Reference no: EM131475972
Exercise 1: FIFO and LIFO Inventory
a1. Use the format in Exhibit 8-1 below to compute the ending FIFO inventory and the cost of goods sold, assuming $90,000 in sales; beginning inventory 500 units @ $50; purchases of 400 units @ $50; 100 units @ $65; 400 units @ $80.
Exhibit 8-1 FIFO Inventory Effect
Note: Ending inventory computed as number of units in the beginning inventory plus number of units purchased less number of units sold-count oldest units sold first.
a2. Also compute the cost of goods sold percentage of sales.
b1. Use the format in Exhibit 8-2 below to compute the ending LIFO inventory and the cost of goods sold, using same assumptions.
Exhibit 8-2 LIFO Inventory Effect
Note: Ending inventory computed as number of units purchased plus number of units in the beginning inventory less number of units sold-count newest units sold first.
b2. Also compute the cost of goods sold percentage of sales.
c. Comment on the difference in outcomes.
Exercise 2: Inventory Turnover
Study the "Calculating Inventory Turnover" portion of the chapter closely, whereby the cost of goods sold divided by the average inventory equals the inventory turnover.
Compute two inventory turnover calculations as follows:
1. Use the LIFO information in the previous assignment to first compute the average inventory and then to compute the inventory turnover.
2. Use the FIFO information in the previous assignment to first compute the average inventory and then to compute the inventory turnover.
Exercise 3: Depreciation Concept
Assume that MHS purchased two additional pieces of equipment on April 1 (the first day of its fiscal year), as follows:
1. The laboratory equipment cost $300,000 and has an expected life of = years. The salvage value is 5% of cost. No equipment was traded in on this purchase.
2. The radiology equipment cost $800,000 and has an expected life of 7 years. The salvage value is 10% of cost. No equipment was traded in on this purchase.
For both pieces of equipment:
1. Compute the straight-line depreciation.
2. Compute the double-declining balance depreciation.
Exercise 4: Depreciation
Set up a purchase scenario of your own and compute the depreciation with and without salvage value.
Assignment Exercise 8-5: Depreciation Computation: Units-of-Service
Study the "Units of Service" portion of the chapter closely.
1. Using the format in Table 8-A-5 below.
Table 8-A-5 Units of Service (Units of Production) Depreciation: 5-Years of Service with No Salvage Value
Depreciation Computation
Cost to be Depreciated Unit of Service per Year Depreciation Per Unit Annual Depreciation Expense Accumulated Depreciation (Reserve for Depreciation)
Net Remaining Undepreciated Cost (Net Book Value)
$10,000
Year 1 $1,000 $2,00* $2,000 $2,000 $8,000
Year 2 900 2,00 1,800 3,800 6,200
Year 3 800 2,00 1,600 5,400 4,600
Year 4 1,100 2,00 2,200 7,600 2,400
Year 5 1,200 2,00 2,400 10,000 -0-
Total Units 5,000
$10,000 divided by total units (5,000) equals depreciation per unit of $2.00. Units of Service in Year 2 total 900. Thus 900 units times $2.00 per unit equals $1,800 Year 2 depreciation. The computation continues in this manner until the total 5,000 units of service are exhausted. The equipment is then fully depreciated.
Compute units of service depreciation using the following assumptions:
Cost to be depreciated = $50,000
Salvage value = zero
Total units of service = 10,000
Units of service per year: Year 1 = 2,200; Year 2 = 2,100; Year 3 = 2,300; Year 4 = 2,200; Year 5 = 200
2. Using the same format, compute units of service depreciation using adjusted assumptions as follows:
Cost to be depreciated = $50,000
Salvage value = $5,000
Total units of service = 10,000
Units of service per year: Year 1 = 2,200; Year 2 = 2,100; Year 3 = 2,300; Year 4 = 2,200; Year 5 = 200