ACC10008 Lecture Notes - Lecture 7: Consignee, Consignor, Weighted Arithmetic Mean

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25 Oct 2018

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Inventory is defined as assets held for sale in the ordinary course of business, and include goods purchased by a retailer, or land and other property held for resale. Aim of inventory management settings and maintaining optimum levels e. d. p. systems and stock management. Monitoring stock levels - interaction between marketing, sales and production departments. Periodic inventory system: cost of inventory purchased during the period is recorded in the. Perpetual inventory system (manual or computerised): although the inventory on hand and the cost of sales balances are available in the accounts at all times, a physical stock-take is undertaken to verify the balances recorded in the accounting records. Agreement where dealer or agent (consignor) sells goods on behalf of the owner (consignee) for a commission goods on consignment are part of consignor(cid:859)s inventory even though physical possession of goods is with consignee. Ddp (delivery duty paid) seller responsible freight costs title transfers when delivery is made to the buyer.

Related Questions

a) HKL is a manufacturer and distributor of printed stationeryproducts that are sold in a wide variety of retail stores aroundthe country. There are two divisions: Manufacturing andDistribution. A very large inventory is held in the distributionwarehouse to cope with orders from retailers who expect deliverywithin 24 hours of placing an order.

HKLâs management accountant for the Manufacturing divisioncharges the Distribution division for all goods transferred at thestandard cost of manufacture which is agreed by each divisionduring the annual budget cycle. The Manufacturing division makes a10% profit on the cost of production but absorbs all productionvariances. The goods transferred to Distribution are therefore at aknown cost and physically checked by both the Manufacturing and theDistribution division staff at the time of transfer.

The customer order process for HKLâs Distribution division is asfollows:

i) HKLâs customer service center receives orders by telephone,post, fax, email and through an online Internet ordering facility.The customer service center checks the creditworthiness ofcustomers and bundles up orders several times each day to go to theDistribution division.

ii) All orders received by the Distribution division are inputto HKLâs computer system which checks stock availability and staffwould then produce an invoice for the goods using anotheraccounting system.

iii) Internet orders have been credit checked automatically andstock has been reserved as part of the order entry process carriedout by the customer. Internet orders automatically result in aninvoice being printed without additional input.

iv) The Distribution division uses a copy of the invoice toselect goods from the warehouse, which are then assembled in theloading dock for delivery using HKLâs own fleet of deliveryvehicles.

v) When HKLâs drivers deliver the goods to the customer, thecustomer signs for the receipt and the signed copy of the invoiceis returned to the Distribution division and then to the accountdepartment.

vi) HKLâs management accountant for the Distribution divisionproduces monthly management reports based on the selling price ofthe goods less the standard cost of manufacture. The control forinventory is compared with the monthly inventory valuation reportand while there are differences, these are mainly the result ofwrite-offs of damaged or obsolete stock, which are recorded onjournal entry forms by the Distribution division and sent to theaccount department.

Due to the size of inventory held, a physical stocktake is onlytaken once per annum by Distribution staff, at the end of thefinancial year. Besides, there is limited use of computerizedsystem to keep track the movement of stocks; they rely on humanpower to check the stocks for delivery. As for this, this hasalways revealed some stock losses, although these have been at anacceptable level. Both internal and external auditors are presentduring the stocktake and check selected items of stock with theDistribution division staff. Due to the range of products held inthe warehouse, the auditors rely on the Distribution division staffto identify the products held.

Identify and analyse the key weaknesses in the risk managementapproach that the directors of HKL should look into. Also, suggestthe course of action that should be taken. Relevant examples orillustrations should be given. (13 marks)

. Make all 16 adjustments to journal entries. Remember to include a description under each journal entry.

1	On March 1, ABC purchased a one-year liability insurance policy for $98,400.
	Upon purchase, the following journal entry was made:
		Dr Prepaid insurance			98,400
			Cr Cash			98,400
	The expired portion of insurance must be recorded as of 12/31/14.
	Notice that the expired portion from March through November has been recorded already.
	Make sure that the Prepaid Insurance balance after the adjusting entry is correct.


