On December 1, 2014, Flip Distributing Company had the following account balances. No additional owner investments or withdrawals were made during 2014.
Accu. Depn., Equipment
Salaries & Wages Payable
During December, the company completed the following transactions. All end-of-the month adjusting entries were made on November 30, 2014.
Paid $1,600 for salaries and wages due employees, of which $600 is for December and $1,000 is for November salaries and wages payable.
Received $1,900 cash from customers in payment of account (no discount allowed).
Sold merchandise for cash $6,300. The cost of the merchandise sold was $4,100.
Purchased merchandise on account from Flim Co. $9,000, terms 2/10, n/30.
Purchased supplies for cash $2,000.
Sold merchandise on account $12,000, terms 3/10, n/30. The cost of the merchandise sold was $8,000.
Paid salaries and wages $1,800.
Paid Flim Co. in full, less discount.
Received collections in full, less discounts, from customers billed on December 18.
December adjusting entry data:
1. Accrued salaries and wages payable $800.
2. Depreciation $200 per month.
3. Supplies on hand $1,500.
Prepare in journal form, without explanations, the December transactions using a perpetual inventory system.
Prepare in journal form, without explanations, the December adjusting entries.
Prepare a December adjusted trial balance.
Prepare a classified balance sheet for year ending December 31, 2014.
Prepare in journal form, without explanation, 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: 14% points:
The following information is available for Flip Company:
Beginning inventory600 units at $5
First purchase900 units at $6
Second purchase500 units at $7.25
Assume that Flip uses a periodic inventory system and that there are 700 units left at the end of the month. (Round all final answers to the nearest dollar.)
a. Compute the cost of goods available for sale.
b. Compute the value of ending inventory and Cost of Good Sold under the
(1) LIFO method.
(2) FIFO method.
(3) Average-cost method
Question 3: 5% points:
Flip’s Supply Co. has the following transactions related to notes receivable during the last 2 months of 2014.
Nov. 1Loaned $20,000 cash to Flop on a 1-year, 12% note.
Dec. 11Sold goods to Flim, Inc., receiving a $11,700, 90-day, 8% note.
16Received an $12,000, 6-month, 9% note in exchange for Flam’s outstanding accounts receivable.
31Accrued interest revenue on all notes receivable.
(a)Journalize the transactions for Flip’s Supply Co.
(b)Record the collection of the Flop note at its maturity in 2015.
Question 4: 9% points:
Flip Company purchased equipment on July 1, 2011 for $90,000. It is estimated that the equipment will have a $5,000 salvage value at the end of its 4-year useful life. It is also estimated that the equipment will produce 100,000 units over its 4-year life.
Answer the following independent questions.
1.Compute the amount of depreciation expense for the year ended December 31, 2011, using the straight-line method of depreciation.
2.If 10,000 units of product are produced in 2011 and 26,000 units are produced in 2012, what is the book value of the equipment at December 31, 2012? The company uses the units-of-activity depreciation method.
3.If the company uses the double-declining-balance method of depreciation, what is the balance of the Accumulated Depreciationâ€”Equipment account at December 31, 2013?
Question 5: 7% points:
Flip earns a salary of $7,500 per month during the year. FICA taxes are 8% on the first $100,000 of gross earnings. Federal unemployment insurance taxes are 6.2% of the first $7,000; however, a credit is allowed equal to the state unemployment insurance taxes of 5.4% on the $7,000. During the year, $25,600 was withheld for federal income taxes and $5,700 was withheld for state income taxes.
(a)Prepare a journal entry summarizing the payment of Flipâ€™s total salary during the year.
(b)Prepare a journal entry summarizing the employer payroll tax expense on Flipâ€™s salary for the year.
(c)Determine the cost of employing Flip for the year.
Multiple choice questions allocated 1% point each. Make your selection by recording the letter in the answer box provided.
Question 6: Which of the following are the same under both GAAP and IFRS?
c.The chart of accounts.
d.All of the above.
e.Only a & c.
Question 7: Which of the following is true?
a.Transaction analysis is completely different under IFRS and GAAP.
b.Most transactions are recorded differently under IFRS and GAAP.
c.Transaction analysis is the same under IFRS and GAAP, but some transactions are recorded differently.
d.All transactions are recorded the same under IFRS and GAAP.
Question 8: Revenue recognition under IFRS is
a.substantially different from revenue recognition under GAAP.
b.generally the same as revenue recognition under GAAP, but with more detailed guidance.
c.generally the same as revenue recognition under GAAP, but with less detailed guidance.
d.exactly the same as revenue recognition under GAAP.
Question 9: Both IFRS and GAAP require disclosure about
a.accounting policies followed.
b.judgements that management has made in the process of applying the entity’s accounting policies.
c.the key assumptions and estimation uncertainty.
d.all of the above.
e.only b & c.
Question 10: The use of fair value to report assets
a.is not allowed under GAAP or IFRS.
b.is required by GAAP and IFRS.
c.is increasing under GAAP and IFRS, but GAAP has adopted it more broadly.
d.is increasing under GAAP and IFRS, but IFRS has adopted it more broadly.
Question 11: Closing entries are made
a.in order to terminate the business as an operating entity.
b.so that all assets, liabilities, and owner’s capital accounts will have zero balances when the next accounting period starts.
c.in order to transfer net income (or loss) and owner’s drawings to the owner’s capital account.
d.so that financial statements can be prepared.
