Reference no: EM132759499

ACC 106 Accounting principles - Emirates College of Technology

LO 1: Prepare general journal entries for merchandize operations using periodic inventory systems.
LO 2: Compute the cost of inventory and cost of goods sold by using periodic systems using: First-In First-Out, Last-In First-Out, and Weighted Average and estimate the value of an inventory using the retail method and the gross profit method.
LO 3: Differentiate operations related to petty cash funds and create bank reconciliation statement.
LO 4: Determine the cost of plant assets and Compute depreciation by using straight line, declining balance and units of production depreciation methods.

Question 1:

Alpha company is a trading company that purchases and sales fruits and vegetables. During the year 2020, the company shows the following transactions and events:
The company uses the perpetual inventory system to account for its inventory at December 31, 2020 and its financial statements are disclosed without delay.
The company records sales when cash is received from customers and delay expenses for the next year.
For credit purchase transactions, the accountant debit (merchandise inventory) and credit (accounts receivable).
The company assumes the freight charges to its customers. The accountant debit (freight in expenses) and credit (merchandise inventory).
One customer returned fruits to Alpha that were damaged. The accountant of the company debit (purchase returns) and credit (accounts payable).
The cost of goods sold is determined after each sale as follow: beginning inventory - purchases + ending inventory.
Net profit is computed by subtracting operating expenses from the cost of goods sold.
The accountant records merchandise inventory (stock) in the expenses section of the income statement.
The company assumes that physical inventory is not important as it uses the perpetual inventory system during the year.
The driver of the company has access to the inventory, he delivers the merchandise, receives the cash and has access to the company books.

Required:
For each case, identify the anomaly and propose the correct accounting treatment/answer:

Question 2:

XYZ Co uses the periodic inventory system to account for inventories. Its beginning inventory is 500 units at 5 $ each. Information related to XYZ Company's inventory at October 31 is given below:

Required:
1. Compute the cost of ending inventory and the cost of goods sold under: (6 marks)
a. FIFO method
b. LIFO method
c. The weighted average

2. XYZ wants to increase its capital by equity offering up to 70 % and the 30% by bank loan. Which valuation method of inventory the company should use. Explain:

Question 3:

On December 31, 2020, TEJ Company had a cash balance per books of $8,664. The statement from DUABI Islamic Bank on that date showed a balance of $15,900. A comparison of the bank statement with the Cash account revealed the following facts.

NSF check of customer returned by bank $4,200.
Check No. 210 was correctly written and paid by the bank for $593. The cash payment journal reflects an entry for Check No. 210 as a debit to Accounts Payable and a credit to Cash in Bank for $539.
Bank service charge for December was $100.
A payment on account was incorrectly entered in the cash payments journal and posted to the accounts payable subsidiary ledger for $824 when Check No. 318 was correctly prepared for $284. The check cleared by the bank in December.
The bank collected a note receivable for the company for $3,000 plus $100 interest revenue.
Checks written in December but still outstanding $8,000.
Checks written in November but still outstanding $5,150.
Deposits of December 29 and 30 not yet recorded by bank $5,200.

Required:
Prepare a bank reconciliation statement at September 30 for TEJ Company.
Explain the need and importance of the bank reconciliation

Question 4:
ALPHA Company purchased equipment on 1/1/N with an invoice price of $80,000. Purchase taxes $16,000. Other costs incurred were freight costs, $1,100; installation wiring and foundation, $2,200; material and labor costs in testing equipment, $700; fire insurance policy for the factory is, $1,400. The equipment is estimated to have a $5,000 salvage value at the end of its 5-year useful service life.
Required:

(a) Compute the acquisition cost of the equipment.
(b) If the double-declining-balance method of depreciation was used for the machine, prepare the depreciation schedule for the full period.
(c) Based on which criteria companies choose the depreciation methods for their depreciable assets?

Attachment:- Accounting principles.rar