2	Depreciation expense must be recorded for the month of December.
	The building was purchased with cash on February 1, 2014, for $150,000 with a remaining useful life of 30 years and a salvage value of $6,000.
		The method of depreciation for the building is straight-line.
	The equipment was purchased with cash on February 1, 2014, for $60,000 with a remaining useful life of 5 years and a salvage value of $3,000.
		The method of depreciation for the equipment is double-declining balance.
	Depreciation has been recorded for the building and equipment for months February through November.


3	On December 1, XYZ Co. agreed to rent space in ABC's building for $12,000 per month,
	and XYZ paid ABC on December 1 in advance for the first three months' rent.
	The entry made on December 1 was as follows:
		Dr Cash			36,000
			Cr Unearned rent revenue			36,000
	The unearned revenue account must be adjusted to reflect the amount earned as of 12/31/14.


4	Per timecards, from the last payroll date through December 31, 2014, ABC's employees have worked a total of 250 hours.
	Including payroll taxes, ABC's wage expense averages about $51 per hour. The next payroll date is January 5, 2015.
	The liability for wages payable must be recorded as of 12/31/14.


5	On November 30, 2014, ABC borrowed $235,000 from American National Bank by issuing an interest-bearing note payable.
	This loan is to be repaid in three months (on February 28, 2015), along with interest computed at an annual rate of 6%.
	The entry made on November 30 to record the borrowing was: (for Statement of Cash Flow purposes, consider a financing item)
		Dr Cash			235,000
			Cr Notes payable			235,000
	On February 28, 2015 ABC must pay the bank the amount borrowed plus interest.
	Assume the beginning balance for Notes Payable is correct.
	Interest through 12/31/14 must be accrued on the $235,000 note.


6	ABC uses a periodic inventory system, and the ending inventory for each year is determined by taking a complete
	physical inventory at year-end. A physical count was taken on December 31, 2014, and the inventory on-hand at
	that time totaled $75,000, which reflects historical cost.
	Record the 2014 Cost of Goods Sold and the 12/31/14 Inventory adjustment.


	Additionally, ABC adheres to GAAP by recording ending inventory at the lower of cost and net realizable value at a total inventory level.
	A review of inventory data further indicated that the current retail sales value of the ending inventory is $110,000 and estimated costs of
	completion and shipping is 15% of retail. Be sure to make an additional adjustment, if necessary, to properly value ending inventory
	using the Loss and Allowance methodology. For Income Statement presentation purposes, be sure to use the Loss Method for accounting
	for adjustments of inventory to market value.


7	It would be unusual for a company to have an asset impairment in Year 1, but for the sake of this example, ABC realized
	that their intangible asset might be impaired on December 31, 2014. Record the impairment if any.
	The expected future net cash flows for this intangible asset totals $30,000, and the fair value of the asset is $27,500.


8	On 7/1/14, ABC purchased 7,000 shares of its own stock from existing stockholders as treasury stock. The cost of the treasury
	stock was $7 per share, or $49,000 in total. The effects of this transaction are already shown in the unadjusted trial balance. On 12/31/14,
	ABC reissued these 7,000 shares of treasury stock at $10 per share. Record the journal entry required for the reissuance of the treasury stock.


9	On 12/31/14, ABC issued 5,000 shares of $3 par value common stock at the closing market price of $7 per share. Prepare ABC's journal entry
	to reflect the issuance of the stock on 12/31/14.


10	On 7/1/14, ABC sold 12% bonds having a maturity value of $800,000 for $861,771, resulting in an effective yield of 10%. The bonds are
	dated 7/1/14, and mature 7/1/19. Interest is payable semiannually on July 1 and January 1. ABC uses the effective interest method of
	amortization for bond premium or discount. Record the adjusting entry for the accrual of interest and the related amortization on 12/31/14.
	Hint: Develop an abbreviated amortization schedule to accurately determine the interest expense.


11	The following information is available for ABC Corporation at 12/31/14 regarding its investments in stocks of other companies.

