2021 / 2022

Fall 2021
(20)

Intermediate of Accounting (1)

Dr. Reda Abdelrehim

Revision
For Salma Company, the following
information is available: a) Should not be reported.
Cost of Goods Sold $17000; Sales Discounts
$2000; Income Tax Expense $1750; Sales b) should be reported at $3000
Allowance 2000; Operating Expenses
$4250; Sales Revenue $25000; Interest c) Should be reported at $5000
Expense $7000; Sales Returns $1000; Gain
on sale of equipment $3100. d) Should be reported at $7000
In Salma’s Income Statement, Gross Profit:

Sales Revenue 25000

- Sales Discounts (2000)
- Sales Allowance (2000)
b) should be reported at $3000
- Sales Returns (1000)
= Net Sales 20000
- Cost of Goods Sold (17000)
= Gross Profit 3000
3
For Mayar Company, the following information is
a) Should not be reported.
available:
Cost of Beginning Inventory $8500; Income Tax
Expense $2100; Cost of Net purchase $16250; Selling b) Should be reported at $8000
& Administrative expenses $6100; Net Sales Revenue
$29000; Interest Expense $7000; Gain on sale of c) Should be reported at $9000
equipment $3100; If you know that the Cost of
Inventory at the end of the period is $5750. d) Should be reported at $10000
In Mayar’s Income Statement, Gross Profit:

Net Sales Revenue 29000

- Cost of Goods Sold
Cost of Beginning Inventory 8500
d) Should be reported at $10000
+ Cost of Net purchase 16250
- Cost of Ending Inventory (5750)
(19000)
= Gross Profit 10000
4
Nehal Co. had the following account balances: a) Should not be reported.
Cost of Goods Sold $26000; Gross Profit
$31000; Rent Revenue $3000; Income Tax b) Should be reported at $14000
Expense $2250; Selling & Administrative
c) Should be reported at $18000
expenses $17000; Interest Expense $5000;
Gain on sale of equipment $1000. d) Should be reported at $15000
In Nehal’s Income Statement, Operating Income

Gross Profit 31000

- Selling & Administrative expenses (17000)
+ Rent Revenue 3000
c) Should be reported at $18000
+ Gain on sale of equipment 1000
= Operating Income 18000

5
Eldaly Co. had the following account balances:
Net Sales Revenue $89000; Cost of Goods a) Should be reported at $24000
Sold $45000; Income Tax Expense $4000;
b) Should be reported at $23000
Operating expenses $13000; Financing costs
$8000. c) Should be reported at $22000
In Eldaly’s Income Statement, Net Income before tax:
d) Should not be reported.

Net Sales Revenue 89000

- Cost of Goods Sold (45000)
= Gross Profit 44000
- Operating expenses (13000) b) Should be reported at $23000
= Operating Income 31000
- Financing costs (8000)
= Net Income before tax 23000

6
Sara Co. had the following account balances: a) Should be reported at $54000
Gross Profit $90000; Operating Income $65000;
Income Tax Expense $4000; Operating Expenses b) Should be reported at $50000
$13000; Interest Expense $11000.
In Sara’s Income Statement, Net Income from c) Should be reported at $75000
continuing operations after tax:
d) Should not be reported.

Operating Income 65000

- Interest Expense (11000)
= Net Income before tax 54000 b) Should be reported at $50000
- Income Tax Expense (4000)
= Net Income from continuing operations after tax 50000

7
On November 30, 2021, Aysel Corporation disposed
one of its production lines at a Pre-tax gain of a) $ 735000
$150000. The operating profit of these lines during
b) $ 665000
2021 pre-tax was $ 100000. The Pre-tax income
from continuing operation for the year totalled $ c) $ 875000
1000000. The income tax rate is 30%.
What amount would Aysel report as Net income from d) $ 700000
continued & Discontinued Operations in its Income
Statement?

