# Week Three Exercise Assignment_Solution

Question # 00003043 Posted By: ACCOUNTS_GURU Updated on: 10/31/2013 10:58 AM Due on: 12/31/2013
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Question
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.
Painting Cost
1/2 Beginning inventory Woods \$21,000
4/19 Purchase Sunset 21,800
6/7 Purchase Earth 31,200
12/16 Purchase Moon 4,000

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 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.

FIFO LIFO Weighted Average

Goods available for sale \$ \$ \$
Ending inventory, March 31
Cost of goods sold

3. 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
• 1/25/20X3 Sales on Account: 300 units @ \$8.50 = \$2,550
The 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
b. Calculate the balance in the firm’s Inventory account under each method.
c. Briefly explain the absence of the Purchases account to the company president.

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 Quantity Unit Cost Total Cost
1/3 100 \$125 \$12,500
4/3 200 \$135 \$27,000
6/3 100 \$145 \$14,500
7/3 100 \$155 \$15,500
Total 500 \$69,500

Wild Riders sold 400 boards at \$250 per board on the dates listed below. The company uses a perpetual inventory system.

Date Quantity Sold Unit Price Total Sales
3/17 50 \$250 \$12,500
5/17 75 \$250 \$18,750
8/10 275 \$250 \$68,750
Total 400 \$100,000
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) show the lowest net income for tax purposes?

5. Depreciation methods. Mike Davis Enterprises purchased a delivery van for \$40,000 in January 20X7. The van was estimated to have a service life of 5 years and a resid¬ual 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 \$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
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 15 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.
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1. ## Solution: Week Three Exercise Assignment_Solution

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