Deck 5: Accounting for and Presentation of Current Assets

Question 1

Bank reconciliation Prepare a bank reconciliation as of October 31 from the following information:
a. The October 31 cash balance in the general ledger is $1,688.
b. The October 31 balance shown on the bank statement is $746.
c. Checks issued but not returned with the bank statement were No. 462 for $26 and No. 483 for $100.
d. A deposit made late on October 31 for $900 is included in the general ledger balance but not in the bank statement balance.
e. Returned with the bank statement was a notice that a customer's check for $150 that was deposited on October 25 had been returned because the customer's account was overdrawn.
f. During a review of the checks that were returned with the bank statement, it was noted that the amount of Check No. 471 was $64 but that in the company's records supporting the general ledger balance, the check had been erroneously recorded as a payment of an account payable in the amount of $46.

Answer 1

Prepare bank reconciliation as of December 31 from the given information:
Bank reconciliation statement is a statement used to reconcile the bank statement with the bank balance as per company records. The bank reconciliation statement is prepared in two sections; the first one is to prepare reconciliation from bank balance point of view and other one from cash balance point of view.
Prepare the bank reconciliation statement as shown below:
Notes:
To prepare the reconciliation from bank side:
To the beginning balance of cash per bank:
(a) Add the deposits in transit.
(b) Deduct the outstanding checks.
To prepare the reconciliation from book side:
To the beginning balance of cash per books:
(a) Deduct the NSF Check.
(b) Deduct the error in recording the check.

Question 2

Transaction analysis-various accounts Prepare an answer sheet with the column headings shown here. For each of the following transactions or adjustments, indicate the effect of the transaction or adjustment on the appropriate balance sheet category and on net income by entering for each account affected the account name and amount and indicating whether it is an addition (+) or a subtraction (?). Transaction a has been done as an illustration. Net income is not affected by every transaction. In some cases only one column may be affected because all of the specific accounts affected by the transaction are included in that category.

b. Recorded estimated bad debts in the amount of $1,400.
c. Wrote off an overdue account receivable of $1,040.
d. Converted a customer's $2,400 overdue account receivable into a note.
e. Accrued $96 of interest earned on the note (in d ).
f. Collected the accrued interest (in e ).
g. Recorded $8,000 of sales, 70% of which were on account.
h. Recognized cost of goods sold in the amount of $6,400.

Answer 2

Transaction Analysis:
Transaction Analysis is the process of segregating the differences made to each side of the equation with each financial transaction occurs. 
Transaction analysis-Various items:
The answer sheet for the presented transactions and their adjustments are as follows:
• Consider current assets, current liabilities, owner's equity and net income transactions.

Question 3

Bank reconciliation Prepare a bank reconciliation as of August 31 from the following information:
a. The August 31 balance shown on the bank statement is $9,810.
b. There is a deposit in transit of $1,260 at August 31.
c. Outstanding checks at August 31 totaled $1,890.
d. Interest credited to the account during August but not recorded on the company's books amounted to $108.
e. A bank charge of $56 for checks was made to the account during August. Although the company was expecting a charge, the amount was not known until the bank statement arrived.
f. In the process of reviewing the canceled checks, it was determined that a check issued to a supplier in payment of accounts payable of $739 had been recorded as a disbursement of $379.
g. The August 31 balance in the general ledger Cash account, before reconciliation, is $9,488.

Answer 3

The transaction are given as of August 31 and a bank reconciliation must be made to record these transactions.
Explanation:
Transaction a) is recorded as an indicated balance under bank records for $9,810 since it is the balance on the bank statement.
Transaction b) is recorded as a deposit in transit for $1,260 under bank records since deposit in transits increase the balance of the bank account.
Transaction c) is recorded as an outstanding check for $1,890 under bank records since outstanding checks reduce the balance of the bank account.
Transaction d) is recorded as interest under the company's books for $108 since interest is already calculated in the bank records and must be adjusted for the company's books.
Transaction e) is recorded as a bank charge under company's books for $56 since a bank charge is already calculated in the bank records and must be adjusted for the company's books.
Transaction f) is recorded as checks correction under company's books since the amount recorded of $1,158 must be adjusted to the actual check amount of $1,518 so the difference of $360 must be reduced from the company's books.
Transaction g) is recorded as indicated balance for $9,488 under the company's books since it is the amount in the general ledger cash account.

