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
232
$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
Ending inventory
$7,142
Cost of goods available for sale
$17,282
Deduct ending inventory
7,142
Cost of goods sold
$10,140
2. Amsterdam Company uses a periodic inventory system. For April, when the company sold 578
units, the following information is available.
Units
Unit Cost
Total Cost
April 1 inventory
291
$15
$4,365
April 15 purchase
409
19
7,771
April 23 purchase
337
20
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
$
April 1
April 15
Ending inventory
Cost of goods available for sale
Deduct ending inventory
Cost of goods sold
=
=
291 x $15 =
168 x $19 =
$4,365
3,192
$7,557
$18,876
7,557
$11,319
3.Presented below is information related to radios for the Couples Company for the month of July.
Date
July 1
Transaction
Units In
Unit Cost
Total
Units Sold
Selling Price
Total
Balance
110
$3.2
$352
6
Purchase
880
3.1
2,728
7
Sale
330
$6.9
$2,277
10
Sale
330
7.2
2,376
12
Purchase
15
Sale
220
7.5
1,650
440
4.1
1,804
18
Purchase
22
Sale
25
Purchase
30
Sale
Totals
330
5.6
1,848
550
6.0
3,300
2,310
$10,032
440
7.8
220
8.1
1,540
3,432
1,782
$11,517
(a1)
Calculate average cost per unit. (Round average cost per unit to 2 decimal places, e.g. $2.76.)
Weighted average cost
$
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
$
359.60
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)
(b)
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.
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
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
Inventory Cost
LIFO
$
$
Average 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
1/1/12
At Base-Year
Cost
At Current-Year
Cost
$201,000
$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,
FIFO inventory cost: 1,160 unitsx$35
$40,600
1,000 unitsx 33
33,000
Total
$73,600
LIFO inventory cost: 1,660 unitsx$30
$49,800
500 units x 32
16,000
Total
$65,800
Average cost:
1,660 unitsx$30
$49,800
2,160 unitsx 32
69,120
3,660 unitsx 33
120,780
1,160 unitsx 35
40,600
Totals
8,640
$280,300
4. Computation of price indexes:
$266,200
12/31/12 =
= 110
$242,000
$295,260
12/31/13 =
= 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
Dollar-value LIFO inventory
$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
45,100
Base inventory
201,000
Dollar-value LIFO inventory
$265,480
5. The inventoriable costs for 2013 are:
Merchandise purchased
$910,960
Add:
Freight-in
23,200
934,160
Deduct:Purchase returns
$21,060
Purchase discounts
7,050
28,110
Inventoriable cost
$906,050
$
cost of goods purchased
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
$2,135,100
$192,159
3,779,500
377,950
$5,914,600
$570,109
$570,109
Weighted-average interest rate =
=9.64%
$5,914,600
9%, 5-year note
10%, 4-year note
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.
(a)
Money borrowed to pay building contractor (signed a note)
(b)
Payment for construction from note proceeds
$(276,000 )
(c)
Cost of land fill and clearing
(d)
Delinquent real estate taxes on property assumed by purchaser
(e)
Premium on 6-month insurance policy during construction
(f)
Refund of 1-month insurance premium because construction completed early
(g)
Architect’s fee on building
(h)
Cost of real estate purchased as a plant site (land $209,500 and building $52,730)
(i)
Commission fee paid to real estate agency
(j)
Installation of fences around property
(k)
Cost of razing and removing building
(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
292,600
11,400
8,400
7,600
(1,800 )
25,400
262,230
8,400
4,800
13,700
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
(a)
Accounts
Money borrowed to pay building contractor (signed a note)
Amount
$
(b)
Payment for construction from note proceeds
(c)
Cost of land fill and clearing
(d)
Delinquent real estate taxes on property assumed by purchaser
(e)
Premium on 6-month insurance policy during construction
(f)
Refund of 1-month insurance premium because construction completed
early
(g)
Architect’s fee on building
(h)
Cost of real estate purchased as a plant site (land $202,900 and building
$50,560)
(i)
Commission fee paid to real estate agency
(j)
Installation of fences around property
(k)
Cost of razing and removing building
(l)
Proceeds from salvage of demolished building
(m)
Interest paid during construction on money borrowed for construction
(n)
Cost of parking lots and driveways
(o)
Cost of trees and shrubbery planted (permanent in nature)
(p)
Excavation costs for new building
$
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
Land
Appraisal Values
$216,800
$162,600
Buildings
249,320
379,400
Equipment
325,200
325,200
To be conservative, the company decided to take the lower of the two values for each asset acquired. The following entry was made.
Land
162,600
Buildings
249,320
Equipment
325,200
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.
Equipment
29,593
Cash
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:
Equipment
Cash
Purchase Discounts
22,000
21,560
440
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 $29,268. 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.
Buildings
802,160
Cash
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.
Account Titles and Explanation
Debit
Credit
1.
2.
3.
4.
5.
1.
3.
Land
=
$737,120 x
Buildings
=
$737,120 x
Equipment
=
$737,120 x
Accounts Payable
= ($22,000 x 0.98)
$162,600
$867,200
$379,400
$867,200
$325,200
$867,200
=
$138,210
=
$322,490
=
$276,420
= $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:
Land
Buildings
Equipment
Total
$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.)
