financial accounting intmod5_2

MODULE 5ACCOUNTING FOR ASSETS - Accounts Receivable

Demonstration Problem

Morton Precision Tools completed a number of transactions involving credit sales, accounts receivable collection and uncollectible accounts in the years 2000 and 2001. Morton Precision Tools uses the percentage of sales method for estimating uncollectible accounts. This demonstration problem shows how to calculate uncollectible accounts expense and record the transactions in the general journal.

Journal Entries for 2000Oct. 1 Sold merchandise on credit for $64,000.Nov. 4 $20,000 was collected from customers.Dec. 31 Morton Precision Tools uses the percentage of sales method. The company

estimates that 4% of the sales will be uncollectible. The total sales for 2000 was $64,000.

Journal Entries for 2001Feb. 5 Sold merchandise on credit for $12,000.Mar. 2 Wrote off the account of Brookfield Corporation. The balance in this account was

$1,200.

Journal Entries for 2000

Transaction number

DATE ACCOUNT DEBIT CREDIT

20001 Oct. 1 Accounts Receivable

Sales Revenue64,000

64,0002 Nov. 4 Cash

Accounts Receivable20,000

20,0003 Dec. 31 Uncollectible Accounts Expense

Allowance for Uncollectible Accounts2,560

2,560

For transaction 3, Uncollectible Accounts Expense = .04 x 64,000 = $2,560


Transaction number


20014 Feb. 5 Accounts Receivable

Sales Revenue12,000

12,0005 Mar. 2 Allowance for Uncollectible Accounts


1,200

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T- accounts - 1998

Practice Problem 1Edusoft Inc.

Edusoft Inc. completed a number of transactions involving credit sales, accounts receivable collection and uncollectible accounts in 2000 and 2001. Edusoft Inc. uses the percentage of sales method for estimating uncollectible accounts. This assignment requires you to calculate uncollectible accounts expense and record the transactions in the general journal.


Sep. 25 Sold merchandise on credit for $4,400.Oct. 15 $1,800 was collected from customers for goods sold previously.Dec. 31 Edusoft Inc. uses the percentage of sales method. The company estimates that 3% of the

sales will be uncollectible. The total sales for 2000 was $4,400.


Feb. 11 Sold merchandise on credit for $2,300.Apr. 30 Wrote off the account of Mark Turner. The balance in Turner's account was $46.


Transaction number


20001 Sept. 25 Accounts Receivable

Sales Revenue4,400

4,4002 Oct. 15 Cash



Allowance for Uncollectible Accounts132

132

For transaction 3, Uncollectible Accounts Expense = .03 x $4,400 = $132


Transaction number


20014 Feb. 11 Accounts Receivable

Sales Revenue2,300

2,3005 Apr. 30 Allowance for Uncollectible Accounts

Accounts Receivable46

46

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T- accounts - 1998

Practice Problem 2Safeco Security Systems

Safeco Security Systems completed a number of transactions involving credit sales, accounts receivable collection and uncollectible accounts in 2000 and 2001. Safeco Security Systems uses the aging method for estimating uncollectible accounts. This assignment requires you to calculate uncollectible accounts expense and record the transactions in the general journal.

0-30 days 31-60 days 61-90 days Over 90 daysCentral Alarm Systems $12,400 $1,600Plymouth Security Co. $14,200 $3,500Riverside Alarms $1,300

Estimated % uncollectible 1% 3% 8% 10%


Dec. 31 Safeco Alarm Systems uses the aging method. Assume that the Allowance for Uncollectible Accounts had a debit balance of $150 prior to the adjustment for uncollectible accounts expense. Review the aging report shown above and prepare the journal entry to record Uncollectible Accounts Expense.


Feb. 12 Wrote off the account of Riverside Alarms. The balance in the account was $1,300.Sept. 30 Sold merchandise on credit for $6,500.Nov. 5 $1,800 was collected from customers for goods sold previously.


Transaction number


20001 Dec. 31 Uncollectible accounts Expense

Allowance for Uncollectible Accounts1,238

1,238

For transaction 1, the required credit balance in the Allowance for Uncollectible Accounts on Dec. 31, 2000 is

= (0.01 x $12,400) + (0.03 x $14,200) + [.08 x ($1,600+$3,500)] + (0.1 x $1,300)

=$1,088Since the Allowance account already has a debit balance of $150, Uncollectible Accounts Expense = $1,238 ($1,088 + $150).

Note: The ending balance in Accounts Receivable is obtained from the balances in various categories in the aging report.

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Transaction number


20012 Feb. 12 Allowance for Uncollectible Accounts


1,3003 Sep. 30 Accounts Receivable

Sales Revenue6,500

6,5004 Nov. 5 Cash


1,800

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Homework Problem 1Alden Industries

Alden Industries completed a number of transactions involving credit sales, accounts receivable collection and uncollectible accounts in 2000 and 2001. Alden Industries uses the percentage of sales method for estimating uncollectible accounts. This assignment requires you to calculate uncollectible accounts expense and record the transactions in the general journal.

Transactions for 2000

Nov. 25 Sold merchandise on credit for $32,000.Dec. 10 $12,000 was collected from customers for goods sold previously.Dec. 31 Alden Industries uses the percentage of sales method. The company estimates

that 2% of the sales will be uncollectible. The total sales for 2000 was $32,000.


Mar. 31 Sold merchandise on credit for $2,500.Jun. 30 Wrote off the account of Eric Lang. The balance in Lang's account was $350.


Transaction number


20001 Nov. 25 Accounts Receivable

Sales Revenue32,000

32,0002 Dec. 10 Cash




640

For transaction 3, Uncollectible Accounts Expense = .02 x $32,000 = $640


Transaction number


20014 Mar. 31 Accounts Receivable

Sales Revenue2,500

2,5005 Jun. 30 Allowance for Uncollectible Accounts


350

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Homework Problem 2Schmidt Office Supplies

Schmidt Office Supplies completed a number of transactions involving credit sales, accounts receivable collection and uncollectible accounts in 2000 and 2001. Schmidt Office Supplies uses the aging method for estimating uncollectible accounts. This assignment requires you to calculate uncollectible accounts expense and record the transactions in the general journal.

Aging Report

Customer 0-30 days 31-60 days 61-90 days Over 90 days

Computer Stop $4,400 $1,500LaCroix office Supplies $600Osborne Office Supplies $1,600 $2,500 $1,200

Estimated % uncollectible 1% 5 % 8% 15%

Transactions for 2000Dec. 31 Schmidt Office Supplies uses the aging method. Assume that the Allowance for

Uncollectible Accounts had a credit balance of $100 at the beginning of the period. Review the aging report shown below and prepare the journal entry to record Uncollectible Accounts Expense.

Transactions for 2001Mar. 25 Wrote off the account of LaCroix Office Supplies. The balance in the account was $600.Dec. 15 Sold merchandise on credit for $5,500.Dec. 30 $1,500 was collected from customers for goods sold previously.


