1.
Presented below is information related to Rembrandt Inc.’s inventory.
(per unit)
Skis
Historical cost
Selling price
Cost to distribute
Current replacement cost
Normal profit margin
Boots
Parkas
$193
$108
$54
215
147
75
19
8
3
206
107
52
33
29
22
Determine 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
Floor Limit
2.
$
$196 ($215 – $19)
$163 ($215 – $19 – $33)
Fosbre Corporation’s April 30 inventory was destroyed by fire. January 1 inventory was $188,200, and purchases for January
through April totaled $484,500. 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
Purchases
Cost of goods available
Sales revenue
Less gross profit (30% x 702,600)
Estimated cost of goods sold
Estimated ending inventory destroyed in fire
3.
$188,200
484,500
672,700
$702,600
210,780
491,820
$180,880
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
$108
$114
111
1,200
68
59
112
590
91
87
113
280
194
205
237
120
121
122
a
$
a
430
234
1,650
18
16
310
274
268
Part No. 121 is obsolete and has a realizable value of $0.6 each as scrap.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.
110
111
112
113
120
121
122
Quantity
650
1,200
590
280
430
1,650
310
4.
$
Per Unit
Cost
Market
$108
$114
68
59
91
87
194
205
234
237
18
0.6
274
268
Total Cost
$70,200
81,600
53,690
54,320
100,620
29,700
84,940
$475,070
Total Market
$74,100
70,800
51,330
57,400
101,910
990
83,080
$439,610
Lower-of-Cost-or- Market
$70,200
70,800
51,330
54,320
100,620
990
83,080
$431,340
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
1
8
Price per Lot
$3,450
2
16
4,600
3
19
2,300
Operating expenses for the year allocated to this project total $15,100. 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. $5,845.)
Net
income
Group 1
Group 2
Group 3
$
No. of Lots
8
16
19
Sales Price
Per Lot
$3,450
4,600
2,300
Total Sales
Price
$ 27,600
73,600
43,700
144,900
Sales (see schedule)
$98,900
Cost of goods sold (see schedule)
53,936
Gross profit
44,964
Operating expenses
15,100
Net income
$ 29,864
Number of
Cost
Cost of
Lots Sold* Per Lot Lots Sold
Sales
Group 1
4
$1,876
$7,504 $13,800
Group 2
10
2,508
25,080
46,000
Group 3
17
1,256
21,352
39,100
Total
31
$53,936 $98,900
* 8 – 4=4
16 – 6=10
19 – 2=17
5.
Relative
Sales Price
$27,600/$144,900x
$73,600/$144,900x
$43,700/$144,900x
Total
Cost
$79,000
$79,000
$79,000
Cost
Allocated
to Lots
$15,010
40,132
23,858
$79,000
Cost Per Lot
(Cost Allocated/ No. of
Lots)
$1,876
2,508
1,256
Gross Profit
$ 6,296
20,920
17,748
$44,964
The records of Mandy’s Boutique report the following data for the month of April.
Sales
Sales returns
Markups
$94,800
Purchases (at cost)
$73,900
3,800
Purchases (at sales price)
90,200
10,700
Purchase returns (at cost)
3,800
Markup cancellations
1,600
Purchase returns (at sales price)
Markdowns
9,400
Beginning inventory (at cost)
31,090
5,100
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
$
Cost
$31,090
73,900
(3,800)
4,300
105,490
Beginning inventory
Purchases
Purchase returns
Freight on purchases
Totals
Add:
Net markups
Markups
Markup cancellations
Net markups
Totals
$105,490
Deduct: Net markdowns
Markdowns
Markdown cancellations
Net markdowns
Sales price of goods available
Deduct: Net sales ($94,800 – $3,800)
Ending inventory, at retail
$105,490
Cost-to-retail ratio
=
=70%
$150,700
Ending inventory at cost=70% x $54,800=$38,360
6.
Retail
$ 56,500
90,200
(5,100)
141,600
$10,700
(1,600)
9,100
150,700
9,400
(4,500)
4,900
145,800
91,000
$54,800
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
2012 catalog selling price
B
C
D
$ 635
$ 677
$ 1,270
$ 1,482
FIFO cost per inventory list 12/31/12
663
635
1,171
1,355
Estimated current cost to manufacture (at December 31, 2012, and early 2013)
649
607
861
1,411
71
85
113
183
706
762
1,270
1,693
Sales commissions and estimated other costs of disposal
2013 catalog selling price
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
A
B
C
D
7.
Cost
$ 663
635
1,171
1,355
$
Replacement
Cost
$ 649
607
861
1,411
Ceiling*
$ 635
677
1,157
1,510
Floor**
$ 494
525
903
1,171
Designated
Market
$ 635
607
903
1,411
Lower-ofCost-or-Market
$ 635
607
903
1,355
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
Inventory on Consignment
8.
= [$21,900 – $720 – ($21,900 x 9%)] = $19,209
= [63% x ($18,400 + $1,760)]
= $12,701
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
No.
Debit
Credit
(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.
