Reference no: EM131160961

Principles of Accounting- Section 1

Question 1:

Flip Company's December 31, 2014 trial balance is as follows:

Flip Corporation Trial Balance December 31, 2014
Account	Debit	Credit
Cash	$43,500
Accounts Receivable	54,500
Allowance for Doubtful Accounts		500
Notes Receivable	30,000
Merchandise Inventory	55,000
Land	20,500
Building	150,000
Accumulated Depreciation, Building		$15,000
Equipment	50,000
Accumulated Depreciation, Equipment		21,000
Goodwill	26,000
Accounts Payable		24,500
Long Term Notes Payable		75,000
Common Stock, $10 par, 2,000 shares authorized & outstanding		20,000
Retained Earnings		147,000
Sales Revenue		700,000
Salaries Expense	150,000
Utilities Expense	3,500
Cost of Goods Sold	350,000
Administrative Expenses	55,000
Sales Expenses	15,000	_______
Totals	$1,003,000	$1,003,000

Flip is a small company and records adjusting entries & closing entries only at fiscal (calendar) year end. Correcting and adjusting entries have not been recorded.

Additional Information:

a. Notes Receivable is a 3-months, 6% note accepted on December 1, 2014.
b. Long Term Notes Payable is a 5-year, 5% note that was signed on July 1, 2014. Interest is payable annually.
c. Building is depreciated at 3% per year. There is no salvage value.
d. Equipment is depreciated at 15% year. There is no salvage value.
e. Flip discovered, on December 30th, that the inexperienced bookkeeper recorded in the general journal and general ledger that day's $1,500 cash sales as a debit to Accounts Receivable and a credit to Sales Revenue.
f. The year-end physical count for Merchandise Inventory reflected a value of $52,500. Any difference in value is treated as shrinkage, and is included as part of Cost of Goods Sold.
g. Salaries for the last half of December, payable in January, amount to $6,500.
h. Flip determined that the balance in the Allowance for Doubtful Accounts should be $2,650 after an aging of A/R schedule was completed.

Required:

1a. Prepare in journal form, any required correcting entries for Flip Corporation (There is only one)

1b. Prepare in journal form, all end-of-the period adjusting entries for Flip Corporation (There are 7)

1c. Prepare a December adjusted trial balance for Flip Corporation.

NOTE: Students are encouraged to prepare their own T-accounts, on a separate scratch sheet of paper, and track from the beginning balance thru all journal transactions to ending balances for all accounts used in this problem. Do not turn in your separate scratch sheet of paper - those are student personal working papers and not part of any solution required for this exam.

Question 1 (continued) - New Company for Parts d and e

Below is a Correct Adjusted Trial Balance for the year ended December 31, 2014, for Emily's Dress Shop, Inc.

1d. Prepare a classified balance sheet in good form, for the year ended December 31, 2014 for Emily's Dress Shop, Inc. (9 points)

1e. Prepare in journal form, the closing entries for the year ended December 31, 2014 (No Dividends) for Emily's Dress Shop, Inc. (6 points)

Emily's Dress Shop, Inc. Adjusted Trial Balance December 31, 2014
Account Titles	Debit	Credit
Cash	81,000
Accounts Receivable	95,400
Allowance for Doubtful Accounts		4,770
Interest Receivable	270
Notes Receivable (Due in 3 months)	54,000
Merchandise Inventory	94,500
Land	36,900
Building	270,000
Accumulated Depreciation, Building		35,100
Equipment	90,000
Accumulated Depreciation, Equipment		51,300
Goodwill	46,800	0
Accounts Payable		44,100
Salaries Payable		11,700
Interest Payable		3,375
Long Term Notes Payable		135,000
Common Stock		36,000
Retained Earnings		264,600
Sales Revenue		1,260,000
Interest Revenue		270
Cost of Goods Sold	634,500
Salaries Expense	281,700
Utilities Expense	6,300
Administrative Expenses	99,000
Sales Expenses	27,000
Depreciation Expense	21,600
Interest Expense	3,375
Bad Debt Expense	3,870
Totals	1,846,215	1,846,215

