Practice Problem #1

Journalize the following purchase related transactions:

a. Jingle Co. purchased $4,000 worth of merchandise on account, terms 2/10, n/30, FOB
shipping point. Transportation charges of $200 were paid in cash.
b. Returned $500 of merchandise purchased in (a).
c. Paid on account for purchases in (a).

Solution

a. Merchandise Inventory 4,200

A/P 4,000
Cash 200
b. A/P 500
Merchandise Inventory 500
c. A/P 3,500
Cash 3,430
Merchandise Inventory 70

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Practice Problem #2

Journalize the following sales related transactions.

a. Sold merchandise on account to Jangle Co., $5,000, terms FOB Destination, 2/10,
n/30. The cost of the merchandise sold was $3,000. Paid transportation charges of
$200 in cash.
b. Sold merchandise on account to Comet Co., $10,000, terms FOB Destination, 1/10,
n/30. The cost of the merchandise was $6,000.
c. Paid transportation charges of $400 for delivery of merchandise sold to Comet Co.
d. Comet Co. for returned merchandise for $2,000 from sale in (b). The cost of the
merchandise was $1,200.
e. Received amount due from Jangle Co. within the discount period.
f. Received amount due, less return and discount from Comet Co.

Solution

a. Accounts Receivable- Jangle 5,000

Sales Revenue 5,000
Cost of Goods Sold 3,000
Inventory 3,000
Shipping Expense 200
Cash 200
b. Accounts Receivable- Comet 10,000
Sales Revenue 10,000
Cost of Goods Sold 6,000
Inventory 6,000
c. Shipping Expense 400
Cash 400
d. Sales Returns & Allowances 2,000
Accounts Receivable- Comet 2,000
Inventory 1,200
Cost of Goods Sold 1,200
e. Cash 4,900
Sales Discount 100
Accounts Receivable- Jangle 5,000
f. Cash 7,920
Sales Discount 80
Accounts Receivable- Comet 8,000

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Practice Problem #3

The F Company uses the allowance method to account for uncollectible receivables. It had
the following transactions during the year:

May 14 Received 75% of the $20,000 balance owed by Webb Co., a bankrupt business.
Wrote off remainder as uncollectible.
June 20 Reinstated the account of Zorn Co., which had been written off in the preceding
year as uncollectible. Received $5,225 cash as full payment of Zorn’s account.
July 27 Wrote off the $2,500 balance owed by Schmich, Inc.
December 31 Based on an analysis of Accounts Receivable, it is determined that $11,500 will
become uncollectible. The balance in Allowance for Doubtful Accounts on
December 31 prior to adjustment is $200 credit.

Required:
a. Journalize the transactions.
b. The balance in Allowance for Bad Debts after adjustment.
c. The Net Realizable Value of Accounts Receivable if the balance of Accounts
Receivable is $62,000.
d. Redo the entry for 12/31 and questions b) and c) if the percent of sales method had
been used to estimate uncollectible accounts expense at the rate of 0.5% of net sales
of $2,000,000.

Solution
a.

14/5 Cash 15,000

Accounts Receivable – Webb 15,000
Allowance for Bad Debts 5,000
Accounts Receivable – Webb 5,000
20/6 Accounts Receivable – Zorn 5,225
Allowance for Bad Debts 5,225
Cash 5,225
Accounts Receivable – Zorn 5,225
27/7 Allowance for Bad Debts 2,500
Accounts Receivable – Schmich 2,500
31/12 Bad Debts Expense 11,300
Allowance for Bad Debts 11,300

b.

Allowance for Bad Debts

200 Beg. Balance
11,300 31/12
11,500 Ending Balance

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c.
Accounts Receivable 62,000
Less: Allowance for bad Debts (11,500)
Net Accounts Receivable 50,500

d.
Allowance for Bad Debts = 0.5% x 2,000,000 = 10,000

31/12 Bad Debts Expense 10,000

Allowance for Bad Debts 10,000

Allowance for Bad Debts

200 Beg. Balance
10,000 31/12
10,200 Ending Balance

Accounts Receivable 62,000

Less: Allowance for bad Debts (10,200)
Net Accounts Receivable 51,800

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Practice Problem #4

The following series of transactions occurred during Year 1 and Year 2, when F Company
sold merchandise to L Company. F Company's annual accounting period ends on December
31.

Year 1 1/10 Sold $12,000 of merchandise to L Company, terms 2/10, n/30. Ignore
COGs.
15/11 L Company reports that it cannot pay the account until early next year
and agrees to exchange the account for a 120- day, 12% note receivable.
31/12 Prepared the adjusting journal entry to record accrued interest on the
note.
Year 2 15/3 F Company receives a check from L Company for the maturity value
(with interest) of the note.

Required: Journalize the transactions.