		Securities					Cost	Fair Value
		2,200 shares of Toyota Corporation Common Stock					$ 100,000	$ 125,000
		1,100 shares of G.M. Corporation Common Stock					$ 67,000	$ 34,000
							$ 167,000	$ 159,000
	Prepare the adjusting entry (if any) for 2014, assuming the securities are classified as trading.


12	On 1/1/14, ABC Corporation purchased, as a held-to-maturity investment, $200,000 of the 8%, 5-year bonds of Intuit Corporation for $177,824,
	which provides an 11% return. Prepare ABC's 12/31/14 journal entry to reflect the receipt of annual interest and discount amortization.
	Assume the bond investment pays interest annually on 12/31 each year and that effective interest amortization is used.
	Note: Notice that a discount account is not used for this investment. Therefore, for purposes of this adjusting entry, amortize the discount directly to the
	investment account.


13	ABC Corporation prepares an aging schedule on 12/31/14 that estimates total uncollectible accounts at $25,000. Assuming that the allowance method is used,
	prepare the entry to record bad debt expense.


14	On 1/1/14, ABC Corporation signed a 5-year noncancelable lease for a delivery vehicle. The terms of the lease called for ABC to Corporation to make
	annual payments of $10,503 at the beginning of each year, starting January 1, 2014. The delivery vehicle has an estimated useful life of 6 years and a $7,000
	unguaranteed residual value. The delivery vehicle reverts back to the lessor at the end of the lease term. ABC Corporation uses the straight-line method
	of depreciation for the delivery vehicle. ABC Corporation's incremental borrowing rate is 10%, and the Lessor's implicit rate is unknown. No entries have yet
	been made concerning this lease arrangement. After determining the type of lease arrangement (capital or operating), prepare the necessary multiple-part journal
	entry for 2014 for ABC Corporation. (Hints: You will need to compute the present value of the minimum lease payments and 4 separate sub-entries for
	this lease transaction. Also, for Statement of Cash Flow purposes, the principal portion of lease payments are correctly categorized as a financing activity.)


15	ABC Corporation provides a defined benefit pension plan for its employees. A combination adjusting entry should be made to correctly account for this type of pension
	plan given the following items of information for the 2014 plan year, including the recording of pension expense and the employer's contribution to the pension plan in 2014.
	Note: Use the summary entry method as demonstrated and discussed in the chapter lectures on pension accounting to prepare the adjusting entry.

	Pension asset/liability (January 1)			$0
	Actual return on plan assets			$40,000
	Expected return on plan assets			$20,000
	Contributions (funding) in 2014			$37,000
	Fair value of plan assets (December 31)			$75,000
	Settlement rate			10%
	Projected benefit obligation (January 1)			$0
	Service cost			$60,000
	Benefits paid in 2014			$0
	*For purposes of financial statement presentation, consider Pension Expense as an operating item and any resulting Pension Asset/Liability as long-term in nature.

16	On December 31, 2014, ABC Corporation issued 1,000 shares of restricted stock to its Chief Financial Officer. ABC stock had a fair value (closing market price) of
	$10 per share on December 31, 2014. Additional information is as follows:
		a. The service period related to the restricted stock is 2 years.
		b. Vesting occurs if the CFO stays with the company for a two-year period.
		c. The par value of the common stock is $3 per share.
	Make the appropriate accounting entry as of the grant date, 12/31/14. Note: use the alternative method as described in your textbook for deferred compensation.

	Do this step after preparing the Income Statement except for the Income taxes line: (You need to calculate Income Before Income Taxes in order to calcualte total Income Tax Expense)
17	Corporate taxes are due in four estimated quarterly payments on April 15, June 15, September 15, and December 15.
	However, for the purposes of this ABC illustration, we will assume that estimates are not paid, and that the tax is paid in full
	on the return's March 15, 2015 due date.
	ABC's income tax rate is 40%. The entire year's income tax expense was estimated at the beginning of 2014 to be $69,600,
	so January through November income tax expense recognized amounts to $63,800 (11/12 months).
	Since we are assuming estimates are not made during the year, the balance in Income taxes payable represents
	tax accrued for January through November. Assume no deferred tax assets or deferred tax liabilities.
	Based on the income before income taxes figure from the income statement, record December's income tax expense
	so that the entire year's total tax expense is correct.

