mid1wkf98

mid1wkf98 - H. Sander Econ 136B Midterm #1 Problem I (25...

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Unformatted text preview: H. Sander Econ 136B Midterm #1 Problem I (25 mins) Presented below is infermation related to Molly Jone’s, Inc. gait Retail Inventory 12/31/1986 $260,000 $400,000 Purchases 980,000 1,500,000 Purchase returns 50,000 80,000 Also assume the following: Gross sales 1,460,000 Sales returns 97,500 Markups 120,000 Markup cancellations 40,000 Markdowns 45,000 Markdown cancellations 20,000 F reight-In 82,000 Instructions Record the estimated ending inventory using the retail method approach under each of the following variations of retail. (Show all work - carry ratios out to two decimal places.) a) lower of cost on market b) average cost c) LIFO assuming no inflation d) LIFO assuming the current year index is 110 and beginning inventory is at base year prices of 100 (use dollar value LIFO technique) 6) same as d) except gross sales are $1,560,000 instead of $1,460,000 0 Describe why a company would apply method d) as opposed to 1) regular LIFO inventory accounting 2) FIFO inventory accounting Problem II (20 mins) A company has $5 00,000 of accounts receivable and a credit balance of $3 7,000 in the allowance for bad debts on 1/1/ 1. During January the following events took place: assume the 3 criteria in the book regarding sale or borrowing treatment are met in the factoring situation but not in the pledging or assigning situation. A) $100,000 of receivables were pledged to Bank B. Bank B’s interest rate is 2% per month on the beginning balance of receivables. No loan fees charged and the first month’s interest was withheld by Bank B. B) $100,000 of receivables were assigned to Bank C of which 80% was advanced in cash less a 5% fee on a recourse basis. Bank C also charges 1% interest on month end balances. Fall 1998 5. Forgetting to inventory the merchandise in a warehouse will result in: a. overstated gross profit. b. understated owners' equity. c. increase in gross percentage. (1. overstated net income. 6. The specific identification inventory method would probably be most appropriate for: a. grocery stores. b. fast food outlet. 0. Cadillac dealer. d. toy store. 7. Ending inventory is understated, the effect would be: a. the year's cost of goods sold would be overstated. b. assets understated. c. income tax liability understated. d. all of the above. Questions 8 through 15 use the following information: Joe's Used Cars had an inventory of ten units, numbered one through ten. Joe paid exactly $1,000 for #1, $2,000 for #2, $3,000 for #3, and so on up to $10,000 for #10. He bought them in order from #1 to #10. 8. Under specific identification, the value of his inventory after Joe sold only #7 was: a. $4 1,000 b. $46,000 c. $48,000 d. $53,000 9. Under FIFO, the value of his inventory after Joe sold only #7 for $6,000 was: a. $48,000 b. $49,000 c. $54,000 d. $56,000 10. Under LIFO, the value of Joe's inventory after selling only #7 was: a. $45,000 b. $46,000 c. $48,000 d. $49,000 1 1. Under the weighted average method, Joe's inventory was costed at what after he sold #7: a. $48,000 b. $49,500 c. $45,000 (:1. $54,000 12. Assume that Joe sold #7 for $6,000. It was the only car he sold for the month. Under which valuation method could Joe's books show the biggest profit? a. specific identification b. FIFO c. LIFO d. weighted-average 4. Why would the % of sales method of accounting for bad debts be considered a better method than its 2 alternative methods? Be sure to name and contrast the alternatives. 5. Indicate the reason why one would apply a lower of cost or market method concept to inventory accounting and list several ways it may be executed. Which is the most common way and why? 6. Indicate how current cost information could help the reader of a financial statement over the difficulties of interpreting inVentory data and why it is not allowed for primary financial statements. 7. Describe how and why future purchase commitments are accounted for in primary financial statements. Problem V (10 mins) The inventory on hand at the end of 1989 for the Reddall Company is valued at a cost of $87,450. The following items were n_ot included in this inventory: 1. Purchased goods in transit, under terms FOB shipping point, invoice price $3,300, freight costs $170. 2. Goods out on consignment to Marlman Company, sales price $2,800, shipping costs of $210. 3. Goods sold to Grina Co. under terms FOB destination, invoiced for $1,700, including $251 freight charges to deliver the goods. Goods are in transit. Instructions a. Determine the cost of the ending inventory to be reported on the December 31, 1989, balance sheet of the Reddall Company, assuming that the company’s selling price is 140% of the cost of the inventory for all items of inventory. (Show all work.) b. Indicate the other balance sheet or income statement accounts that would change as a result of correcting the accounting for each of the above items. Answer each item above individually. + foggy 07730. ($973 flM-(lf. -- 3:900” g » Ia/zcfl (/16 r) (.3?ch _ Haw-r In/ 5000 ‘ < ,m «94480 4—" /$‘7f . + M [(rv/J- (We) £000 +me .7 w ! uou , u " ‘- ‘ 7 ~ — ‘ ‘ (/u flay Ewgwwwb mm paw". I ( MK Damn ’C‘HAC L) {lav fie ~ 504:1. +ch M71! 1 r V (Lfbou-P!’ N— ‘r \1 W , 66w - 2w? 1m cm 46 4 in + W (Q00 . _ I mdn-v “fi—».-.._—_‘_‘.‘ M 1.1.»? 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This note was uploaded on 01/31/2010 for the course ECON 136B taught by Professor Anderson during the Spring '08 term at UCSB.

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mid1wkf98 - H. Sander Econ 136B Midterm #1 Problem I (25...

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