ACCT 301B Exam 1

Flounder Corp uses a periodic inventory system and the gross system and the gross method of accounting for purchase discounts. On July 1, (1) Flounder purchased $77,000 of inventory, terms 2/10, n/30, FOB shipping point. (2) Flounder paid freight costs of $1,111.

1. Dr. Purchases 77,000, Cr. Accounts Payable 77,000

2. Dr. Freight-in 1,111 Cr. Cash 1,111

On July 3, Flounder returned damaged goods and received credit of $7,700.

Dr. Accounts Payable 7,700, Cr. Purchases Returns and Allowances 7,700

Flounder Corp uses a periodic inventory system and the gross system and the gross method of accounting for purchase discounts.

(a) On July 1, (1) Flounder purchased $77,000 of inventory, terms 2/10, n/30, FOB shipping point. (2) Flounder paid freight costs of $1,111.

(b) On July 3, Flounder returned damaged goods and received credit of $7,700.

(c) On July 10, Flounder paid for the goods.

what is the solution for C?

Dr. Accounts Payable (77,000-7,700) 69,300, Cr. Purchase Discounts (69,300 * 2%), Cash (69,300-(69,300 × 2%))

Flounder Company borrowed $38,400 on November 1, 2025, by signing a $38,400, 9%, 3-month note. Prepare Flounder's November 1, 2025, entry; the December 31, 2025, annual adjusting entry; and the Februrary 1, 2026, entry.

1. Dr. Cash 38400 Cr. Notes Payable 38400

2. Dr. Interest Expense (38400 x 9% x 2/12), Cr. Interest Payable (int exp value)

3. Dr. Notes Payable 38400, Dr. Interest Payable (int exp value), Dr. Interest Expense (38,400 9% 1/12), Cr. Cash (38400+int exp value + 2nd int exp value)

Marin Inc. is involved in a lawsuit at December 31, 2025. Prepare the December 31 entry assuming it is probable that Marin will be liable for $815,100 as a result of this suit.

Dr. Lawsuit Loss 815, 100, Cr. Lawsuit Liability 815,100

Marin Inc. is involved in a lawsuit at December 31, 2025. Prepare the December 31 entry assuming it is not probable that Marin will be liable for any payment as a result of this suit.

Dr. No entry 0, Cr. No entry 0

Skysong Corp borrowed $60,000 on November 1, 2025, by signing a $61,350, 3-month, zero-interest-bearing note. Prepare Skysong's November 1, 2025, entry; the December 31, 2025, annual adjusting entry; and the February 1, 2026, entry.

1. Dr. Cash 60,000, Dr. Discount on Notes Payable (61350-60000), Cr. Notes Payable 61350

2. Dr. Interest Expense (1350 * 2/3) Cr. Discount on Notes Payable (int exp value)

3. Dr. Interest Expense (1350 * 1/3), Cr. Discount on Notes Payable (int exp value)

4. Dr. Notes Payable 61350, Cr. Cash 61350

Blossom Corp made credit sales of $30,600 which are subject to 5% sales tax. The corporation also made cash sales which totaled $19,635 including the 5% sales tax. Prepare the entry to record Blossom's credit sales.

Dr. Accounts Receivable (30,600 + Sales Taxes Payable), Cr. Sales Revenue 30,600, Cr. Sales Taxes Payable (30,600 * 0.05)

Blossom Corp made credit sales of $30,600 which are subject to 5% sales tax. The corporation also made cash sales which totaled $19,635 including the 5% sales tax. Prepare the entry to record Blossom's cash sales.

Dr. Cash 19635, Cr. Sales Revenue (19635/1.05), Cr. Sales Taxes Payable (19635-Sales Revenue)

Cullumber Magazine sold 12,600 annual subscriptions on August 1, 2025, for $22 each. Prepare Cullumber's 2025, journal entry and the December 31, 2025, annual adjusting entry, assuming the magazines are published and delivered monthly.

1. Dr. Cash (12600 x 22), Cr. Unearned Subscriptions Revenue (cash value) 2. Dr. Unearned Subscriptions Revenue (cash x 5/12), Cr. Subscriptions Revenue (cash x 5/12)

Blue factory provides a 2-year warranty with one of its products which was first sold in 2025. Blue sold $976,100 of products subject to the warranty. Blue expects $119,940 of warranty costs over the next 2 years. In that year, Blue spent $64,080 servicing warranty claims. Prepare Blue's journal entry to record the sales (ignore cost of goods sold) and the December 31 adjusting entry, assuming the expenditures are inventory costs.

1. Dr. Warranty Expense 64080, Cr. Inventory 64080,

2. Dr. Cash 976100, Cr. Sales Revenue 976100

3. Dr. Warranty Expense (warranty liability value), Cr. Warranty Liability (119940-64080)

Flounder Corporation sells smart home systems. The corporation also offers its customers a 4-year warranty contract. During 2025, Flounder sold 20,000 warranty contracts at $60 each. The corporation spent 187,000 servicing warranties during 2025. Prepare Flounder's journal entry for 2025 for the sale of contracts. Assume the service costs are inventory costs.

Dr. Cash (20,000 * 60) 1,200,000, Cr. Unearned Warranty Revenue 1,200,000

Flounder Corporation sells smart home systems. The corporation also offers its customers a 4-year warranty contract. During 2025, Flounder sold 20,000 warranty contracts at $60 each. The corporation spent 187,000 servicing warranties during 2025. Prepare Flounder's journal entry for 2025 for the cost of servicing the warranties. Assume the service costs are inventory costs.

