Inventory Costing
A company buys shoes for $5,000 on October 1. They sell the shoes to customers for $7,000 on October 3. What are the two journal entries on October 3?
Dr. Cash $7,000
Cr. Revenue $7,000
Dr. COGS $5,000
Cr. Inventory $5,000
When costs are decreasing, what inventory costing method will produce the highest Gross Profit?
LIFO
What is the formula for book value(carrying value) of assets?
Historical Cost - Accumulated Depreciation
Name an example of an intangible asset that is not subject to amortization
Trademark with indefinite life, Goodwill
What are the two components of ROA?
Profit Margin and Asset Turnover
A company has an inventory cost of $4,000 on their books. At the end of the year they determine the NRV for their inventory is $3,600. What journal entry (accounts and amounts) should they record?
Dr. COGS 400
Cr. Inventory 400
In a period of rising prices, which inventory cost flow method results in the lowest balance sheet figure for inventory?
LIFO
Company U bought equipment for $100,000 with a 7 year useful life and $23,000 residual value. They use the straight-line method for depreciation. What is the journal entry to record the depreciation expense in Year 2?
Dr. Depreciation Expense 11,000
Cr. Accumulated Depreciation 11,000
($100,000-$23,000)/7 = $11,000
What is the formula to calculate goodwill?
Purchase Price - FV of net assets
OR
Purchase Price - (FV of Assets - FV of Liabilities)
OR
Purchase Price - FV of Assets + FV of Liabilities
Given the following information for a company that uses FIFO:
Beg Inventory 200 units @ $1.50/unit
1st purchase 400 units @ $1.70/unit
2nd purchase 250 units @ $1.40/unit
Sales 550 units @$3.00/unit
What is the COGS?
$895
200 x 1.50 = 300
350 x 1.70 = 595
Sales for the quarter were $13,000. Based on historical records, the company earns a 25% gross profit ratio. Beginning inventory for the quarter was $3,500 and purchases were $7,100. What is the amount of ending inventory?
$850
Beg Inventory $3,500 + Purchases $7,100 - Estimated COGS $9,750 (13,000 x .75)
Given the following information for a company that uses LIFO cost flow:
Beg Inventory 200 units @ $1.20/unit
1st purchase 400 units @ $1.30/unit
2nd purchase 250 units @ $1.40/unit
Sales 550 units @ $2.00/unit
What is the ending inventory ($)?
$370
There were 850 units available for sale (200 + 400 + 250). Ending inventory consisted of 300 units (850 units available for sale – 550 units sold). LIFO ending inventory consists of the 200 units in beginning inventory at $1.20 per unit ($240) plus 100 units from the first purchase of inventory at $1.30 ($130). Ending inventory would be $240 + $130 = $370.
Company Z bought equipment for $10,000 with a 5 year useful life and $1,000 residual value. They use the double-declining balance method for depreciation. What is the balance in accumulated depreciation at the end of Year 2?
$6,400
Year 1: (10,000 - 0) x 2 x (1/5) = 4,000
Year 2: (10,000 - 4,000) x 2 x (1/5) = 2,400
Why are internally developed asset generally expensed immediately?
Difficult to determine the portion that benefits future periods
A company buys a printer for $3,500 on January 1, Year 1. They estimate the useful life as 10 years and the residual value as $500. What is the printer's book value at the end of the 10 years?
$500
(3,500-500)/10 = 300 a year
3,500 - (300x10) = 500
A company has the following products with unit costs recorded on the books. They determine the NRV of each product at the end of the year. What is the journal entry to adjust the value of the inventory?
Product A: 40 units with cost of $120/unit and NRV of $124/unit
Product B: 30 units with cost of $84/unit and NRV of $80/unit
Product C: 50 units with cost of $170/unit and NRV of $162/unit
Dr. COGS 520
Cr. Inventory 520
*Only adjust for Products B and C
(84-80) x 30 = 120
(170-162) x 50 = 400
Given the following information for a company that uses LIFO cost flow:
Beg Inventory 200 units @ $2/unit
1st purchase 150 units @ $2.10/unit
2nd purchase 110 units @ $2.15/unit
Sales 220 units @ $3.20/unit
What is the COGS for the year?
