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CHAPTER 8
1.
Amsterdam Company uses a periodic inventory system. For April, when the company sold 602 units, the following information is available.
|
Units |
Unit Cost |
Total Cost |
||||
|
April 1 inventory |
2 32 |
$15 |
$3,480 |
|||
|
April 15 purchase |
389 |
18 |
7,002 |
|||
|
April 23 purchase |
340 |
20 |
6,800 |
|||
|
961 |
$ 17 ,282 |
Compute the April 30 inventory and the April cost of goods sold using the FIFO method.
|
Ending inventory |
$ |
||||||||||||||||||||||||||||||||||||||
|
Cost of goods sold |
|||||||||||||||||||||||||||||||||||||||
| April 23 |
= |
340 x $20 |
$6,800 |
||||||||||||||||||||||||||||||||||||
| April 15 |
19 x $18 |
342 |
|||||||||||||||||||||||||||||||||||||
|
$ 7,142 |
|||||||||||||||||||||||||||||||||||||||
|
Cost of goods available for sale |
|||||||||||||||||||||||||||||||||||||||
|
Deduct ending inventory |
7,142 | ||||||||||||||||||||||||||||||||||||||
|
$10,140 |
2.
Amsterdam Company uses a periodic inventory system. For April, when the company sold 578 units, the following information is available.
|
291 |
$4,365 |
|
|
409 |
19 |
7,771 |
|
33 7 |
6,740 |
|
|
1,037 |
$18,876 |
Compute the April 30 inventory and the April cost of goods sold using the LIFO method.
Ending inventory
$
Cost of goods sold
$
=
291 x $15
=
$4,365
=
168 x $19
=
3,192
$
7,557
$18,876
$11,319
3.
Presented below is information related to radios for the Couples Company for the month of July.
Date
Transaction
Units In
Unit Cost
Units Sold
Selling Price
Total
July 1
Balance
110
$3.2
$
35
2
6
Purchase
880
3.1
2,728
7
Sale
330
$6.9
$2,277
10
Sale
330
7.2
2,376
12
Purchase
440
4.
1
1,804
15
Sale
220
7.5
1,650
18
Purchase
330
5.
6
1,848
22
Sale
440
7.8
3,432
25
Purchase
550
6.0
3,300
30
Sale
220
8.1
1,782
Totals
2,310
$10,032
1,540
$11,517
3.
4.
4 The following independent situations relate to inventory accounting.
Answer the following questions about inventories.
1. Kim Co. purchased goods with a list price of $179,800, subject to trade discounts of 20
%
and 10%, with no cash discounts allowable. How much should Kim Co. record as the cost of these goods?
|
Cost of goods purchased |
2. Keillor Company’s inventory of $1,131,000 at December 31, 2012, was based on a physical count of goods priced at cost and before any year-end adjustments relating to the following items.
(a)
Goods shipped from a vendor f.o.b. shipping point on December 24, 2012, at an invoice cost of $78,370 to Keillor Company were received on January 4, 2013.
(b)
The physical count included $29,500 of goods billed to Sakic Corp. f.o.b. shipping point on December 31, 2012. The carrier picked up these goods on January 3, 2013.
What amount should Keillor report as inventory on its balance sheet?
|
Inventory to be reported |
3. Zimmerman Corp. had
1,660 units
of part M.O. on hand May 1, 2012, costing
$30
each. Purchases of part M.O. during May were as follows.
|
Units Cost |
||||
|
May 9 |
2,160 |
$32 |
||
| 17 |
3,660 |
33 | ||
|
26 |
1,160 |
35 |
A physical count on May 31, 2012, shows
2,160 units
of part M.O. on hand. Using the FIFO method, what is the cost of part M.O. inventory at May 31, 2012? Using the LIFO method, what is the inventory cost? Using the average cost method, what is the inventory cost?
(Round answers to 0 decimal places, e.g. 1,620.)
|
FIFO |
LIFO |
Average Cost |
|
Inventory Cost |
4. Ashbrook Company adopted the dollar-value LIFO method on January 1, 2012 (using internal price indexes and multiple pools). The following data are available for inventory pool A for the 2 years following adoption of LIFO.
|
Inventory |
At Base-Year |
At Current-Year |
|
|
1/1/12 |
$ 201,000 |
||
|
12/31/12 |
242,000 |
266,200 |
|
|
12/31/13 |
259,000 |
295,260 |
Computing an internal price index and using the dollar-value LIFO method, at what amount should the inventory be reported at December 31, 2013?
