,400

Accounts payable .....................................................................

Unearned revenue ...................................................................
Total liabilities ...............................................................
Stockholders Equity
Common stock .........................................................................
Retained earnings ....................................................................
Total liabilities and stockholders equity ........................

$ 3,800
5,000
$ 8,800
10,000
600

10,600
$19,400

$60,000 + $1,100 $800 $1,360 + $1,380 = $60,320.

$42,500 $1,800 + $2,150 + $720 $870 = $42,700.
$70,000 + $1,600 $2,160 $1,260 + $920 = $69,100.
$125,800 + $4,500 $3,540 $1,050 + $1,670 = $127,380.
Part A.
a. Depreciation ExpenseEquipment ($840,000 0) 15 ...............
Accumulated DepreciationEquipment .............................

56,000
56,000

b. Interest Expense ...........................................................................

Interest Payable .................................................................

15,000

c. Prepaid Insurance .........................................................................

Insurance Expense ($30,000 - $20,000) ............................

10,000

d. Rent Expense ($150,000 6).........................................................

Prepaid Rent ......................................................................

25,000

e. Salaries and Wages Expense .......................................................

Salaries and Wages Payable .............................................

22,000

Part B.
a. Current assets2, 4, 6, 11, 13
b. Property, plant, and equipment3, 8
c. Current liabilities1, 12
d. Long-term liabilities5
e. Stockholders' equity7, 14
1. Interest Receivable ..................................................................
Interest Revenue .........................................................
Interest revenue per books
$5,400
Interest revenue received related to 2007
($5,000 $1,000)
4,000
Interest accrued
$1,400
2. Unearned Rent Revenue .........................................................
Rent Revenue ..............................................................

15,000

10,000

25,000

22,000

1,400
1,400

37,300
37,300

Cash receipts
Beginning balance
Ending balance
Rent revenue

$40,000
5,300
(8,000)
$37,300

3.

Depreciation Expense ............................................................

Accumulated DepreciationEquipment .......................
Ending balance
$270,000
Beginning balance
230,000
Difference
40,000
Write-off at time of sale 3/4 $40,000
30,000
$ 70,000

70,000

4. Bad Debt Expense ..................................................................

Allowance for Doubtful Accounts .................................
Ending balance
$65,000
Beginning balance
50,000
Difference
15,000
Written off
30,000
$45,000

45,000

5. Rent Expense ..........................................................................

Prepaid Rent ................................................................
Rent expense
$125,000
Less cash paid
120,000
Reduction in prepaid rent account
$ 5,000

5,000

70,000

45,000

5,000

6. Income Summary ....................................................................

150,000
Retained Earnings .......................................................
Ending balance
$210,000
Beginning balance
150,000
Difference
60,000
Cash dividends
$50,000
Stock dividends
40,000
90,000
$150,000
(a) Adjusting Entries
a. Insurance Expense ...............................................................
2,000
Prepaid Insurance ........................................................
b. Bad Debt Expense ................................................................
2,800
Allowance for Doubtful Accounts ..................................
c. Depreciation Expense ...........................................................
12,500
Accumulated Depreciation--F. & E. ..............................
d. Interest Receivable ...............................................................
420
Interest Revenue ..........................................................
*e. Prepaid Rent ........................................................................
5,400
Rent Expense ..............................................................
f. Salaries Expense ..................................................................
5,800
Salaries Payable ..........................................................
(b) Closing Entries
Sales ...........................................................................................
Interest Revenue .........................................................................
Income Summary ...............................................................
Income Summary .........................................................................
Salaries Expense ...............................................................

150,000

2,000
2,800
12,500
420
5,400
5,800

280,000
420
280,420
191,500
55,800

Rent Expense ....................................................................

Depreciation Expense ........................................................
Bad Debt Expense .............................................................
Insurance Expense ............................................................
Cost of Goods Sold ............................................................

7,400
12,500
2,800
2,000
111,000

Income Summary .........................................................................

Retained Earnings .............................................................

88,920
88,920

Since this is the first year of operations and there were $210,000 of accounts receivable
collected, one must compute total sales to determine the ending balance in accounts receivable.
Cost of goods sold is $200,000 assuming the accounts payable are for inventory (the $250,000
constitutes only payments made for purchases). Since the markup is 40% on cost, the sales are
$280,000 ($200,000 140%). Sales of $280,000 less collections of $210,000 results in an
ending accounts receivable balance of $70,000 as calculated below.
Cash purchases
A/P balance
Total purchases
Ending inventory
Cost of goods sold

$250,000
60,000
310,000
110,000
200,000
140%
280,000
210,000
$70,000

Sales
Less collections
Ending A/R
1. Ending balance
Beginning balance
Difference
Uncollectible accounts
Receivables collected
Sales for period

$ 55,000
41,000
14,000
6,000
134,000
$154,000

Ending balance
Plus: Rec. collected
Write-offs
OR
Less: Beginning balance
Sales for period

Accounts Receivable .....................................................................

Sales .................................................................................
2. Ending balance
Beginning balance
Difference
Write-off
Adjusting entry

$ 7,500
4,000
3,500
25,000
$28,500

3. Ending balance
Beginning balance
Difference
Purchases
Payments

$ 44,000
25,000
19,000
110,000
$ 91,000

154,000
154,000

Ending balance
Write-off

$ 7,500
25,000
32,500
4,000
$28,500

OR
Beginning balance
Adjusting entry

Bad Debt Expense ........................................................................

Allowance for Doubtful Accounts .......................................
Beginning balance
Plus purchases
OR
Less ending balance
Payments

$ 55,000
134,000
6,000
195,000
41,000
$154,000

28,500
28,500
$ 25,000
110,000
135,000
44,000
$ 91,000

Accounts Payable ..........................................................................

