Streuling Inc. is preparing its 2013 year-end financial statements. Prior to any adjustments, inventory is valued at $76,050. The following information has been found relating to certain inventory transactions: (a) Goods valued at $11,000 are on consignment with a customer. These goods are not included in the $76,050 inventory figure. (b) Goods costing $2,700 were received from a vendor on January 5, 2014. The related invoice was received and recorded on January 12, 2014. The goods were shipped on December 31, 2013, terms FOB shipping point. (c) Goods costing $8,500 were shipped on December 31, 2013, and were delivered to the customer on January 2, 2014. The terms of the invoice were FOB shipping point. The goods were included in ending inventory for 2013 even though the sale was recorded in 2013. (d) A $3,500 shipment of goods to a customer on December 31, terms FOB destination, was not included in the year-end inventory. The goods cost $2,600 and were delivered to the customer on January 8, 2014. The sale was properly recorded in 2014. (e) An invoice for goods costing $3,500 was received and recorded as a purchase on December 31, 2013. The related goods, shipped FOB destination, were received on January 2, 2014, and thus were not included in the physical inventory. (f) Goods valued at $6,500 are on consignment from a vendor. These goods are not included in the year-end inventory figure. (g) A $10,500 shipment of goods to a customer on December 30, 2013, terms FOB destination, was recorded as a sale in 2013. The goods, costing $8,200 and delivered to the customer on January 6, 2014, were not included in 2013 ending inventory. Instructions: 1. Determine the appropriate accounting treatment for each of the preceding items. Justify your answers. 2. Compute the proper inventory amount to be reported on Streuling Inc.’s balance sheet for the year ended December 31, 2013. 3. By how much would net income have been misstated if no adjustments were made for the above transactions? Ignore income taxes.
> What objections can be raised to the use of the specific identification method?
> (a) What are the two methods of accounting for cash discounts? (b) Which method is generally preferred? Why?
> What is the appropriate way to account for inventory sold under a repurchase agreement?
> How should (a) Consigned goods and (b) Installment sales be treated in computing year-end inventory costs?
> Are all transactions with foreign companies classified as foreign currency transactions? If not, what determines if a transaction is a foreign currency transaction?
> What journal entry is made when a purchase commitment is originally entered into? Explain.
> When applying the dollar-value LIFO retail method: (a) How do beginning inventory values impact the computation of the cost percentage? (b) How are markdowns treated?
> What four questions are associated with the accounting for inventory?
> Indexes are used for two different purposes in computing the cost of LIFO layers with dollar-value LIFO. Clearly distinguish between these uses and describe how the indexes are applied.
> What are the major advantages of dollar-value LIFO?
> Using the following information, compute cash paid for dividends. Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,000
> What is a bill-and-hold arrangement? Under what circumstances may a seller recognize revenue before shipment on a bill-and-hold arrangement?
> What types of side agreements can turn a sale into a consignment?
> Why does Question 1 in SAB 101 emphasize the proper signing of a sales agreement?
> What four revenue recognition factors are identified in AICPA Statement of Position (SOP) 97-2, and how do these four factors relate to the two general revenue recognition criteria?
> What is the relationship between the construction in progress account and the progress billings on construction contracts account? How should these accounts be reported on the balance sheet?
> Distinguish between the cost-to-cost method and efforts-expended method of measuring the percentage of completion.
> Under what conditions is percentage-of completion accounting recommended for construction contractors?
> Under what conditions would the cash method of recognizing revenue be acceptable for reporting purposes?
> What are the three basic steps in applying the contract method for revenue recognition?
> The normal accounting entries for installment sales require keeping a separate record by year of receivables, collections on receivables, and the deferred gross profit percentages. Why are these separate records necessary?
> On the balance sheets of many companies, the largest classification of assets in amount is noncurrent operating assets. Name the items, other than the amount paid to the former owner or contractor, that may be properly included as part of the acquisition
> Under what general conditions is the installment sales method of accounting preferred to the full accrual method?
> Distinguish among the three different approaches to revenue recognition that await the receipt of cash. How does the treatment of costs incurred vary depending on the approach used?
> The proportional performance method spreads the profit over the periods in which services are being performed. What arguments could be made against this method of revenue recognition for newly formed service-oriented companies?
> What input and output measures usually are applicable to the proportional performance method for long-term service contracts?
> How are anticipated contract losses treated under the completed-contract and percentage of-completion methods?
