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Questions and Answers of Accounting

Purchase Commitments at December 31, 2011, Volkan Company has outstanding non-cancelable purchase commitments for 40,000 gallons, at $3.00 per gallon, of raw material to be used in its manufacturing
Gross Profit Method Each of the following gross profit percentages is expressed in terms of cost.1. 20%.2. 25%.3. 331⁄3%.4. 50%.Indicate the gross profit percentage in terms of sales for each of
Gross Profit Method Astaire Company uses the gross profit method to estimate inventory for monthly reporting purposes. Presented below is information for the month of May.Inventory, May
Gross Profit Method Zidek Corp. requires an estimate of the cost of goods lost by fire on March 9. Merchandise on hand on January 1 was $38,000. Purchases since January 1 were $92,000; freight-in,
Gross Profit Method Castlevania Company lost most of its inventory in a fire in December just before the year-end physical inventory was taken. The corporation’s books disclosed the
Gross Profit Method You are called by Kevin Garnett of Celtic Co. on July 16 and asked to prepare a claim for insurance as a result of a theft that took place the night before. You suggest that an
Gross Profit Method Sliver Lumber Company handles three principal lines of merchandise with these varying rates of gross profit on
Gross Profit Method Presented below is information related to Jerrold Corporation for the current year. Compute the ending inventory, assuming that (a) Gross profit is 40% of sales; (b) Gross profit
Retail Inventory Method Presented below is information related to McKenna Company. (a) Compute the ending inventory at retail. (b) Compute a cost-to-retail percentage (round to two decimals) under
Retail Inventory Method Presented below is information related to Kuchinsky Company. Compute the inventory by the conventional retail inventory method.
Retail Inventory Method the records of Mandy’s Boutique report the following data for the month of April.Freight on purchases 2,400 Compute the ending inventory by the conventional retail inventory
Analysis of Inventories the financial statements of General Mills Inc.'s 2007 annual report discloses the following information. Compute General Mills's (a) Inventory turnover and (b) The average
Retail Inventory Method'Conventional and LIFO Brewster Company began operations on January 1, 2010, adopting the conventional retail inventory system. None of the company's merchandise was marked
Retail Inventory Method ?Conventional and LIFO Robinson Company began operations late in 2010 and adopted the conventional retail inventory method. Because there was no beginning inventory for 2010
Dollar-Value LIFO Retail You assembles the following information for Dillon Department Store, which computes its inventory under the dollar-value LIFO method.Increase in price level for year
Dollar-Value LIFO Retail Presented below is information related to Atrium Corporation.Compute the ending inventory under the dollar-value LIFO method at December 31, 2011. The cost-to-retail ratio
Conventional Retail and Dollar-Value LIFO Retail Mander Corporation began operations on January 1, 2010, with a beginning inventory of $34,300 at cost and $50,000 at retail. The following information
Dollar-Value LIFO Retail Springsteen Corporation adopted the dollar-value LIFO retail inventory method on January 1, 2009. At that time the inventory had a cost of $54,000 and a retail price of
Change to LIFO Retail Mueller Ltd., a local retailing concern in the Bronx, N.Y., has decided to change from the conventional retail inventory method to the LIFO retail method starting on January 1,
Lower-of-Cost-or-Market Remmers Company manufactures desks. Most of the company's desks are standard models and are sold on the basis of catalog prices. At December 31, 2010, the following finished
Lower-of-Cost-or-Market Garcia Home Improvement Company installs replacement siding, windows, and louvered glass doors for single family homes and condominium complexes in northern New Jersey and
Entries for Lower-of-Cost-or-Market'Direct and Allowance Malone Company determined its ending inventory at cost and at lower-of-cost-or-market at December 31, 2009, December 31, 2010, and December
Gross Profit Method Eastman Company lost most of its inventory in a fire in December just before the year-end physical inventory was taken. Corporate records disclose the following.Merchandise with a
Gross Profit Method On April 15, 2011, fire damaged the office and warehouse of Stanislaw Corporation. The only accounting record saved was the general ledger, from which the trial balance below was
