Mount Washington College Quiz 3: Accounting Instructor Carme

Mount Washington College Quiz 3accounting Iiinstructor Carmen Frede

Mount Washington College Quiz 3 accounting Instructor: Carmen Frede

On January 3, Pedroia Corporation purchased a new machine from ABC Harvestor for $75,000. In addition, the cost to ship the machine to the Pedroia plant was $500; Pedroia Corp. insured the machine while it was in transit at a cost of $600; Pedroia Corporation paid $2,500 to repair the machine for damage caused by vandalism while in storage before installation; ABC Harvestor sent two of its men to Pedroia Corp. to help with the installation of the machine and charged Pedroia Corp. $3,200. Pedroia Corp. paid $1,500 for initial training of employees to be able run the machine. Pedroia Corp. paid $500 to repair the machine after it was in operation.

It is estimated that the machine will have a useful life of 5 years and a salvage value of $2,500. a. What is the amount that is to be debited to the plant asset account? b. What is the depreciation expense for the first three years using the double-declining balance method? Mount Washington College Quiz . Lowell Company purchased equipment on January 1, 2006 for $300,000. The equipment was expected to have a useful life of 5 years, or 12,000 hours and a salvage value of $60,000. The equipment was used for 1,975 hours during 2006, 2,875 hours during 2007, 2,600 hours during 2008, 2,975 hours during 2009, and 1,575 hours during 2010. Determine the amount of depreciation expense for the years ended December 31, 2006, 2007, 2008, 2009 and 2010 by the following methods: a. straight line b. units-of-production c. double declining balance Mount Washington College Quiz . On January 1, 2005, Francona Company purchased a machine for $220,000 with an expected life of 10 years and salvage value of $20,000. The company used double-declining balance to depreciate the asset. On April 1, 2010, the machine was sold. Required: Journalize the sale of the asset if Francona received $85,000 in cash from the sale. Mount Washington College Quiz . Brown Fitness Club used straight line depreciation for a machine that cost $120,000, under the assumption it would have a five year life and a $10,000 salvage value. After two years, Brown determined that the machine still had five more years of remaining useful life, after which it would have an estimated $12,000 salvage value. Required (a) Calculate the machine’s book value at the end of its second year. (b) Calculate the annual amount of depreciation to be charged during each of the remaining years for the machine’s revised useful life. Mount Washington College Quiz . The Rolling Group traded in an old tractor for a new tractor. The new tractor had a fair value of $135,000. Rolling received a $35,000 trade-in allowance and paid the remaining $100,000 in cash. The old tractor cost $110,000, and straight line depreciation of $70,000 has been recorded at the time of the exchange. Answer the following questions: A. What was the book value of the old tractor? B. What is the gain or loss on the exchange? C. Prepare the journal entry to record the transaction. D. Prepare the journal entry to record the transaction if the fair value of the new tractor was $145,000, and Rolling received a $45,000 trade-in for the old tractor. Mount Washington College Accounting II Quiz 1 Section 1 Multiple Choice 1. The inventory costing method that most closely matches recent costs with sales is: a. LIFO b. FIFO c. Average Cost d. Specific identification 2. If the prices of merchandise inventory are steadily rising (inflation), the method of costing that will have the highest cost remaining in inventory is: a. FIFO b. LIFO c. Average cost d. Periodic inventory 3. Which account is not used in a perpetual inventory system: a. sales b. cost of goods sold c. inventory d. purchases 4. The FIFO inventory method: a. assumes that the newest items purchased are the ones sold first. b. assumes that the oldest items purchased are the ones sold first. c. assumes that the average of all purchased items is used to determine the cost of what is sold first. d. assumes none of the above. 5. If the accountant double counted some inventory at the end of the period when valuing the inventory, what is the affect on the “books†in the current year? a. ending inventory is understated and net income is understated b. ending inventory is overstated and net income is overstated c. ending inventory is overstated and net income is understated d. ending inventory is understated and net income is overstated Accounting II – Exam I Page 2 of 5 Section 2 The units of an item available for sale during the year were as follows: Jan 1 Beginning inventory 200 units @ $10 Mar 5 Purchase 260 units @ $12 Jun 7 Purchase 170 units @ $14 Nov 1 Purchase 250 units @ $15 There are 400 units of the item in the physical inventory at the end of the year. The periodic inventory system is used. Required: Determine the cost of goods sold and the cost of the ending inventory on hand under the following methods (please show the detail of your calculations in order to assure full credit): a. FIFO b. LIFO c. Weighted Average cost Accounting II – Exam I Page 3 of 5 Section 3 Journalize the following transactions under the periodic inventory system and under the perpetual inventory system (this company uses the LIFO inventory method): May 15 - Purchased on account, 500 footballs at $14 each. May 24 - Purchased on account, 2,000 footballs at $13 each. May 28 - Sold 800 footballs on account for $20 each. Jun 1 - Returned 200 footballs from the May 24th purchase to the supplier. Jun 3 - Sold 1,100 footballs on account for $21 each. Jun 15 - Purchased on account, 1,000 footballs at $15 each. Jul 8 - Sold 1,150 footballs on account for $21 each. Accounting II – Exam I Page 4 of 5 Section 4 US Corp’ books show the following data. In early 2013, during the 2012 year-end audit, the auditors found the following inventory errors: the ending inventory for December 31, 2011 was overstated by $11, and the ending inventory for December 31, 2010 was understated by $12. The ending inventory for December 31, 2012 is correct. (Thousands) Net sales $ 418 $ 360 $ 379 Cost of goods sold: Beginning inventory $ 116 $ 121 $ 148 Net purchases $ 115 $ 100 $ 102 Cost of goods available $ 231 $ 221 $ 250 Ending inventory () $ 11 $ 12 $ 12 Cost of goods sold () $ 220 $ 209 $ 238 Gross profit $ 198 $ 152 $ 141 Operating expenses $ 102 $ 100 $ 102 Net income $ 96 $ 52 $ 39 Required: Prepare corrected income statements for the three years. Mount Washington College Quiz . In early 2013, during the 2012 year-end audit, the auditors found the following inventory errors: the ending inventory for December 31, 2011 was overstated by $11, and the ending inventory for December 31, 2010 was understated by $12. The ending inventory for December 31, 2012 is correct. (Thousands) Net sales $ 418 $ 360 $ 379 Cost of goods sold: Beginning inventory $ 116 $ 121 $ 148 Net purchases $ 115 $ 100 $ 102 Cost of goods available $ 231 $ 221 $ 250 Ending inventory () $ 11 $ 12 $ 12 Cost of goods sold () $ 220 $ 209 $ 238 Gross profit $ 198 $ 152 $ 141 Operating expenses $ 102 $ 100 $ 102 Net income $ 96 $ 52 $ 39 Required: Prepare corrected income statements for the three years. Mount Washington College Quiz. In early 2013, during the 2012 year-end audit, the auditors found inventory errors: the ending inventory for December 31, 2011 was overstated by $11, and the ending inventory for December 31, 2010 was understated by $12. The ending inventory for December 31, 2012 is correct.

