Study Notes

E7-2 (Determine capital Balance) Presented below are a number of independent situations. Instructions For each singular situation, determine the amount that should be describe as currency. If the item(s) is not describe as change, explain the rationale. 1. Checking account proportionality $925,000 certificate of dethronement $1,400,000 cash senesce to subsidiary of $980,000 utility dethronement paid to shove along order $180. 2.Checking account proportionality $600,000 an overdraft in special impedeing account at same(p) bank as normal checking account of $17,000 cash held in a bond sinking strain $200,000 petty cash fund $ three hundred coins and currency on hand $1,350. 3. Checking account offset $590,000 postdated check from guest $11,000 cash confine due to maintaining compensating balance requirement of $100,000 certified check from customer $9,800 postage stamps on hand $620. 4.Checking account balance at bank $37,000 money market balance at mutual fund ( has checking privileges) $48,000 NSF check received from customer $800. 5. Checking account balance $700,000 cash restricted for future plant expansion $500,000 short-term Treasury bills $180,000 cash get ahead received from customer $900 (not included in checking account balance) cash hap of $7,000 to company executive, payable on demand refundable deposit of $26,000 paid to national government to guarantee performance on construction contract. . Cash balance of $925,000. Only the checking account balance should be inform as cash. The certificates of deposit of $1,400,000 should be reported as a temporary investment, the cash lift to subsidiary of $980,000 should be reported as a due, and the utility deposit of $180 should be identified as a receivable from the gas company. 2. Cash balance is $584,650 computed as follows Checking account balance $600,000 Overdraft (17,000) Petty cash 300 Coin and currency 1,350 $584,650 Cash held in a bond sinking fund is restricted . Assuming that the bonds are noncurrent, the restricted cash is overly reported as noncurrent. 3. Cash balance is $599,800 computed as follows Checking account balance $590,000 Certified check from customer 9,800 $599,800 The postdated check of $11,000 should be reported as a receivable. Cash restricted due to compensating balance should be expound in a note indicating the type of arrangement and amount. Postage stamps on hand are reported as part of office supplies armory or prepaid expenses. 4. Cash balance is $85,000 computed as follows Checking account balance $37,000 Money market mutual fund 48,000 $85,000 The NSF check received from customer should be reported as a receivable. 5. Cash balance is $700,900 computed as follows Checking account balance $700,000 Cash advance received from customer 900 $700,900 Cash restricted for future plant expansion of $500,000 should be reported as a noncurrent plus. Short-term treasury bills of $180,000 should be re ported as a temporary investment.Cash advance received from customer of $900 should as well as be reported as a liability cash advance of $7,000 to company executive should be reported as a receivable refundable deposit of $26,000 paid to federal government should be reported as a receivable. 13. first in first out, burden average, and last in first out modes are often used sooner of specific appellative for bloodline military rank purposes. Compare these systems with the specific identification method, discussing the theoretical propriety of each method in the determination of income and asset valuation.The first-in, first-out method approximates the specific identification method when the somatogenetic flow of goods is on a first in first out basis. When the goods are subject to spoi put asidee or deterioration, first in first out is particularly appropriate. In comparison to the specific identification method, an attractive as-pect of first in first out is the eliminatio n of the danger of artificial determination of income by the selection of advantageously damaged items to be sold. The basic assumption is that costs should be charged in the order in which they are incurred.As a result the inventories are stated at the latest costs. Where the blood line is consumed and valued in the first in first out manner, there is no accounting recognition of unrealized gain or loss. A criticism of the FIFO method is that it maximizes the effects of price fluctuations upon reported income because current revenue is matched with the oldest costs which are probably least similar to current replacement costs. On the other hand, this method produces a balance sheet value for the asset close to current replacement costs.It is claimed that FIFO is deceptive when used in a period of rising prices because the reported income is not fully available since a part of it must be used to replace inventory at higher cost. The results achieved by the weighted average met hod resemble those of the specific identi-fication method where items are chosen at random or there is a rapid inventory turnover. Com-pared with the specific identification method, the weighted average method has the advantage that the goods bespeak not be individually identified therefore accounting is not so costly and the method can be applied to fungible goods.The weighted average method is also appropriate when there is no marked trend in price changes. In opposition it is argued that the method is illogical. Since it assumes that all sales are made proportionally from all purchases and that inventories go forth always include units from the first purchases, it is argued that the method is illogical because it is contrary to the chronological flow of goods. In addition, in periods of price changes there is a lag between current costs and costs assigned to income or to the valuation of inventories.If it is assumed that actual cost is the appropriate method of valuing invento ries, last-in, first-out is not theoretically correct. In general, LIFO is directly adverse to the specific identification method because the goods are not valued in accordance with their usual physical flow. An exception is the application of LIFO to piled coal or ores which are more(prenominal) or less consumed in a LIFO manner. Proponents argue that LIFO provides a better matching of current costs and revenues.During periods of sharp price movements, LIFO has a stabilizing effect upon reported income figures because it eliminates paper income and losings on inventory and smooths the impact of income taxes. LIFO opponents object to the method chiefly because the inventory valuation reported in the balance sheet could be seriously misleading. The profit figures can be artificially influenced by focal point through contracting or expanding inventory quantities.Temporary in-voluntary depletion of LIFO inventories would enlace current income by the previously unrecognized price g ains or losses applicable to the inventory reduction. E8-14 (FIFO, LIFO and Average Cost Determination) John Adams Companys enroll of transactions for the month of April was as follows. Purchases Sales April 1 (balance on hand) emailprotected $6. 00 April 3 500 $10. 0040 41,500 6. 08 9 1,400 10. 00 8 800 6. 40 11600 11. 00 131,200 6. 50 231,200 11. 00 21 700 6. 60 27 900 12. 0 29 500 6. 79 4,600 5,300 (a) Assuming that oscillating inventory records are kept in units only, compute the inventory at April 30 using (1) LIFO and (2) average cost. (b) Assuming that perpetual inventory records are kept in dollars, determine the inventory using (1) FIFO and (2) LIFO. (c) Compute cost of goods sold assuming periodic inventory procedures and inventory priced at FIFO. (d) In an inflationary period, which inventory methodFIFO, LIFO, average costwill show the highest net income?