Transaction number


20001 Dec. 31 Uncollectible Accounts Expense


346

For transaction 1, the required credit balance in the Allowance for Uncollectible Accounts on Dec. 31, 2000, is: = [0.01 x ($4,400 + $1,600)] + [0.05 x ($1,500 + $2,500)] + (.08 x $1,200) + (0.15 x $600)

=$446Since the Allowance account already has a credit balance of $100, Uncollectible Accounts Expense = $346 ($446-$100).



145 11,800

Transaction number


20012 Mar. 25 Allowance for Uncollectible Accounts


6003 Dec. 15 Accounts Receivable

Sales Revenue5,500

5,5004 Dec. 30 Cash


1,500

146

Allowance for Uncollectible Accounts

bb. 446

2. 600

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T- accounts - 1998

Homework Problem 3Bedford Windows

Bedford Windows completed a number of transactions involving credit sales, accounts receivable collection and uncollectible accounts in 2000 and 2001. Bedford Windows uses the percentage of sales method for estimating uncollectible accounts. This assignment requires you to calculate uncollectible accounts expense and record the transactions in the general journal.

Transactions for 2000Oct. 25 Sold merchandise on credit for $64,000.Nov. 16 $20,000 was collected from customers for goods sold previously.Dec. 31 Bedford Windows uses the percentage of sales method. The company estimates

that 3% of the sales will be uncollectible. The total sales for 2000 was $64,000.

Transactions for 2001Aug. 22 Sold merchandise on credit for $12,000.Sep. 12 Wrote off the account of Doyle Windows. The balance in this account was $1,200.


Transaction number


20001 Oct. 25 Accounts Receivable

Sales Revenue64,000

64,0002 Nov. 16 Cash



Allowance for Uncollectible Accounts 1,920

1,920

For transaction 3, uncollectible accounts expense = .03 x $64,000 = $1,920


Transaction number


20014 Aug. 22 Accounts Receivable

Sales Revenue12,000

12,0005 Sep. 12 Allowance for Uncollectible Accounts


1,200

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T- accounts - 1998

T- accounts - 1998

Homework Problem 4McCoy Company

McCoy Company completed a number of transactions involving credit sales, accounts receivable collection and uncollectible accounts in 2000 and 2001. McCoy Company uses the aging method for estimating uncollectible accounts. This assignment requires you to calculate uncollectible accounts expense and record the transactions in the general journal.

Customer 0-30 days 31-60 days 61-90 days Over 90 days

B. Johnson $280R. Soares $360 $450M. Sylvia $140

Estimated % uncollectible 1% 2% 8% 15%


Dec. 31 McCoy Company uses the aging method. Assume that the Allowance for Uncollectible Accounts had a debit balance of $90 at the beginning of the period. Review the aging report shown above and prepare the journal entry to record Uncollectible Accounts Expense.

Transactions for 2001Mar. 25 Wrote off the account of M. Sylvia. The balance in this account was $140.Dec. 15 Sold merchandise on credit for $2,200.Dec. 30 $700 was collected from customers for goods sold previously.


Transaction number


20001 Dec. 31 Uncollectible accounts Expense


157

For transaction 1, the required credit balance in the Allowance for Uncollectible Accounts on Dec. 31, 2000, is:

= (0.01 x $280) + (0.02 x $360) + (.08 x $450) + (0.15 x $140)= $67

Since the Allowance account already has a debit balance of $90, Uncollectible Accounts Expense = $157 ($67+ $90).


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T- accounts - 1998


Transaction number


20012 Mar. 25 Allowance for Uncollectible Accounts


1403 Dec. 15 Accounts Receivable

Sales Revenue2,200

2,2004 Dec. 30 Cash


700

149

Allowance for Uncollectible Accounts

bb. 67

2. 140

73

T- accounts - 1999

Homework QuizAccounts Receivable

1. When using the allowance method for Uncollectible Receivables, the two ways of estimating the amount of uncollectibles are the Percentage of Sales Method and:

a. Aging of Purchases b. Aging of Receivables c. Aging of Payables d. Aging of Sales

2. Which of the following estimation methods emphasizes the matching principle? a. Percentage of Sales

b. Percentage of Accounts Receivables c. Aging of Inventory d. Direct write-off

3. The method for estimating Uncollectible Accounts Expense that focuses on the balance sheet rather than the income statement is:

a. Direct write-off b. Accounts Receivable Aging c. Percentage of Sales d. Specific Account

4. Which of the following pairs correctly describe the account, Allowance for Uncollectible Accounts?

a. Account Classification: Contra Account; Normal Account Balance: Credit b. Account Classification: Asset; Normal Account Balance: Debit c. Account Classification: Asset; Normal Account Balance: Credit d. Account Classification: Contra Account; Normal Account Balance: Debit

5. The existing balance in Allowance for Uncollectible Accounts is not considered when which of the following estimating models is employed?

a. Percentage of Receivables method b. Percentage of Sales method c. Aging of Accounts Receivable method d. None of the above

6. Laura's Window Works employs the Allowance for Uncollectible Accounts method to account for her receivables. When the write-off of a specific uncollectible account occurs:

a. The Allowance for Uncollectible Accounts is debited.b. Net income is reduced. c. The net realizable value of Accounts Receivable decreases. d. Accounts Receivable is debited.

7. Laura's Window Works employs the Allowance for Uncollectible Accounts method to account for her receivables. When the write-off of a specific uncollectible account occurs:

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a. The net realizable value of Accounts Receivable increases. b. Net income is reduced. c. The net realizable value of Accounts Receivable decreases. d. The net realizable value of Accounts Receivable does not change.

8. When a specific customer's account is written off by a company using the Allowance for Uncollectible Accounts method, what is the impact on Net Income and the Net Realizable Value of Accounts Receivable?

a. Net Income: Decrease; Net Realizable Value of Accounts Receivable: Decrease b. Net Income: None; Net Realizable Value of Accounts Receivable: None c. Net Income: Increase; Net Realizable Value of Accounts Receivable: Increase d. Net Income: Decrease; Net Realizable Value of Accounts Receivable: None

9. Hilltop Cleaners December 31, 2001 trial balance includes the following accounts:

Accounts Receivable ............................. $ 20,000Allowance for Uncollectible Accounts............. 1,600 (cr.)Sales Revenue ................................... 250,000

Hilltop estimates 2 percent of sales will prove uncollectible. The entry to record Uncollectible Accounts Expense will include:a. Debit to Allowance of Uncollectible Accounts; credit to Accounts Receivable. b. Debit to Accounts Receivable; credit to Allowance of Uncollectible Accounts. c. Debit to Uncollectible Account Expense; credit to Accounts Receivable. d. Debit to Uncollectible Account Expense; credit to Allowance of Uncollectible Accounts.


