Solution manual financial accounting by valix ch6 10

72
CHAPTER

6

Problem 6-1

Problem 6-2

1.
2.
3.
4.
5.

1.
2.
3.
4.
5.

C
C
C
A
C

6.
7.
8.
9.

10.

B
C
B
A
C

C
D
C
C
B

6.
7.
8.
9.
10.

A
B
B
B
D

Problem 6-3
March 1 Cash
April

2,000,000

Note payable – bank

1 Cash
Sales discount
Accounts receivable

2,000,000

980,000
20,000
1,000,000

June 1 Cash

2,000,000
Accounts receivable

2,000,000

Sept. 1 Note payable – bank
Interest expense (12% x 2,000,000 x 6/12)
Cash

2,000,000
120,000
2,120,000

Problem 6-4

Requirement 1
2008
Oct. 1 Cash
Discount on note payable (10% x 4,000,000)
Note payable – bank
1 Interest expense (400,000 x 3/12)
Discount on note payable
2009
Oct. 1 Note payable – bank
Cash

3,600,000
400,000
4,000,000
100,000
100,000
4,000,000
4,000,000

Dec. 31 Interest expense
Discount on note payable

300,000

300,000

Requirement 2
Current liabilities:
Note payable – bank (Note 3)
Discount on note payable

( 300,000)
Carrying value

4,000,000
3,700,000


73
Note 3 – Note payable – bank
Accounts of P5,000,000 are pledged to secure the bank loan of P4,000,000.

Problem 6-5
May 1 Accounts receivable – assigned
Accounts receivable

800,000

1 Cash (640,000 – 20,000)
Service charge
Note payable – bank

620,000
20,000

800,000

640,000

5 Sales return
Accounts receivable – assigned

30,000

30,000

10 Cash
Sales discount (2% x 500,000)
Accounts receivable – assigned
500,000

490,000

June 1 Note payable – bank
Interest expense (2% x 640,000)
Cash

490,000
12,800

7 Allowance for doubtful accounts
Accounts receivable – assigned
20 Cash
July

Accounts receivable – assigned

1 Note payable – bank (640,000 – 490,000)
Interest expense (2% x 150,000)
Cash
1 Accounts receivable
Accounts receivable – assigned

Accounts receivable – assigned
Less: Collections
Sales discount
Sales return
Worthless accounts
Balance

10,000

502,800

10,000
10,000
200,000
200,000
150,000
3,000
153,000
60,000
60,000
800,000
690,000
10,000
30,000
10,000
740,000
60,000

Problem 6-6
July 1 Accounts receivable – assigned

Accounts receivable

1,500,000

1,500,000


74
July 1 Cash (1,125,000 – 60,000)
Service charge (4% x 1,500,000)
Note payable – bank
Aug. 1 Note payable – bank
Accounts receivable – assigned
800,000

1,065,000
60,000
1,125,000
800,000

1 Interest expense (2% x 1,125,000)
Cash

22,500

Sept. 1 Cash
Interest expense
Note payable – bank
Accounts receivable – assigned
500,000

168,500
6,500
325,000

Accounts receivable
Accounts receivable – assigned

200,000

200,000

Collections by bank
Less: Payment of loan (1,125,000 – 800,000)
325,000
Excess collection
Less: Interest (2% x 325,000)
6,500
Cash remittance from bank

22,500

500,000
175,000
168,500

Problem 6-7
July 1 Accounts receivable – assigned
Accounts receivable

500,000

1 Cash (400,000 – 10,000)
Service charge (2% x 500,000)
Note payable – bank

390,000
10,000

Aug. 1 Cash

400,000

330,000
Accounts receivable – assigned

1 Interest expense (1% x 400,000)
Note payable – bank
Cash
Sept. 1 Cash

500,000

Accounts receivable – assigned

1 Interest expense (1% x 74,000)
Note payable – bank
Cash

330,000

4,000
326,000
330,000
170,000

170,000

740
74,000

74,740


75
Problem 6-8
Requirement a
Dec. 1 Accounts receivable – assigned
Accounts receivable
1 Cash
Service charge
Note payable – bank
31 Cash
Sales discount
Accounts receivable – assigned
31 Interest expense (1% x 1,300,000)
Note payable – bank
Cash

