Week Three Exercise Assignment

Inventory

1. Specific identification method. Boston Galleries uses the specific identification method for inventory valuation. Inventory information for several oil paintings follows.

Woods and Moon were sold during the year for a total of $35,000. Determine the firm’s

a. cost of goods sold.

b. gross profit.

c. ending inventory.

2. Inventory valuation methods: basic computations. The January beginning inven­tory of the White Company consisted of 300 units costing $40 each. During the first quarter, purchases were:

Date                     Quantity              Cost

1/15                      700                       $45

1/31                      1200                     $48

2/12                      800                       $46

2/27                      650                       $51

Sales during the first quarter were.

Date                     Sold

1/19                      500

2/2                        600

2/13                      500

2/28                      100

 The White Company uses a perpetual inventory system.

Using the White Company data, fill in the following chart to compare the results obtained under the FIFO, LIFO, and weighted-average inventory methods.

3. Perpetual inventory system: journal entries. At the beginning of 20X3, Beehler Company implemented a computerized perpetual inventory system. The following transactions occurred:

·        Purchases on account: 500 units @ $4 =  $2,000

·        Sales on account: 300 units @ $5 = $1,500

·        Purchases on account: 600 units @ $5 =  $3,000

·        Sales on account: 300 units @ $5 = $1,500

a. Prepare journal entries for the above purchases and sales.

b. Calculate the balance in the firm’s Inventory account.

4. Inventory valuation methods: computations and concepts. Wave Riders Surfboard Company began business on January 1 of the current year. Below are the transactions for the year

:

Wave Riders uses a perpetual inventory system.

Instructions

a. Calculate cost of goods sold, ending inventory, and gross profit under each of the following inventory valuation methods:

·               First-in, first-out

·               Last-in, first-out

·               Weighted average

b. Which of the three methods would be chosen if management’s goal is to

(1) produce an up-to-date inventory valuation on the balance sheet?

(2) approximate the physical flow of a sand and gravel dealer?

5. Depreciation methods. Betsy Ross Enterprises purchased a delivery van for $30,000 in January 20X7. The van was estimated to have a service life of 5 years and a resid­ual value of $6,000. The company is planning to drive the van 20,000 miles annually. Compute depreciation expense for 20X8 by using each of the following methods:

a. Units-of-output, assuming 17,000 miles were driven during 20X8

b. Straight-line

c. Double-declining-balance

6. Depreciation computations. Alpha Alpha Alpha, a college fraternity, purchased a new heavy-duty washing machine on January 1, 20X3. The machine, which cost $1,000, had an estimated residual value of $100 and an estimated service life of 4 years (1,800 washing cycles). Calculate the following:

a. The machine’s book value on December 31, 20X5, assuming use of the straight-line depreciation method

b. Depreciation expense for 20X4, assuming use of the units-of-output depreciation method. Actual washing cycles in 20X4 totaled 500.

c. Accumulated depreciation on December 31, 20X5, assuming use of the double-declining-balance depreciation method.

7. Depreciation computations: change in estimate. Aussie Imports purchased a specialized piece of machinery for $50,000 on January 1, 20X3. At the time of acquisition, the machine was estimated to have a service life of 5 years (25,000 operating hours) and a residual value of $5,000. During the 5 years of operations (20X3 – 20X7), the machine was used for 5,100, 4,800, 3,200, 6,000, and 5,900 hours, respectively.

Instructions

a. Compute depreciation for 20X3 – 20X7 by using the following methods: straight line, units of output, and double-declining-balance.

b. On January 1, 20X5, management shortened the remaining service life of the machine to 20 months. Assuming use of the straight-line method, compute the company’s depreciation expense for 20X5.

c. Briefly describe what you would have done differently in part (a) if Aussie Imports had paid $47,800 for the machinery rather than $50,000 In addition, assume that the company incurred $800 of freight charges $1,400 for machine setup and testing, and $300 for insurance during the first year of use.