Answers to the 30multiple choice questions					2 points each, 30questions, for 60 point total
			60 points
	< please record	1)	From an internal control standpoint, the asset mostsusceptible to improper diversion and use is
	answer here	a.	prepaid insurance.
		b.	cash.
		c.	Equipment
		d.	Investments

		2)	Jolene is warehouse custodian and alsomaintains the accounting record of the inventory held at thewarehouse. An assessment of this situation indicates
		a.	documentation procedures are violated.
		b.	independent internal verification is violated.
		c.	segregation of duties is violated.
	< please record	d.	establishment of responsibility is violated.
	answer here
		3)	Internal control is defined, in part, as a planthat safeguards
		a.	all balance sheet accounts.
		b.	assets.
		c.	liabilities.
		d.	capital stock.

		4)	The control principle related to nothaving the same person authorize and pay for goods is known as
		a.	establishment of responsibility.
		b.	independent internal verification.
	< please record	c.	segregation of duties.
	answer here	d.	rotation of duties.

		5)	Two individuals at a retail store work thesame cash register. You evaluate this situation as
		a.	a violation of establishment of responsibility.
		b.	a violation of segregation of duties.
		c.	supporting the establishment of responsibility.
	< please record	d.	supporting internal independent verification.
	answer here
		6)	Having different individuals receive cash,record cash receipts, and hold the cash is an example of
		a.	establishment of responsibility.
		b.	segregation of duties.
		c.	documentation procedures.
		d.	independent internal verification.

		7)	An adjusting entry is not required for
		a.	outstanding checks.
		b.	collection of a note by the bank.
		c.	NSF checks.
		d.	bank service charges.

		8)	If a check correctly written and paid bythe bank for $591 is incorrectly recorded on the company's booksfor $519,
		the appropriate treatment on the bankreconciliation would be to
		a.	deduct $72 from the book's balance.
		b.	add $72 to the book's balance.
		c.	deduct $72 from the bank's balance.
		d.	deduct $591 from the book's balance.

		9)	During 2013, Parker Enterprises generatedrevenues of $60,000. The company's expenses were as follows:
			cost of goods sold of $30,000, operatingexpenses of $12,000 and a loss on the sale of equipment of$2,000.
		Parker's gross profit is:
		a.	$16,000.00
		b.	$18,000.00
		c.	$30,000.00
		d.	$60,000.00

		10)	A primary difference between a periodicand perpetual inventory system is that a periodic system:
		a.	determines the inventory on hand only at the end ofthe accounting period.
		b.	provides better control over inventories.
		c.	records the cost of goods sold after each saletransaction.
		d.	keeps a record showing the merchandise inventory onhand at all times.

		11)	A decline in a company's gross profitcould be caused by all of the following except:
		a.	selling products using a lower markup.
		b.	clearance of discontinued inventory.
		c.	paying lower prices to its suppliers.
		d.	increasing competition resulting in a lower sellingprice.

		12)	South Company uses the perpetual inventorysystem. South's goods in transit at December 31 include:
			Sales made by South	Purchases made by South
			(1) FOB destination	(3) FOB destination
			(2) FOB shipping point	(4) FOB shipping point
			Which itemsshould be included in South's inventory at December 31?
			a. (2) and (3)
			b. (1) and (4)
			c. (1) and (3)
			d. (2) and (4)

		13)	In periods of rising prices, the inventorymethod which results in the greatest net income is the:
		a.	LIFO method.
		b.	FIFO method.
		c.	Weighted Average method.
		d.	Lower of Cost or Market method.

		14)	The following information was available for RawleyCompany at December 31, 2008:
			inventory (Jan .01) $80,000; inventory (Dec. 31)$120,000; cost of goods sold $600,000;
			accounts receivable $73,000; and sales$900,000.
			Rawley's inventory turnover in 2008 was:
		a.	9.00 times.
		b.	7.50 times.
		c.	6.00 times.
		d.	5.00 times.

