AMA Prof. Angela Wu

Transcription

1 AMA of 2 E10-8 On December 31, 2003, Alma-Ata Inc. borrowed 3,000,000 at 12% payable annually to finance the construction of a new building 2004, the company made the following expenditures related to this building: March 1, $360,000; June 1, $600,000; July 1, $1,500 December 1, $1,5000,000. Additional information is provided as follows. 1. Other debt outstanding. 10-year, 13% bond, December 31, 1997, interest paybable annually $4,000,000 6-year, 10% note, dated December 31, 2001, interest payable annually $1,600, March 1, 2004, expenditure inculded land costs of $150, Interest revenue earned in $49,000 Instructions: (a) Determine the amount of interest to be capitalized in 2004 in relation to the construction of the building. (b) Prepare the journal entry to record the capitalization of interest and the recognition of interest expense, if any, at December 31, 2004 (a) Date Amount x C. Period = WAAE 1-Mar 360,000 x 10/12 = 300,000 1-Jun 600,000 x 7/12 = 350, ,000 = 12% x 1-Jul 1,500,000 x 6/12 = 750, ,000 = 13% x 1-Dec 1,500,000 x 1/12 = 125, ,000 = 10% x 3,960,000 1,525,000 x 12% = 183,000 1,040,000 WAAE x Rate = Avoidable Interest Actual Interest (b) Actual Interest 1,040,000 Avoidable Interest 183,000 Interest Expense 857,000 Date Entry Debit Credit 31-Dec Building 183,000 Interest Expense 857,000 Cash 1,040,000

2 AMA of 2 g. In 0,000; 3,000,000 4,000,000 1,600,000

3 AMA E10-11 Jane Geddes Engineering Corporation purchased conveyor equipment with a list price of $10,000. The vendor's credit terms were 2/10, n/30. Presented below are three independent cases related to the equipment. Assume that the purchases of equipment are recorded gross. (Round to nearest dollar.) (a) Geddes paid cash for the quipment 8 days after the purchase. (b) Geddes traded in equipment with a book value of $2,000 (initial cost $8,000), and paid $9,500 in cash one month after the purchase. The old equipment could have been sold for $400 at the date of trade (assume similar equipment). (c) Geddes gave the vendor a $10,800 non-interest-bearing note for the equipment on the date of purchase. The note was due in one year and was paid on time. Assume that the effective interest rate in the market was 9%. Instruciton: Prepare the general journal entries required to record the acquisition and payment in each of the independent cases above. Round to the nearest dollar. Date Description Debit Credit (a) Equipment Accounts Payable Accounts Payable Equipment 200 Cash 9800 (b) Equipment 9900 <<< 9, = 9,900 Loss on Disposal of Equipment 1600 <<<<<<< Cost 8000 Accumulated Depreciation 6000 Accumulated Depreciation 6000 Accounts Payable 9500 Book Value 2000 Equipment 8000 Market Value 400 Loss 1600 Accounts Payable 9500 Cash 9500 (c) Equipment 9908 <<< 10,800 x = 9,908 Discount on Note Payable 892 <<< 10,800-9,908 = 10,800 Note Payable Interest Expense 892 Note Payable Discount on Note Payable 892 Cash 10800

4 AMA E10-17 Busytown Corporation, which manufactures shoes, hired a recent college graduate to work in its accounting department. On the first day of work, the accountant was assigned to a totals batch of invoices with the use of an adding machine. Before long, the accountant, who had never before seen such a machine, mangaed to break the machine. Busytown Corporation gave the machine plus $340 to Dick Tracy Business Machine Company (dealer) in exhange for a new machine. Assume the following information about the machines. Dick Tracy Busytown Business Machine Machine Cost Accumulated Depreciation Fair Value Corporation Instructions: For each company, prepare the necessary journal entry to record the exchange. Busytown Corporation Company Machine Accumulated Depreciation 140 General Journal Date Description Debit Credit Machine 425 <<< = 425 Accumulted Depreciation 140 Loss on Disposal of Machine 65 <<<<<<< B.V. of Old Machine 150 Machine 290 M.V. of Old Machine 85 Cash 340 Loss 65 Dick Tracy Business Machine Company General Journal Date Description Debit Credit Cash 340 Inventory 85 Cost of Goods Sold 270 Sales 425 Inventory 270

