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intermediate accounting 11th
Intermediate Accounting IFRS International Adaptation 5th Edition Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield - Solutions
20. 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 wages, and this amount was added to the cost of the machinery.Discuss the propriety of the charge.
19. What accounting treatment is normally given to the following items in accounting for plant assets?a. Additions.b. Major repairs.c. Improvements.d. Replacements.
18. 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 operations in the period in which the expenditure is made. Actually, determination of whether such
17. Ito Ltd. receives a local government grant to help defray the cost of its plant facilities. The grant is provided to encourage Ito to move its operations to a certain area. Explain how the grant might be reported.
16. Crowe AG purchased a heavy-duty truck on July 1, 2022, for€30,000. It was estimated that it would have a useful life of 10 years and then would have a residual value of €6,000. The company uses the straight-line method of depreciation. It was traded on August 1, 2026, for a similar truck
15. 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.Explain to Stan the differences in accounting for these two situations.
14. 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 last month for $13,500. At what cost should the new equipment be recorded?
13. Ocampo SA 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. By appraisal, the fair value was estimated to be €500,000 for the land and €2,000,000 for the
12. 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 for cash with discounts available for prompt payment. Some of it was purchased under long-term
11. Discuss the basic accounting problem that arises in handling each of the following situations.a. Assets purchased by issuance of ordinary shares.b. Acquisition of plant assets by grant.c. Purchase of a plant asset subject to a cash discount.d. Assets purchased on a long-term credit basis.e. A
10. How should the amount of borrowing cost capitalized be disclosed in the notes to the financial statements? How should interest revenue from temporarily invested excess funds borrowed to finance the construction of assets be accounted for?
9. What interest rates should be used in determining the amount of borrowing cost to be capitalized? How should the amount of borrowing cost to be capitalized be determined?
8. Provide examples of assets that do not qualify for capitalization of borrowing costs.
7. One financial accounting issue encountered when a company constructs its own plant is whether the borrowing cost to finance construction should be capitalized and then amortized over the life of the assets constructed. What is the justification for capitalizing such interest?
6. Cruz 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 profit.How should these two tracts of land be reported in the statement of financial position?
5. The Buildings account of Postera SpA includes the following items that were used in determining the basis for depreciating the cost of a building.a. Promotion expenses.b. Architect’s fees.c. Interest during construction.d. Interest revenue on investments held to fund construction of a
4. 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 be excluded completely.b. It should be included at the same rate as is charged to normal
3. Indicate where the following items would be shown on a statement of financial position.a. A lien that was attached to the land when purchased.b. Landscaping costs to ready land for use.c. Attorney’s fees and recording fees related to purchasing land.d. Variable overhead related to construction
2. 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 and equipment.c. Buildings.
1. What are the major characteristics of plant assets?
CA8.3 (LO 1) (LCNRV) Ogala NV purchased a significant amount of raw materials inventory for a new product that it is manufacturing.Ogala uses the LCNRV rule for these raw materials. The net realizable value of the raw materials is below the original cost.Ogala uses the FIFO inventory method for
CA8.2 (LO 1) Ethics (LCNRV) The net realizable value of Lake Corporation’s inventory has declined below its cost. Allyn Conan, the controller, wants to use the loss method to write down inventory because it more clearly discloses the decline in the net realizable value and does not distort the
CA8.1 (LO 1) Writing (LCNRV) You have been asked by the financial vice president to develop a short presentation on the LCNRV method for inventory purposes. The financial VP needs to explain this method to the president because it appears that a portion of the company’s inventory has declined in
P8.11 (LO 1) Writing (LCNRV) Taipai Ltd. follows the practice of valuing its inventory at the LCNRV. The following information is available from the company’s inventory records as of December 31, 2025 (amounts in thousands).Item Quantity Unit Cost Estimated Selling Price/Unit Completion & Selling
P8.10 (LO 1, 2, 5) (Statement and Note Disclosure, LCNRV, 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 bicycle manufacturers, retailers, and catalog outlets. Since beginning
P8.9 (LO 4) Groupwork (Retail Inventory Method) Fuque Ltd. 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 of October 2025.Inventory, October 1, 2025 At cost £ 52,000 At retail
P8.8 (LO 4) (Retail Inventory Method) Presented below is information related to Waveland Inc.Cost Retail Inventory, 12/31/25 $250,000 $ 390,000 Purchases 914,500 1,460,000 Purchase returns 60,000 80,000 Purchase discounts 18,000 —Gross sales (after employee discounts) — 1,410,000 Sales returns
P8.7 (LO 4) (Retail Inventory Method) The records for the Clothing Department of Wei’s Discount Store are summarized below for the month of January (HK$ in thousands).Inventory, January 1: at retail HK$25,000; at cost HK$17,000 Purchases in January: at retail HK$137,000; at cost HK$82,500
6. Inventory with a cost of €7,000 was salvaged and sold for €3,500. The balance of the inventory was a total loss.Instructions Prepare a schedule computing the amount of inventory fire loss. The supporting schedule of the computation of the gross profit should be in good form.
