Boston Galleries uses the specific identification method for inventory valuation. Inventory information for

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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	$11,000
4/19 Purchase	Sunset	21,800
6/7 Purchase	Earth	31,200
12/16 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, purchases were:
Date                      Quantity              Cost
1/15                       700                         $45
1/31                       1200                       $48
2/12                       800                         $46
2/27                       650                         $51


Sales during the first quarter were.
Date                      Sold
1/19                       500
2/2                         600
2/13                       500
2/28                       100

 The White Company uses a perpetual 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 following transactions occurred:

• Purchases on account: 500 units @ $4 =  $2,000
• Sales on account: 300 units @ $5 = $1,500
• Purchases on account: 600 units @ $5 =  $3,000
• Sales on account: 300 units @ $5 = $1,500

a. Prepare journal entries for the above purchases and sales.
b. Calculate the balance in the firm’s Inventory account.

4. Inventory valuation methods: computations and concepts. Wave Riders Surfboard Company began business on January 1 of the current year. Below are the transactions for the year
:

1/3:	Purchase 100 boards  @ $125
3/17:	Sold 50 boards @ $250
4/3:	Purchase 200 boards  @ $135
5/17:	Sold 75 boards @ $250
6/3:	Purchase 100 boards  @ $145
1/3:	Purchase 100 boards  @ $155
3/17:	Sold 300 boards @ $250
1/3:	Purchase 100 boards  @ $140

Wave Riders uses a perpetual 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) approximate the physical flow of a sand and gravel dealer?

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.
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Below is a comparative income statement for Cecil, Inc. for the years 2010, 2011

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1.  Liquidity ratios. Edison, Stagg, and Thornton have the following financial information at the close of business on July 10:

dison	Stagg	Thornton
Cash	$4,000	$2,500	$1,000
Short-term investments	3,000	2,500	2,000
Accounts receivable	2,000	2,500	3,000
Inventory	1,000	2,500	4,000
Prepaid expenses	800	800	800
Accounts payable	200	200	200
Notes payable: short-term	3,100	3,100	3,100
Accrued payables	300	300	300
Long-term liabilities	3,800	3,800	3,800

Compute the current and quick ratios for each of the three companies. (Round calculations to two decimal places.) Which firm is the most liquid? Why?
2. Computation and evaluation of activity ratios. The following data relate to Alaska Products, Inc:
Compute the accounts receivable and inventory turnover ratios for 19X5. Alaska rounds all calculations to two decimal places.
3. Profitability ratios, trading on the equity. Digital Relay has both preferred and common stock outstanding. The com­pany reported the following information for 19X7:

1. Compute the gross profit margin ratio, the return on equity and the return on assets, rounding calculations to two decimal places.
2. Does the firm have positive or negative financial leverage? Briefly ex­plain.

4. Horizontal analysis. Mary Lynn Corporation has been operating for several years. Selected data from the 20X1 and 20X2 financial statements follow.
Prepare a horizontal analysis for 20X1 and 20X2. Briefly comment on the results of your work.
5. Vertical analysis. Mary Lynn Corporation has been operating for several years. Selected data from the 20X1 and 20X2 financial statements follow.
Prepare a vertical analysis for 20X1 and 20X2. Briefly comment on the results of your work.
6. Ratio computation. The financial statements of the Lone Pine Company follow.
Compute the following items for Lone Pine Company for 20X2, rounding all calcu­lations to two decimal places when necessary:
a. Quick ratio
b. Current ratio
c. Inventory-turnover ratio
d. Accounts-receivable-turnover ratio
e. Return-on-assets ratio
f. Net-profit-margin ratio
g. Return-on-common-stockholders’ equity
h. Debt-to-total assets
i. Number of times that interest is earned
j. Dividend payout rate
7.  Profit Margin.  Below is a comparative income statement for Cecil, Inc. for the years 2010, 2011, and 2012.   Calculate the profit margin for each of these years. Comment on the profit margin trend. What changes would you recommend to improve the net margin of the company?
8.  Reflect for a moment on the ratios (working capital, current ratio, quick ratio, debt to asset, debt to equity, times interest earned, gross margin and net margin) presented above.  If you were considering investing in a company what ratio would be the most important to you? Formulate and argument to defend your position.
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Edison, Stagg, and Thornton have the following financial information at the close of business on

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ACC205 WEEK 5 IN WORD
1.      Liquidity ratios. Edison, Stagg, and Thornton have the following financial information at the close of business on July 10:

	Edison	Stagg	Thornton
Cash	$4,000	$2,500	$1,000
Short-term investments	3,000	2,500	2,000
Accounts receivable	2,000	2,500	3,000
Inventory	1,000	2,500	4,000
Prepaid expenses	800	800	800
Accounts payable	200	200	200
Notes payable: short-term	3,100	3,100	3,100
Accrued payables	300	300	300
Long-term liabilities	3,800	3,800	3,800

1. Compute the current and quick ratios for each of the three companies. (Round calculations to two decimal places.) Which firm is the most liquid? Why?
2. Suppose Thornton is using FIFO for inventory valuation and Edison is using LIFO. Comment on the comparability of information between these two companies.
3. If all short-term notes payable are due on July 11 at 8 a.m., comment on each company's ability to settle its obligation in a timely manner.

1. 2.      Computation and evaluation of activity ratios. The following data relate to Alaska Products, Inc:

	19X5	19X4
Net credit sales	$832,000	$760,000
Cost of goods sold	440,000	350,000
Cash, Dec. 31	125,000	110,000
Accounts receivable, Dec. 31	180,000	140,000
Inventory, Dec. 31	70,000	50,000
Accounts payable, Dec. 31	115,000	108,000

The company is planning to borrow $300,000 via a 90-day bank loan to cover short-term operating needs.

