Question: Suppose Tree City Sporting Goods Company reported

> Richardson Supply’s $3.9 million cost of inventory at the end of last year was understated by $1.2 million. 1. Was last year’s reported gross profit of $2.9 million overstated, understated, or correct? What was the correct amount of gross profit last ye

> Determine whether each of the following actions in buying, selling, and accounting for inventories is ethical or unethical. Give your reason for each answer. 1. In applying the lower-of-cost-or-market rule to inventories, Blue Mountain Coffee Company re

> Metro Technology began the year with inventory of $299,000 and purchased $1,820,000 of goods during the year. Sales for the year are $3,887,500, and Metro Technology’s gross profit percentage is 60% of sales. Compute Metro Technology’s estimated cost of e

> Spritzer Company made sales of $24,000 million during 2016. Cost of goods sold for the year totaled $11,040 million. At the end of 2015, Spritzer’s inventory stood at $1,000 million, and Spritzer ended 2016 with inventory of $1,400 million. Compute Sprit

> It is December 31, the end of the year, and the controller of Saxton Corporation is applying the lower-of-cost-or-market (LCM) rule to inventories. Before any year-end adjustments, Saxton reports the following data: Saxton determines that the current r

> This exercise tests your understanding of the four inventory methods. List the name of the inventory method that best fits the description. Assume that the cost of inventory is rising. 1. Results in an old measure of the cost of endi

> Cozelle, Inc., purchased inventory costing $125,000 and sold 80% of the goods for $200,000. All purchases and sales were on account. Cozelle later collected 25% of the accounts receivable. Assume that sales returns are nonexistent. 1. Journalize these t

> As a recent college graduate, you land your first job in the customer collections department of Silktown Publishing. Alicia Donovan, the manager, asked you to propose a system to ensure that cash received from customers by mail is handled properly. Draft

> Perform the following accounting for the receivables of Bronson and Moore, a law firm, at December 31, 2016. Requirements 1. Set up T-accounts for Cash, Accounts Receivable, and Service Revenue. Start with the beginning balances as follows: Cash $27,00

> On April 3, Parker Company sold $5,000 of merchandise to Wheeler Corporation, terms 2∕10, n∕30, FOB shipping point. Parker Company’s cost of sales for this merchandise was $4,000. The merchandise left Parker Company’s facility on April 4 and arrived at W

> In August, Landeau Designs sold $500,000 of merchandise; all sales were in cash. The cost of sales for August was $320,000. Based on past experience, Landeau uses an estimated refund rate of 4% of sales. Record the journal entries for the monthly sales,

> Costello Company purchases inventory from Terry Pool Supplies on June 1. The sales terms on the invoice from Terry Pool Supplies are 4∕20, net 30. What does this mean? What is Costello’s potential savings, if any? How much time does the company have to t

> On December 23, 2016, Robertson Sports Manufacturing sells a truckload of sporting goods to the Sports R Us store in Columbus, Ohio. The terms of the sale are FOB destination. The truck runs into bad weather on the way to Columbus and doesn’t arrive unti

> Barfield Investments purchased Melnick Corp. shares as a trading security on December 16 for $109,000. 1. Suppose the Melnick Corp. shares decreased in value to $92,000 at December 31. Make the Barfield journal entry to adjust the Investment in Trading S

> Slocomb Corp. holds a portfolio of trading securities. Suppose that on January 15, Slocomb paid $80,000 for an investment in Turok Co. shares to add to its portfolio. At October 31, the market value of Turok Co. shares is $97,000. For this situation, sho

> Answer these questions about receivables and uncollectibles. For the true-false questions, explain any answers that turn out to be false. 1. True or false? Credit sales increase receivables. Collections and write-offs decrease receivables. 2. True or f

> Highland Products reported the following amounts in its 2017 financial statements. The 2016 amounts are given for comparison. Requirements 1. Compute Highland’s quick (acid-test) ratio at the end of 2017. Round to two

> Collins Woodworking accepts credit cards at its store. Collins’ credit card processor charges a fee of 3% of the total amount of any credit sale. Assume that Russell Knight purchases $8,000 of custom furniture and pays with a VISA card. Make the entry th

> On August 31, 2016, Diane Fields borrowed $4,000 from Ferris State Bank. Fields signed a note payable, promising to pay the bank principal plus interest on August 31, 2017. The interest rate on the note is 9%. The accounting year of Ferris State Bank end

> 1. Compute the amount of interest during 2016, 2017, and 2018 for the following note receivable: On May 31, 2016, Charter Bank lent $220,000 to Laurie Walker on a two-year, 10% note. 2. Which party has a (an) a. note receivable? b. note payable? c.