5. The companies insuring the inventory agreed that Stanislaw’s fire-loss claim should be based on the assumption that the overall gross profit ratio for the past 2 years was in effect during the current year.The company’s audited financial statements disclosed this information:Year Ended
4. Customers acknowledged indebtedness of €46,000 at April 15, 2025. It was also estimated that customers owed another €8,000 that will never be acknowledged or recovered. Of the acknowledged indebtedness, €600 will probably be uncollectible.
3. Correspondence with suppliers revealed unrecorded obligations at April 15 of €15,600 for April merchandise shipments, including €2,300 for shipments in transit (f.o.b. shipping point) on that date.
2. An examination of the April bank statement and canceled checks revealed that checks written during the period April 1–15 totaled €13,000: €5,700 paid to accounts payable as of March 31, €3,400 for April merchandise shipments, and €3,900 paid for other expenses. Deposits during the same
1. The fiscal year of the company ends on December 31.
P8.6 (LO 3) Groupwork (Gross Profit Method) On April 15, 2025, fire damaged the office and warehouse of Stanislaw ASA. The only accounting record saved was the general ledger, from which the trial balance below was prepared.Stanislaw ASA Trial Balance March 31, 2025 Cash € 20,000 Accounts
P8.5 (LO 3) (Gross Profit Method) Yu Ltd. lost most of its inventory in a fire in December just before the year-end physical inventory was taken. Company records disclose the following (yen in thousands).Inventory (beginning) ¥ 80,000 Sales ¥415,000 Purchases 290,000 Sales returns 21,000 Purchase
P8.4 (LO 2) (Valuation at Net Realizable Value) Finn Berge realized his lifelong dream of becoming a vineyard owner when he was able to purchase the Hillside Vineyard at an estate auction in August 2025 for €750,000. Finn retained the Hillside name for his new business. The purchase was risky
P8.3 (LO 1) (LCNRV—Cost-of-Goods-Sold and Loss) Malone Company determined its ending inventory at cost and at LCNRV at December 31, 2025, December 31, 2026, and December 31, 2027, as shown below.Cost LCNRV 12/31/25 $650,000 $650,000 12/31/26 780,000 712,000 12/31/27 905,000 830,000 Instructionsa.
P8.2 (LO 1) Groupwork (LCNRV) Garcia Home Improvement plc installs replacement siding, windows, and louvered glass doors for single-family homes and condominium complexes. The company is in the process of preparing its annual financial statements for the fiscal year ended May 31, 2025. Jim Alcide,
P8.1 (LO 1) (LCNRV) Remmers SE manufactures desks. Most of the company’s desks are standard models and are sold on the basis of catalog prices. At December 31, 2025, the following finished desks appear in the company’s inventory.Finished Desks A B C D 2025 catalog selling price €450 €480
E8.23 (LO 5) (Analysis of Inventories) The financial statements of AB InBev’s (BEL) 2018 annual report disclosed the following information.(in millions) 31 December 2018 31 December 2017 Inventories $4,234 $4,119 Fiscal Year 2018 2017 Sales $54,619 $56,444 Cost of sales 20,359 21,386 Net income
E8.22 (LO 4) (Retail Inventory Method) The records of Mandy’s Boutique report the following data for the month of April.Sales £95,000 Purchases (at cost) £55,000 Sales returns 2,000 Purchases (at sales price) 88,000 Markups 10,000 Purchase returns (at cost) 2,000 Markup cancellations 1,500
E8.21 (LO 4) (Retail Inventory Method) Presented below is information related to Kuchinsky Company.Cost Retail Beginning inventory € 200,000 € 280,000 Purchases 1,425,000 2,140,000 Markups 95,000 Markup cancellations 15,000 Markdowns 35,000 Markdown cancellations 5,000 Sales 2,250,000
E8.20 (LO 4) (Retail Inventory Method) Presented below is information related to Luzon SA.Cost Retail Beginning inventory R$ 58,000 R$100,000 Purchases (net) 122,000 200,000 Net markups 20,000 Net markdowns 30,000 Sales 186,000 Instructionsa. Compute the ending inventory at retail.b. Compute a
E8.19 (LO 3) (Gross Profit Method) Presented below is information related to Jerrold Ltd. for the current year.Beginning inventory £ 600,000 Purchases 1,500,000 Total goods available for sale £2,100,000 Sales 2,300,000 Instructions Compute the ending inventory, assuming that (a) gross profit is
E8.18 (LO 3) (Gross Profit Method) Sliver Lumber Company handles three principal lines of merchandise with these varying rates of gross profit on cost.Lumber 25%Millwork 30%Hardware 40%On August 18, a fire destroyed the office, lumber shed, and a considerable portion of the lumber stacked in the
