Group Project 2 - bis

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BA184IU 
FINANCIAL ACCOUNTING 
GROUP ASSIGNMENT 2 
 
 
Problem 1: 
On December 1, 2020, Tom Cruise Company had the account balances shown below. 
 
 Debit Credit 
Cash $ 4,650 Accumulated Depreciation-
Equipment 
$ 1,500 
Accounts 
Receivable 
3,900 Accounts Payable 3,000 
Inventory 1,950* Share Capital-Ordinary 20,000 
Equipment 21,000 Retained Earnings 7,000 
 $31,500 $31,500 
*(3,000 x $0.65) 
The following transactions occurred during December. 
Dec. 3 Purchased 4,000 units of inventory on account at a cost of $0.72 per unit. 
5 Sold 4,400 units of inventory on account for $0.92 per unit. (It sold 3,000 of the 
$0.65 units and 1,400 of the $0.72.) 
7 Granted the December 5 customer $184 credit for 200 units of inventory 
returned costing $144. These units were returned to inventory. 
17 Purchased 2,200 units of inventory for cash at $0.78 each. 
22 Sold 2,000 units of inventory on account for $0.95 per unit. (It sold 2,000 of 
the $0.72 units.) 
 
Adjustment data: 
1. Accrued salaries payable $400. 
2. Depreciation $200 per month. 
Instructions 
(a) Journalize the December transactions and adjusting entries, assuming Tom Cruise 
uses the perpetual inventory method. 
(b) Enter the December 1 balances in the ledger T-accounts and post the December 
transactions. In addition to the accounts mentioned above, use the following 
additional accounts: Cost of Goods Sold, Depreciation Expense, Salaries and 
Wages Expense, Salaries and Wages Payable, Sales Revenue, and Sales Returns 
and Allowances. 
(c) Prepare an adjusted trial balance as of December 31, 2020. 
(d) Prepare an income statement for December 2020 and a classified statement of 
financial position at December 31, 2020. 
(e) Compute ending inventory and cost of goods sold under FIFO, assuming Tom 
Cruise Company uses the periodic inventory system. 
(f) Compute ending inventory and cost of goods sold under average-cost, assuming Tom 
Cruise Company uses the periodic inventory system. 
 
Problem 2: 
The bank portion of the bank reconciliation for Bell Company at November 30, 
2020, was as follows. 
 
 
Bell Company 
 
 
Bank Reconciliation 
 
 
30-Nov-20 
 Cash balance per bank 
 
14.367,9 
Add: Deposits in transit 
 
2.530,2 
 
16.898,1 
Less: Outstanding checks 
 
 
Check number Check amount 
 
 
3451 2.260,4 
 
 
3470 720,1 
 
 
3471 844,5 
 
 
3472 1.426,8 
 
 
3474 1.050 6.301,8 
Adjusted cash balance per bank 10.596,3 
 
The adjusted cash balance per bank agreed with the cash balance per books at 
November 30. 
The December bank statement showed the following checks and deposits 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bank Statement 
 Check 
 
Deposits 
Date Number Amount 
 
Date Amount 
12-1 3451 $2.260,4 
 
12-1 2.530,2 
12-2 3471 844,5 
 
12-4 1.211,6 
12-7 3472 1.426,8 
 
12-8 2.365,1 
12-4 3475 1.640,7 
 
12-16 2.672,7 
12-8 3476 1.300 
 
12-21 2.945 
12-10 3477 2.130 
 
12-26 2.567,3 
12-15 3479 3.080 
 
12-29 2.836 
12-27 3480 600 
 
12-30 1.025 
12-30 3482 475.5 
 
Total 18.152,9 
12-29 3483 1.140 
 12-31 3485 540,8 
 
 
15,438,7 
 
The cash records per books for December showed the following. 
Cash Payments Journal 
Date Number Amount Date Number Amount 
12-1 3475 1.640,7 12-20 3482 475,5 
12-2 3476 1.300 12-22 3483 1.140 
12-2 3477 2.130 12-23 3484 798 
12-4 3478 621,3 12-24 3485 450,8 
12-8 3479 3.080 12-30 3486 1.889,5 
12-10 3480 600 
 
4.753,8 
12-17 3481 807,4 
 
 
 