5 AMA E10-23 Plant assets often require expenditures subsequent to acquisition. It is important that they be accounted for properly. Any errors will affect both the balance sheets and income statements for a number of years. Instructions: For each of the following items, indicate whether the expenditure should be capitalized (C) or expensed (E) in the period incurred. (a) C Improvement. (b) E Replacement of a minor broken part on a machine. (c) C Expenditure that increases the useful life of an existing assest. (d) C Expenditure that increases the efficiency and effectiveness of a productive assest but does not increase its salvage value. (e) C Expenditure that increases the efficiency and effectiveness of a productive assest but increases the asset's salvage value. (f) C Expenditure that increases the quality of the output of the productive assest. (g) C Improvement to a machine that increased its fair market value and its production capacity by 30% without extending the C machine's useful life. (h) E Ordinary repairs. (i) E Interest on borrowing necessary to finance a major overhaul of machinery. The overhaul extended the life of the machinery.

6 AMA E11-3 Judds Company purchased a new plant asset on April 1, 2004, at a cost of $711,000. It was estimated to have a service life of 20 years and a salvage value of $60,000. Judds' accounting period is the calendar year. Instructions: (a) Compute the depreciation for this asset for 2004 and 2005 using the sum-of-the-years' digits method. (b) Compute the depreciation for this asset for 2004 and 2005 using the double-declining balance method. (a) 20 (20+1) 2 3/ ,000 x 2/21-60,000 1/14 x 651,000 = $ 46,500 for /4 711,000 x 2/21-60,000 1/42 x 651,000 = 15,500 3/4 711,000 + x 19/210-60,000 19/280 x 651,000 = 44,175 $ 59,675 for 2005 (b) x 2 = 10 3/4 x 10% x 711,000 = $53, for % x 711,000-53,325 = $65, for 2005

7 AMA E11-4 Jon Seceda Furnace Corp. purchased machinery for $315,000 on May 1, 2004, at cost of $711,000. it was estimated to have service life of 20 years and a salvage value of $60,000. Judds' accounting period is the calendar year. Instructions From the information given, copute the depreciation charge for 2005 under each of the following methods. (a) Straight-line (b) Units of output (c) Working hours. (d) Sum of the years's digits. (e) Declining balance (a) 315, = 300,000 / 10 = $30,000 (b) 300,000 / 240,000 = 1.25 x 25,500 = $31,875 (c) 300,000 / 25,000 = 12 x 2,650 = $31,800 (d) 10(10!+1) x 300,000 x 1/3 = 18,182 + x 300,000 x 2/3 = 32,727 50,909 (e) 315,000 x 20% x 1/3 = 21, , ,000-20% x 20% x 2/3 = 33,600 54,600

8 AMA E11-11 Machinery purchased for $60,000 by Joe Montana Co. in 2000was originally estimated to have a life of 8 years with a salvage value of $4,000 at the end of that time. Depreciation has been entered for 5 years with a salvage value of $4,000 at the end of that time. Depreciation has been entered for 5 years on this basis. In 2005, it is determined that the total estimated life should be 10 years with salvage value of $4,500 at the end of that time. assume the stright line depreciation. Instructions (a) Prepare the entry to correct the prior years' depreciation, if necessary. (b) Prepare the entry to record depreciation for (a) Not necessary. (b) 60,000-7,000 x 5 = 25,000 Book V. - 4,500 Salv. V. Description Debit Credit 20,500 Depreciation Expense 4,100 Accumulated Depreciation 4,100 5 No. of Yrs. 4,100