(Round price index and dollar-value LIFO inventory to 0 decimal places, e.g. 162.)
|
December 31, 2013 |
||
|
Price Index |
||
|
Dollar-value LIFO inventory |
Donovan Inc., a retail store chain, had the following information in its general ledger for the year 2013.
|
Merchandise purchased for resale |
$910,960 |
||
|
Interest on notes payable to vendors |
9,360 |
||
|
Purchase returns |
21,060 |
||
|
Freight-in |
23,200 |
||
|
Freight-out |
17,970 |
||
|
Cash discounts on purchases |
7,050 |
What is
Donovan’s inventoriable cost for 2013
?
| Donovan’s inventoriable cost for 2013 | |||||||
|
1. |
$179,800 – ($179,800 x 20%) |
$143,840; |
|||||
|
$143,840 – ($143,840 x 10%) |
$129,456, |
cost of goods purchased |
2. $1,131,000 + $78,370 = $1,209,370. The $78,370 of goods in transit on which title had passed on December 24 (f.o.b. shipping point) should be added to 12/31/12 inventory. The $29,500 of goods shipped (f.o.b. shipping point) on January 3, 2013, should remain part of the 12/31/12 inventory.
3. Because no date was associated with the units issued or sold, the periodic (rather than perpetual) inventory method must be assumed.
|
FIFO inventory cost: |
1,160 units |
x |
$35 |
$ 40,600 |
||||||||
|
1,000 units |
33,000 |
|||||||||||
|
$73,600 |
||||||||||||
|
LIFO inventory cost: |
1,660 units | $30 |
$49,800 |
|||||||||
|
500 units |
32 |
16,000 |
||||||||||
|
$65,800 |
||||||||||||
|
Average cost: |
||||||||||||
| 2,160 units |
69,120 |
|||||||||||
|
3,660 units |
120,780 |
|||||||||||
| 40,600 | ||||||||||||
|
8,640 |
$280,300 |
$280,300 ÷ 8,640 = $32.44
Ending inventory (2,160 x $32.44) is $70,070.
|
4. |
Computation of price indexes: |
|
|
$266,200 |
110 | |
|
$242,000 |
||
|
$295,260 |
114 |
|
|
$259,000 |
|
Dollar-value LIFO inventory 12/31/12: |
|||
|
Increase $242,000 – $201,000 = |
$41,000 |
||
|
12/31/12 price index |
x 1.10 |
||
|
Increase in terms of 110 |
45,100 |
2012 Layer |
|
|
Base inventory |
201,000 | ||
|
$246,100 |
|||
|
Dollar-value LIFO inventory 12/31/13: |
|||
|
Increase $259,000 – $242,000 = |
$17,000 |
||
|
12/31/13 price index |
x 1.14 |
||
|
Increase in terms of 114 |
19,380 |
2013 Layer |
|
|
2012 layer |
|||
|
$265,480 |
|
5. |
The inventoriable costs for 2013 are: |
|
| Merchandise purchased | ||
|
Add: |
||
|
934,160 |
||
|
Deduct: |
$21,060 |
|
|
Purchase discounts |
28,110 |
|
|
Inventoriable cost |
$906,050 |
CHAPTET 10
1.Hanson Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $1,860,000 on March 1, $1,272,000 on June 1, and $3,010,100 on December 31.
Hanson Company borrowed $1,064,600 on March 1 on a 5-year, 13% note to help finance construction of the building. In addition, the company had outstanding all year a 9%, 5-year,
$2,135,100
note payable and an 10%, 4-year, $
3,779,500
note payable. Compute the weighted-average interest rate used for interest capitalization purposes.
(Round answer to 2 decimal places, e.g. 7.58%.)
|
Weighted-average interest rate |
% | ||
|
Principal |
Interest |
||
|
9%, 5-year note |
$2,135,100 |
$192,159 |
|
|
10%, 4-year note |
3,779,500 |
377,950 |
|
|
$5,914,600 |
$570,109 |
|
9.64% |
2. Navajo Corporation traded a used truck (cost $21,460, accumulated depreciation $19,314) for a small computer worth $3,541. Navajo also paid $537 in the transaction.
Prepare the journal entry to record the exchange. (The exchange has commercial substance.)
(Credit account titles are automatically indented when amount is entered. Do not indent manually.)
|
Account Titles and Explanation |
Debit |
Credit |
||||||||||||
3. Indicate which of the following costs should be expensed when incurred.
|
(a) |
$13,000 paid to rearrange and reinstall machinery. |
|||
|
(b) |
$200,000 paid for addition to building. |
|||
|
(c) |
$200 paid for tune-up and oil change on delivery truck. |
|||
|
(d) |
$7,000 paid to replace a wooden floor with a concrete floor. |
|||
|
(e) |
$2,000 paid for a major overhaul on a truck, which extends the useful life. |
4 The expenditures and receipts below are related to land, land improvements, and buildings acquired for use in a business enterprise.