Question 2: Inventory

Flip uses the periodic method and had the following inventory events during January:

Date	Units Purchased	Unit Cost	Date	Units Sold	Unit Sales Price
Jan. 1	150	$7.00	Jan. 2	100	$10.00
Jan. 5	225	7.25	Jan. 7	125	10.00
Jan. 10	100	7.50	Jan. 12	75	12.00
Jan. 15	150	7.50	Jan. 17	200	12.00
Jan. 20	200	7.75	Jan. 24	150	15.00
Jan. 25	150	8.00
Jan. 30	75	8.25

Note: January 1 amount was the beginning inventory and unit value.

(Round all total dollar values to the nearest dollar. Round all unit values to the nearest penny.)

Required:

a. Calculate cost of goods available for sale.
b. Calculate the dollar value of sales.
c. Calculate the value of Ending Inventory and Cost of Goods Sold under the following independent assumptions:

1) LIFO method
2) FIFO method
3) Average-cost method

Question 3:

Required: Prepare Flip's Supply Co. general journal entries for the following transactions:

Jan. 1	Accepted a customer's (Franks Co) 120 day, 10% note, as settlement of an outstanding $15,000 account receivable for goods sold last year (assume 30 days in January)
Jan. 15	Purchased $10,000 in equipment from Edwards Equipment, signing a 9 month, 12% note (15 days in January)
Jan. 25	Loaned Douglas Co. $30,000 cash, accepting a 90 days, 10% note (6 days in January)
Jan. 31	Prepared accrual adjusting entry for any interest revenue and interest expense. Use the 360-day calendar.
Apr. 25	Received payment in full from Douglas Co. for outstanding note & interest
May 1	Received payment in full from Franks Co. for outstanding note & interest
Oct. 15	Paid Edwards Equipment in full

Question 4:

Flip Company purchased a refrigerated delivery truck for $65,000 on April 1, 2016. The plan is to use the truck for 4 years and then replace it. At the end of its useful life the truck is expected to have a salvage value of $10,000.

a. Prepare the depreciation table for Flip's truck assuming that the company uses the straight-line method for depreciation.

b. Prepare the depreciation table for Flip's truck assuming that the truck was purchased on January 1, 2016 and the company uses the double-declining-balance depreciation method.

c. Compute the depreciation expense for 2016 for Flip's truck assuming the truck has an expected life of 200,000 miles and during 2016 the truck was driven 24,540 miles. Round your depreciation expense per mile to three decimal places.

Question 5:

Medina Company received its February bank statement on March 6. The statement showed a balance of $316,500. Included on the statement were memoranda showing collections from Medina customers (A/R), totaling $16,000.

The statement also showed a returned check for a customer who paid the balance on his account, for $2,825. The bank charged a returned check fee of $75 for this NSF check. This $75 charge will be added to the customer's balance. There were other service charges for the monthly service charge and ATM fees, totaling $200. These are bank service charge expenses. Medina's accountant looked at her accounting records. At the end of February, the cash balance was $312,300. The statement did not reflect a deposit made late on February 28th, for $14,900. There were also some outstanding checks, totaling $6,200.

Required:

a. Determine the adjusted balance in the cash account after completing a bank reconciliation.
b. Prepare three journal entries needed due to the reconciliation.

Question 6:

Flip Company at the end of the fiscal 2014 year has the following information: Credit Sales, $2,500,000 Sales Returns & Allowances $25,000 Accounts Receivable $200,000 and Allowance for Doubtful Accounts with a credit of $1,500.

Required:

a. Prepare the general journal entry to record the end of the year adjusting entry if Flip uses 0.5% of Net Credit Sales as the basis for determining Bad Debt Expense.

b. Prepare the general journal entry to record the end of the year adjusting entry if Flip uses 5% of Accounts Receivable as the basis for determining Bad Debt Expense.