Preparing adjusting entries, adjusted trial balance, and financial statements

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Preparing adjusting entries,

adjusted trial balance, and

financial statements

 

Watson Technical Institute (WTI), a school owned by Tom Watson, provides training to individuals

who pay tuition directly to the school. WTI also offers training to groups in off-site locations. Its unadjusted

trial balance as of December 31, 2005, follows. WTI initially records prepaid expenses and

unearned revenues in balance sheet accounts. Descriptions of items a through h that require adjusting

entries on December 31, 2005, follow.

Additional Information Items

a. An analysis of the school’s insurance policies shows that $3,000 of coverage has expired.

b. An inventory count shows that teaching supplies costing $2,600 are available at year-end 2005.

c. Annual depreciation on the equipment is $12,000.

d. Annual depreciation on the professional library is $6,000.

e. On November 1, the school agreed to do a special six-month course (starting immediately) for a

client. The contract calls for a monthly fee of $2,200, and the client paid the first five months’

fees in advance. When the cash was received, the Unearned Training Fees account was credited.

The fee for the sixth month will be recorded when it is collected in 2006.

f. On October 15, the school agreed to teach a four-month class (beginning immediately) for an

individual for $3,000 tuition per month payable at the end of the class. The services are being

provided as agreed, and no payment has yet been received.

g. The school’s two employees are paid weekly. As of the end of the year, two days’ wages have

accrued at the rate of $100 per day for each employee.

h. The balance in the Prepaid Rent account represents rent for December.

 

Required

1. Prepare T-accounts (representing the ledger) with balances from the unadjusted trial balance.

2. Prepare the necessary adjusting journal entries for items a through h and post them to the

T-accounts. Assume that adjusting entries are made only at year-end.

3. Update balances in the T-accounts for the adjusting entries and prepare an adjusted trial balance.

4. Prepare Watson Technical Institute’s income statement and statement of owner’s equity for the

year 2005 and prepare its balance sheet as of December 31, 2005.

 

Check (2e) Cr.Training Fees Earned,

$4,400; (2f ) Cr.Tuition Fees Earned,

$7,500; (3) Adj.Trial balance totals,

$301,500; (4) Net income, $38,500;

Ending T.Watson, Capital $62,100

 

Cash                                 Debit 26,000

Accounts receivable     0

Teaching supplies                   Debit  10,000

Prepaid insurance                 Debit 15,000

Prepaid rent                             Debit  2,000

Professional library                               Debit 30,000

Accumulated depreciation—Professional library     Credit  9,000

Equipment                                              Debit 70,000

Accumulated depreciation—Equipment              credit 16,000

Accounts payable                          Credit 36,000

Salaries payable        0

Unearned training fees        credit 16,000

Tuition fees earned           credit 102,000

Training fees earned                 credit 38,000

Depreciation expense—Professional library     0

Depreciation expense—Equipment                0

Salaries expense                          Debit 48,000

Insurance expense                         0

Rent expense                                       debit 22,000

Teaching supplies expense                   0

Advertising expense                              Debit 7,000

Utilities expense                                   Debit  5,600

 

T. Watson, Capital                                 Credit 63,600

T. Watson, Withdrawals                        Debit 40,000

Totals  275,600

 

Required:

 

Adjusting Entries, T-Accounts, Adjusted Trial Balance, Income Statement, Balance Sheet.

 

 

 
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Altira Corporation Uses A Periodic Inventory System

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Altira Corporation uses a periodic inventory system.  The following information related to its merchandise inventory during the month of August 2011 is available:

Aug. 1  Inventory on hand-2000 units; cost $6.10 each

8  Purchased 10,000 units for $5.50 each

14  Sold 8,000 units for $12.00 each

18  Purchased 6,000 units for $5.00 each

25  Sold 7,000 units for $11.00 each

31  Inventory on hand-3,000 units

Required:

Determine the inventory balance Altira would report in its August 31, 2011, balance sheet and the cost of goods sold it would report in its August 2011 income statement using each of the following cost flow methods:

1.      FIFO

2.      LIFO

3.      Average cost

E8-14 Inventory cost flow methods: perpetual system

(This is a variation of exercise 8-13 modified to focus on the perpetual inventory system and alternative cost flow methods.)

