New Accounting Problem

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					Chapter 11 - Long Problems							0%
Please complete the following long problems (2, 5 & 6), filling in the highlighted sections. The possible marks											Possible Mark	Your Mark
noted to the right will provide some guidance regarding the possible points awarded to each problem (and the
number of responses per line)
2.	(a)						Dr		Cr
		Equipment (cost)					12,000				1
		Equipment (transportation)					600				1
		Equipment (sales tax)					900				1
		Equipment (transport insurance)					150				1
		Equipment (site preparation)					500				1
			Cash						3,000		1
			Notes payable						9,000		1
			Accounts payable						2,150		1
		To record the purchase of a refrigerator
		Repairs expense					500				1
			Accounts payable						500		1
		To repair cables leading to refrigeration room
		NOTE: These cables would have had to be repaired anyway so this expense is not related to
		the purchase of the refrigerator
	(b)	One-and-one-half times declining balance depreciation method
			Cost =	14,150		straight-line rate = 1 / 5 = 0.20					1
			Salvage value =	1,000							1
			Depreciable value =	13,150		One-and-one-half times rate = 1.5 x 0.20 = 0.30					1
								1 1/2 times		Remaining
								Deprec.	Accumul.	net book
	Year	Depreciable Base			Depreciation Expense				Depr	value
	1	$ 13,150	(14,150 - 0)			x	0.30	4,245	4,245	9,905
	2	$ 13,150	(14,150 -4245)			x	0.30	2,972	7,217	6,934	5
	3	$ 13,150	(14,150 - 4245 - 2972)			x	0.30	2,080	9,296	4,854	5
	4	$ 13,150	(14,150 - 4245 - 2972 - 2080)			x	0.30	1,456	10,752	3,398	5
	5	$ 13,150	(14,150 - 4245 - 2972 - 2080 - 1456)			x	0.30	1,019	11,772	2,378	5
						Total depreciation		11,772			1
													0
	(c)	Straight-line depreciation				Depr Expense
		Year	Rate
		1	0.20	X	13,150 =	2,630	Straight-line rate = 1/5 = 0.20 per year
		2	0.20	X	13,150 =	2,630					3
		3	0.20	X	13,150 =	2,630					3
		4	0.20	X	13,150 =	2,630					3
		5	0.20	X	13,150 =	2,630					3
				Total depreciation		13,150					1
	(d)	The one-and-one-half times declining balance method allows for faster depreciation over the early									1
		years of the oven's useful life
	(e)	Usually, over the entire life of the oven the depreciation taken is the same under both methods but in this									1
		case it is dependent on the salvage value.
5.							Dr		Cr
	(1)	6/10/08	Purchases				200				1
				Accounts payable					200		1
			To record purchase of 20 ducks at $10 each - 2/10,net 30 credit terms
	(2)	6/15/08	Cash				750				2
				Sales					750		2
			To record sale of 25 ducks
	(3)	6/19/08	Purchases				270				2
				Accounts payable					270		2
			To record purchase of 30 ducks for $9 each on credit - no prompt payment discount
	(4)	6/20/08	Accounts payable				200				2
				Cash					196		2
				Purchase discounts					4		2
			To record payment for 20 ducks purchased on June 10, 2008
	(5)	6/24/08	Cash				450				2
				Sales					450		2
			To record sale of 15 ducks
	(6)	6/30/08			no entry						1
			Transaction date	Units purchased	Unit cost	Total cost of units purchased	Sales	Units in inventory
		Opening Inv Jun	1	10	10	100		10
			10	20	10	200		30			5
			15				25	5			2
			19	30	9	270		35			5
			24				15	20			2
End of Period Cost of sales entries:
		6/30/08	Cost of goods sold				570				1
				Purchases					570		1
			To close (transfer) the purchases to the cost of sales account
		6/30/08	Inventory				80				1
				Cost of goods sold					80		1
			To reduce the cost of sales for unconsumed purchases
		6/30/08	Income Summary				490				1
				Cost of goods sold					490		1
			To close the cost of goods sold account
6.			Units	Unit	Total
			purchased	cost	cost
		1/10/07	20	$2.00	$40.00		Average cost = $63.10 / 31 =		$2.04
		1/15/07	5	$2.10	$10.50						3
		1/26/07	6	$2.10	$12.60						3
			31		$63.10						2
						Cost of sales based on various
						flow-through assumptions
		Sales	Units	FIFO		LIFO		Weighted Average
		Dates	sold	Unit cost	Total cost	Unit cost	Total cost	Unit cost	Total cost
		1/13	8	$2.00	$16.00	$2.10	$16.80	$2.04	$16.28		7
		1/18	3	$2.00	$6.00	$2.10	$6.30	$2.04	$6.11		7
			6	$2.00	$12.00	$2.00	$12.00	$2.04	$12.21		7
			17		$34.00		$35.10		$34.60		4
									Weighted
					FIFO		LIFO		Average
			Sales		$102.00		$102.00		$102.00		3
			Cost of sales		34.00		35.10		34.60		3
			Gross profit		$68.00		$66.90		$67.40		3
											132	0

