Case #1 INVENTORY The Clayton Music Company was formed on December 1, 2010. The following information is available from Clayton's inventory records: Balance at January 1, 2011 ................ Purchases: January 17, 2011 .......................... March 12, 2011 ............................ June 23, 2011 ............................. November 15, 2011 .........................
Units
Unit Cost
4,800
$14.25
9,000 7,200 3,600 5,400
15.00 16.50 15.75 17.25
The company uses a periodic inventory system, and a physical inventory on November 30, 2011, shows 9,600 units on hand. Prepare schedules to compute the ending inventory at November 30, 2011, under each of the following inventory methods: (1) (2) (3)
FIFO. LIFO. Average cost.
ANS: (1) Computation of inventory under FIFO method November 15, 2011 ............. June 23, 2011 ................. March 12, 2011 ................
Units
Unit Cost
Total Cost
5,400 3,600 600 9,600
$17.25 15.75 16.50
$ 93,150 56,700 9,900 $159,750
Units
Unit Cost
Total Cost
4,800 4,800 9,600
$14.25 15.00
$ 68,400 72,000 $140,400
(2) Computation of inventory under LIFO method January 1, 2011 ............... January 17, 2011 ..............
(3) Computation of inventory under the average cost method Units January 1, 2011 ............... January 17, 2011 .............. March 12, 2011 ................ June 23, 2011 ................. November 15, 2011 .............
4,800 9,000 7,200 3,600 5,400 30,000
Average Cost: $472,050/30,000 = $15.735 November 30, 2011, inventory: 9,600 units @ $15.735 = $151,056
Unit Cost
Total Cost
$14.25 15.00 16.50 15.75 17.25
$ 68,400 135,000 118,800 56,700 93,150 $472,050
Case #2 PERPETUAL The following information was available from the inventory records of the Brooks Company for January 2011: Units Balance at January 1, 2011 ...... Purchases: January 6, 2011 ............... January 26, 2011 .............. Sales: January 7, 2011 ............... January 31, 2011 .............. Balance at January 31, 2011 .....
Unit Cost
Total Cost
3,000
$19.55
$ 58,650
2,250 10,200
20.60 21.50
46,350 219,300
2,700 7,200 5,550
(1)
Assuming that Brooks maintains perpetual inventory records, what should be the inventory at January 31, 2011, using the FIFO inventory method, rounded to the nearest dollar?
(2)
Assuming that Brooks maintains perpetual inventory records, what should be the inventory at January 31, 2011, using the LIFO inventory method, rounded to the nearest dollar?
(3)
Assuming that Brooks does not maintain perpetual inventory records, what should be the inventory at January 31, 2011, using the average cost inventory method, rounded to the nearest dollar?
ANS: (1) Computation of ending inventory using perpetual FIFO method: January 31, 2011 ................
Units
Unit Cost
Total Cost
5,550
$21.50
$119,325.00
(2) Computation of ending inventory using perpetual LIFO method: Beginning Inventory ............. January 26, 2011 ................
Units
Unit Cost
Total Cost
2,550 3,000 5,550
$19.55 21.50
$ 49,852.50 64,500.00 $114,352.50
(3) Computation of inventory under the average cost method: Units
Unit Cost
Total Cost
3,000 2,250 10,200 15,450
@ $19.55 = @ 20.60 = @ 21.50 =
$ 58,650 46,350 219,300 $324,300
$324,300/15,450 = $ 20.99 5,550 $20.99 = $116,495 (rounded)
Case #3
Alpha Construction acquired the following plant assets on January 5, 2009: Asset Cost Residual Value Useful Life Office equipment $175,000 $15,000 5 years Building $300,000 $20,000 25 years Alpha Construction uses the double declining balance method to depreciate the office equipment & the straight-line method to depreciate the building. Required: 1. Calculate depreciation for 2009 & 2010 for each of the assets. a. Office equipment
b. Building
2. Assume the building was sold at the end of 2009 for $210,000. Determine whether the company will realize any gain or loss from the sale. How would the sale be reported in the statement of cash flow?
3. Your colleague was wondering why we need to depreciate our long-term assets.
Case #4. Two independent parts A. Dubai Jewelry reported the following items in its financial statements. Determine the amount of net income. Then calculate the ending balance for retained earnings. Sales Accounts receivables Cost of goods sold Marketing expenses Gain from sale of equipment Salaries payables Unearned revenues Dividends Administrative Expenses Prepaid insurance Beginning retained earnings
B. Indicate which financial statement would report the following information items. Your choices are as follows: I/S = Income Statement. B/S = Balance Sheet Item Interest Expense Unearned Revenue Equipment Prepaid Insurance Sales Revenue Gain on sale of a fixed asset Salaries Expense Accumulated Depreciation Salaries Payable Bonds Payable Cost of goods sold
Statement
$450,000 $85,000 $158,000 $35,000 $12,000 $11,500 $35,000 $15,000 $60,000 $8,000 $35,500
Case #5 Equity transactions. Sands Corporation has the following capital structure at the beginning of the year: 6% Preferred stock, $50 par value, 20,000 shares authorized, 6,000 shares issued and outstanding Common stock, $10 par value, 60,000 shares authorized, 40,000 shares issued and outstanding Paid-in capital in excess of par
$
300,000 400,000 110,000
Total paid-in capital Retained earnings Total stockholders' equity
810,000 440,000 $1,250,000
Instructions (a) Record the following transactions which occurred consecutively (show all calculations). 1. A total cash dividend of $90,000 was declared and payable to stockholders of record. Record dividends payable on common and preferred stock in separate accounts. 2. A 10% common stock dividend was declared. The average market value of the common stock is $18 a share. 3. Assume that net income for the year was $150,000 (record the closing entry) and the board of directors appropriated $70,000 of retained earnings for plant expansion. (b) Construct the stockholders' equity section incorporating all the above information. Sol: (a) 1. Retained Earnings ................................................................. Dividends Payable—Preferred ($300,000 × .06).......... Dividends Payable—Common ..................................... 2.
90,000 18,000 72,000
40,000 shares 10% 4,000 shares as stock dividend $18 $72,000 total dividend Retained Earnings ................................................................. Common Stock Dividend Distributable........................ Paid-in Capital in Excess of Par..................................
72,000
3. Income Summary ................................................................... Retained Earnings ......................................................
150,000
Retained Earnings ................................................................. Retained Earnings Appropriated for Plant Expansion .
70,000
40,000 32,000
150,000
(b) Stockholders' equity 6% Preferred stock, $50 par value, 20,000 shares authorized, 6,000 shares issued and outstanding Common stock, $10 par value, 60,000 shares authorized, 40,000 shares issued and outstanding Common stock dividend distributable Paid-in capital in excess of par Total paid-in capital Retained earnings—unappropriated* $358,000 Appropriated for plant expansion 70,000
70,000
$ 300,000 400,000 40,000 142,000 882,000
Total retained earnings Total stockholders' equity *$440,000 – $90,000 – $72,000 + $150,000 – $70,000 = $358,000
428,000 $1,310,000