> The gross profit percentage reported on long term construction contracts often varies from year to year. What is the major reason for this variation?
> What is meant by imputing a rate of interest? How is such a rate determined?
> When a measure of percentage of completion other than cost-to-cost is used, the amount of cost charged against revenue using the percentage of completion usually will be different from the costs incurred. What accounting alternative exists to make it so
> (a) When should a note receivable be recorded at an amount different from its face amount? (b) Describe the procedures employed in accounting for the difference between a note’s face amount and its recorded value.
> Under FASB ASC Subtopic 605-25, what are the three different methods for determining the separate selling price of a single element in a multiple-element transaction?
> Refer to Practice 5-17. Compute the amount of cash received from the sale of the property, plant, and equipment. In Practice 5-17 Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,700 D
> Under U.S. GAAP, what three conditions must be met to record the transfer of receivables with recourse as a sale?
> (a) Distinguish between the practices of (1) Selling receivables and (2) Using receivables as collateral for borrowing. (b) Describe the accounting procedures to be followed in each case.
> How are attitudes regarding the financing of accounts receivable changing? Why do you think this is so?
> (a) Give at least four common sources of differences between depositor and bank balances. (b) Which of the differences in (a) require an adjusting entry on the books of the depositor?
> Mills Manufacturing is required to maintain a compensating balance of $15,000 with its bank to maintain a line of open credit. The compensating balance is legally restricted as to its use. How should the compensating balance be reported on the balance sh
> Melvin Company shows in its accounts a cash balance of $66,500 with Bank A and an overdraft of $1,500 with Bank B on December 31. Bank B regards the overdraft as, in effect, a loan to Melvin Company and charges interest on the overdraft balance. How woul
> The following items were included as cash on the balance sheet for Lawson Co. How should each of the items have been reported? (a) Demand deposits with bank (b) Restricted cash deposits in foreign banks (c) Bank account used for payment of salaries and w
> Why is cash on hand necessary yet potentially unproductive?
> (a) How is accounts receivable turnover computed? (b) How is average collection period computed? (c) What do these two measurements show?
> Why should a company normally account for product warranties on an accrual basis?
> Distinguish between the full cost and successful efforts methods of recording exploratory costs for oil and gas properties.
> An analysis of the accounts receivable balance of $8,702 on the records of Jorgenson, Inc., on December 31 reveals the following: Accounts from sales of last three months (appear to be fully collectible). . . . . . . . . . . . . $7,460 Accounts from sal
> In accounting for uncollectible accounts receivable, why does GAAP require the allowance method rather than the direct write-off method?
> (a) Describe the methods for establishing and maintaining an allowance for bad debts account. (b) How would the percentages used in estimating uncollectible accounts be determined under each of the methods?
> Explain how each of the following factors affects the classification of a receivable: (a) The form of a receivable, (b) The source of a receivable, and (c) The expected time to maturity or collection.
> The Gidewall Corporation uses part 210 in a manufacturing process. Information as to balances on hand, purchases, and requisitions of part 210 is given in the following table: Instructions: What is the closing inventory under each of the following pri
> The following information is available for Granite Inc. Instructions: Compute the missing amounts.
> Kyoto Manufacturing produces automobile mufflers, which are then sent to the United States where they are installed in domestically built cars. Truck Inc., a U.S. auto company, received a shipment of mufflers on December 15, 2012. The mufflers were subse
> Wittenbecher’s, a German company that supplies your firm with a necessary raw material, recently shipped 15,000 units of the material to your production facility. 1. Prepare the necessary journal entries to record the purchase of the goods and the subseq
> On October 1, 2013, Sloan Oil Inc. entered into a 6-month, $650,000 purchase commitment for a supply of oil. On December 31, 2013, the market value of oil had fallen to $563,000. Make the journal entries necessary on December 31, 2013, and on March 31, 2
> Using the following information, compute cash paid to purchase property, plant, and equipment. Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,700 During the year, property, plant, an
> On February 15, 2014, Rooker, Madras & Associates compiled the following information concerning inventory for five years. They used the dollar-value LIFO retail inventory method. Compute the inventory cost at the end of each year under the dollar-v
> Jennifer Inc. adopted dollar-value LIFO on December 31, 2010. Data for 2010–2013 follow: Inventory and index on the adoption date, December 31, 2010: Dollar-value LIFO inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> The company reported the following inventory data for the year: Compute (1) Cost of goods sold and (2) Ending inventory assuming (a) FIFO inventory valuation, (b) LIFO inventory valuation, and (c) Average cost inventory valuation. The company use
> The Wernli Manufacturing Company manufactures a single product. The managers, Brandon and Chris Wernli, decided on December 31, 2010, to adopt the dollar-value LIFO inventory method. The inventory value on that date using the newly adopted dollar-value L
> Miller Mfg. has one LIFO pool. Information relating to the products in this pool is as follows: Beginning inventory, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 units @ $10 each Purchase, February 12 . . . .
