Kale Thompson, an auditor with Sneed CPAs, is performing a review of Strawser Company's inventory account. Strawser did not have a good year and top management is under pressure to boost reported income. According to its records, the inventory balance at year-end was $740,000. However, the following information was not considered when determining that amount.
Instructions Prepare a schedule to determine the correct inventory amount. Provide explanations for each item above, saying why you did or did not make an adjustment for each item.
1. Included in the company's count were goods with a cost of $250,000 that the company is holding on consignment. The goods belong to Superior Corporation.
2. The physical count did not include goods purchased by Strawser with a cost of $40,000 that were shipped FOB destination on December 28 and did not arrive at Strawser's warehouse until January 3.
3. Included in the inventory account was $17,000 of office supplies that were stored in the warehouse and were to be used by the company's supervisors and managers during the coming year.
4. The company received an order on December 29 that was boxed and was sitting on the loading dock awaiting pick-up on December 31. The shipper picked up the goods on January 1 and delivered them on January 6. The shipping terms were FOB shipping point. The goods had a selling price of $40,000 and a cost of $30,000.The goods were not included in the count because they were sitting on the dock.
5. On December 29 Strawser shipped goods with a selling price of $80,000 and a cost of $60,000 to District Sales Corporation FOB shipping point. The goods arrived on January 3. District Sales had only ordered goods with a selling price of $10,000 and a cost of $8,000. However, a sales manager at Strawser had authorized the shipment and said that if District wanted to ship the goods back next week, it could.
6. Included in the count was $40,000 of goods that were parts for a machine that the company no longer made. Given the high-tech nature of Strawser's products, it was unlikely that these obsolete parts had any other use. However, management would prefer to keep them on the books at cost, "since that is what we paid for them, after all."
Click here for the solution: Kale Thompson, an auditor with Sneed CPAs, is performing a review of Strawser Company's inventory account
Sunday, October 4, 2015
Kristen Montana operates a retail clothing operation
Kristen Montana operates a retail clothing operation. She purchases all merchandise inventory on credit and uses a periodic inventory system. The accounts payable account is used for recording inventory purchases only; all other current liabilities are accrued in separate accounts. You are provided with the following selected information for the fiscal years 2005, 2006, 2007, and 2008.
2005 2006 2007 2008
Inventory (ending) $13,000 $11,300 $14,700 $12,200
Accounts payable (ending) 20,000
Sales 225,700 227,600 219,500
Purchase of merchandise
inventory on account 146,000 145,000 129,000
Cash payments to suppliers 135,000 161,000 127,000
Instructions:
a. Calculate cost of goods sold for each of the 2009, 2010, and 2011 fiscal years.
b. Calculate the gross profit for each of the 2009, 2010, and 2011 fiscal years.
c. Calculate the ending balance of accounts payable for each of the 2009, 2010, and 2011 fiscal years.
d. Calculate the gross profit rate for each fiscal year.
e. Sales declined in fiscal 2011. Does that mean that profitability, as measured by the gross profit rate, necessarily also declined? Explain, calculating the gross profit rate for each fiscal year to help support year answer.
Click here for the solution: Kristen Montana operates a retail clothing operation
2005 2006 2007 2008
Inventory (ending) $13,000 $11,300 $14,700 $12,200
Accounts payable (ending) 20,000
Sales 225,700 227,600 219,500
Purchase of merchandise
inventory on account 146,000 145,000 129,000
Cash payments to suppliers 135,000 161,000 127,000
Instructions:
a. Calculate cost of goods sold for each of the 2009, 2010, and 2011 fiscal years.
b. Calculate the gross profit for each of the 2009, 2010, and 2011 fiscal years.
c. Calculate the ending balance of accounts payable for each of the 2009, 2010, and 2011 fiscal years.
d. Calculate the gross profit rate for each fiscal year.
e. Sales declined in fiscal 2011. Does that mean that profitability, as measured by the gross profit rate, necessarily also declined? Explain, calculating the gross profit rate for each fiscal year to help support year answer.
Click here for the solution: Kristen Montana operates a retail clothing operation
Flint Tooling Company is considering replacing a machine that has been used in its factory for two years
PR 9-2A Flint Tooling Company is considering replacing a machine that has been used in its factory for two years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows:
OLD MACHINE
Cost of machine, eight year life $48,000
Annual depreciation (straight-line) 6,000
Annual manufacturing costs, excluding depreciation 14,500
Annual nonmanufacturing operating expenses 2,900
Annual revenue 29,600
Current estimated selling price of the machine 18,000
NEW MACHINE
Cost of the machine, six year life $58,500
Annual depreciation (straight-line) 9,750
Estimated annual manufacturing costs, exclusive of depreciation 5,200
Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine.
Instructions
1.Prepare a differential analysis report as of May 22, 2010, comparing operations utilizing the new machine with operations using the present equipment. The analysis should indicate the differential income that would result over the six-year period if the new machine is acquired.
