Doran Chan
Spring I '06
E10-8
AMA202.0038
Prof. Angela Wu
1 of 2
6/6/2006
On December 31, 2003, Alma-Ata Inc. borrowed 3,000,000 at 12% payable annually to finance the construction of a new building
2004, the company made the following expenditures related to this building: March 1, $360,000; June 1, $600,000; July 1, $1,500
December 1, $1,5000,000. Additional information is provided as follows.
1. Other debt outstanding.
10-year, 13% bond, December 31, 1997, interest paybable annually
6-year, 10% note, dated December 31, 2001, interest payable annually
2. March 1, 2004, expenditure inculded land costs of $150,000
3. Interest revenue earned in 20045
$4,000,000
$1,600,000
$49,000
Instructions:
(a)
Determine the amount of interest to be capitalized in 2004 in relation to the construction of the building.
(b)
Prepare the journal entry to record the capitalization of interest and the recognition of interest expense, if any, at December 31,
2004
(a)
Date
1-Mar
1-Jun
1-Jul
1-Dec
Amount
360,000
600,000
1,500,000
1,500,000
3,960,000
(b)
Actual Interest
Avoidable Interest
Interest Expense
x
x
x
x
x
C. Period
10/12
7/12
6/12
1/12
=
=
=
=
=
WAAE
300,000
350,000
750,000
125,000
1,525,000 x
WAAE x
12%
Rate
=
=
183,000
Avoidable Interest
1,040,000
183,000
857,000
Date
Entry
31-Dec Building
Interest Expense
Cash
Debit
183,000
857,000
Credit
1,040,000
360,000 =
520,000 =
160,000 =
1,040,000
Actual Interest
12%
13%
10%
x
x
x
Doran Chan
Spring I '06
AMA202.0038
Prof. Angela Wu
g. In
0,000;
3,000,000
4,000,000
1,600,000
2 of 2
6/6/2006
Doran Chan
Spring I '06
AMA202.0038
Prof. Angela Wu
1 of 1
6/6/2006
E10-11
Jane Geddes Engineering Corporation purchased conveyor equipment with a list price of $10,000. The vendor's credit terms were
2/10, n/30. Presented below are three independent cases related to the equipment. Assume that the purchases of equipment are
recorded gross. (Round to nearest dollar.)
(a)
(b)
Geddes paid cash for the quipment 8 days after the purchase.
Geddes traded in equipment with a book value of $2,000 (initial cost $8,000), and paid $9,500 in cash one month after the purchase.
The old equipment could have been sold for $400 at the date of trade (assume similar equipment).
Geddes gave the vendor a $10,800 non-interest-bearing note for the equipment on the date of purchase. The note was due in one
year and was paid on time. Assume that the effective interest rate in the market was 9%.
(c)
Instruciton: Prepare the general journal entries required to record the acquisition and payment in each of the independent cases above. Round
to the nearest dollar.
Description
Date
(a)
Equipment
Accounts Payable
Accounts Payable
Equipment
Cash
(b)
(c)
Debit
Credit
10000
10000
10000
200
9800
Equipment
Loss on Disposal of Equipment
Accumulated Depreciation
Accounts Payable
Equipment
9900
1600
6000
Accounts Payable
Cash
9500
Equipment
Discount on Note Payable
Note Payable
9908
892
Interest Expense
Note Payable
Discount on Note Payable
Cash
<<< 9,500 + 400 = 9,900
<<<<<<< Cost
Accumulated Depreciation
9500
Book Value
8000
Market Value
Loss
9500
<<< 10,800 x .91743 = 9,908
<<< 10,800 - 9,908 = 10,800
10800
892
10800
892
10800
8000
6000
2000
400
1600
Doran Chan
Spring I '06
E10-17
AMA202.0038
Prof. Angela Wu
1 of 1
6/6/2006
Busytown Corporation, which manufactures shoes, hired a recent college graduate to work in its accounting department. On the first
day of work, the accountant was assigned to a totals batch of invoices with the use of an adding machine. Before long, the
accountant, who had never before seen such a machine, mangaed to break the machine. Busytown Corporation gave the machine
plus $340 to Dick Tracy Business Machine Company (dealer) in exhange for a new machine. Assume the following information
about the machines.
Dick Tracy
Busytown
Business Machine
Corporation
Company
290
270
Machine Cost
140
0
Accumulated Depreciation
85
425
Fair Value
Instructions:
For each company, prepare the necessary journal entry to record the exchange.
