Reference no: EM13729411
Inventory
1. Specific identification method. Boston Galleries uses the specific identification method for inventory valuation. Inventory information for several oil paintings follows.
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Painting
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Cost
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1/2 Beginning inventory
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Woods
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$21,000
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4/19 Purchase
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Sunset
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21,800
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6/7 Purchase
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Earth
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31,200
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12/16 Purchase
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Moon
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4,000
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Woods and Moon were sold during the year for a total of $35,000. Determine the firm's
a. cost of goods sold.
b. gross profit.
c. ending inventory.
2. Inventory valuation methods: basic computations. The January beginning inventory of the White Company consisted of 300 units costing $40 each. During the first quarter, the company purchased two batches of goods: 700 Units at $44 on February 21 and 800 units at $50 on March 28. Sales during the first quarter were 1,400 units at $75 per unit. The White Company uses a periodic inventory system. Using the White Company data, fill in the following chart to compare the results obtained under the FIFO, LIFO, and weighted-average inventory methods.
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FIFO
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LIFO
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Weighted Average
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Goods available for sale
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$
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$
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$
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Ending inventory, March 31
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Cost of goods sold
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3. Perpetual inventory system: journal entries. At the beginning of 20X3, Beehler Company implemented a computerized perpetual inventory system. The first transactions that occurred during 20X3 follow:
- 1/2/20X3 Purchases on account: 500 units @$6 = $3,000
- 1/15/20X3 Sales on account: 300 units @ $8.50 = $2,550
- 1/20/20X3 Purchases on Account: 200 units @ 5 = $1,000
- 1/25/20X3 Sales on Account: 300 units @ $8.50 = $2,550
The company president examined the computer-generated journal entries for these transactions and was confused by the absence of a Purchases account.
a. Duplicate the journal entries that would have appearedon the computer printout under FIFO & LIFO
b. Calculate the balance in the firm's Inventory account under each method.
c. Briefly explain the absence of the Purchases account to the company president.
4. Inventory valuation methods: computations and concepts.
Wild Riders Surfboard Company began business on January 1 of the current year. Purchases of surfboards were as follows:
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Date
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Quantity
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Unit Cost
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Total Cost
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1/3
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100
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$125
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$12,500
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4/3
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200
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$135
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$27,000
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6/3
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100
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$145
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$14,500
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7/3
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100
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$155
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$15,500
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Total
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500
|
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$69,500
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Wild Riders sold 400 boards at $250 per board on the dates listed below. The company uses a perpetual inventory system.
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Date
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Quantity Sold
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Unit Price
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Total Sales
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3/17
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50
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$250
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$12,500
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5/17
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75
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$250
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$18,750
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8/10
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275
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$250
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$68,750
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Total
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400
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$100,000
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Instructions
a. Calculate cost of goods sold, ending inventory, and gross profit under each of the following inventory valuation methods:
- First-in, first-out
- Last-in, first-out
- Weighted average
b. Which of the three methods would be chosen if management's goal is to
(1) produce an up-to-date inventory valuation on the balance sheet?
(2) show the lowest net income for tax purposes?
5. Depreciation methods. Mike Davis Enterprises purchased a delivery van for $40,000 in January 20X7. The van was estimated to have a service life of 5 years and a residual value of $6,000. The company is planning to drive the van 20,000 miles annually. Compute depreciation expense for 20X8 by using each of the following methods:
a. Units-of-output, assuming 17,000 miles were driven during 20X8
b. Straight-line
c. Double-declining-balance
6. Depreciation computations. Alpha Alpha Alpha, a college fraternity, purchased a new heavy-duty washing machine on January 1, 20X3. The machine, which cost $2,000, had an estimated residual value of $100 and an estimated service life of 4 years (1,800 washing cycles). Calculate the following:
a. The machine's book value on December 31, 20X5, assuming use of the straight-line depreciation method
b. Depreciation expense for 20X4, assuming use of the units-of-output depreciation method. Actual washing cycles in 20X4 totaled 500.
c. Accumulated depreciation on December 31, 20X5, assuming use of the double-declining-balance depreciation method.
7. Depreciation computations: change in estimate. Aussie Imports purchased a specialized piece of machinery for $50,000 on January 1, 20X3. At the time of acquisition, the machine was estimated to have a service life of 5 years (25,000 operating hours) and a residual value of $5,000. During the 5 years of operations (20X3 - 20X7), the machine was used for 5,100, 4,800, 3,200, 6,000, and 5,900 hours, respectively.
Instructions
a. Compute depreciation for 20X3 - 20X7 by using the following methods: straight line, units of output, and double-declining-balance.
b. On January 1, 20X5, management shortened the remaining service life of the machine to 15 months. Assuming use of the straight-line method, compute the company's depreciation expense for 20X5.
c. Briefly describe what you would have done differently in part (a) if Aussie Imports had paid $47,800 for the machinery rather than $50,000 In addition, assume that the company incurred $800 of freight charges $1,400 for machine setup and testing, and $300 for insurance during the first year of use.