Cash ..................................................................................
4. Revenue Earned
Less: Dec. 31 accrual
Plus: Jan. 1 accrual
Cash received

$30,000
(2,100)
3,000
$30,900

91,000
91,000

Beginning balance
Plus revenue earned

$ 3,000
30,000
33,000
2,100
$30,900

OR
Less ending balance
Cash received

Cash ..............................................................................................
Interest Receivable .............................................................
(This entry assumes that the $30,000 interest earned
was first recorded as a receivable.)

30,900
30,900

Grier & Associates

Income Statement (Accrual Basis)
For the Year Ended December 31, 2007
Revenue ($450,000 + $50,000 $30,000)
Expenses
Wages ($150,000 + $10,000 $20,000)
Taxes ($65,000 + $14,000 $19,000)
Insurance ($40,000 + $4,000 $8,000)
Depreciation ($95,000 $75,000)
Interest ($25,000 + $3,000 $9,000)
Total expenses
Net Income

$470,000
$140,000
60,000
36,000
15,000
19,000
270,000
$200,000

Winsor Corporation
Work Sheet
For the Year Ended December 31, 2007
Accounts
Cash
Trading Sec.
Accounts Rec.
Allow. for D. A.
Mdse. Inventory
Supplies
Equipment
Accum. Depr.-Eq.
Accounts Payable
Notes Payable
Common Stock
Ret. Earnings
Cost of Goods Sold
Office Salaries Exp.
Sales Comm. Exp.
Rent Expense
Misc. Expense
Sales
Totals
Bad Debt Exp.
Depr. Exp.
Sales Com. Pay.
Interest Expense
Interest Payable
Supplies Expense
Prepaid Rent
Totals
Net Income
Totals

Trial Balance
Adjustments
Dr.
Cr.
Dr.
Cr.
12,400
4,050
50,000
420
(a) 3,200
16,800
1,040
(e) 600
45,000
9,500
(b) 5,500
4,400
5,000
40,000
34,690
225,520
20,800
29,000
(c) 3,000
7,200
(f) 800
2,200
320,000
414,010 414,010
(a) 3,200
(b) 5,500
(d)

100

(e)
(f)

600
800
13,200

(c) 3,000
(d)

100

13,200

Income Statement
Dr.
Cr.

225,520
20,800
32,000
6,400
2,200

Balance Sheet
Dr.
Cr.
12,400
4,050
50,000
3,620
16,800
440
45,000
15,000
4,400
5,000
40,000
34,690

320,000

3,200
5,500

3,000

100

100

600
296,320
23,680
320,000

320,000

800
129,490

320,000

129,490

105,810
23,680
129,490

Adjusting entries and explanations

(a) Bad Debt Expense ($320,000 x 1%) .............................................
Allowance for Doubtful Accounts .......................................

3,200

(b) Depreciation Expense ...................................................................

Accumulated DepreciationEquipment .............................
($45,000 $1,000 is $44,000. One-eighth of $44,000 is
$5,500.)

5,500

3,200

5,500

(c) Sales Commissions .......................................................................

Sales Commissions Payable .............................................
(10% of sales is 10% $320,000, which is $32,000. The
balance in the Sales Commissions account is $29,000
before adjustment, indicating that $3,000 of commissions
are accrued but unpaid.)

3,000

(d) Interest Expense ...........................................................................

Interest Payable .................................................................
($5,000 .08 3/12 = $100)

100

(e) Supplies Expense .........................................................................

Supplies .............................................................................
(The balance of $1,040 in the Supplies account before
adjustment less the correct ending balance of $440 is
$600.)

600

(f) Prepaid Rent .................................................................................

Rent Expense ....................................................................
(Since the trial balance contains no account for prepaid
rent, the $800 lease payment has apparently been
debited to Rent Expense. An account must be set up for
the Prepaid Rent.)
True False AnswersConceptual
Item
Ans.
Item
Ans.
Item Ans.
Item Ans.
1.
T
6.
T
11.
T
16.
F
2.
F
7.
F
12.
F
17.
T
3.
F
8.
F
13.
F
18.
F
4.
T
9.
T
14.
T
19.
F
5.
T
10.
F
15.
F
20.
T

800

3,000

100

600

800

Multiple Choice AnswersConceptual

Item

Ans.

Item

Ans.

Item

Ans.

Item

Ans.

Item

Ans.

Item

21.
c
26.
b
31.
b
36.
a
41.
c
46.
22.
d
27.
d
32.
b
37.
d
42.
c
47.
23.
d
28.
a
33.
a
38.
a
43.
d
48.
24.
d
29.
b
34.
d
39.
d
44.
d
49.
25.
d
30.
c
35.
d
40.
d
45.
c
50.
Solution to Multiple Choice question for which the answer is none of these.
34. Many answers are possible.

No.

Answer

Derivation

53.

54.

$100,000 $60,000 = $40,000.

55.

$150,000 $90,000 = $60,000.

56.

$15,720,000 $370,000 $175,000 = $15,175,000.

Ans.

Item

Ans.

c
d
c
d
d

51.
52.

c
c

57.

58.

59.

60.

a.

$2,055,000 ($1,080,000 $360,000) = $1,335,000.

61.

62.

$210,000 + ($30,000 .7) = $231,000

$231,000 .7 = $330,000.
$515,000 $150,000 $85,000 $30,000 = $250,000.

63.

$25,000 $7,500 = $17,500.

64.

$17,500 + ($500,000 .7) = $367,500.

65.

$1,400,000 $1,200,000 = $200,000.

66.

$50,000 .60 = $30,000.

67.

$200,000 .60 = $120,000.

68.

($500,000 $60,000) 100,000 = $4.40.

69.

($500,000 $60,000) 200,000 = $2.20.

70.

$2,000,000 $430,000 = $1,570,000.

71.

$2,000,000 $430,000 + $1,000,000 $320,000 = $2,250,000.

72.