Machine
- Accumulated Depreciation
Busytown Corporation
General Journal
Date
Date
Description
Machine
Accumulted Depreciation
Loss on Disposal of Machine
Machine
Cash
Debit
290
140
Credit
425
140
65
<<< 340 + 85 = 425
<<<<<<<
290
340
Dick Tracy Business Machine Company
General Journal
Description
Debit
Credit
Cash
340
Inventory
85
Cost of Goods Sold
270
Sales
425
Inventory
270
B.V. of Old Machine
M.V. of Old Machine
Loss
150
85
65
Doran Chan
Spring I '06
E10-23
AMA202.0038
Prof. Angela Wu
1 of 1
6/6/2006
Plant assets often require expenditures subsequent to acquisition. It is important that they be accounted for properly. Any errors
will affect both the balance sheets and income statements for a number of years.
Instructions:
For each of the following items, indicate whether the expenditure should be capitalized (C) or expensed (E) in the period incurred.
(a)
C
Improvement.
(b)
E
Replacement of a minor broken part on a machine.
(c)
C
Expenditure that increases the useful life of an existing assest.
(d)
C
Expenditure that increases the efficiency and effectiveness of a productive assest but does not increase its salvage value.
(e)
C
Expenditure that increases the efficiency and effectiveness of a productive assest but increases the asset's salvage value.
(f)
C
Expenditure that increases the quality of the output of the productive assest.
(g)
C
Improvement to a machine that increased its fair market value and its production capacity by 30% without extending the
C
machine's useful life.
(h)
E
Ordinary repairs.
(i)
E
Interest on borrowing necessary to finance a major overhaul of machinery. The overhaul extended the life of the machinery.
Doran Chan
Spring I '06
AMA202.0035
Prof. Angela Wu
E11-3
1 of 1
6/6/2006
Judds Company purchased a new plant asset on April 1, 2004, at a cost of $711,000. It
was estimated to have a service life of 20 years and a salvage value of $60,000. Judds'
accounting period is the calendar year.
Instructions:
(a)
Compute the depreciation for this asset for 2004 and 2005 using the sum-of-the-years'
digits method.
(b)
Compute the depreciation for this asset for 2004 and 2005 using the double-declining
balance method.
(a)
x
x
x
(b)
3/4
10%
20 (20+1)
2
3/4
2/21
1/14
x
1/4
2/21
1/42
3/4
19/210
19/280
210
-
x
x
711,000
60,000
651,000
=
711,000
60,000
651,000
=
711,000
60,000
651,000
=
$
46,500 for 2004
$
15,500
↓
+
↓
44,175
59,675 for 2005
100
20
5
x
2
=
x
x
10%
711,000
x
-
711,000
53,325
=
=
10
$53,325.00 for 2004
$65,767.50 for 2005
Doran Chan
Spring I '06
E11-4
AMA202.0035
Prof. Angela Wu
1 of 1
6/6/2006
Jon Seceda Furnace Corp. purchased machinery for $315,000 on May 1, 2004, at cost of $711,000. it was estimated to have
service life of 20 years and a salvage value of $60,000. Judds' accounting period is the calendar year.
Instructions
From the information given, copute the depreciation charge for 2005 under each of the following methods.
(a)
Straight-line
(b)
Units of output
(c)
Working hours.
(d)
Sum of the years's digits.
(e)
Declining balance
(a)
(b)
(c)
(d)
315,000
300,000
300,000
10(10!+1)
2
10
55
/
/
15000
240,000
25,000
=
=
=
300,000
1.25
12
/
x
x
10
25,500
2,650
=
=
=
$30,000
$31,875
$31,800
55
x
300,000
x
1/3
=
18,182
+
9
55
x
300,000
x
2/3
=
32,727
50,909
(e)
315,000
-
315,000
-
315,000
20%
x
x
20%
20%
x
x
1/3
2/3
=
=
21,000
33,600
54,600
Doran Chan
Spring I '06
E11-11
AMA202.0035
Prof. Angela Wu
1 of 1
6/6/2006
Machinery purchased for $60,000 by Joe Montana Co. in 2000was originally estimated
to have a life of 8 years with a salvage value of $4,000 at the end of that time.
Depreciation has been entered for 5 years with a salvage value of $4,000 at the end of
that time. Depreciation has been entered for 5 years on this basis. In 2005, it is
determined that the total estimated life should be 10 years with salvage value of $4,500
at the end of that time. assume the stright line depreciation.
