Question 1

Solution

(a) FIFO
Beginning inventory (250 X $7)......................................................... $1,750
Purchases
June 12 (325 X $8).................................................................. $2,600
June 23 (475 X $9).................................................................. 4,275 6,875
Cost of goods available for sale........................................................ 8,625
Less: Ending inventory (110 X $9)....................................................    990
Cost of goods sold............................................................................. $7,635

LIFO
Cost of goods available for sale........................................................ $8,625
Less: Ending inventory (110 X $7).................................................... 770
Cost of goods sold............................................................................. $7,855

(b) The FIFO method will produce the higher ending inventory because costs have been rising. Under this
method, the earliest costs are assigned to cost of goods sold and the latest costs remain in ending
inventory. For Tevis Company, the ending inventory under FIFO is $990 or (110 X $9) compared to
$770 or (110 X $7) under LIFO.

(c) The LIFO method will produce the higher cost of goods sold for Tevis Company. Under LIFO the most
recent costs are charged to cost of goods sold and the earliest costs are included in the ending
inventory. The cost of goods sold is $7,855 or [$8,625 – (110 X $7)] compared to $7,635 or ($8,625 –
$990) under FIFO.
Question 2
Solution

(a) VOX CORPORATION

Statement of Cash Flows
For the Year Ended December 31, 2017

Cash flows from operating activities

Net income................................................................................. $ 27,630)
Adjustments to reconcile net income
  to net cash provided by operating activities
Depreciation expense........................................................ $ 5,000 )
Loss on disposal of land*..................................................   2,100
Decrease in accounts receivable....................................... 1,800
Decrease in accounts payable.......................................... (12,630 )   (3,730)
Net cash provided by operating activities.................................... 23,900

Cash flows from investing activities

Sale of land................................................................................  3,900

Cash flows from financing activities

Issuance of common stock......................................................... $ 6,000
 Payment of dividends................................................................. (24,500 )
Net cash used by financing activities.......................................... (18,500)

Net increase in cash...........................................................................   9,300 )

Cash at beginning of period................................................................ 10,000 )
Cash at end of period......................................................................... $ 19,300

* $26,000 – 20,000 = $6,000; $6,000 - $3,900 = $ 2,100

(b) $23,900 – $0 – $24,500 = ($600)
Question 3
Solution

(a) (1) 2017: ($50,000 – $4,000)/8 = $5,750

2018: ($50,000 – $4,000)/8 = $5,750

(2) ($50,000 – $4,000)/100,000 = $0.46 per mile

2017: 15,000 X $0.46 = $6,900
2018: 12,000 X $0.46 = $5,520

(3) 2017: $50,000 X 25% = $12,500

2018: ($50,000 – $12,500) X 25% = $9,375

(b) (1) Depreciation Expense................................................................... 5,750

Accumulated Depreciation—Equipment...................................... 5,750

(2) Equipment.................................................................................... $50,000

Less: Accumulated Depreciation—
Equipment....................................................................... 5,750
$44,250
Question 4
Solution
A.
(a) Accounts Receivable Amount % Estimated Uncollectible

1–30 days $62,000  2.0 $ 1,240

31–60 days  18,000  5.0    900
61–90 days  17,000 30.0  5,100
Over 90 days  13,000 50.0   6,500
$13,740

(b) Mar. 31 Bad Debt Expense.............................................................. 11,640

Allowance for Doubtful Accounts
  ($13,740 – $2,100)................................................. 11,640
B.
May 10 Cash ($2,700 – $108)................................................... 2,592
Service Charge Expense
  (4% X $2,700)........................................................... 108
Sales Revenue.................................................... 2,700
Question 5
Solution

(a) GREENWOOD COMPANY

Partial Worksheet
For the Year Ended December 31, 2017

Adjusted Income Balance

Account Trial Balance Statement Sheet
No. Titles Dr. Cr. Dr. Cr. Dr. Cr.
101 Cash 18,800 18,800
112 Accounts Receivable 16,200 16,200
126 Supplies 2,300 2,300
130 Prepaid Insurance 4,400 4,400
157 Equipment 46,000 46,000
158 Acc. Depr.—Equip. 20,000 20,000
200 Notes Payable 20,000 20,000
201 Accounts Payable 8,000 8,000
212 Salaries and Wages Payable
2,600 2,600
230 Interest Payable 1,000 1,000
301 Owner’s Capital 26,000 26,000
306 Owner’s Drawings 12,000 12,000
400 Service Revenue 87,800 87,800
610 Advertising Expense 10,000 10,000
631 Supplies Expense 3,700 3,700
711 Depreciation Expense 8,000 8,000
722 Insurance Expense 4,000 4,000
726 Salaries and Wages
Expense 39,000 39,000
905 Interest Expense 1,000               1,000                                    
Totals 165,400 165,400 65,700 87,800 99,700 77,600
Net Income 22,100                         22,100
Totals 87,800 87,800 99,700 99,700
(b) GREENWOOD COMPANY
Income Statement
For the Year Ended December 31, 2017

Revenues
Service revenue................................................................... $87,800
Expenses
Salaries and wages expense............................................... $39,000
Advertising expense............................................................ 10,000
Depreciation expense.......................................................... 8,000
Insurance expense.............................................................. 4,000
Supplies expense................................................................ 3,700
Interest expense.................................................................. 1,000
Total expenses........................................................... 65,700
Net income ................................................................................... $22,100

GREENWOOD COMPANY
Owner’s Equity Statement
For the Year Ended December 31, 2017

Owner’s Capital, January 1................................................................................... $26,000

Add: Net income............................................................................................. 22,100
48,100
Less: Drawings.................................................................................................... 12,000
Owner’s Capital, December 31............................................................................. $36,100
 GREENWOOD COMPANY
Balance Sheet
December 31, 2017

Assets
Current assets
Cash ................................................................................... $18,800
Accounts receivable............................................................. 16,200
Supplies............................................................................... 2,300
Prepaid insurance................................................................ 4,400
Total current assets.................................................... $41,700
Property, plant, and equipment
Equipment........................................................................... 46,000
Less: Accumulated depreciation—
    equipment.............................................................. 20,000 26,000
Total assets................................................................ $67,700

Liabilities and Owner’s Equity

Current liabilities
Notes payable...................................................................... $5,000
Accounts payable................................................................ 8,000
Salaries and wages payable................................................ 2,600
Interest payable................................................................... 1,000
Total current liabilities................................................ $16,600
Long-term liabilities
Notes payable...................................................................... 15,000
Total liabilities............................................................ 31,600
Owner’s equity
Owner’s capital.................................................................... 36,100
Total liabilities and owner’s
   equity...................................................................... $67,700