1,500,000
1,250,000

50,000
970,000
30,000

1,500,000

1,300,000

1,000,000

13,000
957,000

970,000

Requirement b
The accounts receivable – assigned with a balance of P500,000 should be classified
as current asset and included in trade and other receivables.
The note payable – bank of P343,000 should be classified and presented as a current
liability.
The company should disclose the equity in assigned accounts as follows:
Accounts receivable – assigned
500,000
Note payable – bank
(343,000)
Equity in assigned accounts

157,000

Problem 6-9

July

1 Accounts receivable – assigned
Accounts receivable

800,000

1 Cash (640,000 – 24,000)
Service charge (3% x 800,000)
Note payable – bank

616,000
24,000

Aug. 1 Interest expense (1% x 640,000)
Note payable – bank
Accounts receivable – assigned
420,000
Sept. 1 Cash
Interest expense
Note payable – bank

800,000

640,000

6,400
413,600

2,264

226,400

91,336


Accounts receivable – assigned
320,000

76
Accounts receivable
Accounts receivable – assigned

60,000
60,000

Bank loan
August 1 payment
Balance
320,000

Collections by bank
Less: Payment of loan
Interest (1% x 226,400)

228,664

640,000
413,600
226,400

226,400

2,264

Remittance from bank

91,336

Problem 6-10
Cash
Allowance for doubtful accounts
Loss on factoring
Accounts receivable

400,000
30,000
70,000

500,000

Problem 6-11
Cash
Receivable from factor
Allowance for bad debts
Loss on factoring
Accounts receivable

5,000,000
300,000
250,000

450,000

6,000,000

Problem 6-12
Feb. 1 Cash
Service charge (5% x 800,000)
Receivable from factor (10% x 800,000)
Accounts receivable

680,000
40,000
80,000

15 Sales return and allowances
Receivable from factor
20,000
28 Cash (80,000 – 20,000)
Receivable from factor
60,000

800,000
20,000

60,000

Problem 6-13
June 1 Accounts receivable
Sales

500,000

500,000


77
June 3 Cash
Sales discount (2% x 500,000)
Commission (5% x 500,000)
Receivable from factor (25% x 500,000)
Accounts receivable

340,000
125,000

10,000
25,000
500,000

9 Sales return and allowances
Sales discount (2% x 50,000)
1,000
Receivable from factor
49,000

50,000

11 No entry
15 Cash (125,000 – 49,000)
Receivable from factor

76,000

76,000

Problem 6-14
July 26 Cash
Commission (5% x 1,000,000)
Receivable from factor (20% x 1,000,000)
Accounts receivable
July 28 Sales return and allowances
Receivable from factor
50,000
Aug. 31 Cash

Receivable from factor

750,000
50,000
200,000
1,000,000
50,000

150,000

150,000

Problem 6-15
1. Cash
Service charge (5% x 200,000)
Receivable from factor (20% x 200,000)

Accounts receivable

150,000
10,000
40,000

2. Accounts receivable – assigned
Accounts receivable

300,000

Cash
Service charge (5% x 300,000)
Note payable – bank

225,000
15,000

3. Doubtful accounts
Allowance for doubtful accounts

200,000
300,000

240,000

35,000
35,000

Required allowance (5% x 1,300,000)
Less: Allowance – January 1
Doubtful accounts

65,000
30,000
35,000

78
4. The net realizable value of the accounts receivable is included in trade and other
receivables and presented as current asset.
Accounts receivable – unassigned
1,000,000
Accounts receivable – assigned
Total
1,300,000
Less: Allowance for doubtful accounts
Net realizable value
1,235,000