Question 12: Flip Company purchased merchandise from Flop Company with freight terms of FOB shipping point. The freight costs will be paid by the
d.buyer and the seller.
Question 13: A Sales Returns and Allowances account is not debited if a customer
a.returns defective merchandise.
b.receives a credit for merchandise of inferior quality.
c.utilizes a prompt payment incentive.
d.returns goods that are not in accordance with specifications.
Question 14: Which of the following statements is incorrect?
a.A major consideration in developing an accounting system is cost effectiveness.
b.When an accounting system is designed, no consideration needs to be given to the needs and knowledge of the various users.
c.The accounting system should be able to accommodate a variety of users and changing information needs.
d.To be useful, information must be understandable, relevant, reliable, timely, and accurate.
Question 15: Flip is warehouse custodian and also maintains the accounting record of the inventory held at the warehouse. An assessment of this situation indicates
a.documentation procedures are violated.
b.independent internal verification is violated.
c.segregation of duties is violated.
d.establishment of responsibility is violated.
Question 16: Cash equivalents include each of the following except
a.bank certificates of deposit.
b.money market funds.
d.U.S. Treasury bills.
Question 17: Flip Company is building a new plant that will take three years to construct. The construction will be financed in part by funds borrowed during the construction period. There are significant architect fees, excavation fees, and building permit fees. Which of the following statements is true?
a.Excavation fees are capitalized but building permit fees are not.
b.Architect fees are capitalized but building permit fees are not.
c.Interest is capitalized during the construction as part of the cost of the building.
d.The capitalized cost is equal to the contract price to build the plant less any interest on borrowed funds.
Question 18: Depreciation is the process of allocating the cost of a plant asset over its service life in
a.an equal and equitable manner.
b.an accelerated and accurate manner.
c.a systematic and rational manner.
d.a conservative market-based manner.
Question 19: Sales taxes collected by a retailer are expenses
a.of the retailer.
b.of the customers.
c.of the government.
d.that are not recognized by the retailer until they are submitted to the government.
Question 20: Flipâ€™s Market recorded the following events involving a recent purchase of merchandise:
Received goods for $50,000, terms 2/10, n/30.
Returned $1,000 of the shipment for credit.
Paid $250 freight on the shipment.
Paid the invoice within the discount period.
As a result of these events, the companyâ€™s inventory increased by
Question 21: A $100 petty cash fund has cash of $16 and receipts of $81. The journal entry to replenish the account would include a
a.debit to Cash for $81.
b.credit to Petty Cash for $84.
c.debit to Cash Over and Short for $3.
d.credit to Cash for $81.
Question 22: In preparing its bank reconciliation for the month of April 2013, Flip, Inc. has available the following information.
Balance per bank statement, 4/30/13$39,300
NSF check returned with 4/30/13 bank statement470
Deposits in transit, 4/30/135,000
Outstanding checks, 4/30/135,200
Bank service charges for April30
What should be the adjusted cash balance at April 30, 2013?
Question 23: If a check correctly written and paid by the bank for $591 is incorrectly recorded on the companyâ€™s books for $519, the appropriate treatment on the bank reconciliation would be to
a.deduct $72 from the bookâ€™s balance.
b.add $72 to the bookâ€™s balance.
c.deduct $72 from the bankâ€™s balance.
d.deduct $591 from the bookâ€™s balance.
Question 24: Flip Company had net credit sales during the year of $1,200,000 and cost of goods sold of $720,000. The balance in accounts receivable at the beginning of the year was $180,000, and the end of the year it was $120,000. What was the accounts receivable turnover ratio?
Question 25: The financial statements of Flip Manufacturing Company report net sales of $400,000 and accounts receivable of $80,000 and $40,000 at the beginning and end of the year, respectively. What is the average collection period for accounts receivable in days?
Question 26: Flip Company purchases a new delivery truck for $60,000. The sales taxes are $4,000. The logo of the company is painted on the side of the truck for $1,600. The truck license is $160. The truck undergoes safety testing for $290. What does Flip record as the cost of the new truck?
Question 27: A company purchased factory equipment on April 1, 2012 for $80,000. It is estimated that the equipment will have an $10,000 salvage value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2012 is
Question 28: Flip’s Boutique has total receipts for the month of $30,660 including sales taxes. If the sales tax rate is 5%, what are Flip’s sales for the month?
d.It cannot be determined.
Question 29: Flip Electric began operations in 2012 and provides a one year warranty on the products it sells. They estimate that 10,000 of the 200,000 units sold in 2012 will be returned for repairs and that these repairs will cost $8 per unit. The cost of repairing 8,000 units presented for service in 2012 was $64,000. Flip should report
a.warranty expense of $16,000 for 2012.
b.warranty expense of $80,000 for 2012.
c.warranty liability of $80,000 on December 31, 2012.
d.no warranty obligation on December 31, 2012, since this is only a contingent liability.
Question 30: Partners Flip and Flop have capital balances in a partnership of $80,000 and $120,000, respectively. They agree to share profits and losses as follows:
As interest on capital at the beginning of the year10%10%
Remaining profits or losses50%50%
If income for the year was $60,000, what will be the distribution of income to Flip?