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Week Three Exercise Assignment

Inventory

 

1. Specific identification method. Boston Galleries uses the specific identification method for inventory valuation. Inventory information for several oil paintings follows.

                                        Painting

                     Cost

1/2 Beginning inventory

Woods

$11,000

4/19 Purchase

Sunset

21,800

6/7 Purchase

Earth

31,200

12/16 Purchase

Moon

4,000

    

 

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, purchases were:

Date                     Quantity              Cost

1/15                      700                       $45

1/31                      1200                     $48

2/12                      800                       $46

2/27                      650                       $51

 

 

Sales during the first quarter were.

Date                     Sold

1/19                      500

2/2                        600

2/13                      500

2/28                      100

 

 The White Company uses a perpetual 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.

 

FIFO

    LIFO

Weighted Average

 

 

 

 

Goods available for sale             

   $

$

$

Ending inventory, March 31

Cost of goods sold

      

 

 

3. Perpetual inventory system: journal entries. At the beginning of 20X3, Beehler Company implemented a computerized perpetual inventory system. The following transactions occurred:

·        Purchases on account: 500 units @ $4 =  $2,000

·        Sales on account: 300 units @ $5 = $1,500

·        Purchases on account: 600 units @ $5 =  $3,000

·        Sales on account: 300 units @ $5 = $1,500

a. Prepare journal entries for the above purchases and sales.

b. Calculate the balance in the firm’s Inventory account.

 

4. Inventory valuation methods: computations and concepts. Wave Riders Surfboard Company began business on January 1 of the current year. Below are the transactions for the year

:

1/3:

Purchase 100 boards  @ $125

3/17:

Sold 50 boards @ $250

4/3:

Purchase 200 boards  @ $135

5/17:

Sold 75 boards @ $250

6/3:

Purchase 100 boards  @ $145

1/3:

Purchase 100 boards  @ $155

3/17:

Sold 300 boards @ $250

1/3:

Purchase 100 boards  @ $140

 

Wave Riders uses a perpetual inventory system.

 

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) approximate the physical flow of a sand and gravel dealer?

 

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 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 $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.

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 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.

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