Q: Smith Company loaned Jones Company $$100,000 on July 1, 2024, at an interest rate of 7% due in 90 days. What is the maturity value of the loan? Use the formula M = P + (P$$ \times r \times t)$$, where P$ is principal, r$ is annual interest rate, and t$ is time in years.

$$M = 100,000 + (100,000 \times 0.07 \times \frac{90}{365}) = 101,726$$

Q: ABC Company paid the balance due on the purchase of January 1 on January 9, taking advantage of the cash discount. What is the amount paid?

$$(5,000 - 500) \times 0.98 = 4,410$$

Q: Given the following inventory data for MNO Company: Beginning Inventory: 30 units at $$2.00; Purchases: 40 units at 2.50$$; Purchases: 35 units at $2.20; Ending Inventory: 20 units. Calculate the cost of goods sold using FIFO.

$$\text{COGS} = (30 \times 2.00) + (40 \times 2.50) + (15 \times 2.20) = 60 + 100 + 33 = 193$$

Q: Using the same inventory data, calculate the cost of goods sold using LIFO.

$$\text{COGS} = (35 \times 2.20) + (40 \times 2.50) + (5 \times 2.00) = 77 + 100 + 10 = 187$$

Q: Based on the Smith Company adjusted trial balance for December 31, 2024, what is the net income if Sales Revenue is $$300,000, Sales Discounts 2$$,000, Sales Returns and Allowances $$10,000, Cost of Goods Sold 130$$,000, Selling Expenses $$25,400, General and Administrative Expenses 15$$,400, and Gain on Sale of Asset $$3,000? Use the formula $$\text{Net Income} = \text{Total Revenues} - \text{Total Expenses}$.

$$\text{Net Income} = (300,000 - 2,000 - 10,000 + 3,000) - (130,000 + 25,400 + 15,400) = 291,000 - 170,800 = 120,200$$

Q: If the income tax rate is 21%, what is the income tax expense for Smith Company based on the net income calculated in the previous question?

$$\text{Income Tax Expense} = 120,200 \times 0.21 = 25,242$$

Q: West Point Communications estimates uncollectible-account expense at 1% of credit sales. If credit sales for the year are $300,000, what is the estimated uncollectible-account expense?

$$300,000 \times 0.01 = 3,000$$

Question 1

Smith Company loaned Jones Company $$100,000 on July 1, 2024, at an interest rate of 7% due in 90 days. What is the maturity value of the loan? Use the formula M = P + (P$$ 	imes r 	imes t)$$, where P$ is principal, r$ is annual interest rate, and t$ is time in years.

Accepted Answer

$$M = 100,000 + (100,000 	imes 0.07 	imes \frac{90}{365}) = 101,726$$

Question 2

On January 1, ABC Company purchased merchandise inventory on account for $5,000 with terms 2/10, n/30. What is the journal entry for this transaction?

Accepted Answer

Debit Merchandise Inventory $$5,000; Credit Accounts Payable 5$$,000

Question 3

On January 5, ABC Company returned $500 worth of defective merchandise to the supplier. What is the correct journal entry?

Accepted Answer

Debit Accounts Payable $$500; Credit Merchandise Inventory 500$$

Question 4

ABC Company paid the balance due on the purchase of January 1 on January 9, taking advantage of the cash discount. What is the amount paid?

Accepted Answer

$$(5,000 - 500) 	imes 0.98 = 4,410$$

Question 5

On January 15, ABC Company sold merchandise inventory on account for $$7,000. The cost of the merchandise sold was 4$$,000. What is the journal entry to record the sale?

Accepted Answer

Debit Accounts Receivable $$7,000; Credit Sales Revenue 7$$,000; Debit Cost of Goods Sold $$4,000; Credit Merchandise Inventory 4$$,000

Question 6

Given the following inventory data for MNO Company: Beginning Inventory: 30 units at $$2.00; Purchases: 40 units at 2.50$$; Purchases: 35 units at $2.20; Ending Inventory: 20 units. Calculate the cost of goods sold using FIFO.

Accepted Answer

$$	ext{COGS} = (30 	imes 2.00) + (40 	imes 2.50) + (15 	imes 2.20) = 60 + 100 + 33 = 193$$

Question 7

Using the same inventory data, calculate the cost of goods sold using LIFO.

Accepted Answer

$$	ext{COGS} = (35 	imes 2.20) + (40 	imes 2.50) + (5 	imes 2.00) = 77 + 100 + 10 = 187$$

Question 8

Based on the Smith Company adjusted trial balance for December 31, 2024, what is the net income if Sales Revenue is $$300,000, Sales Discounts 2$$,000, Sales Returns and Allowances $$10,000, Cost of Goods Sold 130$$,000, Selling Expenses $$25,400, General and Administrative Expenses 15$$,400, and Gain on Sale of Asset $$3,000? Use the formula $$	ext{Net Income} = 	ext{Total Revenues} - 	ext{Total Expenses}$.

Accepted Answer

$$	ext{Net Income} = (300,000 - 2,000 - 10,000 + 3,000) - (130,000 + 25,400 + 15,400) = 291,000 - 170,800 = 120,200$$

Question 9

If the income tax rate is 21%, what is the income tax expense for Smith Company based on the net income calculated in the previous question?

Accepted Answer

$$	ext{Income Tax Expense} = 120,200 	imes 0.21 = 25,242$$

Question 10

West Point Communications estimates uncollectible-account expense at 1% of credit sales. If credit sales for the year are $300,000, what is the estimated uncollectible-account expense?

Accepted Answer

$$300,000 	imes 0.01 = 3,000$$

Question 11

Given the aging of receivables for West Point Communications: $$235,000 at 0.5% uncollectible, 132$$,000 at 2%, $$52,000 at 15%, and 15$$,000 at 35%, what is the required balance in the Allowance for Uncollectible Accounts? Use the formula $$	ext{Allowance} = \sum (	ext{Receivable} 	imes 	ext{Uncollectible Rate}).$$

Accepted Answer

$$235,000 	imes 0.005 + 132,000 	imes 0.02 + 52,000 	imes 0.15 + 15,000 	imes 0.35 = 1,175 + 2,640 + 7,800 + 5,250 = 16,865$$

Question 12

If the Allowance for Uncollectible Accounts has a beginning credit balance of $$8,000 and the required balance is 16$$,865, what is the journal entry to adjust the allowance?

Accepted Answer

Debit Uncollectible Account Expense $$8,865; Credit Allowance for Uncollectible Accounts 8$$,865

Question 13

At December 31, 2021, West Point Communications' Accounts Receivable balance was $$212,000 and Allowance for Uncollectible Accounts was 4$$,800. What is the net realizable value of accounts receivable at year-end?

Accepted Answer

$$212,000 - 4,800 = 207,200$$

Question 14

Which of the following best describes the effect of a sales discount on the financial statements?

Accepted Answer

It reduces both net sales and accounts receivable.

Question 15

If a company uses the perpetual inventory system, which account is credited when merchandise is sold to a customer?

Accepted Answer

Merchandise Inventory

Question 16

A company sells merchandise for $10,000 on account, terms 2/10, n/30. If the customer pays within the discount period, what is the amount received?

Accepted Answer

$$10,000 	imes 0.98 = 9,800$$

Question 17

Which of the following is NOT a result of recording a sales return?

Accepted Answer

Increase in net sales

Financial Accounting: Key Problems and Concepts Study Guide

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