> Carmel Department Store uses the retail inventory method. On December 31, 2013, the following information relating to the inventory was gathered: Compute the ending inventory value at December 31, 2013, using the: 1. Average cost method 2. Lower-of-cos
> The Help-U-Succeed Bookstore recently received a shipment of accounting textbooks from the publisher. Following the receipt of the shipment, the FASB issued a major new accounting standard that related directly to the contents of one chapter of the text.
> The Evening Out Clothing Store values its inventory using the retail inventory method. The following data are available for the month of November 2013: Compute the estimated inventory at November 30, 2013, assuming: 1. FIFO 2. LIFO 3. Average cost
> The Rigby Supplement Company showed the following data in its financial statements. 1. Compute the number of days’ sales in average inventory for both 2012 and 2013. What can you infer from these numbers? 2. How would you interpret th
> The Manwaring Products Company’s inventory record appears below. The company uses a LIFO cost flow assumption. It reported ending inventories as follows for its first three years of operations: 2011 . . . . . . . . . . . . . . . . .
> The company paid $500,000 to purchase the following: a building with an appraised value of $200,000, an operating permit valued at $100,000, and ongoing research and development projects valued at $150,000. In addition, it is estimated that the fair valu
> The Martin Company reported income before taxes of $370,000 for 2012 and $526,000 for 2013. A later audit produced the following information: (a) The ending inventory for 2012 included 2,000 units erroneously priced at $5.90 per unit. The correct cost wa
> Annual income for the Stoker Co. for the period 2009–2013 appears below. However, a review of the records for the company reveals inventory misstatements as listed. Calculate corrected net income for each year.
> On June 30, 2013, a flash flood damaged the warehouse and factory of Magna Corporation, completely destroying the work-in-process inventory. There was no damage to either the raw materials or finished goods inventories. A physical inventory taken after t
> On May 23, the company purchased $500,000 in inventory on account. The purchase terms are 2/10, n/30. Make the journal entries to record the purchase of and subsequent payment for these goods assuming: (1) The company uses the net method and paid for th
> On August 15, 2013, a hurricane damaged a warehouse of Rheinhart Merchandise Company. The entire inventory and many accounting records stored in the warehouse were completely destroyed. Although the inventory was not insured, a portion could be sold for
> Napali Inc. sells new equipment with a $5,300 list price. A dissatisfied customer returned one piece of equipment. Napali determines that the returned equipment can be resold if it is reconditioned. The expected sales price of the reconditioned equipment
> The Crevier Corporation began business on January 1, 2013. The following table shows information about inventories, as of December 31, for three consecutive years under different valuation methods. Assume that purchases are $60,000 each year. Using this
> Newcomer, Inc., values inventories using the lower-of-cost-or-market method applied to total inventory. Inventory values at the end of the company’s first and second years of operation follow. 1. Prepare the journal entries necessary
> The following inventory data are available for Nordic Ski Shop at December 31. 1. Determine the value of ending inventory using the lower-of-cost-or-market method applied to (a) Individual items and (b) Total inventory. 2. Prepare any journal entries re
> Determine the proper carrying value of the following inventory items.
> Using the following information, compute cash paid for operating expenses. Operating expenses: Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,000 Insurance . . . . . . . . . . .
> Assume the Bullock Corporation had the following purchases and sales of its single product during its first three years of operation. Cost of goods sold is Bullock’s only expense. The income tax rate is 40%. 1. Determine the net incom
> First-in, first-out has been used for inventory valuation by the Bartlett Co. since it was organized in 2010. Using the data that follow, redetermine the net incomes for each year on the assumption of inventory valuation on the last-in, first-out basis:
> A note to the financial statements of Highland Inc. at December 31, 2013, reads as follows: Because of the manufacturer’s production problems for our Humdinger Limited line, our inventories were unavoidably reduced. Under the LIFO inven
> Harrison Lumber Company uses a periodic LIFO method for inventory costing. The following information relates to the plywood inventory carried by Harrison Lumber. Plywood inventory: Plywood purchases: May 8 . . . . . . . . . . . . . . . . . . . . . . .