Accounts Receivable ............................. $ 20,000<BR>Allowance for Uncollectible Accounts ............ 1,600 (cr.)Sales Revenue ................................... 250,000

Hilltop estimates 2 percent of sales will prove uncollectible. The amount of the entry to record Uncollectible Accounts Expense will be:a. $ 500 b. $2,500 c. $5,000 d. $5,400



Hilltop estimates 2 percent of sales will prove uncollectible. After the entry to record Uncollectible Accounts Expense is made, the balance in the Allowance for Uncollectible Accounts will be:

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a. $6,500 credit b. $5,000 credit c. $3,500 debit d. $1,500 credit



Hilltop estimates 2 percent of sales will prove uncollectible. After the entry to record Uncollectible Accounts Expense is made, the net realizable value of Accounts Receivable will be:a. $20,000 b. $18,500 c. $15,000d. $13,500

13. Acme, Inc. employs the allowance method to estimate losses from uncollectible receivables. Net sales for the year are $480,000, and the company estimates its bad debts as 1 percent of net sales. If there is already a $2,400 credit balance in Allowance for Uncollectible Accounts, how much should be recorded as Uncollectible Accounts Expense?

a. $ 2,400 b. $ 4,800 c. $48,000 d. Some other amount

14. Acme, Inc. employs the allowance method to estimate losses from uncollectible receivables. Net sales for the year are $480,000, and the company estimates its bad debts as 1 percent of net sales. There is already a $2,400 credit balance in Allowance for Uncollectible Accounts. What will the balance in Allowance for Uncollectible Accounts be after this adjustment is recorded?

a. $ 2,400 credit b. $ 4,800 credit c. $ 7,200 credit d. Some other amount

15. Acme, Inc. employs the allowance method to estimate losses from uncollectible receivables. Net sales for the year are $480,000, and the company estimates its bad debts as 1 percent of net sales. There is already a $2,400 credit balance in Allowance for Uncollectible Accounts and Accounts Receivable total $375,000. What will the net realizable value of Accounts Receivable be after this adjustment is recorded?

a. $ 375,000 b. $ 372,600 c. $ 367,800 d. $ 472,800

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16. Martin, Inc. has sales of $800,000 during 2001. On December 31, 2001, Accounts Receivable total $80,000 and Allowance for Bad Debts has a debit balance of $1,200. Uncollectible receivables are estimated to be 3 percent of 12/31/01 Accounts Receivable balance. The December 31, 2001 adjusting entry to record Uncollectible Accounts Expense will include a:

a. Debit to Uncollectible Accounts Expense for $3,600 b. Debit to Uncollectible Accounts Expense for $2,400 c. Debit to Uncollectible Accounts Expense for $1,200 d. Credit to Allowance for Uncollectible Accounts for $2,400

17. Based on the aging of its accounts receivable at December 31, 2001 Winter Enterprises determines the net realizable value of the receivables is $608,000. Additional information is as follows:

Accounts receivable at December 31, 2001.......... $704,000Allowance for bad debts at January 1, 2001 ....... 102,400(cr.)Accounts written off as uncollectible

during the year ............................... 70,400

Winter's Uncollectible Account Expense for the year ended December 31, 2001 is:a. $ 64,000b. $ 76,800c. $ 96,000d. $128,000

18. Analysis and aging of Scalon Company's Accounts Receivable balances at December 31, 2001 reveal the following:

Accounts receivable ................... $900,000Allowance for Uncollectible Accounts (before adjustment) .................50,000 (cr.)Accounts estimated to be uncollectible. 64,000

The entry to record Uncollectible Accounts Expense will total: <br>a. $ 14,000 b. $ 60,000 c. $ 64,000 d. $114,000

19. Analysis and aging of Scalon Company's Accounts Receivable balances at December 31, 2001 reveal the following:

Accounts receivable ................... $900,000Allowance for Uncollectible Accounts (before adjustment) .................50,000 (cr.)Accounts estimated to be uncollectible. 64,000

The net realizable value of Accounts Receivable at December 31, 2001 will be:<br>a. $900,000b. $886,000 c. $850,000 d. $836,000

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20. After analyzing Accounts Receivable through an "aging" process, you determined that $6,000 will likely prove uncollectible. Your trial balance shows an Allowance for Uncollectible Accounts balance of $200 debit, what is the correct adjusting entry?

a. Uncollectible Accounts Expense ............ 6,200Allowance for Uncollectible Accounts .... 6,200

b. Allowance for Uncollectible Accounts....... 6,200Uncollectible Accounts Expense........... 6,200

c. Allowance for Uncollectible Accounts....... 6,000Uncollectible Accounts Expense .......... 6,000

d. Uncollectible Accounts Expense ............ 6,000Allowance for Uncollectible Accounts..... 6,000

21. Burton Precision Tools estimates uncollectible accounts using the percentage of sales method. The credit sales for 2000 is $8,000. The company expects 2% of sales to be uncollectible. The Allowance for Uncollectible Accounts has a credit balance of $60 at the beginning of the year. The uncollectible accounts expense for 2000 is:a. $ 60b. $100c. $160d. $220

22. Burton Precision Tools estimates uncollectible accounts using the percentage of sales method. The credit sales for 2000 is $8,000. The company expects 2% of sales to be uncollectible. The Allowance for Uncollectible Accounts has a credit balance of $60 at the beginning of the year. The balance in the Allowance for Uncollectible Accounts on Dec. 31, 2000, is:a. $100b. $220c. $160d. $ 40

23. Burton Precision Tools estimates uncollectible accounts using the percentage of sales method. The credit sales for 2000 is $8,000. The accounts receivable balance on December 31, 2000, is $6,800. The company expects 2% of sales to be uncollectible. The Allowance for Uncollectible Accounts has a credit balance of $60 at the beginning of the year. The net realizable value of accounts receivable on Dec. 31, 2000, is:a. $6,580b. $6,700c. $6,640e. $6,740

Note: If the student gets number 22 wrong, they will also get number 23 wrong.

24. Burton Precision Tools estimates uncollectible accounts using the allowance method. On June 15, 2000, the business decided to write-off the account of L. Smith. The balance in this account was $130. The Allowance for Uncollectible Accounts has a credit balance of $220 just before

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the write-off. The balance in the Allowance for Uncollectible Accounts accounts after the write-off is:a. $350b. $ 90c. $220d. $130

25. Stanley Company estimates uncollectible accounts using the aging method. On December 31, 2000, $7,500 of accounts receivable was outstanding for less than 30 days and $2,400 of accounts receivable was outstanding for more than 30 days and less than 60 days. The company expects that 1% and 5% of these accounts receivable balances respectively to be uncollectible. The Allowance for Uncollectible Accounts has a credit balance of $60 at the beginning of the year. The uncollectible accounts expense for 2000 is:a. $195b. $255c. $135d. $ 99

26. Stanley Company estimates uncollectible accounts using the aging method. On December 31, 2000, $7,500 of accounts receivable was outstanding for less than 30 days and $2,400 of accounts receivable was outstanding for more than 30 days and less than 60 days. The company expects that 1% and 5% of these accounts receivable balances respectively to be uncollectible. The Allowance for Uncollectible Accounts has a credit balance of $60 at the beginning of the year. The balance in the Allowance for Uncollectible Accounts on Dec. 31, 2000, is:a. $195b. $255c. $135d. $ 99

Note: If the student gets number 26 wrong, they will also get number 27 wrong.

