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1. Presented below is information related to Rembrandt Inc.’s inventory.

(per unit)	Skis	Boots	Parkas
Historical cost	$193	$108	$54
Selling price	215	147	75
Cost to distribute	19	8	3
Current replacement cost	206	107	52
Normal profit margin	33	29	22

Determine the following: (a) the two limits to market value (i.e., the ceiling and the floor) that should be used in the lower-of-cost-or-market computation for skis.

Ceiling Limit		$
Floor Limit		$

(b) the cost amount that should be used in the lower-of-cost-or-market comparison of boots.

The cost amount

(c) the market amount that should be used to value parkas on the basis of the lower-of-cost-or-market.

The market amount	$
(a)	Ceiling Limit	$196 ($215 – $19)
	Floor Limit	$163 ($215 – $19 – $33)

2. Fosbre Corporation’s April 30 inventory was destroyed by fire. January 1 inventory was $188,200, and purchases for January through April totaled $484,500. Sales for the same period were $702,600. Fosbre’s normal gross profit percentage is 30% on sales. Using the gross profit method, estimate Fosbre’s April 30 inventory that was destroyed by fire.

Estimated ending inventory destroyed in fire	$
Beginning inventory		$188,200
Purchases		484,500
Cost of goods available		672,700
Sales revenue	$702,600
Less gross profit (30% x 702,600)	210,780
Estimated cost of goods sold		491,820
Estimated ending inventory destroyed in fire		$180,880

3. The inventory of Oheto Company on December 31, 2013, consists of the following items.

Part No.		Quantity		Cost per Unit		Cost to Replace per Unit
110			650		$108		$114
111			1,200		68		59
112			590		91		87
113			280		194		205
120			430		234		237
121	a		1,650		18		16
122			310		274		268

a Part No. 121 is obsolete and has a realizable value of $0.6 each as scrap. (a) Determine the inventory as of December 31, 2013, by the lower-of-cost-or-market method, applying this method directly to each item.

Inventory as of December 31, 2013

(b) Determine the inventory by the lower-of-cost-or-market method, applying the method to the total of the inventory.

Inventory as of December 31, 2013	$
		Per Unit
Part No.	Quantity	Cost	Market	Total Cost	Total Market	Lower-of-Cost-or- Market
110	650	$108	$114	$70,200	$74,100	$70,200
111	1,200	68	59	81,600	70,800	70,800
112	590	91	87	53,690	51,330	51,330
113	280	194	205	54,320	57,400	54,320
120	430	234	237	100,620	101,910	100,620
121	1,650	18	0.6	29,700	990	990
122	310	274	268	84,940	83,080	83,080
				$475,070	$439,610	$431,340

4. Larsen Realty Corporation purchased a tract of unimproved land for $51,000. This land was improved and subdivided into building lots at an additional cost of $28,000. These building lots were all of the same size but owing to differences in location were offered for sale at different prices as follow.

Group	No. of Lots	Price per Lot
1	8	$3,450
2	16	4,600
3	19	2,300

Operating expenses for the year allocated to this project total $15,100. Lots unsold at the year-end were as follows.

Group 1		4 lots
Group 2		6 lots
Group 3		2 lots

At the end of the fiscal year Larsen Realty Corporation instructs you to arrive at the net income realized on this operation to date. (Round ratios for computational purposes to 1 decimal place, e.g 78.7% and final answers to 0 decimal places, e.g. $5,845.)

Net income	$
	No. of Lots	Sales Price Per Lot	Total Sales Price	Relative Sales Price		Total Cost	Cost Allocated to Lots	Cost Per Lot (Cost Allocated/ No. of Lots)
Group 1	8	$3,450	$ 27,600	$27,600/$144,900	x	$79,000	$15,010	$1,876
Group 2	16	4,600	73,600	$73,600/$144,900	x	$79,000	40,132	2,508
Group 3	19	2,300	43,700	$43,700/$144,900	x	$79,000	23,858	1,256
			144,900				$79,000

Sales (see schedule)		$98,900
Cost of goods sold (see schedule)		53,936
Gross profit		44,964
Operating expenses		15,100
Net income		$ 29,864

	Number of Lots Sold*	Cost Per Lot	Cost of Lots Sold	Sales	Gross Profit
Group 1	4	$1,876	$7,504	$13,800	$ 6,296
Group 2	10	2,508	25,080	46,000	20,920
Group 3	17	1,256	21,352	39,100	17,748
Total	31		$53,936	$98,900	$44,964