E8.17 (LO 3) (Gross Profit Method) Yao Ming of Rocket Ltd. calls you on July 16 and asks you to prepare a claim for insurance as a result of a theft that took place the night before. You suggest that an inventory be taken immediately. The following data are available (amounts in
E8.16 (LO 3) (Gross Profit Method) Castlevania SA lost most of its inventory in a fire in December just before the year-end physical inventory was taken. The company’s books disclosed the following.Beginning inventory R$170,000 Sales R$650,000 Purchases for the year 450,000 Sales returns 24,000
E8.15 (LO 3) (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, $3,400; purchase returns and allowances, $2,400. Sales are made at 331/3% above cost and
E8.14 (LO 3) (Gross Profit Method) Astaire ASA 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
E8.13 (LO 3) (Gross Profit Method) Each of the following gross profit percentages is expressed in terms of cost.1. 20%. 3. 331/3%.2. 25%. 4. 50%.Instructions Indicate the gross profit percentage in terms of sales for each of the above.
E8.12 (LO 2) (Purchase Commitments) At December 31, 2025, Volkan AG has outstanding noncancelable purchase commitments for 40,000 gallons, at €3.00 per gallon, of raw material to be used in its manufacturing process. The company prices its raw material inventory at lower-of-cost-or-net realizable
E8.11 (LO 2) (Purchase Commitments) Prater Company has had difficulty obtaining key raw materials for its manufacturing process. The company therefore signed a long-term, non-cancelable purchase commitment with its largest supplier of this raw material on November 30, 2025, at an agreed price of
E8.10 (LO 2) (Relative Standalone Sales Value Method) During 2025, Crawford Furniture purchases a carload of wicker chairs. The manufacturer sells the chairs to Crawford for a lump sum of £60,000 because it is discontinuing manufacturing operations and wishes to dispose of its entire stock. Three
E8.9 (LO 2) (Relative Standalone Sales Value Method) Larsen Realty Ltd. purchased a tract of unimproved land for £55,000. This land was improved and subdivided into building lots at an additional cost of £30,000. These building lots were all of the same size. However, owing to differences in
E8.8 (LO 2) (Valuation at Net Realizable Value) Mt. Horeb Alpaca Co. has a herd of 150 alpaca.The alpaca are sheared once a quarter to harvest valuable wool that is used in designer sweaters.Mt. Horeb has the following information related to the alpaca herd at July 1, 2025, and during the first
E8.7 (LO 2) (Valuation at Net Realizable Value) Matsumura Dairy began operations on April 1, 2025, with the purchase of 200 milking cows for ¥6,700,000. It has completed the first month of operations and has the following information for its milking cows at the end of April 2025 (yen in
E8.6 (LO 1) (LCNRV—Error Effect) LaGreca SA uses the LCNRV method, on an individual-item basis, in pricing its inventory items. The inventory at December 31, 2025, includes product X. Relevant per-unit data for product X are as follows.Estimated selling price €50 Cost 40 Estimated selling
E8.5 (LO 1) (LCNRV—Valuation Account) Presented below is information related to Knight Enterprises.Jan. 31 Feb. 28 Mar. 31 Apr. 30 Inventory at cost $15,000 $15,100 $17,000 $14,000 Inventory at NRV 14,500 12,600 15,600 13,300 Purchases for the month 17,000 24,000 26,500 Sales for the month 29,000
E8.4 (LO 1) (LCNRV—Journal Entries) Dover plc began operations in 2025 and determined its ending inventory at cost and at NRV at December 31, 2025, and December 31, 2026. This information is presented below.Cost Net Realizable Value 12/31/25 £346,000 £322,000 12/31/26 410,000 390,000
E8.3 (LO 1) (LCNRV) Sedato Company follows the practice of pricing its inventory at LCNRV, on an individual-item basis.Item No. Quantity Cost per Unit Estimated Selling Price Cost to Complete and Sell 1320 1,200 $3.20 $4.50 $1.60 1333 900 2.70 3.40 1.00 1426 800 4.50 5.00 1.40 1437 1,000 3.60 3.20
E8.2 (LO 1) (LCNRV) Riegel Company uses the LCNRV method, on an individual-item basis, in pricing its inventory items. The inventory at December 31, 2025, consists of products D, E, F, G, H, and I.Relevant per-unit data for these products appear below.Item Item Item Item Item Item D E F G H I
E8.1 (LO 1) (LCNRV) The inventory of Oheto Company on December 31, 2025, consists of the following items.Part No. Quantity Cost per Unit Net Realizable Value per Unit 110 600 $ 95 $100 111 1,000 60 52 112 500 80 76 113 200 170 180 120 400 205 208 121a 1,600 16 1 122 300 240 235 aPart No. 121 is
BE8.11 (LO 5) Recently, Inditex (ESP) reported ending inventory of €1,581.297 (€1,297.009 the previous year). Cost of sales were €6,486.825 and net sales were €15,946.143 (all amounts in millions).Compute Inditex’s inventory turnover and average days to sell inventory.