= Net Income before tax 1000000

- Income Tax Expense (1000000 *30%) (300000)
= Net Income from continuing operations after tax 700000
c) $ 875000
Discontinued operations:

Disposal Gain 150000 x 70% ( net of tax) 105000

Operating profit 100,000 x 70% ( net of tax) 70000
Net Income form Cont. & Discont. Operations 875000
8
On November 30, 2019, Cairo Corporation A- $ 37755000
disposed one of its production divisions at a Pretax
{before tax} gain of $270,000. The operating loss of B - $30619000
this division during 2019 pretax was $ 100,000. The
Pretax income from continuing operation for the
C- $ 38619000.
year totalled $ 55 million. The income tax rate is 30

%. Based on previous information. Net Income from D - $258169000

continuing & discontinuing operations is

= Net Income before tax 55000000

- Income Tax Expense (55000000 *30%) (1650000)
= Net Income from continuing operations after tax 38500000
Discontinued operations: C- $ 38619000.
Disposal Gain 270000 x 70% ( net of tax) 189000
Operating loss 100,000 x 70% ( net of tax) (70000)
Net Income form Cont. & Discont. Operations 38619000
 a) $185000
On Jan 1, 2021, Gehad Co. had a balance of
Retained Earnings $132000. During the year 2021,
b) $110000
the company’s Net income was $75000 and the
company dividends of $22000.
c) $79000
Based on the above, the Ending Retained Earnings
Balance is: d) $35000

Beginning R/E balance 132000

+ Net income 75000
a) $185000
- dividends (22000)
Ending R/E balance 185000

10
The following balances for woods company on A- $ 700000
1/1/2019:
R/E, Beg. Balance as reported = $725,000 , Net B - $800000
Income = $300,000 , Dividends = $150,000 , Tax rate
=25%. Before issuing the report for the year ended C- $ 900000.
31/12/2019, you discover that Sales in 2017 were
understated by $100,000. D - $950000
Based on previous information. The Adjusted
beginning R/E balance is ………..

Understated Rev. → should be added.

Beginning R/E balance 725000

B - $800000
+ Understatement of sales ($100000 x 75%) 75000

=Adjusted beginning R/E balance 800000

 Porter co. decided in March 2021 to change from weighted
average to FIFO inventory pricing. The pre-tax Income data
(Net Income Before tax) for 2019 and 2020 was as follows: a) $100000
• The net income under weighted average method for the
years 2019 and 2020 amounts to $ 35000and $ 25000
respectively. a) $76000
• The net income under FIFO method for the years 2019 and
2020 amounts to $ 45000 and $ 30000 respectively.
a) $88000
• Porter co. had a Beg. Retained Earnings balance of $88000
in 2021. Income tax rate is 20%.
Based on the above, the Adjusted beginning Retained Earnings d) $112000
balance are:

Cumulative effect of the change on prior's years {Income}:=

Year W.A (Old) - FIFO (new) = Difference Beginning R/E balance 88000
2017 $35000 45000 + Cumulative effect of change in 12000
2018 25000 30000 methods (15000 * 80 )
60000 75000 - 15000 Adjusted beginning R/E balance 100000

Added 15000
Understated
a) $100000
12
 Format Financial position statement
Current Assets
Inventories
Prepaid expenses.
Receivables (NET) Convert
(-) Allowance for Doubtful Accounts difficult to
easy
Trading Securities
Cash
Total current assets
6) Salma Corporation has the
A- $ 429500
following accounts included in its
December 31, 2019, trial balance:
B - $430500
Accounts Receivable €110,000,
Inventory €290,000, Allowance for
C- $ 431500.
Doubtful Accounts €8,000, Patents
€72,000, Prepaid Insurance €9,500,
D - $432500
Accounts Payable €77,000 and
Cash €30,000. the amount of total
current assets is ……..
 Accounts Receivable
Inventories
Prepaid Insurance
(-) Allowance
Cash €110,000
. Accounts (€8,000)
for Doubtful €290,000
€9,500
€30,000

Current Assets
Inventories €290,000
Prepaid Insurance . €9,500
Accounts Receivable €110,000
(-) Allowance for Doubtful Accounts (€8,000)
€102,000