Sherrill Palmer: The declining balance calculation does not consider the salvage value in the depreciation of each period however, if the book value will fall below the salvage value, the last period might be adjusted so that it ends at the salvage value. When declining balance method does not fully depreciate an asset by the end of its life, variable declining balance method might be used instead. For purposes of this course, please indicate a remaining net book value.

Sherrill Palmer: First issue: assume that the opening value of the inventory is $100 NOT $1000. 10 ducks at $10 = $100 Otherwise the problem will never make sense!

Sherrill Palmer: Perpetual inventory systems record cost of goods sold and keep inventory at its current balance throughout the year. Therefore, there is no need to do a year-end inventory adjustment unless the perpetual records disagree with the inventory count. In addition, a separate cost of goods sold calculation is unnecessary since cost of goods sold is recorded whenever inventory is sold. Unlike perpeturyal inventory, the inventory account in a periodic inventory system keeps its beginning balance until the end of period adjustment to the physical inventory count. Therefore, a separate cost of goods sold calculation is necessary. The following calculation shows the calculation for the preceding example.

Sherrill Palmer: **Periodic Inventory System** Inventory purchases are debited to the 'Purchases' account - see page 280

Sherrill Palmer: A periodic inventory system does not require day-to-day tracking of physical inventory. Purchases, cost of goods sold, and inventory on hand cannot be tracked until the end of the accounting time period when a physical inventory is performed and ending inventory is compared against the sum of beginning inventory and purchases. Cost of ending inventory can be calculated by using the FIFO inventory accounting method or other less common methods.

Sherrill Palmer: Keep in mind: FOB Riverfork 2 day delivery

Sherrill Palmer: We are not told the inventory valuation. Assume: FIFO

Sherrill Palmer: ok - so this is a cheap Chianti!

