1. Assume that the Year 1, the ending merchandise inventory is overstated by $30,000. If this is the only

1.  Assume that the Year 1, the ending merchandise inventory is overstated by $30,000. If this is the only error in Years 1 and 2, fill in the items below, indicating which items will be understated, overstated, or correctly stated for Years 1 and 2.

Item                                        Year 1         Year 2

Gross Profit

Net Income

Ending Retained Earnings

2.  Record the necessary journal entries from the following bank reconcilation information for July 31, 2011.      

Bank Balance, July 31, 2011                      $28,542

Checkbook Balance, July 31, 2011               29,344

Bank collection of note receivable     1,545 +210 interest

Bank service charge 75

Deposits in transit 3,145

Outstanding checks 2,685

NSF check from customer 770

Correction of book error (check #456 written for $280, recorded at $28)-maintenance expense  

3. Journalize the following transaction for Ryan Company.

July. 22    Sold $5,300 of merchandise to Rick on account

Nov.  4     Exchanged Rick's account receivable for an eight month, 6% note for $5,300.

Dec. 29    Recorded accrued interest on Jim's note (round to nearest dollar)

July.3       Rick paid off his note with interest (round to nearest dollar).

4. A company system was purchased on July 1 at a cost of $125,000. It's expected to be used for four years and to have a residual value of $5,000 after 8,000 hours of service. The system was used for 1,750 hours the first yea and 2,100 hours the second year. Calculate the depreciation expense to the nearest dollar for the first and second years. 

Method               Year 1Year 2

Straight-line

Double-declining-balance

Units-of-production

5. The following information was available from the income statement and balance sheet of Meranda Company.

Item                                 12/31/2010                12/31/2009

Accounts Receivable             $42,000                         $45,100

Accounts Payable                 27,900                          24,500

Merchandise Inventory           68,000                          63,000

Sales (2010)                       170,000

Interest Revenue (2010)       3,200

Dividend Revenue (2010)       1,800

Tax Expense (2010)             11,600

Salaries Expense (2010)      22,400

COGS (2010)                      57,000

Interest Expense (2010)        2,200

Operating Expenses             19,400

Complete the cash flow from operating activities section for Meranda Company using the direct method for the year ended December 31, 2010.