### Accounting exercise Essay

Inventory

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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
\$21,000
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 Gilette 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. 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
1/25/20X3Sales 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:

Date
Quantity
Unit Cost
Total Cost
1/3
100
\$125
\$12,500
4/3
200
\$135
\$27,000
6/3
100
\$145
\$14,500
7/3
100
\$155
\$15,500
Total
500

\$69,500

Wild Riders sold 400 boards at \$250 per board on the dates listed below. The company uses a perpetual inventory system.

Date
Quantity Sold
Unit Price
Total Sales
3/17
50
\$250
\$12,500
5/17
75
\$250
\$18,750
8/10
275
\$250
\$68,750
Total
400

\$100,000
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.

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