Retail Inventory Method the records for the Clothing Department of Sharapova’s Discount Store are summarized below for the month of January.Inventory, January 1: .............................at
Retail Inventory Method Presented below is information related to Waveland Inc. Assuming that Waveland Inc. uses the conventional retail inventory method; compute the cost of its ending inventory at
Retail Inventory Method Fuque Inc. uses the retail inventory method to estimate ending inventory for its monthly financial statements. The following data pertain to a single department for the month
Statement and Note Disclosure, LCM, and Purchase Commitment Maddox Specialty Company, a division of Lost World Inc., manufactures three models of gear shift components for bicycles that are sold to
Lower-of-Cost-or-Market Fiedler Co. follows the practice of valuing its inventory at the lower-of-cost-or-market. The following information is available from the company's inventory records as of
Conventional and Dollar-Value LIFO Retail As of January 1, 2010, Aristotle Inc. installed the retail method of accounting for its merchandise inventory. To prepare the store's financial statements
Retail, LIFO Retail, and Inventory Shortage Late in 2007, Joan Seceda and four other investors took the chain of Becker Department Stores private, and the company has just completed its third year of
Change to LIFO Retail Diderot Stores Inc., which uses the conventional retail inventory method, wishes to change to the LIFO retail method beginning with the accounting year ending December 31,
Change to LIFO Retail; Dollar-Value LIFO Retail Davenport Department Store converted from the conventional retail method to the LIFO retail method on January 1, 2010, and is now considering
Lower-of-Cost-or-Market you have been asked by the financial vice president to develop a short presentation on the lower-of-cost-or-market method for inventory purposes. The financial VP needs to
Lower-of-Cost-or-Market The market value of Lake Corporation’s inventory has declined below its cost. Sheryl Conan, the controller, wants to use the allowance method to write down inventory because
Lower-of-Cost-or-Market Ogala Corporation purchased a significant amount of raw materials inventory for a new product that it is manufacturing. Ogala uses the lower-of-cost-or-market rule for these
Retail Inventory Method Saurez Company, your client, manufactures paint. The company’s president, Maria Saurez, has decided to open a retail store to sell Saurez paint as well as wallpaper and
Cost Determination, LCM, Retail Method Olson Corporation, a retailer and wholesaler of national brand-name household lighting fixtures, purchases its inventories from various suppliers.(a) (1) What
Purchase Commitments Prophet Company signed a long-term purchase contract to buy timber from the U.S. Forest Service at $300 per thousand board feet. Under these terms, Prophet must cut and pay
Retail Inventory Method and LIFO Retail Presented below are a number of items that may be encountered in computing the cost to retail percentage when using the conventional retail method or the LIFO
What are the major characteristics of plant assets?
Mickelson Inc. owns land that it purchased on January 1, 2000, for $450,000. At December 31, 2010, its current value is $770,000 as determined by appraisal. At what amount should Mickelson report
Name the items, in addition to the amount paid to the former owner or contractor, that may properly be included as part of the acquisition cost of the following plant assets.(a) Land.(b) Machinery
Indicate where the following items would be shown on a balance sheet.(a) A lien that was attached to the land when purchased.(b) Landscaping costs.(c) Attorney’s fees and recording fees related to
Two positions have normally been taken with respect to the recording of fixed manufacturing overhead as an element of the cost of plant assets constructed by a company for its own use:(a) It should
The Buildings account of Postera Inc. includes the following items that were used in determining the basis for depreciating the cost of a building.(a) Organization and promotion expenses.(b)
Burke Company has purchased two tracts of land. One tract will be the site of its new manufacturing plant, while the other is being purchased with the hope that it will be sold in the next year at a
One financial accounting issue encountered when a company constructs its own plant is whether the interest cost on funds borrowed to finance construction should be capitalized and then amortized over
Provide examples of assets that do not qualify for interest capitalization.
What interest rates should be used in determining the amount of interest to be capitalized? How should the amount of interest to be capitalized be determined?