$1,000,000 + $215,000 = $1,215,000.

73.

$1,000,000 + $215,000 + $500,000 $160,000 = $1,555,000.

74.

$1,700,000 $800,000 $200,000 + $75,000 = $775,000.

75.

Other comprehensive income = $40,000.

76.

$500,000 $350,000 $55,000 + $20,000 + $2,000 = $117,000.

No.

Answer

Derivation

77.

$120,000 + $75,000 + $110,000 + $90,000 = $395,000.

78.

$140,000 + $180,000 + $90,000 = $410,000.

79.

$180,000 + $80,000 + $110,000 + $170,000 = $540,000.

80.

$130,000 + $90,000 = $220,000.

81.

$50,000 + $70,000 $80,000 = $40,000.

82.

$140,000 $50,000 $25,000 $9,000 $8,000 $3,000 $3,000 +

$5,000 $14,100 = $32,900.

83.

$12,000 0.7 = $8,400.

84.

$210,000 $70,000 = $140,000.

85.

$70,000 + $40,000 + $60,000 = $170,000.

86.
b
Conceptual.
1. Earnings per share.
2. Comprehensive income.
3. Prior period adjustment.
4. Extraordinary item.
5. Discontinued operations.
6. Intraperiod tax allocation.
January 1
$240,000
150,000
$ 90,000

Assets
Liabilities
Stockholders' equity
Computation of net income:
Stockholders' equity December 31
Stockholders' equity January 1
Increase
Add: Dividend declared
Less: Common stock sold
Net income

$111,000*

$111,000
90,000
21,000
13,000
(10,000)
$ 24,000

*$80,000 + $31,000
Computation of net income
Change in assets ($118,000 $13,000)
Change in liabilities ($34,000 $20,000)
Change in stockholders' equity
Add: Dividend declared
Less: Investment by stockholders
Net income
(d) $97,800
(e) $245,400
(f) $48,000
True False AnswersConceptual
Item
Ans.
Item
Ans.
Item
1.
F
6.
F
11.
2.
T
7.
T
12.
3.
T
8.
F
13.
4.
T
9.
F
14.

December 31

(a) $261,000
(b) $175,700
(c) $79,300

$105,000
14,000
91,000
12,000
(88,000)
$ 15,000
(g) $380,000
(h) $133,000
(i) $85,000

Ans.
F
F
F
F

Item
16.
17.
18.
19.

Ans.
T
T
F
T

Increase
Increase
Increase

5.

10.

15.

20.

Multiple Choice AnswersConceptual

Item

21.
22.
23.
24.
25.
26.
27.

Ans.

Item

d
c
c
b
c
d
b

28.
29.
30.
31.
32.
33.
34.

Ans.

b
d
d
d
d
d
c

Item

35.
36.
37.
38.
39.
40.
41.

Ans.

b
d
b
d
b
d
d

Item

42.
43.
44.
45.
46.
47.
48.

Ans.

d
d
d
c
d
d
d

Item

Ans.

49.
50.
51.
52.
53.
54.
55.

d
d
d
d
b
c
c

Item

56.
57.
58.
59.
60.
61.
62.

Ans.

Item

b
b
c
a
d
b
b

63.
64.
65.
66.

Ans.

d
c
b
b

Solutions to those Multiple Choice questions for which the answer is none of these.
26. Total assets minus total liabilities.
38. Current assets less current liabilities.
41. Many answers are possible.

No.

Answer

Derivation

67.

68.

69.

70.

71.

72.

$720,000 $85,000 + $363,000 = $998,000.

73.

$70,000 + $250,000 $110,000 + $140,000 = $350,000.

74.

$70,000 + $200,000 $110,000 + $140,000 = $300,000.

75.

$500,000 + $140,000 $60,000 = $580,000.

76.

$250,000 + $70,000 $30,000 = $290,000.

77.

$215,000 ($150,000 + $100,000) = 0.86.

78.

$215,000 $60,000 $110,000 = $45,000.

79.

$255,000 ($150,000 + $100,000) = 1.02.

80.

$255,000 $60,000 $110,000 = $85,000.

81.

$24,000 + $6,000 + $11,000 + $30,000 + $2,000 = $73,000.

82.

$775,000 + [$2,695,000 ($150,000 4)] + $2,085,000 = $4,955,000.

83.

$1,701,000 + ($654,000 $525,000) + $20,000 = $1,850,000.

84.

$3,450,000 + $13,360,000 $11,180,000 ($1,179,000 $525,000) =

$4,976,000.

85.

Conceptual.

86.

Conceptual.

$720,000 $85,000 + $313,000 = $948,000.

87.

Conceptual.

88.

Conceptual.

89.

Conceptual.

90.
b
Conceptual.
1. Current liabilities.
2. Balance sheet.
3. Contingencies.
4. Liabilities.
5. Current assets.
1.
2.
3.
4.
5.

f
f
c
a
a

1.
2.
3.
4.

f
b
f
a or e

1. c
2. c
3. a

6.
7.
8.
9.
10.

f
i
k
a
(g)

6.
7.
8.
9.

11.
12.
13.
14.
15.

Property, plant, and equipment.

Intangible assets.
Assets.
Equity.

h
k
g
(a)
(c)

16.
17.
18.
19.
20.

c
(j)
d
f
b

21.
22.
23.
24.
25.