$467.50
There were 220 units sold during the period. 110 x $2.15 = $236.50. 110 x $2.10 = $231.00. Cost of goods sold = $236.50 + $231.00 = $467.50.
Company L bought a van for $50,000 with a 5 year useful life and $10,000 residual value. They expect to use the van for 2,500 hours. They use the activity based method for depreciation. They used 800 hours in Year 1, 300 hours in Year 2, 750 hours in year 3, 400 hours in Year 4, and 300 hours in Year 5. What is the journal entry to record the depreciation expense in Year 3?
Dr. Depreciation Expense 12,000
Cr. Accumulated Depreciation 12,000
(50,000-10,000)/2,500 = 16
16 x 750 = 12,000
Footwear Inc. acquires a copyright for $50,000 with a remaining legal life of 5 years. What is the journal entry to record the expense for Year 1?
Dr. Amortization Expense 10,000
Cr. Copyright 10,000
On June 1, Year 1 Torero Blue bought equipment for $10,000 with a 3 year useful life and $1,000 residual value. They use the straight-line method for depreciation. What is the depreciation expense for Year 1?
$1,750
(10,000 - 1,000)/3 x (7/12) = 1,750
Given the following information for a company that uses weighted average cost flow:
Beg Inventory 200 units @ $1.20/unit
1st purchase 400 units @ $1.30/unit
2nd purchase 250 units @ $1.40/unit
Sales 550 units @ $2.00/unit
What is the ending inventory ($) on the balance sheet? Do not round intermediate calculations. Round your ending answer to nearest whole dollar.
$392
Total cost of goods available for sale = $1,110 [(200 x $1.20 = $240) + (400 x $1.30 = $520) + (250 x $1.40 = $350). Cost of goods available for sale $1,110 / 850 units available for sale = $1.30588 weighted-average cost per unit. $1.30588 weighted-average cost per unit x 300 units in ending inventory = $392 (rounded to nearest dollar)
Given the following information for a company that uses FIFO cost flow:
Beg Inventory 200 units @ $1.20/unit
1st purchase 400 units @ $1.30/unit
2nd purchase 250 units @ $1.40/unit
Sales 550 units @ $2.00/unit
What is the gross profit on the income statement?
$405
Sales revenue = $1,100 (550 units x $2.00). Cost of goods sold using FIFO = $695 [(200 x $1.20 = $240) + (350 x $1.30 = $455)]. Sales revenue $1,100 – cost of goods sold $695 = Gross Profit $405.
Red Cardinal Inc. purchased a printer on January 1, Year 1 for $8,000, with estimated useful life of 5 years and residual value of $3,000. At the beginning of Year 4, they sold the printer for $6,000. Assuming they use Straight-Line depreciation, what is the journal entry for the sale?
Dr. Cash 6,000
Dr. Accumulated Depreciation 3,000
Cr. Printer 8,000
Cr. Gain on Sale of Printer 1,000
(8,000-3,000)/5 = 1,000 per year
Intellectual Co. bought a patent in Year 1 for $80,000 with a legal life of 20 years and remaining useful life of 15 years. What is the amortization expense for Year 1 (round to the nearest dollar)?
$5,333
80,000/15 = 5,333.33
A company buys a printer on January 1, Year 1 for $50,000 with an expected residual value of $5,000 and 5 year useful life. The company uses straight-line depreciation. On January 1, Year 3 the company sells the printer for $15,000. What is the journal entry to record the sale?
Dr. Cash 15,000
Dr. Accumulated Depreciation 18,000
Dr. Loss on Sale of Printer 17,000
Cr. Printer 50,000
(50,000 - 5,000)/5 = 9,000 per year