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Problem I - 30 Points
The following ratios have been computed for Morgan Company for 2011.
Profit margin
20%
Times interest earned
9 times
Receivables turnover
3 times
Acid-test ratio
02:01
Current ratio
03:01
Debt to total assets ratio
Morgan Company's 2011 financial statements with missing information follow:
MORGAN COMPANY
Comparative Balance Sheet
December 31,
-------------------------------------------
Assets
2011
2,010
Cash
$30,000
45,000
Short-term Investments
10,000
25,000
Accounts receivable (net)
60,000
(6)
40,000
Inventory
65000
(8)
50,000
Property, plant, and equipment (net)
2,00,000
1,60,000
Total assets
3,65,000
(9)
$3,20,000
Liabilities and stockholders' equity
Accounts payable
25000
(7)
Short-term notes payable
35,000
Bonds payable
20000
(10)
20,000
Common stock
2,20,000
Retained earnings
Total liabilities and stockholders' equity
(11)
Income Statement
For the Year Ended December 31, 2011
Net sales
1,50,000
Cost of goods sold
75,000
Gross profit
Expenses:
Depreciation expense
5,000
(5)
Interest expense
Selling expenses
8,000
Administrative expenses
12,000
Total expenses
30000
(4)
Income before income taxes
(2)
Income tax expense
15000
(3)
Net income
30,000
(1)
Instructions
Use the above ratios and information from the Morgan Company financial statements to fill in the missing information on the financial statements. Follow the sequence indicated. Show computations that support your answers.
Problem II - 20 points
Kosko Furniture Store has credit sales of $400,000 in 2010 and a debit balance of $600 in the Allowance for Doubtful Accounts at year end. As of December 31, 2010, $130,000 of accounts receivable remain uncollected. The credit manager prepared an aging schedule of accounts receivable and estimates that $3,000 will prove to be uncollectible.
On March 4, 2011, the credit manager authorizes a write-off of the $1,000 balance owed by A. Noonan.
(a)
Prepare the adjusting entry to record the estimated uncollectible accounts expense in 2010.
(b)
Show the balance sheet presentation of accounts receivable on December 31, 2010.
(c)
On March 4, before the write-off, assume the balance of Accounts Receivable account is $160,000 and the balance of Allowance for Doubtful Accounts is a credit of $2,000. Make the appropriate entry to record the write-off of the Noonan account. Also show the balance sheet presentation of accounts receivable before and after the write-off.
Problem III - 20 Points
Lumley Company uses the perpetual inventory system and had the following purchases and sales during March.
Purchases
Sales
Units
Cost per unit
Price per unit
01-Mar
Beginning inventory
100
$40
03-Mar
Purchase
60
$50
04-Mar
70
$80
10-Mar
200
$55
16-Mar
80
$90
19-Mar
40
$60
25-Mar
120
Using the inventory and sales data above, calculate the value assigned to cost of goods sold in March and to the ending inventory at March 31 using (a) FIFO and (b) LIFO.
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