5.
6.
7.
8.

d
a
x
a

9.
10.
11.
12.

a
g
f
x

13.
14.

a
i

4.
5.
6.

d
d
b

7.
8.
9.

a
c
a

10.
11.
12.

b
c
b

b
l
f
b
f

Net cash provided by operating activities

a. Current cash debt coverage ratio =
Average current liabilities
$53,000
$53,000
= = = 3.3 : 1
($12,000 + $20,000) 2
$16,000
Net cash provided by operating activities
b. Cash debt coverage ratio =
Average total liabilities
$53,000
$53,000
= = = 1.2 : 1
($22,000 + $70,000) 2
$46,000
c. Free cash flow = Net cash provided by operating activities
capital expenditures and dividends
= $53,000 *$73,000 $15,000 = $(35,000)
*$25,000 + $48,000

26.
27.
28.
29.
30.

h
a
d
(d)
j

Perry Company
Balance Sheet
As of December 31, 2007
Assets
Current assets
Cash
Trading securities
Accounts receivable
Less: Allowance for doubtful accounts
Inventories
*Equipment held for sale
Total current assets
Investments
Available-for-sale securities
Cash surrender value
Property, plant, and equipment
Equipment
Less accumulated depreciation
Intangible assets
Patents
Franchises
Total assets

$ 73,100
19,000
$ 57,000
3,800

(2)
53,200
60,000
1,000
206,300

48,300
9,400

135,000
40,000

32,000
9,000

(1)

(3)
(4)

57,700

(5)
95,000

41,000
$400,000

Liabilities and Stockholders' Equity

Current liabilities
Accounts payable
Bank overdraft
Total current liabilities
Long-term liabilities
Total liabilities
Stockholders' equity
Total liabilities and stockholders' equity
(1)
(2)
(3)
(4)
(5)
(6)

($80,000 $9,400 + $2,500)

($60,000 $3,000)
($57,000 + $3,000)
($5,000 $4,000)
($96,000 + $40,000 $5,000 + $4,000)
($75,000 + $4,000)

*An alternative is to show it as an other asset.

True False AnswersConceptual

$ 79,000
2,500
81,500
100,000
181,500
218,500
$400,000

(6)

Item
1.
2.
3.
4.
5.

Ans.
F
T
F
T
T

Item
6.
7.
8.
9.
10.

Ans.
F
F
T
T
T

Item
11.
12.
13.
14.
15.

Ans.
F
F
F
T
T

Item
16.
17.
18.
19.
20.

Ans.
T
F
T
F
T

Multiple Choice AnswersConceptual

Item

21.
22.
23.
24.

Ans.

a
b
a
d

Item

25.
26.
27.
28.

Ans.

c
c
b
c

Item

29.
30.
31.
32.

Ans.

c
a
a
c

Item

33.
34.
35.
36.

Ans.

a
d
d
a

Item

37.
38.
39.
40.

Ans.

Item

Ans.

Item

Ans.

d
c
c
c

41.
42.
43.
44.

b
c
b
b

45.
46.

b
d

Solution to Multiple Choice question for which the answer is none of these.
24. Present value of an Ordinary Annuity of 1.

No.

Answer

Derivation

47.

4 8 = 32 periods; 4% 4 = 1%.

48.

1.260 PV = $10,000; PV = $10,000 1.260.

49.

1.260 $3,000.

50.

($6,000 1.260) + ($6,000 1.166) + ($6,000 1.080) + $6,000.

51.

$4,000 (1.080)6 or $4,000 1.469 1.080.

52.

0.826 PV = $4,000; PV = $4,000 0.826.

53.

$6,000 0.621 0.909.

54.

$3,000 0.751.

55.
56.

a
d

$5,000 + ($5,000 0.909) + ($5,000 0.826) + ($5,000 0.751).

$5,000 (1.06)2 = $5,618.

57.

$100,000 0.51316 = $51,316.

58.

$51,316 $100,000 = 0.51316; 0,51316 is PV factor for 7 years.

59.

$200,000 1.33823 = $267,646.

60.

$500,000 0.51316 = $256,580.

61.

$63,017 $100,000 = 0.63017; 0.63017 is PV factor for 6 years.

62.

$300,000 1.33823 = $401,469.

63.

$10,000 4.11141 = $41,114.

64.

$10,000 4.60478 = $46,048.

65.

$10,000 8.11519 = $81,152.

66.

$10,000 8.11519 1.12 = $90,890.

67.

$20,000 4.11141 = $82,228.

68.

$20,000 4.60478 = $92,096.

69.

$30,000 8.11519 = $243,456.

70.

$25,000 8.11519 1.12 = $227,225.

71.

$50,000 (7.5233 1) = $326,166 or $50,000 5.9847 1.09.

72.

$8,000 10.63663 = $85,093.

73.

$5,000 (12.48756 1) = $57,438 or $5,000 10.63663 1.08.

74.

(10.63663 1.08) R = $300,000; R = $300,000 11.48756 = $26,115.

75.

$6,000 5.7466 = $34,480.

76.

($20,000 0.9434) + [$20,000 (0.9434)2] = $36,668.

77.

$10,000 (7.78615 + 1) = $87,862 or $10,000 8.06069 1.09.

78.

$18,000 3.99271 = $71,869.

79.

$5,000 (3.79079 1.10) = $5,000 4.16987 = $20,849.

80.

$200,000 = R (8.51356 1.10); R = $200,000 9.36492 = $21,356.

81.

($21,000 7.60608) + ($40,000 .23939) = $169,303.

82.

$2,000,000 .08 = $160,000 (annual interest payment)

($160,000 6.1446) + ($2,000,000 0.3855) = $1,754,136.

83.

$200,000 .06 = $12,000 (semiannual interest payment)

($12,000 12.46221) + ($200,000 .37689) = $224,925.

No.

Answer

Derivation

84.

$354,118 .06 = $21,247.

85.

Conceptual.

86.

$160,000 .75 = $120,000 (present value of note)

$120,000 1.10 = $132,000; $132,000 0.10 = $13,200.

87.

Conceptual.

88.

5.11 R = $4,000,000; R = $4,000,000 5.11 = $782,779.

89.

$50,000 4.712 = $235,600 or ($50,000 5.712) $50,000 = $235,600.

90.

$80,000 (4.8684 1.1) = $428,419.

91.