9 AMA E11-19 Stanislaw Timber Company owns 9,000 acres of timberland purchased in 1993 at a cost of $1,400 per acre. At the time of purchase the land without the timber was valued at $400 per acre. In 1994, Stanislaw bult firelands and roads, with a life of 90 years, at a cost of $84,000. Every year Stanislaw spreays to prevent diesease at a cost of $3,000 per year and spends $7,000 to maintain the fire lanes and roads. During 1995, Stanislaw slectively logged and sold 700,000 board feet of timber, of the estimated 3,500,000 board feet. In 1996, Stanislaw planted new seedling to replace the tress cut at a cost of $100,000. Instructions (a) Determine the depreciation expense and the cost of timber sold related to the depletion for (b) Stanislaw has not logged since If stanislaw logged and sold 900,000 board feet of timber in 2006, when the timber cruise estimated 5,000,000 board feet, dtermine the cost of timber sold related to depletion for (a) $84, = $2,800 depreciation expense per year (b) per acre - land value = Cost of Timber Sold = 1000 Cost of Timber Sold x acres = Timber Value 1000 x 9000 = Timber Value Est. Board Feet x Sold Board Feet = Land Value x = Timber Value - Land Value = Cost of Timber Sold = Cost of Timber Sold + Replacement Cost = = Est. Board Feet 5,000, x Timber Value Depletion

10 AMA E11-22 Alcide Mining Company purchased land on February 1, 2004, at a cost of $1,190,000. It estimated that a total fo 60,000 tons of mineral was available for mining. After it has removed all the natureal resrouces, the company will be required to restore the property to its previous state because of strict environmental protection laws. It estimtes the cost of his restoration at $90,000. It belives it will be able to sell the preperty afterwards for $100,000. It incurred developmental costs of $200,000 before it was able to sell the property afterwards for $100,000. It incurred developmental cost of $200,000 before it was able to do any mining. In 2004 resources removed totaled 30,000 tons. The company sold 22,000 tons. Instructions Compute the follow information for (a) Per unit material cost. (b) Total material cost of December 31, 2004, inventory. (c) Total material cost in cost of goods sold at December 31, (a) 1,190, , , ,000 = 1,380,000 1,380,000 60,000 = $23 Per ton (b) Per ton x Inv. = Inventory Value $23 x 8000 = $184,000 (c) Per ton x # Ton Sold = COGS $23 x 22,000 = $506,000

11 AMA E12-1 Presented below is a list of items that could be included in the intangible assets section of the balance sheet. Instructions (a) Indicate which items on the list above would generally be reported as intangible assets in the balance sheet. (b) Indicate how, if at all, the items not reportable as intanglibe assets would be reported in the financial statements. 1. Investment in a subsidiary company.. LT Investment in Balance Sheet 2. Timberland. PPE in Balance Sheet 3. Cost of engineering activity required to advance the design of a profuct to the manufacturing stage. R&D Expense in Income Statement 4. Lease prepayment (6 months' rent paid in advance).. Prepaid Rent in Balance Sheet 5. Cost of equipment obtained. PPE in Balance Sheet 6. Cost of searching for appplications of new research findings.. R&D Expense in Income Statement 7. Costs incurred in the formation of a corporation.. Organization Fees in Income Statement 8. Operating losses incurred in the start-up of a business.. Operating Loss in Income Statement 9. Training costs incurred in start-up of new operation.. Training Expense in Income Statement 10. Purchase cost of a franchise.. Intangible Assets in Balance Sheet 11. Goodwill generated internally.. No Recording 12. Cost of testing in search for product alternatives.. R&D Expense in Income Statement 13. Goodwill acquired in the purchase of a business.. Intangible Assets in Balance Sheet 14. Cost of developing a patent. R&D Expense in Income Statement 15. Cost of purchasing a patent from an inventor.. Intangible Assets in Balance Sheet 16. Legal costs incurred in securing a patent.. Intangible Assets in Balance Sheet 17. Unrecovered costs of a successful legal suit to protect the patent.. Intangible Assets in Balance Sheet 18. Cost of cenceptual formulation of possible product alternatives.. R&D Expense in Income Statement 19. Cost of purchasing a copyright.. Intangible Assets in Balance Sheet 20. Research and development costs.. R&D Expense in Income Statement 21. Long-term receivables. LT Investment in Balance Sheet 22. Cost of developing a trademark.. Expense in Income Statement 23. Cost of purchasing a trademark.. Intangible Assets in Balance Sheet

