Week Three Exercise Assignment1. Specific identification method.
Boston Galleries uses the specific identification method for inventory valuation. Inventory information for several oil paintings follows. Painting Cost 1/2 Beginning inventory Woods $21,0004/19 Purchase Sunset 21,8006/7 Purchase Earth 31,20012/16 Purchase Moon 4,000Woods and Moon were sold during the year for a total of $35,000. Determine the firm’s a. cost of goods sold: 21,000 + 4,000 = 25,000b. gross profit: 35,000 – 25,000 = 10, 000c. ending inventory: 21,800 + 31,200 = 53,0002. Inventory valuation methods: basic computations.
The January beginning inven¬tory of the Gilette Company consisted of 300 units costing $40 each. During the first quarter, the company purchased two batches of goods: 700 Units at $44 on February 21 and 800 units at $50 on March 28. Sales during the first quarter were 1,400 units at $75 per unit. The White Company uses a periodic 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.
Inventory Valuation Methods: Basic ComputationsFIFODate Units available for sale1-Jan30021-Feb70028-Mar800Total available for sale1800Cost of goods sold1400Units in ending inventory1800 – 1400 = 400UnitsUnit costTotalSales from January inventory300$40 $12,000Sales from February purchase700$44 $30,800Sales from 3/28 purchase800$50 $40,000Total1800$82,800Ending InventoryMarch 28 Purchase400$50 $2,000LIFOGoods soldUnitsUnits costTotalSales from 3/28 inventory800$50 $40,000Sales from 2/21 purchase 700$44 $30,800Sales from January purchase300$40 $12,000Total units1800Goods available for sale$82,800Ending inventory 3/314003. Perpetual inventory system: journal entries. At the beginning of 20X3, Beehler Company implemented a computerized perpetual inventory system. The first transactions that occurred during 20X3 follow: •1/2/20X3 Purchases on account: 500 units @ $6 = $3,000 •1/15/20X3 Sales on account: 300 units @ $8.
50 = $2,550•1/20/20X3 Purchases on Account: 200 units @ 5 = $1,000•1/25/20X3Sales on Account: 300 units @ $8.50 = $2,550The company president examined the computer-generated journal entries for these transactions and was confused by the absence of a Purchases account. a.Duplicate the journal entries that would have appeared on the computer printout under FIFO & LIFO #3 Perpetual InventoryJournal EntryBeehler CompanyDATEAccount TitleDEBITCREDIT1/2/2003Inventory $ 3,000.
00Accounts Payable $ 3,000.00Purchases on account at 500 units @ $6 each1/15/2003Accounts Payable $ 2,550.00Sales $ 2,550.00Sales on account 300 units @ $8.50 each1/20/2003Inventory $ 1,000.00Accounts Payable $ 1,000.
00Purchases on account 200 units @ $5 each1/25/2003Accounts Receivable $ 2,550.00Sales $ 2,550.00Sales on account 300 units @ $8.50 eachb.Calculate the balance in the firm’s Inventory account under each method. $3,000 + $1,000 = 4,000 merchandise available for sale.FIFO4,000 – 2,450 = 1,550 ending inventoryLIFO4,000 – 2,550 = 1450 ending inventoryc.
Briefly explain the absence of the Purchases account to the company president. The purchases inventory account is not used because the merchandise inventory account is automatically debited when making purchases.4. Inventory valuation methods: computations and concepts.Wild Riders Surfboard Company began business on January 1 of the current year.
Purchases of surfboards were as follows:Date QuantityUnit CostTotal Cost1/3100$125 $12,5004/3200$135 $27,0006/3100$145 $14,5007/3100$155 $15,500Total500$69,500Wild Riders sold 400 boards at $250 per board on the dates listed below. The company uses a perpetual inventory system.Date Quantity SoldUnit PriceTotal Sales3/1750$250 $12,5005/1775$250 $18,7508/10275$250 $68,750Total400$100,000Instructions6.
Depreciation computations. Alpha Alpha Alpha, a college fraternity, purchased a new heavy-duty washing machine on January 1, 20X3. The machine, which cost $2,000, 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 annual depreciation: (2,000-100)/4 years = 475asset book value, year 1: 2,000–475 = 1525asset book value, year 2: 1525 – 475= 1050asset book value, year 3: 1050 – 475 = 575a.
Depreciation expense for 20X4, assuming use of the units-of-output depreciation method. Actual washing cycles in 20X4 totaled 500. Depreciation per washing cycle: 2000-100)/ 500c.
Accumulated depreciation on December 31, 20X5, assuming use of the double-declining-balance depreciation method. 2000-200/5007. 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. Instructionsa.
Compute depreciation for 20X3 – 20X7 by using the following methods: straight line, units of output, and double-declining-balance. Annual depreciation (50,000 – 5,000)/ 5 years = 9,000Depreciation per operating hour: 50,000-5,000)/ 25,000 hours =1.80 Year 1: depreciation: 5100 hours x 1.80= 9,180Year 2: depreciation: 4800 hours x 1.
80= 8,640Year 3: depreciation: 3200 hours x 1.80= 5,760Year 4: depreciation: 6000 hours x 1.80= 10,800Year 5: depreciation: 5900 hours x 1.80= 10,620b.
On January 1, 20X5, management shortened the remaining service life of the machine to 15 months. Assuming use of the straight-line method, compute the company’s depreciation expense for 20X5. Depreciable cost: 50,000 – 5,000 = 45,000Accumulated Depreciation: year 2: 9000 + 9000 = 18000Remaining depreciation: 45000 – 18000 = 27000Year 3 depreciation: 27000 x 12/20 = 16,200c.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.
Insurance was not necessary to bring the machinery to its condition and expense. Charges pertaining to freight and machine cost was not necessary; therefore the depreciation per hour of 1.80 should remain the same