Accounting Answers

Costello Corporation uses a perpetual inventory system. At the end of the year, the inventory balance

221 Financial Accounting

reported by its system is $45,270. Costello performs an inventory count and determines that the actual ending inventory is $39,780.

1.

Discuss why a company that uses a perpetual inventory system would perform a physical inventory count.

2.

Why might the ending balance in inventory differ between the perpetual inventory system and physical inventory count?

3.

Assume that Costello determines that the difference is due to a part of its inventory being damaged when a warehouse worker backed into a shelf with his forklift. What journal entry should Costello make?

4.

Assume that Costello believes the difference is due to errors made by its accounting staff. The staff failed to transfer inventory to cost of goods sold when sales were made. Record the journal entry Costello should make in this case.

 Prepare journal entries to record the following selected transactions that occurred during the company's operations: (4 marks)

1.     On January 30, 2017, Candlestick, Inc. sells $100,000, five-year, 10 % bonds for 92.639% of face value.

2.     Company sells $100,000, five-year, 10 % bonds for 108.111% of face value on July 1, 2017. 

1). Examine the role of accounting concepts in the preparation of financial statements. Do you find any of the accounting concepts conflicting

with each other? Give examples.

2). Discuss briefly the basic concepts and conventions of accounting?

3). Why should accounting practices be standardised? Explain.

1). Examine the role of accounting concepts in the preparation of financial statements. Do you find any of the accounting concepts conflicting

with each other? Give examples.

A company is considering two capital expenditure proposals. Both proposals are for similar products andboth are expected to operate for four years. Only one proposal can be accepted.The following information is available.Profit/(loss)

Proposal A Proposal B

Initial investment $45,000 $ 46,000

Year 1 6,500 4,500

Year 2 3,500 2,500 Year 3 13,500 4,500 Year 4 Loss (1,500) profit14,500 Estimated scrap value

at the year end 4 4,000 4,000 Depreciation is charged on the straight line basis

Calculate the following for both proposals

I) The payback period to one decimal place

ii) The average rate of return on initial investment to the decimal place

Mr. Aslam is considering investing in a poultry farm. The project will require an initial investment of $ 250000 and is expected to generate the following cash flows thereafter

year $

1 (50000)

2 80000

3 130000

4 110000

5 (100000)

6 160000

7 200000

Required. Calculate the payback period and comment on your answer

Mr. Aslam is considering investing in a poultry farm. The project will require an initial investment of $ 250000 and is expected to generate the following cash flows thereafter

year $

1 (50000)

2 80000

3 130000

4 110000

5 (100000)

6 160000

7 200000

Required. Calculate the payback period and comment on your answer

Draw up a cash budget for D. Sithole showing the balance at the end of each month, from the following information provided by her for the six months ended 31 December 19X2.

a) Opening Cash $ 1,200.

19X2 19X3

Sales at $20 per unit

JAN 260

Feb 250

MAR 260

APR 270

MAY 320

JUN 290

JUL 400

AUG 300

SEP 350

OCT 400

NOV 390

DEC 400

Cash is received for sales after 3 months following the sales.

c) Production in units: 240 270 300 320 350 370 380 340 310 260 250

d) Raw materials cost $5/unit. Of this 80% is paid in the month of production and 20% after production.

e) Direct labour costs of $8/unit are payable in the month of production.

f) Variable expenses are $2/unit. Of this 50% is paid in the same month as production and 50% in the month following production.

g) Fixed expenses are $400/month payable each month.

h) Machinery costing $2,000 to be paid for in October 19X2.

i) Will receive a legacy of $ 2,500 in December 19X2.

j) Drawings to be $300/month.

Shown below is the financial date of company A and company B at end of current year

company A company B

Netsales (All on credit) $ 1440000 $ 1190000

Cost of good sold 1260000 825000

Cash 36000 70000

Accounts receivable (Net) 180000 140000

Inventory 504000 165000

current liabilities 240000 150000

Assume that the year end balance shown for accounts receivables and for inventory also represent the average of those accounts throughout the years.

Required.

from the view point of short term creditors how you assess the the quality of each company working capital to which company you will prefer to sell merchandise of $ 50000 on 30 days open account?