Question 4

Transaction analysis-various accounts Prepare an answer sheet with the column headings shown here. For each of the following transactions or adjustments, indicate the effect of the transaction or adjustment on the appropriate balance sheet category and on net income by entering for each account affected the account name and amount and indicating whether it is an addition (+) or a subtraction (?). Transaction a has been done as an illustration. Net income is not affected by every transaction. In some cases only one column may be affected because all of the specific accounts affected by the transaction are included in that category.

b. Paid $11,200 in cash as an advance rent payment for a short-term lease that covers the next four months.
c. Recorded an adjustment at the end of the first month (in b ) to show the amount of rent "used" in the month.
d. Inventory was acquired on account and recorded for $3,620. Perpetual inventory is maintained.
e. It was later determined that the amount of inventory acquired on account (in d ) was erroneously recorded. The actual amount purchased was only $3,260. No payments have been made. Record the correction of this error.
f. Purchased 12 units of inventory at a cost of $160 each and then 8 more units of the same inventory item at $176 each. Perpetual inventory is maintained.
g. Sold 15 of the items purchased (in f ) for $240 each and received the entire amount in cash. Record the sales transaction and the cost of goods sold using the LIFO cost flow assumption. Perpetual inventory is maintained.
h. Assume the same facts (in g ) except that the company uses the FIFO cost flow assumption. Record only the cost of goods sold.
i. Assume the same facts (in g ) except that the company uses the weighted-average cost flow assumption. Record only the cost of goods sold.
j. Explain why the sales transaction in h and i would be recorded in exactly the same way it was in g.

Question 5

Bank reconciliation adjustment
a. Show the reconciling items in a horizontal model or write the adjusting journal entry (or entries) that should be prepared to reflect the reconciling items of Exercise 5.7.
b. What is the amount of cash to be included in the October 31 balance sheet for the bank account reconciled in Exercise 5.7?
Reference Exercise 5.7:
Bank reconciliation Prepare a bank reconciliation as of October 31 from the following information:
a. The October 31 cash balance in the general ledger is $1,688.
b. The October 31 balance shown on the bank statement is $746.
c. Checks issued but not returned with the bank statement were No. 462 for $26 and No. 483 for $100.
d. A deposit made late on October 31 for $900 is included in the general ledger balance but not in the bank statement balance.
e. Returned with the bank statement was a notice that a customer's check for $150 that was deposited on October 25 had been returned because the customer's account was overdrawn.
f. During a review of the checks that were returned with the bank statement, it was noted that the amount of Check No. 471 was $64 but that in the company's records supporting the general ledger balance, the check had been erroneously recorded as a payment of an account payable in the amount of $46.

Question 6

Bank reconciliation-compute Cash account balance and bank statement balance before reconciling items Beckett Co. received its bank statement for the month ending June 30, 2016, and reconciled the statement balance to the June 30, 2016, balance in the Cash account. The reconciled balance was determined to be $9,600. The reconciliation recognized the following items:
1. Deposits in transit were $4,200.
2. Outstanding checks totaled $6,000.
3. Bank service charges shown as a deduction on the bank statement were $100.
4. An NSF check from a customer for $800 was included with the bank statement. Beckett Co. had not been previously notified that the check had been returned NSF.
5. Included in the canceled checks was a check written for $790. However, it had been recorded as a disbursement of $970.
Required:
a. What was the balance in Beckett Co.'s Cash account before recognizing any of the preceding reconciling items?
b. What was the balance shown on the bank statement before recognizing any of the preceding reconciling items?

Question 7

Bank reconciliation adjustment
a. Show the reconciling items in a horizontal model or write the adjusting journal entry (or entries) that should be prepared to reflect the reconciling items of Exercise 5.8.
b. What is the amount of cash to be included in the August 31 balance sheet for the bank account reconciled in Exercise 5.8?
Reference Exercise 5.8:
Bank reconciliation Prepare a bank reconciliation as of August 31 from the following information:
a. The August 31 balance shown on the bank statement is $9,810.
b. There is a deposit in transit of $1,260 at August 31.
c. Outstanding checks at August 31 totaled $1,890.
d. Interest credited to the account during August but not recorded on the company's books amounted to $108.
e. A bank charge of $56 for checks was made to the account during August. Although the company was expecting a charge, the amount was not known until the bank statement arrived.
f. In the process of reviewing the canceled checks, it was determined that a check issued to a supplier in payment of accounts payable of $739 had been recorded as a disbursement of $379.
g. The August 31 balance in the general ledger Cash account, before reconciliation, is $9,488.