Mod 5 Assignment Tpl

					Chapter 11 - Long Problems							0%
Please complete the following long problems (2, 5 & 6), filling in the highlighted sections. The possible marks											Possible Mark	Your Mark
noted to the right will provide some guidance regarding the possible points awarded to each problem (and the
number of responses per line)
2.	(a)						Dr		Cr
		Equipment (cost)									1
		Equipment (transportation)									1
		Equipment (sales tax)									1
		Equipment (transport insurance)									1
		Equipment (site preparation)									1
			Cash								1
			Notes payable								1
			Accounts payable								1
		To record the purchase of a refrigerator
		Repairs expense									1
			Accounts payable								1
		To repair cables leading to refrigeration room
		NOTE: These cables would have had to be repaired anyway so this expense is not related to
		the purchase of the refrigerator
	(b)	One-and-one-half times declining balance depreciation method
			Cost =			straight-line rate = 1 / 5 = 0.20					1
			Salvage value =								1
			Depreciable value =			One-and-one-half times rate = 1.5 x 0.20 = 0.30					1
								1 1/2 times		Remaining
								Deprec.	Accumul.	net book
	Year	Depreciable Base			Depreciation Expense				Depr	value
	1		(14,150 - 0)			x	0.30	4,545	4,545	9,605
	2					x					5
	3					x					5
	4					x					5
	5					x					5
						Total depreciation					1
													0
	(c)	Straight-line depreciation				Depr Expense
		Year	Rate
		1	0.20	X	13,150 =	2,630	Straight-line rate = 1/5 = 0.20 per year
		2		X							3
		3		X							3
		4		X							3
		5		X							3
				Total depreciation							1
	(d)										1
	(e)										1
5.							Dr		Cr
	(1)	6/10/08	Purchases								1
				Accounts payable							1
			To record purchase of 20 ducks at $10 each - 2/10,net 30 credit terms
	(2)	6/15/08									2
											2
			To record sale of 25 ducks
	(3)	6/19/08									2
											2
			To record purchase of 30 ducks for $9 each on credit - no prompt payment discount
	(4)	6/20/08									2
											2
											2
			To record payment for 20 ducks purchased on June 10, 2008
	(5)	6/24/08									2
											2
			To record sale of 15 ducks
	(6)	6/30/08									1
			Transaction date	Units purchased	Unit cost	Total cost of units purchased	Sales	Units in inventory
		Opening Inv Jun	1	10	10	100		10
											5
											2
											5
											2
End of Period Cost of sales entries:
		6/30/08	Cost of goods sold								1
				Purchases							1
			To close (transfer) the purchases to the cost of sales account
		6/30/08	Inventory								1
				Cost of goods sold							1
			To reduce the cost of sales for unconsumed purchases
		6/30/08	Income Summary								1
				Cost of goods sold							1
			To close the cost of goods sold account
6.			Units	Unit	Total
			purchased	cost	cost
		1/10/07	20	$2.00	$40.00
		1/15/07									3
		1/26/07									3
							Average cost =				3
						Cost of sales based on various
						flow-through assumptions
		Sales	Units	FIFO		LIFO		Weighted Average
		Dates	sold	Unit cost	Total cost	Unit cost	Total cost	Unit cost	Total cost
		1/13									7
		1/18									7
											7
											4
									Weighted
					FIFO		LIFO		Average
			Sales								3
			Cost of sales								3
			Gross profit								3
											133	0

The declining balance calculation does not consider the salvage value in the depreciation of each period however, if the book value will fall below the salvage value, the last period might be adjusted so that it ends at the salvage value. When declining balance method does not fully depreciate an asset by the end of its life, variable declining balance method might be used instead. For purposes of this course, please indicate a remaining net book value.

First issue: assume that the opening value of the inventory is $100 NOT $1000. 10 ducks at $10 = $100 Otherwise the problem will never make sense!

Perpetual inventory systems record cost of goods sold and keep inventory at its current balance throughout the year. Therefore, there is no need to do a year-end inventory adjustment unless the perpetual records disagree with the inventory count. In addition, a separate cost of goods sold calculation is unnecessary since cost of goods sold is recorded whenever inventory is sold. Unlike perpeturyal inventory, the inventory account in a periodic inventory system keeps its beginning balance until the end of period adjustment to the physical inventory count. Therefore, a separate cost of goods sold calculation is necessary. The following calculation shows the calculation for the preceding example.

**Periodic Inventory System** Inventory purchases are debited to the 'Purchases' account - see page 280

A periodic inventory system does not require day-to-day tracking of physical inventory. Purchases, cost of goods sold, and inventory on hand cannot be tracked until the end of the accounting time period when a physical inventory is performed and ending inventory is compared against the sum of beginning inventory and purchases. Cost of ending inventory can be calculated by using the FIFO inventory accounting method or other less common methods.

Keep in mind: FOB Riverfork 2 day delivery

We are not told the inventory valuation. Assume: FIFO