Altira Corporation uses a perpetual inventory system.  The following transactions affected its merchandise inventory during the month of August 2011:

Aug. 1  Inventory on hand-2000 units; cost $6.10 each

8  Purchased 10,000 units for $5.50 each

14  Sold 8,000 units for $12.00 each

18  Purchased 6,000 units for $5.00 each

25  Sold 7,000 units for $11.00 each

31  Inventory on hand-3,000 units

Required:

Determine the inventory balance Altira would report in its August 31, 2011, balance sheet and the cost of goods sold it would report in its August 2011 income statement using each of the following cost flow methods:

1.      FIFO

2.      LIFO

3.      Average Cost

E8-18 Supplemental LIFO disclosures; LIFO reserve: Steelcase

Steelcase Inc. is the global leader in providing furniture for office environments.  The company uses the LIFO inventory method for external reporting and for income tax purposes but maintains its internal records using FIFO.  The following disclosure note was included in a recent annual report:

5        Inventories ($ in millions):

                                                                               February 27, 2009                      February 29, 2008

Raw materials                                                                       61.3                                               67.5

Work-in-process                                                                   15.9                                               20.9

Finished goods                                                                      79.9                                               87.9

157.1                                             176.3

LIFO reserve                                                                         (27.2)                                             (29.6)

$129.9                                           $146.7

The company’s income statement reported cost of goods sold of 2,236.7 million fo the fiscal year ended February 27, 2009.

Required:

1.      Steelcase adjusts the LIFO reserve at the end of its fiscal year. Prepare the February 27, 2009, adjusting entry to make the cost of goods sold adjustment.

2.      If Steelcase had used FIFO to value its inventories, what would cost of goods sold have been for the 2009 fiscal year?

 

P 8-5 Various inventory costing methods

Ferris Company began 2011 with 6,000 unitsof its principal product.  The cost of each unit is $8.  Merchandise transactions for the month of January 2011 are as follows:

Purchases

Date of purchase                            Units                                    Unit Cost*                         Total Cost

Jan. 10                                               5,000                                    $      9                                $  45,000

Jan. 18                                               6,000                                          10                                    60,000

Totals                                           11,000                                                                                 105,000

*Includes purchase price and cost of freight.

Sales

Date of Sale                                        Units

Jan. 5                                                  3,000

Jan. 12                                                2,000

Jan. 20                                                4,000

Total                                                  9,000

 

8,000 units were on hand at the end of the month.

Required: 

Calculate January’s ending inventory and cost of goods sold for the month using each of the following alternatives:

1.      FIFO, periodic system

2.      LIFO periodic system

3.      LIFO, perpetual system

4.      Average cost, periodic system

 

5.      Average cost, perpetual system

 
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Managerial Accounting

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HOMEWORK

1. Discussion Board. (Please always include conclusion at the end. And include word count.)

Your Discussion should be a minimum of 250 words in length and not more than 450 words. Please include a word count. Following the APA standard, use references and in-text citations for the textbook and any other sources.

Continuing with the company Apple Inc, discuss how the income statement budget would be created for a year starting with the sales budget through the SG&A budget. Be sure to:

· Be specific in describing the component line items of each

· Identify the individuals that would be involved in developing the budgets

Please always include conclusion at the end. And include word count.

2. Written Assignment Please always include conclusion at the end. And cite your sources.

 

Submit a paper which is 2-3 pages in length (no more than 3-pages), exclusive of the reference page. Paper should be double spaced in Times New Roman (or its equivalent) font which is no greater than 12 points in size. The paper should cite at least two sources in APA format.  One source can be your textbook.

Please describe the circumstances of the following case study and recommend a course of action. Explain your approach to the problem, perform relevant calculations and analysis, and formulate a recommendation. Ensure your work and recommendation are thoroughly supported.

Case Study:

Papaya Partners is a distributor of papayas. They purchase papayas from individual growers and package them in 10-pound cartons for delivery to their various customers, generally supermarkets. Last month, they budgeted to sell $500,000 worth of cartons at a price of $25 each. Actual sales met a budget of $500,000 at $25 per carton.

Management has received cost information based on actual performance and needs to understand the drivers of the overall variance from the budget. They have asked you, as an analyst in their management accounting department, to calculate and explain the variances. The following data has been provided:

Budget  
Cost of fruit @ 10 pounds per carton    $      200,000
Cost of packaging @ 1 pound per carton    $        10,000
Labor costs @ .5 hours per carton    $        90,000
Total Cost    $      300,000
   
Actual   
Cost of fruit @ 10 pounds per carton    $      244,200
Cost of packaging @ .55 pound per carton    $        11,000
Labor costs @ .75 hours per carton    $      150,000
Gross Profit    $      405,200
   
Unfavorable variance    $105,200.00

 

Specifically, management needs to know the:

· Standard cost per unit (carton)

· Actual cost per unit

· Direct materials price variances

· Direct materials usage variances

· Direct labor rate variance

· Direct labor efficiency variance

In addition, they would like to understand how the variances are calculated and what caused them. They would also like a recommendation on what might be done to improve the variances.

For this assignment, compute all required amounts and explain how the computations were performed. Describe whom you would work with to determine the causes of the variances and hypothesize on what caused the variances. Based on your analysis, recommend actions that management could take to improve the variances.