> At the end of the current year (before adjusting entries), Holliday Corporation had a balance of $75,000 in Accounts Receivable and a credit balance of $4,000 in Allowance for Uncollectible Accounts. Service revenue (all on credit) for the year totaled $

> During its first year of operations, Old Tyme Furniture Restoration, Inc., had sales of $461,000, all on account. Industry experience suggests that Old Tyme’s uncollectibles will amount to 4% of credit sales. At December 31, 2016, accounts receivable tota

> Answer these questions about investments. 1. What is the amount to report on the balance sheet for a trading security? 2. Why is a trading security always a current asset? Explain.

> The Cash account of Rampart Corp. reported a balance of $3,530 at August 31, 2016. Included were outstanding checks totaling $1,700 and an August 31 deposit of $400 that did not appear on the bank statement. The bank statement, which came from Park State

> Cardinal Company requires that all documents supporting a check be canceled by punching a hole through the packet. Why is this practice required? What might happen if it were not?

> Cash may be a small item on the financial statements. Nevertheless, internal control over cash is very important. Why is this true?

> Identify the other control procedures usually found in a company’s system of internal control besides separation of duties, and tell why each is important.

> Explain why separation of duties is often described as the cornerstone of internal control for safeguarding assets. Describe what can happen if the same person has custody of an asset and also accounts for the asset.

> List the components of internal control. Briefly describe each component.

> How do computer viruses, Trojan horses, and phishing expeditions work? How can these e-commerce pitfalls hurt you? Be specific.

> Dorthea Alston, an accountant for Fun Tymes Limited, discovers that her supervisor, Eli Golden, made several errors last year. Overall, the errors overstated the company’s net income by 20%. It is not clear whether the errors were deliberate or accidenta

> Describe the types of assets that are typically included under the heading “cash and cash equivalents” on the balance sheet. What is a “cash equivalent”?

> Kent Market (KM) is a major food cooperative. Suppose KM begins 2017 with cash of $5 million. KM estimates cash receipts during 2017 will total $103 million. Planned payments will total $93 million. To meet daily cash needs next year, KM must maintain a

> Answer the following questions about internal control over cash payments: 1. Payment by check carries three controls over cash. What are they? 2. Suppose a purchasing agent receives the goods that he purchases and also approves payment for the goods. H

> Victor Albert sells memberships to the Orlando Symphony Association in Orlando. The symphony’s procedure requires Albert to write a patron receipt for all memberships sold. The receipt forms are pre-numbered. Albert is having personal financial problems,

> Claire Hunter manages Sunshine Manufacturing. Hunter fears that a trusted employee has been stealing from the company. This employee receives cash from clients and also prepares the monthly bank reconciliation. To check up on the employee, Hunter prepare

> After preparing Rampart Corp.’s bank reconciliation in Short Exercise 4-9, make the company’s journal entries for transactions that arise from the bank reconciliation. Date each transaction August 31, 2016, and include an explanation with each entry.

> Define “fraud.” List and briefly discuss the three major components of the fraud triangle.

> During 2016, Quanta Airlines paid salary expense of $41.2 million. At December 31, 2016, Quanta accrued salary expense of $2.4 million. Quanta then paid $2.6 million to its employees on January 3, 2017, the company’s next payday after the end of the 2016

> Suppose that on January 1 Coddington Travel Company paid cash of $30,000 for equipment that is expected to remain useful for five years. At the end of five years, the equipment’s value is expected to be zero. 1. Make journal entries to record a. purcha

> Answer the following questions about prepaid expenses: a. On July 1, Davis Tree Service prepaid $12,000 for six months’ rent. Give the adjusting entry to record rent expense at July 31. Include the date of the entry and an explanation. Then post all amo

> Identify the accounting concept or principle that gives the most direction on how to account for each of the following situations: a. Salary expense of $48,000 is accrued at the end of the period to measure income properly. b. March has been a particul

> Write a short paragraph in your own words to explain the concept of depreciation as used in accounting.

