HW#1

Problem 1

Vogts Company sells TVs. The perpetual inventory was stated as $28,500 on the books at December 31,
2010. At the close of the year, a new approach for compiling inventory was used and apparently a
satisfactory cut-off for preparation of financial statements was not made. Some events that occurred
are as follows.

1. TVs shipped to a customer January 2, 2011, costing $5,000 were included in inventory at
December 31, 2010. The sale was recorded in 2011.

2. TVs costing $12,000 received December 30, 2010, were recorded as received on January 2,
2011.

3. TVs received during 2010 costing $4,600 were recorded twice in the inventory account.

4. TVs shipped to a customer December 28, 2010, f.o.b. shipping point, which cost $10,000, were
not received by the customer until January, 2011. The TVs were included in the ending
inventory.

5. TVs on hand that cost $6,100 were never recorded on the books.

Instructions

Compute the correct inventory at December 31, 2010.

Problem 2

Otto Corp. purchased merchandise during 2010 on credit for $300,000; terms 2/10, n/30. All of the gross
liability except $60,000 was paid within the discount period. The remainder was paid within the 30-day
term. At the end of the annual accounting period, December 31, 2010, 90% of the merchandise had
been sold and 10% remained in inventory. The company uses a periodic system.

Instructions

(a) Assuming that the net method is used for recording purchases, prepare the entries for the purchase
and two subsequent payments.

(b) What dollar amounts should be reported for the final inventory and cost of goods sold under the (1)
net method; (2) gross method? Assume that there was no beginning inventory.
Problem 3

Jones Company was formed on December 1, 2009. The following information is available from Jones's
inventory record for Product X.

Units Unit Cost

January 1, 2010 (beginning inventory) 1,600 $18.00

Purchases:

January 5, 2010 2,600 $20.00

January 25, 2010 2,400 $21.00

February 16, 2010 1,000 $22.00

March 15, 2010 1,800 $23.00

A physical inventory on March 31, 2010, shows 2,500 units on hand.

Instructions

Prepare schedules to compute the ending inventory at March 31, 2010, under each of the following
inventory methods:

(a) FIFO Periodic

(b) FIFO Perpetual

(c) Average.Periodic

(d) Average Perpetual

HW#2 Problem 1—Lower-of-cost-or-net realizable value.

The December 31, 2010 inventory of Gwynn Company consisted of four products, for which certain
information is provided below.

Estimated Expected Estimated

Product Original Cost Completion Cost Selling Price Cost to sell

A P25 P6 P40 P4

B P42 P12 P58 P8

C P120 P25 P150 P15

D P18 P3 P26 P2

Instructions
Using the lower-of-cost-or-net realizable value approach applied on an individual-item basis, compute
the inventory valuation that should be reported for each product on December 31, 2010

Problem 2—LCNRV—Journal Entries

Dover Company began operations in 2010 and determined its ending inventory at cost and at a LCNRV
at December 31, 2010, and December 31, 2011. This information is presented below.

Cost Net Realizable Value

12/31/10 £520,000 £485,000

12/31/11 615,000 585,000

Instructions

(a) Prepare the journal entries required at December 31, 2010, and December 31, 2011, assuming
that the inventory is recorded at LCNRV, using a perpetual inventory system and the cost-of-goods-
sold method.

(b) Prepare the journal entries required at December 31, 2010, and December 31, 2011, assuming
that the inventory is recorded at cost, using a perpetual system and the loss method.

(c) Which of the two methods above provides the higher net income in each year?

Problem 3 – Relative sales value method.

Doran Realty Company purchased a plot of ground for P800,000 and spent P2,100,000 in developing it
for building lots. The lots were classified into Highland, Midland, and Lowland grades, to sell at
P100,000, P75,000, and P50,000 each, respectively.

Instructions

Complete the table below to allocate the cost of the lots using a relative sales value method.

