Mind the Merchandise
Under a perpetual system, a buyer purchases merchandise for cash. Which asset account increases?
Merchandise Inventory.
FIFO sends which costs to COGS first: oldest or newest?
Oldest costs.
Gross Accounts Receivable is $20,000 and Allowance for Uncollectible Accounts is $1,200 credit. What is NRV?
$18,800
Cost is $50,000 and residual value is $5,000. What is depreciable cost?
$45,000
True or False: Equal debits and credits prove a journal entry correctly represents the economic event.
False.
FAMU Kicks buys $5,000 of merchandise on account, terms 2/10, n/30, and pays within the discount period with no return or allowance. Give the payment entry.
Dr Accounts Payable $5,000; Cr Cash $4,900; Cr Merchandise Inventory $100.
Inventory: 10 units @ $4, then 10 units @ $6. Twelve units sold under FIFO. What is ending inventory?
$48.
Under the allowance method, a specific $600 account is written off. Give the entry.
Dr Allowance for Uncollectible Accounts $600; Cr Accounts Receivable $600.
Depreciable cost is $45,000 and useful life is 5 years. Straight-line annual depreciation?
$9,000.
A seller records Dr Accounts Receivable $7,000; Cr Sales Revenue $7,000 for a sale of goods costing $4,200. The entry balances. What is missing?
Dr COGS $4,200; Cr Merchandise Inventory $4,200.
Goods are shipped FOB shipping point on December 30 and arrive January 3. Who owns the goods on December 31: buyer or seller?
Buyer
Same inventory. Under LIFO, what are COGS and ending inventory?
COGS $68; ending inventory $32.
A/R is $50,000. Desired ending allowance is 4% of receivables. Existing allowance has a $500 credit balance. What Bad Debt Expense adjustment is needed?
$1,500
A $50,000 asset has $18,000 accumulated depreciation. What is book value?
$32,000.
A student writes off a receivable under the allowance method with Dr Bad Debt Expense; Cr Accounts Receivable. What is wrong?
The debit should be Allowance for Uncollectible Accounts, not Bad Debt Expense.
FAMU Kicks sells goods on account for $8,000; cost $4,800. Give the complete accounting and explain why one entry is not enough.
Dr A/R $8,000; Cr Sales Revenue $8,000. Dr COGS $4,800; Cr Merchandise Inventory $4,800.
Costs are rising. Compare FIFO with LIFO for COGS, ending inventory, and gross profit/income. Explain why.
FIFO: lower COGS, higher ending inventory, higher gross profit/income.
Before an allowance-method write-off, A/R is $30,000 and Allowance is $3,300 credit. A $2,200 account is written off. What is NRV before and after?
$26,700 before and $26,700 after.
Depreciable cost is $45,000 over 90,000 estimated miles. The asset is used 18,000 miles this year. What is UOP depreciation?
$9,000.
A student calculates straight-line depreciation using cost ÷ useful life and ignores residual value even though residual value is given. What is the conceptual error?
They failed to calculate depreciable cost as Cost − Residual Value.
FAMU Kicks sold goods for $6,000; cost $3,600. Customer returns half for full credit. Give seller-side return entries and defend why both are needed.
Dr Sales Returns and Allowances $3,000; Cr A/R $3,000. Dr Merchandise Inventory $1,800; Cr COGS $1,800.
A CFO says, “FIFO is better because it gives us higher income when costs rise.” Defend or challenge.
Challenge.
A manager says, “Writing off a customer proves our earlier bad-debt estimate was an expense today.” Diagnose the statement.
Incorrect.
A student says, “Units-of-production must be wrong because it gives a different book value than straight-line.” Diagnose the reasoning.
The reasoning is wrong.
Inventory costs are rising. One manager chooses FIFO because it raises income; another chooses LIFO because it lowers income. What question must be answered before either claim can be judged?
What is the objective/context and what tradeoffs matter?