Superior papers will:

· Perform all calculations correctly.

· Articulate how the calculations were performed.

· Assess the variances computed and evaluate the operational results (i.e., is performance better or worse than budgeted?).

· Explain with whom you would work to identify the root causes of the variances.

· Propose well-thought-out causes for each variance.

· Conclude on which variances require management’s attention and recommend courses of action.

Be sure to use APA formatting in your paper.  Purdue University’s Online Writing LAB (OWL) is a free website that provides excellent information and resources for understanding and using the APA format and style. The OWL website can be accessed here:  http://owl.english.purdue.edu/owl/resource/560/01/

3. Portfolio Assignment. (Please always include conclusion at the end.)

This unit has focused on manufacturing companies; however, many companies are service operations that do not sell a physical product. For this portfolio assignment, select a service company and describe the process it would use to create a master budget (refer to Figure 9.1 of the text). How would the budget process for the service company differ from a manufacturing company? Be specific.

 

As portfolio activities are to be self-reflective, please make sure to connect the portfolio assignment to:

· Personal experiences. Reflect on how this assignment topic is applicable to and will benefit you.

· Course readings and any external readings.

· Discussion forum posts or other course objectives.

The Portfolio Activity entry should be a minimum of 500 words and not more than 750 words. Use APA citations and references if you use ideas from the readings or other sources.

Here is the link for the book. 1. Heisinger, K., & Hoyle, J. B. (n.d.). Accounting for Managers. Retrieved from https://2012books.lardbucket.org/books/accounting-for-managers/index.html Chapter 9 and 10.

 
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BA220 BA220 Financial AccountingAccounting

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W4 Assignment “Week 4 Problem Sets”

Week 4 Problem Sets

Part 1

1.You own Widgets ‘R Us and are preparing your year-end financial statements: What inventory accounting method do you use and why (FIFO, LIFO, or Weighted-Average)? What are its advantages and disadvantages?

2.You own Widgets ‘R Us and are preparing your year-end financial statements: What activities should you perform to correctly account for your inventory at year-end?

3.You own Widgets ‘R Us and are preparing your year-end financial statements: Why is it important to track inventory? What does this information tell you about your business?

Part 2

•Exercise 5-1A

Exercise 5-1A Effect of inventory cost flow assumption on financial statements

Required

For each of the following situations, indicate whether FIFO, LIFO, or weighted average applies:

a. In a period of falling prices, net income would be highest.

b. In a period of falling prices, the unit cost of goods would be the same for ending inventory

and cost of goods sold.

c. In a period of rising prices, net income would be highest.

d. In a period of rising prices, cost of goods sold would be highest.

e. In a period of rising prices, ending inventory would be highest.

 

•Exercise 5-2A

Exercise 5-2A Allocating product cost between cost of goods sold and ending inventory

Jones Co. started the year with no inventory. During the year, it purchased two identical inventory items at different times. The first purchase cost $1,060 and the other, $1,380. Jones sold one

of the items during the year.

Required

Based on this information, how much product cost would be allocated to cost of goods sold and

ending inventory on the year-end financial statements, assuming use of

a. FIFO?

b. LIFO?

c. Weighted average?

 

•Exercise 5-3A

Exercise 5-3A Allocating product cost between cost of goods sold and ending

inventory: multiple purchases

Cortez Company sells chairs that are used at computer stations. Its beginning inventory of chairs

was 100 units at $60 per unit. During the year, Cortez made two batch purchases of this chair.

The first was a 150-unit purchase at $68 per unit; the second was a 200-unit purchase at $72 per

unit. During the period, it sold 270 chairs.

Required

Determine the amount of product costs that would be allocated to cost of goods sold and ending

inventory, assuming that Cortez uses

a. FIFO.

b. LIFO.

c. Weighted average.

 

•Exercise 5-4A

Exercise 5-4A Effect of inventory cost flow (FIFO, LIFO, and weighted average)

on gross margin

The following information pertains to Mason Company for 2016:

Jan. 1 Beginning inventory 400 units @ $30

Apr. 1 Purchased 2,000 units @ $35

Oct. 1 Purchased 600 units @ $38

During 2016, Parvin sold 2,700 units of inventory at $90 per unit and incurred $41,500 of operating expenses. Parvin currently uses the FIFO method but is considering a change to LIFO. All

transactions are cash transactions. Assume a 30 percent income tax rate. Parvin started the

period with cash of $75,000, inventory of $12,000, common stock of $50,000, and retained earnings of $37,000.

Required

a. Record the above transactions in general journal form and post to T-accounts using (1) FIFO

and (2) LIFO. Use a separate set of journal entries and T-accounts for each method.

b. Prepare income statements using FIFO and LIFO.