12 AMA E12-6 Rolanda Marshall Company, organized in 2003, has set up a single account for all intangible assets. The following summary discloses the debit entries that have been recorded during /2/2004 Purchased patent (8-year life) 350,000 4/1/2004 Purchased goodwill (indefinite life) 360,000 7/1/2004 Purchased franchise with 10-year life; expiration date 7/1/14 450,000 8/1/2004 Payment of copyright (5-year life) 156,000 9/1/2004 Research and development costs 215,000 1,531,000 Instructions Prepare the necessary entries to clear the Intangible Assets account and to set up separate accounts for distinct tupes of intangibles. Make the entries as of December 31, 2004, recording any necessary amortization and reflecting all balances accurately as of that date (straight-line amortization) Date Journal Entry Debit Credit 31-Dec-05 Patents 350,000 Goodwill 360,000 Franchise 450,000 Copyright 156,000 Research and development expense 215,000 Intangible Assets 1,531, Dec Amortization Expense Patents 43,750 -> 350,000/8 Franchise 22,500 -> (450,000/10)(1/2) Copyright 13,000 -> (156,000/5)(5/12) 350,000-43,750 = 306,250 Patents 360,000-0 = 360,000 Goodwill 450,000-22,500 = 427,500 Franchise 156,000-13,000 = 143,000 Copyright Intangible Asset Balance

13 AMA E12-8 Horace Greeley Corporation was organized in 2002 and began operations at the beginning of The company is involved in interior desing consulting services. The following costs were incurred prior to the start of operations. Attorney's fees in connection with organization fo the company 15,000 Purchase of drafting and design equipment 10,000 Costs of meetings of incorporators to discuss organizational activities 7,000 State filing fees to incorporate 1,000 33,000 Instructions (a) Compute the total amount of organization costs incurred by Greeley. (b) Prepare the jornal entry to record organization costs for (a) Attorney's fees in connection with organization fo the company 15,000 Costs of meetings of incorporators to discuss organizational activities 7,000 State filing fees to incorporate 1,000 Total Organization Expense 23,000 (b) Journal Entry Debit Credit Organization Expense 23,000 Cash 23,000

14 AMA of 2 E12-11 During 200, George Winston Corporation spent $170,000 in research and development costs. As a result, a new product develop called the New Age Piano was patented. The patent of $18,000 related to the patent were incurred as of October 1, Instructions (a) Prepare all journal entries required in 2000 and 2001 as a result of the transactions above. (b) On June 1, 2002, Winston spent $9,480 to successfully prosecute a patent infringement. As a result, the estimate of useful life was exteneded to 12 years from June 1, Prepare all journal entries required in 2002 and (c) In 2004, Winston determined that a competitor's product would make the New Age Piano obolete and the patent worthless by December 31, Prepare all journal entries required in 2004 and Date Journal Entry Debit Credit (a) 12/31/00 R&D Expense 170,000 Cash 170,000 12/31/00 Patents 18,000 Cash 18,000 12/31/00 Patent Amortization Expense 450 Patents 450 -> (18,000/10)x1/4 12/31/01 Patent Amortization Expense 1,800 Patents 1,800 -> (18,000/10) (b) 12/31/02 Patents 9,480 Cash 9,480 12/31/02 Patent Amortization Expense 1, > (((18,000/10)x5/12) Patents 1,940 /1,190)+((18, , ,480)x7/12) 12/31/02 Patent Amortization Expense 2, > (18, ,800- Patents 2, ,480)/12 04&'05 Patent Amortization Expense 10, > (((18, Patents 10,625-1, ,480)- 1,190-2,040)/2)

15 AMA of 2

16 AMA E12-12 Fred Moss, owner of Moss Interiors, is negotiating for the purchase of Zweifel Galleries. The balance sheet of Zweifel is given in an abbreviated form below. Zweifel Galleries Balance Sheet As of December 31, 2004 Assets Liabilities and Stockholder's Equity Cash 100,000 Accounts payable Land 70,000 Long-term notes payable Building (net) 200,000 Total liabilities Equipment (net) 175,000 Common stock Copyright (net) 30,000 Retained earnings Total assets 575,000 Total liabilities and stockholder's equity Moss and Zweifel agree that 1. Land in undervalued by $30, Equipment is overvalued by $5,000. Instructions Prepare the entry to record the purchase of Zweifel Galleries on Moss's books. Net asset 225,000 Adj. to Fair Value Increase in land Value 30,000 Decrease in equipment Value -5,000 25,000 Net assets at Fair Value 250,000 Selling Price 350,000 Total Goodwill 100,000 Date Journal Entry Debit Credit 1/2/2005 Cash 100,000 Land Building Equipment Copyright Goodwill Accounts payable Long-term notes payable Cash 350,000

