Multiple choice
1. D. 2. A
13. A 14.A
3. A.
15.A
4. C 5. A 6. B 7. A 8. D 9. A 10. A 11. D 12.D
16. D 17. C 18. B 19. C 20. D 21. B 22. D 23. C 24. D 25. C
Problem 2 (17 points)
When you undertook the preparation of the financial statements for Vancey Company at August
31, 2012, the following data were available:
At Cost
At Retail
Inventory, January 1, 2012
$70,800
$ 98,500
Purchases
219,500
294,000
Purchases returns and allowances
4,300
5,500
Freight in
700
Add. Markdowns
35,000
Add. Markups
63,000
Add. Markdown cancellations
20,000
Add. Markup cancellations
10,000
Normal spoilage
2,000
Abnormal spoilage
1,000
1,500
Sales
345,000
Employee discount
1,800
Sales returns and allowances
10,000
Instructions
Compute the ending inventory and cost of goods sold as of August 31, 2012, using the retail
method which approximates first-in first-out. Your solution should be in good form with amounts
clearly labeled.
Cost
Retail
Beg Inv
70,800
98,500
Purchases
219,500
294,000
Freight In
700
Purchase R&A
- 4,300
- 5,500
Markup
63,000
Markup cancel
-10,000
Markdown
-35,000
Markdown cancel
2,000
Abnormal spoilage
- 1,500
_________
________
285,700
423,500
Sales
-345,000
Sales returns
10,000
Employee discounts
- 1,800
Normal spoilage
- 2,000
_________
84,700
(Cost: 285,700 – Beg Inv 70,800) / (Retail: 438,500 – Beg Inv 98,500) = 66.12%
Ending Inventory:
84,700 x 66.12% = 56,006
Cost of Goods Sold: 285,700 – 56,006 = 229,694
Problem 3 (25 points)
On January 2, 2012, Indian River Groves began construction of a new citrus processing plant.
The automated plant was finished and ready for use on September 30, 2013. Expenditures for
the construction were as follows:
January 2, 2012
September 1, 2012
December 31, 2012
March 31, 2013
September 30, 2013
$600,000
900,000
900,000
900,000
600,000
Indian River Groves borrowed $1,650,000 on a construction loan at 12% interest on January 2,
2012. This loan was outstanding during the construction period. The first payment includes
$200,000 for land purchase. The company also had $6,000,000 in 9% bonds outstanding in
2012 and 2013. The bonds were issued on January 2, 2010. The company’s fiscal year ends
on December 31.
a.
Determine the interest capitalized for 2012
600,000 x 12/12 =
900,000 x 4/12 =
900,000 x 0/12 =
______
2,400,000
b.
600,000
300,000
0
______
900,000 x 12% = 108,000
Report the journal entry that Indian River would have reported on December 31, 2012 for
the interest payment.
1,650,000 x 12% =
6,000,000 x 9% =
Total
CIP
Interest Expense
Cash
198,000
540,000
738,000
108,000
630,000
738,000
2
c.
Determine the interest capitalized for 2013
2,508,000 x 9/12 =
900 x 6/12 =
600 x 0/12 =
Total
1,881,000
450,000
0
2,331,000
1,650,000 x 12% =
681,000 x 9% =
2,331,000
198,000
61,290
259,290
Interest capitalized = $259,290
d.
Report the journal entry that Indian River would have reported on September 30, 2013 to
recognize the capitalized interest.
CIP
259,290
Interest Expense
e.
259,290
Provide a partial balance sheet related to this asset on December 31, 2013. Assume that
Indian River depreciates the building over 25 years, zero salvage and uses straight line
method
Land
Plant
A/D
200,000
4,067,290 (3,900 + 108 + 259.290 – 200)
( 40,673) (4,067,290 x 3/12 x 1/25)
_________
Total
4,226,617
3
Problem 4. (8 points)
On August 1, Arna, Inc. exchanged productive assets with Bontemps, Inc. Arna’s asset is
referred to as “Asset A” and Bontemps’ is referred to as “Asset B”. The following facts pertain to
these assets.
Original cost
Accumulated depreciation (to date of exchange)
Fair market value at date of exchange
Cash paid by Arna, Inc
Cash received by Bontemps, Inc.
Asset A
$ 106,000
45,000
60,000
15,000
Asset B
$140,000
82,000
75,000
15,000
Tthe asset exchange has no commercial substance. Prepare the appropriate journal entries to
record the exchange for both Arna, Inc., and Bontemps, Inc., in accordance with generally
accepted accounting principles.
Arna journal entry
Equipment
A/D
Loss
Equipment
Cash
75,000 (new)
45,000 (old)
1,000
106,000 (old)
15,000
Bontemps journal entry
Equip received 60 + cash received 15 - equip given 140 + related AD 82 = 17 gain
Cash 15 / (equip 60 + cash 15) = 20% of value received in cash
Cash
Equipment
A/D
Gain
Equipment
15,000
46,400 (new) (60 – 17 x 80%)
82,000 (old)
3,400 (17 x 20%)
140,000 (old)
4