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 Account Titles and Explanation
6/3
6/5
6/7
Debit
Credit
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
(a) 1.
6/12
2.
6/3
Sales Revenue
6/5
8/5
(b)
11.
Credit
Sales Discounts
$312
Accounts Receivable (Ann
Mount)
(3% x $10,400)
[$11,000 – (3% x
$11,000)]
[$600 – (3% x
$600)]
Sales Discounts Forfeited
(3% x $10,400)
$312
$10,670
$582
(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.
Cost incurred to date
Estimated costs yet to be incurred
Customer billings to date
2012
$280,000
520,000
150,000
2013
$600,000
200,000
500,000
2014
$785,000
-01,200,000
Collection of billings to date
120,000
320,000
(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
$
940,000
$
(2)
Prepare journal entries for 2013.
Description/Account
Debit
Credit
Materials, Cash, Payables, etc.
Cash
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.
Income Statement (2013)
$
Balance Sheet (12/31/13)
$
(a) (1)
Gross profit recognized
2012
2013
$140,000
$160,000
Gross profit recognized in 2012:
Contract price
Costs:
Costs to date
Estimated additional costs
Total estimated profit
Percentage completion to date
($280,000/$800,000)
Gross profit recognized in 2012
Gross profit recognized in 2013:
Contract price
Costs:
Costs to date
Estimated additional costs
Total estimated profit
Percentage completion to date
($600,000/$800,000)
Total Gross profit recognized
Less: Gross profit recognized in 2012
Gross profit recognized in 2013
(2)Journal entries for 2013.
Description/Account
Construction in Process ($600,000 - $280,000)
Materials, Cash, Payables, etc.
Accounts Receivable ($500,000 - $150,000)
Billings on Construction in Process
Cash ($320,000 - $120,000)
Accounts Receivable
Construction Expense
Construction in Process
$
$1,200,000
$280,000
520,000
800,000
400,000
35%
$140,000
$1,200,000
$600,000
200,000
800,000
400,000
75%
300,000
140,000
$160,000
Debit
320,000
Credit
320,000
350,000
350,000
200,000
200,000
320,000
160,000
Revenues from Long-Term Contract
* 1,200,000 × [($600,000 – $280,000) ÷ $800,000]
Income Statement (2013)
(b)
Gross profit on long-term construction project
Balance Sheet (12/31/13)
Current assets:
Receivables- construction in process
Inventories-construction in process totaling
($900,000 ** less billings of $500,000)
* $180,000 = $500,000 – $320,000
**Total cost to date
$600,000
2012 Gross profit
140,000
160,000
2013 Gross profit
$900,000
12.
*480,000
$160,000
* $180,000
$400,000
(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
300,000
Cash collections on sales of 2013
-0400,000
(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
$
$
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
(b)
(To record the default and the repossession of the merchandise)
(a)
(b)
Deferred Gross Profit Account
2012 Installment Sales
Balance, December 31, 2012
$140,800
Balance, December 31, 2013
$44,800
Balance, December 31, 2012
Deferred Gross Profit Account-2012 Installment Sales
Gross profit on installment sales-2012 ($750,000 - $510,000)
Less: Gross profit realized in 2012 ($310,000 × 32%)
Balance at 12/31/12
Balance, December 31, 2013
Deferred Gross Profit Account-2012 Installment Sales
Balance at 12/31/12
Less: Gross profit realized in 2013 on 2012 sales ($300,000 × 32%)
Balance at 12/31/13
Deferred Gross Profit Account-2013 Installment Sales
Gross profit on installment sales-2013 ($840,000 - $588,000)
Less: Gross profit realized in 2013 on 2013 sales ($400,000 × 30%)
Balance at 12/31/13
Description/Account
Repossessed Merchandise
Deferred Gross Profit ($12,000 × 32%)
Loss on Repossession [$8,000 - ($12,000 - $3,840)]
Installment Accounts Receivable
(To record the default and the repossession of the merchandise)
2013 Installment Sales
$132,000
$240,000
(99,200)
$140,800
$140,800
(96,000)
$44,800
$252,000
(120,000)
$132,000
Debit
8,000
3,840
160
Credit
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
Costs to date
2013
2014
$382,050
$602,790
Estimated costs to complete
466,950
246,210
$862,000
–0–
Progress billings to date
328,000
529,000
1,411,000
Cash collected to date
305,000
497,000
1,411,000
(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
$
2012
$1,411,000
2013
2014
Contract price
$1,411,000 $1,411,000
Less estimated cost:
Costs to date
382,050
602,790
862,000
Estimated cost to complete
466,950
246,210
—
Estimated total cost
849,000
849,000
862,000
Estimated total gross profit
$562,000
$562,000
$549,000
$382,050
2012:
x $562,000= $252,900
$849,000
$602,790
2013:
x $562,000=
$399,020
$849,000
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
Gross profit in 2014
Total billings
$1,411,000
Total cost
(862,000)
Gross profit recognized in 2014
$549,000
$549,000
399,020
$149,980