# ACC 205 Week Three Exercise (All Questions Answered + Formulas) - 23341

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# 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

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 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. 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 @ \$4 =  \$2,000
• 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.

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. Wave Riders Surfboard Company began business on January 1 of the current year. Purchases of surfboards were as follows:

 1/3: 100 boards  @ \$125 3/17: 50 boards @ \$130 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) show the lowest net income for tax purposes?

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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