Question 8

Bank reconciliation-compute Cash account balance and bank statement balance before reconciling items Branson Co. received its bank statement for the month ending May 31, 2016, and reconciled the statement balance to the May 31, 2016, balance in the Cash account. The reconciled balance was determined to be $18,600. The reconciliation recognized the following items:
1. A deposit made on May 31 for $10,200 was included in the Cash account balance but not in the bank statement balance.
2. Checks issued but not returned with the bank statement were No. 673 for $2,940 and No. 687 for $5,100.
3. Bank service charges shown as a deduction on the bank statement were $240.
4. Interest credited to Branson Co.'s account but not recorded on the company's books amounted to $144.
5. Returned with the bank statement was a "debit memo" stating that a customer's check for $1,920 that had been deposited on May 23 had been returned because the customer's account was overdrawn.
6. During a review of the checks that were returned with the bank statement, it was noted that the amount of check No. 681 was $960 but that in the company's records supporting the Cash account balance, the check had been erroneously recorded in the amount of $96.
Required:
a. What was the balance in Branson Co.'s Cash account before recognizing any of these reconciling items?
b. What was the balance shown on the bank statement before recognizing any of these reconciling items?

Question 9

Bad debts analysis-Allowance account On January 1, 2016, the balance in Tabor Co.'s Allowance for Bad Debts account was $26,800. During the first 11 months of the year, bad debts expense of $42,924 was recognized. The balance in the Allowance for Bad Debts account at November 30, 2016, was $19,526.
Required:
a. What was the total of accounts written off during the first 11 months? (Hint: Make a T-account for the Allowance for Bad Debts account.)b. As the result of a comprehensive analysis, it is determined that the December 31, 2016, balance of the Allowance for Bad Debts account should be $19,000. Show the adjustment required in the horizontal model or in journal entry format.
c. During a conversation with the credit manager, one of Tabor's sales representatives learns that a $2,460 receivable from a bankrupt customer has not been written off but was considered in the determination of the appropriate year-end balance of the Allowance for Bad Debts account balance. Write a brief explanation to the sales representative explaining the effect that the write-off of this account receivable would have had on 2016 net income.

Question 10

Bad debts analysis-Allowance account and financial statement effect The following is a portion of the current assets section of the balance sheets of Avanti's, Inc., at December 31, 2017 and 2016:

Required:
a. If $23,600 of accounts receivable were written off during 2017, what was the amount of bad debts expense recognized for the year? (Hint: Use a T-account model of the Allowance account, plug in the three amounts that you know, and solve for the unknown.)b. The December 31, 2017, Allowance account balance includes $6,200 for a past due account that is not likely to be collected. This account has not been written off. If it had been written off, what would have been the effect of the write-off on:
1. Working capital at December 31, 2017?
2. Net income and ROI for the year ended December 31, 2017?
c. What do you suppose was the level of Avanti's sales in 2017, compared to 2016? Explain your answer.

Question 11

Bad debts analysis-Allowance account On January 1, 2016, the balance in Kubera Co.'s Allowance for Bad Debts account was $9,720. During the year, a total of $23,900 of delinquent accounts receivable was written off as bad debts. The balance in the Allowance for Bad Debts account at December 31, 2016, was $10,480.
Required:
a. What was the total amount of bad debts expense recognized during the year? (Hint: Make a T-account for the Allowance for Bad Debts account.)b. As a result of a comprehensive analysis, it is determined that the December 31, 2016, balance of Allowance for Bad Debts should be $23,200. Show in the horizontal model or in journal entry format the adjustment required.

Question 12

Bad debts analysis-Allowance account and financial statement effects The following is a portion of the current asset section of the balance sheets of HiROE Co., at December 31, 2017 and 2016:

Required:
a. Describe how the allowance amount at December 31, 2017, was most likely determined.
b. If bad debts expense for 2017 totaled $48,000, what was the amount of accounts receivable written off during the year? (Hint: Use the T-account model of the Allowance account, plug in the three amounts that you know, and solve for the unknown.)c. The December 31, 2017, Allowance account balance includes $21,000 for a past due account that is not likely to be collected. This account has not been written off. If it had been written off, what would have been the effect of the write-off on:
1. Working capital at December 31, 2017?
2. Net income and ROI for the year ended December 31, 2017?
d. What do you suppose was the level of HiROE's sales in 2017, compared to 2016? Explain your answer.
e. Calculate the ratio of the Allowance for Uncollectible Accounts balance to the Accounts Receivable balance at December 31, 2016 and 2017. What factors might have caused the change in this ratio?

