Assignment

Harold Frieze owns Euro Lighting, a lighting products store that specializes in energy efficient and aestheti- cally pleasing fixtures. Sales have grown rapidly due to recent consumer interest in reducing energy con- sumption for economic and environmental reasons.

Increased sales have brought new challenges. First, the "modern" styling of the fixtures looks great in the store, but consumers often find they clash with other fixtures once they take them home. This has brought about a high rate of return. Harold accepts returns of undamaged goods with original packaging.

Second, many of the fixtures are rather technical and require care when installing them. Customers frequently damage the products (and packaging) when attempting to do an installation. Harold does not accept such goods for return, but has established a policy of refunding a portion of the purchase price as an "allowance" for customers who complain of such problems.

(a) Prepare a journal entry for each of the following scenarios.

A customer purchased a lighting fixture for cash of €350

A customer purchased a lighting fixture on account for €500

A customer returned a lighting fixture for a cash refund of €275

A customer returned a fixture for a credit on account of €600

A complaining customer received a €100 allowance in cash

A complaining customer received a €70 credit on account

A customer paid their balance on account of €475

(b) Calculate Euro Lighting's net sales and gross profit based on the following information, and show how such information would appear on the upper portion of the income statement for the year ending December 31, 20X3.

Gross sales, €760,000

Sales returns and allowances, €42,500

Cost of goods sold, €312,000

College Bookstore is facing increased competition from online resellers and electronic media forms. To com- bat eroding sales, management adopted new discounting policies as follows:

Students are offered a trade discount based on the number of books purchased:

Sales, returns and allowances B-05.01

Sales discounts B-05.02

A student purchasing one book gets 0% discount.

A student purchasing two books gets a 10% discount.

A student purchasing three books gets a 20% discount.

A student purchasing four or more books gets a 30% discount.

Students are now offered credit terms at the time of purchase. If the student pays within 30 days of the date of purchase, he or she receives a 3% cash discount.

(a) Calculate the amount of the sale that should be recorded by College Bookstore for each of the following transactions. How much should be ultimately be collected for each transaction?

Student A, 3 books, $425 list price, purchased on August 11, paid on August 19

Student B, 2 books, $210 list price, purchased on August 18, paid on October 4.

Student C, 1 books, $90 list price, purchased on Sept. 3, paid on Sept. 3

Student D, 7 books, $1,205 list price, purchased on August 5, paid on Sept. 20

Shirley Williams Apparel Store purchases clothing merchandise on account from various vendors. Below is an invoice from Terra Wear.

TERRA WEAR ACTION SPORT CLOTHING

High Point, CO

Bill To: Shirley Williams Apparel Store Invoice #3778 Denver Sports Center, #1234 Denver, CO

DELIVERY DATE INVOICE DATE F.O.B. POINT TERMS

May 5, 20X1 May 5, 20X1 Denver 1/10,n/30

QTY. DESCRIPTION UNIT PRICE TOTAL

70 Work Out Wonder sport collection $125 $8,750

30 Sun Fun - fun wear 35 $1,050

10 Fall Color collection 60 $600

THANK YOU FOR YOUR BUSINESS! TOTAL $10,400

x

SPREADSHEET TOOL:

If statements

B-05.03 Purchase transactions, business papers, net vs. gross

(a) Prepare Shirley's journal entries for each of the following transactions, assuming use of a periodic inventory system and the "gross method" of recording:

To record the invoice on May 5.

To record the return of the Fall Color collection on May 7.

To record the payment of the balance due if payment occurred on May 10.

To record the payment of the balance due if payment occurred on May 20.

Amber Nestor has an eye for quality. She recently formed an art gallery where she allows artists to display their artwork for sale. Customers buy the artwork through the gallery, but payments are actually made payable directly to the originating artist. Artists, in turn, pay Amber a 20% commission that is appropriately reflected as revenue of the gallery.

Following is Amber's trial balance after the first year of operation. This trial balance does not reflect the adjustments that are necessary, as described by the additional infomation.

AMBER NESTOR ART GALLERY Trial Balance

As of December 31, 20X4 Debits Credits

Cash $18,400

Supplies 6,790

Display equipment 15,000

Loan payable $ 7,500

Capital stock 25,000

Revenues 48,590

Rent expense 11,000

Salaries expense 24,000

Interest expense 500

Utilities expense 5,400

$81,090 $81,090

The Display equipment was purchased near the beginning of the year. It has a 3-year life and no salvage value. Its cost should be depreciated equally over its life.