1. Compute the accounts receivable and inventory turnover ratios for 19X5. Alaska rounds all calculations to two decimal places.
2. Study the ratios from part (a) and comment on the company's ability to repay a bank loan in 90 days.
3. Suppose that Alaska's major line of business involves the processing and distribution of fresh and frozen fish throughout the United States. Do you have any concerns about the company's inventory turnover ratio? Briefly discuss.

1. 3.      Profitability ratios, trading on the equity. Digital Relay has both preferred and common stock outstanding. The com­pany reported the following information for 19X7:

Net sales	$1,500,000
Interest expense	120,000
Income tax expense	80,000
Preferred dividends	25,000
Net income	130,000
Average assets	1,100,000
Average common stockholders' equity	400,000

1. Compute the profit margin on sales and the rates of return on assets and common stockholders' equity, rounding calculations to two decimal places.
2. Does the firm have positive or negative financial leverage? Briefly ex­plain.

1. 4.      Financial statement construction via ratios. Incomplete financial statements of Lock Box, Inc., are presented below.

LOCK BOX, INC. Income Statement For the Year Ended December 31, 19X3
Sales	$ ?
Cost of goods sold	?
Gross profit	$15,000,000
Operating expenses & interest	?
Income before tax	$ ?
Income taxes, 40%	?
Net income	$ ?

LOCK BOX, INC. Balance Sheet December 31, 19X3
Assets
Cash Accounts receivable Inventory Property, plant, &. equipment      Total assets	$ ? ? ? 8,000,000 $24,000,000
Liabilities & Stockholders' Equity
Accounts payable Notes payable (short-term) Bonds payable Common stock Retained earnings      Total liabilities & stockholders' equity	$ ? 600,000 4,600,000 2,000,000 ? $24,000,000

Further information:

1. Cost of goods sold is 60% of sales. All sales are on account.
2. The company's beginning inventory is $5 million; inventory turnover is 4.
3. The debt to total assets ratio is 70%.
4. The profit margin on sales is 6%.
5. The firm's accounts receivable turnover is 5. Receivables increased by $400,000 during the year.

Instructions:
Using the preceding data, complete the income statement and the balance sheet.

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Greenland Enterprises began a new magazine in the fourth quarter of

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ACC205 WEEK 4 WITH WORKING IN WORD
a. Prepayments by customers
Greenland Enterprises began a new magazine in the fourth quarter of 19X2. Annual subscriptions, which cost $18 each, were sold as follows:
Month Number of Subscriptions Sold October 400 November 700 December 1,000
If subscriptions begin (and magazines are sent) in the month of sale:
Present the necessary journal entry to record the magazine subscriptions sold during the fourth quarter.
Determine how much subscription revenue Greenland earned by the end of 19X2.
Compute Greenland's liability to subscribers at the end of 19X2.
b. Notes payable
Sentry Security Systems purchased $72,000 of office equipment on April 1, 19X3, by signing a three-year, 12% note payable to Sharp, Inc. One-third of the principal, along with interest on the outstanding balance, is payable each April 1 until maturity. (The first payment is due in 19X4.)
Fill in the following table to reflect Sentry's liabilities, assuming a March 31 year-end.
Assuming that interest is properly recorded at the end of each year, present the proper journal entry to record the last payment on April 1, 19X6.
c. Notes payable
Red Bank Enterprises was involved in the following transactions during the fiscal year ended October 31:
Instructions
Prepare journal entries to record the transactions.
Prepare adjusting entries on October 31 to record accrued interest.
Prepare the current liability section of Red Bank's balance sheet as of October 31. Assume the Accounts Payable account totals $203,600 on this date.
d. Partner investments; journal entries
The LP partnership was formed on January 1, 19X7, by investments from Bill Levy and Marv Parcells. Levy contributed $30,000 cash and $80,000 of land. Parcells contributed various assets from a business that he had operated over the past five years. A balance sheet from that business disclosed the following:
Accounts receivable $ 27,000
Allowance for uncollectibles (3,200)
Equipment 68,000
Accumulated depreciation (24,000)
The partners confirmed that the allowance for uncollectible accounts should be decreased by $600. In addition, an independent appraisal determined that fair market values of the land and equipment on January 1 were $125,000 and $35,000, respectively.
Prepare the journal entries needed to record the investments of Levy and Parcells.
e. Income distribution: Different arrangements
Frank, Gatti, and Hogan recently invested 530,000 each and formed the Apex partnership. During the first year of operation, the business generated a net income of $39,000. Determine the proper division of income among the partners for the following independent cases: Income is divided on the basis of a ratio of the beginning capital investments. Partners are allowed 12% interest on their investments; the remaining profits and losses are allocated on a 6 :1 :3 basis. Frank and Hogan each receive salary allowances of $24,000 per year; the remaining profits and losses are shared equally.
f. Investment by partners; financial statements
Abram, Haas, and Tidwell formed a partnership to practice law by combining their respective sole proprietorships. The assets and liabilities contributed to the firm on January 2, 19X4, the date of formation, follow.
Instructions
Prepare journal entries to record the investments of Abram, Haas Tidwell in the new partnership. Prepare a classified balance sheet for the partnership immediately after the investments are recorded.
The partners share profits and losses equally, and the first year's n income was $66,000. Cash withdrawals of $5,000 were made by Abram,$22,000 by Haas, and $17,000 by Tidwell. Prepare the December 31 19X4, statement of partners' equity for the firm

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