Ending inventory consisted of 30 units. Mason sold 370 units at $90 each. All purchases and

sales were made with cash. Operating expenses amounted to $4,100.

Required

a. Compute the gross margin for Mason Company using the following cost flow assumptions:

(1) FIFO, (2) LIFO, and (3) weighted average.

b. What is the amount of net income using FIFO, LIFO, and weighted average? (Ignore income

tax considerations.)

c. Compute the amount of ending inventory using (1) FIFO, (2) LIFO, and (3) weighted average.

 

•Exercise 5-5A

Exercise 5-5A Effect of inventory cost flow on ending inventory balance and

gross margin

The Shirt Shop had the following transactions for T-shirts for 2016, its first year of operations:

Jan. 20 Purchased 400 units @ $ 8 5 $3,200

Apr. 21 Purchased 200 units @ $10 5 2,000

July 25 Purchased 280 units @ $13 5 3,640

Sept. 19 Purchased 90 units @ $15 5 1,350

During the year, The Shirt Shop sold 810 T-shirts for $30 each.

Required

a. Compute the amount of ending inventory The Shirt Shop would report on the balance

sheet, assuming the following cost flow assumptions: (1) FIFO, (2) LIFO, and (3) weighted

average.

b. Record the above transactions in general journal form and post to T-accounts assuming

(1) FIFO, (2) LIFO, and (3) weighted average methods. Use a separate set of journal entries

and T-accounts for each method. Assume all transactions are cash transactions.

c. Compute the difference in gross margin between the FIFO and LIFO cost flow assumptions.

 

 

W4 Assignment “We

ek 4 Problem Sets”

 

Week 4 Problem Sets

 

Part 1

 

1.You own Widgets ‘R Us and are preparing your year

–

end financial statements: What inventory

accounting method do you use and why (FIFO, LIFO, or Weighted

–

Average)? What are its advantages

and disadvantages?

 

2.

You own Widgets ‘R Us and are preparing your year

–

end financial statements: What activities should

you perform to correctly account for your inventory at year

–

end?

 

3.You own Widgets ‘R Us and are preparing your year

–

end financial statements: Why is it impo

rtant to

track inventory? What does this information tell you about your business?

 

Part 2

 

•Exercise 5

–

1A

 

Exercise 5

–

1A Effect of inventory cost flow assumption on financial statements

 

 

Required

 

 

For each of the following situations, indicate whether FIFO

, LIFO, or weighted average applies:

 

 

a. In a period of falling prices, net income would be highest.

 

 

b. In a period of falling prices, the unit cost of goods would be the same for ending inventory

 

and cost of goods sold.

 

 

c. In a period of rising pric

es, net income would be highest.

 

 

d. In a period of rising prices, cost of goods sold would be highest.

 

 

e. In a period of rising prices, ending inventory would be highest.

 

 

•Exercise 5

–

2A

 

Exercise 5

–

2A Allocating product cost between cost of goods sold

and ending inventory

 

 

Jones Co. started the year with no inventory. During the year, it purchased two identical inventory

items at different times. The first purchase cost $1,060 and the other, $1,380. Jones sold one

 

of the items during the year.

 

 

Required

 

 

Based on this information, how much product cost would be allocated to cost of goods sold and

 

ending inventory on the year

–

end financial statements, assuming use of

 

W4 Assignment “Week 4 Problem Sets”

Week 4 Problem Sets

Part 1

1.You own Widgets ‘R Us and are preparing your year-end financial statements: What inventory

accounting method do you use and why (FIFO, LIFO, or Weighted-Average)? What are its advantages

and disadvantages?

2.You own Widgets ‘R Us and are preparing your year-end financial statements: What activities should

you perform to correctly account for your inventory at year-end?

3.You own Widgets ‘R Us and are preparing your year-end financial statements: Why is it important to

track inventory? What does this information tell you about your business?

Part 2

•Exercise 5-1A

Exercise 5-1A Effect of inventory cost flow assumption on financial statements

Required

For each of the following situations, indicate whether FIFO, LIFO, or weighted average applies:

a. In a period of falling prices, net income would be highest.

b. In a period of falling prices, the unit cost of goods would be the same for ending inventory

and cost of goods sold.

c. In a period of rising prices, net income would be highest.

d. In a period of rising prices, cost of goods sold would be highest.

e. In a period of rising prices, ending inventory would be highest.

 

•Exercise 5-2A

Exercise 5-2A Allocating product cost between cost of goods sold and ending inventory

Jones Co. started the year with no inventory. During the year, it purchased two identical inventory

items at different times. The first purchase cost $1,060 and the other, $1,380. Jones sold one

of the items during the year.

Required

Based on this information, how much product cost would be allocated to cost of goods sold and

ending inventory on the year-end financial statements, assuming use of

 
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