Solution

1/10 Accounts Receivable – L 12,000

Sales Revenue 12,000
15/11 Notes Receivable – L 12,000
Accounts Receivable – L 12,000
31/12 Interest Receivable 184
Interest Revenue 184
15/3 Cash 12,480
Notes Receivable – L 12,000
Interest Receivable 184
Interest Revenue 296

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Practice Problem #5

Transaction No. of Units Unit Cost

Beginning Inventory 20 2,200
Purchase 25 2,250
Sold 10
Sold 14
Purchase 15 2,300
Sold 26
Purchase 20 2,350

Required:
Based on the table above, calculate the cost of goods sold and cost of ending inventory using
the following methods:
a. FIFO
b. LIFO
c. Average method

Solution

a. FIFO
Purchases Cost of Goods Sold Inventory on Hand
Units Unit Cost Total Cost Units Unit Cost Total Cost Units Unit Cost Total Cost
20 2,200 44,000
25 2,250 56,250 20 2,200 44,000
25 2,250 56,250
10 2,200 22,000 10 2,200 22,000
25 2,250 56,250
10 2,200 22,000 21 2,250 47,250
4 2,250 9,000
15 2,300 34,500 21 2,250 47,250
15 2,300 34,500
21 2,250 47,250 10 2,300 23,000
5 2,300 11,500
20 2,350 47,000 10 2,300 23,000
20 2,350 47,000
50 111,750 30 70,000

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 b. LIFO
Purchases Cost of Goods Sold Inventory on Hand
Units Unit Cost Total Cost Units Unit Cost Total Cost Units Unit Cost Total Cost
20 2,200 44,000
25 2,250 56,250 20 2,200 44,000
25 2,250 56,250
10 2,250 22,500 20 2,200 44,000
15 2,250 33,750
14 2,250 31,500 20 2,200 44,000
1 2,250 2,250
15 2,300 34,500 20 2,200 44,000
1 2,250 2,250
15 2,300 34,500
15 2,300 34,500 10 2,200 22,000
1 2,250 2,250
10 2,200 22,000
20 2,350 47,000 10 2,200 22,000
20 2,350 47,000
50 112,750 30 69,000

c. Average
Purchases Cost of Goods Sold Inventory on Hand
Units Unit Cost Total Cost Units Unit Cost Total Cost Units Unit Cost Total Cost
20 2,200 44,000
25 2,250 56,250 45 2,227.8 100,250
10 2,227.8 22,278 35 2,227.8 77,973
14 2,227.8 31,189.2 21 2,227.8 46,783.8
15 2,300 34,500 36 2,257.9 81,283.8
26 2,257.9 58,705.4 10 2,257.9 22,579
20 2,350 47,000 30 2,319.3 69,579
50 112,172.6 30 69,579

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Practice Problem #6

Sullivan Ranch Corporation purchased a new tractor and has provided information related to
the purchase. Calculate depreciation for the new piece of equipment using straight line
depreciation and units-of-production depreciation for the first and second year using the
following information:

Cost $150,000
Estimated Residual value $10,000
Estimated life in years 4
Estimated life in hours 1,200
Actual hours:
Year 1 360
Year 2 270

Solution

Straight line depreciation = (Cost – Residual value)/useful life in years

Year 1 depreciation: (150,000 – 10,000)/4 = $35,000
Year 2 depreciation: $35,000

Units-of-production depreciation:
Depreciation per hour = (Cost – Residual value)/useful life in hours
= (150,000 – 10,000)/1,200 = $116.67
Year 1 depreciation = $116.67 x 360 = $42,001.2
Year 2 depreciation = $116.67 x 270 = $31,500.9

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Practice Problem #7

Journalize the following transactions:

a. Motors Inc. purchase machinery on January 1, 2009 for $3,000 and estimated the
machinery’s useful life to be three years. The annual depreciation expense is $1,000.
On December 31, 2011, the machinery is fully depreciated, and the asset must be
disposed of.
b. Suppose that on December 31, 2010, Motors Inc. decided to sell the machinery to
another company. At that time, the accumulated depreciation was $2,000. The
company agreed to sell the machinery for $1,500.
c. Suppose that on December 31, 2010, Motors Inc. decided to sell the machinery to
another company. At that time, the accumulated depreciation was $2,000. The
company agreed to sell the machinery for $500.
d. Suppose that on July 1, 2011, Motors Inc. decided to sell the machinery to another
company. The accumulated depreciation recorded until December 31, 2010 was
$2,000. The company agreed to sell the machinery for $500.
e. Suppose that on July 1, 2011, Motors Inc. decided to exchange the machinery with
new machinery and $500 cash. The accumulated depreciation recorded until
December 31, 2010 was $2,000. The market value of the new machinery is $2,000.
f. Suppose that on July 1, 2011, Motors Inc. decided to exchange the machinery with
new machinery and $2,300 cash. The accumulated depreciation recorded until
December 31, 2010 was $2,000. The market value of the new machinery is $2,500.

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Solution

a. Accumulated Depreciation 3,000

Machinery 3,000
b. Accumulated Depreciation 2,000
Cash 1,500
Machinery 3,000
Gain on sale 500
c. Accumulated Depreciation 2,000
Cash 500
Loss on sale 500
Machinery 3,000
d. Depreciation Expense 500
Accumulated Depreciation 500
Accumulated Depreciation 2,500
Cash 500
Machinery 3,000
e. Depreciation Expense 500
Accumulated Depreciation 500
Accumulated Depreciation 2,500
Machinery (new) 2,000
Machinery (old) 3,000
Cash 500
Gain on exchange 1,000
f. Depreciation Expense 500
Accumulated Depreciation 500
Accumulated Depreciation 2,500
Machinery (new) 2,500
Loss on exchange 300
Machinery (old) 3,000
Cash 2,300

1. A coal mining firm has purchased mineral rights for $10,000,000 and spent an additional
$2,000,000 to develop the property. The firm expects to extract 500,000 tons of coal.
Calculate the depletion expense if the company extracted 1,000 tons.

Depletion rate = $12,000,000/500,000 = $24

Depletion expense = $24 x 1,000 = $24,000

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