Instructions
(a)
Prepare the entry to correct the prior years' depreciation, if necessary.
(b)
Prepare the entry to record depreciation for 2005.
(a)
(b)
Not necessary.
60,000
-
7,000
x
5
=
-
Description
Depreciation Expense
Accumulated Depreciation
Debit
Credit
4,100
4,100
25,000 Book V.
4,500 Salv. V.
20,500
÷
5 No. of Yrs.
4,100
Doran Chan
Spring I '06
AMA202.0035
Prof. Angela Wu
E11-19
1 of 1
6/6/2006
Stanislaw Timber Company owns 9,000 acres of timberland purchased in 1993 at a cost
of $1,400 per acre. At the time of purchase the land without the timber was valued at
$400 per acre. In 1994, Stanislaw bult firelands and roads, with a life of 90 years, at a
cost of $84,000. Every year Stanislaw spreays to prevent diesease at a cost of $3,000
per year and spends $7,000 to maintain the fire lanes and roads. During 1995,
Stanislaw slectively logged and sold 700,000 board feet of timber, of the estimated
3,500,000 board feet. In 1996, Stanislaw planted new seedling to replace the tress cut
at a cost of $100,000.
Instructions
(a)
Determine the depreciation expense and the cost of timber sold related to the depletion
for 1995.
(b)
Stanislaw has not logged since 1995. If stanislaw logged and sold 900,000 board feet of
timber in 2006, when the timber cruise estimated 5,000,000 board feet, dtermine the cost of timber
sold related to depletion for 2006.
(a)
$84,000
30
=
$2,800
(b)
per acre
1400
-
land value
400
=
=
Cost of Timber Sold
1000
x
x
acres
9000
=
=
Timber Value
9000000
Timber Value
Est. Board Feet
x
Sold Board Feet
=
Land Value
9000000
3500000
x
700000
=
1800000
Timber Value
9000000
-
Land Value
1800000
=
=
Cost of Timber Sold
7200000
+
+
Replacement Cost
100000
=
=
Cost of Timber Sold
1000
depreciation expense per year
Est. Board Feet
Timber Value
Depletion
Cost of Timber Sold
7200000
7300000
÷
5,000,000
1.46
x
900000
1314000
Doran Chan
Spring I '06
E11-22
AMA202.0035
Prof. Angela Wu
1 of 1
6/6/2006
Alcide Mining Company purchased land on February 1, 2004, at a cost of $1,190,000. It
estimated that a total fo 60,000 tons of mineral was available for mining. After it has
removed all the natureal resrouces, the company will be required to restore the property
to its previous state because of strict environmental protection laws. It estimtes the cost
of his restoration at $90,000. It belives it will be able to sell the preperty afterwards for
$100,000. It incurred developmental costs of $200,000 before it was able to sell the
property afterwards for $100,000. It incurred developmental cost of $200,000 before it
was able to do any mining. In 2004 resources removed totaled 30,000 tons. The
company sold 22,000 tons.
Instructions
Compute the follow information for 2004.
(a)
Per unit material cost.
(b)
Total material cost of December 31, 2004, inventory.
(c)
Total material cost in cost of goods sold at December 31, 2004.
(a)
1,190,000
1,380,000
+
÷
90,000
60,000
=
(b)
Per ton
$23
x
x
Inv.
8000
=
=
(c)
Per ton
$23
x
x
# Ton Sold
22,000
=
=
100,000
+
$23 Per ton
Inventory Value
$184,000
COGS
$506,000
200,000
=
1,380,000
Doran Chan
Spring I '06
E12-1
AMA202.0035
Prof. Angela Wu
1 of 1
6/6/2006
Presented below is a list of items that could be included in the intangible assets section
of the balance sheet.
Instructions
(a)
Indicate which items on the list above would generally be reported as intangible assets in the balance sheet.
(b)
Indicate how, if at all, the items not reportable as intanglibe assets would be reported in the financial statements.
1. Investment in a subsidiary company.
……………………………………………………………….
2. Timberland.
…………………………………………………………………………………………
3. Cost of engineering activity required to advance the design of a profuct to the manufacturing stage.
4. Lease prepayment (6 months' rent paid in advance). ………………………………………………….
5. Cost of equipment obtained. ……………………………………………………………………………
6. Cost of searching for appplications of new research findings.
…………………………………….
7. Costs incurred in the formation of a corporation.
………………………………………………….
8. Operating losses incurred in the start-up of a business.
…………………………………….