$2,000,000 .08 = $160,000

($160,000 6.145) + ($2,000,000 0.386) = $1,755,200.

92.
b
($30,000 2.91) + $60,000 = $147,300.
1. e
2. a
3. f
4. b
5. d
6. c
Present value of $3,000 for 32 periods at 3% ($3,000 20.38877) = $61,166.
Present value of $10,000 for 10 periods at 9% (6.41766 $10,000) =
Present value of $25,000 discounted for 10 periods at 9% (.42241 $25,000) =
Present value of investment in equipment

$64,177
10,560
$74,737

Future value of an annuity due of $4,000 for 10 periods at 9%

($4,000 15.19293 1.09) = $66,241.
Present value of an annuity due of $20,000 for ten periods at 8% ($20,000 7.24689) =
$144,938.
Present value factor for an annuity due for 15 periods at 10% (1.10 7.60608) = 8.36669
$80,000 8.36669 = $9,562.
Present value of $10,000 for 20 periods at 6% ($10,000 11.46992) =
$114,699
Present value of $200,000 discounted for 20 periods at 6% ($200,000 .31180) =
62,360
Market price of the bond issue
$177,059
Present value of $400,000 discounted for 10 periods at 5% ($400,000 .61391) =
Present value of $24,000 for 10 periods at 5% ($24,000 7.72173) =
Issue price of the bonds

$245,564
185,322
$430,886

Part (a) Future value of $20,000 compounded @ 10% for 6 years

($20,000 1.77156) = $35,431.
Part (b) Present value of a $40,000 ordinary annuity discounted @ 8% for 20 years
($40,000 9.81815) = $392,726.
Part (c) Alternative 1
Present value of $1,000 discounted @ 8% for 2 years
($1,000 .85734) = Present value of $1,000 now =
Present value of $400 now =
Present value of Alternative 1
Alternative 2
Present value of $1,600 discounted @ 8% for 3 years ($1,600 .79383)

$ 857
400
$1,257
$1,270

On the present value basis, Alternative 1 is preferable.

Years 1-6:

Future value of annuity due of $6,000 for 6 periods at 8%:

(7.33592 1.08) $6,000 = $47,537

Years 7-10: Future value of $47,537 for 4 periods at 10%:

1.4641 $47,537 = $69,599
Future value of ordinary annuity of $6,000 for 4 periods at 10%:
4.6410 $6,000 = $27,846
Sum in bank at end of tenth year:
$27,846 + $69,599 = $97,445

True False AnswersConceptual

Item
1.
2.
3.
4.
5.

Ans.
Item
T
11.
F
12.
F
13.
T
14.
T
15.
Multiple Choice AnswersConceptual
Item

21.
22.
23.
P
24.

Ans.
T
F
F
F
F

Ans.

Item
S

d
b
d
d

Item
6.
7.
8.
9.
10.

25.
26.
27.
28.

Ans.

d
d
d
d

Item

29.
30.
S
31.
P
32.
S

Ans.

d
c
d
d

Ans.
T
F
F
T
F

Item

33.
34.
35.
36.

Ans.

a
c
d
a

Item
16.
17.
18.
19.
20.
Item

37.
38.
39.
40.

Ans.
F
T
F
T
F
Ans.

b
a
d
c

Item
S

41.
42.
P
43.
44.
S

Ans.

Item

Ans.

c
a
a
d

*45.
*46.
*47.
*48.

c
c
b
c

Solutions to those Multiple Choice questions for which the answer is none of these.
23. As receivables.
27. Many answers are possible.
28. Open accounts resulting from short-term extensions of credit to customers.
29. Open accounts resulting from short-term extensions of credit to customers.
39. Overstate, understate, understate, zero.

No.
49.

Answer
d

Derivation
$2,000,000 .11
=
$200,000 (.11 .05) =
Interest

$220,000
12,000
$232,000

$232,000 $2,000,000 = .116 = 11.6%.

50.

51.

52.

53.

$30,000 + $500 + $8,200 = $38,700.

54.

.01 360 20 = 18%.

$20,000 + $300 + $5,500 = $25,800.

55.

$540,000 + ($90,000 $40,000) = $590,000.

56.

$600,000 $62,500 = $537,500.

57.

($50,000 $4,000) ($4,500 $4,000) = $45,500.

58.

$8,000 $9,000 + X = $5,500; X = $6,500

59.

($425,000 $14,000) .02 = $8,220.

60.

($43,000 .10) $760 = $3,540.

61.

$60,000 $3,600 = $56,400.

62.

($24,000 .05) [$10,000 ($7,200 $2,100)] = $7,100.

63.

$288,000 .05 = $14,400.

64.

$80,000 $4,800 = $75,200.

65.

$480,000 .05 [$20,000 ($14,400 $4,200)] = $14,200

66.

$360,000 .05 = $18,000.

No.

Answer

Derivation

67.

7% and 7%.

68.

$30,000 1.75911 = $52,773.

69.

$335,000 $6,700 = $328,300.

70.

71.

$300,000 .03 = $9,000.

72.

($300,000 .03) + $1,500 = $10,500.

73.

($100,000 .03) + $2,400 = $5,400.

74.

($300,000 .03) + $7,200 = $16,200.

75.

$600,000 [($100,000 + $150,000) 2] = 4.8

76.

$900,000 [($100,000 + $150,000) 2] = 7.2

*77.

$250 $150 = $100.

*78.

$36,000 $12,000 + $4,000 + $500 = $28,500.

*79.

$39,140 + $5,000 $5,200 = $38,940.

*80.

$21,200 + $450 $900 + $1,450 = $22,200.

*81.

$45,000 + $940 $320 $90 + $18 = $45,548.

*82.

$30,000 + $5,400 $4,900 = $30,500.

No.

Answer

Derivation

83.

$75,000 $2,000 + $3,000 = $76,000.

84.

