Week Three Exercise Assignment
1. Specific identification method. Boston Galleries uses the specific identification method for inventory valuation. Inventory information for several oil paintings follows.
|1/2 Beginning inventory||Woods||$11,000|
Woodsand Moonwere 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 inven tory 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.
Goods available for sale
|Ending inventory, March 31|
|Cost of goods sold|
3. 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 following.
- Purchases on account: 500 units @$4 = $2,000
- Sales on account: 300 of the above units = $2,550
- Returns on account: 75 of the above unsold units
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 prepared on the computer printout.
b. Calculate the balance in the firm s Inventory account.
c. Briefly explain the absence of the Purchases account to the company president.
4. Inventory valuation methods: computations and concepts. Wave Riders Surfboard Company began business on January 1 of the current year. Purchases of surfboards were as follows:
|Purchase 100 boards @$125|
|Sold 50 boards @ $130|
|5/9: 246 boards @140|
|400 boards @ $150|
|74 boards @$160|
Wave Riders sold 710 boards at an average price of $250 per board. The company uses a periodic inventory system.
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) approximate the physical flow of a sand and gravel dealer?
(3) report low earnings (for tax purposes) for a separate electronics company that has been experiencing declining purchase prices?
5. Depreciation methods.Betsy Ross Enterprises purchased a delivery van for $30,000 in January 20X7. The van was estimated to have a service life of 5 years and a resid ual 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
6. Depreciation computations.Alpha Alpha Alpha, a college fraternity, purchased a new heavy-duty washing machine on January 1, 20X3. The machine, which cost $1,000, 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.
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 20 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.