ACG 340 Case 2 : Fargo

The adjusted trial balance of Fargo Company as of July 31, 2014 is presented below. (Read that again,
think about what that means about where Fargo is in the accounting cycle.) Notice that the total debits
and credits for each account are indicated (including the beginning balances) rather than the usual account
balance. For example, the cash account had transactions which resulted in a total of $67,700 debits
(including the beginning balance) and a total of $55,400 credits.
All adjusting entries have been made for the month of July 2014, except the adjustment for inventory.
Fargos fiscal year end is June 30.
Account
Debit
Credit
$67,700
$55,400
Cash
58,000
54,400
Accounts Receivable
700
1,100
Allowance for Doubtful Accounts
60,000
Inventory
1,200
400
Prepaid Advertising
1,700
1,300
Office Supplies on Hand
22,000
1,500
Office Equipment
400
7,600
Accumulated Depreciation
31,900
40,000
Accounts Payable
800
Salaries Payable
100
Interest Payable
4,000
8,200
Dividends Payable
3,000
30,000
Notes Payable
12,600
Common Stock
20,000
Paid-In Capital in Excess of Par
19,900
Retained Earnings
7,200
Dividends Declared
61,000
Sales
2,200
Sales Returns
500
Sales Discounts
42,000
Purchases
900
Purchase Returns and Allowances
400
Purchase Discounts
9,200
Salaries Expense
1,300
Office Supplies Expense
700
Insurance Expense
600
Advertising Expense
500
Bad Debt Expense
400
Miscellaneous Expense
300
Depreciation Expense
300
Interest Expense
200
Gain on Sale of Office Equipment
$315,800
$315,800
Totals
0

You are only allowed to work with your group members and your professor. No tutors or other groups.
Using the trial balance of gross balances for Fargo and the additional information given below, answer the
following questions about the operations of Fargo. Put answers in box when given. Each question is
worth half a point.
1. Compute the amount of interest paid in July. At June 30, 2012, $20 was payable. (Hint: Think of
converting from accrual basis to cash basis.)

2. How much of Accounts Receivable were written off the month? (Hint: Run the ADA t-account)

3. What is Fargos Net Realizable Value of Accounts Receivable at the end of July?

4. What was the amount of cash received on the sale of office equipment?

5. Assuming that the office equipment has a five year estimated life, no estimated salvage value, and no
depreciation is taken during the month of purchase or sale, how much office equipment was acquired
during the month?

6. How old is the office equipment that was neither sold nor acquired during the month?

7. How much cash was paid on Accounts Payable during the month? Assume the beginning balance of
Accounts Payable in July was zero.

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You are only allowed to work with your group members and your professor. No tutors or other groups.
8. If the beginning balance in Note Payable was $20,000, what amount of Notes Payable did Fargo issue
in in July?

9. How much of the Note Payable was paid off during July?

10. If all vendors sell to Fargo on terms 2/10, n/30, what was the total amount of purchases discounts
which were allowed to lapse. No purchases were made in the last 10 days of July.

11. If there was no prepaid advertising at the beginning of the period, what was the total cash outlay for
advertising in July?

12. How much cash was used to pay salaries during the month? Assume the balance in Salaries Payable
on July 1 was zero.

13. What was the balance of Retained Earnings at the beginning of the fiscal year?

14. If office supplies valued at $300 were on hand at the beginning of the month, what were the total
purchases of office supplies during the month?

15. What journal entry does Fargo make to record the purchase of office supplies? Good journal entry
format required.

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You are only allowed to work with your group members and your professor. No tutors or other groups.
16. How much cash dividends were paid during the month? Assume that the beginning balance in
Dividends Payable at June 30 was $1,000.

17. Of the cash dividends paid, how much related to the current period?

18. What are net sales for July?

19. If 90% of sales are made on credit and all returns were related to credit sales, what was the beginning
balance in Accounts Receivable on July 1? (Hint: Run the AR t-account)

20. How much cash received on accounts receivable in July? (Hint: Run the AR t-account)

21. Does the company use gross or net method to record purchases? How do you know?

22. What is the beginning balance in inventory on July 1?

23. What are net purchases for July?

24. Assume that the company did a count of ending inventory and found that they had 70,000 of
inventory remaining at the end of July. What is the cost of goods sold for the month of July?

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You are only allowed to work with your group members and your professor. No tutors or other groups.
25. Provide the journal entry to adjust inventory at July 31. Good journal entry format is required.

26. Provide the journal entry to close revenues at July 31. Good journal entry format is required.

27. Provide the journal entry to close expenses at July 31. Good journal entry format is required.

28. Provide the journal entry to close dividends at July 31. Good journal entry format is required.

29. Provide the journal entry to close income summary at July 31. Good journal entry format is required.

30. After you have adjusted inventory and done your closing entries for the month, what is the ending
balance in Retained Earnings on July 31?