1. Turnadot& Sons is a small wholesaler of decorative cast iron objects.

The following events,

related to a special customer order, occur as described below:
August 5, 2015: Turnadot receives the special order for 200 outdoor planters at a selling price of
$50 each, including delivery at a future convenient time and location. The customer, with whom
Turnadot has had a long-term, trouble-free relationship, pays $3,000 as a deposit and agrees to pay
the rest on delivery. Turnadot immediately orders $4,000 worth of planters from its supplier and
pays a $1,000 deposit for them.
August 27, 2015: Turnadot pays $3,000 balance due to the supplier upon delivery of the planters
to its warehouse.
September 5, 2015: The customer calls for delivery of the planters, and pays the balance of
$7,000 when they arrive at the customer site.

On August 27, 2015, upon delivery of planters to Turnadot's warehouse and payment of $3,000
balance due to the supplier, which one of the following journal entries best reflects the economic
impact of the transaction?

A Debit inventory $3,000; credit cash $3,000

B Debit inventory $4,000; credit the current asset 'advances to suppliers' $1,000; credit
cash $3,000
C Debit cost of goods sold $4,000; credit cash $3,000; credit accounts payable $1,000
D Debit inventory $4,000; credit revenues $4,000

2. Turnadot& Sons is a small wholesaler of decorative cast iron objects. The following events,
related to a special customer order, occur as described below:
August 5, 2015: Turnadot receives the special order for 200 outdoor planters at a selling price of
$50 each, including delivery at a future convenient time and location. The customer, with whom
Turnadot has had a long-term, trouble-free relationship, pays $3,000 as a deposit and agrees to pay
the rest on delivery. Turnadot immediately orders $4,000 worth of planters from its supplier and
pays a $1,000 deposit for them.
August 27, 2015: Turnadot pays $3,000 balance due to the supplier upon delivery of the planters
to its warehouse.
September 5, 2015: The customer calls for delivery of the planters, and pays the balance of
$7,000 when they arrive at the customer site.

On September 5, 2015, when the planters are delivered and the balance of $7,000 due from the
customer is collected, which one of the following journal entries best reflects the full economic
impact of the special order on Turnadot's financial condition?

A Dr. Cash 7,000, Cr. Revenues 7,000 and Dr. COGS 4,000, Cr. Inventory 4,000
B Dr. Cash 7,000, Cr. Revenues 7,000 and Dr. Inventory 4,000, Cr. COGS 4,000
C Dr. Cash 7,000, Dr. Advances from customers (liability) 3,000, Cr. Revenues 10,000
and Dr. COGS 4,000, Cr. Inventory 4,000

3. Turnadot& Sons is a small wholesaler of decorative cast iron objects. The following events,
related to a special customer order, occur as described below:

August 5, 2015: Turnadot receives the special order for 200 outdoor planters at a selling price of
$50 each, including delivery at a future convenient time and location. The customer, with whom
Turnadot has had a long-term, trouble-free relationship, pays $3,000 as a deposit and agrees to pay
the rest on delivery. Turnadot immediately orders $4,000 worth of planters from its supplier and
pays a $1,000 deposit for them.
August 27, 2015: Turnadot pays $3,000 balance due to the supplier upon delivery of the planters
to its warehouse.
September 5, 2015: The customer calls for delivery of the planters, and pays the balance of
$7,000 when they arrive at the customer site.

The dollar gross margin earned by Turnadot on the special order for 200 planters $6,000.

4. Turnadot& Sons is a small wholesaler of decorative cast iron objects. The following events,
related to a special customer order, occur as described below:

August 5, 2015: Turnadot receives the special order for 200 outdoor planters at a selling price of
$50 each, including delivery at a future convenient time and location. The customer, with whom
Turnadot has had a long-term, trouble-free relationship, pays $3,000 as a deposit and agrees to pay
the rest on delivery. Turnadot immediately orders $4,000 worth of planters from its supplier and
pays a $1,000 deposit for them.
August 27, 2015: Turnadot pays $3,000 balance due to the supplier upon delivery of the planters
to its warehouse.
September 5, 2015: The customer calls for delivery of the planters, and pays the balance of
$7,000 when they arrive at the customer site.

On August 5, 2015, which one of the following accounting entries, related to the $10,000 special
order, should be recorded in Turnadot's financial accounting system?

A Debit accounts receivable $10,000; credit revenues $10,000

B Debit cash $3,000; credit revenues $3,000
C Debit cash $3,000; credit a liability 'advances from customers' $3,000
C Debit cash $3,000; debit accounts receivable $7,000; credit revenues $10,000.

5.CASH T
Panjim's prepaid expense account consists only of garage rental prepayments. Its 2015 beginning
and ending balance were the same. Which one of the following statements must be true?

A Panjim had no garage rental expenses during 2015

B Panjim's prepaid expense account balance never varied during 2015
C Panjim's prepaid expense account balance varied during 2015
D None of the above statements is true

6. CASH T

Panjim recorded an interest expense of $6,000 for 2015. Which one of the following line items
would be included in the operating section of the Panjim's 2015 indirect method statement of cash
flows?

A Add increase in interest payable...$1,000

B Subtract increase in interest payable...($1,000)
C Add increase in interest payable...$6,000
D Subtract decrease in interest payable...($5,000)

Working
1. Advance payment to supplier is treated as current asset, but on receipt of inventory we
recognize inventory as asset and thus debited while the advance payment (already
recognized as asset) and cash are credited. The advance payment made to customer is
recognized as an asset initially and debited but the entry reverses on the receipt of
inventory.

2. The amount received in advance from a customer is treated a liability for the business.
When the actual sales are made, the liability diminishes. In the case under consideration
on supply to the customer the liability for advance receipts diminishes and is treated as
revenue and thus we debit cash by 7000 (cash received on sale), debit advances from
customers (indicate a decrease in liability recognized before) and credit sale account.
Sales are credited because income has a credit nature. Thus by increase income (sales), it
must be credited.

3. Gross margin = sales-cost of sale, 10,000 – 4,000 =6,000

4. Revenue is recognized only when it is earned and amount received in advance from
customers is treated as liability. When an asset increases it is debited and when a liability
increases it is credited.

5. The Garage rental prepaid expense does not change during 2015 as the opening and
closing balance remain the same.

6. An increase in liability is added to the operating section of indirect method of cash flow.
Opening liability (interest payable) zero
Interest expense for the year 6000$
Interest paid 5000$
Closing liability (op+exp-payment) 1000
Therefore increase in liability:
Closing liability 1000
Less opening liability zero
Increase in liability 1000