27. Stanley Company estimates uncollectible accounts using the aging method. On December 31, 2000, $7,500 of accounts receivable was outstanding for less than 30 days and $2,400 of accounts receivable was outstanding for more than 30 days and less than 60 days. The company expects that 1% and 5% of these accounts receivable balances respectively to be uncollectible. The Allowance for Uncollectible Accounts has a credit balance of $60 at the beginning of the year. The net realizable value of accounts receivable on Dec. 31, 2000, is:a. $9,765b. $9,801c. $9,645d. $9,705

28. Smith Company estimates uncollectible accounts using the aging method. On December 31, 2000, $7,500 of accounts receivable was outstanding for less than 30 days and $2,400 of accounts receivable was outstanding for more than 30 days and less than 60 days. The company expects that 1% and 5% of these accounts receivable balances respectively to be uncollectible.

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The Allowance for Uncollectible Accounts has a debit balance of $60 at the beginning of the year. The uncollectible accounts expense for 2000 is:a. $195b. $255c. $135d. $ 99

29. Smith Company estimates uncollectible accounts using the aging method. On December 31, 2000, $7,500 of accounts receivable was outstanding for less than 30 days and $2,400 of accounts receivable was outstanding for more than 30 days and less than 60 days. The company expects that 1% and 5% of these accounts receivable balances respectively to be uncollectible. The Allowance for Uncollectible Accounts has a debit balance of $60 at the beginning of the year. The balance in the Allowance for Uncollectible Accounts on Dec. 31, 2000, is:a. $195b. $255c. $135d. $ 99

Note: If the student gets number 29 wrong, they will get number 30 wrong

30. Smith Company estimates uncollectible accounts using the aging method. On December 31, 2000, $7,500 of accounts receivable was outstanding for less than 30 days and $2,400 of accounts receivable was outstanding for more than 30 days and less than 60 days. The company expects that 1% and 5% of these accounts receivable balances respectively to be uncollectible. The Allowance for Uncollectible Accounts has a debit balance of $60 at the beginning of the year. The net realizable value of accounts receivable on Dec. 31, 2000, is:a. $9,765b. $9,801c. $9,645d. $9,705

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MODULE 5ACCOUNTING FOR ASSETS - Merchandise Inventory


Melody Music Shop

Periodic SystemMelody Music Shop sells a variety of keyboards, guitars etc. Information about the beginning inventory and purchases of one type of keyboard for the year 2000 is given below. A physical count on December 31, 2000, indicates that there are 7 keyboards in ending inventory. Calculate the ending inventory and cost of goods sold using (1) Periodic LIFO, (2) Periodic FIFO, (3) Periodic Weighted Average methods.

Date Description Units PriceJan. 1 Beginning Inventory 10 $105Mar. 15 Purchases 5 $107Jul. 18 Purchases 4 $108Aug. 7 Purchases 2 $109

LIFO method - Periodic SystemUnder LIFO the goods purchased last are assumed to be sold first. Thus the 7 units in ending inventory are the earliest 7 units purchased - which are included in the beginning inventory.

Ending Inventory 7 units @ $105 (from beginning inventory) $ 735

Ending Inventory $735

The total units in inventory is 21 (10 + 5 + 4 + 2). Since there are 7 units in ending inventory, the number of units sold is 14 (21 - 7).Cost of Goods Sold

2 units @ $109 (from the Aug. 7 purchase) $2184 units @ $108 (from the Jul. 18 purchase) 4325 units @ $107 (from the Mar. 15 purchase) 5353 units @ $105 (from beginning inventory) 315Cost of Goods Sold $1,500

FIFO method - Periodic System

Under FIFO, the goods purchased first are assumed to be sold first. Thus the 7 keyboards in ending inventory are the units purchased last. The ending inventory includes the one remaining keyboard from the March 15 purchase, the 4 keyboards from the Jul. 18 purchase and the 2 keyboards from the Aug. 7 purchase.

Ending Inventory 2 units @ $109 (from the Aug. 7 purchase) $218

4 units @ $108 (from the Jul. 18 purchase) 4321 units @ $107 (from the Mar. 15 purchase) 107Ending Inventory $757

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The total units in inventory is 21 (10 + 5+ 4 + 2). Since there are 7 units in ending inventory, the number of units sold is 14 (21 - 7).

Cost of Goods Sold

4 units @ $107 (from the Mar. 15 purchase) 42810 units @ $105 (from beginning inventory) 1,050Cost of Goods Sold $1,478

Weighted-average Cost Method -Periodic System

Cost of goods available for sale = (10 x $105) + (5 x $107) + (4 x $108) + (2 x $109) = $2,235Weighted-average cost per unit = Cost of goods available for sale/ number of units in inventory = $2,235/21 =$106.43Cost of goods sold (rounded to the dollar) = $106.43 x 14 = $1,490Ending inventory (rounded to the dollar) = $106.43 x 7 = $745

Perpetual SystemMelody Music Shop sells a variety of keyboards, guitars etc. Information about the beginning inventory and purchases of one type of keyboard for the year 2000 is given below. Calculate the ending inventory and cost of goods sold using the perpetual LIFO and perpetual FIFO methods.

Date Description Units PriceJan. 1 Beginning Inventory 10 $105Mar. 15 Purchases 5 $107Apr. 8 Sale 9 $120Jul. 18 Purchases 4 $108Aug. 7 Purchases 2 $109Nov. 1 Sale 5 $120

LIFO method - Perpetual System

Under LIFO, the goods purchased last are assumed to be sold first. Under the perpetual system cost of goods sold is calculated as sales are made. Thus the phrase “last units” refer to the last units in inventory at the time of the sale, not the last units at the end of the period.

Cost of Goods Sold Sale on Apr. 85 units @ $107 (from the Mar. 15 purchase) $5354 units @ $105 (from beginning inventory) 420Sale on Nov. 12 units @ $109 (from the Aug. 7 purchase) 2183 units @ $108 (from the Jul. 18 purchase) 324

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$1,497Ending Inventory is

6 units @ $105 (from beginning inventory) $6301 unit @ $108 (from the July 18 purchase) 108Ending Inventory $738

FIFO method - Perpetual System

Under FIFO, the goods purchased first are assumed to be sold first. Under the perpetual system cost of goods sold is calculated as sales are made. Thus, the phrase "first units" refer to the first units in inventory at the time of the sale, not the first units at the end of the period.

