Question

Calculate the following, and place the calculated solution on the appropriate line. In all cases, assume the companies that are the subject of the question are US companies using US GAAP.
a. Berful sells one product. It had one item in beginning inventory that cost $10,000, and purchased 4 more items during the accounting period. The cost changed with each purchase, as shown below:

Item Cost of Item
First $12,000
Second 14,000
Third 15,000
Fourth 16,000
If 3 items were sold during the year, calculate the cost of ending inventory using the following cost flow assumptions (Remember beginning inventory in your calculations!):
FIFO $_____________
LIFO $_____________
Weighted Average $_____________

b. Berful purchased a machine on the first day of the accounting period at a cost of $22,000. The machine is expected to have a life of 5 years or 20,000 units, and a salvage value of $2,000. Calculate the second year depreciation expense using the following depreciation methods (6,000 units produced in year 2):

Straight-line $_____________
Double-declining Balance $_____________
Units-of-production $_____________


c. Calculate the correct balance of cash to be included in the Cash account on the firm’s balance sheet by preparing a bank reconciliation of its checking account from the data given below:
Item Amount
Balance per Bank Statement $16,655.44
Balance per Books $12,091.94
Deposits in Transit $ 2,234.81
Outstanding Checks $ 6,808.16
Bank Service Charge $ 9.85
Correct balance of cash in this account $__________

d. Show the accounting entry required as a result of the above bank reconciliation in the space below:



e. If Berful uses the Allowance Method to determine its bad debt expenses, establishing its estimate as 1% of Net Sales, and Net Sales total $600,000, show the adjusting journal entry required if the Allowance for Bad Debts account has a debit balance of $2,000?

Answer 1

a) The calculation of the cost of ending inventory using the following cost flow assumptions are as follows:

FIFO $31,000 ($15,000 + $16,000)

LIFO $22,000 ($10,000 + $12,000)

Weighted Average $26,800 ($13,400 x 2)

b) The calculation of the second-year depreciation expense using these depreciation methods is as follows:

Straight-line $4,000

Double-declining Balance $5,280

Units-of-production $6,000.

c) The correct balance of cash to be included in the Cash account on the firm’s balance sheet based on the bank reconciliation is $12,082.09.

d) The accounting entry required for the bank reconciliation is as follows:

Debit Bank Service Charges $9.85

Credit Cash Account $9.85

• To record the bank service charge for the period.

e) The adjusting journal entry required is as follows:

Debit Bad Debt Expense $8,000

Credit Allowance for Bad Debts $8,000

• To record the bad debt expense for the period.

Data and Calculations:

a) Berful Company:

Beginning inventory = $10,000

Purchases:

First $12,000

Second 14,000

Third 15,000

Fourth 16,000

The total cost of goods available for sale = $67,000

Weighted average cost = $13,400 ($67,000/5)

Total items available for sale = 5 items (1 + 4)

Sales = 3 items

Ending inventory = 2 items (5 - 3)

b) Cost of machine = $22,000

Estimated useful life = 5 years or 20,000 units

Salvage value = $2,000

Depreciable amount = $20,000 ($22,000 - $2,000)

Straight-line Method:

Annual depreciation for second year = $4,000 ($20,000/5)

Double-declining balance:

Depreciation rate = 40% (100/5 x 2)

For the first year = $8,800 ($22,000 x 40%)

Declined balance = $13,200 ($22,000 - $8,800)

For the second year = $5,280 ($13,200 x 40%)

Units-of-production Method:

Depreciation per unit = $1 ($20,000/20,000)

For the second year, Depreciation = $6,000 ($1 x 6,000)

c) Bank Reconciliation Statement:

Balance per Bank Statement $16,655.44

Add: Deposits in Transit          $ 2,234.81

Less: Outstanding Checks      $ 6,808.16

Balance as per Cash Book    $12,082.09

Cash Book Adjustment:

Balance per book   $12,091.94

Bank Service Charge   ($ 9.85)

The correct balance of cash in this account $12,082.09.

d) Transaction Analysis:

Bank Service Charges $9.85 Cash Account $9.85

e) Data and Calculations:

Allowance for Bad Debts = $2,000 Debit

Net Sales = $600,000

Estimated allowance for bad debt expenses = 1% of Net Sales

= $6,000 ($600,000 x 1%)

Bad Debt Expense $8,000 Allowance for Bad Debts $8,000 ($2,000 + $6,000)

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