300,000
65,000

The receivable from factor of P40,000 is also included in trade and other receivables.
The note payable – bank of P240,000 is classified and presented as current liability.
However, the company should disclose the equity in assigned accounts as follows:
Accounts receivable – assigned
Note payable – bank
Equity in assigned accounts

300,000
(240,000)
60,000

Problem 6-16
Books of Motorway Company
1. Cash
Receivable from factor
Allowance for doubtful accounts
Loss on factoring
Accounts receivable

2,250,000
300,000
100,000
350,000
3,000,000

Gross amount
Holdback (10% x 3,000,000)
Commission (15% x 3,000,000)
Cash received

(
(

Sales price (3,000,000 x 85%)
Book value of accounts receivable (3,000,000 – 100,000)
2,900,000
Loss on factoring

2. Cash
Receivable from factor
Accounts receivable factored
Collections by factor

3,000,000
300,000)
450,000)
2,250,000
2,250,000

( 350,000)
250,000

250,000
3,000,000
2,500,000


Balance – December 31

500,000

Receivable from factor per book
Required holdback (10% x 500,000)
Remittance from factor

300,000
50,000
250,000

79
Books of Freeway Company (factor)
1. Accounts receivable
Cash
Clients retainer
Commission income

3,000,000

2. Cash
Accounts receivable

2,500,000

3. Clients retainer
Cash
4. Doubtful accounts
Allowance for doubtful accounts (4% x 500,000)

2,250,000
300,000
450,000
2,500,000

250,000
250,000
20,000

20,000

Problem 6-17
Jan. 15 Notes receivable
Sales

500,000

Feb. 15 Cash
Interest expense
Notes receivable discounted

496,875
3,125

500,000

500,000

Principal
Interest (500,000 x 12% x 6/12)
Maturity value
Discount (530,000 x 15% x 5/12)
Net proceeds
July 15 Notes receivable discounted
Notes receivable
500,000

500,000
30,000
530,000

33,125
496,875
500,000

Problem 6-18
March 14 Accounts receivable
Sales
2,050,000

2,050,000

April

2,000,000

7 Notes receivable
Freight out

50,000


Accounts receivable
2,050,000
April 20 Cash
2,000,000

Notes receivable discounted

2,001,750

Interest income

1,750

80

40,000
38,250
June 4

Principal
Add: Interest (2,000,000 x 12% x 60/360)

2,000,000

Maturity value
Less: Discount (2,040,000 x 15% x 45/360)

2,040,000

Net proceeds

2,001,750

Accounts receivable (2,040,000 + 10,000)
Cash
Notes receivable discounted
Notes receivable

July

4

Cash

20,000

Accounts receivable
Interest income (2,000,000 x 12% x 30/360

2,050,000
2,050,000
2,000,000
2,000,000
2,070,000
2,050,000

Problem 6-19
Requirement a
April 5 Notes receivable
Accounts receivable
19 Cash

500,000

500,000

501,075
Notes receivable discounted
Interest income

500,000

Principal
Add: Interest (500,000 x 12% x 60/360)
Maturity value

500,000
10,000

1,075

510,000

Less: Discount (510,000 x 14% x 45/360)
Net proceeds

8,925

501,075
May 3 Notes receivable
Accounts receivable
16 Cash

1,000,000
995,000

1,000,000

Interest expense
Notes receivable discounted

5,000
1,000,000

Principal
Less: Discount (1,000,000 x 12% x 15/360)
5,000

1,000,000

Net proceeds

May 25 Notes receivable
Interest income
Accounts receivable

995,000
1,500,000
4,500

1,504,500

81
30,000
25,500

Principal
Add: Interest (1,500,000 x 12% x 60/360)

1,500,000

Maturity value
Less: Discount (1,530,000 x 12% x 50/360)

1,530,000

Net credit

1,504,500

June 7 Accounts receivable (510,000 + 20,000)
Cash
Notes receivable discounted
Notes receivable
15 Notes receivable
Sales
June 18 Cash
2,650

Accounts receivable
Interest income (530,000 x 12% x 15/360)

530,000
530,000
500,000

500,000

800,000
800,000
532,650

530,000

Requirement b – Adjustments on June 30
1. Accrued interest receivable
Interest income (800,000 x 12% x 15/360)

4,000
4,000

Accrued interest on D’s note.
2. Notes receivable discounted
Notes receivable

1,000,000

1,000,000

To cancel the contingent liability on B’s note. This note matured on May 31.
Since there is no notice of dishonor it is assumed that the said note is paid on
the date of maturity.

