Reference no: EM131095782

Exercise 1

Michael Bolton Company follows the practice of pricing its inventory at the lower-of-cost-or-market, on an individual-item basis.

Item No.	Quantity		Cost per Unit		Cost to Replace		Estimated Selling Price		Cost of Completion and Disposal		Normal Profit
1320	1,200		$3.20		$3.00		$4.50		$0.35		$1.25
1333	900		2.70		2.30		3.50		0.50		0.50
1426	800		4.50		3.70		5.00		0.40		1.00
1437	1,000		3.60		3.10		3.20		0.25		0.90
1510	700		2.25		2.00		3.25		0.80		0.60
1522	500		3.00		2.70		3.80		0.40		0.50
1573	3,000		1.80		1.60		2.50		0.75		0.50
1626	1,000		4.70		5.20		6.00		0.50		1.00

From the information above, determine the amount of Bolton Company inventory.

Exercise 2

Mark Price Company uses the gross profit method to estimate inventory for monthly reporting purposes. Presented below is information for the month of May.

Inventory, May 1	$ 160,000
Purchases (gross)	640,000
Freight-in	30,000
Sales revenue	1,000,000
Sales returns	70,000
Purchase discounts	12,000

(a) Compute the estimated inventory at May 31, assuming that the gross profit is 30% of sales.

(b) Compute the estimated inventory at May 31, assuming that the gross profit is 30% of cost. (Round percentage of sales to 2 decimal places, e.g. 78.74% and final answer to 0 decimal places, e.g. 6,225.)

Exercise 3

Presented below is information related to Ricky Henderson Company.

	Cost	Retail
Beginning inventory	$ 200,000	$ 280,000
Purchases	1,375,000	2,140,000
Markups		95,000
Markup cancellations		15,000
Markdowns		35,000
Markdown cancellations		5,000
Sales revenue		2,200,000

Compute the inventory by the conventional retail inventory method. (Round ratios for computational purposes to 0 decimal places, e.g. 78% and final answer to 0 decimal places, e.g. 28,987.)

Exercise 4

Martin Buber Co. purchased land as a factory site for $400,000. The process of tearing down two old buildings on the site and constructing the factory required 6 months.

The company paid $42,000 to raze the old buildings and sold salvaged lumber and brick for $6,300. Legal fees of $1,850 were paid for title investigation and drawing the purchase contract. Martin Buber paid $2,200 to an engineering firm for a land survey, and $68,000 for drawing the factory plans. The land survey had to be made before definitive plans could be drawn. Title insurance on the property cost $1,500, and a liability insurance premium paid during construction was $900. The contractor's charge for construction was $2,740,000. The company paid the contractor in two installments: $1,200,000 at the end of 3 months and $1,540,000 upon completion. Interest costs of $170,000 were incurred to finance the construction.

Determine the cost of the land and the cost of the building as they should be recorded on the books of Martin Buberk Co. Assume that the land survey was for the building.

Exercise 5

Plant assets often require expenditures subsequent to acquisition. It is important that they be accounted for properly. Any errors will affect both the balance sheets and income statements for a number of years.

For each of the following items, indicate whether the expenditure should be capitalized or expensed in the period incurred.

	Items
(a)	Improvement.	Capitalized Expensed
(b)	Replacement of a minor broken part on a machine.	Expensed Capitalized
(c)	Expenditure that increases the useful life of an existing asset.	Expensed Capitalized
(d)	Expenditure that increases the efficiency and effectiveness of a productive asset but does not increase its salvage value.	Capitalized Expensed
(e)	Expenditure that increases the efficiency and effectiveness of a productive asset and increases the asset's salvage value.	Capitalized Expensed
(f)	Expenditure that increases the quality of the output of the productive asset.	Expensed Capitalized
(g)	Improvement to a machine that increased its fair market value and its production capacity by 30% without extending the machine's useful life.	Capitalized Expensed
(h)	Ordinary repairs.	Capitalized Expensed

Exercise 6

On December 31, 2014, Travis Tritt Inc. has a machine with a book value of $940,000. The original cost and related accumulated depreciation at this date are as follows.

Machine	$1,300,000
Less: Accumulated depreciation	360,000
Book value	$940,000

Depreciation is computed at $60,000 per year on a straight-line basis.

Presented below is a set of independent situations. For each independent situation, indicate the journal entry to be made to record the transaction. Make sure that depreciation entries are made to update the book value of the machine prior to its disposal.

A fire completely destroys the machine on August 31, 2015. An insurance settlement of $430,000 was received for this casualty. Assume the settlement was received immediately. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
August 31, 2015
	(To record current depreciation.)
August 31, 2015
	(To record loss of the machine.)

On April 1, 2015, Tritt sold the machine for $1,040,000 to Dwight Yoakam Company.

Date	Account Titles and Explanation	Debit	Credit
April 1, 2015
	(To record current depreciation.)
April 1, 2015
	(To record loss of the machine.)

On July 31, 2015, the company donated this machine to the Mountain King City Council. The fair value of the machine at the time of the donation was estimated to be $1,100,000.

Date	Account Titles and Explanation	Debit	Credit
July 31, 2015
	(To record current depreciation.)
July 31, 2015
	(To record loss of the machine.)