Reference no: EM13926015

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:

a. Prepare in journal form, any required correcting entries

b. Prepare in journal form, all end-of-the period adjusting entries

c. Prepare a December adjusted trial balance

d. Prepare a classified balance sheet for the year ended December 31, 2014 (remember balance updates)

e. Prepare in journal form, the closing entries for the year ended December 31, 2014

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 2:

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 Good 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.

Question 7: When the stockholders invest cash in the business, what is the effect?

a Liabilities increase and stockholders' equity increases
b Both assets and liabilities increase
c Both assets and stockholders' equity increase
d None of the above

Question 8: The ending balance in retained earnings is shown in the:

a. Income statement
b. Statement of retained earnings
c. Balance sheet
d. Both (b) and (c)
e. Both (a) and (c)
f. (a), (b) and (c)

Question 9: A cash dividend of $500 was declared and paid to stockholders. The correct journal entry to record the dividend payment is:

a. DR Capital stock 500 and CR Cash 500
b. DR Cash 500 and CR Dividends Payable 500
c. DR Dividends Payable 500 and CR Cash 500
d. DR Cash 500 and CR Capital stock 500

Question 10: If $3,000 has been earned by a company's workers since the last payday in an accounting period, the necessary adjusting entry would be:

a. Debit an expense and credit a liability.
b. Debit an expense and credit an asset.
c. Debit a liability and credit an asset.
d. Debit a liability and credit an expense.

Question 11: The accrual basis of accounting:

a. Recognizes revenues only when cash is received
b. Is used by almost all companies
c. Recognizes expenses only when cash is paid out
d. Recognizes revenues when sales are made or services are performed and recognizes expenses only when cash is paid out.

Question 12: The need for adjusting entries is based on:

a. The matching principle
b. Source documents
c. The cash basis of accounting
d. Activity that has already been recorded in the proper accounts.

Question 13: Which of the following statements is false regarding the closing process?

a. The Dividends account is closed to Income Summary.
b. The closing of expense accounts results in a debit to Income Summary.
c. The closing of revenues results in a credit to Income Summary.
d. The Income Summary account is closed to the Retained Earnings account.

Question 14: Which of the following statements is true regarding the classified balance sheet?

a. Current assets include cash, accounts receivable, and equipment.
b. Plant, property, and equipment is one category of long-term assets.
c. Current liabilities include accounts payable, salaries payable, and notes receivable.
d. Stockholders' equity is subdivided into current and long-term categories.

Question 15: The underlying assumptions of accounting includes all the following except:

a. Business entity
b. Cost-benefit
c. Matching
d. Money measurement and periodicity

Question 16: Frick Company began the accounting period with $60,000 of merchandise, and net cost of purchases was $240,000. A physical inventory showed $72,000 of merchandise unsold at the end of the period. The cost of goods sold of Frick Company for the period is:

a. $300,000
b. $228,000
c. $252,000
d. $168,000
e. None of the above

Question 17: A classified income statement consists of all of the following major sections except for:

a. Operating revenues
b. Cost of goods sold
c. Operating expenses
d. Non-operating revenues and expenses
e. Current assets

Question 18: A business purchased merchandise for $12,000 on account; terms are 2/10, n/30. If $2,000 of the merchandise was returned and the remaining amount due was paid within the discount period, the purchase discount would be:

a. $240
b. $200
c. $1,200
d. $1,000
e. $3,600

Question 19: Frick Company began the accounting period with inventory of 3,000 units at $30 each. During the period, the company purchased an additional 5,000 units at $36 each and sold 4,600 units. Assume the use of periodic inventory procedure. The cost of ending inventory using weighted-average is:

a. $114,750
b. $157,600
c. $122,400
d. $109,650
e. None of the above

Question 20: Frick Company began the accounting period with inventory of 3,000 units at $30 each. During the period, the company purchased an additional 5,000 units at $36 each and sold 4,600 units. Assume the use of periodic inventory procedure. The cost of goods sold using weighted-average is:

a. $147,200
b. $160,350
c. $155,250
d. $114,000
e. None of the above

Question 21: During a period of rising prices, which inventory method might be expected to give the highest net income?

a. Weighted-average
b. FIFO
c. LIFO
d. Specific identification
e. Cannot determine

Question 22: Which of the following should be journalized as part of a bank reconciliation?

a. NSF checks
b. Deposits in transit
c. Outstanding checks
d. Beginning cash balance on the books
e. None of the above
f. All of the above

Question 23: In a bank reconciliation, deposits in transit should be:

a. Deducted from the balance per books
b. Deducted from the balance per bank statement
c. Added to the balance per books
d. Added to the balance per bank statement
e. Disregarded in the bank reconciliation

Question 24: After the bank reconciliation is prepared, the entry to record bank service charges would have a credit to:

a. Bank Service Charge Expense
b. Cash
c. Petty Cash
d. Cash Short and Over
e. None of the above

Question 25: Frick Company estimates uncollectible accounts using the percentage-of-receivables method and expects that 5 percent of outstanding receivables will be uncollectible for 2010. The balance in Accounts Receivable is $200,000, and the allowance account has a $3,000 credit balance before adjustment at year-end. The uncollectible accounts expense for 2010 will be:

a $7,000
b. $10,000
c. $13,000
d. $9,850
e. None of the above

Question 26: Laramie Corporation issued a Note Receivable in November of last year. The note was repaid in April of this year. If appropriate adjusting entries were made at year-end, which accounts would be credited in April?

a. Cash, Notes Receivable and Interest Revenue
b. Notes Receivable and Interest Revenue
c. Notes Receivable, Interest Receivable and Interest Revenue
d. Notes Receivable, Notes Payable, Interest Revenue and Interest Payable

Question 27: On 2010 July 1, Frick Company purchased equipment for $400,000, and installation and testing costs totaled $40,000. The equipment has an estimated useful life of 10 years and an estimated salvage value of $40,000. If Frick uses the double-declining-depreciation method, the depreciation expense for ½ of 2010 is:

a. $88,000
b. $72,000
c. $36,000
d. $44,000
e. $40,000

Question 28: The result of recording a capital expenditure (asset purchase) as a revenue expenditure (operating expense) is an:

a. Overstatement of current year's expense
b. Understatement of current year's expense
c. Understatement of subsequent year's net income
d. Overstatement of current year's net income
e. None of the above

Question 29: A truck costing $45,000 and having an estimated salvage value of $5,000 and an original life of five years is exchanged for a new truck. The truck was sold after 3.5 years for $12,900. Based on this information, which of the following statements is true?

a. The company would record a loss of $4,100
b. The company would record a gain of $4,100
c. The company would show a balance in the truck account of $17,000 after the sale
d. The salvage value should be added to the $12,900 to determine the amount to record for the sale

Question 30: Which of the following is not an advantage of the corporate form of organization?

a. Continuous existence of the entity
b. Limited liability of stockholders
c. Government regulation
d. Easy transfer of ownership

Question 31: Treasury stock should be shown on the balance sheet as a(n):

a. Reduction of the corporation's stockholders' equity
b. Current asset
c. Current liability
d. Investment asset