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1

Financial Accounting

Problem 1

Students:

Please fill in appropriate areas.

Include student information

Student Name, Surname

as directed by your instructor.

Group number

Date:

Body Builder World began January with an inventory of 80 crates of vitamins that cost a total of $2,400.

During the month, Body Builder World purchased and sold merchandise on account as follows:

Problem 1

Requirement

1. Which inventory method most closely mimics the physical flow of Body Builder World's inventory?

2. Prepare a perpetual inventory record, at LIFO cost, for this merchandise.

3. Journalize all transactions using LIFO.

Requirement 1

FIFO

The inventory method that most closely mimics the physical flow is

LIFO

Requirement 2

Complete the perpetual LIFO inventory record for Body Builder World (Enter the oldest inventory

layer first.) Please use the shaded areas.

VITAMINS

Purchases

Cost of goods sold

Inventory on hand

Date

QTY

Unit Cost

Total Cost

QTY

Unit Cost

Total Cost

QTY

Unit Cost

Total Cost

Beginning

$ 30

$ 2,400

Purchase 1

Sale 1

Purchase 2

Sale 2

Ending

Requirement 3

Journalize all transactions using LIFO. Begin by preparing the journal entry for the first purchase.

Journal Entry

Date

Accounts

Debit

Credit

Record the journal entry for Sale 1.

Journal Entry

Date

Accounts

Debit

Credit

Record the cost of goods sold associated with Sale 1.

Journal Entry

Date

Accounts

Debit

Credit

Record purchase 2

Journal Entry

Date

Accounts

Debit

Credit

Record the journal entry for Sale 2

Journal Entry

Date

Accounts

Debit

Credit

Record the cost of goods sold associate with Sale 2.

Journal Entry

Date

Accounts

Debit

Credit

Now prepare the entry for the payment of accounts payable.

Journal Entry

Date

Accounts

Debit

Credit

Finally, prepare the journal entry for the operating expense.

Journal Entry

Date

Accounts

Debit

Credit

Jennie Aug 30, 2008

Course no Student id

2

Financial Accounting

Problem 2

Donna White started her practice as a design consultant on January 1, 2020. During the first month of operations,

the business completed the following transactions:

Cash

Accounts receivable

Problem 2

Supplies

Requirements

Furniture

1. Record each transaction in the journal. Key each transaction by date.

Land

Explanations are not required.

Accounts payable

Salary expense

Requirement 1

Rent expense

Journey Entry

Date

Accounts

Debit

Credit

January

Test student Oct 7, 2008

Course name Student ID

3

Financial Accounting
Problem 3
Presented here are the accounts of Town and Country Realty for the year ended December 31, 2019.
Problem 3
Requirements
1. Prepare Town and Country Realty Corporation's income statement.
2. Prepare the statement of owner's equity.
3. Prepare the balance sheet.
4. Answer these questions about the company.
a. Was the result of operations for the year a profit or a loss? How much?
b. How much in total economic resources does the company have as it moves into the new year?
c. How much does the company owe?
d. What is the dollar amount of the owner's equity in the business at the end of the year?
Requirement 1. Prepare the income statement from the data provided.
	Town and Country Realty
	Income Statement
	Year Ended December 31, 2019
	Revenue
	Service Revenue
	Total revenues
	Expenses:
		Total expenses
	Net income
Requirement 2. Prepare the statement of owner's equity.
	Town and Country Realty
	Statement of Owner's Equity
	Year Ended December 31, 2019
	Heidi Gentry, capital, December 31, 2018
	Add:
		Subtotal
	Less:	Withdrawals
	Heidi Gentry, capital, December 31, 2019
Requirement 3. Prepare the balance sheet from the data provided.
	Town and Country Realty
	Balance Sheet
	December 31, 2019
	Assets		Liabilities
	Cash		Accounts payable
			Total liabilities
			Owner's Equity
			Heidi Gentry, capital
			Total liabilities and
	Total assets		owner's equity
Requirement 4. Determine if the result of the operation is a profit or loss, and the amount.
			(fill in shaded areas)
a. Result of operations:
b. The total economic resources were:
c. The total amount owed was:
d. The amount of owner's equity
at the end of the year was:

Ch 1 of 4 chapters Nov 2, 2008

BU122 Student ID

4

Financial Accounting
Exercise 4
Prepare the statement of cash flows -- direct method
The income statement and additional data of Value World, Inc., follow:
	Value World, Inc.
	Income Statement
	Year Ended June 30, 2019
		Revenues:
		Sales revenue.............................	$ 275,000
		Dividend revenue......................	8,500	$ 283,500
		Expenses:
		Cost of goods sold ....................	$ 110,000
		Salary expense ..........................	60,000
		Depreciation expense................	22,000
		Advertising expense ..................	13,000
		Interest expense ........................	2,200
		Income tax expense...................	8,000	215,200
		Net income ..........................		$ 68,300
Additional data:
	a. Collections from customers are $12,000 more than sales.
	b. Payments to suppliers are $2,300 less than the sum of cost of goods sold plus advertising expense.
	c. Payments to employees are $1,500 less than salary expense.
	d. Dividend revenue, interest expense, and income tax expense equal their cash amounts.
	e. Acquisition of plant assets is $210,000. Of this amount, $110,000 is paid in cash and $100,000 by signing a long-term note payable.
	f. Proceeds from sale of land total $29,000.
	g. Proceeds from issuance of common stock total $31,000.
	h. Payment of long-term note payable is $17,000.
	i. Payment of dividends is $12,500.
	j. Cash balance, June 30, 2018, was $25,000.
Test Your Knowledge
Exercise 4
Instructions:
1.	Prepare Value World, Inc.’s statement of cash flows and accompanying schedule of non-cash investing and financing activities. Report operating activities by the direct method.
2.	Evaluate Value World’s cash flows for the year. In your evaluation, mention all three categories of cash flows and give the reason for your evaluation.
Value World, Inc.
Statement of Cash Flows
Year Ended June 30, 2019
Cash flows from operating activities:
Receipts:
	Collections from customers…………………………………………………….				$ 263,000
	Dividend received…………………………………………………………………..				8,500
	Total cash receipts ………………………………………………………………				271,500
Payments:
	Total cash payments………………………………………………………….
	Net cash provided by operating activities……………………………
Cash flows from investing activities:
	Net cash used for investing activities…………………………………
Cash flows from financing activites:
	Proceeds from issuance of common stock………………………..			$ 31,000
	Net cash provided by financing activities……………………..
Net increase in cash…………………………………………………………………
Cash balance, June 30, 2018…………………………………………………….
Cash balance, June 30, 2019…………………………………………………….
Noncash investing and financing activities:
Requirement 2
	Enter explanation here.

5

Financial Accounting
Exercise 5
Determining depreciation amounts by three methods
Piccadilly Pizza bought a used Toyota delivery van on January 2, 2019, for $19,200. The van was expected to remain in service for four years (71,200 miles). At the end of its useful life, Ralph’s officials estimated that the van’s residual value would be $1,400. The van traveled 28,000 miles the first year, 20,500 miles the second year, 18,500 miles the third year, and 4,200 miles in the fourth year. Prepare a schedule of depreciation expense per year for the van under the three depreciation methods discussed in this chapter. (For units-of-production and double-declining-balance, round to the nearest two decimals after each step of the calculation.)
Which method best tracks the wear and tear on the van? Which method would Ralph’s prefer
to use for income tax purposes? Explain in detail why Ralph’s prefers this method.
Test Your Knowledge
Exercise 5
Instructions
Show answers below, but explain how you arrived at them in the space provided.
Year	Straight-Line	Units-of-Production		Double-Declining Balance
2019	FORMULA	FORMULA		FORMULA
2020	FORMULA	FORMULA		FORMULA
2021	FORMULA	FORMULA		FORMULA
2022	FORMULA	FORMULA		FORMULA
Show Computations
Straight Line Computations:
Units-of-productions Computations:
					Straight-line
Double-declining-balance Computations:					Units-of-production
					Double-Declining Balance
Which method best tracks the wear and tear on the van?			Select from list
Which method for income tax purposes?		Select from list
Why?
Enter explanation here.