Problem 6-20
May

1 Notes receivable
Accounts receivable

200,000

200,000


1 Notes receivable
Accounts receivable
July 30 Accounts receivable
Notes receivable
Interest income (200,000 x 12% x 90/360)
6,000
Aug. 1 Cash
300,000

Note receivable discounted

300,000

300,000

206,000
200,000

306,075

Interest income

6,075

82
Principal
Interest (300,000 x 12% x 6/12)
Maturity value
Less: Discount (318,000 x 15% x 3/12)
Net proceeds
Sept. 1 Notes receivable
Accounts receivable
Interest income
12,000
28 Cash
4,120

Accounts receivable
Interest income (206,000 x 12% x 60/360)

300,000
18,000
318,000
11,925
306,075
132,000
120,000

210,120
206,000

Oct. 1 Notes receivable
Sales

500,000

Nov. 1 Accounts receivable (318,000 + 12,000)
Cash

330,000

Notes receivable discounted
Notes receivable
Dec. 30 Cash

500,000
330,000
300,000

300,000

515,000
Notes receivable
Interest income (500,000 x 12% x 90/360

500,000

15,000
31 Cash
6,600

Accounts receivable
Interest income (330,000 x 12% x 2/12)

Problem 6-21
2008

336,600
330,000


Jan. 1 Cash
Notes receivable
Land
Gain on sale of land

1,000,000
6,000,000

Dec. 31 Accrued interest receivable
Interest income (12% x 6,000,000)
720,000
2009
Dec. 31 Accrued interest receivable
Interest income (12% x 6,720,000)
806,400
2010
Jan. 1 Cash

5,000,000
2,000,000

720,000

806,400

7,526,400
Notes receivable
Accrued interest receivable

6,000,000

1,526,400

83

Problem 6-22
Jan. 1 Notes receivable
Sales
Unearned interest income

600,000

Dec. 31 Cash

200,000

Notes receivable

31 Unearned interest income
Interest income
30,000
Year
2009

2010

200,000

30,000

Notes receivable Fraction
Interest income
600,000
6/12

2008

30,000

540,000
60,000

400,000
200,000
1,200,000

4/12
2/12

20,000
10,000
60,000

Problem 6-23

Face value
Present value (300,000 x 2.4018)
Unearned interest income

900,000
720,540
179,460

Jan. 1 Cash
Notes receivable
Sales
Unearned interest income

Present value
Cash received
Sales price
Cost of generator
Gross income

720,540
100,000
820,540
700,000
120,540

100,000
900,000
820,540
179,460

Dec. 31 Cash

300,000

Notes receivable

31 Unearned interest income
Interest income
Date
value
Jan. 1, 2008
Dec. 31, 2008
Dec. 31, 2009
Dec. 31, 2010

Collection
300,000
300,000
300,000

300,000
86,465
86,465

Interest

Principal

86,465

60,841
32,154

213,535
239,159
267,846

Present
720,540
507,005
267,846
-

84
Problem 6-24
Requirement 1
12/31/2008
505,000
12/31/2009

Note receivable
Sales (500,000 x 3.99)
Unearned interest income

2,500,000

Cash
Note receivable

500,000

Unearned interest income
Interest income (8% x 1,995,000)

159,600

1,995,000

500,000

159,600
Requirement 2
Note receivable (2,500,000 – 500,000)
2,000,000
Unearned interest income (505,000 – 159,600)
Book value – 12/31/2009

(

345,400)
1,654,600

Requirement 3
Interest income for 2010 (8% x 1,654,600)