17 AMA E12-15 Presented below is net asset information related to the Carlos Division of Santana, Inc. Carlos Division Net Assets As of December 31, 2004 Cash 50 Recieveables 200 Property, Plant, and Equipment (net) 2,600 Goodwill 200 Less: Notes Payable -2,700 Net assets 350 The purpose of the Carlos division is to develop a nuclear-powered aircraft. If successful, traveling delays associated with refueling coulb be substantially reduced. Many other benefits would also occur. To date, management has not had much success and is deciding whether a write-down at this time is appropriate. Management estimated its future net cash flows from the project to be $400 million. Management has also recieve an offer to purchase the divion for $335 million. All identifiable assets' and liabilitis' book and fair value amounts are the same. Instructions (a) Prepare the journal entry (if any) to record the impairment at December 31, (b) At Devemer 31, 2005, it is estimated that the division's fair value increased to #345 million. Prepare the journal entry (if any) to record this increase in fair value. (a) Fair Value of division 335,000,000 Net Goodwill 150,000,000 <- Cash - Recievables Implied value of Goodwill 185,000,000 Carrying value of Goodwill -200,000,000 Loss on Impairment -15,000,000 Date Journal Entry Debit Credit 12/31/04 Loss on Impairment 15,000,000 Goodwill 15,000,000 (b) No entry, denied from SFAS 142

18 AMA E12-17 Thomas More Company incurred the following costs during 2003 in connection with its research and development activities. Cost of equipment acquired that will have alternative uses in future research and development projects over the next 5 years (uses straight-line depreciation) 280,000 Materials consumed in research and development projects 59,000 Consulting fees paid to outsiders for research and development projects 100,000 Personnel costs of persons involved in research and development projects 128,000 Indirect costs reasonably allocable to research and development projects 50,000 Materials purchased for future research and development projects 34,000 Instructions Compute the amount to be reported as research and development expense by More on its income statement for Assume equipment is purchased at beginning of year. (280,000/5)=56,000 Cost of equipment acquired that will have alternative uses in future research and development projects over the next 5 years (uses straight-line depreciation) 56,000 Materials consumed in research and development projects 59,000 Consulting fees paid to outsiders for research and development projects 100,000 Personnel costs of persons involved in research and development projects 128,000 Indirect costs reasonably allocable to research and development projects 50, ,000

19 AMA Spring I 06 E8-1 Presented below is a list of items that may or may not be reported as inventory in a company s December 31 balance sheet. Yes No 1. Goods out on consignment at another company s store. 2. Goods sold on an installment basis (bad debts can be reasonably estimated). Yes 3. Goods purchased f.o.b. shipping point that are in transit at December 31. No 4. Goods purchased f.o.b. destination that are in transit at December 31. Yes No 5. Goods sold to another company, for which our company has signed an agreement to repurchase at a set price that covers all cost related to the inventory. 6. Goods sold where large returns are predictable. No 7. Goods sold f.o.b. shipping point that are in transit at December 31. Yes No No Yes No Yes Yes No Yes 8. Freights charges on good purchased. 9. Interest costs incurred for inventories that are routinely manufactured. 10. Costs incurred to advertise goods held for resale. 11. Materials on hand not yet placed into production by a manufacturing firm. 12. Office supplies. 13. Raw materials on which a manufacturing firm has started production, but which are not completely processed. 14. Factory supplies. 15. Goods held on consignment from another company. 16. Costs identified with units completed by a manufacturing firm, but no yet sold. Yes 17. Goods sold f.o.b. destination that are in transit at December 31. No 18. Short-term investments in the stocks and bonds that will be resold in the near future.

