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Solved by verified expert :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

Woodsand Moonwere
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.

FIFO

LIFO

Weighted Average

Goods
available for sale

\$

\$

\$

Ending
inventory, March 31

Cost of
goods sold

3. 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 following.
·
Purchases on account: 500 units @\$4 = \$2,000
·
Sales on account: 300 of the above units = \$2,550
·
Returns on account: 75 of the above unsold units
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 prepared on the computer
printout.
b. Calculate the
balance in the firm’s Inventory account.
c. Briefly explain the absence of the Purchases account to
the company president.

4.Inventory valuation methods:
computations and concepts. Wave Riders Surfboard Company
began business on January 1 of the current year. Purchases of surfboards were
as follows:

1/3:

Purchase
100 boards @\$125

3/17:

Sold 50
boards @ \$130

5/9:

5/9: 246
boards @140

7/3:

400
boards @ \$150

10/23:

74
boards @\$160

Wave Riders sold 710 boards at an
average price of \$250 per board. The company uses a periodic 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?
(3)
report low earnings (for tax purposes) for a separate electronics company that
has been experiencing declining purchase
prices?

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.

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