> The Atlas Company sells product T. During a move to a new location, the inventory records for product T were misplaced. The bookkeeper has been able to gather some information from the sales records and gives you the data shown below. July sales: 82,100
> A flood recently destroyed many of the financial records of Yak Manufacturing Company. Management has hired you to re-create as much financial information as possible for the month of July. You are able to find out that the company uses an average cost i
> White Farm Supply’s records for the first three months of its existence show purchases of commodity Y2 as follows: The inventory of commodity Y2 at the end of October using FIFO is valued at $36,390. 1. Assuming that none of commodity
> Dutch Truck Sales sells semitrailers. The current inventory includes the following five semitrailers (identical except for paint color) along with purchase dates and costs: On May 20, 2013, a trucking firm purchased semitrailer 3 from Dutch for $86,000
> Brooklyn Corporation had the following transactions relating to product X during September. Determine the ending inventory value under each of the following costing methods: 1. FIFO (perpetual) 2. FIFO (periodic) 3. LIFO (perpetual) 4. LIFO (periodic)
> The Webster Store shows the following information relating to one of its products. Inventory, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250 units @ $17.00 Sales, January 8 . . . . . . . . . . .
> Refer to Practice 10-14. Assume that the cash acquisition price is $720,000 instead of $1,400,000. Make the journal entry necessary on the books of Stafford Company to record the acquisition. In Practice 10-14 Stafford Company purchased Deaver Manufactu
> Using the following information, compute cash flow from operating activities, cash flow from investing activities, and cash flow from financing activities. ________________________________________Cash Inflow (Outflow) (a) Cash received from sale of a bu
> On December 3, Ainge Printing purchased inventory listed at $7,400 from Craig Paper Supply. Terms of the purchase were 3/10, n/20. Ainge Printing also purchased inventory from Tippetts Ink Wholesale on December 10 for a list price of $10,300. Terms of th
> The following quarterly cost data have been accumulated for Oakeson Mfg. Inc: Raw materials—beginning inventory (Jan. 1, 2013) . . . . . . . . . . . . . . . . . . . . . . . 80 units @ $6.50 Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . .
> Beginning inventory for the period was $220,000. Purchases for the period totaled $720,000 and sales were $1,250,000. A physical count of ending inventory revealed inventory of $145,000. (1) Compute cost of goods sold assuming that a periodic system is u
> During the month the company purchased inventory on account for $3,000. Sales (all on account) during the period totaled $11,200. The items sold had a cost of $4,500. Cash collections on account during the period totaled $9,750. Make the journal entries
> Refer to Practice 8-7. Assume that the company employs an output measure to estimate the percentage of completion. In particular, the company measures its progress by the number of trail feet that have been completed. Compute the amount of revenue to be
> The company signed an $880,000 contract to build an environmentally friendly access trail to South Willow Lake. The project was expected to take approximately three years. The following information was collected for each year of the projectâ€&
> You are the president and founder of Gold Strike Inc., a mining company that acquires land and mines gold. The success of your company is largely dependent on finding large deposits of gold. To do this requires expensive geological surveys and testing. Y
> Many large electronics retailers offer very easy credit terms when a customer purchases their products. For example, a company might offer its customers a “$0 down, no payments for 12 months” payment option when purchasing a big-screen television. In a c
> Lockheed Martin Corporation “principally researches, designs, develops, manufactures, integrates, operates and sustains advanced technology systems and products, and provides a broad range of management, engineering, technical, scientific, logistic and i
> Ben & Jerry’s Homemade, Inc., an ice cream manufacturer, was acquired by Unilever in 2000. Before that, Ben & Jerry’s was a publicly traded company. Below is the revenue recognition note for Ben & Jerry’s from its 1998 annual report: Revenue Recognition
> Using the following information, compute cash collected from customers. Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,000 End of Year Beginning of Year Accounts recei
> Review the following note relating to revenue recognition for Siskon Gold Corporation, a company “engaged in the business of exploring, acquiring, developing, and exploiting precious mineral properties, principally gold.” 2. SIGNIFICANT ACCOUNTING POLICI