No. Account Titles and Explanation
Debit
Credit
1.
2.
3.
1.
1.
2.
3.
Common Stock
=
(12,500 x $100)
=
Paid-in Capital in Excess of Par—Common Stock=
($2,337,500 – $1,250,000)=
$434,010
Land
=
x $2,337,500=$397,375
$2,553,000
$1,276,500
Building =
x $2,337,500=$1,168,750
$2,553,000
$842,490
Equipment=
x $2,337,500=$771,375
$2,553,000
Buildings=($105,500 + $162,900)
=$268,400
Cash
=($10,540 + $284,200, which is 98% of $290,000) =$294,740
$1,250,000
$1,087,500
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
Cash paid
Cost of old melter (5-year life, $700 residual value)
Accumulated depreciation–old melter (straight-line)
Second-hand fair value of old melter
$15,800
10,000
12,700
7,200
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
Debit
Credit
(a)
(To record depreciation expense.)
(To record purchase and trade-in of Melter.)
(b)
(To record depreciation expense.)
(a)
*
**
(b)
**
(To record purchase and trade-in of Melter.)
Exchange has commercial substance:
Description/Account
Depreciation expense
Accumulated depreciation-Melter
($12,700 - $700 = $12,000;
$12,000 ÷ 5 = $2,400;
$2,400 × 4/12 = $800)
Melter
Accumulated depreciation-Melter
Melter
Cash
Gain on disposal of plant assets
Cost of old asset
Accumulated depreciation ($7,200 + $800)
Book value
Fair value of old asset
Gain (on disposal of plant asset)
Cash paid
FMV of old melter
Cost of new melter
Exchange lacks commercial substance
Description/Account
Depreciation expense
Accumulated depreciation-Melter
Melter
Accumulated depreciation-Melter
Melter
Cash
Cash paid
Fair value of old asset
Cost of new asset
8.
(Classification of Land and Building Costs)
Debit
800
Credit
800
**15,200
8,000
12,700
10,000
*500
$12,700
(8,000)
4,700
(5,200)
$500
$10,000
5,200
$15,200
Debit
800
Credit
800
** 14,700
8,000
12,700
10,000
$10,000
4,700
$14,700
Spitfire Company was incorporated on January 2, 2013, but was unable to begin manufacturing activities until July 1, 2013, because
new factory facilities were not completed until that date.
The Land and Building account reported the following items during 2013.
January 31
February 28
May 1
May 1
June 1
June 1
June 1
June 30
July 1
December 31
Land and building
Cost of removal of building
Partial payment of new construction
Legal fees paid
Second payment on new construction
Insurance premium
Special tax assessment
General expenses
Final payment on new construction
Asset write-up
December 31
December 31, 2013
Depreciation-2013 at 1%
Account balance
$160,000
9,800
60,000
3,770
40,000
2,280
4,000
36,300
30,000
53,800
399,950
4,000
$395,950
The following additional information is to be considered.
1.
2.
3.
To acquire land and building the company paid $80,000 cash and 800 shares of its 8% cumulative preferred stock, par
value $100 per share. Fair market value of the stock is $117 per share.
Cost of removal of old buildings amounted to $9,800, and the demolition company retained all materials of the building.
Legal fees covered the following.
Cost of organization
Examination of title covering purchase of land
Legal work in connection with construction contract
4.
5.
6.
Insurance premium covered the building for a 2-year term beginning May 1, 2013.
The special tax assessment covered street improvements that are permanent in nature.
General expenses covered the following for the period from January 2, 2013, to June 30, 2013.
President's salary
Plant superintendent covering supervision of new building
7.
8.
$ 610
1,300
1,860
$3,770
$32,100
4,200
$36,300
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.
Estimated life of building - 50 years.
Depreciation for 2013 - 1% of asset value (1% of $400,000, or $4,000).
Prepare entries to reflect correct land, building, and depreciation accounts at December 31, 2013. (Round amount for
accumulated depreciation to 0 decimal places, e.g. 2,530. List multiple debit/credit entries from largest to smallest
amount, e.g. 10, 5, 2.)
Description/Account
Debit
Credit
Land
Additional paid-in capital
Description/Account
Land (Schedule A)
Building (Schedule B)
Retained earnings
Salary expense
Prepaid insurance (16 months × $95)
Organization expense
Insurance expense (6 months × $95)
Land and building
Additional paid-in capital (800 shares × $17)
Land and building
Depreciation expense
Accumulated depreciation-Building
Schedule A
Amount consists of:
Acquisition cost [$80,000 + (800 × $117)]
Removal of old building
Legal fees (Examination of title)
Special tax assessment
Total
Schedule B
Amount consists of:
Legal fees (Construction contract)
Construction costs (First payment)
Construction costs (Second payment)
Insurance (2 months)
[(2,280 ÷ 24) = $95 × 2 = $190]
Plant superintendent's salary
Construction costs (Final payment)
Total
Schedule C
Depreciation taken
Depreciation that should be taken
(1% × $136,250)
Depreciation adjustment
Debit
188,700
136,250
53,800
32,100
1,520
610
570
Credit
399,950
13,600
4,000
2,637
1,363
$173,600
9,800
1,300
4,000
$188,700
$ 1,860
60,000
40,000
190
4,200
30,000
$136,250
$4,000
(1,363)
$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
$