UNIVERSITA BOCCONI

Department of Accounting

Accounting and Financial Statement Analysis

30005

REVIEW SESSION N2

CHAPTER 6
Exercise 1
Oakwood Company had accounts receivable of $750,000 and an allowance for doubtful accounts of
the $21,500 just prior to writing off as worthless an account receivable for Hyland Company of
$5,000.
The net realizable value of accounts receivable as shown by the accounting records before and
after the write-off was as follows (choose the correct option):

A.
B.
C.
D.

Before
$750,000
$721,500
$728,500
$728,500

After
$750,000
$733,500
$723,500
$728,500

Exercise 2
On January 1, American Companys allowance for doubtful accounts had a credit balance of
$3,000. The balance in the Accounts Receivable account on that date was $75,000. On January 2,
prior to any credit sales, a $500 account from National Company was deemed to be uncollectible
and written off.
Required:
a. Compute the net realizable value of American's receivables on January 1.
b. Present the journal entry American would record on January 2 related to the write-off of
National's account.
c. Compute the net realizable value of American's receivables on January 2, immediately after
the write-off of National's account.

Exercise 3
Casilda Company uses the aging approach to estimate bad debt expense. The balance of each
account receivable is aged on the basis of three time periods as follows: (1) not yet due, $50,000, (2)
up to 180 days past due, $14,000, and (3) more than 180 days past due, $4,000. Experience has
shown that for the each age group, the average loss rate on the amount of the receivables at yearend due to uncollectability is (1) 3 percent, (2) 12 percent, and (3) 30 percent, respectively. At
December 31, 2013 ( end of the current year), the Allowance for Doubtful Accounts balance is $200
(credit) before the end-of-period adjusting entry is made.
Required:
1. Prepare the appropriate bad debt expense adjusting entry for the year 2013.
2. Show how the various accounts related to accounts receivable should be shown on the
December 31, 2013, balance sheet.
2

Exercise 4
Asia Company sold $10,000 of goods to Euro Company on credit on May 1. At the time of the
sale, Asia recorded a debit to Accounts Receivable and a credit to Sales Revenue for $10,000.
Terms were 2/10, n/30.
Required:
Present the entries Asia Company would record for each of the following independent situations:
a. Euro paid the balance due, less the discount, on May 10.
b. Euro returned half of the goods for credit on May 4. Euro paid the balance due, less the
discount, on May 10.
c. Euro paid their bill on May 30 (there were no returns).
Exercise 5
The following transactions were selected from the records of Ocean view Company:
- July 12 Sold merchandise to Costumer R, who charges the $4,200 purchase on Visa
credit card. Visa charges OceanView a 2 percent credit card fee.
- July 15 Sold merchandise to Costumer S at an invoice price of $7,000; terms 3/10, n/30.
- July 20 Sold merchandise to Costumer T at an invoice price of $3,300; terms 3/10, n/30.
- July 23 Collected payment from Costumer S from July 15 sale.
- August 23 Collected payment from Costumer T from July 20 sale.
Required:
Assuming that Sales Discounts and Credit Card Discounts are treated as contra-revenues, compute
net sales for the two months ended August 31.

CHAPTER 7
Exercise 1
RJ Corporation has provided the following information about one of their inventory items:
Date
1/1
6/6
9/10
11/15

Transaction
Beginning Inventory
Purchase
Purchase
Purchase

Number of Units
400
800
1,200
800

Cost per Unit

$3,200
$3,600
$4,000
$4,200

During the year, 3,000 units were sold.

What was the Cost of Good Sold using the FIFO cost flow assumption?
A. $11,680,000
B. $11,590,000
C. $11,480,000
D. $11,550,000

Exercise 2
Penn Company uses a periodic inventory system. At the end of the annual accounting period,
December 31, 2015, the accounting records provided the following information for product 1:
Cost
Inventory, December 31, 2014
For the year 2015:
Purchase, March 21
Purchase, August 1
Inventory, December 31, 2015

Units
2,100

Unit
$13

4,550
3,350
4,150

$14
$16

Required:
Compute ending inventory and cost of goods sold under FIFO, LIFO and average cost inventory
costing methods (Hint: Set up adjacent columns for each case.)

Exercise 3
McMillan Company uses the periodic inventory system. It has compiled the following information
in order to prepare the financial statements at December 31, 2010:
Gross sales during 2010
Sales returns and allowances during 2010
Beginning inventory, January 1, 2010
Ending inventory, December 31, 2010
Purchases during 2010

$2,000,000
50,000
100,000
120,000
750,000

Required:
Calculate each of the following: cost of goods available for sale, cost of goods sold and gross
margin.

Exercise 4
Coulter Company uses the LIFO inventory method under the periodic inventory system. The
following data were available for the month of January, 2010:
Units

Cost per Unit

Inventory, January 1

200

$5.00

Purchase No. 1

400

5.50

Sale No. 1 (sold at $12.00 per unit)

500

Purchase No. 2

700

6.00

Required:
Compute the following:
1. Beginning inventory
2. Ending inventory
3. Cost of goods available for sale
4. Cost of goods sold
5. Gross margin

Exercise 5
Jones Company is preparing the annual financial statements dated December 31, 2015. Ending
inventory information about the five major items stocked for regular sales follows:

Item
A
B
C
D
E

ENDING INVENTORY, 2015

Quantity on
Unit Cost When
hand
Acquired (FIFO)
55
$ 20
85
35
15
53
75
30
335
15

Replacement Cost
(Market) at Year-End
$ 17
45
57
35
10

Required:
Compute the valuation that should be used for the 2015 ending inventory using the LCM rule
applied on an item by item basis (Hint: set up columns for Item, Quantity, Total Cost, Total
Market, and LCM Valuation.)

Exercise 6
Assume that a retailers beginning inventory and purchases of a popular item during January
included:
(1) 400 units at $8 in beginning inventory on January 1;
(2) 550 units at $9 purchased on January 8, and
(3) 850 units at $10 purchased on January 29.
The company sold 450 units on January 12 and 650 units on January 30.
Required:
1. Calculate the cost of goods sold for the month of January under:
(a) FIFO (periodic calculation),
(b) FIFO (perpetual calculation),
(c) LIFO (periodic calculation), and
(d) LIFO (perpetual calculation).
2. Which cost flow assumption would you recommend to management and why? Which
calculation approach, periodic or perpetual, would you recommend and why?