* 8 – 4	=	4
16 – 6	=	10
19 – 2	=	17

5. The records of Mandy’s Boutique report the following data for the month of April.

Sales	$94,800	Purchases (at cost)	$73,900
Sales returns	3,800	Purchases (at sales price)	90,200
Markups	10,700	Purchase returns (at cost)	3,800
Markup cancellations	1,600	Purchase returns (at sales price)	5,100
Markdowns	9,400	Beginning inventory (at cost)	31,090
Markdown cancellations	4,500	Beginning inventory (at sales price)	56,500
Freight on purchases	4,300

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

Ending inventory using conventional retail inventory method		$
			Cost			Retail
Beginning inventory		$31,090				$ 56,500
Purchases		73,900				90,200
Purchase returns		(3,800	)			(5,100	)
Freight on purchases		4,300
	Totals		105,490				141,600
Add:	Net markups
	Markups			$10,700
	Markup cancellations			(1,600	)
Net markups						9,100
	Totals		$105,490				150,700
Deduct:	Net markdowns
	Markdowns			9,400
	Markdown cancellations			(4,500	)
Net markdowns						4,900
Sales price of goods available						145,800
Deduct:	Net sales ($94,800 – $3,800)						91,000
Ending inventory, at retail						$54,800

Cost-to-retail ratio	=	$105,490	=	70%
		$150,700

Ending inventory at cost	=	70% x $54,800	=	$38,360

6. Remmers Company manufactures desks. Most of the company’s desks are standard models and are sold on the basis of catalog prices. At December 31, 2012, the following finished desks appear in the company’s inventory.

Finished Desks	A	B	C	D
2012 catalog selling price	$ 635	$ 677	$ 1,270	$ 1,482
FIFO cost per inventory list 12/31/12	663	635	1,171	1,355
Estimated current cost to manufacture (at December 31, 2012, and early 2013)	649	607	861	1,411
Sales commissions and estimated other costs of disposal	71	85	113	183
2013 catalog selling price	706	762	1,270	1,693

The 2012 catalog was in effect through November 2012, and the 2013 catalog is effective as of December 1, 2012. All catalog prices are net of the usual discounts. Generally, the company attempts to obtain a 20 % gross margin on selling price and has usually been successful in doing so. At what amount should each of the four desks appear in the company’s December 31, 2012, inventory, assuming that the company has adopted a lower-of-FIFO-cost-or-market approach for valuation of inventories on an individual-item basis? (Round answers to 0 decimal places, e.g. 1,750.)

Item A	$
Item B	$
Item C	$
Item D	$
Item	Cost	Replacement Cost	Ceiling*	Floor**	Designated Market	Lower-of- Cost-or-Market
A	$ 663	$ 649	$ 635	$ 494	$ 635	$ 635
B	635	607	677	525	607	607
C	1,171	861	1,157	903	903	903
D	1,355	1,411	1,510	1,171	1,411	1,355

*Ceiling = 2013 catalog selling price less sales commissions and estimated other costs of disposal. (2013 catalogue prices are in effect as of 12/01/12.) **Floor = Ceiling less ( 20 % x 2013 catalog selling price).

7. Jansen Corporation shipped $18,400 of merchandise on consignment to Gooch Company. Jansen paid freight costs of $1,760. Gooch Company paid $720 for local advertising, which is reimbursable from Jansen. By year-end, 63% of the merchandise had been sold for $21,900. Gooch notified Jansen, retained a 9% commission, and remitted the cash due to Jansen. Prepare Jansen’s entry when the cash is received. (Round answers to 0 decimal places, e.g. 1,525. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit




(To record the cash remitted to Jansen.)


(To record the cost of inventory sold on consignment.)
Cash	=	[$21,900 – $720 – ($21,900 x 9%)]	=	$19,209
Inventory on Consignment	=	[63% x ($18,400 + $1,760)]	=	$12,701

8. Turner, Inc. began work on a $7,723,000 contract in 2012 to construct an office building. During 2012, Turner, Inc. incurred costs of $1,702,140, billed its customers for $1,333,000, and collected $978,300. At December 31, 2012, the estimated future costs to complete the project total $3,455,860. Prepare Turner’s 2012 journal entries using the percentage-of-completion method. (Credit account titles are automatically indented when amount is entered. Do not indent manually. For costs incurred use account Materials, Cash, Payables.)