BE8.10 (LO 4) Boyne Inc. had beginning inventory of $12,000 at cost and $20,000 at retail. Net purchases were $120,000 at cost and $170,000 at retail. Net markups were $10,000; net markdowns were $7,000; and sales were $147,000. Compute ending inventory at cost using the conventional retail method.
BE8.9 (LO 3) Fosbre NV’s April 30 inventory was destroyed by fire. January 1 inventory was €150,000, and purchases for January through April totaled €500,000. Sales for the same period were €700,000.Fosbre’s normal gross profit percentage is 35% on sales. Using the gross profit method,
BE8.8 (LO 2) Use the information for Kemper Company from BE8.7. In 2026, Kemper paid $1,000,000 to obtain the raw materials which were worth $950,000. Prepare the entry to record the purchase.
BE8.7 (LO 2) Kemper Company signed a long-term, non-cancelable purchase commitment with a major supplier to purchase raw materials in 2026 at a cost of $1,000,000. At December 31, 2025, the raw materials to be purchased have a fair value of $950,000. Prepare any necessary December 31 entry.
BE8.6 (LO 2) Benke Ltd. buys 1,000 computer game CDs from a distributor who is discontinuing those games. The purchase price for the lot is ¥8,000. Benke will group the CDs into three price categories for resale, as indicated below (yen in thousands).Group No. of CDs Price per CD 1 100 ¥ 5 2 800
BE8.5 (LO 2) Refer to the data in BE8.4 for Keyser’s Fleece. Prepare the journal entries for (a) the wool harvested in the first 6 months of 2025, and (b) when the wool harvested is sold for €10,500 in July 2025.
BE8.4 (LO 2) Keyser’s Fleece owns a herd of sheep. Keyser shears the sheep on a semiannual basis and then sells the harvested wool into the specialty knitting market. Keyser has the following information related to the shearing sheep at January 1, 2025, and during the first 6 months of
BE8.3 (LO 1) Kumar SA uses a perpetual inventory system. At January 1, 2025, inventory was R$214,000,000 at both cost and net realizable value. At December 31, 2025, the inventory was R$286,000,000 at cost and R$265,000,000 at net realizable value. Prepare the necessary December 31 entry under (a)
BE8.2 (LO 1) Floyd SE has the following four items in its ending inventory.Item Cost Net Realizable Value (NRV)Jokers €2,000 €2,100 Penguins 5,000 4,950 Riddlers 4,400 4,625 Scarecrows 3,200 3,830 Determine (a) the LCNRV for each item, and (b) the amount of write-down, if any, using (1) an
BE8.1 (LO 1) Presented below is information related to Rembrandt Inc.’s inventory.(per unit) Skis Boots Parkas Historical cost $190.00 $106.00 $53.00 Selling price 212.00 145.00 73.75 Cost to sell 19.00 8.00 2.50 Cost to complete 32.00 29.00 21.25 Determine the following: (a) the net realizable
18. Of what significance is inventory turnover to a retail store?
17. Tesco (GBR) reported inventory in its statement of financial position as follows.Inventories £2,430,000,000 What additional disclosures might be necessary to present the inventory fairly?
16.a. Determine the ending inventory under the conventional retail method for the furniture department of Mayron Department Stores from the following data (amounts in thousands).(Round to nearest percent.)Cost Retail Inventory, Jan. 1 ¥ 149,000 ¥ 283,500 Purchases 1,400,000 2,160,000 Freight-in
15. The conventional retail inventory method yields results that are essentially the same as those yielded by the LCNRV method. Explain.Prepare an illustration of how the retail inventory method reduces inventory to net realizable value.