Allowance for Doubtful Acct. balance $34,000 + $5,000 $23,000 =

$16,000 (before bad debt expense)
$325,000 $300,000 $16,000 = $9,000 (bad debt expense).

85.

$69,000 $56,000 + $46,000 = $59,000.

86.

$90,000 + $13,000 $95,000 = $8,000.

87.
88.

c
d

Conceptual.
$750,000 .02 = $15,000.

89.

$400,000 .75 = $300,000 present value

$300,000 .10 = $30,000 (2006 interest)
($300,000 + $30,000) .10 = $33,000 (2007 interest).

90.

$300,000 12% 2 12 = $6,000.

91.

Conceptual.

*92.

$21,650 + $3,900 $2,750 = $22,800.

*93.

$37,200 + $46,700 $49,700 = $34,200 (4/30 balance per bank)

$34,200 $6,000 = $28,200.

1.
2.

(1)

(2)

d
a

3.
4.

d
a

5.
6.

d
c

7.
8.

b
d

9.
10.

Bad Debt Expense .............................................................

Allowance for Doubtful Accounts ............................
Gross receivables
$80,000
Rate
5%
Total allowance needed
4,000
Present allowance
(730)
Adjustment needed
$ 3,270

3,270

Bad Debt Expense .............................................................

Allowance for Doubtful Accounts ............................
Sales
$340,000
Sales returns and allowances
8,000
Net sales
332,000

3,320

c
a

3,270

3,320

Rate
Bad debt expense

1%
3,320

Cash ..............................................................................................
Finance Charge .............................................................................
Notes Payable ....................................................................

192,000
8,000

Cash ..............................................................................................
Accounts Receivable ..........................................................

130,000

Notes Payable ...............................................................................

Interest Expense ............................................................................
Cash ..................................................................................

130,000
1,500

(a)

(1)

(2)

200,000

130,000

131,500

Bad Debt Expense ........................................................

Allowance for Doubtful Accounts .......................
Gross receivables
$100,000
Rate
6%
Total allowance needed
6,000
Present allowance
(2,500)
Bad debt expense
$ 3,500

3,500

Bad Debt Expense ........................................................

Allowance for Doubtful Accounts .......................
Sales
$750,000
Sales returns and allowances
(40,000)
Net sales
710,000
Rate
1%
Bad debt expense
$ 7,100

7,100

3,500

7,100

(b) The percentage of receivables approach would be affected as follows:

Gross receivables
$100,000
Rate
6%
Total allowance needed
6,000
Present allowance
2,500
Additional amount required
$ 8,500
The journal entry is therefore as follows:
Bad Debt Expense ........................................................
Allowance for Doubtful Accounts .......................

8,500
8,500

The entry would not change under the percentage of sales method.

(a) Present value of interest

Present value of maturity value

=
=

$20,000 2.48685
$400,000 .75132

=
=

$ 49,737
300,528
$350,265

(b) Brown Company

Schedule of Note Discount Amortization
Effective Interest Method
5% Note Discounted at 10% (Imputed)

Date
12/31/07
12/31/08
12/31/09
12/31/10

Cash
Interest
(5%)

Effective
Interest
(10%)

$20,000
20,000
20,000
$60,000

$ 35,027
36,529
38,179*
$109,735

Discount
Amortized
$15,027
16,529
18,179
$49,735

Unamortized
Discount
Balance
$49,735
34,708
18,179
0

Present
Value
of Note
$350,265
365,292
381,821
400,000

*$3 adjustment to compensate for rounding.

(a) Cash .......................................................................................
Finance Charge........................................................................
Notes Payable ..............................................................

410,000
15,000

(b) Cash .......................................................................................

Sales Discounts .......................................................................
Allowance for Doubtful Accounts ..............................................
Accounts Receivable ....................................................

200,000
450
530

(c) Notes Payable ..........................................................................

Interest Expense ......................................................................
Cash .............................................................................

200,000
4,250

425,000

200,980

204,250

(a) Cash .............................................................................................

Due from Factor (2% $800,000).................................................
Loss on Sale of Receivables (6% $800,000)..............................
Accounts Receivable ....................................................

736,000
16,000
48,000

(b) Accounts Receivable ....................................................................

Due to Dexter .....................................................................
Financing Revenue .............................................................
Cash ..................................................................................

800,000

(c) Cash .............................................................................................

Due from Factor ..........................................................................
Loss on Sale of Receivables .........................................................
Accounts Receivable ..........................................................
Recourse Liability ...............................................................

736,000
16,000
62,000

800,000

16,000
48,000
736,000

(a) 1. Deposits in transit, $5,205 [$13,889 ($10,784 $2,100)]

2. Outstanding checks, $2,280 [$10,080 ($11,600 $3,800)]
(b) Adjusted cash balance at April 30, $30,920
($27,995 + $5,205 $2,280)
OR
($28,855 + $3,000 $35 $900)

800,000
14,000

True False AnswersConceptual

Item
1.
2.
3.
4.
5.

Ans.
Item
T
11.
F
12.
T
13.
F
14.
T
15.
Multiple Choice AnswersConceptual
Item

21.
22.
23.
24.
25.
26.

Ans.
T
F
F
F
T

Ans.

Item
6.
7.
8.
9.
10.

Item

d
b
a
d
d
a

27.
28.
29.
30.
31.
32.

Ans.

b
c
b
b
d
b

Item

33.
34.
35.
36.
37.
38.

Ans.

a
a
d
b
d
b

Ans.
T
F
F
T
T

Item

39.
40.
41.
42.
43.
44.

Item
16.
17.
18.
19.
20.

Ans.

Item

d
a
a
c
a
d

Ans.
F
F
T
F
T
Ans.

45.
46.
47.
48.
49.
50.

b
a
b
a
b
a

Item

51.
52.
53.
54.
55.
56.

Ans.