No.	Account Titles and Explanation	Debit	Credit
(1)

	(To record costs incurred.)
(2)

	(To record billings.)
(3)

	(To record collections.)
(4)


	(To recognize revenue.)
Construction in Process	=	[($1,702,140 ÷ 5,158,000) x $2,565,000]	=	$846,450
Revenue from Long-Term Contracts	=	($7,723,000 x 33%)	=	$2,548,590

9. Gordeeva Corporation began selling goods on the installment basis on January 1, 2012. During 2012, Gordeeva had installment sales of $110,000; cash collections of $67,100; cost of installment sales of $77,000. Prepare the company’s entries to record 1) installment sales, 2) cash collected, 3) cost of installment sales, 4) deferral of gross profit, and 5) gross profit recognized, using the installment-sales method. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

No.	Account Titles and Explanation	Debit	Credit
1.

2.

3.

4.


5.

Realized Gross Profit = (30% x $67,100) = $20,130

10. On June 3, Hunt Company sold to Ann Mount merchandise having a sales price of $11,000 with terms of 3/10, n/60, f.o.b. shipping point. An invoice totaling $120, terms n/30, was received by Mount on June 8 from the Olympic Transport Service for the freight cost. Upon receipt of the goods, June 5, Mount notified Hunt Company that merchandise costing $600 contained flaws that rendered it worthless. The same day, Hunt Company issued a credit memo covering the worthless merchandise and asked that it be returned at company expense. The freight on the returned merchandise was $28, paid by Hunt Company on June 7. On June 12, the company received a check for the balance due from Mount. (a) Prepare journal entries for Hunt Company to record all the events noted above under each of the following bases. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) 1. Sales and receivables are entered at gross selling price

Date	Account Titles and Explanation	Debit	Credit
6/3

6/5

6/7

6/12

2. Sales and receivables are entered net of cash discounts.

Date	Account Titles and Explanation	Debit	Credit
6/3

6/5

6/7

6/12

(b) Prepare the journal entry under basis (2), assuming that Ann Mount did not remit payment until August 5. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit



(a) 1.		6/12	Sales Discounts	(3% x $10,400)	$312
2.		6/3	Sales Revenue	[$11,000 – (3% x $11,000)]	$10,670
		6/5	Accounts Receivable (Ann Mount)	[$600 – (3% x $600)]	$582

(b)		8/5	Sales Discounts Forfeited	(3% x $10,400)	$312

11. (Recognition of Profit, Percentage-of-Completion)

In 2012 Gurney Construction Company agreed to construct an apartment building at a price of $1,200,000. The information relating to the costs and billings for this contract is shown below.

	2012	2013	2014
Cost incurred to date	$280,000		$600,000	$785,000
Estimated costs yet to be incurred	520,000		200,000	-0-
Customer billings to date	150,000		500,000	1,200,000
Collection of billings to date	120,000		320,000	940,000

(a)

Assuming that the percentage-of-completion method is used.

(1)

Compute the amount of gross profit to be recognized in 2012 and 2013.

	2012	2013
Gross profit recognized	$	$

(2)

Prepare journal entries for 2013.

Description/Account	Debit	Credit

Materials, Cash, Payables, etc.


Cash

Construction Expense

(b)

For 2013, show how the details related to this construction contract would be disclosed on the balance sheet and on the income statement.

Income Statement (2013)
	$

Balance Sheet (12/31/13)

	$
	$
(a) (1)	Gross profit recognized

2012	2013
$140,000	$160,000

Gross profit recognized in 2012:
Contract price		$1,200,000
Costs:
Costs to date	$280,000
Estimated additional costs	520,000	800,000
Total estimated profit		400,000
Percentage completion to date
($280,000/$800,000)		35%
Gross profit recognized in 2012		$140,000

Gross profit recognized in 2013:
Contract price		$1,200,000
Costs:
Costs to date	$600,000
Estimated additional costs	200,000	800,000
Total estimated profit		400,000
Percentage completion to date
($600,000/$800,000)		75%
Total Gross profit recognized		300,000
Less: Gross profit recognized in 2012		140,000
Gross profit recognized in 2013		$160,000

(2)	Journal entries for 2013.

Description/Account	Debit	Credit
Construction in Process ($600,000 - $280,000)	320,000
Materials, Cash, Payables, etc.		320,000
Accounts Receivable ($500,000 - $150,000)	350,000
Billings on Construction in Process		350,000
Cash ($320,000 - $120,000)	200,000
Accounts Receivable		200,000
Construction Expense	320,000
Construction in Process	160,000
Revenues from Long-Term Contract		*480,000

* 1,200,000 × [($600,000 – $280,000) ÷ $800,000]

(b)

Income Statement (2013)
Gross profit on long-term construction project	$160,000

Balance Sheet (12/31/13)
Current assets:
Receivables- construction in process	* $180,000
Inventories-construction in process totaling	$400,000
($900,000 ** less billings of $500,000)

* $180,000 = $500,000 – $320,000

**Total cost to date	$600,000
2012 Gross profit	140,000
2013 Gross profit	160,000
	$900,000

12. (Gross Profit Calculations and Repossessed Merchandise)

Basler Corporation, which began business on January 1, 2012, appropriately uses the installment-sales method of accounting. The following data were obtained for the years 2012 and 2013.