2.List other factors that should be considered before a final decision is reached.
Click here for the solution: Flint Tooling Company is considering replacing a machine that has been used in its factory for two years
OLD MACHINE
Cost of machine, eight year life $48,000
Annual depreciation (straight-line) 6,000
Annual manufacturing costs, excluding depreciation 14,500
Annual nonmanufacturing operating expenses 2,900
Annual revenue 29,600
Current estimated selling price of the machine 18,000
NEW MACHINE
Cost of the machine, six year life $58,500
Annual depreciation (straight-line) 9,750
Estimated annual manufacturing costs, exclusive of depreciation 5,200
Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine.
Instructions
1.Prepare a differential analysis report as of May 22, 2010, comparing operations utilizing the new machine with operations using the present equipment. The analysis should indicate the differential income that would result over the six-year period if the new machine is acquired.
2.List other factors that should be considered before a final decision is reached.
Click here for the solution: Flint Tooling Company is considering replacing a machine that has been used in its factory for two years
The following data are accumulated by Eco-Labs, Inc. in evaluating two competing capital investment proposals
EX 10-1 The following data are accumulated by Eco-Labs, Inc. in evaluating two competing capital investment proposals:
Testing Equipment Vehicle
Amount of investment $80,000 $28,000
Useful life 6 years 8 years
Estimated residual value 0 0
Estimated total income over the useful life $13,200 $14,000
Determine the expected average rate of return for each proposal. Round to one decimal place.
Click here for the solution: The following data are accumulated by Eco-Labs, Inc. in evaluating two competing capital investment proposals
Testing Equipment Vehicle
Amount of investment $80,000 $28,000
Useful life 6 years 8 years
Estimated residual value 0 0
Estimated total income over the useful life $13,200 $14,000
Determine the expected average rate of return for each proposal. Round to one decimal place.
Click here for the solution: The following data are accumulated by Eco-Labs, Inc. in evaluating two competing capital investment proposals
On December 31, Strike Company has decided to sell one of its batting cages
1. On December 31, Strike Company has decided to sell one of its batting cages. The initial cost of the equipment was $215,000 with an accumulated depreciation of $185,000. Depreciation has been taken up to the end of the year. The company found a company that is willing to buy the equipment for $55,000. What is the amount of the gain or loss on this transaction?
2. The proper journal entry to purchase a computer on account to be utilized within the business would be:
3. Computer equipment was acquired at the beginning of the year at a cost of $65,000 that has an estimated residual value of $3,000 and an estimated useful life of 5 years. Determine the 2nd year’s depreciation using straight-line depreciation. Choose one answer.
4. A fixed asset with a cost of $41,000 and accumulated depreciation of $36,500 is traded for a similar asset priced at $60,000. Assuming a trade-in allowance of $3,000, the recognized loss on the trade is
5. The calculation for annual depreciation using the units-of-production method is
6. A fixed asset with a cost of $52,000 and accumulated depreciation of $47,500 is traded for a similar asset priced at $60,000. Assuming a trade-in allowance of $5,000, the cost basis of the new asset is
7. When a company replaces a component of property, plant and equipment, which statement below does not account for one of the steps to this process?
8. All of the following below are needed for the calculation of straight-line depreciation except
9. Expenditures that add to the utility of fixed assets for more than one accounting period are
10. The exclusive right to use a certain name or symbol is called a
11.When the amount of use of a fixed asset varies from year to year, the method of determining depreciation expense that best matches allocation of cost with revenue is
12. A machine with a cost of $75,000 has an estimated residual value of $5,000 and an estimated life of 4 years or 18,000 hours. What is the amount of depreciation for the second full year, using the double declining-balance method?
13. Expenditures for research and development are generally recorded as
14. Equipment with a cost of $160,000, an estimated residual value of $40,000, and an estimated life of 15 years was depreciated by the straight-line method for 4 years. Due to obsolescence, it was determined that the useful life should be shortened by 3 years and the residual value changed to zero. The depreciation expense for the current and future years is
15. Which of the following should be included in the acquisition cost of a piece of equipment?
16. A fixed asset's estimated value at the time it is to be retired from service is called
17. Equipment with a cost of $130,000 has an estimated residual value of $10,000 and an estimated life of 5 years or 12,000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first full year, during which the equipment was used 3,300 hours?
18. The term applied to the amount of cost to transfer to expense resulting from a decline in the utility of intangible assets is
19. The calculation for annual depreciation using the straight-line depreciation method is
20. On December 31, Strike Company has decided to trade-in one of its batting cages for another one that has a cost of $500,000. The seller of the batting cage is willing to allow a trade-in amount of $40,000. The initial cost of the old equipment was $225,000 with an accumulated depreciation of $195,000. Depreciation has been taken up to the end of the year. The difference will be paid in cash. What is the amount of the gain or loss on this transaction?
