ACC 205 Week Three Assignment

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
/1! "urchase Sunset 21,#00
$/% "urchase Earth &1,200
12/1$ "urchase Moon ,000
Woods and Moon were sold during the year for a total of $&',000. (etermine the firm)s
a. cost of goods sold.
*. gross profit.
c. ending inventory.
Answer:
a. +ost of goods sold , $-11,000 . ,000/ , $1',000.
*. Gross profit , $-&',000 0 1',000/ , $20,000.
c. 1nding inventory , $-21,#00 . &1,200/ , $'&,000.
2. Inentor! a"#ation methods: $asic comp#tations. 2he 3anuary *eginning inventory of the
4hite +ompany consisted of &00 units costing $0 each. (uring the first 5uarter, the company
purchased two *atches of goods6 %00 7nits at $ on 8e*ruary 21 and #00 units at $'0 on 9arch
2#. :ales during the first 5uarter were 1,00 units at $%' per unit. 2he 4hite +ompany uses a
periodic inventory system. 7sing the 4hite +ompany data, fill in the following chart to compare
the results o*tained under the 8I8;, <I8;, and weighted=average inventory methods.
%I%& 'I%& Weighted Aerage
Goods availa*le for sale
$ $ $
1nding inventory, 9arch &1
+ost of goods sold
Inentor! a"#ation methods:
%I%& 'I%& Weighted Aerage
(oods aai"a$"e
for sa"e
)*2+*00 )*2+*00 )*2+*00
+alculation6 >-&00 ? $0/ . -%00
? $/ . -#00 ?
$'0/@
>-&00 ? $0/ . -%00 ?
$/ . -#00 ? $'0/@
>-&00 ? $0/ . -%00
? $/ . -#00 ?
$'0/@
,nding
inentor!+
-arch .1
)20+000 )1/+000 )1*+000
+alculation6 -00 ? $'0/ >-&00 ? $0/ . -100 ?
$/@
-00 ? $$/
Cost of goods
so"d
)/2+*00 )//+000 )/0+000
+alculation6 >-&00 ? $0/ . -%00
? $/ . -00 ?
$'0/@
>-#00 ? $'0/ . -$00 ?
$/@
-1,00 ? $$/
.. Perpet#a" inentor! s!stem: 1o#rna" entries. At the *eginning of 20B&, Beehler +ompany
implemented a computeriCed perpetual inventory system. 2he first transactions that occurred
during 20B& following.
1/2/20B& "urchases on account6 '00 units D $$ , $&,000
1/1'/20B& :ales on account6 &00 units D $#.'0 , $2,''0
1/20/20B& "urchases on Account 6 200 units D $' , $1000
1/2'/20B& :ales on account6 &00 units D $#.'0 , $2''0
2he company president eEamined the computer=generated Fournal entries for these transactions
and was confused *y the a*sence of a "urchases account.
a. (uplicate the Fournal entries that would have prepared on the computer printout under 8I8; G
<I8;
*. +alculate the *alance in the firm)s Inventory account under each method
c. Briefly eEplain the a*sence of the "urchases account to the company president.
Perpet#a" inentor! s!stem:
a. The 1o#rna" entries that wo#"d hae prepared on the comp#ter printo#t:
:erial "articulars 8I8; <I8;
1. Inventory
Accounts "aya*le
$&,000
$&,000
2. -i/ Accounts Heceiva*les
Hevenue
$2,''0
$2,''0
-ii/ +ost of Goods :old -200 ? $'/
Inventory -&00 ? $/
$1000
$1000
&. Accounts "aya*le -&00 ? $#.'0/
Inventory -&00 ? $#.'0/
$22'0
$22'0
$. The $a"ance in the firm2s Inentor! acco#nt:
:erial "articulars (e*it :erial "articulars +redit
1. Accounts "aya*le $&,000 2 -ii/. +ost of Goods :old $1,000
&. Accounts "aya*le $22'0
Balance c/d $'00
2otal $&,000 2otal $&%'0
3a"ance $4d )500
c. ,5p"anation: In case of the perpetual inventory system the purchase of goods are recorded as
increase in inventory *y creating a de*it inventory account. 2he purchase account is a*sent in
Fournal entries for perpetual inventory system.
