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ACC422 WileyPlus Week 3

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E9-1 (Lower-of-Cost-or-Market) The inventory of Oheto Company on December 31, 2011, consists of the following items.
Part No. Quantity Cost per Unit Cost to Replace per Unit


Part No.  Quantity  Cost per Unit  Cost to Replace per Unit 
110 600 $95 $100
111 1,000 60 52
112 500 80 76
113 200 170 180
120 400 205 208
121a  1,600 16 14
122 300 240 235

aPart No. 121 is obsolete and has a realizable value of $0.50 each as scrap.

Instructions
(a) Determine the inventory as of December 31, 2011, by the lower-of-cost-or-market method, applying
this method directly to each item.
(b) Determine the inventory by the lower-of-cost-or-market method, applying the method to the
total of the inventory.

E9-12 (Gross Profit Method) Astaire Company uses the gross profit method to estimate inventory for monthly reporting purposes. Presented below is information for the month of May.


Inventory, May 1   160,000
Purchases (gross)   640,000
Freight-in   30,000
Sales   1,000,000
Sales returns   70,000
Purchase discounts   12,000

Instructions
(a) Compute the estimated inventory at May 31, assuming that the gross profit is 25% of sales.
(b) Compute the estimated inventory at May 31, assuming that the gross profit is 25% of cost.

E10-5 (Treatment of Various Costs) Allegro Supply Company, a newly formed corporation, incurred the following expenditures related to Land, to Buildings, and to Machinery and Equipment.


Abstract company's fee for title search   520
Architect's fees   3,170
Cash paid for land and dilapidated building thereon   92,000
Removal of old building   20,000
 Less: Salvage   5,500  14,500
Interest on short-term loans during construction   7,400
Excavation before construction for basement   19,000
Machinery purchased (subject to 2% cash discount, which was not taken)   65,000
Freight on machinery purchased   1,340
Storage charges on machinery, necessitated by noncompletion of 
     building when machinery was delivered   2,180
New building constructed (building construction took 6 months from 
      date of purchase of land and old building)   485,000
Assessment by city for drainage project   1,600
Hauling charges for delivery of machinery from storage to new building   620
Installation of machinery   2,000
Trees, shrubs, and other landscaping after completion of building 
   (permanent in nature)   5,400


Instructions
Determine the amounts that should be debited to Land, to Buildings, and to Machinery and Equipment.
Assume the benefits of capitalizing interest during construction exceed the cost of implementation. Indicate how any costs not debited to these accounts should be recorded.

E10-12 (Entries for Asset Acquisition, Including Self-Construction) Below are transactions related to Impala Company.


(a) The City of Pebble Beach gives the company 5 acres of land as a plant site. The market value of
this land is determined to be $81,000.

(b) 14,000 shares of common stock with a par value of $50 per share are issued in exchange for land
and buildings. The property has been appraised at a fair market value of $810,000, of which
$180,000 has been allocated to land and $630,000 to buildings. The stock of Impala Company is not listed on any exchange, but a block of 100 shares was sold by a stockholder 12 months ago
at $65 per share, and a block of 200 shares was sold by another stockholder 18 months ago at
$58 per share.

(c) No entry has been made to remove from the accounts for Materials, Direct Labor, and Overhead
the amounts properly chargeable to plant asset accounts for machinery constructed during the
year. The following information is given relative to costs of the machinery constructed.
Materials used $12,500
Factory supplies used 900
Direct labor incurred 16,000
Additional overhead (over regular) caused by construction 2,700
of machinery, excluding factory supplies used
Fixed overhead rate applied to regular manufacturing operations 60% of direct labor cost
Cost of similar machinery if it had been purchased from
outside suppliers 44,000

Instructions
Prepare journal entries on the books of Impala Company to record these transactions

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