Principles of Accounting 301 Week 3 Homework

Exercise #1

Listed below are five procedures followed by Paul Company.

GoodWeakPrinciple

1.  Several individuals operate the cash register using the same register drawer.

2.  A monthly bank reconciliation is prepared by someone who has no other cash responsibilities.

3.  Fran Vorbeck writes checks and also records cash payment journal entries.

4.  One individual orders inventory, while a different individual authorizes payments.

5.  Unnumbered sales invoices from credit sales are forwarded to the accounting department every four weeks for recording.

Instructions

A)     Indicate whether each procedure is an example of good internal control or of weak internal control.

B)     If it is an example of good internal control, indicate which internal control principle is being followed.

C)     If it is an example of weak internal control, indicate which internal control principle is violated.

Exercise #2

Presented below is information for Baker Company for the month of March 2014.

Cost of goods sold$212,000   Rent expense$32,000 

Freight-out 9,000   Sales discounts6,600

Insurance expense 6,000 Sales returns and allowances13,000

Salaries and wages expense 58,000   Sales revenue380,000

Instructions

(a)  Prepare a classified income statement.

(b)  Compute the gross margin rate.

Baker Company

Income Statement

For the period ending March 31, 2014

Exercise #3

The following information pertains to William Landscape Company.

1.  Cash balance per bank, July 31, $7,293.

2.  July bank service charge not recorded by the depositor $28.

3.  Cash balance per books, July 31, $7,384.

4.  Deposits in transit, July 31, $1,500.

5.  Bank collected $800 note for William in July, plus interest $36, less fee $20. The collection has not been recorded by William, and no interest has been accrued.

6.  Outstanding checks, July 31, $621.

Instructions

(a)  Prepare a bank reconciliation at July 31.

William Landscape Company

Bank Reconciliation

July 31, 2014

Adjusted Balance as of July 31, 2014

Adjusted Balance as of July 31, 2014

Exercise #4

Calculate ending inventory, cost of goods sold, gross margin, and gross margin rate under periodic method; compare results.You are provided with the following information for Molly Inc. for the month ended October 31, 2014. Molly uses a periodic method for inventory.

DateDescriptionUnitsUnit Cost/ Selling PriceBeginning InvDateDescriptionUnitsUnit Cost/  Selling PriceRevenue from Sales

October  1Beginning inventory60$24 $1,440

October  9Purchase12026$3,120

October  11Sale10035$3,500

October  17Purchase7027$1,890

October  22Sale6540$2,600

October 25Purchase8028$2,240

October  29Sale12040$4,800

330$8,690 285$10,900

Average Cost per unit

Inventory Units remaining after Sales

Sales Revenue

Instructions

(a)  Calculate (i) ending inventory, (ii) cost of goods sold, (iii) gross margin, and (iv) gross margin rate under each of the following methods.

LIFO, FIFO and average cost

LIFOFIFOAverage

Cost of Goods Available for Sale

Ending Inventory

Costs of Goods Sold

Sales Revenue

Less COGS

*Gross Margin

Gross Margin Rate

*also called gross profit

Exercise #5

Calculate inventory turnover, days in inventory, and gross margin rate for Steff’s Photo Corporation for 2012, 2013, and 2014. Comment on any trends.

This information is available for Steff  Corporation for 2012, 2013, and 2014.

201220132014

Beginning inventory100,000330,000400,000

Ending inventory330,000400,000480,000

Cost of goods sold900,0001,120,0001,300,000

Sales revenue1,200,0001,600,0001,900,000

Instructions

Inventory Turnover Rate

Change in turnover rate between periods

Days in Inventory

Gross Margin

Gross Margin Percent

20122013 2014

Average Inventory

Inventory Turnover Rate