		15)	A petty cash fund of $200 is replenishedwhen the fund contains $5 in cash and receipts for $193.
		The entry to replenish the fund would:
		a.	credit Cash Over and Short for $2.
		b.	credit Miscellaneous Revenue for $2.
		c.	debit Cash Over and Short for $2.
		d.	debit Miscellaneous Expense for $2.

		16)	An item is considered material if
		a.	it doesn't costs a lot of money.
		b.	it is of a tangible good intended for re-sale.
		c.	it is likely to influence the decision of aninvestor or creditor.
		d.	the cost of reporting the item is greater than itsbenefits.

		17)	Receivables might be sold to
			a. lengthen the cash-to-cash operating cycle.
			b take advantage of deep discounts on the cashrealizable value of receivables.
			c. generate cash quickly.
			d. finance companies at an amount greater than cashrealizable value.

		18)	If the amount of uncollectible accountexpense is understated at year end:
		a.	net income will be understated.
		b.	stockholders' equity will be understated.
		c.	allowance for doubtful accounts will be overstated.
		d.	net accounts receivable will be overstated.

		19)	A debit balance in the Allowance for DoubtfulAccounts
		a.	is the normal balance for that account.
		b.	indicates that actual bad debt write-offs haveexceeded previous provisions for bad debts.
		c.	indicates that actual bad debt write-offs have beenless than what was estimated.
		d.	cannot occur if the percentage of sales method ofestimating bad debts is used.

		20)	Bad Debts Expense is considered
		a.	an avoidable cost in doing business on a credit basis.
		b.	an internal control weakness.
		c.	a necessary risk of doing business on a credit basis.
		d.	avoidable unless there is a recession.

		21)	The best managed companies will have
		a.	no uncollectible accounts.
		b.	a very strict credit policy.
		c.	a very lenient credit policy.
		d.	some accounts that will prove to be uncollectible.

		22)	Two methods of accounting for uncollectibleaccounts are the
		a.	allowance method and the accrual method.
		b.	allowance method and the net realizable method.
		c.	direct write-off method and the accrual method.
		d.	direct write-off method and the allowance method.

		23)	When the allowance method of accountingfor uncollectible accounts is used, Bad Debts Expense isrecorded
		a.	in the year after the credit sale is made.
		b.	in the same year as the credit sale.
		c.	as each credit sale is made.
		d.	when an account is written off as uncollectible.

		24)	Allowance for Doubtful Accounts on the balancesheet
		a.	is offset against total current assets.
		b.	increases the cash realizable value of accountsreceivable.
		c.	appears under the heading "Other Assets."
		d.	is offset against accounts receivable.

		25)	In reviewing the accounts receivable, thecash realizable value is $14,000 before the write-off of a $1,500account.
		What is the cash realizable value after thewrite-off?
		a.	$1,500
		b.	$12,500
		c.	$14,000
		d.	$15,500

		26)	The maturity value of a $60,000, 10%, 60-day notereceivable dated July 3 is
		a.	$60,000
		b.	$61,000
		c.	$66,000
		d.	$70,000

		27)	The interest on a $10,000, 10%, 1-year notereceivable is
		a.	$1,000
		b.	$10,000
		c.	$10,100
		d.	$11,000

		28)	The maturity value of a $60,000, 8%, 3-month notereceivable is
		a.	$60,400
		b.	$60,480
		c.	$61,200
		d.	$64,800

		29)	Notes receivable are recorded in the accounts at
		a.	cash (net) realizable value.
		b.	face value.
		c.	gross realizable value.
		d.	maturity value.

		30)	Which of the following are also called tradereceivables?
		a.	Accounts receivable
		b.	Other receivables
		c.	Advances to employees
		d.	Income taxes refundable

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ACC10008 Lecture Notes - Lecture 7: Consignee, Consignor, Weighted Arithmetic Mean

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