132,368

Problem 6-25
Face value of note
Present value (400,000 x .7118)

Unearned interest income

400,000
284,720
115,280

Present value
Cash received
Sales price
Book value
Gain on sale

284,720
125,000
409,720
350,000
59,720


2008
Jan. 1 Cash
Notes receivable
Accumulated depreciation
Equipment
Gain on sale of equipment
Unearned interest income

125,000
400,000
150,000

Dec. 31 Unearned interest income
Interest income
Date
Jan. 01, 2008
284,720
Dec. 31, 2008
318,886
Dec. 31, 2009
357,152
Dec. 31, 2010

Interest income

34,166
34,166
Unearned interest Present value
115,280

34,166

81,114

38,266

42,848

42,848

2009

Dec. 31 Unearned interest income
Interest income
38,266

2010
Dec. 31 Unearned interest income
Interest income
42,848
2011
Jan. 1 Cash

500,000
59,720
115,280

Notes receivable

-

400,000
38,266

85
42,848

400,000

400,000

Problem 6-26

1/1/2008

Note receivable
Loss on sale of land
Land
Unearned interest income

9,000,000
250,000
7,000,000
2,250,000

PV of note (9,000,000 x .75)
Carrying amount of land
Loss on sale
12/31/2008
675,000
12/31/2009
742,500
12/31/2010

6,750,000
7,000,000
( 250,000)

Unearned interest income
Interest income (10% x 6,750,000)

675,000

Unearned interest income
Interest income (10% x 7,425,000)

742,500

Unearned interest income

832,500


Interest income (2,250,000 – 1,417,500)
1/1/2011

Cash
Note receivable

832,500
9,000,000
9,000,000

Problem 6-27 Answer C
Note payable
Discount on note payable (1,000,000 x 10.8%)
Net proceeds

1,000,000
( 108,000)
892,000

Discount on note payable

Amortization from August 1 to December 31 (108,000 x 5/12)
Balance – December 31, 2008
Note payable
Discount on note payable
Carrying value
937,000

108,000
( 45,000)
63,000
1,000,000
( 63,000)

Problem 6-28
Question 1 – Answer A

Question 2 - Answer B

86
Problem 6-29 Answer A
Problem 6-30 Answer C
Principal

Problem 6-31 Answer C
500,000

Principal

Add: Interest (500,000 x 8%)
40,000

Maturity value
540,000
10,000
Less: Discount
190,000
(540,000 x 10% x 6/12)
27,000
Net proceeds
513,000

200,000

Less: Discount
(200,000 x 10% x 6/12)
Net proceeds

Problem 6-32 Answer A
Principal
Interest (4,000,000 x 12% x 90/360)
120,000
Maturity value
4,120,000
Less: Discount (4,120,000 x 15% x 60/360)
103,000
Net proceeds
Principal
Interest revenue

Problem 6-33 Answer C

4,000,000

4,017,000
4,000,000
17,000

Problem 6-34 Answer B


Principal

600,000 Note receivable – June 30, 2007

1,500,000

Add: Interest
Less: Payment on July 1, 2008
500,000
(600,000 x 10% x 6/12)
30,000
Balance – July 1, 2008
1,000,000
Maturity value
630,000
Less: Discount
Accrued interest from July 1, 2008
(630,000 x 12% x 4/12)
25,200
to June 30, 2009 (1,000,000 x 8)
80,000

Net proceeds
604,800

Problem 6-35 Answer C
Problem 6-36 Answer A
First payment on January 1, 2008
Present value of remaining six payments (600,000 x 4.36)
2,616,000
Correct sales revenue
3,216,000

Problem 6-37 Answer D

600,000

Problem 6-38 Answer C

Note receivable
1,000,000 The note receivable is shown at its value on
Unearned interest income
( 435,000) December 31, 2008.
Carrying value equal to present
value (100,000 x 5.65)
565,000 Face value – remaining nine
payments (500,000 x 9)
4,500,000
Present value (500,000 x 6.25)
3,125,000
Unearned interest income
1,375,000