14. What conditions must exist for the retail inventory method to provide valid results?
13. A fire destroys all of the merchandise of Assante Company on February 10, 2025. The following is information compiled up to the date of the fire.Inventory, January 1, 2025 $ 400,000 Sales to February 10, 2025 1,950,000 Purchases to February 10, 2025 1,140,000 Freight-in to February 10, 2025
12. With annual net sales of $5 million, Adriana Co. maintains a markup of 25% based on cost. Adriana’s expenses average 15% of net sales. What is Adriana’s gross profit and net profit in dollars?
11. Distinguish between gross profit as a percentage of cost and gross profit as a percentage of sales price. Convert the following gross profit percentages based on cost to gross profit percentages based on sales price: 25% and 331⁄3%. Convert the following gross profit percentages based on
10. What are the major uses of the gross profit method?
9. At December 31, 2025, Ashley plc has outstanding purchase commitments for purchase of 150,000 gallons, at £6.20 per gallon, of a raw material to be used in its manufacturing process. The company prices its raw material inventory at cost or net realizable value, whichever is lower. Assuming that
8. Under what circumstances is relative standalone sales value an appropriate basis for determining the price assigned to inventory?
7. Briefly describe the valuation of (a) biological assets and (b) agricultural produce.
6. What exceptions might call for inventory valuation at net realizable value?
5. What method(s) might be used in the accounts to record a loss due to a price decline in the inventories? Discuss.
4. In some instances, accounting principles require a departure from valuing inventories at cost alone. Determine the proper unit inventory price in the following cases.Cases 1 2 3 4 5 Cost €15.90 €16.10 €15.90 €15.90 €15.90 Sales value 14.80 19.20 15.20 10.40 17.80 Estimated cost to
3. What approaches may be employed in applying the LCNRV procedure?Which approach is normally used and why?
2. Why are inventories valued at the lower-of-cost-or-net realizable value (LCNRV)? What are the arguments against the use of the LCNRV method of valuing inventories?
1. Where there is evidence that the utility of inventory goods, as part of their disposal in the ordinary course of business, will be less than cost, what is the proper accounting treatment?
CA7.6 (LO 3) Ethics (Inventory Choices) Wilkens Company uses the average-cost method for inventory costing. The company is having a very good year. In an effort to reduce income in the current year, company president Lenny Wilkens tells the plant accountant to take the unusual step of recommending
CA7.5 (LO 3) Writing (Average-Cost and FIFO) Draft written responses to the following items.a. Describe the cost flow assumptions used in average-cost and FIFO methods of inventory valuation.b. Distinguish between weighted-average cost and moving-average cost for inventory costing purposes.c.
CA7.4 (LO 2) (Accounting Treatment of Purchase Discounts) Feng Ltd., a household appliances dealer, purchases its inventories from various suppliers.Instructions Feng is considering alternate methods of accounting for the cash discounts it takes when paying its suppliers promptly. From a
CA7.3 (LO 2) (Inventoriable Costs) George Solti, the controller for Garrison Lumber Company, has recently hired you as assistant controller. He wishes to determine your expertise in the area of inventory accounting and therefore asks you to answer the following unrelated questions.a. A company is
CA7.2 (LO 2) (Inventoriable Costs) Carlos Beltran, an inventory control specialist, is interested in improving his understanding of the accounting for inventories. Although Carlos understands the more sophisticated computer inventory control systems, he has little knowledge of how inventory cost is
CA7.1 (LO 2) (Inventoriable Costs) You are asked to travel to Vienna, Austria, to observe and verify the inventory of the Vienna branch of one of your clients. You arrive on Thursday, December 30, and find that the inventory procedures have just been started. You spot a railway car on the sidetrack
*P7.10 (LO 3, 5) Groupwork (Financial Statement Effects of FIFO and LIFO) The management of Tritt Company has asked its accounting department to describe the effect upon the company’s financial position and its income statements of accounting for inventories on the LIFO rather than the FIFO basis
*P7.9 (LO 3, 5) Groupwork (Compute FIFO, LIFO, and Average-Cost—Periodic and Perpetual) Tsui Ltd. is a multiproduct firm. Presented below is information concerning one of its products, the Jayhawk.Date Transaction Quantity Unit Cost 1/1 Beginning inventory 1,000 NT$12 2/4 Purchase 2,000 18 2/20
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