2.99 See Answer

Question: Assume that in an annual audit of

Assume that in an annual audit of Harlowe Inc. at December 31, 2014, you find the following transactions near the closing date.
1. A special machine, fabricated to order for a customer, was finished and specifically segregated in the back part of the shipping room on December 31, 2014. The customer was billed on that date and the machine excluded from inventory although it was shipped on January 4, 2015.
2. Merchandise costing $2,800 was received on January 3, 2015, and the related purchase invoice recorded January 5. The invoice showed the shipment was made on December 29, 2014, f.o.b. destination.
3. A packing case containing a product costing $3,400 was standing in the shipping room when the physical inventory was taken. It was not included in the inventory because it was marked “Hold for shipping instructions.” Your investigation revealed that the customer’s order was dated December 18, 2014, but that the case was shipped and the customer billed on January 10, 2015. The product was a stock item of your client.
4. Merchandise received on January 6, 2015, costing $680 was entered in the purchase journal on
January 7, 2015. The invoice showed shipment was made f.o.b. supplier’s warehouse on December 31, 2014. Because it was not on hand at December 31, it was not included in inventory.
5. Merchandise costing $720 was received on December 28, 2014, and the invoice was not recorded. You located it in the hands of the purchasing agent; it was marked “on consignment.”
Assuming that each of the amounts is material, state whether the merchandise should be included in the client’s inventory, and give your reason for your decision on each item.

> Ford Motor Co. is considering alternate methods of accounting for the cash discounts it takes when paying suppliers promptly. One method suggested was to report these discounts as financial income when payments are made. Comment on the propriety of thi

> Distinguish between product costs and period costs as they relate to inventory.

> Define “cost” as applied to the valuation of inventories.  

> At the balance sheet date, Clarkson Company held title to goods in transit amounting to $214,000. This amount was omitted from the purchases figure for the year and also from the ending inventory. What is the effect of this omission on the net income f

> Where, if at all, should the following items be classified on a balance sheet? (a) Goods out on approval to customers. (b) Goods in transit that were recently purchased f.o.b. destination. (c) Land held by a realty firm for sale. (d) Raw materials.

> What is a product financing arrangement? How should product financing arrangements be reported in the financial statements?

> What is the difference between a perpetual inventory and a physical inventory? If a company maintains a perpetual inventory, should its physical inventory at any date be equal to the amount indicated by the perpetual inventory records? Why?  

> What is the dollar-value method of LIFO inventory valuation? What advantage does the dollar-value method have over the specific goods approach of LIFO inventory valuation? Why will the traditional LIFO inventory costing method and the dollar-value LIF

> Why should inventories be included in (a) a statement of financial position and (b) the computation of net income?  

> George Solti, the controller for Garrison Lumber Company, has recently hired you as assistant controller. He wishes to determine your expertise in the area of inventory accounting and therefore asks you to answer the following unrelated questions. (a)

> Wilkens Company uses the LIFO method for inventory costing. In an effort to lower net income, company president Mike Wilkens tells the plant accountant to take the unusual step of recommending to the purchasing department a large purchase of inventory

> Arruza Co. is considering switching from the specific-goods LIFO approach to the dollar-value LIFO approach. Because the financial personnel at Arruza know very little about dollar-value LIFO, they ask you to answer the following questions. (a) What i

> Geddes Corporation is a medium-sized manufacturing company with two divisions and three subsidiaries, all located in the United States. The Metallic Division manufactures metal castings for the automotive industry, and the Plastic Division produces sma

> Prepare a memorandum containing responses to the following items. (a) Describe the cost flow assumptions used in average-cost, FIFO, and LIFO methods of inventory valuation. (b) Distinguish between weighted-average-cost and moving-average-cost for in

> Jane Yoakam, president of Estefan Co., recently read an article that claimed that at least 100 of the country’s largest 500 companies were either adopting or considering adopting the last-in, first-out (LIFO) method for valuing inventories. The a

> In January 2014, Susquehanna Inc. requested and secured permission from the commissioner of the Internal Revenue Service to compute inventories under the last-in, first-out (LIFO) method and elected to determine inventory cost under the dollar-value LI

> Shawnee Corp., a household appliances dealer, purchases its inventories from various suppliers. Shawnee has consistently stated its inventories at the lower-of-cost (FIFO)-or-market. Instructions Shawnee is considering alternate methods of accounting

> As compared with the FIFO method of costing inventories, does the LIFO method result in a larger or smaller net income in a period of rising prices? What is the comparative effect on net income in a period of falling prices?  