How should the amount of interest capitalized be disclosed in the notes to the financial statements? How should interest revenue from temporarily invested excess funds borrowed to finance the
Discuss the basic accounting problem that arises in handling each of the following situations.(a) Assets purchased by issuance of capital stock.(b) Acquisition of plant assets by gift or donation.(c)
Magilke Industries acquired equipment this year to be used in its operations. The equipment was delivered by the suppliers, installed by Magilke, and placed into operation. Some of it was purchased
Schwartzkopf Co. purchased for $2,200,000 property that included both land and a building to be used in operations. The seller’s book value was $300,000 for the land and $900,000 for the building.
Pueblo Co. acquires machinery by paying $10,000 cash and signing a $5,000, 2-year, zero-interest-bearing note payable. The note has a present value of $4,208, and Pueblo purchased a similar machine
Stan Ott is evaluating two recent transactions involving exchanges of equipment. In one case, the exchange has commercial substance. In the second situation, the exchange lacks commercial substance.
Crowe Company purchased a heavy-duty truck on July 1, 2007, for $30,000. It was estimated that it would have a useful life of 10 years and then would have a trade-in value of $6,000. The company uses
Once equipment has been installed and placed in operation, subsequent expenditures relating to this equipment are frequently thought of as repairs or general maintenance and, hence, chargeable to
What accounting treatment is normally given to the following items in accounting for plant assets?(a) Additions.(b) Major repairs.(c) Improvements and replacements.
New machinery, which replaced a number of employees, was installed and put in operation in the last month of the fiscal year. The employees had been dismissed after payment of an extra month’s
To what extent do you consider the following items to be proper costs of the fixed asset? Give reasons for your opinions.(a) Overhead of a business that builds its own equipment.(b) Cash discounts on
Neville Enterprises has a number of fully depreciated assets that are still being used in the main operations of the business. Because the assets are fully depreciated, the president of the company
What are the general rules for how gains or losses on retirement of plant assets should be reported in income?
Previn Brothers Inc. purchased land at a price of $27,000. Closing costs were $1,400. An old building was removed at a cost of $10,200. What amount should be recorded as the cost of the land?
Hanson Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $1,800,000 on March 1, $1,200,000 on June 1, and $3,000,000 on December
Hanson Company (see BE10-2) borrowed $1,000,000 on March 1 on a 5-year, 12% note to help finance construction of the building. In addition, the company had outstanding all year a 10%, 5-year,
Use the information for Hanson Company from BE10-2 and BE10-3. Compute avoidable interest for Hanson Company.
Garcia Corporation purchased a truck by issuing an $80,000, 4-year, zero interest-bearing notes to Equinox Inc. The market rate of interest for obligations of this nature is 10%. Prepare the journal
Mohave Inc. purchased land, building, and equipment from Laguna Corporation for a cash payment of $315,000. The estimated fair values of the assets are land $60,000, building $220,000, and equipment
Fielder Company obtained land by issuing 2,000 shares of its $10 par value common stock. The land was recently appraised at $85,000. The common stock is actively traded at $40 per share. Prepare the
Navajo Corporation traded a used truck (cost $20,000, accumulated depreciation $18,000) for a small computer worth $3,300. Navajo also paid $500 in the transaction. Prepare the journal entry to
Use the information for Navajo Corporation from BE10-8. Prepare the journal entry to record the exchange, assuming the exchange lacks commercial substance.
Mehta Company traded a used welding machine (cost $9,000, accumulated depreciation $3,000) for office equipment with an estimated fair value of $5,000. Mehta also paid $3,000 cash in the transaction.
Cheng Company traded a used truck for a new truck. The used truck cost $30,000 and has accumulated depreciation of $27,000. The new truck is worth $37,000. Cheng also made cash payment of $36,000.