87
Problem 6-39
1. Answer C
Note receivable
Present value of note receivable (6,000,000 x .75)
4,500,000
Unearned interest income
Interest income:
2008 (10% x 4,500,000)
450,000
2009 (10% x 4,950,000)
495,000
2010 (1,500,000 – 450,000 – 495,000)
555,000
Total
2. Answer D

6,000,000
1,500,000

1,500,000


Present value of note receivable
Carrying amount of equipment
Loss on sale of equipment

4,500,000
4,800,000

( 300,000)

Problem 6-40 Answer B
Present value of note receivable (1,000,000 x .712)
712,000
Book value of equipment
Loss on sale

800,000
( 88,000)

Interest income for first year (12% x 712,000)
85,440

Problem 6-41 Answer D
NR from Hart

1,000,000

NR from Maxx (1,150,000 x .68)

782,000

88
CHAPTER 7
Problem 7-1
Problem 7-5
1.
2.
3.

4.
5.
6.
7.
8.
9.
10.

D
B
D
D
D
D
C
A
A
A

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Problem 7-2
D
D
A
C
D
A
D
A
A
B

1. B
2. A
3. A
4. C
5. C
6. D
7. C
8. A
9. A
10. D

Problem 7-3
1.
2.
3.
4.
5.
6.

7.
8.
9.
10.

D
C
C
A
A
C
A
C
A
C

Problem 7-4
1. C
2. B
3. A
4. C
5. D
6. D
7. A
8. B
9. B
10. A


Problem 7-6

Items counted in the bodega
4,000,000
Items included in count specifically segregated per sales contract
( 100,000)
Items returned by customer
Items ordered and in receiving department
Items shipped today, FOB destination
Items for display
Items on counter for sale
Damaged and unsalable items included in count
Items in shipping department
250,000

50,000
400,000
150,000
200,000
800,000
( 50,000)
5,700,000

Problem 7-7
Materials
Goods in process
Finished goods in factory
Finished goods in company-owned retail store (750,000/150%)
Finished goods in the hands of consignees (400,000 x 60%)
240,000
Finished goods in transit
Finished goods out on approval

Materials in transit (330,000 + 30,000)
360,000
Correct inventory

1,400,000
650,000
2,000,000
500,000
250,000
100,000
5,500,000

Problem 7-8
Finished goods
2,000,000
Finished goods held by salesmen
Goods in process (720,000/80%)
Materials
Materials returned to suppliers for replacement
Factory supplies (110,000 + 60,000)
170,000
Correct inventory

100,000
900,000
1,000,000
100,000
4,270,000

89

Problem 7-9
1. Inventory
50,000
2. Accounts payable
75,000

50,000
Income

summary

75,000
Purchases


3. Purchases
30,000
Inventory
Income summary
4. Income summary
Inventory
5. Purchases
Accounts payable

30,000
Accounts

payable

30,000

30,000
90,000

90,000

140,000
140,000

Problem 7-10
1. EXCLUDE – The term of the shipment is FOB destination.
2. EXCLUDE – The goods are held only for consignment.
3. INCLUDE – There is no perfected sale yet as of December 31, 2008.
4. INCLUDE – The term FOB supplier’s warehouse is synonymous with FOB shipping point.
5. EXCLUDE – There is already a constructive delivery since the article was specifically
made according to the customer’s specifications and the article is already
completed on December 31, 2008.

