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Inventory Valuation Methods
- If inventory is being valued at cost and the price level is steadily rising, which of the following three methods of costing—FIFO, LIFO, or weighted average cost—will yield the lowest annual after tax net income?
- Which method will yield the highest after tax net income in a scenario where the price level is steadily declining?
- Identify and describe each of the four most commonly used inventory valuation methods. What are the main advantages of each method?
Meaning and Advantages of one of the four most commonly used inventory valuation method is as under:
Cost flow and Physical flow Assumption
- What is the cost flow assumption?
- What is meant by the physical flow of goods?
- What relationship exists between cost flows and the physical flow of goods in a company?
You have taken over a set of accounting books for a small business as a part-time job. At the end of the first accounting period, you have partially completed the work sheet by entering the proper ledger accounts and balances in the Trial Balance columns. You turn to the manager and ask, "Where is the list of additional information I can use in entering the adjusting entries?" The manager indicates there is no such list. In all the text problems you have done, you have always been given this information. How would you obtain the information for this real-life situation?
Period End Procedures
Classify the following items as (a) prepaid expense, (b) unearned revenue, (c) accrued revenue, or (d) accrued expense. Provide six or seven correct responses:
A three-year premium paid on a fire insurance policy.
Fees earned but not yet received.
Fees received but not yet earned.
Salary owed but not yet paid.
Subscriptions received in advance by a magazine publisher.
Supplies on hand at the end of an accounting period
Taxes owed but payable in the following accounting period.
Utilities owed but not yet paid.
Give an example of an adjusting journal entry for each of the following transactions. Provide three correct responses:
Equal growth of an expense and a liability
Earning of revenue that was previously recorded as unearned revenue
Equal growth of an asset and revenue
Increase in an expense and decrease in an asset
Which events during an accounting period trigger the recording of normal journal entries and which event triggers the making of adjusting entries? Please explain why adjusting entries are necessary at the end of an accounting period.
Cash Vs Accrual Accounting
Describe the basic characteristics of the cash basis and the accrual basis of accounting.
How are revenues and expenses reported on the income statement under the cash basis of accounting and the accrual basis of accounting?
Contribution Income Statement
1. Royal Lawncare Company produces and sells two packaged products, Weedban and Greengrow. Revenue and cost information relating to the products follow:
Selling price per unit . . . . . . . . . . . . . . . . . . . . . . $ 6.00 $ 7.50
Variable expenses per unit . . . . . . . . . . . . . . . . . $ 2.40 $ 5.25
Traceable fixed expenses per year . . . . . . . . . . . $ 45,000 $ 21,000
Common fixed expenses in the company total $ 33,000 annually. Last year the company produced and sold 15,000 units of Weedban and 28,000 units of Greengrow.
Prepare a contribution format income statement segmented by product lines.
2. Current liabilities: entries and disclosure. A review of selected financial activities of Visconti’s during 20XX disclosed the following:
1-Dec: Borrowed $10,000 from the First City Bank by signing a 3-month, 15% note payable.
Interest and principal are due at maturity.
10-Dec: Established a warranty liability for the XY-80, a new product. Sales are expected to
total 1,000 units during the month. Past experience with similar products indicates
that 3% of the units will require repair, with warranty costs averaging $27 per unit (parts only).
22-Dec: Purchased $16,000 of merchandise on account from Oregon Company, terms 2/10, n/30.
26-Dec: Borrowed $5,000 from First City Bank; signed a 15% note payable due in 60 days. (Assume 360 day year for interest)
31-Dec: Repaired six XY-80s during the month at a total cost of $162
31-Dec: Accrued three days of salaries at a total cost of $1,400.
a. Prepare journal entries to record the transactions.
b. Prepare adjusting entries on December 31 to record accrued interest for each of the notes payable.
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