|
Money borrowed to pay building contractor (signed a note) |
$(276,000 |
) | |||
|
Payment for construction from note proceeds |
292,600 |
||||
|
Cost of land fill and clearing |
11,400 |
||||
|
Delinquent real estate taxes on property assumed by purchaser |
8,400 |
||||
|
Premium on 6-month insurance policy during construction |
7,600 |
||||
|
(f) |
Refund of 1-month insurance premium because construction completed early |
(1,800 |
|||
|
(g) |
Architect’s fee on building |
25,400 |
|||
|
(h) |
Cost of real estate purchased as a plant site (land $209,500 and building $52,730) |
262,230 |
|||
|
(i) |
Commission fee paid to real estate agency |
||||
|
(j) |
Installation of fences around property |
4,800 |
|||
|
(k) |
Cost of razing and removing building |
13,700 |
|||
|
(l) |
Proceeds from salvage of demolished building |
(5,600 |
|||
|
(m) |
Interest paid during construction on money borrowed for construction |
14,900 |
|||
|
(n) |
Cost of parking lots and driveways |
20,700 |
|||
|
(o) |
Cost of trees and shrubbery planted (permanent in nature) |
14,300 |
|||
|
(p) |
Excavation costs for new building |
3,100 |
Identify each item by letter and list the items in columnar form, using the headings shown below.
(Enter receipt amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
|
Item |
Accounts |
Amount |
|
Cost of real estate purchased as a plant site (land $202,900 and building $50,560) |
||
5 Plant acquisitions for selected companies are presented below.
1. Natchez Industries Inc. acquired land, buildings, and equipment from a bankrupt company, Vivace Co., for a lump-sum price of $
737,120
. At the time of purchase, Vivace’s assets had the following book and appraisal values.
|
Book Values |
Appraisal Values |
||||||||
|
Land |
$216,800 |
$ 162,600 |
|||||||
|
Building s |
249,320 |
379,400 |
|||||||
|
Equipment |
32 5,200 |
To be conservative, the company decided to take the lower of the two values for each asset acquired. The following entry was made.
| 162,600 | |||||
|
Cash |
737,120 |
2. Arawak Enterprises purchased store equipment by making a $
2,168
cash down payment and signing a 1-year, $
24,932
, 10% note payable. The purchase was recorded as follows.
|
29,593 |
|
| 2,168 | |
|
Notes Payable |
24,932 |
|
Interest Payable |
2,493 |
3. Ace Company purchased office equipment for $
22,000
, terms 2/10, n/30. Because the company intended to take the discount, it made no entry until it paid for the acquisition. The entry was:
| 22,000 |
|
21,560 |
|
Purchase Discounts |
4. Paunee Inc. recently received at zero cost land from the Village of Cardassia as an inducement to locate its business in the Village. The appraised value of the land is $29,26
8.
The company made no entry to record the land because it had no cost basis.
5. Mohegan Company built a warehouse for $
650,400
. It could have purchased the building for $
802,160
. The controller made the following entry.
| 802,160 | |
| 650,400 | |
|
Profit on Construction |
151,760 |
Prepare the entry that should have been made at the date of each acquisition.
(Credit account titles are automatically indented when amount is entered. Do not indent manually.)
|
No. |
|||
| 2. | |||
| 3. | |||
|
$737,120 x |
$138,210 |
||
|
$86 7,200 |
|||
|
$379,400 |
$322,490 |
||
|
$325,200 |
$276,420 |
||
|
Accounts Payable |
($22,000 x 0.98) |
$21,560 |
6 Presented below is information related to Rommel Company.
1. On July 6, Rommel Company acquired the plant assets of Studebaker Company, which had discontinued operations. The appraised value of the property is:
|
$434,010 |
|||
|
1,276,500 |
|||
|
842,490 |
|||
|
$2,553,000 |
Rommel Company gave 12,500 shares of its $100 par value common stock in exchange. The stock had a fair value of $187 per share on the date of the purchase of the property.
2. Rommel Company expended the following amounts in cash between July 6 and December 15, the date when it first occupied the building.
|
Repairs to building |
$105,500 |
|
Construction of bases for machinery to be installed later |
142,400 |
|
Driveways and parking lots |
133,200 |
|
Remodeling of office space in building, including new partitions and walls |
162,900 |
|
Special assessment by city on land |
18,900 |
3. On December 20, the company paid cash for machinery, $290,000, subject to a 2% cash discount, and freight on machinery of $10,540.
Prepare entries on the books of Rommel Company for these transactions.
