(Cost of trade credit) Calculate the cost of skipping the discount and paying at the end of the net period for each of the following credit terms

A14. (Cost of trade credit) Calculate the cost of skipping the discount and paying at the end of the net period for each of the following credit terms. Calculate the APR and the APY.
a. 5/10, net 50
b. 3/15, net 30
c. 2/10, net 20

Click here for the solution: Calculate the cost of skipping the discount and paying at the end of the net period for each of the following credit terms

Amalgamated General Corporation is a consulting firm that also offers financial services through its credit division

P 12-7 Securities held-to-maturity, securities available for sale, and trading securities

Amalgamated General Corporation is a consulting firm that also offers financial services through its credit division. From time to time the company buys and sells securities intending to earn profits on short-term differences in price. The following selected transactions relate to Amalgamated's investment activities during the last quarter of 2011 and the first month of 2012. The only securities held by Amalgamated at October 1 were $30 million of 10% bonds of Kansas Abstractors, Inc., purchased on May 1 at face value. The company's fiscal year ends on December 31.

2011
Oct. 18 Purchased 2 million preferred shares of Millwork Ventures Company for $58 million as a speculative investment to be sold under suitable circumstances.
31 Received semiannual interest of $1.5 million from the Kansas Abstractors bonds.
Nov. 1 Purchased 10% bonds of Holistic Entertainment Enterprises at their $18 million face value, to be held until they mature in 2018. Semiannual interest is payable April 30 and October 31.
1 Sold the Kansas Abstractors bonds for $28 million because rising interest rates are expected to cause their fair value to continue to fall.
Dec. 1 Purchased 12% bonds of Household Plastics Corporation at their $60 million face value, to be held until they mature in 2028. Semiannual interest rate is payable May 31 and November 30.
20 Purchased U.S. Treasury bonds for $5.6 million as trading securities, hoping to earn profits on short-term differences in prices.
21 Purchased 4 million common shares of NXS Corporation for $44 million as trading securities, hoping to earn profits on short-term differences in prices.
23 Sold the Treasury bonds for $5.7 million.
29 Received cash dividends of $3 million from the Millwork Ventures Company preferred shares.
31 Recorded any necessary adjusting entry(s) and closing entries relating to the investments. The market share of the Millwork Ventures Company preferred stock was up $27.50 per share and $11.50 per share for the NXS Corporation common. The fair values of the bond investments were $58.7 million for Household Plastics Corporation and $16.7 million for Holistic Entertainment Enterprises.

2012
Jan. 7 Sold the NXS Corporation common shares for $43 million.

Required:
Prepare the appropriate journal entry for each transaction or event.

Click here for the solution: Amalgamated General Corporation is a consulting firm that also offers financial services through its credit division

Gardner Company currently makes all sales on credit and offers no cash discount

Gardner Company currently makes all sales on credit and offers no cash discount. The firm is considering offering a 2% cash discount for payment within 15 days. The firm’s current average collection period is 60 days, sales are 40,000 units, selling price is $45 per unit, and variable cost per unit is $36. The firm expects that the change in credit terms will result in an increase in sales to 42,000 units, that 70% of the sales will take the discount, and that the average collection period will fall to 30 days. If the firm’s required rate of return on equal-risk investments is 25%, should the proposed discount be offered? (Note: Assume a 365-day year.)


Click here for the solution: Gardner Company currently makes all sales on credit and offers no cash discount

Toyco, a retail toy chain, honors two bank credit cards and makes daily deposits of credit card sales in two credit card bank accounts

12-42 Toyco, a retail toy chain, honors two bank credit cards and makes daily deposits of credit card sales in two credit card bank accounts. (Bank A and Bank B). Each day, Toyco batches its credit card sales slips, bank deposit slips and authorized sales return documents and sends them to data processing for data entry. Each week detailed computer printouts of the general ledger credit card cash accounts are prepared. Credit card banks have been instructed to make an automatic weekly transfer of cash to Toyco's general bank account. The credit card banks charge back deposits that include sales to holders of stolen or expired cards.

The auditor examining Toyco financial statements has obtained copies of the detailed general ledger cash account printouts, a summary of the bank statements and the manually prepared bank reconciliations, all for the week of December 31, as shown here. (see attachment)

Required:
Review the December 31 bank reconciliation and the related information contained in the following schedules and describe what actions the auditor should take to obtain satisfaction for each item on the bank reconciliation. Assume that all amounts are material and that all computations are accurate. Organize your answer sheet as follows, using the code contained on the bank reconciliation:

Code Number Actions to Be Taken by the Auditor to Gain Satisfaction


Click here for the solution: Toyco, a retail toy chain, honors two bank credit cards and makes daily deposits of credit card sales in two credit card bank accounts

The entry to record the cost of inventory sold includes a credit to cost of goods sold

1. The entry to record the cost of inventory sold includes a credit to cost of goods sold.

2. The faster the sale of inventory and the collection of cash, the higher the profits will be for a business.

3. In the closing entry process, the sales returns and allowances account is credited.

4. Operating expenses are divided into administrative expenses and selling expenses on the income statement.

5. A merchandiser purchases inventory on account under a perpetual inventory system with terms of 2/10 n/30. The merchandiser would:

Question 6
Ending inventory equals the number of units on hand multiplied by the unit cost.