Problem 7-11
Inventory before adjustment
Goods out on consignment
Goods purchased FOB shipping point
Goods sold FOB shipping point
Goods sold FOB destination
Goods sold FOB destination
Correct December 31 inventory

7,600,000
1,000,000
250,000
( 850,000)

260,000
840,000
9,100,000

90
Problem 7-12
Inventory per book
Item 3 (18,500 – 1,000 / 140%)
12,500
Item 4 (50,000 + 2,500)
52,500
Item 5 (35,000 / 140% = 25,000 + 2,000)
Adjusted inventory

950,000

27,000
1,042,000


Problem 7-13
Requirement a
Periodic System
1. Purchases
Accounts payable
800,000

800,000

2. Accounts payable

Purchase returns
50,000

50,000

3. Accounts payable
Cash
4. Accounts receivable
Sales
1,580,000

Perpetual System
800,000

50,000
600,000

2. Accounts payable
50,000
Merchandise inventory

600,000

3. Accounts payable
Cash

1,580,000

4. Accounts receivable
Sales

1,580,000

5. Sales return
Accounts receivable
790,000

1. Merchandise inventory
800,000
Accounts payable

40,000
40,000

600,000
600,000
1,580,000

Cost of sales
790,000
Merchandise inventory

6. Cash
1,360,000
5. Sales return
40,000
Accounts receivable
1,360,000
Accounts receivable
40,000

7. Inventory-Dec. 31
Income summary
20,000
(60 x 1,000)

60,000
60,000

Merchandise inventory
Cost of sales

20,000

6. Cash
1,360,000
Accounts receivable
1,360,000
7. Inventory shortage
10,000
Merchandise inventory
Merchandise inventory per book
Physical count
Shortage

10,000
70,000
60,000
10,000

Requirement b

Periodic System

Perpetual System

Inventory – January
90,000
Cost of sales recorded
Purchases
800,000
(790,000 – 20,000)
Purchase returns
( 50,000) 750,000
Inventory shortage
10,000
Goods available for sale
840,000
Adjusted cost of sales
780,000
Less: Inventory – December 31
60,000
Cost of sales
780,000

91

Problem 7-14

770,000

Company A
List price
Less: First trade discount (20% x 500,000)

500,000
100,000
400,000

Second trade discount (10% x 400,000)
40,000

360,000

Third trade discount (10% x 360,000)
36,000
Invoice price
Less: Cash discount (2% x 324,000)
Payment within the discount period

324,000
6,480
317,520

Company B
List price
Less: Trade discount (35% x 500,000)
175,000
Invoice price
Less: Cash discount (2% x 325,000)
Payment within the discount period

500,000
325,000
6,500
318,500

Problem 7-15
Requirement a
Gross method
1. Purchases
Accounts payable
4,655,000
2. Freight in
Cash
250,000
3. Accounts payable
Cash
1,617,000
Purchase discount
Accounts payable
Cash

Net method

4,750,000

1. Purchases
4,750,000

250,000

2. Freight in
250,000

1,650,000
1,617,000

250,000
Cash

3. Accounts payable
Cash

1,617,000

33,000
2,100,000
2,100,000

4. No entry

5. Inventory
Income summary
981,000

4,655,000
Accounts payable

Accounts payable
2,058,000

Purchase discount lost
Cash
4. Purchase discount lost
Accounts payable
(1,000,000 x 2%)

1,000,000

5. Inventory
1,000,000

42,000
2,100,000

20,000

981,000
Income summary

20,000


92
Requirement b
method
Purchases
Freight in
Total
Less: Purchase discounts
Goods available for sale

Less: Inventory – December 31
Cost of sales
Ending inventory:
Gross (5,000,000/5)
Net (4,905,000/5)

Gross method
4,750,000
250,000
5,000,000
33,000
4,967,000
1,000,000
3,967,000

Net
4,655,000
250,000
4,905,000
-___
4,905,000
981,000
3,924,000

1,000,000

981,000

Problem 7-16
Gross method

Sept. 1 Purchases
Accounts payable

650,000

1 Freight in
Accounts payable

20,000

7 Accounts payable
Purchase returns and allowances
Oct. 1 Accounts payable
Cash

650,000
20,000

10,000

10,000

660,000
660,000

Net method
Sept. 1 Purchases
Accounts payable
1 Freight in
Accounts payable

7 Accounts payable (10,000 x 98%)
Purchase returns and allowances
Oct. 1 Accounts payable (657,000 – 9,800)
Purchase discount lost (2% x 640,000)
Cash

