# homework problems

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

 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a Part No. 121 is obsolete and has a realizable value of \$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

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