Question 13

Cash discounts-ROI Annual credit sales of Nadak Co. total $680 million. The firm gives a 2% cash discount for payment within 10 days of the invoice date; 90% of Nadak's accounts receivable are paid within the discount period.
Required:
a. What is the total amount of cash discounts allowed in a year?
b. Calculate the approximate annual rate of return on investment that Nadak Co.'s cash discount terms represent to customers who take the discount.

Question 14

Analysis of accounts receivable and allowance for bad debts-determine beginning balances A portion of the current assets section of the December 31, 2017, balance sheet for Carr Co. is presented here:

The company's accounting records revealed the following information for the year ended December 31, 2017:

Required:
Using the information provided for 2017, calculate the net realizable value of accounts receivable at December 31, 2016, and prepare the appropriate balance sheet presentation for Carr Co., as of that point in time. (Hint: Use T-accounts to analyze the Accounts Receivable and Allowance for Bad Debts accounts. Remember that you are solving for the beginning balance of each account.)

Question 15

Cash discounts-ROI
a. Calculate the approximate annual rate of return on investment of the following cash discount terms:
1. ? 1/15, n30.
2. ? 2/10, n60.
3. ? 1/10, n90.
b. Which of these terms, if any, is not likely to be a significant incentive to the customer to pay promptly? Explain your answer.

Question 16

Analysis of accounts receivable and allowance for bad debts-determine ending balances A portion of the current assets section of the December 31, 2016, balance sheet for Gibbs Co. is presented here:

The company's accounting records revealed the following information for the year ended December 31, 2017:

Required:
Calculate the net realizable value of accounts receivable at December 31, 2017, and prepare the appropriate balance sheet presentation for Gibbs Co. as of that point in time. (Hint: Use T-accounts to analyze the Accounts Receivable and Allowance for Bad Debts accounts.)

Question 17

Notes receivable-interest accrual and collection Agrico, Inc., accepted a 10-month, 12.8% (annual rate), $9,000 note from one of its customers on May 15, 2016; interest is payable with the principal at maturity.
Required:
a. Use the horizontal model or write the journal entry to record the interest earned by Agrico during its year ended December 31, 2016.
b. Use the horizontal model or write the journal entry to record collection of the note and interest at maturity.

Question 18

Cost flow assumptions-FIFO and LIFO using a periodic system Mower- Blower Sales Co. started business on January 20, 2016. Products sold were snow blowers and lawn mowers. Each product sold for $1,400. Purchases during 2016 were as follows:

The December 31, 2016, inventory included 10 blowers and 25 mowers. Assume the company uses a periodic inventory system.
Required:
a. What will be the difference between ending inventory valuation at December 31, 2016, under the FIFO and LIFO cost flow assumptions? (Hint: Compute ending inventory under each method, and then compare results.)b. If the cost of mowers had increased to $960 each by December 1, and if management had purchased 30 mowers at that time, which cost flow assumption was probably being used by the firm? Explain your answer.

Question 19

Notes receivable-interest accrual and collection Husemann Co.'s assets include notes receivable from customers. During fiscal 2016, the amount of notes receivable averaged $277,500, and the interest rate of the notes averaged 5.2%.
Required:
a. Calculate the amount of interest income earned by Husemann Co. during fiscal 2016 and show in the horizontal model or write a journal entry that accrues the interest income earned from the notes.
b. If the balance in the Interest Receivable account increased by $3,500 from the beginning to the end of the fiscal year, how much interest receivable was collected during the fiscal year? Use the horizontal model, a T-account, or write the journal entry to show the collection of this amount.

Question 20

Cost flow assumptions-FIFO, LIFO, and weighted average using a periodic system The following data are available for Sellco for the fiscal year ended on January 31, 2017:

Required:
a. Calculate cost of goods sold and ending inventory under the following cost flow assumptions (using a periodic inventory system):
1. FIFO.
2. LIFO.
3. Weighted average. Round the unit cost answer to two decimal places and ending inventory to the nearest $10.
b. Assume that net income using the weighted-average cost flow assumption is $232,000. Calculate net income under FIFO and LIFO.