Cash €30,000
Total current assets € 431,500

C- $ 431500.
7) For Sara Company, the following is available:
Current maturities Long-term debt 20000
Retained earnings 350000 a) 70000
Long-term debt 250000 b) 1000000
Account Payable 45000
c) 340000
Common stock 650000
Income taxes Payable 15000 d) 90000
Other current Liabilities 10000
In Sara’s financial position statement, current liabilities should
be reported at:
Other
Incomecurrent
Account
Current taxes Liabilities
Payable
Payable
maturities Long-term debt 10000
15000
45000
20000

Current liabilities
Current maturities Long-term debt 20000
Account Payable 45000
Income taxes Payable 15000
Other current Liabilities 10000
Total current liabilities 90000

d) 90000
 Accounts Receivables (AR)
How to estimate the Uncollectible Accounts
there are 2 methods to estimate uncollectible accounts.
(1): % of Net Credit Sales (2): % of AR
✓ Only one step for estimating Bad debt.
1) Calculate Required AFDA =

Estimated Uncollectible = AR (Ending) X % of bad debts balance

Net credit sales X %= XX
2) Calculate Adj. entry =
Required AFDA (-) existing AFDA before adj.= XX

Bad debts expense XX

Allowance for doubtful accounts XX

Impact on income statement Impact on Financial position statement

Other Revenue & Expenses AR xxx

Bad debts expenses xx (-) Ending. B. AFDA (xx)

xx
8) Aysel Company reports the following financial information
before adjustments:

Dr. Cr.
Accounts receivable 160,000
Allowance for doubtful accounts 2,500
Sales (all on credit) 800,000
Sales returns and allowances 50,000

Required: Prepare the entries for estimated bad debts

assuming that doubtful accounts are estimated to be 1% of
net sales
 Solution
% of Net credit sales
1. Estimated Bad debt expense = Net credit sales X %
= (800,000 – 50,000) x 1% = 7500

❖Adjusting entry:
Bad debts expense 7500
Allowance for doubtful accounts 7500

Impact on income statement

Other Revenue & Expenses
Bad debts expenses 7500
 post it to AFDA account
Dr AFDA Cr
B.Bal. 2500
E.Bal 10000 Bad debts expense 7500
10000 10000
Will appear in the balance sheet
under AR

Impact on Financial position statement

Current Assets
AR 160000
(-) Ending. B. AFDA (10000)
150000
9)Aysel Company reports the following financial information
before adjustments:

Dr. Cr.
Accounts receivable 160,000
Allowance for doubtful accounts 2,500
Sales (all on credit) 800,000
Sales returns and allowances 50,000

Required: Prepare the entries for estimated bad debts

assuming that doubtful accounts are estimated to be 5% of
accounts receivable
 Solution
% of AR
Required AFDA (Ending .B) =AR X % of bad debts balance
Will appear in the balance sheet
= 160000 x 5 % = 8000 under AR

Adj. entry = Required AFDA (-) existing AFDA before adj.= XX

8000 (-) 2500 = 5500
❖Adjusting entry:
Bad debts expense 5500
Allowance for doubtful accounts 5500

Impact on income statement

Other Revenue & Expenses
Bad debts expenses 5500
Impact on Financial position statement

Current Assets
AR 160000
(-) Ending. B. AFDA (8000)
152000
 Multiple choice.
(1) Elnasr Corporation reports :

Cash provided by operating activities $ 250000

Cash provided by investing activities $ 110000
Cash provided by financing activities $ 140000
Beginning cash balance $ 70000
What is Elnasr Corporation ending cash balance ?

