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Income and EPS for Omega Company

Please see attached file for full problem description.

PART I - TRUE/FALSE
Instructions: For each statement below (a) identify whether the statement is True or False, and (b) fully explain your answer.

Management may choose any inventory costing method it desires as long as the cost flow assumption chosen is consistent with the physical movement of goods in the company.

The economic entity assumption states that the economic life of the business can be broken into artificial time periods.

Comparability means that a company uses the same accounting principles and methods from year to year.

The use of accelerated depreciation methods for capital assets is an application of the materiality constraint.

Checks received in the mail should be immediately stamped "NSF" to prevent unauthorized cashing of the check.

Collusion may result when one individual circumvents prescribed controls and may significantly impair the effectiveness of a system.

PART II - PROBLEMS
Instructions: For each Problem A-E, perform the required action - show all work as a student who simply provides an answer will not receive any credit.
A. The following information is available for Omega Company for the year ending 12/31/2006.

Cost of goods sold $ 65,000
Net sales 122,000
Selling and administrative expenses 43,000
Other expenses and losses 17,000
Other revenues and gains 19,000

The company's effective tax rate is 10%. The company has 28,800 shares of common stock outstanding.

Required: Calculate (a) operating income, (b) income before taxes, (c) net income, and (d) EPS.

B. On October 1, 2006, Foster Company establishes an imprest petty cash fund by issuing a check for $150 to Jill Nott, the custodian of the petty cash fund. On October 31, 2006, Jill Nott submitted the following paid petty cash receipts for replenishment of the petty cash fund when there is $7 cash in the fund:
Freight-in $25
Office Supplies Expense 35
Entertainment of Clients 60
Postage Expense 20
Required:
Prepare the journal entries required to establish the petty cash fund on October 1 and the replenishment of the fund on October 31.

C. Dodge Company developed the following information in recording its bank statement for the month of June.
Balance per books June 30 $9,570
Balance per bank statement June 30 $11,100
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(1) Checks written in June but still outstanding $4,290.
(2) Checks written in May but still outstanding $830.
(3) Deposits of June 29 and 30 not yet recorded by bank $5,020.
(4) NSF check of customer returned by bank $630.
(5) Check No. 210 to Belderon Enterprises for $345 was correctly issued and paid by bank but incorrectly entered in the cash payments journal as payment on account for $435.
(6) Bank service charge for June was $30.
(7) The bank statement included a debit memorandum regarding an EFT to Pasco Utilities for $540.
(8) The bank collected a note receivable on behalf of the company for $2,200 plus $340 interest revenue. Dodge had not accrued interest revenue.

Required:
Prepare a bank reconciliation at March 31.

D. The inventory of Snider Company was destroyed by fire on April 1. From an examination of the accounting records, the following data for the first three months of the year are obtained:

Sales $225,000
Sales Returns and Allowances 5,000
Purchases 90,000
Freight-In 3,500
Purchase Returns and Allowances 4,000

Required:
Determine the merchandise lost by fire, assuming a beginning inventory of $60,000 and a gross profit rate of 40% on net sales.

E. Wynn Company uses the periodic inventory system to account for inventories. Information related to Wynn Company's inventory at October 31 is given below:

October 1 Beginning inventory 400 units @ $10.00 = $ 4,000
8 Purchase 800 units @ $10.40 = 8,320
16 Purchase 600 units @ $10.80 = 6,480
24 Purchase 200 units @ $11.60 = 2,320
Total units and cost 2,000 units $21,120

Instructions
1. Show computations to value the ending inventory using the FIFO cost assumption if 600 units remain on hand at October 31.
2. Show computations to value the ending inventory using the weighted-average cost method if 600 units remain on hand at October 31.
3. Show computations to value the ending inventory using the LIFO cost assumption if 600 units remain on hand at October 31.

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PART I - TRUE/FALSE
Instructions: For each statement below (a) identify whether the statement is True or False, and (b) fully explain your answer.

1. Management may choose any inventory costing method it desires as long as the cost flow assumption chosen is consistent with the physical movement of goods in the company.

False. The cost flow assumption may not be consistent with the physical movement of goods.

2. The economic entity assumption states that the economic life of the business can be broken into artificial time periods.

False. The economic entity assumption is that the owners and the business are separate. The assumption given above is the time period assumption

3. Comparability means that a company uses the same accounting principles and methods from year to year.

False, that is the consistency principle. Comparability states that accounting information that has been measured and reported in a similar manner for different enterprises is considered comparable.

4. The use of accelerated depreciation methods for capital assets is an application of the materiality constraint.

False, materiality relates to an item's impact on a firm's overall financial condition and operations.

5. Checks received in the mail should be immediately stamped "NSF" to prevent unauthorized cashing of the check.

False - NSF stands for Not Sufficient Funds and these are checks which are returned by the bank which could not be collected.

6. Collusion may result when one individual circumvents prescribed controls and may significantly impair the effectiveness of a system.

False. Collusion is when two or more individuals circumvent controls.

PART II - PROBLEMS
Instructions: For each Problem A-E, perform the required action - show all work as a student who simply provides an answer will not receive any credit.
A. The following information is available for Omega Company for the year ending ...

Solution Summary

The solution explains various questions in accounting relating to journal entries, bank reconciliation, inventory calculations and true and false questions

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