> George Solti, the controller for Garrison Lumber Company, has recently hired you as assistant controller. He wishes to determine your expertise in the area of inventory accounting and therefore asks you to answer the following unrelated questions. (a)

> Brian Erlacher, an inventory control specialist, is interested in better understanding the accounting for inventories. Although Brian understands the more sophisticated computer inventory control systems, he has little knowledge of how inventory cost i

> You are asked to travel to Milwaukee to observe and verify the inventory of the Milwaukee branch of one of your clients. You arrive on Thursday, December 30, and find that the inventory procedures have just been started. You spot a railway car on the s

> The following information relates to the Jimmy Johnson Company. Instructions Use the dollar-value LIFO method to compute the ending inventory for Johnson Company for 2010 through 2014.  

> Presented below is information related to Dino Radja Company. Instructions Compute the ending inventory for Dino Radja Company for 2011 through 2016 using the dollar-value LIFO method.  

> The dollar-value LIFO method was adopted by Enya Corp. on January 1, 2014. Its inventory on that date was $160,000. On December 31, 2014, the inventory at prices existing on that date amounted to $140,000. The price level at January 1, 2014, was 100, a

> Oasis Company has used the dollar-value LIFO method for inventory cost determination for many years. The following data were extracted from Oasis’ records. Instructions Calculate the index used for 2015 that yielded the above results. &nbs

> Describe the LIFO double-extension method. Using the following information, compute the index at December 31, 2014, applying the double-extension method to a LIFO pool consisting of 25,500 units of product A and 10,350 units of product B. The base-year

> Johnny Football Shop began operations on January 2, 2014. The following stock record card for footballs was taken from the records at the end of the year. A physical inventory on December 31, 2014, reveals that 100 footballs were in stock. The boo

> The board of directors of Ichiro Corporation is considering whether or not it should instruct the accounting department to shift from a first-in, first-out (FIFO) basis of pricing inventories to a last-in, first-out (LIFO) basis. The following informat

> The following is a record of Pervis Ellison Company’s transactions for Boston Teapots for the month of May 2014. Instructions (a) Assuming that perpetual inventories are not maintained and that a physical count at the end of the month shows

> Presented below is information related to Blowfish radios for the Hootie Company for the month of July. Instructions (a) Assuming that the periodic inventory method is used, compute the inventory cost at July 31 under each of the following cost f

> Shania Twain Company was formed on December 1, 2013. The following information is available from Twain’s inventory records for Product BAP. A physical inventory on March 31, 2014, shows 1,600 units on hand. Instructions Prepare schedules t

> John Adams Company’s record of transactions for the month of April was as follows. Instructions (a) Assuming that periodic inventory records are kept in units only, compute the inventory at April 30 using (1) LIFO and (2) average-cost. (b)

> Inventory information for Part 311 of Monique Aaron Corp. discloses the following information for the month of June. Instructions (a) Assuming that the periodic inventory method is used, compute the cost of goods sold and ending inventory under (

> The net income per books of Linda Patrick Company was determined without knowledge of the errors indicated. Instructions Prepare a worksheet to show the adjusted net income figure for each of the 6 years after taking into account the inventory er

> How might a company obtain a price index in order to apply dollar-value LIFO?  

> At December 31, 2013, Stacy McGill Corporation reported current assets of $370,000 and current liabilities of $200,000. The following items may have been recorded incorrectly. 1. Goods purchased costing $22,000 were shipped f.o.b. shipping point by a

> Ann M. Martin Company makes the following errors during the current year. (Evaluate each case independently and assume ending inventory in the following year is correctly stated.) 1. Ending inventory is overstated, but purchases and related accounts p

> Fong Sai-Yuk Company sells one product. Presented below is information for January for Fong Sai-Yuk Company. Fong Sai-Yuk uses the FIFO cost flow assumption. All purchases and sales are on account. Instructions (a) Assume Fong Sai-Yuk uses a per

> Cruise Industries purchased $10,800 of merchandise on February 1, 2014, subject to a trade discount of 10% and with credit terms of 3/15, n/60. It returned $2,500 (gross price before trade or cash discount) on February 4. The invoice was paid on Februa

> Presented below are transactions related to Tom Brokaw, Inc. May 10 Purchased goods billed at $15,000 subject to cash discount terms of 2/10, n/60. 11 Purchased goods billed at $13,200 subject to terms of 1/15, n/30. 19 Paid invoice of May 10. 24 P

> Two or more items are omitted in each of the following tabulations of income statement data. Fill in the amounts that are missing.  

