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1
. Presented below is inform
a
tion related to Rembrandt Inc.’s inventory.
|
(per unit ) |
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 |
||
|
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.
|
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a Part No. 121 is obsolete and has a realizable value of $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.
|
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.
|
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.
)
|
Net income |
|||||||||||||
|
Sales Price |
Total Sales Price |
Relative |
Cost Allocated |
Cost Per Lot |
|||||||||
|
$ 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 |
|
Sales (see schedule) |
$98,900 |
|
|
Cost of goods sold (see schedule) |
53,936 |
|
|
Gross profit |
44,964 |
|
| Operating expenses | 15,100 | |
|
$ 29,864 |
|
Number of |
Cost |
Cost of |
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 |
|
* 8 – 4 |
= |
||||||||||||||||
|
16 – 6 |
|||||||||||||||||
|
19 – 2 |
5. The records of Mandy’s Boutique report the following data for the month of April.
|
$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.)
|
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 |
|
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.)
|
Item A |
$ |
||||
|
Item B |
|||||
|
Item C |
|||||
|
Item D |
|||||
|
Item |
Replacement |
Ceiling* |
Floor** |
Designated |
Lower-of- |
|
$ 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.)
|
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.)
|
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 |
||
|
6/3 |
||
|
6/5 |
||
|
6/7 |
||
|
6/12 |
2. Sales and receivables are entered net of cash discounts.
(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.)
|
(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. |
|
Compute the amount of gross profit to be recognized in 2012 and 2013. |
|
Gross profit recognized |
|
Prepare journal entries for 2013. |
|
Description/Account |
Debit |
Credit |
|||||||||
|
Materials, Cash, Payables, etc. |
|||||||||||
|
Construction Expense |
|
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) |
|
$ 140,000 |
$ 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. |
|
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] |
|
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 |
|
** 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.
| 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- |
|
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 |
|
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. |
|
(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%
|
$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 |
| 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 |
|
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)
|
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.
|
$ 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 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)
|
$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—
| 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.
|
Total billings |
|
| Total cost |
(862,000 |
| $549,000 |