9. Training costs incurred in start-up of new operation. ………………………………………………….
10. Purchase cost of a franchise.
……………………………………………………………….
11. Goodwill generated internally.
……………………………………………………………….
12. Cost of testing in search for product alternatives.
………………………………………………….
13. Goodwill acquired in the purchase of a business.
………………………………………………….
14. Cost of developing a patent. ……………………………………………………………………………
15. Cost of purchasing a patent from an inventor.
………………………………………………….
16. Legal costs incurred in securing a patent.
………………………………………………….
17. Unrecovered costs of a successful legal suit to protect the patent.
……………………….
18. Cost of cenceptual formulation of possible product alternatives.
……………………….
19. Cost of purchasing a copyright.
……………………………………………………………….
20. Research and development costs.
……………………………………………………………….
21. Long-term receivables.
……………………………………………………………………………
22. Cost of developing a trademark.
……………………………………………………………….
23. Cost of purchasing a trademark.
……………………………………………………………….
LT Investment in Balance Sheet
PPE in Balance Sheet
R&D Expense in Income Statement
Prepaid Rent in Balance Sheet
PPE in Balance Sheet
R&D Expense in Income Statement
Organization Fees in Income Statement
Operating Loss in Income Statement
Training Expense in Income Statement
Intangible Assets in Balance Sheet
No Recording
R&D Expense in Income Statement
Intangible Assets in Balance Sheet
R&D Expense in Income Statement
Intangible Assets in Balance Sheet
Intangible Assets in Balance Sheet
Intangible Assets in Balance Sheet
R&D Expense in Income Statement
Intangible Assets in Balance Sheet
R&D Expense in Income Statement
LT Investment in Balance Sheet
Expense in Income Statement
Intangible Assets in Balance Sheet
Doran Chan
Spring I '06
E12-6
1/2/2004
4/1/2004
7/1/2004
8/1/2004
9/1/2004
AMA202.0035
Prof. Angela Wu
1 of 1
6/6/2006
Rolanda Marshall Company, organized in 2003, has set up a single account for all
intangible assets. The following summary discloses the debit entries that have been
recorded during 2004.
Purchased patent (8-year life)
Purchased goodwill (indefinite life)
Purchased franchise with 10-year life; expiration date 7/1/14
Payment of copyright (5-year life)
Research and development costs
350,000
360,000
450,000
156,000
215,000
1,531,000
Instructions
Prepare the necessary entries to clear the Intangible Assets account and to set up separate
accounts for distinct tupes of intangibles. Make the entries as of December 31, 2004, recording
any necessary amortization and reflecting all balances accurately as of that date (straight-line
amortization)
Date
Journal Entry
31-Dec-05 Patents
Goodwill
Franchise
Copyright
Research and development expense
Intangible Assets
Debit
Credit
350,000
360,000
450,000
156,000
215,000
1,531,000
31-Dec Amortization Expense
Patents
Franchise
Copyright
350,000
360,000
450,000
156,000
-
43,750
0
22,500
13,000
43,750 -> 350,000/8
22,500 -> (450,000/10)(1/2)
13,000 -> (156,000/5)(5/12)
=
=
=
=
306,250
360,000
427,500
143,000
Patents
Goodwill
Franchise
Copyright
Intangible Asset Balance
Doran Chan
Spring I '06
E12-8
AMA202.0035
Prof. Angela Wu
1 of 1
6/6/2006
Horace Greeley Corporation was organized in 2002 and began operations at the
beginning of 2003. The company is involved in interior desing consulting services. The
following costs were incurred prior to the start of operations.
Attorney's fees in connection with organization fo the company
Purchase of drafting and design equipment
Costs of meetings of incorporators to discuss organizational activities
State filing fees to incorporate
15,000
10,000
7,000
1,000
33,000
Instructions
(a)
Compute the total amount of organization costs incurred by Greeley.
(b)
Prepare the jornal entry to record organization costs for 2003.
(a)
Attorney's fees in connection with organization fo the company
Costs of meetings of incorporators to discuss organizational activities
State filing fees to incorporate
Total Organization Expense
(b)
Journal Entry
Organization Expense
Cash
Debit
Credit
23,000
23,000
15,000
7,000
1,000
23,000
Doran Chan
Spring I '06
E12-11
AMA202.0035
Prof. Angela Wu
1 of 2
6/6/2006
During 200, George Winston Corporation spent $170,000 in research and development
costs. As a result, a new product develop called the New Age Piano was patented. The
patent of $18,000 related to the patent were incurred as of October 1, 2000.