Cost of Goods Sold Sale on Apr. 89 units @ $105 (from beginning inventory) 945Sale on Nov. 11 units @ $105 (from beginning inventory) 1054 units @ $107 (from the Mar. 15 purchase) $428

$1,478Ending Inventory 2 units @ $109 (from the Aug. 7 purchase) $218

4 units @ $108 (from the Jul. 18 purchase) 4321 units @ $107 (from the Mar. 15 purchase) 107Ending Inventory $757

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Practice Problem 1Candyland

Information about the beginning inventory and purchases of one product sold by Candyland for 2000 is given below. This assignment requires you to compute the cost of goods sold and ending inventory for 2000 using periodic LIFO and periodic FIFO. A physical count on December 31, 2000, indicates that there are 14 boxes units in ending inventory.

Periodic System

Date Description Units PriceJan. 1 Beginning Inventory 6 $5Mar. 15 Purchases 16 $5.25Jul. 18 Purchases 10 $5.50Nov. 30 Purchases 12 $6

LIFO method - Periodic System

Under LIFO, the last goods purchased are assumed to be sold first. Thus the 14 boxes in ending inventory are the earliest units purchased. The ending inventory includes 6 boxes from the beginning inventory and 8 boxes from the purchase on Mar. 15.

The total number of boxes available for sale is 44. The boxes sold are the 30 (44-14) boxes purchased last.

Ending Inventory6 units @ $5 (from beginning inventory) $308 units @ $5.25 (from the Mar. 15 purchase) 42Ending Inventory $72

Cost of Goods Sold8 units @ $5.25 (from the Mar. 15 purchase) $4210 units @ $5.50 (from the Jul. 18 purchase) 5512 units @ $6 (from the Nov. 30 purchase) 72Cost of Goods Sold $169

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FIFO method - Periodic System

Under FIFO, the goods purchased first are assumed to be sold first. Thus the 14 boxes in ending inventory are the units purchased last. The ending inventory includes 12 boxes from the purchase on Nov. 30 and 2 boxes from the purchase on Jul. 18.

The total number of boxes available for sale is 44. The boxes sold are the 30 (44-14) boxes purchased first. Ending Inventory

2 units @ $5.50 (from the Jul. 18 purchase) $1112 units @ $6 (from the Nov. 30 purchase) 72Ending Inventory $83

Cost of Goods Sold 6 units @ $5 (from beginning inventory) 3016 units @ $5.25 (from the Mar. 15 purchase) 84 8 units @ $5.50 (from the Jul. 18 purchase) 44Cost of Goods Sold $158

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Practice Problem 2Jensen Windows

Information about the beginning inventory and purchases of one type of window sold by Jensen Windows for 2000 is given below. This assignment requires you to compute the cost of goods sold and ending inventory for 2000 using the perpetual LIFO and perpetual FIFO methods.

Date Description Units PriceJan. 1 Beginning Inventory 6 $120Apr. 17 Sale 5 $200Jun. 15 Purchases 12 $125Oct. 12 Sale 9 $200Nov. 18 Purchases 8 $140Dec. 20 Sale 8 $200

LIFO method - Perpetual Inventory System

Under LIFO, the last goods purchased are assumed to be sold first. Cost of Goods Sold

Sale on Apr. 17 5 units @ $120 (from beginning inventory) $600Sale on Oct. 129 units @ $125 (from the Jun. 15 purchase) 1,125 Sale on Dec. 208 units @ $140 (from the Nov. 18 purchase) 1,120 Cost of Goods Sold $2,845

Ending Inventory 1 units @ $120 (from beginning inventory) $1203 units @ $125 (from the Jun. 15 purchase) 375Ending inventory $495

FIFO method - Perpetual System

Under FIFO, the goods purchased first are assumed to be sold first. Cost of Goods Sold

Sale on Apr. 17 5 units @ $120 (from beginning inventory) $600Sale on Oct. 121 units @ $120 (from beginning inventory) 1208 units @ $125 (from the Jun. 15 purchase) 1,000 Sale on Dec. 204 units @ $125 (from the Jun. 15 purchase) 5004 units @ $140 (from the Nov. 18 purchase) 560 Cost of goods sold $2,780

Ending Inventory 4 units @ $140 (from the Nov. 18 purchase) $ 560

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Homework Problem 1Sullivan Sporting Goods

Sullivan Sporting Goods sells a variety of sporting goods and equipment. Information about the beginning inventory and purchases of one type of tennis racquets for 2000 is given below. This assignment requires you to compute the cost of goods sold and ending inventory of tennis racquets for Sullivan Sporting Goods for 2000 using the periodic LIFO, periodic FIFO, and periodic weighted-average cost methods. A physical count on December 31, 2000, indicates that there are 7 tennis racquets in ending inventory.

Date Description Units PriceJan. 1 Beginning Inventory 2 $29Apr. 15 Purchases 8 $32Aug. 18 Purchases 4 $33Nov. 30 Purchases 5 $35

LIFO method - Periodic System Under LIFO, the last goods purchased are assumed to be sold first. Thus the 7 racquets in ending inventory are the earliest units purchased. Ending Inventory 5 units @ $32 (from the Apr. 15 purchase) $160

2 units @ $29 (from beginning inventory) 58Ending Inventory $218

Cost of Goods Sold5 units @ $35 (from the Nov. 30 purchase) $1754 units @ $33 (from the Aug. 18 purchase) 1323 units @ $32 (from the Apr. 15 purchase) 96Cost of Goods Sold $403

FIFO method - Periodic System Under FIFO, the goods purchased first are assumed to be sold first. Thus the 7 racquets in ending inventory are the last units purchased. Ending Inventory

2 units @ $33 (from the Aug. 18 purchase) $ 665 units @ $35 (from the Nov. 30 purchase) 175Ending Inventory $241

Cost of Goods Sold 2 units @ $29 (from beginning inventory) $588 units @ $32 (from the Apr. 15 purchase) 2562 units @ $33 (from the Aug. 18 purchase) 66Cost of Goods Sold $380

Weighted-average Cost method - Periodic SystemCost of goods available for sale = 2 x $29 + 8 x $32 + 4 x $33 + 5 x $35 = $621Weighted-average cost per unit = Cost of goods available for sale/total units in inventory

= $621 / 19 = $32.68Cost of goods sold = 12 x $32.68 = $392.16 or $392 (rounded to nearest dollar)Ending Inventory = 7 x $32.68 = $228.76 or $229 (rounded to nearest dollar)

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Homework Problem 2Slumberland, Inc.

Slumberland, Inc. sells a variety of mattresses. Information about the beginning inventory and purchases of one type of mattress for 2000 is given below. This assignment requires you to compute the cost of goods sold and ending inventory of mattresses for Slumberland, Inc. for 2000 using the periodic LIFO, periodic FIFO, and periodic weighted-average cost method. A physical count on December 31, 2000, indicates that there are 4 mattresses in ending inventory.

