acct 373 midterm 6 questions

MID-TERM EXAM,PRIVATE

ACCT 373-70, summer 2020 Name

SID#

P1. The following information pertains to inventory of Hawk, Inc. during 2019.

Cost Retail

Inventory 1/1/2019 $30,000 $60,000

Net markups 40,000

Net markdowns (20,000)

Purchases 400,000 960,000

Purchase return & allowance (30,000) (60,000)

Freight-in 10,000

Abnormal Spoilage (20,000) (40,000)

Sales (600,000)

Instructions: Compute COGS for 2019 using

1) the conventional average retail method and

2) LIFO retail method.

P2. The December 31, 2019 inventory of the COYOTE Co. consisted of 3 products, for which certain information is provided below.

Original Replacement Est. Disposal Selling Normal Profit

Product Cost Cost Cost Price on Sales

A $300 $260 $100 $400 20%

B 400 440 80 500 15

C 500 400 120 600 10

D 600 540 100 700 10

Instructions: Using the lower of cost or market approach on an individual item basis,

1) Compute the inventory valuation that should be reported for each product on 12/ 31/2019.

2) Prepare journal entries for any loss due to MV down on 12/31/2019

P3. Hawk, Inc. exchanged its truck with a van that Seabird co. owned on 10/1/2019. The following information pertains to the truck and the van:

Hawk’s Truck Seabird’s Van

Cost = $70,000, Cost = $50,000

Accumulated depreciation = 30,000 A/D = 10,000

Fair Market value = 50,000 Fair Market value= 30,000.

Seabird paid cash of $20,000 to Hawk, additionally.

Instructions: Prepare any necessary journal entries for Hawk and Seabird

a. if it is an exchange without commercial substance.

b. If it is an exchange with commercial substance.

P4. Coyote Manufacturing bought a machine for $96,000 on November 1, 2018. To install the machine Coyote Manufacturing spent $10,000. It was estimated that the useful life be 4 years or 1,000,000 machine-hours. And the residual value at the end of the useful life be $6,000. Number of hours that the machine has been used or will be used are as follows:

2018 2019 2020 2021 2022

50,000 hours 250,000 280,000 240,000 180,000

Instructions:

1. Prepare journal entries for the purchase of the truck on November 1, 2018.

2. Compute depreciation expenses on the machine for the years ending on December 31 of 2018 and

2019 using following methods; 1) Straight-line method,

2) Activity based method,

3) Sum-of-the-years'-digit,

4) Double declining method.

3. Coyote sold this machine for $60,000 on January 1, 2020

- Prepare any necessary journal entries for this sale using Sum-of-years’-digit method.

P5. During 2019, the COYOTE Company spent $5,000,000 for various construction projects which are qualified for capitalization of interest. The total expenditures of $5,000,000 were made as follows: $3,000,000 on 1/1/2019, $1,000,000 on 4/1/2019, and $1,000,000 on 10/1/2019. The company had the following debts outstanding as of December 31, 2018:

1. 6%, 5-year note to finance construction of various assets, dated January 1, 2018, with interest

payable annually on each January 1. $1,500,000

2. 6%, 15-year bonds issued at par on December 31, 2011, with interest payable annually on each December 31 $2,000,000

3. 8%, 10-year note payable, dated January 1, 2015, with interest payable annually on each

January 1 $4,000,000

Instructions: Prepare the journal entries for the asset qualifying for capitalization of interest, interest expense, and interest payment on December 31, 2019.

P6. The following transactions involving intangible assets of ABC Co. occurred during 2019.

1. On 1/1/2019, ABC's application for the patent #2 for a new production process was granted. Legal and registration fees for the patent were $40,000. The production process will be useful to ABC for ten years.

2. On 1/1/2019 ABC finally won litigation against its patent #1 after spending $20,000 by the court judgment. The patent #1was purchased at $140,000 on 1/1/20015. The economic useful life of patent #1 is 14 years from its acquisition date.

3. On December 31, 2019, ABC purchased XYZ co. for $1,800,000. XYZ co.'s balance sheet as of December 31, 2019 was as follow;

Book Value Fair market value

Total assets $ 2,000,000 $2,400,000

Total liabilities (800,000) (700,000)

Owners' equity (1,200,000) (1,400,000)

Instructions: Prepare the following journal entries for ABC

1) any necessary journal entries for each transaction on the date of transactions.

2) any journal entries to record any resultant amortization of intangible assets on Dec. 31, 2019. If no journal is needed, write no J/E.