Question 7
Sales revenue minus sales returns and allowances and sales discounts equals

Question 8
Under a perpetual inventory system, the adjusting entry to account for inventory shrinkage would include a:

Question 9
In period of increasing prices, FIFO produces lower cost of goods sold and higher gross profit than LIFO.

Question 10
An error in ending inventory carries over into the next period.

Question 11
Which of the following inventory costing methods is the LEAST likely to mimic the actual physical flow of inventory?

Question 12
Which of the following principles require the application of the lower-of-cost-or-market rule?

Question 13
A company makes two errors in the physical count of inventory. Beginning inventory was understated by $28,000 and ending inventory is understated by $43,000. Which of the following will be the net effect of the two errors?

Question 14
A deposit in transit has been recorded by the company but not by the bank.

Question 15
To maintain effective internal control, all incoming mail should be opened by a mailroom employee who has access to the accounting records.

Question 16
The initial entry to establish a petty cash fund involves a debit to cash and a credit to petty cash.

Question 17
Internal control does not:

Question 18
A check drawn by the depositor for $205 in payment of a liability was recorded in the journal as $502. This item would be included in the bank reconciliation as a(n):

Question 19
The entry to reimburse the petty cash fund includes a:

Question 20
Under the allowance method, the entry to write off an account that has been deemed uncollectible has no effect on the total asset's of the firm.

Question 21
The allowance method and the direct write-off method are both methods of aging accounts

Question 22
A written promise to pay a specified amount of money at a particular future date is referred to as a promissory note.

Question 23
One method of establishing control over collections of accounts receivable is to:

Question 24
Using the balance sheet approach to estimate uncollectibles, accounts, which are 90 days old,are:

Question 25
Under the direct write-off method, the entry to record an uncollectible account has the following effect on the financial statements:


Click here for the solution: The entry to record the cost of inventory sold includes a credit to cost of goods sold

A company that records credit purchases in a purchases journal and records purchases returns

ACC 225 Week 7

Exercise 7-16

A company that records credit purchases in a purchases journal and records purchases returns in a general journal made the following errors. Indicate when each error should be discovered.
1. Posted a purchases return to the Accounts Payable account and to the creditor’s subsidiary account but did not post the purchases return to the Inventory account.
2. Posted a purchases return to the Inventory account and to the Accounts Payable account but did not post to the creditor’s subsidiary account.
3. Correctly recorded a $4,000 purchase in the purchases journal but posted it to the creditor’s subsidiary account as a $400 purchase.
4. Made an addition error in determining the balance of a creditor’s subsidiary account.
5. Made an addition error in totaling the Office Supplies column of the purchases journal.


Click here for the solution: A company that records credit purchases in a purchases journal and records purchases returns

Goldenrod Warehouse distributes hardback books to retail stores and extends credit terms of 2/10, n/30 to all of its customers

P5-2A Goldenrod Warehouse distributes hardback books to retail stores and extends credit terms of 2/10, n/30 to all of its customers. During the month of June the following merchandising transactions occurred.

June 1 Purchased books on account for $960 (including freight) from Barnum Publishers, terms 2/10, n/30.
3 Sold books on account to the Flint Hills bookstore for $1,200 each. The cost of the merchandise sold was $720.
6 Received $60 credit for books returned to Barnum Publishers.
9 Paid Barnum Publishers in full.
15 Received payment in full from the Flint Hills bookstore.
17 Sold books on account to Town Crier Bookstore for $1,400. The cost of the merchandise sold was $840.
20 Purchased books on account for $720 from Good Book Publishers, terms 1/15, n/30.
24 Received payment in full from Town Crier Bookstore.
26 Paid Good Book Publishers in full.
28 Sold books on account to HomeTown Bookstore for $1,300. The cost of the merchandise sold was $780.
30 Granted HomeTown Bookstore $150 credit for books returned costing $90.

Instructions
Journalize the transactions for the month of June for Goldenrod Warehouse, using a perpetual inventory system.


Click here for the solution: Goldenrod Warehouse distributes hardback books to retail stores and extends credit terms of 2/10, n/30 to all of its customers

What advantages does a cash method taxpayer gain by electing to accrue foreign taxes for foreign tax credit purposes?

C:16-8 What advantages does a cash method taxpayer gain by electing to accrue foreign taxes for foreign tax credit purposes?


Click here for the solution: What advantages does a cash method taxpayer gain by electing to accrue foreign taxes for foreign tax credit purposes?

Calculate the amount of the child and dependent care credit allowed for 2010 in each of the following cases

Calculate the amount of the child and dependent care credit allowed for 2010 in each of the following cases, assuming the taxpayers had no income other than the stated amounts.

a. William and Carla file a joint tax return. Carla earned $26,000 during the year, while William attended law school full-time for 9 months and earned no income. They paid $3,500 for the care of their 3-year-old child, Carl.
b. Raymond and Michele file a joint tax return. Raymond earned $32,500 during the year, while Michele earned $9,000 for the year from a part-time job. They paid $7,000 for the care of their two children under age 13.
c. Beth is a single taxpayer who has two dependent children under age 5. Beth earned $23,500 in wages during the year and paid $6,700 for the care of her children.