6

Financial Accounting
Exercise 6
Companies, a home improvement store chain, reported the following summarized figures:
	DANFIELD, INC.
	Income Statement
	Years Ended December 31, 2019 and 2018
					2019	2018
	Net Sales				$ 467,000	$ 428,000
	Cost of Goods Sold				237,000	$ 218,000
	Gross Profit				230,000	210,000
	Operating Expenses				136,000	134,000
	Income From Opetations				94,000	76,000
	Interest Expense				9,000	10,000
	Income Before Income Tax				$ 85,000	$ 66,000
	Income Tax Expense				$ 24,000	$ 27,000
	Net Income				61,000	39,000
DANFIELD, INC.
Balance Sheet
December 31, 2019 and 2018
Assets			2019	2018	Liabilities		2019	2018
Cash			97,000	95,000	Total Current Liabilities		225,000	246,000
Short-term Investments			- 0	- 0	Long-term Liabilities		114,000	97,000
Accounts Receivable, Net			112,000	118,000	Total Liabilities		339,000	343,000
Merchandise Inventory			145,000	163,000
Prepaid Expenses			12,000	5,000	Stockholders' Equity
Total Current Assets			366,000	381,000	Preffered Stock, 3%		108,000	108,000
Property, Plant and Equipment, Net			211,000	179,000	Common Stockholders' Equity		130,000	109,000
Total Assets			577,000	560,000	Total Liabilities an Equity		577,000	560,000
DANFIELD has 50,000 common shares outstanding during 2019.
Evaluating current ratio
Requirements
1. Compute Companies’ current ratio at May 31, 2019.
2. Did Companies’ current ratio improve, deteriorate, or hold steady during
2019?
Computing inventory, gross profit, and receivables ratios
3. Compute the inventory turnover, days’ sales in inventory, and gross profit
percentage for Companies for 2019.
4. Compute days’ sales in receivables during 2019. Round dollar amounts to three
decimal places. Assume all sales were on account.
5. What do these ratios say about Companies’ ability to sell inventory and
collect receivables?
Measuring ability to pay liabilities
6. Compute the debt ratio and the debt to equity ratio at May 31, 2019 for
Companies.
7. Is ability to pay its liabilities strong or weak? Explain your reasoning.
Measuring profitability
8. Compute the profit margin ratio for Companies for 2019.
9. Compute the rate of return on total assets for 2019.
10. Compute the asset turnover ratio for 2019.
11. Compute the rate of return on common stockholders’ equity for 2019.
12. Are these rates of return strong or weak? Explain your reasoning.
Computing EPS and P/E ratio
13. Compute earnings per share (EPS) for 2019. Round to the nearest cent.
14. Compute Companies’ price/earnings ratio for 2019. The market price per
share of stock is $68.50.
15. What do these results mean when evaluating Companies’ profitability?
Test Your Knowledge
Exercise 3
Solution:
Requirement 1
Current ratio	=				=
Requirement 2
Requiremets 3
Inventory turnover		=			=
Days’ sales in inventory		=			=		days
Gross profit percentage		=			=
Requirement 4
Accounts receivable		=				=
turnover ratio
Days’ Sales in		=				=		days
Receivables
Requirement 5
Requirement 6
Debt ratio		=			=
Debt to equity ratio		=			=
Requirement 7
Requirement 8
Profit margin ratio		=			=
Requirement 9
Rate of return on total		=				=
assets
Requirement 10
Asset turnover ratio		=			=
Requirement 11
Rate of return on		=				=
common stockholders’
equity
Requirement 12
Requirement 13
Earnings per share		=				=		/share
Requirement 14
Price/earnings ratio		=					=
Requirement 15

Problem 1

Financial Accounting