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    Accounting Questions

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    Problem A

    The following transactions occurred during the first year of operations at Sherman Co.

    a. Issued common stock for cash
    shares 400,000
    par $ 6.00
    total cash $ 2,400,000

    b.At the beginning of the year, borrowed cash from the Lindquist National Bank
    and signed a note.
    amount borrowed $ 350,000
    interest rate 6%
    note due in 4 years

    c. Incurred and paid salaries for the year.
    amount $ 250,000

    d. Purchased merchandise inventory, paying part in cash and the rest on account.
    amount paid in cash $ 300,000
    amount on credit $ 275,000

    e. Sold inventory on credit.
    inventory cost $ 280,000
    total sales $ 410,000

    f. Paid rent of $121,000 on the sales facilities
    during the first 11 months of the year

    g. Sold inventory for cash
    inventory cost $ 200,000
    total sales $ 290,000

    h. Purchased store equipment, paying part in cash and
    the rest on credit
    equipment price $ 150,000
    cash paid $ 65,000
    remaining due in 90 days

    i. Paid the following outstanding debts
    for store equipment $ 75,000
    due to suppliers $ 100,000

    j. Incurred and paid utilities expense for the year.
    amount $ 28,000

    k. Collected cash from customers during the year for credit sales
    previously recorded.
    amount $ 375,000

    l. At year-end, accrued interest on the note due to Lindquist National
    amount $ 21,000

    m. At year-end, accrued past-due December rent on the sales facilities.
    amount $ 11,000

    Prepare an income statement and balance sheet from transaction data.

    Problem B

    Cost-flow assumptions?FIFO and LIFO using periodic and perpetual systems.
    The inventory records of Twilight, Inc., reflected the following information for the year
    ended December 31, 2005:
    Number of Unit Total
    Units Cost Cost
    Inventory, January 1 200 25 5000
    30-May 250 26 6500
    28-Sep 400 28 11200
    Goods available for sale 850 22700
    February-05 100
    June-05 250
    November-05 275
    Total sales 625
    Inventory, December 31 225

    a. Assume that Twilight, Inc., uses a periodic inventory system. Calculate cost
    of goods sold and ending inventory under FIFO and LIFO.

    b. Assume that Twilight Inc., uses a perpetual inventory system. Calculate cost
    of goods sold and ending inventory under FIFO and LIFO.

    c. Explain why the FIFO results for cost of goods sold and ending inventory
    are the same in your answers to parts a and b, but the LIFO results are

    d. Explain why the results from the LIFO periodic calculations in part a cannot
    possibly represent the actual physical flow of inventory items.

    Depreciation calculation methods. Hill Co. acquired a new delivery truck at the
    beginning of its current fiscal year. The following information is available

    cost $ 100,000
    estimated useful life 5 years
    estimated salvage value $ 5,000

    a. Calculate depreciation expense for the first 4 years of the truck's life using:
    1. Straight-line depreciation.
    2. Sum-of-the-years'-digits depreciation.
    3. Double-declining-balance depreciation.

    b. Calculate the truck's net book value at the end of its third year of use under
    each depreciation method.

    c. Assume that Hill Co. had no more use for the truck after the end of the
    third year and that at the beginning of the fourth year it had an offer from a
    buyer who was willing to pay $6,200 for the truck. Should the depreciation
    method used by Hill Co. affect the decision to sell the truck?

    Problem C

    Other accrued liabilities?payroll. The following summary data for the payroll period
    ended on December 31, 2004, are available for Visquel and Associates

    Gross pay 200,000
    FICA tax withholdings ?
    Income tax withholdings 22,500
    Medical insurance contributions 2,150
    Union dues 650
    Total deductions 40,600
    Net pay ?

    a. Calculate the missing amounts and then determine the FICA tax withholding
    b. Use the horizontal model (or write the journal entry) to show the effects of
    the payroll accrual.

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    Solution Preview

    Please see the attached file

    Problem A
    Journal Entry
    S. No. Accounts and Explanations Debit Credit
    a. Cash 2,400,000
    Common Stock 2,400,000

    b. Cash 350,000
    Notes Payable 350,000

    c. Salaries Expense 250,000
    Cash 250,000

    d. Merchandise Inventory 575,000
    Accounts Payable 275,000
    Cash 300,000

    e. Accounts Receivable 410,000
    Sales 410,000
    Cost of Goods Sold 280,000
    Merchandise Inventory 280,000

    f. Rent Expense 121,000
    Cash 121,000

    g. Cash 290,000
    Sales 290,000
    Cost of Goods Sold 200,000
    Merchandise Inventory 200,000

    h. Store Equipment 150,000
    Cash 65,000
    Accounts Payable 85,000

    I. Accounts Payable 175,000
    Cash 175,000

    j. Utilities Expense 28,000
    Cash 28,000

    k. Cash 375,000
    Accounts Receivable 375,000

    l. Interest Expense 21,000
    Interest Payable 21,000

    m. Rent Expense 11,000
    Rent Payable 11,000

    Sherman Company
    Income Statement

    Sales 700,000
    Cost of Goods Sold 480,000
    Gross Margin 220,000
    Rent Expense 132000
    Salaries Expense 250000
    Utilities Expense 28000
    Interest Expense 21000
    Total Expense 431000
    Net Income (211,000)

    Sherman Company
    Balance Sheet

    Cash 2,476,000
    Accounts Receivable 35,000
    Merchandise Inventory 95,000
    Current Assets 2,606,000
    Store ...

    Solution Summary

    The solution explains various accounting questions.