No. of Selling Total % of Apportioned Cost

Grade Lots Price Revenue Total Sales Total Per Lot

Highland 20 P P P P

Midland 40 P P

Lowland 100 P P

160 P P
Problem 4—Gross profit method.

An inventory taken the morning after a large theft discloses P60,000 of goods on hand as of March
12. The following additional data is available from the books:

Inventory on hand, March 1 P 84,000

Purchases received, March 1 – 11 63,000

Sales (goods delivered to customers) 120,000

Past records indicate that sales are made at 50% above cost.

Instructions

Estimate the inventory of goods on hand at the close of business on March 11 by the gross profit
method and determine the amount of the theft loss. Show appropriate titles for all amounts in your
presentation.

Problem 5—Gross profit method.

Utley Co. prepares monthly income statements. Inventory is counted only at year end; thus, month-
end inventories must be estimated. All sales are made on account. The rate of mark-up on cost is 20%.
The following information relates to the month of May.

Accounts receivable, May 1 P21,000

Accounts receivable, May 31 27,000

Collections of accounts during May 90,000

Inventory, May 1 45,000

Purchases during May 58,000

Instructions

Calculate the estimated cost of the inventory on May 31.

Problem 6—Retail Inventory Method.

Presented below is information related to Kuchinsky Company.

Beginning inventory € 280,000 € 390,000

Purchases 1,820,000 3,000,000

Markups 130,000

Markup cancellations 20,000

Markdowns 47,000

Markdown cancellations 7,000

Sales 3,150,000

Instructions

Compute the inventory by the conventional retail inventory method.

Problem 7—Retail inventory method.

Presented below is information related to Carpenter Inc.

Cost Retail

Inventory, 12/31/10 P375,000 P 550,000

Purchases 1,369,000 2,050,000

Purchase returns 90,000 120,000

Purchase discounts 27,000 –

Gross sales (after employee discounts) – 2,110,000

Sales returns – 145,000

Markups – 180,000

Markup cancellations – 60,000

Markdowns – 65,000

Markdown cancellations 30,000

Freight-in 63,000 –

Employee discounts granted – 12,000

Loss from breakage (normal) – 8,000

Assuming that carpenter Inc. uses the conventional retail inventory method, compute the cost of its
ending inventory at December 31, 2011.

HW#3

Problem 1 –Valuation at Net Realizable Value.

Akimora Dairy began operations on April 1, 2010, with purchase of 250 milking cows for ¥8,500,000. It
has completed the first month of operations and has the following information for its milking cows at
the end of April 2010 (000 omitted).

Milking cows

Change in fair value due to growth and price changes* ¥(250,000)

Decrease in fair value due to harvest (15,000)

Milk harvested during April 2010 (at net realizable value) 90,000

*Due to a very high rate of calving in the past month, there is a glut of milking cows on
the market.

Instructions

(a) Prepare the journal entries for Akimora’s biological asset (milking cows) for the month of April
2010.

(b) Prepare the journal entry for the milk harvested by Akimora during April 2010.

(c) Akimora sells the milk harvested in April on the local milk exchange and receives ¥93,000.

Problem 2—Valuation at net realizable value.

Reed Mangus purchased the Hillside Vineyard at an estate auction in April 2010 for €1,250,000. The
purchase was risky because the growing season was coming to an end, the grapes must be harvested
in the next several weeks, and Reed has limited experience in carrying off a grape harvest.

At the end of the first quarter of operations, Reed is feeling pretty good about his early results.
The first harvest was a success; 500 bushels of grapes were harvested with a value of €50,000 (based
on current local commodity prices at the time of harvest). And, given the strong yield from area
vineyards during this season, the net realizable value of Reed’s vineyard has increased by €25,000 at
the end of the quarter. After storing the grapes for a short period of time, Reed was able to sell the
entire harvest for €60,000.
Instructions

(a) Prepare the journal entries for the Hillside biological asset (grape vines) for the first quarter of
operations (the beginning carrying and net realizable value is 1,250).

(b) Prepare the journal entry for the grapes harvested during the first quarter.

(c) Prepare the journal entry to record the sale of the grapes harvested in the first quarter.

(d) Determine the total effect on income for the quarter related to the Hillside biological asset and
agricultural produce.