Instructions
(a)
Prepare all journal entries required in 2000 and 2001 as a result of the transactions
above.
(b)
On June 1, 2002, Winston spent $9,480 to successfully prosecute a patent infringement.
As a result, the estimate of useful life was exteneded to 12 years from June 1, 2002. Prepare all
journal entries required in 2002 and 2003.
(c)
In 2004, Winston determined that a competitor's product would make the New Age
Piano obolete and the patent worthless by December 31, 2005. Prepare all journal entries required
in 2004 and 2005.
(a)
Date
Journal Entry
12/31/00 R&D Expense
Cash
12/31/00 Patents
Debit
170,000
170,000
18,000
Cash
(b)
Credit
18,000
12/31/00 Patent Amortization Expense
Patents
450
12/31/01 Patent Amortization Expense
Patents
1,800
12/31/02 Patents
9,480
Cash
450 -> (18,000/10)x1/4
1,800 -> (18,000/10)
9,480
12/31/02 Patent Amortization Expense
Patents
1,940 ----------------> (((18,000/10)x5/12)
1,940 /1,190)+((18,000
-450-1,800-750+
9,480)x7/12)
12/31/02 Patent Amortization Expense
Patents
2,040 ----------------> (18,000-450-1,8002,040
750+9,480)/12
04&'05
Patent Amortization Expense
Patents
10,625 ----------------> (((18,000-450
10,625 -1,800-750+9,480)1,190-2,040)/2)
Doran Chan
Spring I '06
AMA202.0035
Prof. Angela Wu
2 of 2
6/6/2006
Doran Chan
Spring I '06
AMA202.0035
Prof. Angela Wu
1 of 1
6/6/2006
E12-12
Fred Moss, owner of Moss Interiors, is negotiating for the purchase of Zweifel Galleries.
The balance sheet of Zweifel is given in an abbreviated form below.
Assets
Cash
Land
Building (net)
Equipment (net)
Copyright (net)
Total assets
100,000
70,000
200,000
175,000
30,000
575,000
Zweifel Galleries
Balance Sheet
As of December 31, 2004
Liabilities and Stockholder's Equity
Accounts payable
Long-term notes payable
Total liabilities
Common stock
Retained earnings
Total liabilities and stockholder's equity
Moss and Zweifel agree that
1. Land in undervalued by $30,000.
2. Equipment is overvalued by $5,000.
Instructions
Prepare the entry to record the purchase of Zweifel Galleries on Moss's books.
Net asset
Adj. to Fair Value
Increase in land Value
Decrease in equipment Value
Net assets at Fair Value
Selling Price
Total Goodwill
225,000
30,000
-5,000
Date
Journal Entry
1/2/2005 Cash
Land
Building
Equipment
Copyright
Goodwill
Accounts payable
Long-term notes payable
Cash
25,000
250,000
350,000
100,000
Debit
100,000
100000
200000
170000
30000
100000
Credit
50000
300000
350,000
50000
300000
350000
200000
25000
225000
575000
Doran Chan
Spring I '06
AMA202.0035
Prof. Angela Wu
1 of 1
6/6/2006
E12-15
Presented below is net asset information related to the Carlos Division of Santana, Inc.
Carlos Division
Net Assets
As of December 31, 2004
Cash
Recieveables
Property, Plant, and Equipment (net)
Goodwill
Less: Notes Payable
Net assets
50
200
2,600
200
-2,700
350
The purpose of the Carlos division is to develop a nuclear-powered aircraft. If successful, traveling
delays associated with refueling coulb be substantially reduced. Many other benefits would also
occur. To date, management has not had much success and is deciding whether a write-down at this
time is appropriate. Management estimated its future net cash flows from the project to be $400
million. Management has also recieve an offer to purchase the divion for $335 million. All identifiable
assets' and liabilitis' book and fair value amounts are the same.
Instructions
(a) Prepare the journal entry (if any) to record the impairment at December 31, 2004.
(b) At Devemer 31, 2005, it is estimated that the division's fair value increased to #345 million.
Prepare the journal entry (if any) to record this increase in fair value.
(a)
Fair Value of division
Net Goodwill
Implied value of Goodwill
Carrying value of Goodwill
Loss on Impairment
Date
Journal Entry
12/31/04 Loss on Impairment
Goodwill
(b)
No entry, denied from SFAS 142
335,000,000
150,000,000 <- Cash - Recievables
185,000,000
-200,000,000
-15,000,000
Debit
Credit
15,000,000
15,000,000
Doran Chan
Spring I '06
E12-17
AMA202.0035
Prof. Angela Wu
1 of 1
6/6/2006
Thomas More Company incurred the following costs during 2003 in connection with its
research and development activities.