Date Description Units PriceJan. 1 Beginning Inventory 5 $200May 15 Purchases 8 $205Nov. 18 Purchases 6 $207

LIFO method - Periodic SystemUnder LIFO, the last goods purchased are assumed to be sold first. Thus the 4 mattresses in ending inventory are the earliest units purchased.

Ending Inventory4 mattresses @ $200 (from beginning inventory) $800

Cost of Goods sold6 mattresses @ $207 ( from purchase on Nov. 18) $1,2428 mattresses @ $205 (from purchase on May 15) 1,6401 mattress @ $200 (from beginning inventory) 200Cost of Goods Sold $3,082

FIFO method - Periodic SystemUnder FIFO, the goods purchased first are assumed to be sold first. Thus the 4 mattresses in ending inventory are the last units purchased.

Ending Inventory4 mattresses @ $207 ( from purchase on Nov. 18) $ 828

Cost of Goods Sold5 mattress @ $200 (from beginning inventory) $1,0008 mattresses @ $205 (from purchase on May 15) 1,6402 mattresses @ $207 ( from purchase on Nov. 18) 414Cost of goods sold $3,054

Weighted-average Cost Method - Periodic System

Cost of goods available for sale = (5 x $200) + (8 x $205) + (6 x $207) = $3,882Weighted-average cost per unit = Cost of goods available for sale/total units in inventory

= $3,882/19 = $204.32Cost of goods sold = 15 x $204.32 = $3,064.80 or $3,065 (rounded to nearest dollar)Ending Inventory = 4 x $204.32 = $817.28 or $817 (rounded to nearest dollar)

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Homework 3Casualwear, Inc.

Information about the beginning inventory and purchases of one type of T-shirts for Casualwear, Inc. for 2000 is given below. This assignment requires you to compute the cost of goods sold and ending inventory of T-shirts for Casualwear, Inc. for 2000 using the perpetual LIFO and perpetual FIFO methods.

Date Description Units PriceJan. 1 Beginning Inventory 16 $7.50Feb. 15 Sale 12 $12May. 15 Purchases 10 $8Aug. 12 Sale 11 $12Oct. 18 Purchases 12 $8.50Oct. 28 Sale 9 $12Nov. 30 Purchases 8 $9

LIFO method - Perpetual System Under LIFO, the last goods purchased are assumed to be sold first. Cost of Goods Sold

Sale on Feb. 1512 units @ $7.50 (from beginning inventory) $ 90.00Sale on Aug. 1210 units @ $8 (from purchase on May 15) 80.00 1 unit @ $7.50 (from beginning inventory) 7.50Sale on Oct. 289 units @ $8.50 (from purchase on Oct. 18) 76.50Cost of Goods Sold $254.00

Ending Inventory3 units @ $7.50 (from beginning inventory) $22.503 units @ $8.50 (from purchase on Oct. 18) 25.508 units @ $9 (from purchase on Nov. 30) 72.00Ending Inventory $120.00

FIFO method - Perpetual System Under FIFO, the goods purchased first are assumed to be sold first. Cost of Goods Sold

Sale on Feb. 1512 units @ $7.50 (from beginning inventory) $ 90Sale on Aug. 12 4 units @ $7.50 (from beginning inventory) 30 7 units @ $8 (from purchase on May 15) 56 Sale on Oct. 28 3 units @ $8 (from purchase on May 15) 24 6 units @ $8.50 (from purchase on Oct. 18) 51 Cost of Goods Sold $251

Ending Inventory6 units @ $8.50 (from purchase on Oct. 18) $518 units @ $9 (from purchase on Nov. 30) 72

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Ending Inventory $123

Homework 4Joe's Appliance Store

Joe's Appliance Store sells a variety of household appliances. Information about the beginning inventory and purchases of one type of washing machines for 2000 is given below. This assignment requires you to compute the cost of goods sold and ending inventory of washing machines for Joe's Appliance Store using the perpetual LIFO and perpetual FIFO methods.

Date Description Units PriceJan. 1 Beginning Inventory 12 $440Mar. 3 Sale 4 $500Jul. 12 Sale 7 $500Aug. 15 Purchases 8 $450Nov. 4 Purchases 10 $465Nov. 18 Sale 11 $500

LIFO method - Perpetual System Under LIFO, the last goods purchased are assumed to be sold first. Under LIFO, the last goods purchased are assumed to be sold first. Cost of Goods Sold

Sale on Mar. 3 4 units @ $440 (from beginning inventory) $1,760Sale on Jul. 12 7 units @ $440 (from beginning inventory) 3,080Sale on Nov. 1810 units @ $465 (from purchase on Nov. 4) 4,650 1 unit @ $450 (from purchase on Aug. 15) 450Cost of goods sold $9,940

Ending Inventory1 units @ $440 (from beginning inventory) $440 7 units @ $450 (from purchase on Aug. 15) 3,150

$3,590

FIFO method - Perpetual System Under FIFO, the goods purchased first are assumed to be sold first.

Cost of Goods SoldSale on Mar. 3 4 units @ $440 (from beginning inventory) $1,760Sale on Jul. 12 7 units @ $440 (from beginning inventory) 3,080 Sale on Nov. 18 1 unit @ $440 (from beginning inventory) 440 8 units @ $450 (from purchase on Aug. 15) 3,600 2 units @ $465 (from purchase on Nov. 4) 930

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Cost of Goods sold $9,810

Ending Inventory8 units @ $465 (from purchase on Nov. 4) $3,720

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Homework QuizMerchandise Inventory

1. The inventory method, which considers that Ending Inventory consists of units acquired earliest, is:

a. LIFO b. FIFO c. Weighted Average Cost d. NIFO

2. The inventory method, which considers that merchandise is sold in the order in which acquisitions are made, is:

a. FILO b. LIFOc. FIFO d. Weighted Average Cost

3. The inventory method, which considers that Ending Inventory consists of the most recent acquisitions, is:

a. Weighted Average Cost b. LIFOc. FIFOd. NIFO

4. Weighted Average Costing under the Periodic Method: a. Computes average cost only at the end of the accounting period.

b. Computes average cost ignoring the Beginning Inventory amount.c. Computes average cost using a series of computations throughout the accounting period.d. Computes a new average cost after each inventory acquisition is made.

5. Which of the following methods does NOT require a year-end physical inventory? a. Periodic Weighted Average Cost

b. Periodic LIFOc. Perpetual LIFOd. Periodic FIFO

6. A Perpetual Inventory System: a. Continuously discloses the amount of inventory in the accounting records.

b. Shows increases in inventory resulting from purchases as debits to Purchasesc. Does NOT require a year-end physical inventory. d. None of the above correctly describes a Perpetual Inventory System.