A- $ 280000
B- $ 350000
C- $ 500000
D- $ 570000
 Solution
Cash flow statement

Net cash flow from operating activities (1) 250000

+ Net cash flow from investing activities (2) 110000

+ Net cash flow from financing activities (3) 140000

= Change in the cash balance (1)+(2)+(3) 500000

+ Beginning cash balance 70000
= ending cash balance 570000

D- $ 570000
 Omar corporation reports the following information:
Net Income $ 500000
Depreciation expense 140000
Increase in Accounts Receivable 60000
Omar should report cash provided by operating activities
A- $ 300000
B- $ 420000
C- $ 580000
D- $ 700000
 Cash Flows From operating Activities:

Net Income 500000

+ Depreciation expense . 140000

(-) Increase in Accounts Receivable (60000)

Net Cash Flow From Operating activities 580000

C- $ 580000
 Multiple choice.

In a statement of cash flows, receipts from sales of

property, plant, and equipment and other productive
assets should generally be classified as cash inflows
from : fixed assets
A- operating activities.
B- financing activities.
C- investing activities.
D- selling activities.
C- investing activities.
 Example(2)
The following information related to Happiness co. For 2019:

Dec. 31. 2019 Dec.31 .2018

Long term investment 28000 25000
lands 42000 50000
Machines 75000 60000
The income statement for the year 2019 includes:
▪ Gains from Selling of land $2000.
▪ Loss on sale of investments $6000.
▪ If you know that:
1. The company purchased investments L.E 10,000 cash
2.The company sold part of the land in cash
 Multiple choice.

(1) The Selling Price of the investments for

Happiness Co. is:

A- $ 7000
B- $ 1000
C- $ 6000
D- $ 4000
 Solution
Cost of investment purchased cash $ 10000 

➢ Selling Price of investments = B.V – loss on sale

To determine the selling price of investments
1) Determine the book value of the part sold

Dr investments Cr
B.Bal. 25000 the book value 7000
purchased cash 10000 E.Bal 28000
35000 35000

2) Loss on sale of investments = $6000.

➢ Selling Price of investments = 7000 – 6000 = 1000 
B- $ 1000
 Multiple choice.

(2) The Selling Price of the Lands for Happiness

Co. is:

A- $ 10000
B- $ 8000
C- $ 2000
D- $ 5000
 2) Selling Price of lands = B.V + Gains on sale

To determine the selling price of lands

1) Determine the book value of the part sold

Dr lands Cr
B.Bal. 50000 the book value 8000
purchased cash 0 E.Bal 42000
50000 50000

2) Gains from Selling of land = $2000.

Selling Price of land = 8000 + 2000 = 10000

A- $ 10000
 Multiple choice.

(2) The Cost of Machines purchased cash for

Happiness Co. is:

A- $ 5000
B- $ 10000
C- $ 15000
D- $ 20000
To determine Cost of Machines purchased cash

Dr Machines Cr
B.Bal. 60000
purchased cash 15000 E.Bal 75000
75000 75000

Cost of Machines purchased cash $ 15000 

C- $ 15000
 Inventory Quantities
{Physical count}

Owned Included Corrections

Yes Yes -
No No -
Yes No (+) Add
No Yes (-) Less
 10) In Sara Company one area of particular concern is the
inventory account, which has a year-end balance of $50000
1) TVs shipped to a customer January 2, 2020, costing $5,000
were included in inventory at December 31, 2019. The sale was
recorded in 2020.
2) TVs shipped to a customer December 28, 2019, f.o.b. shipping
point, which cost $10,000, were not received by the customer
until January 2020. The TVs were included in the ending
inventory.
Based on previous information.Value of correct ending inventory
at December 31, 2019 is ……………..

A- $ 55000 B - $ 45000

C- $ 40000 D - $ 65000
 shipped to a customer
Owned Included January 2, 2020

No adjusted The sale was recorded

in 2020

2019 2020

shipped to December 28, 2019 Not owned

not received until January, 2020 Included

less
2019 2020
 Solution

Incorrect ending inventory 50000

Corrections:
(1) Owned (2019) & Included (2019) 0
(4) Not Owned & Included (10000)
Inventory should be reported in B/Sh 40000

