Reference no: EM132461775

Question 1 - Fill in the blanks:

Sales Revenue $800

Beginning Inventory $100

Purchases $700

Available for Sale ?

Ending Inventory $500

Cost of Goods Sold ?

Gross Profit ?

Operating Expenses $200

Net Income ?

Question 2 - Assume you serve on the board of a local golf and country club. In preparation for renegotiating the club's bank loans, the president indicates that the club needs to increase its operating cash flows before the end of the current year. The club's treasurer reassures the president and other board members that he knows a couple of ways to boost the club's operating cash flows. First, he says, the club can sell some of its accounts receivable to a collections company that is willing to pay the club $97,000 up front for the right to collect $1 00,000 of the overdue accounts. That will immediately boost operating cash flows. Second, he indicates that the club paid about $200,000 last month to relocate the 18th fairway and green closer to the clubhouse. The treasurer indicates that although these costs have been reported as expenses in the club's own monthly financial statements, he feels an argument can be made for reporting them as part of land and land improvements (a long-lived asset) in the year-end financial statements that would be provided to the bank. He explains that, by recording these payments as an addition to a long-lived asset, they will not be shown as a reduction in operating cash flows.

Required -

1. Does the sale of accounts receivable to generate immediate cash harm or mislead anyone? Would you consider it an ethical business activity?

2. What category in the statement of cash flows is used when reporting cash spent on long-lived assets, such as land improvements? What category is used when cash is spent on expenses, such as costs for regular upkeep of the grounds?

3. What facts are relevant to deciding whether the costs of the 18th hole relocation should be reported as an asset or as an expense? Is it appropriate to make this decision based on the impact it could have on operating cash flows?

4. As a member of the board, how would you ensure that an ethical decision is made?

Question 3 - Following is the adjusted trial balance of Post Company. Based on this information prepare a Balance Sheet, Income Statement and Statement of Retained Earnings. (You will also use this information in another problem).

POST COMPANY ADJUSTED TRIAL BALANCE

Debit Credit

Cash 80,000

Accounts Receivable 12,000

Prepaid Insurance 2,000

Equipment 4,000

Accumulated Depreciation 100

Supplies 400

Accounts Payable 800

Wages Payable 200

Unearned Revenue 1,200

Contributed Capital 82,400

Retained Earnings 0

Sales 16,000

Gas Expense 200

Supply Expense 400

Insurance Expense 400

Depreciation Expense 100

Wage Expense 200

Dividends 1,000

100,700 100,700

Required - Explain the closing entry process AND prepare the closing entries in journal form based on the information from the Post Company Problem.

Question 5 - SMITH INC. BANK RECONCILIATION

Cash balance per bank $8,200

Cash balance per books (general ledger) $6,500

Outstanding checks $2,460

Check mailed to the bank for deposit had not reached the bank by the statement date. $500

NSF check returned by the bank for accounts receivable $100

July interest earned on the bank statement $20

Check no. 700 for misc. expense cleared the bank for $200; erroneously recorded in the Matrix books for $20

Required - Prepare a bank reconciliation. Show the accounting entries that must be made in journal or t-account format.