> Craig Company asks you to review its December 31, 2014, inventory values and prepare the necessary adjustments to the books. The following information is given to you. 1. Craig uses the periodic method of recording inventory. A physical count reveals

> Colin Davis Machine Company maintains a general ledger account for each class of inventory, debiting such accounts for increases during the period and crediting them for decreases. The transactions below relate to the Raw Materials inventory account, w

> In your audit of Jose Oliva Company, you find that a physical inventory on December 31, 2014, showed merchandise with a cost of $441,000 was on hand at that date. You also discover the following items were all excluded from the $441,000. 1. Merchandis

> FIFO, average-cost, and LIFO methods are often used instead of specific identification for inventory valuation purposes. Compare these methods with the specific identification method, discussing the theoretical propriety of each method in the determina

> Presented below is a list of items that may or may not be reported as inventory in a company’s December 31 balance sheet. 1. Goods out on consignment at another company’s store. 2. Goods sold on an installment basis (bad debts can be reas

> Arna, Inc. uses the dollar-value LIFO method of computing its inventory. Data for the past 3 years follow. Instructions Compute the value of the 2014 and 2015 inventories using the dollar-value LIFO method.  

> Midori Company had ending inventory at end-of-year prices of $100,000 at December 31, 2013; $119,900 at December 31, 2014; and $134,560 at December 31, 2015. The year-end price indexes were 100 at 12/31/13, 110 at 12/31/14, and 116 at 12/31/15. Compute

> Units Unit Cost Total Cost $ 2,500 4,800 4,550 $10 April 1 inventory April 15 purchase April 23 purchase 250 400 12 350 13 1,000 $11,850

> Data for Amsterdam Company are presented in BE8-5. Compute the April 30 inventory and the April cost of goods sold using the FIFO method. In BE8-5  

> Amsterdam Company uses a periodic inventory system. For April, when the company sold 600 units, the following information is available. Compute the April 30 inventory and the April cost of goods sold using the average-cost method.  

> Bienvenu Enterprises reported cost of goods sold for 2014 of $1,400,000 and retained earnings of $5,200,000 at December 31, 2014. Bienvenu later discovered that its ending inventories at December 31, 2013 and 2014, were overstated by $110,000 and $35,0

> Stallman Company took a physical inventory on December 31 and determined that goods costing $200,000 were on hand. Not included in the physical count were $25,000 of goods purchased from Pelzer Corporation, f.o.b. shipping point, and $22,000 of goods s

> Matlock Company uses a perpetual inventory system. Its beginning inventory consists of 50 units that cost $34 each. During June, the company purchased 150 units at $34 each, returned 6 units for credit, and sold 125 units at $50 each. Journalize the Ju

> Included in the December 31 trial balance of Rivera Company are the following assets. Prepare the current assets section of the December 31 balance sheet.  

> Specific identification is sometimes said to be the ideal method of assigning cost to inventory and to cost of goods sold. Briefly indicate the arguments for and against this method of inventory valuation.  

> On July 1, 2014, Brigham Corporation purchased Young Company by paying $250,000 cash and issuing a $100,000 note payable to Steve Young. At July 1, 2014, the balance sheet of Young Company was as follows. The recorded amounts all approximate curre

> Part 1: On July 1, 2014, Wallace Company, a calendar-year company, sold special-order merchandise on credit and received in return an interest-bearing note receivable from the customer. Wallace Company will receive interest at the prevailing rate for a

> On January 1, 2014, Botosan Company issued a $1,200,000, 5-year, zero interest-bearing note to National Organization Bank. The note was issued to yield 8% annual interest. Unfortunately, during 2015 Botosan fell into financial trouble due to increased

> Presented below is information related to Haselhof Inc. Balance per books at October 31, $41,847.85; receipts $173,523.91; disbursements $164,893.54. Balance per bank statement November 30, $56,274.20. The following checks were outstanding at November