7. A Periodic Inventory System: a. Continuously discloses the amount of inventory in the accounting records.

b. Maintains a separate account for each type of merchandise acquired in a subsidiary ledger.

c. Requires a physical inventory be taken at the end of the period to determine Ending Inventory.

d. Debits Inventory when goods are returned to vendors.

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8. Which method of inventory cost flows assumes that goods are sold in reverse order of acquisitions?

a. Weighted Average Costingb. LIFOc. FIFOd. LILO

9. A company using LIFO reports Cost of Goods Sold of $390,000, and Ending Inventory of $90,000. If FIFO ending inventory is $130,000, how much is FIFO cost of goods sold?

a. $430,000b. $390,000c. $350,000d. $130,000

10. A company using FIFO reports Cost of Goods Sold of $585,000, and Ending Inventory of $135,000. If LIFO ending inventory is $195,000, how much is LIFO cost of goods sold?

a. $565,450b. $585,000c. $525,000d. $195,000

11. Sam's Grocery employs a Periodic Inventory System. Sam provides you with the following information: Beginning Inventory $ 60,000 Purchases $250,000

A count of the goods currently on hand indicates a total of $45,000. Sam's Cost of Goods Sold is:a. $355,000b. $310,000 c. $295,000 d. $265,000

12. Sam's Grocery opened his business at the beginning of this year. He employs a Periodic Inventory System. Sam provides you with the following information: Ending Inventory $ 60,000 Purchases $250,000

Sam's Cost of Goods Sold is:a. $355,000b. $250,000 c. $190,000 d. $ 90,000

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13. Al's Specialty Goods, a Sole Proprietorship, maintains a Periodic Inventory System. He offers the following information:Beginning inventory................. 10 units at $60First purchase...................... 25 units at $63Second purchase..................... 30 units at $64Third purchase...................... 15 units at $70

Al also relays that 20 units of inventory are currently on hand. Ending Inventory under FIFO is:a. $1,200b. $1,230c. $1,370d. $1,400


Al also relays that 20 units of inventory are currently on hand. Ending Inventory under LIFO is:a. $1,200b. $1,230c. $1,370d. $1,400


Al also relays that 20 units of inventory are currently on hand. Ending Inventory under Weighted Average Cost (rounded to the nearest dollar) is:a. $1,143b. $1,286c. $1,386d. $1,822

16. Joe's Car Repair, Inc., a Corporation, reports the following inventory data for November, 2001:

Nov. 1 Beg. Inventory 20 units at $204 Sold 10 units

10 Purchased 30 units at $2117 Sold 20 units30 Purchased 10 units at $22

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Joe's utilizes a Perpetual Inventory System and FIFO costing. What is the cost of the 30 units in Ending Inventory on November 30, 2001?a. $640 b. $610c. $620d. $630

17. Joe's Car Repair, Inc., a Corporation, reports the following inventory data for November, 2001:

Nov. 1 Beg. Inventory 20 units at $204 Sold 10 units

10 Purchased 30 units at $2117 Sold 20 units30 Purchased 10 units at $22

Joe's utilizes a Perpetual Inventory System and LIFO costing. What is the cost of the 30 units in Ending Inventory on November 30, 2001?a. $640b. $610c. $620d. $630

18. Hartland, Inc.'s purchase and sale records for a recent period are shown below:

Purchases Sales1st purchase 1,000 units @ $2 1st sale 1,200 units @ $72nd purchase 2,000 units @ $3 2nd sale 1,500 units @ $83rd purchase 1,000 units @ $4 3rd sale 1,000 units @ $94th purchase 1,000 units @ $5 4th sale 1,000 units @ $10

5,000 units 4,700 units

Beginning inventory was 200 units at $1 each. What is Hartland's Ending Inventory assuming periodic, FIFO Costing is employed?a. $ 800 b. $1,000c. $2,500d. $6,200




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Beginning inventory was 200 units at $1 each. What is Hartland's Ending Inventory assuming periodic, LIFO Costing is employed?a. $ 800b. $1,000c. $2,500d. $6,200




Beginning inventory was 200 units at $1 each. What is Hartland's Ending Inventory assuming periodic, Weighted Average Costing is employed?a. $ 800b. $1,655 c. $1,750d. $2,048

21. Under which of the following methods are earliest goods purchased included in the ending inventory? a. Periodic methodb. LIFO methodc. FIFO methodd. Weighted-average cost method

22. Bright Lights inc. uses a periodic inventory system. The company had 6 units of a lamp costing $30 on January 1, 2000. Purchases during 2000 include: 4 units for $31 on March 21, 5 units for $32 on July 1 and 8 units for $33 on November 10. 16 units were sold for $35 each in 2000. The cost of goods sold using LIFO is:a. $211b. $517c. $231d. $497

23. Bright Lights inc. uses a periodic inventory system. The company had 6 units of a lamp costing $30 on January 1, 2000. Purchases during 2000 include: 4 units for $31 on March 21, 5 units for

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$32 on July 1 and 8 units for $33 on November 10. 16 units were sold for $35 each in 2000. The ending inventory under LIFO is:a. $211b. $517c. $231d. $497

24. Bright Lights inc. uses a periodic inventory system. The company had 6 units of a lamp costing $30 on January 1, 2000. Purchases during 2000 include: 4 units for $31 on March 21, 5 units for $32 on July 1 and 8 units for $33 on November 10. 16 units were sold for $35 each in 2000. The cost of goods sold under FIFO is:a. $211b. $517c. $231d. $497

25. Bright Lights inc. uses a periodic inventory system. The company had 6 units of a lamp costing $30 on January 1, 2000. Purchases during 2000 include: 4 units for $31 on March 21, 5 units for $32 on July 1 and 8 units for $33 on November 10. 16 units were sold for $35 each in 2000. The ending inventory using FIFO is:a. $211b. $517c. $231d. $497

26. Bright Lights inc. uses a periodic inventory system. The company had 6 units of a lamp costing $30 on January 1, 2000. Purchases during 2000 include: 4 units for $31 on March 21, 5 units for $32 on July 1 and 8 units for $33 on November 10. 16 units were sold for $35 each in 2000. The average cost per unit using the weighted average cost method is:a. $31.65b. $32.00c. $31.00d. $31.50

27. Globe Luggage Company uses a perpetual inventory system. The company had 6 units of an item costing $60 each on January 1, 2000. 4 units were purchased for $61 on March 21. 6 units were sold for $75 each in April. 5 units were purchased for $64 each on November 10. 3 units were sold for $75 each in December. The cost of goods sold using perpetual LIFO is:a. $368b. $556c. $543d. $381

28. Globe Luggage Company uses a perpetual inventory system. The company had 6 units of an item costing $60 each on January 1, 2000. 4 units were purchased for $61 on March 21. 6 units

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were sold for $75 each in April. 5 units were purchased for $64 each on November 10. 3 units were sold for $75 each in December. The ending inventory using perpetual LIFO is:a. $368b. $556c. $543d. $381