0. Inentor! a"#ation methods: comp#tations and concepts.
4ild Hiders :urf*oard +ompany *egan *usiness on 3anuary 1 of the current year. "urchases of
surf*oards were as follows6
(ate Iuantity 7nit +ost 2otal +ost
1/& 100 $12' $12,'00
/& 200 $1&' $2%,000
$/& 100 $1' $1,'00
%/& 100 $1'' $1','00
2otal '00 $$!,'00
4ild Hiders sold 00 *oards at an average price of $2'0 per *oard on the dates listed *elow. 2he
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 00 $100,000
a. +alculate cost of goods sold, ending inventory, and gross profit under each of the following
inventory valuation methods6
8irst=in, first=out
<ast=in, first=out
4eighted average
*. 4hich of the three methods would *e chosen if management)s goal is to
-1/ "roduce an up=to=date inventory valuation on the *alance sheetJ
-2/ :how the lowest income for taE purposes J
Inentor! a"#ation methods:
a. Ca"c#"ating cost of goods so"d+ ending inentor!+ and gross profit:
"articulars %I%& 'I%& Weighted
Aerage
Cost of goods
so"d
)60+650 )02+500 )100+000
+alculation6 >-100 ? $12'/ . -'0 ?
$2'0/ . -200 ? $1&'/ .
-%' ? $2'0/@
>-100 ? $1'/ .
-100 ? $1''/ . -'0 ?
$2'0/@
-00 ? $2'0/
,nding
inentor!
).0+000 ).1+250
+alculation6 >-100? $1'/ . -100 ?
$1''/@
>-'0? $2'0/ . -%' ?
$2'0/
(ross Profit )27+250 )56+500 )
+alculation6 >-00 ? $2'0/ =$100,'0@ >-00 ? $2'0/ =
$10,##0@
$. -ethods wo#"d $e chosen:
-1/ 2o produce an up=to=date inventory valuation on the *alance sheet , 8I8;
-2/ 2o show the lowest net income for taE purposes , <I8;
5. 8epreciation methods. 9iKe (avis 1nterprises purchased a delivery van for $0,000 in
3anuary 20B%. 2he van was estimated to have a service life of ' years and a residual value of
$$,000. 2he company is planning to drive the van 20,000 miles annually. +ompute depreciation
eEpense for 20B# *y using each of the following methods6
a. 7nits=of=output, assuming 1%,000 miles were driven during 20B#
*. :traight=line
c. (ou*le=declining=*alance
8epreciation methods:
a. 9nits:of:o#tp#t:
Assuming 1%,000 miles were driven during 20B#, depreciation , L>-$0,000 = $$,000/ / 20,000@
? 1%,000M , $2#,!00
$. Straight:"ine:
(epreciation, 20B#, >-$0,000 = $$,000/ / '@ , $$,#00 per year for five years.
c. 8o#$"e:dec"ining:$a"ance:
Nere, straight=line depreciation rate , -1 / '/ ? 100 , 20O, (eclining *alance rate , 2 ? 20O ,
0O. (epreciation for 20B% , -$0, 000 ? 0O/ , $1$,000. (epreciation for 20B# , >-$0,000
= $12,000/ ? 0O@ , $11,200.
/. 8epreciation Comp#tations. Alpha Alpha Alpha, a college fraternity, purchased a new
heavy=duty washing machine on 3anuary 1, 20B&. 2he machine, which cost $2,000, had an
estimated residual value of $100 and an estimated service life of years -1,#00 washing cycles/.
+alculate the following6
a. 2he machine)s *ooK value on (ecem*er &1, 20B', assuming use of the straight=line
depreciation method
*. (epreciation eEpense for 20B, assuming use of the units=of=output depreciation
method.
Actual washing cycles in 20B totaled '00.
c. Accumulated depreciation on (ecem*er &1, 20B', assuming use of the dou*le=declining=
*alance depreciation method.