Paper For Above instruction

Understanding asset acquisition and depreciation methods is fundamental in accounting. The process begins with recognizing the total cost of acquiring an asset, which includes all expenditures necessary to bring the asset to its intended use. This includes purchase price, transportation costs, insurance during transit, repair costs incurred before use, installation costs, and initial training expenses. The key aspect is accurately determining which costs qualify for capitalization versus expensing. For instance, in the case of Pedroia Corporation’s machinery purchase, the appropriate capitalized costs include the purchase price, transportation, insurance in transit, installation costs, and repair costs necessary to ready the equipment for use. Conversely, costs related to vandalism repairs and post-implementation repairs are typically expensed in the period incurred.

In accounting, depreciation methods serve to allocate the cost of an asset over its useful life systematically. Common methods include straight-line, units-of-production, and double-declining balance. The straight-line method evenly spreads the expense over the asset's useful life, calculated as (Cost - Salvage Value) / Useful Life. Units-of-production allocates costs based on usage, making it appropriate for assets with varying utilization rates, calculated as (Cost - Salvage Value) / Estimated total units or hours, multiplied by units or hours used annually. The double-declining balance method accelerates depreciation, applying double the straight-line rate to the declining book value annually, which suits assets that lose value more quickly initially.

For example, Lowell Company's equipment depreciation calculation exemplifies the practical application of these methods over varying periods and usage patterns. The choices of depreciation methods significantly impact financial statements, affecting asset valuations and reported expenses, and thus, taxable income and cash flows.

When assets are sold or traded, recognizing gains or losses hinges on comparing the asset's book value with its sale or trade-in value. For instance, Francona Company's sale of machinery involves calculating the book value at sale and comparing it with the sale price to determine gain or loss. Proper journal entries are essential to accurately reflect these transactions, including derecognition of the asset and recording cash received and any gains or losses.

Similarly, asset revaluations or adjustments, such as upgrade exchanges, require detailed analysis of accumulated depreciation, fair value, and book value. In the case of Rolling Group’s tractor trade-in, calculating the book value involves subtracting accumulated depreciation from the original cost, thereby determining the gain or loss upon exchange and recording the transaction accordingly.

Inventory costing methods directly influence financial reporting, especially during periods of inflation. FIFO assigns older costs to COGS, resulting in lower COGS and higher profits during inflation, whereas LIFO assigns newer, higher costs, increasing COGS and reducing net income. The choice affects tax liabilities and inventory valuation. In a perpetual system, inventory and cost of goods sold are updated continuously, while in a periodic system, these calculations occur at period end.

For inventory valuation, different methods such as FIFO, LIFO, Weighted Average, and Specific Identification lead to different COGS and ending inventory values, impacting gross profit and net income. Accurate journalizing of inventory transactions maintains the integrity of financial statements. The journal entries under the LIFO method, whether in perpetual or periodic systems, must reflect the specific inventory layers sold or remaining, ensuring compliance with accounting standards.

Error correction in inventory and financial statements, as illustrated with US Corp., underscores the importance of precise record-keeping and the impact of inventory misstatements on net income and operating results. Corrected statements ensure reliability and compliance with financial disclosure requirements.

Finally, in asset and inventory management, estimating inventory loss or damages due to unforeseen events like fires involves assessing the inventory’s value immediately before loss occurrences. Using prior period data, purchase and sales records, and applying cost-flow assumptions enable estimation of inventory levels and valuation, which are crucial for insurance claims and financial reporting.

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