DQ1.From Chapter 5,
Ethical Issue 5-1. Complete all parts of the case and respond to at least
two of your classmates’ postings.
Under Dobbs’ FOB
policy, when should the company record a sale?
Do
you approve or disapprove of Dobbs’ manner of deciding when to ship goods to
customers and record the sales revenue? If you approve, give your reason. If
you disapprove, identify a better way to decide when to ship goods.
DQ2.Describe the
inventory valuation methods FIFO and LIFO.
Which items are included in ending inventory under each method? Respond to at least two of your classmates’
postings.
1. Specific
identification method. Boston Galleries uses the specific identification
method for inventory valuation. Inventory information for several oil paintings
follows.
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, purchases were:
The
White Company uses a perpetual 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
3. Perpetual
inventory system: journal entries. At the beginning of 20X3, Beehler
Company implemented a computerized perpetual inventory system. The following
transactions occurred:
a.
Prepare journal entries for the above purchases and sales.
b.
Calculate the balance in the firm’s Inventory account.
4. Inventory
valuation methods: computations and concepts. Wave Riders Surfboard Company
began business on January 1 of the current year. Below are the transactions for
the year
Wave
Riders uses a perpetual 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)
Approximate the physical flow of a sand and gravel dealer?
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, 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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