8epreciation comp#tations:
a. 2he machine)s *ooK value on (ecem*er &1, 20B' , >$2,000 0 -$22' ? &/@ , $1&2'P assuming
straight=line depreciation , >$-2,000 0 100/ / @ , $%' per year.
$. (epreciation eEpense for 20B , L>$-2,000 0 100/ / 1,#00@ ? '00M , $'2#P assuming use of
the units=of=output depreciation method whereactual washing cycles in 20B totaled '00.
c. Accumulated depreciation on (ecem*er &1, 20B' , $-1000 . 2'0 . 12'/ , $1&%'P assuming
dou*le=declining=*alance depreciation rate , >-1 / / ? 100@ ? 2 , '0O. (epreciation, (ecem*er
&1, 20B& , -$2,000 ? '0O/ , $1000. (epreciation, (ecem*er &1, 20B , >-$2,000 = $'00/ ?
'0O@ , $%'0. (epreciation, (ecem*er &1, 20B' , >-$1000 = $2'0/ ? '0O@ , $&%'
6. 8epreciation Comp#tations: change in estimate. Aussie Imports purchased a specialiCed
piece of machinery for $'0,000 on 3anuary 1, 20B&. At the time of ac5uisition, the machine was
estimated to have a service life of ' years -2',000 operating hours/ and a residual value of
$',000. (uring the ' years of operations -20B& = 20B%/, the machine was used for ',100, ,#00,
&,200, $,000, and ',!00 hours, respectively.
a. +ompute depreciation for 20B& = 20B% *y using the following methods6 straight line,
units of output, and dou*le=declining=*alance.
*. ;n 3anuary 1, 20B', management shortened the remaining service life of the machine
to 1' months. Assuming use of the straight=line method, compute the company)s
depreciation eEpense for 20B'.
c. Briefly descri*e what you would have done differently in part -a/ if Aussie Imports had
paid $%,#00 for the machinery rather than $'0,000 In addition, assume that the company
incurred $#00 of freight charges $1,00 for machine setup and testing, and $&00 for
insurance during the first year of use.
8epreciation comp#tations:
a. :traight line depreciation rate , -1 / '/ ? 100 , 20O per year.:traight line depreciation for
20B& = 20B% , >-$'0,000 = $',000/ ? 20O@ ? ' , $',000.
7nits of output depreciation per hour , >-$'0,000 = $',000/ / 2',000@ , $1.#. 7nits of
outputdepreciationfor 20B& = 20B% , >-',100 . ,#00 . &,200 . $,000 . ',!00/ ? $1.#@ ,
$',000.
(ou*le=declining=*alancedepreciation rate , -20O ? 2/ , 0O. (ou*le=declining=
*alancedepreciation for 20B&, -$'0,000 ? 0O/ , $20,000. (ou*le=declining=
*alancedepreciation for 20B , >$-'0,000 0 20,000/ ? 0O@ , -$&0,000 ? 0O/ , $12,000.
(ou*le=declining=*alancedepreciation for 20B' , >$-&0,000 0 12,000/ ? 0O@ , -$1#,000 ?
0O/ , $%,200. (ou*le=declining=*alance depreciation for 20B$ , >$-1#,000 0 %,200/ ? 0O@ ,
-$10,#00 ? 0O/ , $,&20. (ou*le=declining=*alance depreciation for 20B% , >$-10,#00 0
,&20/ = $',000@ , -$$,#0 =$',000/ , $1,#0.(ou*le=declining=*alancedepreciation for 20B& =
20B% , $-20,000 .12,000 .%,200 .,&20 . 1,#0/ , $',000.
$. ;n 3anuary 1, 20B', assuming remaining service life of the machine to 1' months
depreciation eEpense for 20B' in straight line method , L>-$',000 = $1#,000/ / 1'@ ? 12M ,
$21,$00.
c. I would have calculated the cost of machinery in part -a/ as , -$%,#00 . $#00 . $1,00/ ,
$'0,000, so all depreciation calculations would have remained aliKe.