Homework_Help!

[mikeln92]

• July 01, 2011 Tom invested 20,000$ in this company.
• July 10, 2011, ABC purchased 1,000 units of goods with price is 15$ per unit. The credit at this purchase was 4/10, n/30.
• July 30, 2011, ABC paid cash to the purchase order as of July 10, 2001.
• August 15, 2011, ABC purchased 200 units of goods with 16$ per unit by cash
• December 31, 2011, ABC sold 1,000 units of goods with selling price at 20$/unit on credit. ABC had to paid 600$ due to low quality. ABC collected 15,500 from their credit sales.
a) Journalize
b) Calculate inventory and COGS of ABC at the end of 2011 using LIFO method.

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• September 01, 2011, ABC issued 5000$ bonds with interest rate at 12%/year. The interest rate will be paid two times per year (Issue at par value)
• October 01, 2011, ABC bought equipment for administration service of 10,000$. This machine has useful life in 5 years, no salvage value. 80% value of this equipment was paid immediately and 20% will be paid after 1 year. Calculate Depreciation Expense using Double Declining Method.
• December 31, 2011, ABC sold 1,000 units of goods with selling price at $20/unit on credit ABC had to pay $500 due to low quality. ABC collected 15,500 from their credit sales.
• December 31, ABC paid 2,000 for their employees.
• December 31, ABC paid interest for bondholder according to the deal as of September 01, 2011
• December 31, ABC had to recognize the depreciation expense for the equipment which was bought in October 01
Question:
a) Calculate depreciation expense for the equipment of ABC Corp in 2011 using double declining balance method
b) Calculate inventory and COGS of ABC at the end of 2011 using LIFO method.
c) Calculate interest that ABC has to pay at the end of 2011
d) Journalize all transactions happened in 2011
e) Prepare income statement for this company as of December 31, 2011

 

[Becky]

What do you have so far? There's no point in someone giving you the answer, you won't learn anything

 

[Nora]

Journalizing is very easy. Actually it's the easiest step. Each transaction affects at least two accounts, one being debited and the other credited. You have to learn which accounts increase with debits and which decrease with credits. For example, assets increase with debits (decrease with credits).

Then consider which accounts the transaction affected and whether the account increased or decreased (debited or credited). In the first transaction, owners invested $20,000 in the business. Thus the accounts affected were Cash and equity (Capital). Both accounts increased. Do the journal entry and post it.

 

[Nora]

In the second transaction, you have 1000 items purchased at $15 each. What is the total cost of the items? (multiple number of items by price to get total cost.) That is your journal entry amount. Which accounts were affected? Which account increased and which decreased? Enter the journal entry.

The second part of this transaction gives you the credit terms. This means that this purchase was on account and not a cash purchase. The credit terms 4/10, n/30 means that there is a 4% discount if the amount is paid within 10 days. If it isn't paid in ten days, the net amount due has to be paid.

 

[Nora]

The third transaction records the payment for the items purchased in the second transaction. Remember that the terms of payment in the second transaction were 4/10, n/30. Was the payment done within the discount period? What should be the journal entry here? Which accounts were affected, which increased and which decreased?

 

[Nora]

The fourth transaction is easy. It's a cash transaction. Calculate the total amount spent on the items and record the journal entry.

 

[Nora]

The wording of the fifth transaction is confusing. If ABC had to pay $600 due to low quality why is it collecting 15,500? $20,000 minus 600 = 15400.

In any case, here you have a credit sale. The entry is simple. (I'm assuming this is a periodic inventory system). Calculate the total sales and then record the entry. Two accounts are affected. Since it is a credit sale, the two accounts this sale affects are accounts receivable and Sales.

The second part is the receipt of cash. Since there were some items of poor quality, ABC reduced the total amount the customer pays. Therefore this part of the transaction affects three accounts and not two. Two regular accounts (one of them from the previous part of the transaction) are affected along with a third account, the Sales Returns and Allowance account. Think over the problem and record the transaction.

 

[Nora]

LIFO method of inventory means "Last in First Out." This method assumes that items bought last are sold first. In your problem, 1000 items were bought for $15 each and 200 were bought for $16 each. According to LIFO, the 200 items costing $16 each were sold first and then the older items. Since 1000 items were sold, it means that of these, 200 items were worth $16 each and 800 items were worth $15. That is your COGS (Cost of goods sold).

Value of your inventory can be calculated by subtracting COGS from original inventory value.

Not too difficult, eh?
Actually these are pretty complex problems. If you can't do them easily, it means you haven't mastered the material well enough. Revise simpler problems to help you get a good grasp of the material before you move on.