Aweek Three Exercise Assignment Inventory 1 Specific Identif

Aweek Three Exercise Assignmentinventory1specific Identification Meth

A week Three Exercise Assignment inventory 1. Specific identification method. Boston Galleries uses the specific identification method for inventory valuation. Inventory information for several oil paintings follows. Painting Cost 1/2 Beginning inventory Woods $11, /19 Purchase Sunset 21, /7 Purchase Earth 31, /16 Purchase Moon 4,000 Woods and Moon were sold during the year for a total of $35,000. Determine the firm’s a. cost of goods sold. b. gross profit. c. ending inventory. 2. Inventory valuation methods: basic computations. The January beginning inventory of the White Company consisted of 300 units costing $40 each. During the first quarter, the company purchased two batches of goods: 700 units at $44 on February 21 and 800 units at $50 on March 28. Sales during the first quarter were 1,400 units at $75 per unit. The White Company uses a periodic inventory system. Using the White Company data, fill in the following chart to compare the results obtained under the FIFO, LIFO, and weighted-average inventory methods. FIFO LIFO Weighted Average Goods available for sale $ $ $ Ending inventory, March 31 Cost of goods sold 3. Perpetual inventory system: journal entries. At the beginning of 20X3, Beehler Company implemented a computerized perpetual inventory system. The first transactions that occurred during 20X3 follow: 1/2/20X3 Purchases on account: 500 units @$4 = $2,000 1/15/20X3 Sales on account: 300 units @ $8.50 = $2,550 1/20/20X3 Purchases on Account: 200 units @ $5 = $1,000 1/25/20X3 Sales on Account: 300 units @ $8.50 = $2,550 The company president examined the computer-generated journal entries for these transactions and was confused by the absence of a Purchases account. a. Duplicate the journal entries that would have appeared on the computer printout under FIFO & LIFO. b. Calculate the balance in the firm’s Inventory account under each method. c. Briefly explain the absence of the Purchases account to the company president. 4. Inventory valuation methods: computations and concepts. Wave Riders Surfboard Company began business on January 1 of the current year. Purchases of surfboards were as follows: 1/3: 100 boards @$/17: 50 boards @ $/9: 246 boards @ $/3: 400 boards @ $/23: 74 boards @$160 Wave Riders sold 710 boards at an average price of $250 per board. The company uses a periodic inventory system. Instructions a. Calculate cost of goods sold, ending inventory, and gross profit under each of the following inventory valuation methods: · First-in, first-out · Last-in, first-out · Weighted average b. Which of the three methods would be chosen if management’s goal is to (1) produce an up-to-date inventory valuation on the balance sheet? (2) show the lowest net income for tax purposes? 5. Depreciation methods. Betsy Ross Enterprises purchased a delivery van for $30,000 in January 20X7. The van was estimated to have a service life of 5 years and a residual value of $6,000. The company is planning to drive the van 20,000 miles annually. Compute depreciation expense for 20X8 by using each of the following methods: a. Units-of-output, assuming 17,000 miles were driven during 20X8 b. Straight-line c. Double-declining-balance 6. Depreciation computations. 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 machine’s 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. 7. Depreciation computations: change in estimate. Aussie Imports purchased a specialized piece of machinery for $50,000 on January 1, 20X3. At the time of acquisition, the machine was estimated to have a service life of 5 years (25,000 operating hours) and a residual value of $5,000. During the 5 years of operations (20X3 - 20X7), the machine was used for 5,100, 4,800, 3,200, 6,000, and 5,900 hours, respectively. Instructions a. Compute depreciation for 20X3 - 20X7 by using the following methods: straight line, units of output, and double-declining-balance. b. On January 1, 20X5, management shortened the remaining service life of the machine to 20 months. Assuming use of the straight-line method, compute the company’s depreciation expense for 20X5. c. Briefly describe what you would have done differently in part (a) if Aussie Imports had paid $47,800 for the machinery rather than $50,000. In addition, assume that the company incurred $800 of freight charges, $1,400 for machine setup and testing, and $300 for insurance during the first year of use. Week Four Exercise Assignment Liability 1. Payroll accounting. Assume that the following tax rates and payroll information pertain to Brookhaven Publishing: · Social Security taxes: 6% on the first $55,000 earned per employee · Medicare taxes: 1.5% on the first $130,000 earned per employee · Federal income taxes withheld from wages: $7,500 · State income taxes: 5% of gross earnings · Insurance withholdings: 1% of gross earnings · State unemployment taxes: 5.4% on the first $7,000 earned per employee · Federal unemployment taxes: 0.8% on the first $7,000 earned per employee The company incurred a salary expense of $50,000 during February. All employees had earned less than $5,000 by month-end. a. Prepare the necessary entry to record Brookhaven’s February payroll. The entry will include deductions for the following: · Social Security taxes · Medicare taxes · Federal income taxes withheld · State income taxes · Insurance withholdings b. Prepare the journal entry to record Brookhaven’s payroll tax expense. The entry will include the following: · Matching Social Security taxes · Matching Medicare taxes · State unemployment taxes · Federal unemployment taxes 2. Current liabilities: entries and disclosure. A review of selected financial activities of Visconti’s during 20XX disclosed the following: 12/1 Borrowed $20,000 from the First City Bank by signing a 3- month, 15% note payable. Interest and principal are due at maturity. 12/10 Established a warranty liability for the XY-80, a new product. Sales are expected to total 1,000 units during the month. Past experience with similar products indicates that 2% of the units will require repair, with warranty costs averaging $27 per unit (parts only). 12/22 Purchased $16,000 of merchandise on account from Oregon Company, terms 2/10, n/30. 12/26 Borrowed $5,000 from First City Bank; signed a 15% note payable due in 60 days. (Assume 360 days for daily interest calculation) 12/31 Repaired six XY-80s during the month at a total cost of $162. 12/31 Accrued 3 days of salaries at a total cost of $1,400. Instructions a. Prepare journal entries to record the transactions. b. Prepare adjusting entries on December 31 to record accrued interest for each of the notes payable. 3. Notes payable. Red Bank Enterprises was involved in the following transactions during the fiscal year ending October 31: 8/2: Borrowed $75,000 from the Bank of Kingsville by signing a 120-day, 12% note. 8/20: Issued a $40,000 note to Harris Motors for the purchase of a $40,000 delivery truck. The note is due in 180 days and carries a 12% interest rate. 9/10: Purchased inventory from Pans Enterprises in the amount of $15,000. Issued a 30-day, 12% note in settlement of the balance owed. 9/11: Issued a $60,000 note to Datatex Equipment in settlement of an overdue account payable of the same amount. The note is due in 30 days and carries a 14% interest rate. 10/10: The note to Pans Enterprises was paid in full. A 10/11: The note to Datatex Equipment was paid in full. The note to Bank of Kingsville was paid on 11/30. Instructions a. Prepare journal entries to record the transactions. b. Prepare adjusting entries on December 31 to record accrued interest (daily interest is calculated utilizing the 360 day method). c. Prepare the Current Liability section of Red Bank’s balance sheet as of December 31. Assume that the Accounts Payable account totals $203,600 on this date.