Item

Ans.

b
a
b
c
d
d

57.
58.
59.
60.
61.

d
a
a
d
c

Solutions to those Multiple Choice questions for which the answer is none of these.
24. Goods in transit which were purchased f.o.b. shipping point.
35. Assets and liabilities were understated but stockholders equity was not affected.
60. If LIFO is used for tax purposes, then it must also be used for external financial
reporting.

No.

Answer

Derivation

62.

$27,000 + $59,000 + $72,000 = $158,000.

63.

$27,000 + $59,000 + $92,000 = $178,000.

64.

[($10,000 $1,000) .02] = $180.

65.

[($30,000 $3,000) .02] = $540.

66.

$3,000 + $2,000 = $5,000.

67.

$6,000 ($3,000 + $2,000) = $1,000.

68.

The effect of the errors in ending inventories reverse themselves in the

following year.

69.

$260,000 + (4 $150,000) = $860,000.

70.

$1,200 ($1,200 .02) = $1,176.

71.

($16,000 $1,200) .02 = $296.

72.

73.

($29,310 + $20,600 + $28,917) (3,000 + 2,000 + 2,700) = $10.237/unit

$10.237 1,200 = $12,284.
Avg. on 1/6 $49,910 5,000 = $9.982/unit
1/26 $53,872 5,200 = $10.36/unit

$10.36 1,200 = $12,432.

74.

(100 $4.20) + (30 $4.40) = $552.

75.

100 + 350 + 70 130 = 390 units

(100 $4.20) + (290 $4.40) = $1,696.

76.

($60,000 $40,000) = $20,000.

77.

Available (purchases) = 6,500 units

Sales = 5,200 units
EI = 6,500 5,200 = 1,300 units
(800 $3.20) + (500 $3.10) = $4,110.

78.

(200 $3.2) + (400 $3.1) + (400 $3.4) + (300 $3.5) = $4,290.

Date
6/1
6/2
6/3

Purchase
(800 @ 3.2)
2,560
(2,200 @ 3.1)

(1,200 @ 3.3)

(1,600 @ 3.1)

4,960

(1,000 @ 3.3)

6/10

(200 @ 3.3)
(200 @ 3.1)
(1,800 @ 3.4)

3,300

1,280

6,120

6/18

6/22
6/25

1,920

3,960

6/9

6/15

(600 @ 3.2)
6,820

6/6
6/7

Sold

(1,400 @ 3.4) 4,760

(500 @ 3.5)

1,750
(200 @ 3.5)

700

Balance
(800 @ 3.2)
(200 @ 3.2)
(200 @ 3.2)
(2,200 @ 3.1)
(200 @ 3.2)
(600 @ 3.1)
(200 @ 3.2)
(600 @ 3.1)
(1,200 @ 3.3)
(200 @ 3.2)
(600 @ 3.1)
(200 @ 3.3)
(200 @ 3.2)
(400 @ 3.1)
(200 @ 3.2)
(400 @ 3.1)
(1,800 @ 3.4)
(200 @ 3.2)
(400 @ 3.1)
(400 @ 3.4)
(500 @ 3.5)
(200 @ 3.2)
(400 @ 3.1)
(400 @ 3.4)
(300 @ 3.5)

2,560
640
7,460
2,500
6,460

3,160

1,880
8,000

3,240
4,990

4,290

79.

(500 $3.5) + (800 $3.4) = $4,470.

80.

81.

$21,210 6,500 units = $3.26

$3.26 1,300 = $4,238.
(400 $10) $1,600 = $2,400 COGS
[(500 $4) + $2,800] $2,400 = $2,400 E.I.
($4,800 800) 400 units = $2,400 E.I. under weighted avg.

82.

(600 $10) $2,100 = $3,900 COGS

[(500 $5) + $2,400] $3,900 = $1,000 E.I.
200 $5 = $1,000 E.I. under LIFO.

83.

$450,000 + ($90,000 $60,000) = $480,000.

84.

$600,000 + ($120,000 $80,000) = $640,000.

85.

[(700 600) ($6 $4)] = $200.

86.

[(700 600) ($9 $6)] = $300.

87.

$143,360 1.12 = $128,000 $100,000 = $28,000.

$100,000 + ($28,000 1.12) = $131,360.

88.

$100,000 + $600,000 $131,360 = $568,640 COGS

$1,000,000 $568,640 = $431,360.

89.

$126,500 1.10 = $115,000 $100,000 = $15,000.

$100,000 + ($15,000 1.10) = $116,500.

90.

$100,000 + $600,000 $116,500 = $583,500 COGS

$1,000,000 $583,500 = $416,500.

91.

$256,800 1.07 = $240,000

$220,000 + [(240,000 $220,000) 1.07] = $241,400.

92.

$290,000 1.25 = $232,000

($220,000 1) + ($12,000 1.07) = $232,840.

93.

$325,000 1.30 = $250,000

($220,000 1) + ($12,000 1.07) + ($18,000 1.3) = $256,240.

94.

[(2,000 $6) + (10,000 $5.75) + (7,000 $17)] [(12,000 $5) +

(7,000 $16)] = 1.0959 = 109.59%.

No.

Answer

Derivation

95.

Conceptual.

96.

$300,000 + $8,000 $2,000 = $306,000.

97.

98.

$130,000 + $14,000 + $575,000 + $70,000 + $10,000 + $5,000

$145,000 $20,000 = $639,000.
$800,000 + $350,000 + $147,000 = $1,297,000.

99.

$700,000 + $40,000 + $30,000 = $770,000.

100.

$1,500,000 + $70,000 + $50,000 = $1,620,000.

101.

$50,000 .8 .9 = $36,000.

102.

$20,000 .7 .8 = $11,200
($11,200 .98) + 400 = $11,376.

103.

[(1,600 $8.00) + (4,000 $9.40)] 5,600 = $9.00.

104.