	2012	2013
Installment Sales	$750,000	$840,000
Cost of installment sales	510,000	588,000
General & administrative expenses	70,000	84,000
Cash collections on sales of 2012	310,000	300,000
Cash collections on sales of 2013	-0-	400,000

(a)

Compute the balance in the deferred gross profit accounts on December 31, 2012, and on December 31, 2013.

Deferred Gross Profit Account	2012 Installment Sales	2013 Installment Sales
Balance, December 31, 2012	$
Balance, December 31, 2013	$	$

(b)

A 2012 sale resulted in default in 2014. At the date of default, the balance on the installment receivable was $12,000, and the repossessed merchandise had a fair value of $8,000. Prepare the entry to record the repossession. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)

Description/Account	Debit	Credit




(To record the default and the repossession of the merchandise)

Gross Profit Rate-2012: ($750,000 – $510,000) ÷ $750,000 = 32%

Gross Profit Rate-2013: ($840,000 – $588,000) ÷ $840,000 = 30%

(a)

Deferred Gross Profit Account	2012 Installment Sales	2013 Installment Sales
Balance, December 31, 2012	$140,800
Balance, December 31, 2013	$44,800	$132,000

Balance, December 31, 2012
Deferred Gross Profit Account-2012 Installment Sales
Gross profit on installment sales-2012 ($750,000 - $510,000)	$240,000
Less: Gross profit realized in 2012 ($310,000 × 32%)	(99,200)
Balance at 12/31/12	$140,800

Balance, December 31, 2013
Deferred Gross Profit Account-2012 Installment Sales
Balance at 12/31/12	$140,800
Less: Gross profit realized in 2013 on 2012 sales ($300,000 × 32%)	(96,000)
Balance at 12/31/13	$44,800

Deferred Gross Profit Account-2013 Installment Sales
Gross profit on installment sales-2013 ($840,000 - $588,000)	$252,000
Less: Gross profit realized in 2013 on 2013 sales ($400,000 × 30%)	(120,000)
Balance at 12/31/13	$132,000

(b)

Description/Account	Debit	Credit
Repossessed Merchandise	8,000
Deferred Gross Profit ($12,000 × 32%)	3,840
Loss on Repossession [$8,000 - ($12,000 - $3,840)]	160
Installment Accounts Receivable		12,000
(To record the default and the repossession of the merchandise)

13. Shanahan Construction Company has entered into a contract beginning January 1, 2012, to build a parking complex. It has been estimated that the complex will cost $849,000 and will take 3 years to construct. The complex will be billed to the purchasing company at $1,411,000. The following data pertain to the construction period.

	2012	2013	2014
Costs to date	$382,050	$602,790	$862,000
Estimated costs to complete	466,950	246,210	–0–
Progress billings to date	328,000	529,000	1,411,000
Cash collected to date	305,000	497,000	1,411,000

(a) Using the percentage-of-completion method, compute the estimated gross profit that would be recognized during each year of the construction period.

Gross profit recognized in 2012		$
Gross profit recognized in 2013		$
Gross profit recognized in 2014		$

(b) Using the completed-contract method, compute the estimated gross profit that would be recognized during each year of the construction period.

Gross profit recognized in 2012		$
Gross profit recognized in 2013		$
Gross profit recognized in 2014		$

(a)

	2012	2013	2014
Contract price	$1,411,000	$1,411,000	$1,411,000
Less estimated cost:
Costs to date	382,050	602,790	862,000
Estimated cost to complete	466,950	246,210	—
Estimated total cost	849,000	849,000	862,000
Estimated total gross profit	$562,000	$562,000	$549,000

Gross profit recognized in—

2012:	$382,050	x	$562,000	=	$252,900
	$849,000
2013:	$602,790	x	$562,000	=		$399,020
	$849,000
	Less 2012 recognized gross profit					252,900
	Gross profit in 2013					$146,120

2014:	Estimated total gross profit for 2014						$549,000
	Less 2012–2013 recognized gross profit						399,020
	Gross profit in 2014						$149,980

(b) In 2012 and 2013, no gross profit would be recognized.

Total billings	$1,411,000
Total cost	(862,000	)
Gross profit recognized in 2014	$549,000