Slaton Corporation traded a used truck for a new truck. The used truck cost $20,000 and has accumulated depreciation of $17,000. The new truck is worth $35,000. Slaton also made cash payment of
Ottawa Corporation owns machinery that cost $20,000 when purchased on July 1, 2007. Depreciation has been recorded at a rate of $2,400 per year, resulting in a balance in accumulated Depreciation of
Use the information presented for Ottawa Corporation in BE10-14, but assumes the machinery is sold for $5,200 instead of $10,500. Prepare journal entries to(a) Update depreciation for 2011 and(b)
Acquisition Costs of Realty the expenditures and receipts below and on the next page are related to land, land improvements, and buildings acquired for use in a business enterprise. The receipts are
Acquisition Costs of Realty Pollachek Co. purchased land as a factory site for $450,000. The process of tearing down two old buildings on the site and constructing the factory required 6 months. The
Acquisition Costs of Trucks Shabbona Corporation operates a retail computer store. To improve delivery services to customers, the company purchases four new trucks on April 1, 2010. The terms of
Purchase and Self-Constructed Cost of Assets Dane Co. both purchases and constructs various equipment it uses in its operations. The following items for two different types of equipment were recorded
Treatment of Various Costs Allegro Supply Company, a newly formed corporation, incurred the following expenditures related to Land, to Buildings, and to Machinery and Equipment.Determine the amounts
Capitalization of Interest McPherson Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $5,000,000 on January 1, 2010.
Capitalization of Interest McPherson Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $5,000,000 on January 1, 2010.
Capitalization of Interest On December 31, 2009, Hurston Inc. borrowed $3,000,000 at 12% payable annually to finance the construction of a new building. In 2010, the company made the following
Capitalization of Interest on July 31, 2010, Bismarck Company engaged Duval Tooling Company to construct a special-purpose piece of factory machinery. Construction was begun immediately and was
Capitalization of Interest the following three situations involve the capitalization of interest.Situation IOn January 1, 2010, Columbia, Inc. signed a fixed-price contract to have Builder Associates
Entries for Equipment Acquisitions Chopin Engineering Corporation purchased conveyor equipment with a list price of $15,000. Presented below are three independent cases related to the equipment.
Entries for Asset Acquisition, Including Self-Construction Below are transactions related to Impala Company.(a) The City of Pebble Beach gives the company 5 acres of land as a plant site. The market
Entries for Acquisition of Assets Presented below are information related to Rommel Company.1. On July 6 Rommel Company acquired the plant assets of Studebaker Company, which had discontinued
Purchase of Equipment with Zero-Interest-Bearing Debt Sterling Inc. has decided to purchase equipment from Central Michigan Industries on January 2, 2010, to expand its production capacity to meet
Purchase of Computer with Zero-Interest-Bearing Debt Napoleon Corporation purchased a computer on December 31, 2009, for $130,000, paying $30,000 down and agreeing to pay the balance in five equal
Asset Acquisition Logan Industries purchased the following assets and constructed a building as well. All this was done during the current year. Assets 1 and 2 These assets were purchased as a lump
Nonmonetary Exchange Alatorre 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
Nonmonetary Exchange Montgomery Company purchased an electric wax melter on April 30, 2011, by trading in its old gas model and paying the balance in cash. The following data relate to the
Nonmonetary Exchange Santana Company exchanged equipment used in its manufacturing operations plus $2,000 in cash for similar equipment used in the operations of Delaware Company. The following
Nonmonetary Exchange McArthur Inc. has negotiated the purchase of a new piece of automatic equipment at a price of $7,000 plus trade-in, f.o.b. factory. McArthur Inc. paid $7,000 cash and traded in
Analysis of Subsequent Expenditures Accardo Resources Group has been in its plant facility for 15 years. Although the plant is quite functional, numerous repair costs are incurred to maintain it in
Analysis of Subsequent Expenditures The following transactions occurred during 2011. Assume that depreciation of 10% per year is charged on all machinery and 5% per year on buildings, on a
Analysis of Subsequent Expenditures Plant assets often requires expenditures subsequent to acquisition. It is important that they be accounted for properly. Any errors will affect both the balance

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