637,000

637,000

20,000
20,000
9,800
647,200
12,800

9,800

660,000


93
Problem 7-17
Gross method
1. Merchandise inventory
Accounts payable
980,000

Net method

1,000,000
1,000,000

2. Accounts payable
Cash
50,000

50,000

3. Accounts payable
Cash
784,000
Cost of sales

800,000

4. Accounts payable
Cash

150,000

50,000

784,000

1. Merchandise inventory 980,000
Accounts payable
2. Accounts payable
Cash

50,000

3. Accounts payable
784,000
Cash (800,000 x 98%)

16,000
150,000

5. Cash
Sales
1,200,000

1,200,000
1,200,000

Cost of sales
700,000
Merchandise inventory
686,000
(1,000,000 x 70%)

700,000

4. Accounts payable
146,000
Purchase discount lost
4,000
Cash
150,000

5. Cash
1,200,000
Sales
Cost of sales
686,000
Merchandise inventory
(980,000 x 70%)

Problem 7-18
Units

Total cost
1. FIFO - periodic
Lot No. 4
50,000
5
1,305,000
2. Beginning inventory
800,000
Purchases: Lot No. 1
200,000
880,000
720,000

Unit cost
500

100

14,500

90

15,000

1,355,000
10,000

80

2,000

100

2

8,000

110

3

6,000

120

4

9,500

100

14,500

90

950,000

5
1,305,000
Goods available for sale

50,000

Weighted average (4,855,000/50,000)

15,000

3. Specific identification

4,855,000
97.10

1,456,500


Lot 3
4

6,000

9,000
15,000
Goods available

of sales
FIFO
3,500,000
Weighted average
3,398,500
Specific identification
3,235,000

120
100

720,000
900,000
1,620,000

Inventory-Dec. 31

4,855,000

1,355,000

4,855,000

1,456,500

4,855,000

1,620,000

Cost

94
Problem 7-19
Total cost
FIFO
December 17
450,000
22
860,000

Units

Unit cost

10,000

45

20,000

43

30,000

1,310,000
Average method

December 1
520,000
7
17
22
860,000
Available for sale
5,580,000
Inventory (5,580,000/120,000)

10,000
30,000
60,000
20,000

52
50
45

43

1,500,000
2,700,000

120,000
30,000

Goods available for sale
5,580,000
Less: Inventory – December 31

1,395,000
Cost of goods sold
4,185,000

46.50

1,395,000

FIFO
5,580,000

Average

1,310,000
4,270,000

Problem 7-20
The stock cards are not prepared anymore. The end results are simply given.
Total cost
FIFO
Ending inventory

Units
4,000

Unit cost
210

840,000

Cost of sales
Average method
Ending inventory

2,700,000
4,000

252.50

1,010,000

Cost of sales

2,530,000

Problem 7-21
Purchases
2006
5,000
2007
9,000
2008
15,000
Total inventory – December 31, 2008 (units)

Sales

Sales
Cost of sales:

Inventory – December 31, 2007 (3,000 x 60)
Purchases
Goods available for sale
Less: Inventory – December 31, 2008 (6,000 x 75)
855,000
Gross income

Inventory increment
4,000
1,000
7,000
2,000
12,000
3,000
6,000
1,200,000
180,000
1,125,000
1,305,000

450,000
345,000

95
Problem 7-22
Units

Unit cost

Total cost

FIFO
October 1

15,000

60

900,000

Weighted average – periodic
January 1
April
1
October 1
Goods available for sale
Less: Sales
Ending inventory

10,000
15,000
25,000
50,000
35,000
15,000

40
50
60

400,000

750,000
1,500,000
2,650,000

Weighted average (2,650,000/50,000)

15,000

53

795,000

cost
Moving average – perpetual
January 1
31
( 200,000)
Balance
200,000
April 1
750,000
Total
950,000

Units

Unit cost

10,000
( 5,000)

5,000

400,000
40
40

15,000
20,000

40

Total

50
47.50