(Credit account titles are automatically indented when amount is entered. Do not indent manually.)
|
Common Stock |
(12,500 x $100) |
$1,250,000 |
|
Paid-in Capital in Excess of Par—Common Stock |
($2,337,500 – $1,250,000) |
$1,087,500 |
The cost of the property, plant and equipment is $2,337,500 (12,500 x $187). This cost is allocated based on appraised values as follows:
|
x $2,337,500 |
$397,375 |
||
| Building |
$1,276,500 |
$1,168,750 |
|
|
$842,490 |
= |
$771,375 |
|
($105,500 + $162,900) |
$268,400 |
|
($10,540 + $284,200, which is 98% of $290,000) |
$294,740 |
7 (Nonmonetary Exchange)
Montgomery Company purchased an electric wax melter on April 30, 2013, by trading in its old gas model and paying the balance in cash. The following data relate to the purchase.
|
List price of new melter |
$15,800 |
||
|
Cash paid |
10,000 |
||
|
Cost of old melter (5-year life, $700 residual value) |
12,700 |
||
|
Accumulated depreciation–old melter (straight-line) |
7,200 | ||
|
Second-hand fair value of old melter |
5,200 |
Prepare the journal entry(ies) necessary to record this exchange, assuming that the melters exchanged are (a) has commercial substance, and (b) lacks commercial substance. Montgomery’s fiscal year ends on December 31, and depreciation has been recorded through December 31, 2012.
(List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)
|
Description/Account |
|||||
| (a) | |||||
|
(To record depreciation expense.) |
|||||
|
(To record purchase and trade-in of Melter.) |
|||||
| (b) | |||||
|
Exchange has commercial substance: |
|||||
|
Depreciation expense |
800 |
||||
|
Accumulated depreciation-Melter |
|||||
|
( $12,700 – $700 = $12,000; |
|||||
|
$12,000 ÷ 5 = $2,400; |
|||||
|
$2,400 × 4/12 = $800) |
|||||
|
Melter |
* *15,200 |
||||
|
8,000 |
|||||
|
12,700 |
|||||
| Cash |
10,000 |
||||
|
Gain on disposal of plant assets |
*500 |
| * |
Cost of old asset |
$12,700 |
|
Accumulated depreciation ($7,200 + $800) |
(8,000) |
|
|
Book value |
4,700 |
|
|
Fair value of old asset |
(5,200) |
|
|
Gain (on disposal of plant asset) |
$500 |
|
** |
$10,000 |
||
|
FMV of old melter |
|||
|
Cost of new melter |
$15,200 |
|
Exchange lacks commercial substance |
|
** 14,700 |
|
Melter |
| 4,700 | |
|
Cost of new asset |
$14,700 |
8.
|
(Classification of Land and Building Costs) January 31 Land and building $160,000 February 28 Cost of removal of building 9,800 May 1 Partial payment of new construction 60,000 May 1 Legal fees paid 3,770 June 1 Second payment on new construction 40,000 June 1 Insurance premium 2,280 June 1 Special tax assessment 4,000 June 30 General expenses 36,300 July 1 Final payment on new construction 30,000 December 31 Asset write-up 53,800 399,950 December 31 Depreciation-2013 at 1% 4,000 December 31, 2013 Account balance $395,950 The following additional information is to be considered. Cost of organization $ 610 Examination of title covering purchase of land 1,300 Legal work in connection with construction contract 1,860 $3,770 4. Insurance premium covered the building for a 2-year term beginning May 1, 2013. President’s salary $32,100 Plant superintendent covering supervision of new building 4,200 $36,300 7. Because of a general increase in construction costs after entering into the building contract, the board of directors increased the value of the building $53,800, believing that such an increase was justified to reflect the current market at the time the building was completed. Retained earnings was credited for this amount. |
|
Prepare entries to reflect correct land, building, and depreciation accounts at December 31, 2013. Description/Account Debit Credit Land Additional paid-in capital Description/Account Debit Credit Land (Schedule A) 188,700 Building (Schedule B) 136,250 Retained earnings 53,800 Salary expense 32,100 Prepaid insurance (16 months × $95) 1,520 Organization expense 610 Insurance expense (6 months × $95) 570 Land and building 399,950 Additional paid-in capital (800 shares × $17) 13,600 Land and building 4,000 Depreciation expense 2,637 Accumulated depreciation-Building 1,363 Schedule A Amount consists of: Acquisition cost [$80,000 + (800 × $117)] $173,600 Removal of old building 9,800 Legal fees (Examination of title) 1,300 Special tax assessment 4,000 Total $188,700 Schedule B Amount consists of: Legal fees (Construction contract) $ 1,860 Construction costs (First payment) 60,000 Construction costs (Second payment) 40,000 Insurance (2 months) [(2,280 ÷ 24) = $95 × 2 = $190] 190 Plant superintendent’s salary 4,200 Construction costs (Final payment) 30,000 Total $136,250 Schedule C Depreciation taken $4,000 Depreciation that should be taken (1% × $136,250) (1,363) Depreciation adjustment $2,637 |
|
Show the proper presentation of land, building, and depreciation on the balance sheet at December 31, 2013. Plant, Property and Equipment $ $ Less: Total $ |
359.60