> A large auto manufacturer sells large fleets of vehicles to auto rental companies, such as Budget and Hertz. Suppose Budget is negotiating with the auto manufacturer to purchase 827 vehicles. Write a short paragraph to explain to the auto manufacturer wh

> As the controller of Newton Consulting, you have hired a new employee, whom you must train. She objects to making an adjusting entry for accrued salaries at the end of the period. She reasons, “We will pay the salaries soon. Why not wait until payment to

> Riverside Corporation began 2016 owing notes payable of $3.5 million. During 2016, Riverside borrowed $1.7 million on notes payable and paid off $1.6 million of notes payable from prior years. Interest expense for the year was $0.4 million, including $0.

> Refer to the Tree City Sporting Goods Company data in Short Exercise 3-17. At July 31, 2016, Tree City Sporting Goods Company’s current ratio was 1.90 (rounded) and its debt ratio was 0.45 (rounded). Compute Tree City’

> Tree City Sporting Goods reported the following data at July 31, 2016, with amounts adapted in thousands: 1. Compute Tree City’s net working capital. 2. Compute Tree City’s current ratio. Round to two decimal plac

> Use the Tree City Sporting Goods Company data in Short Exercise 3-15 to make the company’s closing entries at July 31, 2016. Then set up a T-account for Retained Earnings and post to that account. Compare Retained Earningsâ€&

> Gerbig, Inc., collects cash from customers in advance and from other customers after the sale. Journalize the following transactions for Gerbig: a. Accrued revenue. Some customers pay Gerbig after Gerbig has performed service for the customer. During 20

> Due to the terms of its lease, Peachtree Services, Inc., pays the rent for its new office space in one annual payment of $24,000 on August 1, 2016. The lease covers the period of August 1, 2016, through July 31, 2017. Peachtree Services has a year-end of

> Write a paragraph to explain why unearned revenues are liabilities instead of revenues. In your explanation, use the following actual example: The New York Times, a national newspaper, collects cash from subscribers in advance and later provides news con

> Return to the situation in Short Exercise 3-10. Here you are accounting for the same transactions on the books of First State Bank, which lent the money to Laziza Restaurant. 1. Make First State Bank’s adjusting entry to accrue monthly interest revenue

> Laziza Restaurant borrowed $80,000 on October 1 by signing a note payable to First State Bank. The interest expense for each month is $433. The loan agreement requires Laziza to pay interest on January 2 for October, November, and December. 1. Make Lazi

> Carter Corporation made sales of $900 million during 2016. Of this amount, Carter collected cash for $871 million. The company’s cost of goods sold was $280 million, and all other expenses for the year totaled $325 million. Also during 2016, Carter paid

> Gloria Varay, MD, opened a medical practice. The business completed the following transactions: After these transactions, how much cash does the business have to work with? Use a T-account to show your answer. July 1 Varay invested $29,000 cash to

> Seventh Investments, Inc., began by issuing common stock for cash of $250,000. The company immediately purchased computer equipment on account for $106,000. 1. Set up the following T-accounts of Seventh Investments, Inc.: Cash, Computer Equipment, Accou

> Greene’s Catering began with cash of $17,000. Greene then bought supplies for $2,200 on account. Separately, Greene paid $4,600 for equipment. Answer these questions. a. How much in total assets does Greene have? b. How much in liabilities does Greene

> Fill out the following chart to show the impact on the accounting equation from each transaction. Liabilities Increase Decrease Increase Decrease Increase Stockholders' equity Decrease Assets Description Jan 2 Purchased office supplies on account fo

> LeVon Fashions specializes in imported clothing. During March, LeVon completed a series of transactions. For each of the following items, give an example of a transaction that has the described effect on the accounting equation of LeVon Fashions. a. Inc

> Carey Anderson opened a software consulting firm that immediately paid $21,000 for a computer system. Was Anderson’s computer system an expense of the business? If not, explain.