Amber is entitled to receive $17,900 of commissions for art sold. This revenue has not yet been recorded, but it is fully expected that the artists will soon be making payment.

Supplies on hand at year end were counted, and amount to $3,400.

December's rent of $1,000 has not yet been paid.

(a) Prepare the necessary adjusting enties as of December 31, 20X4.

(b) Use T-accounts to determine the adjusted balances of the accounts.

(c) Prepare the adjusted trial balance for Amber Nestor.

Preparation of an adjusted trial balance B-04.01

Utilize the following worksheet to prepare the income statement, statement of retained earnings, and bal- ance sheet for Himarios Corporation. For this problem, you do not need to prepare a classified balance sheet.

x

B-04.03 Basic understanding of the worksheet

HIMARIOS COMPANY Worksheet to Prepare Financial Statements

December 31, 20X9

Trial Balance Adjustments Adjusted Trial

Balance Income

Statement Statement of Ret. Earnings Balance Sheet

Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit

Cash $ 59,300 $ 59,300 $ 59,300

Accounts receivable 12,371 12,371 12,371

Equipment 60,000 60,000 60,000

Accum. depreciation $ 12,000 $ 4,000 $ 16,000 $ 16,000

Accounts payable 7,566 7,566 7,566

Unearned revenue 4,000 $ 1,500 2,500 2,500

Notes payable 25,000 25,000 25,000

Capital stock 50,000 50,000 50,000

Retained earnings, beg. 6,343 6,343 $ 6,343

Service revenue 139,987 1,500 141,487 $141,487

Salaries expense 108,425 4,300 112,725 $112,725

Interest expense 2,100 2,100 2,100

Dividends 2,700 2,700 $ 2,700

Depreciation expense 4,000 4,000 4,000

Salaries payable 4,300 4,300 4,300

Rent expense 2,500 2,500 2,500

Rent payable 2,500 2,500 2,500

$244,896 $244,896 $12,300 $12,300 $255,696 $255,696 $121,325 $141,487

Net income 20,162 20,162

$141,487 $141,487 $ 2,700 $26,505

Retained earnings, end. 23,805 23,805

$26,505 $26,505 $131,671 $131,671

Some of the following accounts are real (permanent) accounts, and some are nominal (temporary) accounts. Which are which?

Capital Stock Unearned Revenues

Revenues Income Summary

Accumulated Depreciation Equipment

Salaries Expense Prepaid Rent

Accounts Payable Interest Payable

Dividends Retained Earnings

Supplies Loan Payable

Rent Expense

Temporary vs. real accounts B-04.04

Accounts Payable Equipment

Long-term Receivable From Employee Revenues

Dividends Prepaid Rent

Capital Stock Interest Payable

Patent Retained Earnings (beginning)

Supplies Loan Payable (due in 5 years)

Nkululeko J. Ntshanga owns a manganese ore mining business in South Africa. He is interested in attracting additional investors to obtain financing for planned expansion. Some potential investors have expressed a concern that money is really being sought to address liquidity problems being faced by Nkululeko's company.

To alleviate this concern Nkululeko provided the following complete list of assets and liabilities of the com- pany. The currency unit is the South African Rand. Use this information to determine the company's current assets, current liabilities, working capital, current ratio, and quick ratio. Based on your calculations, does it appear that the company is experiencing liquidity problems?

Accumulated Depreciation R 4,569,000

Prepaid Rent 45,800

Note Payable (due in 3 months) 100,000

Accounts Receivable 468,000

Accounts Payable 255,000

Patent 3,000,000

Cash 790,000

Supplies 134,800

Unearned Revenues 133,000

Equipment 8,777,600

Interest Payable 45,000

Loan Payable (due in 3 years) 1,500,000

Current and quick ratios B-04.09

Review the following items and decide if each would be more appropriately classified as:

Cash Cash equivalent Neither cash nor cash equivalent

(a) Currency in the petty cash box

(b) Postage stamps in a file cabinet

(c) The balance on deposit in a regular checking account

(d) An advance to an employee for travel costs to be incurred

(e) A certificate of deposit maturing in 2 years

(f ) A 30-day certificate of deposit

(g) An investment in a government treasury security maturing in 2 years

(h) A 90-day government treasury security

(i) A post-dated check accepted from a customer

(j) Amounts due from customers

(k) Amounts paid to suppliers by check, but the supplier has not yet cashed the check

Composition of cash B-06.01

Biscay Bay Boats established a petty cash fund for minor day-to-day expenses. Following are activities related to this fund. Prepare the necessary journal entries for petty cash.