Dr. Warranty Expense 187000, Cr. Inventory 187000

Flounder Corporation sells smart home systems. The corporation also offers its customers a 4-year warranty contract. During 2025, Flounder sold 20,000 warranty contracts at $60 each. The corporation spent 187,000 servicing warranties during 2025. Prepare Flounder's journal entry for 2025 for the recognition of warranty revenue. Assume the service costs are inventory costs.

Dr. Unearned Warranty Revenue (1,200,000/4) 300,000 Cr. Warranty Revenue 300,000

Crane Company offers a set of building blocks to customers who send in 3 UPC codes from Crane cereal, along with 40 cents. The block sets cost Crane $1.20 each to purchase and 70 cents each to mail to customers. During 2025, Crane sold 1,104,000 boxes of cereal. The company expects 30% of the UPC codes to be sent in. During 2025, 110,400 UPC codes were redeemed. Prepare Crane's December 31, 2025, adjusting entry.

Dr. Premium Expense (30% 1,104,000) - 110,400 = 2208000/3 (1.20 + 0.70 - 0.40) 110,400, Cr. Premium Liability 110,400

Ivanhoe Company has a loss contingency. The company's legal council's opinion is that the contingency is probable and that they estimate that the amount of the loss will be $408000. What is the proper accounting treatment for this contingency?

408,000 should be accrued as a liability

Companies should accrue an estimated from a loss contingency by a charge to an expense and a liability recorded only if both of the following conditions are met:

1. it is probable that the liability has been incurred at the date of the financial statements, and 2. the amount of the loss can be reasonably estimated.

On August 31, 2024, Sandhill University sold $406000 in season tickets for the school's 7-game home football season. As each game is played, how much revenue will Sandhill recognize?

406000/7 = 58,000

Which of the following sets of conditions would give rise to the accrual of a contingency under current accepted accounting principles?

Amount of loss is reasonably estimable and occurence of the event is probable.

Oriole Company offers a cash rebate of $4 on each $10 package of protein powder sold during 2024. Historically, 20% of their customers mail in the rebate form. During 2024, 3008000 packages are sold, and 250000 $4 rebates are mailed to customers. What is the rebate expense and liability, respectively, shown on the company's 2024 financial statements?

The expense is (3008000 packages sold X 20% X $4 rebate/ package) = $2406400 rebate expense/liability. Since

250000 of the $4 rebates ($1000000 of honored/actual rebates) were mailed in during 2024, the liability balance is

($2406400 rebate liability - $1000000 honored/actual rebates) = $1406400, 2024 rebate liability balance.

Gain contingencies are recorded when

Gain contingencies are never recorded.

Greeson Corp. signed a three-month, zero-interest-bearing note on November 1, 2017 for the purchase of $500,000 of inventory. The face value of the note was $507,800. Assume that Greeson used a "Discount on Note Payable" account to initially record the note and that the discount will be amortized equally over the 3-month period. Prepare the entry made at 1) November 1, 2017

Dr. Purchase (Inventory, Cash) 500,000, Cr. Note Payable 507,800 Discount on Note Payable 7,800

Greeson Corp. signed a three-month, zero-interest-bearing note on November 1, 2017 for thepurchase of $500,000 of inventory. The face value of the note was $507,800. Assume thatGreeson used a "Discount on Note Payable" account to initially record the note and that thediscount will be amortized equally over the 3-month period. Prepare the entry made at 2) December 31, 2017

Dr. Interest expense 5,200, Cr. Discount on Note Payable 5,200

Greeson Corp. signed a three-month, zero-interest-bearing note on November 1, 2017 for the purchase of $500,000 of inventory. The face value of the note was $507,800. Assume that Greeson used a "Discount on Note Payable" account to initially record the note and that the discount will be amortized equally over the 3-month period. Prepare the entry made at 3) February 1, 2018

Dr. Note Payable 507,800, Cr. Cash 507,800, Dr. Interest expense 2,600, Cr. Discount on Note Payable 2,600

Marigold Corporation issues $550,000 of 9% bonds, due in 9 years, with interest payable semiannually. At the time of the issue, the market rate for such bonds is 10%

The Tamarisk Company issued $420,000 of 13% bonds on January 1, 2025. The bonds are due January 1, 2030, with interest payable each July 1 and January 1. The bonds are issued at face value. Prepare Tamarisk’s journal entries for (a) the January issuance, (b) the July 1 interest payment, and © the December 31 adjusting entry.

a. Dr. Cash 420,000, Cr. Bonds Payable 420,000 b. Dr. Interest Expense (420,000 × 0.13 × 6/12), Cr. Cash (interest expense value) c. Dr. Interest Expense (int exp value), Cr. Interest Payable (int exp value)

The Tamarisk Company issued $360,000 of 11% bonds on January 1, 2025. The bonds are due January 1, 2030, with interest payable each July 1 and January 1. The bonds are issued at 97. Prepare the journal entries for (a) January 1, (b) July 1, and © December 31. Assume the Tamarisk company records straight-line amortization semiannually.

a) Dr. Cash (360,000 × 0.97), Dr. Discount on Bonds Payable (360,000-Cash) b) Dr. Interest Expense (Cash + Discount on Bonds payable), Cr. Discount on Bonds Payable (Discount on Bonds payable/10), Cr. Cash (360,000 × 0.11 × 6/12)

Discount on Notes Payable

FV of note - Inventory Cost

Monthly Amortization

(Note Payable-Purchase Cost)/number of months

Interest Expense for a given period

monthly amortization x months passed