> The cash account of Aguilar Co. showed a ledger balance of $3,969.85 on June 30, 2014. The bank statement as of that date showed a balance of $4,150. Upon comparing the statement with the cash records, the following facts were determined. 1. There wer

> Sandburg Company requires additional cash for its business. Sandburg has decided to use its accounts receivable to raise the additional cash and has asked you to determine the income statement effects of the following contemplated transactions. 1. On

> The balance sheet of Starsky Company at December 31, 2013, includes the following. Transactions in 2014 include the following. 1. Accounts receivable of $138,000 was collected including accounts of $60,000 on which 2% sales discounts were allowed

> Soon after beginning the year-end audit work on March 10 at Engone Company, the auditor has the following conversation with the controller. Controller: The year ended March 31st should be our most profitable in history and, as a consequence, the boa

> On July 1, 2014, Moresan Company sold special-order merchandise on credit and received in return an interest-bearing note receivable from the customer. Moresan will receive interest at the prevailing rate for a note of this type. Both the principal and

> On September 30, 2013, Rolen Machinery Co. sold a machine and accepted the customer’s zero-interest-bearing note. Rolen normally makes sales on a cash basis. Since the machine was unique, its sales price was not determinable using Rolen’s n

> Corrs Wholesalers Co. sells industrial equipment for a standard 3-year note receivable. Revenue is recognized at time of sale. Each note is secured by a lien on the equipment and has a face amount equal to the equipment’s list price. Each note&rs

> Clark Pierce conducts a wholesale merchandising business that sells approximately 5,000 items per month with a total monthly average sales value of $250,000. Its annual bad debt rate has been approximately 1½% of sales. In recent discussions wit

> Manilow Corporation operates in an industry that has a high rate of bad debts. Before any year-end adjustments, the balance in Manilow’s Accounts Receivable account was $555,000 and Allowance for Doubtful Accounts had a credit balance of $40,000.

> Francis Equipment Co. closes its books regularly on December 31, but at the end of 2014 it held its cash book open so that a more favorable balance sheet could be prepared for credit purposes. Cash receipts and disbursements for the first 10 days of Ja

> On December 31, 2014, Conchita Martinez Company signed a $1,000,000 note to Sauk City Bank. The market interest rate at that time was 12%. The stated interest rate on the note was 10%, payable annually. The note matures in 5 years. Unfortunately, becau

> On December 31, 2014, Iva Majoli Company borrowed $62,092 from Paris Bank, signing a 5-year, $100,000 zero-interest-bearing note. The note was issued to yield 10% interest. Unfortunately, during 2016, Majoli began to experience financial difficulty. As

> Braddock Inc. had the following long-term receivable account balances at December 31, 2013. Transactions during 2014 and other information relating to Braddock’s long-term receivables were as follows. 1. The $1,500,000 note receivable is

> Logan Bruno Company has just received the August 31, 2014, bank statement, which is summarized below. The general ledger Cash account contained the following entries for the month of August. Deposits in transit at August 31 are $3,800, and ch

> Angela Lansbury Company deposits all receipts and makes all payments by check. The following information is available from the cash records. Instructions (a) Prepare a bank reconciliation going from balance per bank and balance per book to co

> The petty cash fund of Fonzarelli’s Auto Repair Service, a sole proprietorship, contains the following. The general ledger account Petty Cash has a balance of $300. Instructions Prepare the journal entry to record the reimbursement of the

> Carolyn Keene, Inc. decided to establish a petty cash fund to help ensure internal control over its small cash expenditures. The following information is available for the month of April. 1. On April 1, it established a petty cash fund in the amount o

> Kimmel Company uses the net method of accounting for sales discounts. Kimmel also offers trade discounts to various groups of buyers. On August 1, 2014, Kimmel sold some accounts receivable on a without recourse basis. Kimmel incurred a finance charge.