Question 21

Bank reconciliation The balance in Happ, Inc.'s general ledger Cash account was $24,860 at September 30, before reconciliation. The September 30 balance shown in the bank statement was $22,260. Reconciling items included deposits in transit, $2,400; bank service charges, $140; NSF check written by a customer and returned with the bank statement, $900; outstanding checks, $760; and interest credited to the account during September but not recorded on the company's books, $80.
Required:
Prepare a bank reconciliation as of September 30 for Happ, Inc.

Question 22

LIFO versus FIFO-matching and balance sheet impact Proponents of the LIFO inventory cost flow assumption argue that this costing method is superior to the alternatives because it results in better matching of revenue and expense.
Required:
a. Explain why "better matching" occurs with LIFO.
b. What is the impact on the carrying value of inventory in the balance sheet when LIFO rather than FIFO is used during periods of inflation?

Question 23

Cost flow assumptions-FIFO and LIFO using periodic and perpetual systems The inventory records of Kuffel Co. reflected the following information for the year ended December 31, 2016:

Required:
a. Assume that Kuffel Co. uses a periodic inventory system. Calculate cost of goods sold and ending inventory under FIFO and LIFO.
b. Assume that Kuffel Co. uses a perpetual inventory system. Calculate cost of goods sold and ending inventory under FIFO and LIFO.
c. Explain why the FIFO results for cost of goods sold and ending inventory are the same in your answers to parts a and b , but the LIFO results are different.

Question 24

Bank reconciliation adjustment Refer to Mini-Exercise 5.1.
Required:
a. Show the reconciling items in a horizontal model, or write the adjusting journal entry (or entries) that should be prepared to reflect the reconciling items for Happ, Inc., at September 30.
b. What is the amount of cash to be included in the September 30 balance sheet for the company's bank account?
Reference Exercise 5-1:
Bank reconciliation The balance in Happ, Inc.'s general ledger Cash account was $24,860 at September 30, before reconciliation. The September 30 balance shown in the bank statement was $22,260. Reconciling items included deposits in transit, $2,400; bank service charges, $140; NSF check written by a customer and returned with the bank statement, $900; outstanding checks, $760; and interest credited to the account during September but not recorded on the company's books, $80.
Required:
Prepare a bank reconciliation as of September 30 for Happ, Inc.

Question 25

LIFO versus FIFO-impact on ROI Mannisto, Inc., uses the FIFO inventory cost flow assumption. In a year of rising costs and prices, the firm reported net income of $1,500,000 and average assets of $10,000,000. If Mannisto had used the LIFO cost flow assumption in the same year, its cost of goods sold would have been $300,000 more than under FIFO, and its average assets would have been $300,000 less than under FIFO.
Required:
a. Calculate the firm's ROI under each cost flow assumption (FIFO and LIFO).
b. Suppose that two years later costs and prices were falling. Under FIFO, net income and average assets were $1,800,000 and $12,000,000, respectively. If LIFO had been used through the years, inventory values would have been $200,000 less than under FIFO, and current year cost of goods sold would have been $100,000 less than under FIFO. Calculate the firm's ROI under each cost flow assumption (FIFO and LIFO).

Question 26

Cost flow assumptions-FIFO and LIFO using periodic and perpetual systems The inventory records of Cushing, Inc., reflected the following information for the year ended December 31, 2016:

Required:
a. Assume that Cushing, Inc., uses a periodic inventory system. Calculate cost of goods sold and ending inventory under FIFO and LIFO.
b. Assume that Cushing, Inc., uses a perpetual inventory system. Calculate cost of goods sold and ending inventory under FIFO and LIFO.
c. Explain why the FIFO results for cost of goods sold and ending inventory are the same in your answers to parts a and b , but the LIFO results are different.
d. Explain why the results from the LIFO periodic calculations in part a cannot possibly represent the actual physical flow of inventory items.

Question 27

Accounts receivable, bad debts, credit sales, and cash collections analysis At the beginning of the year, accounts receivable were $72,000 and the allowance for bad debts was $5,750. During the year, sales (all on account) were $300,000, cash collections were $290,000, bad debts expense totaled $7,100, and $6,000 of accounts receivable were written off as bad debts.
Required:
Calculate the balances at the end of the year for the Accounts Receivable and Allowance for Bad Debts accounts. (Hint: Use T-accounts to analyze each of these accounts, plug in the amounts that you know, and solve for the ending balances.)