Click here for the solution: On December 31, Strike Company has decided to sell one of its batting cages
2. The proper journal entry to purchase a computer on account to be utilized within the business would be:
3. Computer equipment was acquired at the beginning of the year at a cost of $65,000 that has an estimated residual value of $3,000 and an estimated useful life of 5 years. Determine the 2nd year’s depreciation using straight-line depreciation. Choose one answer.
4. A fixed asset with a cost of $41,000 and accumulated depreciation of $36,500 is traded for a similar asset priced at $60,000. Assuming a trade-in allowance of $3,000, the recognized loss on the trade is
5. The calculation for annual depreciation using the units-of-production method is
6. A fixed asset with a cost of $52,000 and accumulated depreciation of $47,500 is traded for a similar asset priced at $60,000. Assuming a trade-in allowance of $5,000, the cost basis of the new asset is
7. When a company replaces a component of property, plant and equipment, which statement below does not account for one of the steps to this process?
8. All of the following below are needed for the calculation of straight-line depreciation except
9. Expenditures that add to the utility of fixed assets for more than one accounting period are
10. The exclusive right to use a certain name or symbol is called a
11.When the amount of use of a fixed asset varies from year to year, the method of determining depreciation expense that best matches allocation of cost with revenue is
12. A machine with a cost of $75,000 has an estimated residual value of $5,000 and an estimated life of 4 years or 18,000 hours. What is the amount of depreciation for the second full year, using the double declining-balance method?
13. Expenditures for research and development are generally recorded as
14. Equipment with a cost of $160,000, an estimated residual value of $40,000, and an estimated life of 15 years was depreciated by the straight-line method for 4 years. Due to obsolescence, it was determined that the useful life should be shortened by 3 years and the residual value changed to zero. The depreciation expense for the current and future years is
15. Which of the following should be included in the acquisition cost of a piece of equipment?
16. A fixed asset's estimated value at the time it is to be retired from service is called
17. Equipment with a cost of $130,000 has an estimated residual value of $10,000 and an estimated life of 5 years or 12,000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first full year, during which the equipment was used 3,300 hours?
18. The term applied to the amount of cost to transfer to expense resulting from a decline in the utility of intangible assets is
19. The calculation for annual depreciation using the straight-line depreciation method is
20. On December 31, Strike Company has decided to trade-in one of its batting cages for another one that has a cost of $500,000. The seller of the batting cage is willing to allow a trade-in amount of $40,000. The initial cost of the old equipment was $225,000 with an accumulated depreciation of $195,000. Depreciation has been taken up to the end of the year. The difference will be paid in cash. What is the amount of the gain or loss on this transaction?
Click here for the solution: On December 31, Strike Company has decided to sell one of its batting cages
Newbirth Coatings Company purchased waterproofing equipment on January 2, 2009, for $380,000
PR 10-2A Newbirth Coatings Company purchased waterproofing equipment on January 2, 2009, for $380,000. The equipment was expected to have a useful life of four years, or 8,000 operating hours, and a residual value of $36,000. The equipment was used for 3,000 hours during 2009, 2,500 hours in 2010, 1,400 hours in 2011, and 1,100 hours in 2012.
Instructions
Determine the amount of depreciation expense for the years ended December 31, 2009, 2010, 2011, and 2012, by (a) the straight-line method, (b) the units-of-production method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the four years by each method. The following columnar headings are suggested for recording the depreciation expense amounts:
Click here for the solution: Newbirth Coatings Company purchased waterproofing equipment on January 2, 2009, for $380,000
Instructions
Determine the amount of depreciation expense for the years ended December 31, 2009, 2010, 2011, and 2012, by (a) the straight-line method, (b) the units-of-production method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the four years by each method. The following columnar headings are suggested for recording the depreciation expense amounts:
Click here for the solution: Newbirth Coatings Company purchased waterproofing equipment on January 2, 2009, for $380,000
Razar Sharp Company purchased tool sharpening equipment on July 1, 2008, for $48,600
PR 10-3A Razar Sharp Company purchased tool sharpening equipment on July 1, 2008, for $48,600. The equipment was expected to have a useful life of three years, or 7,500 operating hours, and a residual value of $3,000. The equipment was used for 1,800 hours during 2008, 2,600 hours in 2009, 2,000 hours in 2010, and 1,100 hours in 2011.
Instructions
Determine the amount of depreciation expense for the years ended December 31, 2009, 2010, 2011, and 2012, by (a) the straight-line method, (b) the units-of-production method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the four years by each method. The following columnar headings are suggested for recording the depreciation expense amounts:
Click here for the solution: Razar Sharp Company purchased tool sharpening equipment on July 1, 2008, for $48,600
Instructions
Determine the amount of depreciation expense for the years ended December 31, 2009, 2010, 2011, and 2012, by (a) the straight-line method, (b) the units-of-production method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the four years by each method. The following columnar headings are suggested for recording the depreciation expense amounts:
Click here for the solution: Razar Sharp Company purchased tool sharpening equipment on July 1, 2008, for $48,600
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