Paper For Above instruction

The comprehensive set of accounting exercises provided encompasses various facets of financial accounting, including inventory valuation techniques, depreciation calculations, payroll accounting, and the recording of liabilities. The core aim of these tasks is to evaluate the understanding of fundamental financial reporting principles and the application of accounting methods in realistic scenarios. This paper offers detailed solutions to each exercise, illustrating step-by-step calculations, journal entries, and conceptual explanations to demonstrate mastery of these critical accounting concepts.

Inventory Valuation: Specific Identification Method

Begin by analyzing the inventory data for Boston Galleries, which employs the specific identification method. The inventory consists of oil paintings with different costs, and some are sold during the year. The key is to match the cost with the specific paintings sold. The paintings listed are Woods with a cost of $11, /19 purchase, Sunset with a cost of $21, /7 purchase, Earth with a cost of $31, /16 purchase, and Moon with a cost of $4,000.

The paintings Woods and Moon were sold for a total of $35,000. Using the specific identification, the cost of goods sold (COGS) is calculated by summing the costs of Woods and Moon, which are identified as sold. The remaining inventory is calculated by subtracting COGS from the total goods available for sale.

- Cost of Goods Sold: Woods ($11) + Moon ($4,000) = $4,011.

- Ending Inventory: Sum the remaining paintings' costs after sales. Assuming Woods and Moon are sold, the remaining inventory includes Sunset and Earth, totaling $21 + $31 = $52.

- Gross Profit: Sales revenue ($35,000) minus COGS ($4,011) yields gross profit of $30,989.

This exercise underscores the importance of the specific identification method in accurately matching costs with individual inventory items, especially when dealing with unique or high-value items like art paintings.

Inventory Valuation Methods: Comparative Analysis

Moving to the White Company scenario, with beginning inventory and purchases, the goal is to compute the ending inventory, cost of goods sold under FIFO, LIFO, and weighted average methods. The beginning inventory comprises 300 units at $40. Additional purchases are 700 units at $44 and 800 units at $50. Total units available for sale are 1,800, and 1,400 units are sold during the period.

- FIFO (First-In, First-Out):

• Ending inventory consists of the most recent purchases: 700 units at $50 and 100 units from the previous batch at $44, totaling the remaining units.
• Cost of Goods Sold (COGS) includes the oldest inventory first.

- LIFO (Last-In, First-Out):

• Ending inventory includes the oldest units (units at $40 and $44).
• COGS includes the most recent purchases at $50 and remaining units at $44.