Question 28

Prepaid expenses-insurance
a. Use the horizontal model or write the journal entry to record the payment of a one-year insurance premium of $6,000 on March 1, 2016.
b. Use the horizontal model or write the adjusting entry that will be made at the end of every month to show the amount of insurance premium "used" that month.
c. Calculate the amount of prepaid insurance that should be reported on the December 31, 2016, balance sheet with respect to this policy.
d. If the premium had been $12,000 for a two-year period, how should the prepaid amount at December 31, 2016, be reported on the balance sheet?
e. Why are prepaid expenses reflected as an asset instead of being recorded as an expense in the accounting period in which the item is paid?

Question 29

Effects of inventory errors
a. If the beginning balance of the Inventory account and the cost of items purchased or made during the period are correct, but an error resulted in overstating the firm's ending inventory balance by $15,000, how would the firm's cost of goods sold be affected? Explain your answer by drawing T-accounts for the Inventory and Cost of Goods Sold accounts and entering amounts that illustrate the difference between correctly stating and overstating the ending inventory balance.
b. If management wanted to understate profits, would ending inventory be understated or overstated? Explain your answer.

Question 30

Bad debts analysis-Allowance account The Allowance for Bad Debts account had a balance of $10,600 at the beginning of the year and $12,200 at the end of the year. During the year (including the year-end adjustment), bad debts expense of $18,800 was recognized.
Required:
Calculate the total amount of past-due accounts receivable that were written off as uncollectible during the year. (Hint: Make a T-account for the Allowance for Bad Debts account, plug in the amounts that you know, and solve for the missing amount.)

Question 31

Prepaid expenses-rent
(Note: See Problem 7.25 for the related unearned revenue accounting.)On November 1, 2016, Wenger Co. paid its landlord $75,600 in cash as an advance rent payment on its store location. The six-month lease period ends on April 30, 2017, at which time the contract may be renewed.
Required:
a. Use the horizontal model or write the journal entry to record the six-month advance rent payment on November 1, 2016.
b. Use the horizontal model or write the adjusting entry that will be made at the end of every month to show the amount of rent "used" during the month.
c. Calculate the amount of prepaid rent that should be reported on the December 31, 2016, balance sheet with respect to this lease.
d. If the advance payment made on November 1, 2016, had covered an 18-month lease period at the same amount of rent per month, how should Wenger Co. report the prepaid amount on its December 31, 2016, balance sheet?

Question 32

Effects of inventory errors Following are condensed income statements for Uncle Bill's Home Improvement Center for the years ended December 31, 2017 and 2016:

Uncle Bill was concerned about the operating results for 2017 and asked his recently hired accountant, "If sales increased in 2017, why was net income less than half of what it was in 2016?" In February of 2018, Uncle Bill got his answer: "The ending inventory reported in 2016 was overstated by $17,500 for merchandise that we were holding on consignment on behalf of Kirk's Servistar. We still keep some of their appliances in stock, but the value of these items was not included in the 2017 inventory count because we don't own them."
a. Recast the 2016 and 2017 income statements to take into account the correction of the 2016 ending inventory error.
b. Calculate the combined net income for 2016 and 2017 before and after the correction of the error. Explain to Uncle Bill why the error was corrected in 2017 before it was actually discovered in 2018.
c. What effect, if any, will the error have on net income and stockholders' equity in 2018?

Question 33

Cost flow assumptions-FIFO and LIFO using a periodic system Sales during the year were 700 units. Beginning inventory was 400 units at a cost of $10 per unit. Purchase 1 was 500 units at $12 per unit. Purchase 2 was 300 units at $14 per unit.
Required:
Calculate cost of goods sold and ending inventory under the following cost flow assumptions (using a periodic inventory system):
a. FIFO
b. LIFO

Question 34

Transaction analysis-various accounts Prepare an answer sheet with the column headings shown here. For each of the following transactions or adjustments, indicate the effect of the transaction or adjustment on the appropriate balance sheet category and on net income by entering for each account affected the account name and amount and indicating whether it is an addition (+) or a subtraction (?). Transaction a has been done as an illustration. Net income is not affected by every transaction. In some cases only one column may be affected because all of the specific accounts affected by the transaction are included in that category.

b. Determined that the Allowance for Bad Debts account balance should be increased by $4,400.
c. Recognized bank service charges of $60 for the month.
d. Received $50 cash for interest accrued in a prior month.
e. Purchased five units of a new item of inventory on account at a cost of $70 each. Perpetual inventory is maintained.
f. Purchased 10 more units of the same item at a cost of $76 each. Perpetual inventory is maintained.
g. Sold eight of the items purchased (in e and f ) and recognized the cost of goods sold using the FIFO cost flow assumption. Perpetual inventory is maintained.