The bank statement contained two memoranda: 
1. A credit of $3,645 for the collection of a $3,500 note for Bell Company plus interest 
of $160 and less a collection fee of $15. Bell Company has not accrued any interest on 
the note. 
2. A debit of $572.80 for an NSF check written by D. Chagnon, a customer. At 
December 31, the check had not been redeposited in the bank. 
At December 31, the cash balance per books was $12,485.20, and the cash balance per 
the bank statement was $20,154.30. The bank did not make any errors, but two errors 
were made by Bell Company. 
Instructions 
(a) Using the four steps in the reconciliation procedure, prepare a bank reconciliation at 
December 31. 
Cash Receipts 
Journal 
Date Amount 
12-3 1.211,6 
12-7 2.365,1 
12-15 2.672,7 
12-20 2/954 
12-25 2.567,3 
12-28 2.836 
12-30 1.025 
12-31 1.190,4 
 
16.822,1 
(b) Prepare the adjusting entries based on the reconciliation. (Hint: The correction of 
any errors pertaining to recording checks should be made to Accounts Payable. The 
correction of any errors relating to recording cash receipts should be made to Accounts 
Receivable.) 
 
Problem 3: 
At December 31, 2020, the trial balance of Karl Rove Company contained the following 
amounts before adjustment. 
 Debits Credits 
Accounts Receivable $385,000 
Allowance for Doubtful 
Accounts 
 $800 
Sales Revenue 918,000 
Instructions 
(a) Based on the information given, which method of accounting for bad debts is Karl 
Rove Company using—the direct write-off method or the allowance method? How can 
you tell? 
(b) Prepare the adjusting entry at December 31, 2020, for bad debt expense under each 
of the following independent assumptions. 
(1) An aging schedule indicates that $11,750 of accounts receivable will be 
uncollectible. 
(2) The company estimates that 1% of sales will be uncollectible. 
(c) Repeat part (b) assuming that instead of a credit balance there is an $800 debit 
balance in Allowance for Doubtful Accounts. 
(d) During the next month, January 2021, a $3,000 account receivable is written off as 
uncollectible. Prepare the journal entry to record the write-off. 
(e) Repeat part (d) assuming that Karl Rove uses the direct write-off method instead of 
the allowance method in accounting for uncollectible accounts receivable. 
(f) What type of account is Allowance for Doubtful Accounts? How does it 
affect how accounts receivable is reported on the statement of financial position at the 
end of the accounting period? 
 
Problem 4: 
On January 1, 2020, Messi Company purchased the following two machines for use 
in its production process. 
Machine A: The cash price of this machine was R$35,000. Related expenditures 
included: sales tax R$1,700, shipping costs R$150, insurance during shipping 
R$80, installation and testing costs R$70, and R$100 of oil and lubricants to be 
used with the machinery during its first year of operations. Pele estimates that the 
useful life of the machine is 5 years with a R$5,000 residual value remaining at 
the end of that time period. Assume that the straight-line method of depreciation 
is used. 
Machine B: The recorded cost of this machine was R$80,000. Pele estimates that the 
useful life of the machine is 4 years with a R$5,000 residual value remaining at 
the end of that time period. 
Instructions 
(a) Prepare the following for Machine A. 
(1) The journal entry to record its purchase on January 1, 2020. 
(2) The journal entry to record annual depreciation at December 31, 2020. 
(b) Calculate the amount of depreciation expense that Messi should record for Machine 
B each year of its useful life under the following assumptions. 
(1) Messi uses the straight-line method of depreciation. 
(2) Messi uses the declining-balance method. The rate used is twice the straight-
line rate. 
(3) Messi uses the units-of-activity method and estimates that the useful life of the 
machine is 125,000 units. Actual usage is as follows: 2020, 42,000 units; 2021, 
35,000 units; 2022, 28,000 units; 2023, 20,000 units. 
(c) Which method used to calculate depreciation on Machine B reports the highest 
amount of depreciation expense in year 1 (2020)? The highest amount in year 4 (2023)? 
The highest total amount over the 4-year period? 
 