> Use the information for Jones Company as presented in E7-20. Jones is planning to factor some accounts receivable at the end of the year. Accounts totaling $25,000 will be transferred to Credit Factors, Inc. with recourse. Credit Factors will retain 5%

> Presented below is information for Jones Company. 1. Beginning-of-the-year Accounts Receivable balance was $15,000. 2. Net sales (all on account) for the year were $100,000. Jones does not offer cash discounts. 3. Collections on accounts receivable

> On December 31, 2012, Ed Abbey Co. performed environmental consulting services for Hayduke Co. Hayduke was short of cash, and Abbey Co. agreed to accept a $200,000 zero-interest-bearing note due December 31, 2014, as payment in full. Hayduke is somewha

> On July 1, 2014, Agincourt Inc. made two sales. 1. It sold land having a fair value of $700,000 in exchange for a 4-year zero-interest-bearing promissory note in the face amount of $1,101,460. The land is carried on Agincourt’s books at a cost o

> JFK Corp. factors $300,000 of accounts receivable with LBJ Finance Corporation on a without recourse basis on July 1, 2014. The receivables records are transferred to LBJ Finance, which will receive the collections. LBJ Finance assesses a finance charg

> Beyoncé Corporation factors $175,000 of accounts receivable with Kathleen Battle Financing, Inc. on a with recourse basis. Kathleen Battle Financing will collect the receivables. The receivables records are transferred to Kathleen Battle Financi

> On December 31, 2014, Oakbrook Inc. rendered services to Beghun Corporation at an agreed price of $102,049, accepting $40,000 down and agreeing to accept the balance in four equal installments of $20,000 receivable each December 31. An assumed interest

> Ames Quartet Inc. factors receivables with a carrying amount of $200,000 to Joffrey Company for $160,000 on a with recourse basis. Instructions The recourse provision has a fair value of $1,000. This transaction should be recorded as a sale. Prepare

> The trial balance before adjustment for Phil Collins Company shows the following balances. Instructions Using the data above, give the journal entries required to record each of the following cases. (Each situation is independent.) 1. To obtain

> On April 1, 2014, Rasheed Company assigns $400,000 of its accounts receivable to the Third National Bank as collateral for a $200,000 loan due July 1, 2014. The assignment agreement calls for Rasheed Company to continue to collect the receivables. Thir

> Simms Company has significant amounts of trade accounts receivable. Simms uses the allowance method to estimate bad debts instead of the direct write-off method. During the year, some specific accounts were written off as uncollectible, and some that w

> Presented below is information related to James Garfield Corp. July 1 James Garfield Corp. sold to Warren Harding Co. merchandise having a sales price of $8,000 with terms 2/10, net/60. Garfield records its sales and receivables net. 5 Accounts recei

> Danica Patrick, Inc. includes the following account among its trade receivables. Instructions Age the balance and specify any items that apparently require particular attention at year-end.  

> The financial statements of Marks and Spencer plc (M&S) are available at the book’s companion website or can be accessed at http://annualreport.marksandspencer.com/_assets/downloads/Marks-and-Spencer-Annual-report-and-financial-statements-20

> As the new staff person in your company’s treasury department, you have been asked to conduct research related to a proposed transfer of receivables. Your supervisor wants the authoritative sources for the following items that are discussed in th

> On December 31, 2014, Firth Company borrowed $62,092 from Paris Bank, signing a 5-year, $100,000 zero-interest-rate note. The note was issued to yield 10% interest. Unfortunately, during 2016, Firth began to experience financial difficulty. As a result

> What are some steps taken by both the FASB and IASB to move to fair value measurement for financial instruments? In what ways have some of the approaches differed?  

> Briefly describe the impairment evaluation process and assessment of receivables on an individual or collective basis.  

> On October 1, 2014, Arden Farm Equipment Company sold a pecan-harvesting machine to Valco Brothers Farm, Inc. In lieu of a cash payment Valco Brothers Farm gave Arden a 2-year, $120,000, 8% note (a realistic rate of interest for a note of this type). T

> Marvin Company is a subsidiary of Hughes Corp. The controller believes that the yearly allowance for doubtful accounts for Marvin should be 2% of net credit sales. Given the recession and the high interest rate environment, the president, nervous that

> Salen Company finances some of its current operations by assigning accounts receivable to a finance company. On July 1, 2014, it assigned, under guarantee, specific accounts amounting to $150,000. The finance company advanced to Salen 80% of the accoun

> Horizon Outfitters Company includes in its trial balance for December 31 an item for Accounts Receivable $789,000. This balance consists of the following items: Illustrate how these items should be shown in the balance sheet as of December 31. &n


See Answer