ACC 205 (Ashford) Week 3 – Inventory

ACC 205 (Ashford) Week 3 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		$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

1. cost of goods sold.
2. gross profit.
3. ending inventory.
4. 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
• 1/25/20X3 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.

1. Duplicate the journal entries that would have appeared on the computer printout under FIFO & LIFO
2. Calculate the balance in the firm’s Inventory account under each method.
3. 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

1. 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

1. 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:
6. Units-of-output, assuming 17,000 miles were driven during 20X8
7. Straight-line
8. Double-declining-balance
9. 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:
10. The machine’s book value on December 31, 20X5, assuming use of the straight-line depreciation method
11. Depreciation expense for 20X4, assuming use of the units-of-output depreciation method. Actual washing cycles in 20X4 totaled 500.
12. 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

1. Compute depreciation for 20X3 – 20X7 by using the following methods: straight line, units of output, and double-declining-balance.
2. 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.
3. 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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