homework problems

1

. Presented below is inform

a

tion related to Rembrandt Inc.’s inventory.

(per unit Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper )	Skis	B oots	Parkas
Historical cost	$ 19 3			$ 10 8	$5 4
Selling price	2 15	147	75
C ost to distribute			19			8		3
Current replacement cost	206	107	52
Normal profit margin	33	29	22

D

etermine 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

$

16

3 ($215 – $19 – $33)

2.

Fosbre Corporation’s

A

pril 30 inventory was destroyed by fire. January 1 inventory was

$

18

8,200

, and purchases for January through April totaled $

48

4,500

.

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

	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	4 91 ,820
$180,880

3.

The inventory of Oheto Company on December

31

,

2013

, consists of the following items.

$108

	Part No.		Quantity	Cost per Unit	Cost to Replace per Unit
	110		650		$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a Part No. 121 is obsolete and has a realizable value of $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

$

Part No.

Quantity

110

650

$108

$114

$70,200

111

1,200

68

59

70,800

112

590

91

87

51,330

113

280

194

205

54,320

120

430

234

237

100,620

121

1,650

18

990

122

310

274

268

83,080

Per Unit
		Cost	Market		Total Cost	Total Market	Lower-of-Cost-or- Market
	$70,200	$74,100
8 1,600		70,800
53,690		51,330
	54,320	57,400
	100,620	101,910
0.6	29,700		990
84,940		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.

8

16

3

19

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

Operating expenses

for the year allocated to this project total $

1

5,100

. 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. $5,84

5.

)

$

No. of Lots

Total Cost

Group 1

8

$3,450

Group 2

16

4,600

x

$79,000

Group 3

19

2,300

x

$79,000

$79,000

	Net income
Sales Price Per Lot	Total Sales Price	Relative Sales Price	Cost Allocated to Lots	Cost Per Lot (Cost Allocated/ No. of Lots)
$ 27,600	$27,600/$ 14 4,900					x				$79,000	$15,010		$1,876
73,600	$73,600/$144,900	40,132		2,508
43,700	$43,700/$144,900	23,858		1,256
144,900

Net income

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

Group 1

$1,876

Group 2

2,508

Group 3

1,256

$98,900

Number of Lots Sold*	Cost Per Lot	Cost of Lots Sold		Sales	Gross Profit
	4	$7,504	$1 3,800	$ 6,296
	10	25,080	46,000	20,920
	17	21,352	3 9,100	17,748
Total	31	$53,936	$44,964

4

=

10

=

17

* 8 – 4

=

16 – 6

19 – 2

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

Sales

3,800

$94,800	Purchases (at cost)	$ 73,900
Sales returns		3,800	Purchases (at sales price)		90,200
	Markups	10,700	Purchase returns (at cost)
	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.)

$

Cost

Beginning inventory

Purchases

90,200

)

Freight on purchases

4,300

Markups

Markup cancellations

)

Net markups

Totals

Markdowns

9,400

Markdown cancellations

)

Net markdowns

Deduct:

Ending inventory using conventional retail inventory method
Retail
$31,090	$ 56,500
73,900
Purchase returns	(3,800					)	(5,100
	Totals	105,490	141,600
Add:		Net markups
$10,700
(1,600
9,100
	$105,490	150,700
	Deduct:		Net markdowns
(4,500
4,900
Sales price of goods available	145,800
Net sales ($94,800 – $3,800)	91,000
Ending inventory, at retail	$54,800

=

$105,490

=

=

=

Cost-to-retail ratio	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			1,1 71		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.)

$

$

$

Cost

A

$ 635

$ 635

B

635

607

607

C

1,171

861

903

D

1,355

1,411

1,171

1,411

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

Account Titles and Explanation

Debit

Credit

=

=

=

=

	No.
	(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

Account Titles and Explanation

Debit

Credit

	Date
		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

6/12

2.

6/3

6/5

(3% x $10,400)

$312

(a) 1.	Sales Discounts		(3% x $10,400)		$312
Sales Revenue	[$11,000 – (3% x $11,000)]	$10,670
Accounts Receivable (Ann Mount)	[$600 – (3% x $600)]	$582
				(b)	8/5	Sales Discounts Forfeited

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.

Cash

			Description/Account				Debit				Credit
	Materials, Cash, Payables, etc.
	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.

$

$

$

Gross profit recognized

	Income Statement (2013)
	Balance Sheet (12/31/13)
(a) (1)

2012

2013

$ 140,000

$ 160,000

$280,000

520,000

$140,000

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

$160,000

Gross profit recognized in 2012 :
		Contract price		$1,200,000
	Costs:
			Costs to date
	Estimated additional costs		800,000
	Total estimated profit			400,000
	Percentage completion to date
($280,000/$800,000)	35%
		Gross profit recognized in 2012
Gross profit recognized in 2013 :
($600,000/$800,000)	75%
Total Gross profit recognized		300,000
Less: Gross profit recognized in 2012		140,000
		Gross profit recognized in 2013

(2)	Journal entries for 2013.

Description/Account

Debit

Credit

Materials, Cash, Payables, etc.

320,000

350,000

200,000

Construction Expense

320,000

Construction in Process ($600,000 – $280,000)			320,000
Accounts Receivable ($500,000 – $150,000)		350,000
Billings on Construction in Process
Cash ($320,000 – $120,000)		200,000
Accounts Receivable
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)

$160,000

Balance Sheet (12/31/13)

Gross profit on long-term construction project
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

$600,000

140,000

160,000

** Total cost to date

2012 Gross profit

2013 Gross profit

$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.

300,000

400,000

		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
Cash collections on sales of 2013	-0-

(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

Balance, December 31, 2013

$140,800
$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

Deferred Gross Profit Account-2012 Installment Sales

Balance at 12/31/12

$140,800

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

Balance at 12/31/13

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)
$132,000

(b)

Description/Account

Debit

Credit

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

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

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

1,411,000

	$ 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

(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

Costs to date

466,950

246,210

849,000

862,000

$562,000

			$1,411,000
Less estimated cost:
382,050	602,790		862,000
Estimated cost to complete	—
Estimated total cost		849,000
Estimated total gross profit				$562,000		$549,000

Gross profit recognized in—

$382,050

x

$562,000

=

$602,790

x

$562,000

=

$849,000

$549,000

2012:	$ 252,900
	$849,000
2013:	$ 399,020
Less 2012 recognized gross profit	252,900
Gross profit in 2013	$146,120
2014:	Estimated total gross profit for 2014
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.

$1,411,000

)

Gross profit recognized in 2014

Total billings
Total cost	(862,000
$549,000