Discounts, Bad debt, Bank Recon
What does FOB shipping point and FOB destination mean?
If Emi Co. shipped Moussa Inc. $500 in goods on 12/26/2024 and it arrived on 1/02/25, under FOB destination, will Moussa include the inventory in 2024 inventory?
FOB shipping point - goods change ownership when they are shipped
FOB destination - goods change ownership when they are received
Since the goods are FOB destination, they change ownership on 1/02/25. Moussa will NOT include the inventory in 2024 inventory
What is the total inventory cost formula?
invoice price + freight in + inspection costs + preparation costs - purchase returns and allowances - purchase discounts = total inventory cost
Basically any costs needed to bring inventory to a useable or salable condition and location (aka. for its intended use)
A building costs $500,000 and has a useful life of 50 years. It was acquired on 8/1 this year and has a residual value of $75,000. Find the depreciation expense for year 1 and year 8 using straight line depreciation.
SL dep. = (cost - residual value) x (1/useful life)
($500,000 - $75,000) x 1/50 = $8,500 yearly depreciation
$8,500/ 12 months = $708.33 x 5 months = $3,541.67
Year 1 depreciation expense = $3,541.67
Since it is SL depreciation, depreciation amount is the same for every year (12 months):
Year 8 depreciation expense = $8,500
What are some examples of internal controls?
segregation of duties, prescribed policies and procedures
What does 1/15, n/60 mean?
If I purchased $750,000 of inventory with these credit terms on 9/1 and paid on 9/8, how much would I save?
1% discount if you pay within 15 days, you must pay within 60 days.
I would save $7,500.
Beginning inventory: 6 units at $4/unit
Purchases:
January 14: 6 units at $5/unit
January 23: 8 units at $6/unit
If 5 units units were left under the average cost method for $10 each, what is the cost of goods sold?
(6 units x $4 + 6 units x $5 + 8 units x $6)/20 units
= $5.10 per unit
20 units in inventory - 5 left = 15 sold
15 units x $5.10 per unit = $76.5 COGS
A car was purchased for $100,000. It should last for 10 years which should be 250,000 miles. At the end of its life, it should be able to be sold for $5,000 in scrap parts. Only 25,000 miles were used this year. Find the depreciation expense using units of production. Record the journal entry.
UOP depreciation = ((cost - residual value)/ estimated total production) x actual production
(($100,000 - $5,000)/250,000) x 25,000 = $9,500
DR. Depreciation expense $9,500
CR. Accumulated depreciation $9,500
What is the life of a patent? copyright? trademark?
patent = 20 years
copyright = life of author + 70 years
trademark = 10 years
Emi Co. sold $5,000 worth of stickers on account. Credit terms were 4/5, n/30. $100 in discounts had to be issued because stickers were damaged in the mail. $2,000 of sales were paid within the discount period. It is expected that $500 worth of stickers will be returned.
What is the net sales?
Sales revenue: $5,000
Less:
Credit card discounts: ($80)
Sales discounts: ($100)
Sales returns and allowances: ($500)
Net sales: $4,320
If ending inventory is understated by $15,000, what is the effect on the current year and next year?
(hint: look at this years cogs and next years beg. inv and cogs)
Current year:
COGS overstated $15,000
Next year:
Beg. inv understated $15,000
COGS understated $15,000
In order to make smiskis, Emi CO. had to purchase a new machine for $450,000. Its useful life is 4 years. It should be able to produce 300,000 figures and the machine has a residual value of $12,500. Find the depreciation expense for year 3 using Double declining balance. What is the accumulated depreciation?
DDB depreciation = (cost - accumulated depreciation) x (2/useful life)
No accumulated depreciation in year 1
($450,000 - $0) x (2/4) = $225,000 depreciation expense for yr.1
($450,000 - $225,000) x (2/4) = $112,500 depreciation expense for yr.2
($450,000 - $337,500) x (2/4) = $56,250 depreciation expense for yr.3
Accumulated depreciation = $225,000 + $112,500 + $56,250 = 393,750
How do you reduce the value of an intangible asset with an indefinite life?
Test for impairment
Moussa Inc. needs to record their bad debt expense for the year. Please help them record the bad debt expense for the year.
Not yet due $176,000
Up to 90 days past due $ 98,000
Over 90 days past due $ 30,000
The estimated percentage uncollectible for each category is 3%, 10%, and 14% respectively.
Additionally, the beginning balance of allowance for doubtful accounts was $25,000 and Moussa Inc. wrote off recorded $10,000 in write offs.
($176,000 x 3%) + ($98,000 x 10%) + ($30,000 x 14%) = $19,280 est. amount uncollectible
Estimated ending balance in allowance for doubtful accounts
- balance in allowance for doubt accounts before the bad debt expense adjustment
= Bad debt expense for the year
$19,280 - ($25,000 - $10,000) = $4,280
Beginning inventory: 5 units at $10/unit
Purchases:
January 14: 4 units at $12/unit
January 23: 2 units at $15/unit
If 10 units were sold under the LIFO method for $20 each, what is the cost of goods sold?
Beg inv. + purchases - ending inv. = COGS
$50 + ($48 + $30) - $10 = $118
Please record the AJE on 12/31/2025 for a patent that was purchased on 1/1/2025 for $20,000.
Patent life = 20 years
Amortization = straight line depreciation, no residual value
$20,000 / 20 years = $1,000 amortization expense
Dr. Amortization expense $1,000
Cr. Patent $1,000
Emi Co. reviewed their asset, the "Boba Maker 3000", for impairment and found the following information:
Net book value $945,000
Estimated future cash flows $870,000
Fair value $840,000
Please test for impairment and record the impairment if any.
Dr. Loss due to impairment $105,000
Cr. Equipment $105,000
Ending cash balance per books: $150,000
Bounced check: $20,000
Deposits in transit: $50,000
Interest paid by bank: $34,000
Service charge: $300
What is the ending correct cash balance per bank statement
$150,000 + $34,000 - $20,000 - $300 = $163,700
Book side = Bank side
Correct cash balance per bank statement = $163,700
Beginning inventory: 1 unit at $60/unit
Purchases:
January 14: 5 units at $45/unit
January 23: 2 units at $40/unit
Under the FIFO method, each unit was sold for $80 each. The cost of goods sold was $240. How many units were left in ending inventory? What is the dollar value?
Beg inv. + purchases - COGS = ending inventory
$60 + ($225 + $80) = $365
$240 - $60 - $45 - $45 - $45 - $45 = $0
3 units were left. 1 @ $45, 2 @ $40
$365 - $240 = $125
Kiet Inc. purchased their competitor business and acquired all of their assets (and liabilities) for $1,500,000. The assets total to $1,050,000 and the liabilities associated with those assets total to $430,000. Please calculate the goodwill.
Net asset = Total assets - Total liabilities associated with assets
$1,050,000 - $430,000 = $620,000
Goodwill = Purchase price - Net Assets = $1,500,000 - $620,000 = $880,000
What does the fraud triangle consist of?
Opportunity, Pressure, Rationalization