> Accounting has its own vocabulary and basic relationships. Match the accounting terms at the left with the corresponding definition or meaning at the right. 1. Debit 2. Еxpense 3. Net income 4. Ledger 5. Posting 6. Normal balance 7. Р

> For each of the following accounts, identify whether that item is an asset, liability, or equity account. a. Accounts payable b. Sales revenue c. Cash d. Bonds payable e. Common stock f. Accounts receivable g. Equipment h. Salaries payable i. In

> Refer to Yellowberry, Inc.’s, trial balance in Short Exercise 2-15. The purpose of this exercise is to help you learn how to correct three common accounting errors. Error 1. Slide. Suppose the trial balance lists Land as $4,800 instead

> Yellowberry, Inc.’s, trial balance follows: Compute these amounts for the business: 1. Total assets 2. Total liabilities 3. Net income or net loss during December A1 D Yellowberry, Inc. Trial Balance December 31, 2016 1 Balance

> Assume that Navy Port Company reported the following summarized data at December 31, 2016. Accounts appear in no particular order; dollar amounts are in millions. Prepare the trial balance of Navy Port Company at December 31, 2016. List the accounts in

> Journalize the following transactions. Include dates and a brief explanation for each journal entry. July 1: Issued common stock for $10,000 July 5: Sold services on account for $5,000 July 9: Purchased office supplies on account for $500 July 10: So

> Borland Consulting performed service for a client who could not pay immediately. Borland expected to collect the $4,900 the following month. A month later, Borland received $2,300 cash from the client. 1. Record the two transactions on the books of Borl

> Consultant Dina Delorme purchased supplies on account for $5,200. Later Delorme paid $1,750 on account. 1. Journalize the two transactions on the books of Dina Delorme, Consultant. Include an explanation for each transaction. 2. Open a T-account for Ac

> After operating for several months, architect Mark Meecham completed the following transactions during the latter part of January: Journalize the transactions of Mark Meecham, Architect. Include an explanation with each journal entry. Borrowed $31,

> For each of the following items, indicate whether or not that item would be considered to be a transaction at Highpoint Lawn Maintenance. a. Highpoint Lawn Maintenance files its articles of incorporation with the state. b. Highpoint Lawn Maintenance acq

> Good business and accounting practices require the exercise of good judgment. How should ethics be incorporated into making accounting judgments? Why is ethics important?

> Following are partially completed financial statements (income statement, statement of retained earnings, and balance sheet) for Masterton Corporation. Complete the financial statements. All amounts are in millions. A1

> Avalon Legal Services, Inc., ended 2015 with cash of $18,000. During 2016, Avalon earned net income of $105,000 and had adjustments to reconcile net income to net cash provided by operations totaling $10,000 (this is a negative amount). Avalon paid $32,0

> Harmon Corporation ended its fiscal year on September 30, 2016, with cash of $75 million, accounts receivable of $22 million, property and equipment of $28 million, and other long-term assets of $17 million. The company’s liabilities consist of accounts p

> At December 31, 2016, Aloha Enterprises has cash of $50 million, accounts receivable of $19 million, and long-term assets of $39 million. The company owes accounts payable of $13 million and has a long-term note payable of $25 million. Aloha Enterprises

> Roam Corporation began 2016 with retained earnings of $230 million. Revenues during the year were $490 million, and expenses totaled $340 million. Roam declared dividends of $54 million. What was the company’s ending balance of retained earnings? To answ

> O’Conner Services, Inc., began 2016 with total assets of $235 million and ended 2016 with assets of $355 million. During 2016, O’Conner Services earned revenues of $397 million and had expenses of $164 million. O’Conner Services paid dividends of $29 mil

> For each of the following questions, indicate which financial statement would most likely be used to provide the information. Use the following abbreviations: Income statement (I), Statement of retained earnings (R), Balance sheet (B), and Statement of ca

> Apply your understanding of the relationships among the financial statements to answer these questions. a. How can a business earn large profits but have a small balance of retained earnings? b. Give two reasons why a business can have a steady stream of

> Suppose you are analyzing the financial statements of Bartelle, Inc. Identify each item with its appropriate financial statement, using the following abbreviations: Income statement (I), Statement of retained earnings (R), B

