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
$11,000
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 inven­tory of the White Company consisted of 300 units costing $40 each. During the first quarter, purchases were:
Date
                    
Quantity
             
Cost
1/15
                     
700
                      
$45
1/31
                     
1200
                    
$48
2/12
                     
800
                      
$46
2/27
                     
650
                      
$51
 
 
Sales during the first quarter were.
Date
                    
Sold
1/19
                     
500
2/2
                       
600
2/13
                     
500
2/28
                     
100
 
 
The White Company uses a perpetual 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 following transactions occurred:
·
       
Purchases on account: 500 units @

$4 =
 
$2,000
·
       
Sales on account: 300 units @ $5 = $1,500
·
       
Purchases on account: 600 units @

$5 =
 
$3,000
·
       
Sales on account: 300 units @ $5 = $1,500
a. Prepare journal entries for the above purchases and sales.
b. Calculate the balance in the firm’s Inventory account.
 
4.
Inventory valuation methods: computations and concepts
. Wave Riders Surfboard Company began business on January 1 of the current year. Below are the transactions for the year
:
1/3:
Purchase 100 boards
 
@

$125
3/17:
Sold 50 boards @ $250
4/3:
Purchase 200 boards
 
@

$135
5/17:
Sold 75 boards @ $250
6/3:
Purchase 100 boards
 
@

$145
1/3:
Purchase 100 boards
 
@

$155
3/17:
Sold 300 boards @ $250
1/3:
Purchase 100 boards
 
@

$140
 
Wave Riders uses a perpetual inventory system.
 
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) approximate the physical flow of a sand and gravel dealer?
 
5.
Depreciation methods.
Betsy Ross Enterprises purchased a delivery van for $30,000 in January 20X7. The van was estimated to have a service life of 5 years and a resid­ual 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 $1,000, 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 20 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.