Specific identification method. Boston Galleries uses the specific identification method for inventory valuation. Inventory information for several oil paintings follows.

		Painting	Cost
	Beginning inventory	Woods	$11,000
4/19	Purchase	Sunset	21,800
6/7	Purchase	Earth	31,200
12/16	Purchase	Moon	4,00

Woods and Moon were sold during the year for a total of $35,000. Determine the firms:

a. cost of goods sold.

b. gross profit.

c. ending inventory.

Chapter questions

1. What items are reported as inventory for (a) merchandising companies and (b) manufacturing companies?

2. What are goods on consignment? Who has title to goods on consignment?

3. Why is it necessary to take a physical count of inventory at the end of each accounting period?

4. Why is the specific identification method of inventory valuation used infrequently?

5. Discuss the difference between the physical flow of goods and a cost flow assumption.

6. In a period of rising prices, which inventory valuation method (LIFO or FIFO) tends to result in the following?

a. Highest cost of goods sold

b. Lowest inventory valuation

c. Highest income taxes

Alpha Alpha 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 machines 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.

1. Explain the proper treatment of interest costs related to the purchase of a new automobile.

2. Contrast the accounting treatments for land and land improvements.

3. Is the units-of-output method of depreciation more appropriate to use for some items of plant and equipment than for others? Why?

4. How does a change in the estimated remaining service life of a piece of equipment affect past and future depreciation amounts?