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Accounting Questions

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.


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.