Cost of equipment acquired that will have alternative uses in future research
and development projects over the next 5 years (uses straight-line depreciation)
Materials consumed in research and development projects
Consulting fees paid to outsiders for research and development projects
Personnel costs of persons involved in research and development projects
Indirect costs reasonably allocable to research and development projects
Materials purchased for future research and development projects
280,000
59,000
100,000
128,000
50,000
34,000
Instructions
Compute the amount to be reported as research and development expense by More on its income
statement for 2003. Assume equipment is purchased at beginning of year.
(280,000/5)=56,000
Cost of equipment acquired that will have alternative uses in future research
and development projects over the next 5 years (uses straight-line depreciation)
Materials consumed in research and development projects
Consulting fees paid to outsiders for research and development projects
Personnel costs of persons involved in research and development projects
Indirect costs reasonably allocable to research and development projects
56,000
59,000
100,000
128,000
50,000
393,000
Doran Chan
Spring I ’06
AMA202.0038
Prof. Angela Wu
1 of 1
6/6/2006
E8-1 Presented below is a list of items that may or may not be reported as inventory in a
company’s December 31 balance sheet.
Yes
1. Goods out on consignment at another company’s store.
No
2. Goods sold on an installment basis (bad debts can be reasonably estimated).
Yes
3. Goods purchased f.o.b. shipping point that are in transit at December 31.
No
4. Goods purchased f.o.b. destination that are in transit at December 31.
Yes
5. Goods sold to another company, for which our company has signed an
agreement to repurchase at a set price that covers all cost related to the inventory.
No
6. Goods sold where large returns are predictable.
No
7. Goods sold f.o.b. shipping point that are in transit at December 31.
Yes
8. Freights charges on good purchased.
No
9. Interest costs incurred for inventories that are routinely manufactured.
No
10. Costs incurred to advertise goods held for resale.
Yes
11. Materials on hand not yet placed into production by a manufacturing firm.
No
12. Office supplies.
Yes
13. Raw materials on which a manufacturing firm has started production, but
which are not completely processed.
Yes
14. Factory supplies.
No
15. Goods held on consignment from another company.
Yes
16. Costs identified with units completed by a manufacturing firm, but no yet
sold.
Yes
17. Goods sold f.o.b. destination that are in transit at December 31.
No
18. Short-term investments in the stocks and bonds that will be resold in the near
future.
Doran Chan
Spring I '06
E8-9
AMA202.0038
Prof. Angela Wu
1 of 2
6/6/2006
The Fong Sai-Yuk Company sells one product. Presented below is the information for
January for the Fong Sai-Yuk Company.
Date
Jan. 1
4
11
13
20
27
Type
Inventory
Sale
Purchase
Sale
Purchase
Sale
Units
100
80
150
120
160
100
Cost per
Unit
$5.00
$8.00
$6.00
$8.75
$7.00
$9.00
Fong Sai-Yuk use the FIFO cost flow assumption. All purchases and sales are on account.
Instructions:
(a)
Assume Fong Sai-Yuk uses a periodic system. Prepare all necessary journal entries,
including the end-of-month closing entry to record the cost of goods sold. A phsycial count
indicates that the ending inventory for January is 110 units.
(b)
Compute the gross profit using the periodic system.
(c)
Assume Fong Sai-Yuk uses a perpetual system. Prepare all necessary jounal entries.
(d)
Compute the gross profit using the perpetual system.
(a)
Date
Jan. 4
11
Journal Entry
Accounts Recieveable
Sales
Purchases
Debit
640
640
900
Accounts Payable
13
20
900
Accounts Recieveable
Sales
1050
Purchases
1120
1050
Accounts Payable
27
31
(b)
Sales
COGS
G Profit
Account Recievable
Sales
Inventory
Cost of Goods Sold
Purchases
Inventory
2590
1750
840
Credit
1120
900
900
770
1750
2020
500
Doran Chan
Spring I '06
(c)
AMA202.0038
Prof. Angela Wu
Date
Jan. 4
11
Journal Entry
Accounts Receivable
Cost of Goods Sold
Sales
Inventory
Inventory
Debit
640
400
20
900
900
Accounts Recieveable
Cost of Goods Sold
Sales
Inventory
1050
700
Inventory
1120
1050
700
Accounts Payable
27
(d)
Sales
COGS
G Profit
Accounts Receivable
Cost of Goods Sold
Sales
Inventory
2590
1750
840
Credit
640
$400
Accounts Payable
13
2 of 2
6/6/2006
1120
900
650
900
650
Doran Chan
Spring I '06
AMA202.0038
Prof. Angela Wu
E8-12
Year
1999
2000
2001
2002
2003
2004
1 of 1
6/6/2006
The net income per books of Linda Patrick Company was determined without knowledge
of the errors indicated.
