Professional Documents
Culture Documents
Exercise 1
On May 1, the Select Products Co. ships 5 appliances to the Jones Hardware Co. on
consignment. Each unit is to be sold at $250, payable $50 in the month of purchase
and $10 per month thereafter. The consignee is to be entitled to 20% of all amounts
collected on consignment sales. Jones Hardware sells 3 appliances in May and 1 in
June. Regular monthly collections are made by the consignee, and appropriate cash
remittances are made to the consignor at the end of each month. The cost of the
appliances shipped by the consignor was $155 per unit. The consignor paid shipping
costs to the consignee totaling $50. The consignor recognizes profits in the period in
which the consignment sales are made. Assuming that both consignee and
consignor report consignment profits separately, prepare the entries that would be
made on each partys books to record the transactions for May and June, including
any adjustments that would be made at the end of June in preparing semiannual
financial statements.
Exercise 2
In December, the Whitworth Publishing Company ships 20 sets of books to a book
dealer on consignment. The consignor maintains a cost accounting system and
perpetual inventories; the cost of manufacturing each set is $30. At the end of
December the dealer reports the sale of 6 sets at $49.75 each and remits sales
proceeds less 20% representing commissions and $15 for freight paid by the
consignee on the receipt of the sets. What are the entries on the books of the
consignor, assuming that profits from consignments are not recorded separately on
the consignors book?
Problem
You are examining the December 31, 19X9, financial statements of the Kelly
Company, a new client. The company was established on January 1, 19X8, and is a
distributor of air conditioning units. The companys income statements for 19X8 and
19X9 were presented to you as follows:
Kelly Company
Statements of Income and Expense
For the years ended December 31, 19X9 and 19X8
19X9
19X8
Sales
1,287,500
1,075,000
669,500
559,000
618,000
516,000
403,500
330,000
214,500
186,000
107,250
93,000
Net Income
107,250
93,000
1,510
Purchases
4,454
5,964
814
3,00
8
2,14
2
Instructions:
1. Compute the total amount of the Kelly Companys inventory at:
a. December 31, 19X9
b. December 31, 19X8
2. Prepare the auditors work sheet journal entries to correct the financial
statements for the year ended December 31, 19X8
3. Prepare the formal adjusting journal entries to correct the accounts at
December 31, 19X9. (the books have not been closed. Do not prepare the
closing journal entries)