Question 35

Focus company-accounts receivable and inventory disclosures In Exercise 1.1, you were asked to obtain the most recent annual report of a company that you were interested in reviewing throughout this term.
Required:
Review the note disclosures provided in your focus company's annual report and discuss what you've learned about how your company's accounts receivable and inventory are accounted for and presented.
Reference Exercise 1.1:
Obtain an annual report Throughout this course, you will be asked to relate the material being studied to actual financial statements. After you complete this course, you will be able to use an organization's financial statements to make decisions and informed judgments about that organization. The purpose of this assignment is to provide the experience of obtaining a company's annual report. You may want to refer to the financial statements in the report during the rest of the course.
Required:
Obtain the most recently issued annual report of a publicly owned manufacturing or merchandising corporation of your choice. Do not select a bank, insurance company, financial institution, or public utility. It would be appropriate to select a firm that you know something about or have an interest in.
Type firmname.com or use a search engine to locate your chosen company's website and then scan your firm's home page for information about annual report ordering. If you don't see a direct link to Investor Relations or Investors on the home page, look for links such as Our Company, About Us, or Site Map that may lead you to SEC Filings, Financial Information, or Annual Reports. Most companies allow you to save or print an Adobe Acrobat version of their annual reports.

Question 36

Cost flow assumptions-FIFO and LIFO using a periodic system The beginning inventory was 600 units at a cost of $20 per unit. Goods available for sale during the year were 2,600 units at a total cost of $57,600. In May, 1,200 units were purchased at a total cost of $26,400. The only other purchase transaction occurred during October. Ending inventory was 1,100 units.
Required:
a. Calculate the number of units purchased in October and the cost per unit purchased in October.
b. Calculate cost of goods sold and ending inventory under the following cost flow assumptions (using a periodic inventory system):
1. FIFO
2. LIFO

Question 37

Transaction analysis-various accounts Prepare an answer sheet with the column headings shown here. For each of the following transactions or adjustments, indicate the effect of the transaction or adjustment on the appropriate balance sheet category and on net income by entering for each account affected the account name and amount and indicating whether it is an addition (+) or a subtraction (?). Transaction a has been done as an illustration. Net income is not affected by every transaction. In some cases only one column may be affected because all of the specific accounts affected by the transaction are included in that category.

b. Determined that the Allowance for Bad Debts account balance should be decreased by $9,600 because expense during the year had been overestimated.
c. Wrote off an account receivable of $4,320.
d. Received cash from a customer in full payment of an account receivable of $1,500 that was paid within the 2% discount period. A Cash Discount Allowance account is maintained.
e. Purchased eight units of a new item of inventory on account at a cost of $120 each. Perpetual inventory is maintained.
f. Purchased 17 more units of the above item at a cost of $114 each. Perpetual inventory is maintained.
g. Sold 20 of the items purchased (in e and f ) and recognized the cost of goods sold using the LIFO cost flow assumption. Perpetual inventory is maintained.
h. Paid a one-year insurance premium of $1,440 that applied to the next fiscal year.
i. Recognized insurance expense related to the preceding policy during the first month of the fiscal year to which it applied.

Question 38

Comparative analysis of current asset structures The 2014 annual reports of Pearson plc and John Wiley Sons, Inc., two publishing and information services companies, included the following selected data as at December 31, 2014 and 2013 for Pearson plc and April 30, 2014 and 2013 for John Wiley Sons, Inc.

Required:
a. Do you notice anything unusual about the data presented for Pearson? Comment specifically about some of the difficulties you would expect to encounter when comparing financial statement data of a U.S.-based company to data of a non-U.S.-based company.
b. Review the current asset data presented for each company. Comment briefly about your first impressions concerning the relative composition of current assets within each company.
c. Is there any evidence that would suggest that either Pearson or John Wiley Sons does a better job at managing its accounts receivables and inventories?