Problem 5: 
The equity accounts of Blade Runner Corporation on January 1, 2020, were as follows 
Share Capital—Preference(9%, €50 par, 
cumulative, 10,000 shares authorized) 
€ 400,000 
Share Capital—Ordinary (€1 stated value, 
2,000,000 shares authorized) 
1,000,000 
Share Premium—Preference 100,000 
Share Premium—Ordinary 1,450,000 
Retained Earnings 1,816,000 
Treasury Shares—Ordinary (20,000 
shares) 
50,000 
During 2020, the corporation had the following transactions and events pertaining to its 
equity. 
Feb. 1 Issued 25,000 ordinary shares for €120,000. 
Apr. 14 Sold 9,000 treasury shares—ordinary for €46,000. 
Sept. 3 Issued 7,000 ordinary shares for a patent valued at €42,000. 
Nov. 10 Purchased 1,000 ordinary shares for the treasury at a cost of €6,000. 
Dec. 31 Determined that net income for the year was €452,000. 
No dividends were declared during the year 
Instructions 
(a) Journalize the transactions and the closing entry for net income. 
(b) Enter the beginning balances in the accounts, and post the journal entries to the 
equity accounts. 
(c) Prepare an equity section at December 31, 2020, including the disclosure of the 
preference dividends in arrears. 
 
Problem 6: The comparative statements of financial position for Amaral Reis Company 
as of December 31 are presented on the next page. 
 
Amaral Reis Company 
Comparative Statements of Financial Position 
December 31 
Assets 2020 2019 
Land R$145,000 R$130,000 
Equipment 228,000 155,000 
Accumulated Depreciation-
equipment 
(45,000) (35,000) 
Buildings 200,000 200,000 
Accumulated depreciation-
buildings 
(60,000) (40,000) 
Prepaid Expenses 15,280 21,000 
Inventory 154,550 142,000 
Accounts Receivable 44,000 62,000 
Cash 59,520 45,000 
Total R$741,350 R$680,000 
Equity and liabilities 
Share capital-ordinary, R$1 
par 
R$195,000 R$160,000 
Retained earnings 200,000 180,000 
Bonds payable 300,000 300,000 
Accounts payable 46,350 40,000 
Total R$741,350 R$680,000 
 
Additional information: 
1. Operating expenses include depreciation expense of R$40,000. 
2. Land was sold for cash at book value of R$20,000. 
3. Cash dividends of R$25,000 were paid. 
4. Net income for 2014 was R$45,000. 
5. Equipment was purchased for R$95,000 cash. In addition, equipment costing 
R$22,000 
with a book value of R$12,000 was sold for R$6,000 cash. 
6. Issued 35,000 shares of R$1 par value ordinary shares in exchange for land with a fair 
value of R$35,000. 
 
Instructions 
Prepare a statement of cash flows for the year ended December 31, 2020, using the 
indirect method. 
 
Problem 7: The comparative statements of Larker Tool Company are presented below. 
Larker Tool Company 
Income Statement 
For the Years Ended December 31 
 2020 2019 
Net sales R$1,818,500 R$1,750,500 
Cost of goods sold 1,011,500 996,000 
Gross profit 807,000 754,500 
Selling and administrative expense 516,000 479,000 
Income from operations 291,000 275,500 
Interest Expense 15,000 14,000 
Income before income taxes 276,000 261,500 
Income tax expense 84,000 77,000 
Net income R$192,000 R$184,500 
 
Larker Tool Company 
Statement of Financial Position 
December 31 
Assets 2020 2019 
Plant assets 
(net) 
 R$600,300 R$520,300 
Current assets 
Inventory R$110,950 R$115,500 
Accounts 
Receivable 
(net) 
105,750 102,800 
Short-term 
investments 
69,000 50,000 
Cash 60,100 345,800 64,200 332,500 
Total assets R$946,100 R$852,800 
 
Equity and 
liabilities 
 
Equity R$600,300 R$300,000 
Share capital-
ordinary (R$5 
par) 
 242,600 165,400 
Retained 
earnings 
 542,600 465,400 
Bonds payable 200,000 200,000 
Current 
liabilities 
 
Accounts 
payable 
 160,000 145,400 
Income taxes 
payable 
 43,500 42,000 
Total current 
liabilities 
 203,500 187,400 
Total liabilities 403,500 387,400 
Total equity 
and liabilities 
 R$946,100 R$852,800 
 
All sales were on account 
 
Instructions 
Compute the following ratios for 2020. (Weighted-average ordinary shares in 2020 were 
60,000.) 
(a) Earnings per share. (f) Accounts receivable turnover. 
(b) Return on ordinary shareholders’ equity. (g) Inventory turnover. 
(c) Return on assets. (h) Times interest earned. 
(d) Current. (i) Asset turnover. 
(e) Acid-test. (j) Debt to total assets.