Click here for the solution: Calculate the amount of the child and dependent care credit allowed for 2010 in each of the following cases

Joanie Corp sells it products on both credit and cash basis

Joanie Corp sells it products on both credit and cash basis. Monthly sales are sold 10% for cash, 90% for credit. Credit sales are collected 40% in the month of sale and 60% the following month. Sales for the first quarter are as follows:

January $100,000
February $150,000
March $125,000

Compute cash collections for February.

Click here for the solution: Joanie Corp sells it products on both credit and cash basis

Forrester Fashions has annual credit sales of 250,000 units with an average collection period of 70 days

E15–4 Forrester Fashions has annual credit sales of 250,000 units with an average collection period of 70 days. The company has a per-unit variable cost of $20 and a perunit sale price of $30. Bad debts currently are 5% of sales. The firm estimates that a proposed relaxation of credit standards would not affect its 70-day average collection period but would increase bad debts to 7.5% of sales, which would increase to 300,000 units per year. Forrester requires a 12% return on investments. Show all necessary calculations required to evaluate Forrester’s proposed relaxation of credit standards.

Click here for the solution: Forrester Fashions has annual credit sales of 250,000 units with an average collection period of 70 days

At the end of 2013, Jackson Tank Company’s account showed a $66,000 credit balance in manufacturing overhead control

(Under applied or over applied overhead) At the end of 2013, Jackson Tank Company’s account showed a $66,000 credit balance in manufacturing overhead control. In addition, the company had the following account balances:

Work in Process Inventory $384,000
Finished Goods Inventory $96,000
Cost of Goods Sold $720,000

a. Prepare the necessary journal entry to close the overhead account if the balance is considered immaterial.
b. Prepare the necessary journal entry to close the overhead account if the balance is considered material.
c. Which method do you believe in more appropriate for the company, and why?

Click here for the solution: At the end of 2013, Jackson Tank Company’s account showed a $66,000 credit balance in manufacturing overhead control

Esplanade Company's credit sales have the following historical pattern

Esplanade Company's credit sales have the following historical pattern:
70% Collected in the month of sale
15% Collected in the first month after sale
10% Collected in the second month after sale
4% Collected in the third month after sale
1% Uncollectible

These sales on open account (credit sales) have been budgeted for the last six months in 2010:
July $60,000
August $70,000
September $80,000
October $90,000
November $100,000
December $85,000

1) Determine the estimated total cash collections from accounts receivable during October 2010.
2) Compute the estimated total cash collections during the fourth quarter from credit sales of the fourth quarter.

Click here for the solution: Esplanade Company's credit sales have the following historical pattern

Compute the effective cost of not taking the cash discount under the following trade credit terms

Problem 4: Compute the effective cost of not taking the cash discount under the following trade credit terms:
a. 2/10 net 40
b. 2/10 net 50
c. 3/10 net 50
d. 2/20 net 40

Problem 5: What conclusions can you make about credit terms from reviewing your answers to Problem 4?

Click here for the solution: Compute the effective cost of not taking the cash discount under the following trade credit terms

Refer to P21-21A. Clipboard Office Supply's sales are 75% cash and 25% credit

P21-22A Preparing a financial budget

Refer to P21-21A. Clipboard Office Supply's sales are 75% cash and 25% credit. (Use the rounded sales values) Credit sales are collected in the month of purchase and 75% the following month. Salaries and sales commissions are also paid half in the month earned and half the next month. Income tax is paid at the end of the year.

The April 30, 2011 balance sheet showed the following balances:
Cash $25,000
Accounts payable 53,000
Salaries and commission payable 2,500

Requirements:
1. Prepare schedules of (a) budgeted cash collections, (b) budgeted cash payments for purchases, and (c) budgeted cash payments for operating expenses. Show amounts for each month and totals for May and June. Round your computations to the nearest dollar.
2. Prepare a cash budget. If no financing activity took place, what is the budgeted cash balance on June 30, 2011?

Click here for the solution: Refer to P21-21A. Clipboard Office Supply's sales are 75% cash and 25% credit

At the end of 2010, Jackson Tank Company's accounts showed a $66,000 credit balance in Manufacturing Overhead Control

At the end of 2010, Jackson Tank Company's accounts showed a $66,000 credit balance in Manufacturing Overhead Control. In addition, the company had the following account balances: Work in Process Inventory $384,000 Finished Goods Inventory 96,000 Cost of Goods Sold 720,000

a. Prepare the necessary journal entry to close the overhead account if the balance is considered immaterial.
b. Prepare the necessary journal entry to close the overhead account if the balance is considered material.
c. Which method do you believe is more appropriate for the company and Why???
 
Click here for the solution: At the end of 2010, Jackson Tank Company's accounts showed a $66,000 credit balance in Manufacturing Overhead Control