Net Income
per Books
50,000
52,000
54,000
56,000
58,000
60,000
330,000
Error in Ending Inverntory
Overstated
Overstated
Understated
No error
Understated
Overstated
3,000
9,000
11,000
2,000
8,000
Correct
Amount
47,000
46,000
74,000
45,000
60,000
50,000
322,000
Doran Chan
Spring I '06
E8-26
AMA202.0038
Prof. Angela Wu
1 of 1
6/6/2006
The following information relates to the Jimmy Johnson Company.
Date
31-Dec-00
31-Dec-01
31-Dec-02
31-Dec-03
31-Dec-04
Ending Inventory
End-of-Year Prices
70,000
90,300
95,120
105,600
100,000
Price
Index
100
105
116
120
125
Instructions:
Use the dollar-value LIFO method to compute the ending inventory for Johnson Company for 2000 through 2004.
Date
31-Dec-00
31-Dec-01
Ending Inventory
at Current Prices
70,000
90,300
÷
÷
÷
Price
Index
1.00
1.05
31-Dec-02
95,120
÷
31-Dec-03
105,600
31-Dec-04
100,000
x
x
x
x
Proper
Price
Index
1.00
1.00
1.05
=
=
=
=
70,000
12,000
x
x
1.00
1.05
=
=
88,000
70,000
18,000
x
x
1.00
1.05
=
=
80,000
70,000
10,000
x
x
1.00
1.05
=
=
=
=
=
Ending Inventory
at Base Prices
70,000
86,000
Split Into
Layers
70,000
70,000
16,000
1.16
=
82,000
÷
1.20
=
÷
1.25
=
Ending Inventory at
Dollar-Value LIFO
70,000
70,000
16,800
86,800
70,000
12,600
82,600
70,000
18,900
88,900
70,000
10,500
80,500
Doran Chan
Spring I '06
E9-3
Item
No.
1320
1333
1426
1437
1510
1522
1573
1626
AMA202.0038
Prof. Angela Wu
1 of 1
6/6/2006
Michael Bolton Company follows the pactice of pricing its inventory purposes at December 31, 2005, for each of the inventory
items above.
Quantity
1,200
900
800
1,000
700
500
3,000
1,000
Cost
per Unit
3.20
2.70
4.50
3.60
2.25
3.00
1.80
4.70
Cost to
Replace
3.00
2.30
3.70
3.10
2.00
2.70
1.60
5.20
Estimated
Selling Price
4.50
3.50
5.00
3.20
3.25
3.80
2.50
6.00
Floor
Cost
Cost of Completion
and Disposal
0.35
0.50
0.40
0.25
0.80
0.40
0.75
0.50
Normal
Profit
1.25
0.50
1.00
0.90
0.60
0.50
0.50
1.00
Replacement Cost
Market
GAAP
Lower of Cost
or Market
Ceiling
4.15
3.00
4.60
2.95
2.45
3.40
1.75
5.50
Floor
2.90
2.50
3.60
2.05
1.85
2.90
1.25
4.50
Final Inv.
Value
3,600
2,250
2,960
2,950
1,400
1,450
4,800
4,700
24,110
Ceiling
Doran Chan
Spring I '06
AMA202.0038
Prof. Angela Wu
1 of 1
6/6/2006
E9-4
Coors Company began operations in 2004 and determined its ending inventory at cost
or market at December 31, 2005. This information is presented below.
12/31/2004
12/31/2005
Cost
346,000
410,000
LCM
327,000
395,000
Instructions
(a)
Prepare the joirnal entries required at December 31, 2004, and December 31, 2005,
assuming that the inventroy is recorded at market, and a perpetual inventory system (direct method)
is used.
(b)
Prepare jornal entries require at December 31, 2004, and December 31, 2005, assuming
that the inventory is recorded at cost and an allowance account is adjusted at each year-end under a
perpetual system.
(c)
Which of the two methods above provides the higher net income in each year?
