ArollaLtd. is a manufacturing company. In 2020, Arolla implemented a new accounting system to account for its raw materials. Unfortunately, the new system hasn’t worked very well in some areas and, in particular, the accounting for Material XY has been a mess. The controller has asked you to have a look at the information available for Material XY and come up with the ending inventory for the fourth quarter of the year. After several days of hard work,you have obtained the following information:

a)Arollauses average cost to account for its raw material inventory. Each material category is accounted for separately. The company accounts for inventory costs using a periodic accounting system and the inventory is counted near the end of each quarter. Inventory is accounted for FOB destination point;

b)At the end of the third quarter there were10,000 kilograms of Material XY on hand with a carrying amount of $75,000;

c) During the fourth quarter Arolla made three purchasesofMaterial XY, as follows:1.October 1: 8,000 kilograms for $60,8002.November 2: 7,000kilogramsfor $53,5503.December 4: 11,000 kilograms for $83,050;

d)A shipment that was due to be delivered from a supplier on December 28 was delayed at the border and wasn’t received until January 5, 2021. That shipment had 2,000 kilograms of Material XY at a cost of $15,240;

e)Material XY is stored in a rented warehouse close to the manufacturing facility where it's used. The cost of renting the warehouse is $5,000 per month. Arolla must store Material XY to ensure that it’s on hand and available for when it's needed in the production process;

f)Arolla pays for all shipping costs of Material XY it purchases from suppliers. The shipping costs for the Material XY received in the fourth quarter were$12,400.

g)Arolla has a raw materials manager who is responsible for managing the company's materials. The raw materials manager and her team cost $100,000 in total for the fourth quarter in wages and benefits. About 10% of the raw materials manager and her team's time and effort pertain to taking care of Material XY.

h)Arolla maintains an allowance for damaged and unusable inventory that it updates at the end of each quarter. At the beginning of the fourth quarter of 2020, the balance in the allowance account was $1,350. The raw materials manager estimates that in the first quarter of 2021,210 kilograms of material XY will be found to be unusable.

i)During the fourth quarter, 30,000 kilograms of Material XY were removed from the warehouse and taken to the manufacturing facility. The cost of moving Material XY was $3,000;

j)The inventory was counted at the end of the fourth quarter. 200 kilograms were found to be unusable and had to be thrown away. The inventory count found that there were 5,700 kilograms of Material XY at the end of the fourth quarter, not including the unusable kilograms.

k)You determine that for Material XY it’s appropriate to use cost as the basis of valuation. There is no need to make any adjustments to NRV.

Prepare journal entries for each of the items listed above and prepare any adjusting entries that are necessary. Explain your treatment of each item. Calculate the amount Arollashould report for Material XY at the end of the fourth quarter. State any assumptions you make, including any accounting policies that aren’t stated.

Answer rating: 100% (QA)

Date b 01Oct 3 01Oct 0 28Dec 02Nov Purchase To XY 7000 kilograms of goods bought from ... View the full answer