Reference no: EM132461775
Question 1 - Fill in the blanks:
Sales Revenue $800
Beginning Inventory $100
Purchases $700
Available for Sale ?
Ending Inventory $500
Cost of Goods Sold ?
Gross Profit ?
Operating Expenses $200
Net Income ?
Question 2 - Assume you serve on the board of a local golf and country club. In preparation for renegotiating the club's bank loans, the president indicates that the club needs to increase its operating cash flows before the end of the current year. The club's treasurer reassures the president and other board members that he knows a couple of ways to boost the club's operating cash flows. First, he says, the club can sell some of its accounts receivable to a collections company that is willing to pay the club $97,000 up front for the right to collect $1 00,000 of the overdue accounts. That will immediately boost operating cash flows. Second, he indicates that the club paid about $200,000 last month to relocate the 18th fairway and green closer to the clubhouse. The treasurer indicates that although these costs have been reported as expenses in the club's own monthly financial statements, he feels an argument can be made for reporting them as part of land and land improvements (a long-lived asset) in the year-end financial statements that would be provided to the bank. He explains that, by recording these payments as an addition to a long-lived asset, they will not be shown as a reduction in operating cash flows.
Required -
1. Does the sale of accounts receivable to generate immediate cash harm or mislead anyone? Would you consider it an ethical business activity?
2. What category in the statement of cash flows is used when reporting cash spent on long-lived assets, such as land improvements? What category is used when cash is spent on expenses, such as costs for regular upkeep of the grounds?
3. What facts are relevant to deciding whether the costs of the 18th hole relocation should be reported as an asset or as an expense? Is it appropriate to make this decision based on the impact it could have on operating cash flows?
4. As a member of the board, how would you ensure that an ethical decision is made?
Question 3 - Following is the adjusted trial balance of Post Company. Based on this information prepare a Balance Sheet, Income Statement and Statement of Retained Earnings. (You will also use this information in another problem).
POST COMPANY ADJUSTED TRIAL BALANCE
Debit Credit
Cash 80,000
Accounts Receivable 12,000
Prepaid Insurance 2,000
Equipment 4,000
Accumulated Depreciation 100
Supplies 400
Accounts Payable 800
Wages Payable 200
Unearned Revenue 1,200
Contributed Capital 82,400
Retained Earnings 0
Sales 16,000
Gas Expense 200
Supply Expense 400
Insurance Expense 400
Depreciation Expense 100
Wage Expense 200
Dividends 1,000
100,700 100,700
Required - Explain the closing entry process AND prepare the closing entries in journal form based on the information from the Post Company Problem.
Question 5 - SMITH INC. BANK RECONCILIATION
Cash balance per bank $8,200
Cash balance per books (general ledger) $6,500
Outstanding checks $2,460
Check mailed to the bank for deposit had not reached the bank by the statement date. $500
NSF check returned by the bank for accounts receivable $100
July interest earned on the bank statement $20
Check no. 700 for misc. expense cleared the bank for $200; erroneously recorded in the Matrix books for $20
Required - Prepare a bank reconciliation. Show the accounting entries that must be made in journal or t-account format.
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