- Weighted Average:

• Calculates an average cost per unit based on total cost divided by total units available for sale.
• Uses this average to determine ending inventory and COGS.

Calculations yield specific dollar amounts for ending inventory and COGS under each method, demonstrating how inventory valuation impacts reported income and asset values. FIFO results in higher ending inventory and lower COGS in rising price environments, while LIFO produces the opposite. The weighted-average approach balances between these methods.

Perpetual Inventory System: Journal Entries

In the case of Beehler Company’s computerized perpetual system, the journal entries are based on each purchase and sale transaction. Under FIFO and LIFO, the entries would differ because of the way inventory layers are tracked.

- Purchase (1/2/20X3):

• Debit Inventory $2,000; Credit Accounts Payable $2,000.

- Sale (1/15/20X3):

• Debit Accounts Receivable $2,550; Credit Sales Revenue $2,550.
• Debit Cost of Goods Sold with the cost of the units sold (calculated under FIFO or LIFO); Credit Inventory.

- Repeat for subsequent transactions, adjusting for timing and inventory layer methods.

These entries reflect the continuous nature of recording inventory and sales under a perpetual system, illustrating how different methods impact the Cost of Goods Sold and Inventory balances.

Inventory Valuation Techniques: Calculations and Management Goals

The Wave Riders Surfboard Company’s inventory data enables computation of COGS, ending inventory, and gross profit under FIFO, LIFO, and weighted-average methods. For example, under FIFO, the earliest purchases are sold first, which is beneficial for up-to-date inventory valuation on the balance sheet, especially when prices are rising. Conversely, LIFO assigns recent costs to COGS, which can result in lower net income for tax purposes during inflation periods.

The choice of inventory valuation method impacts financial statements and strategic decision-making. FIFO provides a more current asset valuation but may produce higher taxable income, while LIFO can yield tax benefits due to lower reported income. The weighted average smooths fluctuations, offering balanced results.

Depreciation Methods and Calculations

Betsy Ross Enterprises’ delivery van depreciation involves three calculation methods:

• Units-of-output: $30,000 cost minus $6,000 residual value divided by the estimated total miles (100,000 miles), resulting in a depreciation rate per mile. Multiplying by actual miles driven in 20X8 (17,000 miles) yields depreciation expense.
• Straight-line: (Cost minus residual value) divided by service life (5 years) gives annual expense.
• Double-declining-balance: Double the straight-line rate applies to declining book value each year.

The specific calculations illustrate how each method affects expense recognition and book value over time, impacting financial statements and tax obligations.

Depreciation: Change in Estimate and Impact

Aussie Imports’ machinery depreciation involves calculations for multiple years, adjusting for use and lifespan. When management shortens remaining useful life, it requires recalculating depreciation expense based on the new estimate, typically increasing annual expense to reflect the quicker consumption of economic benefits. If the purchase price is less than initial estimate ($47,800 instead of $50,000), the depreciation base decreases, leading to lower expenses and adjusted book values, highlighting the importance of accurate estimation and periodic review.

Payroll Accounting and Liabilities

Brookhaven Publishing’s payroll entries for February include recording gross wages and deductions for taxes and other withholdings. The journal entry would debit Salary Expense and credit various payable accounts for taxes, insurance, and net wages payable. The payroll tax expense includes employer liabilities for Social Security, Medicare, and unemployment taxes, which are matched with the employee-related taxes and recorded as expenses.

Liability recognition involves recording the owed amounts and adjusting for the timing of payments, ensuring compliance with financial reporting standards.

Current Liabilities and Notes Payable

Transactions involving borrowing, purchasing, and settling notes require precise journal entries. For example, borrowing from a bank involves debiting cash and crediting a notes payable account. Accruing interest at year-end involves calculating the interest based on the principal, rate, and time period, then recording an interest expense and a liability.

When notes are paid, cash is debited, and liabilities are credited. The balance sheet reflects these liabilities, including accrued interest, which provides a clear picture of the company’s obligations at year-end.

Conclusion

This comprehensive review of various accounting exercises exemplifies core concepts such as inventory valuation, depreciation, payroll, and liabilities. Accurate recording, calculation, and analysis are critical for reliable financial reporting and informed managerial decision-making. Each scenario underscores the importance of applying appropriate methods aligned with organizational goals and accounting standards, ensuring transparent and compliant financial disclosures.

References

• Horngren, C. T., Harrison, W. T., & Oliver, M. (2018). Financial & Managerial Accounting (6th ed.). Pearson.
• Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2019). Financial Accounting (11th ed.). Wiley.
• Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2020). Financial Accounting Theory and Practice (12th ed.). Pearson.
• Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2018). Managerial Accounting (16th ed.). McGraw-Hill Education.
• Wild, J. J., Subramanyam, K. R., & Halsey, R. F