(a)
12/31/04 Inventory Cost
12/31/04 LCM
Allowance to reduce inventory to market
346,000
327,000
19,000
12/31/05 Inventory Cost
12/31/05 LCM
Allowance to reduce inventory to market
410,000
395,000
15,000
Date
12/31/04
12/31/05
(b)
12/31/04
12/31/05
(c)
Entry
Cost of Goods Sold
Inventory
Debit
19,000
Cost of Goods Sold
Inventory
15,000
Loss Due to Market Decline
of Inventory
Allowance to Reduce
Inventory to Market
Allowance to Reduce Inventory
to Market
Loss Due to Market
Decline of Inventory
Credit
19000
15000
19,000
19000
4,000
Both (a) and (b) have the same effect on the net income.
4000
Doran Chan
Spring I '06
E9-12
AMA202.0038
Prof. Angela Wu
1 of 1
6/6/2006
Mark Price Company uses the gross profit method to estimate inventory for monthly
reporting purposes. Presented below is information for the month of May.
Inventory, May 1
Purchases (gross)
Freight-in
Sales
Sales Returns
Purchase Discounts
160,000
640,000
30,000
1,000,000
70,000
12,000
Instructions:
(a)
Compute the estimated inventory at May 31, assuming that the gross profit is 30% of
sales.
(b)
Compute the estimated inventory at May 31, assuming that the gross profit is 30% of
cost.
Inventory, May 1
Purchases (gross)
Freight-in
Purchase Discounts
COGA
COGS
Ending Inventory
Sales
Sales Returns
Net Sales
COGS
Gross Profit
160,000
640,000
30,000
830,000
12,000
818,000
651,000
167,000
1,000,000
70,000
930,000
651,000
1,581,000
Inventory, May 1
Purchases (gross)
Freight-in
160,000
640,000
30,000
830,000
12,000
818,000
Purchase Discounts
COGA
23.08% of the sales.
Sales
Sales Returns
Net Sales
COGS
COGA
COGS
Ending Inventory
1,000,000
70,000
930,000
214644
715,356
818,000
715,356
102,644
Doran Chan
Spring I '05
E9-18
AMA202.0038
Prof. Angela Wu
1 or 1
6/6/2006
Presentted below is information related to Bobby Engram Company.
Beginning Inventory
Purchases (net)
Net markups
Net markdowns
Sales
Cost
58,000
122,000
Retail
100,000
200,000
10,345
26,135
186,000
Instructions:
(a)
Compute the ending inventory at retail.
(b)
Compute a cost-to-retail percentage (reound to two decimals)
under the following conditions.
(1) Excluding both makups and markdowns.
(2) Excluding markups but including markdowns.
(3) Excluding markdowns but including markups.
(4) Including both markdowns and markups.
(c)
Which of the mothods in (b) above (1,2,3,4) does the following?
(1) Provides the most conservative estimate of ending inventory.
(2) Provides an approximation of lower of cost or market.
(3) Is used in the conventional retail method.
(a)
Beginning Inventory
Purchases (net)
Net markups
Goods Available
Net markdowns
Sales
Ending Inventory
(b)
Cost
58,000
122,000
180,000
Retail
100,000
200,000
10,345
310,345
26,135
186,000
98,210
(1)
Goods Available
B.Inv. + Pur.
180,000
60.00%
300,000
(2)
Goods Available
B.Inv. + Pur. - NMDs
180,000
65.73%
273,865
Doran Chan
Spring I '06
E10-1
AMA202.0038
Prof. Angela Wu
1 of 1
6/6/2006
The following expenditures and receipts are related to land, land improvements, and buildings acquired for use in a business
enterprise. The recepts are enclosed in parentheses.
Item
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
Description
Money borrowed to pay buidling contractor (signed a note)
Payment for construction from not proceeds
Cost of land fill and clearing
Delinquent real estate taxes on property assumed by purchaser
Premium on 6-month insurance policy during contruction completed early
Refund of 1-month insurance premium because contrcution completed early
Architect's fee on building
Cost of real estate purchased (land $200,000 and building 50,000)
Commission fee paid to real estate agency
Installation of fenced around proptery
Cost of razing and removing building
Amount
-275,000
275,000
8,000
7,000
6,000
-1,000
22,000
250,000
9,000
4,000
1,000
Expenditure Type
Notes Payable
Building
Land
Land
Land Improvements
Land Improvements
Land Improvements
Land
Land Improvements
Land
Building