Conceptual.

105.

Conceptual.

106.

(450 $42) + (150 $44) = $25,500.

107.

Conceptual.

108.

$440,000 1.1 = $400,000

$320,000 + ($80,000 1.1) = $408,000.

(a) Inventory (.98 $900) ..............................................................

Accounts Payable .........................................................

882

(b) Accounts Payable ....................................................................

Purchase Discounts Lost ..........................................................
Cash .............................................................................

882
18

June 11 Purchases (.98 $5,000) .............................................

Accounts Payable .............................................
15 Accounts Payable (.98 $800) .....................................
Purchase Returns and Allowances ....................
30 Purchase Discounts Lost (.02 $4,200) .......................
Accounts Payable .............................................

4,900

(a) 700 @ $30 =

300 @ $36 =

$21,000
10,800
$31,800

(b) 800 @ $36 =

200 @ $30 =

$28,800
6,000
$34,800

(a) 70 @ $6.00 =
50 @ $5.40 =

$420
270
$690

(b)

70 @ $6.00 = $ 420

882

900

4,900
784
784
84
84

280 @ $5.40 =

1,512
$1,932

100 @ $4.20 = $ 420

200 @ $4.10 =
820
100 @ $4.40 =
440
500 @ $4.55 =
2,275
$3,955
(a)

400 @ $2.50 =
440 @ $2.60 =
600 @ $2.75 =
1,440

$1,000
1,144
1,650
$3,794

(b)

400 @ $2.50 =
460 @ $2.60 =
860

$1,000
1,196
$2,196

Five thousand more units were sold than were purchased. This has resulted in the partial
liquidation of the beginning LIFO inventory layers. Assuming rising prices, the increased rate of
gross profit is most likely due to the matching of old, lower inventory costs against current sales.
Computations
Units sold: $1,800,000 $40 = 45,000
Units purchased: $960,000 $24 = 40,000
Part A.
Computation of Ending Inventory, Year One
Ending Inventory
Layers at
at Base-Year Price
Base-Year Prices
Price Index
$363,000 1.10 = $330,000
$300,000

1.00
=
$30,000

1.10
=

Ending Inventory
at Dollar-Value LIFO
$300,000
33,000
$333,000

Part B.
Computation of Ending Inventory, Year Two
Ending Inventory
Layers at
at Base-Year Price
Base-Year Prices
Price Index
$437,000 1.15 = $380,000
$300,000

1.00
=
$30,000

1.10
=
$50,000

1.15
=

Inventory per books

Add: Shipment received 12/30/06
TVs on hand

Deduct:

TVs recorded twice

TVs shipped 12/28/06

Ending Inventory
at Dollar-Value LIFO
$300,000
33,000
57,500
$390,500
$28,500

$12,000
6,100

4,600
10,000

18,100
46,600

14,600

Correct inventory 12/31/06

$32,000

1.
2.
3.
4.

NE
NE
U
U

NE
O
O
NE

O
O
NE
NE

NE
NE
U
U

O
NE
U
NE

(a) Purchases ............................................................................................ 294,000

Accounts Payable .....................................................................
(To record the purchase at net amount:
.98 $300,000 = $294,000.)
Accounts Payable ................................................................................ 235,200
Cash .........................................................................................
(To record payment within the discount period:
$300,000 $60,000 = $240,000; .98 $240,000 = $235,200.)
Accounts Payable ................................................................................
Purchase Discounts Lost ......................................................................
Cash .........................................................................................
(To record the final payment.)
(b) (1) Net method:
Purchases:
Final inventory: 10% $294,000 =
Cost of goods sold: 90% $294,000 =

294,000

235,200

58,800
1,200
60,000

$294,000
29,400
$264,600

(The $1,200 discount lost is reported in the other expense section of the income statement.)
(2) Gross method:
Purchases:
Less purchase discounts:
.02 $240,000 =
Goods available
Final inventory:
10% $295,200 =
Cost of goods sold:
90% $295,200 =

$300,000
4,800
295,200
29,520
$265,680

(Assuming that the $4,800 discount is

prorated between the cost of goods sold,
90%, and the final inventory, 10%.)

(a)

OR

Purchases:
Less purchase discounts:
.02 $240,000 =
Goods available
Final inventory:
10% $300,000 =
Cost of goods sold:
$295,200 $30,000 =

$300,000
4,800
295,200
30,000
$265,200

(Assuming that the $4,800 discount is used

to reduce cost of goods sold. Final inventory
is carried at the gross amount.)

Flynt Company
COMPUTATION OF INVENTORY FOR PRODUCT X
UNDER FIFO INVENTORY METHOD
March 31, 2007

March 15, 2007

February 16, 2007
March 31, 2007, inventory

Units
1,800
700
2,500

Unit Cost
$23.00
22.00

Total Cost
$41,400
15,400
$56,800

(b)

Flynt Company
COMPUTATION OF INVENTORY FOR PRODUCT X
UNDER LIFO INVENTORY METHOD
March 31, 2007

Beginning inventory
January 5, 2007 (portion)
March 31, 2007, inventory

Units
1,600
900
2,500

Unit Cost
$18.00
20.00

Total Cost
$28,800
18,000
$46,800

Solution 8-121 (cont.)

(c)

Flynt Company
COMPUTATION OF INVENTORY FOR PRODUCT X
UNDER WEIGHTED-AVERAGE INVENTORY METHOD
March 31, 2007
Beginning inventory
January 5, 2007
January 25, 2007
February 16, 2007
March 15, 2007

Units
1,600
2,600
2,400
1,000
1,800
9,400

Weighted average cost ($194,600 9,400)

March 31, 2007, inventory

Unit Cost
$18.00
20.00
21.00
22.00
23.00

Total Cost
$ 28,800
52,000
50,400
22,000
41,400
$194,600

$20.70
2,500

$20.70

$51,750