> 1. If you know the assets and the owners’ equity of a business, how can you measure its liabilities? Give the equation. 2. Use the accounting equation to show how to determine the amount of a company’s owners’ equity. How would your answer change if you

> Suppose you manage a Thai restaurant. Identify the missing amount for each situation: Total Assets Total Liabilities Stockholders' Equity $ ? 95,000 420,000 $270,000 70,000 a. $340,000 b. C. 350,000

> Identify the accounting concept, assumption, or principle that best applies to each of the following situations: a. Burger King, the restaurant chain, sold a store location to McDonald’s. How can Burger King determine the sale price of the store—by a pr

> Mason Olson is chairman of the board of Healthy Fast Foods, Inc. Suppose Olson has just founded Healthy Fast Foods, and assume that he treats his home and other personal assets as part of Healthy Fast Foods. Answer these questions about the evaluation of

> Regal Signs, Inc., needs funds, and Megan Regal, the president, has asked you to consider investing in the business. Answer the following questions about the different ways that Regal might organize the business. Explain each answer. a. What forms of or

> 1. Identify the two basic categories of items on an income statement. 2. What do we call the bottom line of the income statement?

> Consider Walmart, a large retailer. Classify the following items as an asset (A), a liability (L), or stockholders’ equity (S) for Walmart: Notes payable Retained earnings a. Accounts receivable g. h. Long-term debt Merchandise inv

> Assume that on January 1, 2016, Shipley Sushi purchased a building, paying $56,000 cash and signing a $101,000 note payable. The restaurant paid another $63,000 to remodel the building. Furniture and fixtures cost $58,000, and dishes and supplies—a curre

> Langley Pizza bought a used Chevrolet delivery van on January 2, 2016, for $18,600. The van was expected to remain in service for four years (57,000 miles). At the end of its useful life, Langley officials estimated that the van’s residual value would be

> During 2016, Liang’s Book Store paid $484,000 for land and built a store in Georgetown. Prior to construction, the city of Georgetown charged Liang’s $1,300 for a building permit, which Liang’s paid. Liang’s also paid $15,300 for architect’s fees. The co

> Assume Blynn Athletic Products, Inc., purchased conveyor-belt machinery. Classify each of the following expenditures as a capital expenditure or an immediate expense related to machinery: a. Major overhaul to extend the machinery’s useful life by four ye

> Boltwood Manufacturing bought three used machines in a $148,000 lump-sum purchase. An independent appraiser valued the machines as shown: What is each machine’s individual cost? Immediately after making this purchase, Boltwood sold ma

> Pierce Self Storage purchased land, paying $145,000 cash as a down payment and signing a $175,000 note payable for the balance. Pierce also had to pay delinquent property tax of $1,000, title insurance costing $2,500, and $4,000 to level the land and rem

> Assume Abbey Corporation completed the following transactions: a. Sold a store building for $650,000. The building had cost Abbey $1,400,000, and at the time of the sale, its accumulated depreciation totaled $750,000. b. Lost a store building in a fire.

> Gunny Stores, Inc., one of the nation’s largest grocery retailers, reported the following information (adapted) in its comparative financial statements for the fiscal year ended January 31, 2015: Requirements 1. Compute net profit ma

> Assume Caltron Co. paid $19 million to purchase Burton Industries. Assume further that Burton Industries had the following summarized data at the time of the Caltron Co. acquisition (amounts in millions): Burton Industries’ current as

> 1. Maynard Printers incurred external costs of $800,000 for a patent for a new laser printer. Although the patent gives legal protection for 20 years, it is expected to provide Maynard Printers with a competitive advantage for only eight years. Assuming

> Goldstein Mines paid $424,000 for the right to extract ore from a 200,000-ton mineral deposit. In addition to the purchase price, Goldstein Mines also paid a $100 filing fee, a $1,900 license fee to the state of Colorado, and $50,000 for a geologic surve

> Covenant Truck Company is a large trucking company that operates throughout the United States. Covenant Truck Company uses the units-of-production (UOP) method to depreciate its trucks. The company trades in trucks often to keep driver morale high and to