20 AMA of 2 E8-9 The Fong Sai-Yuk Company sells one product. Presented below is the information for January for the Fong Sai-Yuk Company. Cost per Date Type Units Unit Jan. 1 Inventory 100 $ Sale 80 $ Purchase 150 $ Sale 120 $ Purchase 160 $ Sale 100 $9.00 Fong Sai-Yuk use the FIFO cost flow assumption. All purchases and sales are on account. Instructions: (a) Assume Fong Sai-Yuk uses a periodic system. Prepare all necessary journal entries, including the end-of-month closing entry to record the cost of goods sold. A phsycial count indicates that the ending inventory for January is 110 units. (b) Compute the gross profit using the periodic system. (c) Assume Fong Sai-Yuk uses a perpetual system. Prepare all necessary jounal entries. (d) Compute the gross profit using the perpetual system. (a) Date Journal Entry Debit Credit Jan. 4 Accounts Recieveable 640 Sales Purchases 900 Accounts Payable Accounts Recieveable 1050 Sales Purchases 1120 Accounts Payable Account Recievable 900 Sales Inventory 770 Cost of Goods Sold 1750 Purchases 2020 Inventory 500 (b) Sales 2590 COGS 1750 G Profit 840

21 AMA of 2 (c) Date Journal Entry Debit Credit Jan. 4 Accounts Receivable 640 Cost of Goods Sold 400 Sales 640 Inventory $ Inventory 900 Accounts Payable Accounts Recieveable 1050 Cost of Goods Sold 700 Sales 1050 Inventory Inventory 1120 Accounts Payable Accounts Receivable 900 Cost of Goods Sold 650 Sales 900 Inventory 650 (d) Sales 2590 COGS 1750 G Profit 840

22 AMA E8-12 The net income per books of Linda Patrick Company was determined without knowledge of the errors indicated. Net Income Correct Year per Books Error in Ending Inverntory Amount ,000 Overstated 3,000 47, ,000 Overstated 9,000 46, ,000 Understated 11,000 74, ,000 No error 45, ,000 Understated 2,000 60, ,000 Overstated 8,000 50, , ,000

23 AMA E8-26 The following information relates to the Jimmy Johnson Company. Ending Inventory Price Date End-of-Year Prices Index 31-Dec-00 70, Dec-01 90, Dec-02 95, Dec , Dec , Instructions: Use the dollar-value LIFO method to compute the ending inventory for Johnson Company for 2000 through Proper Ending Inventory Price Ending Inventory Split Into Price Date at Current Prices Index = at Base Prices Layers x Index = 31-Dec-00 70, = 70,000 70,000 x 1.00 = 31-Dec-01 90, = 86,000 70,000 x 1.00 = 16,000 x 1.05 = 31-Dec-02 95, = 82,000 70,000 x 1.00 = 12,000 x 1.05 = 31-Dec , = 88,000 70,000 x 1.00 = 18,000 x 1.05 = 31-Dec , = 80,000 70,000 x 1.00 = 10,000 x 1.05 = Ending Inventory at Dollar-Value LIFO 70,000 70,000 16,800 86,800 70,000 12,600 82,600 70,000 18,900 88,900 70,000 10,500 80,500

24 AMA E9-3 Michael Bolton Company follows the pactice of pricing its inventory purposes at December 31, 2005, for each of the inventory items above. Item Cost Cost to Estimated Cost of Completion Normal Final Inv. No. Quantity per Unit Replace Selling Price and Disposal Profit Ceiling Floor Value , , , , , , , , , , , ,700 24,110 Floor Replacement Cost Ceiling Cost Market GAAP Lower of Cost or Market

