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.

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, 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.

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:

Wild Riders sold 400 boards at $250 per board on the dates
listed below.  The company 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) 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 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 $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.

Week_Three_Exercise_Assignment_B.docx