C- $ 40000
 Inventory Valuation
First –In-First –Out
(FIFO):
✓ According to this method, we
assume that the units purchased
First would be sold First.
✓ According to FIFO method,
units SOLD are from the OLD
units.so, any ending
inventory on hand from the
Newest units.
Weighted Average
(W.A):
✓ According to this method, the
ending inventory cost & the
cost of goods sold are based on
weighted average cost for all
units available for sale.
W.A Cost / Unit =
𝐂𝐨𝐬𝐭 𝐎𝐟 𝐆𝐨 𝐨𝐝𝐬 𝐀𝐯𝐚𝐥𝐢𝐚𝐛𝐥𝐞 𝐅𝐨𝐫 𝐬𝐚𝐥𝐞
𝐓 𝐨𝐭𝐚𝐥 𝐮 𝐧𝐢 𝐭𝐬 𝐀𝐯𝐚𝐥𝐢𝐚𝐛𝐥𝐞 𝐟 𝐨 𝐫 𝐬 𝐚𝐥 e
11) Azet Co. had a beginning inventory of 40 units at a cost
of $8 per unit. During the year, purchases were:
Feb. 20 70 units @ $ 9
May 5 50 units @ $ 10
Aug.12 30 units @$11
Dec. 8 10 units @$12
▪ Inventory on hand in Dec. 31 was 50 units.
Using Periodic system, the Cost of Goods sold
according to FIFO

A- $ 550 B - $ 1900

C- $ 1350 D - $ 200
 Solution
❖Step {1}: Cost of Goods Available For Sale:
Units × Cost = Total
Old units sold
per unit cost
Beg. Inv. 40 × $8 = $320
(+) Purchases
Feb. 20 70 × $9 = $630
May 5 50 × $10 = $500
Aug.12 30 × $11 = $330
Dec. 8 new units Ending
inventory 10 × $12 = $120
Goods Available For Sale 200 $1900
(-) Ending Inventory units (50)
= units sold 150
 End. Inventory 10 units x $12 = $120
cost of The 30 units x $11 = $330
newest units
10 units x $10 = $100
Total cost of end. Inv. = $550

May
Goods85 Available For Sale 200
Aug.12
Dec. 50
300
100 × $10
$11
$12 $500
= $1900
$3300
$1200

COGS: Just Take 10 units

Cost of Goods Available For Sale 19000

(-) cost of End. Inventory (550)
C- $ 1350 = cost of goods sold 1350
Azet Co. had a beginning inventory of 400 units at a
cost of $8 per unit. During the year, purchases were:
Feb. 20 700 units @ $ 9
May 5 500 units @ $ 10
Aug.12 300 units @$11
Dec. 8 100 units @$12
Units sold during the year were1, 550 units
Using Periodic system, the cost of the Ending
inventory according to WA

A- $ 14725 B - $ 19000

C- $ 2000 D - $ 4275
 Solution
❖Step {1}: Cost of Goods Available For Sale:
Units × Cost = Total
per unit cost
Beg. Inv. 400 × $8 = $3200
(+) Purchases
Feb. 20 700 × $9 = $6300
May 5 500 × $10 = $5000
Aug.12 300 × $11 = $3300
Dec. 8 100 × $12 = $1200
Goods Available For Sale 2000 $19000
(-) units sold (1550)
Ending Inventory units 450
 𝐂𝐨𝐬𝐭 𝐎𝐟 𝐆𝐨𝐨𝐝𝐬 𝐀𝐯𝐚𝐥𝐢𝐚𝐛𝐥𝐞 𝐅𝐨𝐫 𝐬𝐚𝐥𝐞
W.A Cost / Unit =
𝐓𝐨𝐭𝐚𝐥 𝐮𝐧𝐢𝐭𝐬 𝐀𝐯𝐚𝐥𝐢𝐚𝐛𝐥𝐞 𝐟𝐨𝐫 𝐬𝐚𝐥e

Goods Available For Sale 2000 $19000

$19000
W.A Cost / Unit = = 9.5
2000
End. Inventory cost = 450 units x $9.5 = 4275

D - $ 4275
48
Intermediate Accounting (1)