(1) Established a $500 petty cash fund by writing a check to "cash," cashing the check, and placing the proceeds in a petty cash box entrusted to Herman Jones as custodian.

(2) At the end of the month, the petty cash fund contained remaining cash of $127, and receipts for $65 postage, $123 office supplies, and $180 gasoline for company vehicles. Herman is not sure why the fund is short $5. A check payable to cash in the amount of $373 was prepared, and the funds were placed into the box.

(3) At the end of the next month, the petty cash fund contained remaining cash of $35, and receipts for $265 postage, $160 office supplies, and $40 gasoline for company vehicles. A check payable to cash in the amount of $715 was prepared, and the funds were placed into the box. This amount reimburses the fund and increases its balance to $750.

Petty cash B-06.05

Following is the September 30, 20X4 bank reconciliation for the Quiet Moose Lodge. You are also provided with the October check register and bank statement. Utilize this information to prepare October's bank rec- onciliation and related adjusting entry. You may assume that any discrepancies between the check register and bank statement relate to recording errors in the accounts of the Quiet Moose, and not the bank.

Ending balance per bank statement $18,344.07

Add: Deposits in transit 2,505.55

Deduct: Outstanding checks

#3444 $ 175.00

#3446 1,908.09 (2,083.09)

Correct cash balance $18,766.53

Ending balance per company records $18,696.53

Add: Interest earnings 80.00

Deduct: Service charges (10.00)

Correct cash balance $18,766.53

Spreadsheet

fx A B C D E F

1 DATE PARTY REF # CHECK DEPOSIT Balance 2 3 10-01-X4 BALANCE $18,766.53

4 10-02-X4 Gomez 3448 $ 145.99 18,620.54

5 10-05-X4 Deposit $ 3,400.00 22,020.54

6 10-07-X4 Bryers 3449 387.97 21,632.57

7 10-07-X4 Morton 3450 1,204.67 20,427.90

8 10-07-X4 Lee 3451 4,664.50 15,763.40

9 10-10-X4 Morici 3452 43.23 15,720.17

1 0 10-10-X4 LaCorx 3453 2,990.44 12,729.73

1 1 10-11-X4 Benson 3454 1,100.31 11,629.42

1 2 10-12-X4 Void 3455 11,629.42

1 3 10-13-X4 Morgan 3456 695.77 10,933.65

1 4 10-13-X4 Russell 3457 788.87 10,144.78

1 5 10-14-X4 Deposit 3,476.88 13,621.66

1 6 10-17-X4 Lowen 3458 3,664.34 9,957.32

1 7 10-19-X4 Post Office 3459 45.45 9,911.87

1 8 10-20-X4 Nguen 3460 677.21 9,234.66

1 9 10-30-X4 Behn 3461 499.00 8,735.66

2 0 10-31-X4 Deposit 8,131.21 16,866.87

2 1 $16,907.75 $15,008.09

I-06.03 Comprehensive bank reconciliation with business papers

Mountain Home Bank

121 Main Street

P.O. Box 5566

Statement date: October 1, 20X4 through October 31, 20X4

Statement for: Quiet Moose Lodge

13 River Street

Patawa Township

Account # 474784

CHECKING SUMMARY

Previous statement balance on 09-30-X4 18,344.07

Total of 5 deposits + 19,339.09

Total of 14 withdrawals - 14,887.45

Interest earnings + 65.66

Service charges - 35.00

New balance 22,826.37

CHECKS AND OTHER DEBITS

Check Date Paid Amount Check Date Paid Amount

3446 3-Oct 1908.09 3454 12-Oct 1100.31

*3448* 5-Oct 145.99 *3456* 13-Oct 695.77

3449 7-Oct 387.97 3457 14-Oct 788.87

3450 7-Oct 1204.67 3458 18-Oct 3664.34

*3452* 10-Oct 43.23 3459 20-Oct 54.45

3453 11-Oct 2990.44 3460 21-Oct 677.21

Electronic funds transfer - Patawa Water Co-op 25-Oct 237.34

NSF returned check- maker Stacey 28-Oct 988.77

NSF fee 28-Oct 25.00

Monthly service fee 31-Oct 10.00

DEPOSITS AND OTHER CREDITS

Date Posted Amount

Customer deposit 1-Oct 2505.55

Customer deposit 5-Oct 3400.00

Collection item -- note receivable ($6500 + interest) 11-Oct 6774.33

Customer deposit 14-Oct 3476.88

Credit card sales posting 28-Oct 3182.33

Interest earnings 31-Oct 65.66