Accounting Question

Instructions: Please prepare written responses to the questions below. Please state your assumptions clearly where

appropriate and necessary. We anticipate responses should take no more than 1 hour to complete.

1. Next year, assume ABC Co. expects to sell $5,000,000 in one-time new business with a gross profit margin of

30%. Also assume that ABC Co.’s internal sales staff receives a 10% commission on gross profit, paid 4 months

after the sale takes effect (i.e., revenue from the sale is recognized). Both customers and suppliers agreed to net

30 terms. Please list out all journal entries to show the impact of this commission structure, and include one

sentence for each monthly entry explaining how this affects ABC

Co.’s internal financial statements.

2. Assume ABC Co. procures 1,000 units of inventory for $300,000 in December 2018 and an additional 1,000

units of inventory (same SKU) for $330,000 in December 2019. Further, assumes ABC Co. sells 500 units of

inventory in July 2019, January 2020, and March 2020 all for $500 / unit. Assume net 30 terms. How would you

reflect the impact of this new customer on ABC Co.’s internal financial statements? Please list out all journal

entries and/or T-accounts, and include one sentence for each monthly entry explaining how this affects ABC

Co.’s internal financial statements.

3. Please list out all journal entries ($’s not necessary) and include one sentence for each entry below explaining

how this affects ABC Co.’s internal financial statements:

7/1/19 → Purchase raw materials

7/15/19 → Produce widget

8/1/19 → Sell widget

4. At the end of the month there is an accrual made for $50,000 of commissions earned by sales staff during the

month, but that won’t be paid out until the

following month.

Please list out the journal entry to record the

month-end accrual and any entries that should be made the following month including when the commissions are

actually paid.

5. Moesle Meats follows the accrual accounting method. At the end of the fiscal year, the following information is

available:

a. Services worth $5,000 were provided to a client in December, but the client has not yet paid.

b. The company’s employees earned $3,500 in wages in December, but the payment will be made in the

following month.

c. The company received a utility bill of $1,200 for the month of December but has not yet paid it.

d. The company paid for a year insurance policy $24,000 in June 23 and will amortize it over the term

period July 23 through June 24.

Calculate the total accruals that need to be recorded on the year-end financial statements. Please provide the journal entries necessary to account for these accruals.