25 AMA E9-4 Coors Company began operations in 2004 and determined its ending inventory at cost or market at December 31, This information is presented below. Cost LCM 12/31/ , ,000 12/31/ , ,000 Instructions (a) Prepare the joirnal entries required at December 31, 2004, and December 31, 2005, assuming that the inventroy is recorded at market, and a perpetual inventory system (direct method) is used. (b) Prepare jornal entries require at December 31, 2004, and December 31, 2005, assuming that the inventory is recorded at cost and an allowance account is adjusted at each year-end under a perpetual system. (c) Which of the two methods above provides the higher net income in each year? 12/31/04 Inventory Cost 346,000 12/31/04 LCM 327,000 Allowance to reduce inventory to market 19,000 12/31/05 Inventory Cost 410,000 12/31/05 LCM 395,000 Allowance to reduce inventory to market 15,000 Date Entry Debit Credit (a) 12/31/04 Cost of Goods Sold 19,000 Inventory /31/05 Cost of Goods Sold 15,000 Inventory (b) 12/31/04 Loss Due to Market Decline of Inventory 19,000 Allowance to Reduce Inventory to Market /31/05 Allowance to Reduce Inventory to Market 4,000 Loss Due to Market Decline of Inventory 4000 (c) Both (a) and (b) have the same effect on the net income.

26 AMA E9-12 Mark Price Company uses the gross profit method to estimate inventory for monthly reporting purposes. Presented below is information for the month of May. Inventory, May 1 160,000 Purchases (gross) 640,000 Freight-in 30,000 Sales 1,000,000 Sales Returns 70,000 Purchase Discounts 12,000 Instructions: (a) Compute the estimated inventory at May 31, assuming that the gross profit is 30% of sales. (b) Compute the estimated inventory at May 31, assuming that the gross profit is 30% of cost. Inventory, May 1 160,000 Inventory, May 1 160,000 Purchases (gross) 640,000 Purchases (gross) 640,000 Freight-in 30,000 Freight-in 30, , ,000 Purchase Discounts 12,000 Purchase Discounts 12,000 COGA 818,000 COGA 818,000 COGS 651,000 Ending Inventory 167, % of the sales. Sales 1,000,000 Sales 1,000,000 Sales Returns 70,000 Sales Returns 70,000 Net Sales 930,000 Net Sales 930,000 COGS 651, Gross Profit 1,581,000 COGS 715,356 COGA 818,000 COGS 715,356 Ending Inventory 102,644

27 Spring I '05 AMA or 1 E9-18 Presentted below is information related to Bobby Engram Company. Cost Retail Beginning Inventory 58, ,000 Purchases (net) 122, ,000 Net markups 10,345 Net markdowns 26,135 Sales 186,000 Instructions: (a) Compute the ending inventory at retail. (b) Compute a cost-to-retail percentage (reound to two decimals) under the following conditions. (1) Excluding both makups and markdowns. (2) Excluding markups but including markdowns. (3) Excluding markdowns but including markups. (4) Including both markdowns and markups. (c) Which of the mothods in (b) above (1,2,3,4) does the following? (1) Provides the most conservative estimate of ending inventory. (2) Provides an approximation of lower of cost or market. (3) Is used in the conventional retail method. (a) Cost Retail Beginning Inventory 58, ,000 Purchases (net) 122, ,000 Net markups 10,345 Goods Available 180, ,345 Net markdowns 26,135 Sales 186,000 Ending Inventory 98,210 (b) (1) Goods Available 180,000 B.Inv. + Pur. 300,000 (2) Goods Available 180,000 B.Inv. + Pur. - NMDs 273, % 65.73%

28 AMA E10-1 The following expenditures and receipts are related to land, land improvements, and buildings acquired for use in a business enterprise. The recepts are enclosed in parentheses. Item Description Amount Expenditure Type (a) Money borrowed to pay buidling contractor (signed a note) -275,000 Notes Payable (b) Payment for construction from not proceeds 275,000 Building (c) Cost of land fill and clearing 8,000 Land (d) Delinquent real estate taxes on property assumed by purchaser 7,000 Land (e) Premium on 6-month insurance policy during contruction completed early 6,000 Land Improvements (f) Refund of 1-month insurance premium because contrcution completed early -1,000 Land Improvements (g) Architect's fee on building 22,000 Land Improvements (h) Cost of real estate purchased (land $200,000 and building 50,000) 250,000 Land (i) Commission fee paid to real estate agency 9,000 Land Improvements (j) Installation of fenced around proptery 4,000 Land (k) Cost of razing and removing building 1,000 Building