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Review Exercise

Review Exercise. Chapter. 4-6. Exercise 1: Closing Process, Post-Closing Trial Balance, & Classified Balance Sheet (Chap 4). The following is Adjusted Trial Balance of Webb Trucking Company Make Closing Entries of Temporary Accounts Prepare Post-Closing Trial Balance

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Review Exercise

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  1. Review Exercise Chapter 4-6

  2. Exercise 1: Closing Process, Post-Closing Trial Balance, & Classified Balance Sheet (Chap 4) The following is Adjusted Trial Balance of Webb Trucking Company • Make Closing Entries of Temporary Accounts • Prepare Post-Closing Trial Balance • Prepare Classified Balance Sheet

  3. Exercise 2: Current ratio & Liquidity (Chap 4) 5 Companies in the same Industry • Which one is the strongest in liquidity? • Is high current ratio better?

  4. Exercise 2: Current ratio & Liquidity (Chap 4) 5 Companies in the same Industry • Which one is the strongest in liquidity? • Is high current ratio better? Analysis: Company 1 is in the strongest liquidity position. It has about $2.52 of current assets for each $1 of current liabilities. The only potential concern is that Company 1 may be carrying too much in current assets that could be better spent on more productive assets (note that its remaining competitors’ current ratios range from 1.39 to 0.61).

  5. Exercise 3: Purchase Discount, Purchase return and Allowance (Chap 5) Journal Entry for the following transactions Apr.2: Purchase from Blue Co. $3,600, 2/15, n/60, and FOB shipping point Apr.3: Paid $200 shipping charge for Apr.2 Purchase Apr.4: Return $600 merchandise to Blue Co. Apr.17: Pay Blue Co.with purchase discount Apr.18: Purchase from FOX.Co $7,500 2/10,n/30, FOB destination Apr.21: Receive Fox $2,100 allowance for defective merchandise on Apr.18 purchase Apr.28: Pay Fox Co. with purchase discount

  6. Exercise 3: Purchase Discount, Purchase return and Allowance (Chap 5) Journal Entry for the following transactions Apr.2: Purchase from Blue Co. $3,600, 2/15, n/60, and FOB shipping point Apr.3: Paid $200 shipping charge for Apr.2 Purchase Apr.4: Return $600 merchandise to Blue Co. Apr.17: Pay Blue Co.with purchase discount Apr.18: Purchase from FOX.Co $7,500 2/10,n/30, FOB destination Apr.21: Receive Fox $2,100 allowance for defective merchandise on Apr.18 purchase Apr.28: Pay Fox Co. with purchase discount

  7. Exercise 4: Sales Discount, Sales return and Allowance (Chap 5) Journal Entry for the following transactions of Spare Parts Co. May.3: Purchase 1000 units with price $10 each unit May.5: Sold 600 units with price $14 per unit to DeSoto Co. with term 2/10,n/60 May.7: DeSoto return 200 units and Spare Parts restore them to inventory May.8: DeSoto keep damaged 50 units with $300 allowance May.15: DeSoto return 100 defective units and Spare Parts discard them

  8. Exercise 4: Purchase Discount, Purchase return and Allowance (Chap 5) Journal Entry for the following transactions of Spare Parts Co. May.3: Purchase 1000 units with price $10 each unit May.5: Sold 600 units with price $14 per unit to DeSoto Co. with term 2/10,n/60 May.7: DeSoto return 200 units and Spare Parts restore them to inventory May.8: DeSoto keep damaged 50 units with $300 allowance May.15: DeSoto return 100 defective units and Spare Parts discard them

  9. Exercise 5: Specification Identification, FIFO, LIFO & Weighted Average Costing System (Chap 6) Lakia Corporation has the following purchase and sales report, calculate Cost of Goods Sold & Ending Inventory For Specific Identification, Ending inventory consists of 400 units from July.28 purchase, 100 from Dec.19 purchase

  10. Exercise 6: Current ratio, Inventory turnover, Days’ sales in Inventory in LIFO & FIFO (Chap 6) Checkers Company Use LIFO and has the following annual financial data, FIFO data also provided, calculate for LIFO & FIFO system • Current ratio, Inventory Turnover, Days’ Sales in Inventory

  11. Exercise 6: Current ratio, Inventory turnover, Days’ sales in Inventory in LIFO & FIFO (Chap 6)

  12. Exercise 6: Current ratio, Inventory turnover, Days’ sales in Inventory in LIFO & FIFO (Chap 6) The use of LIFO versusFIFO for Checkers markedly impacts the ratios computed. Specifically, LIFO makes Checkers appear worse in comparison to FIFO numbers on the current ratio (1.1 vs. 1.5) but better on inventory turnover (5.8 vs. 4.0) and days’ sales in inventory (75 vs. 117.2). These results can be generalized. That is, when costs are rising and quantities are stable or rising, the FIFO inventory exceeds LIFO inventory. This suggests that (relative to FIFO) the LIFO current ratio is understated, the LIFO inventory turnover is overstated, and the days’ sales in inventory is understated. Overall, users prefer the FIFO numbers for these ratios because they are considered more representative of current replacement costs for inventory.

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