29. Globe Luggage Company uses a perpetual inventory system. The company had 6 units of an item costing $60 each on January 1, 2000. 4 units were purchased for $61 on March 21. 6 units were sold for $75 each in April. 5 units were purchased for $64 each on November 10. 3 units were sold for $75 each in December. The cost of goods sold using perpetual FIFO is: a. $368b. $556c. $543d. $381

30. Globe Luggage Company uses a perpetual inventory system. The company had 6 units of an item costing $60 each on January 1, 2000. 4 units were purchased for $61 on March 21. 6 units were sold for $75 each in April. 5 units were purchased for $64 each on November 10. 3 units were sold for $75 each in December. The ending inventory using perpetual FIFO is:a. $368b. $556c. $543d. $381

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Module 5Plant Assets


Star Interior Designs

Star Interior Designs purchased a van for $21,000 on Jan. 1, 2000. The salvage value of the van is $3,000 and its useful life is 4 years. (1) Assume that Star Interior Designs uses the straight-line method of depreciation. Calculate the depreciation expense, accumulated depreciation at the end of the year and the book value at the end of the year for each year of the useful life of the asset.(2) Assume that Star Interior Designs uses the double-declining-balance method of depreciation. Calculate the depreciation expense, accumulated depreciation at the end of the year and the book value at the end of the year for each year of the useful life of the asset.

Straight-line method

Year Depreciation Rate

Depreciation Expense Accumulated Depreciation

Book Value

2000 0.25 $4,500 $ 4,500 $16,5002001 0.25 $4,500 $ 9,000 $12,0002002 0.25 $4,500 $13,500 $ 7,5002003 0.25 $4,500 $18,000 $ 3,000

Depreciation expense is calculated by multiplying the depreciation rate (column A) by depreciable cost (cost - salvage value). The depreciable cost is $18,000 ($21,000 - $3,000). Note that accumulated depreciation is calculated by adding the accumulated depreciation at the end of the previous year with the depreciation expense for the current year. Column D shows the book value at the end of the period. Book value is the cost less the accumulated depreciation.

Double-declining-balance method



Book Value

2000 0.50 $10,500 $10,500 $10,5002001 0.50 $ 5,250 $15,750 $ 5,2502002 0.50 $ 2,250 $18,000 $ 3,0002003 0.50 0 $18,000 $ 3,000

Note that the book value at the beginning of the period is used in calculating the depreciation expense. For the first year, the book value equals the cost of the asset. For the remaining periods, the book value of the asset at the end of the previous period is taken from the last column of the table. Also, the depreciation expense in year 2002 is not equal to the amount given by multiplying the double-declining-balance rate by book value since this amount will reduce book value to below salvage value. It is the amount required to bring book value down to salvage value of $3,000.

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Practice Problem 1Law Firm of Maxwell and King

The law firm of Maxwell and King purchased office furniture for $4,600 on January 1, 1999. The salvage value of the furniture is $600 and its useful life is 5 years.

Assume that law firm of Maxwell and King uses the straight-line method of depreciation. Compute the (1) depreciation rate (2) depreciation expense for the year (3) accumulated depreciation at the end of the year and (4) book value at the end of the year for each year of the useful life of the furniture.




Book Value

1999 0.2 $800 $ 800 $3,8002000 0.2 $800 $1,600 $3,0002001 0.2 $800 $2,400 $2,2002002 0.2 $800 $3,200 $1,4002003 0.2 $800 $4,000 $ 600

Depreciable cost = cost - salvage valueDepreciation expense = depreciable cost / useful lifeAccumulated depreciation = accumulated depreciation at the beginning of the period +

depreciation expenseBook value = cost - accumulated depreciation

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Practice Problem 2Loeb Precision Tools

Loeb Precision Tools purchased equipment for $24,000 on January 1, 1999. The salvage value of the asset is $4,000. The useful life of the asset is 5 years.

(1) Assume that Loeb Precision Tools uses the straight-line method of depreciation. Compute the (1) depreciation rate (2) depreciation expense for the year (3) accumulated depreciation at the end of the year and (4) book value at the end of the year for each year of the useful life of the furniture.

Year Depreciable Rate Depreciation Expense Accumulated Depreciation

Book Value

1999 0.2 $4,000 $4,000 $20,0002000 0.2 $4,000 $8,000 $16,0002001 0.2 $4,000 $12,000 $12,0002002 0.2 $4,000 $16,000 $ 8,0002003 0.2 $4,000 $20,000 $ 4,000

Depreciable cost = cost - salvage valueDepreciation expense = depreciable cost / useful lifeAccumulated Depreciation = accumulated depreciation at the beginning of the period +


(2) Assume that Loeb Precision Tools uses the double-declining-balance method of depreciation. Compute the (1) depreciation rate (2) depreciation expense for the year (3) accumulated depreciation at the end of the year and (4) book value at the end of the year for each year of the useful life of the furniture.

Year DDB Rate Depreciation Expense Accumulated Depreciation

Book Value(end of year)

1999 0.4 $9,600 $ 9,600 $14,4002000 0.4 $5,760 $15,360 $ 8,6402001 0.4 $3,456 $18,816 $ 5,1842002 0.4 $1,184 $20,000 $ 4,0002003 0.4 $ 0 $20,000 $ 4,000

Book value at the beginning of period = book value at the end of the previous periodDepreciation expense = book value x double-declining rate = book value x (2 / useful life)Accumulated depreciation = accumulated depreciation at the beginning of the period +


Note: For years 4 and 5 the depreciation expense has to be adjusted so that the book value at the end of the useful life is $4,000.

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Homework Problem 1Morgan Manufacturing Co.

Morgan Manufacturing Co. purchased an equipment for $45,000 on January 1, 1999. The salvage value of the asset is $5,000. The useful life of the asset is 5 years. This assignment requires you to calculate the depreciation expense, accumulated depreciation and the book value at the end of the year, for each year of the useful life of the asset using (1) the straight-line method and (2) the double-declining balance method.




Book Value

1999 0.2 $8,000 $ 8,000 $37,0002000 0.2 $8,000 $16,000 $29,0002001 0.2 $8,000 $24,000 $21,0002002 0.2 $8,000 $32,000 $13,0002003 0.2 $8,000 $40,000 $ 5,000

Depreciable cost = cost - salvage valueDepreciation expense = depreciable cost / useful lifeAccumulated Depreciation = accumulated depreciation at the beginning of the period +


Double-declining balance method



1999 0.4 $18,000 $18,000 $27,0002000 0.4 $10,800 $28,800 $16,2002001 0.4 $ 6,480 $35,280 $ 9,7202002 0.4 $ 3,888 $39,168 $ 5,8322003 0.4 $ 832 $40,000 $ 5,000

Book value at the beginning of period = book value at the end of the previous periodDepreciation expense = book value x double-declining rate = book value x (2 / useful life)Accumulated depreciation = accumulated depreciation at the beginning of the period +


Note: For year 5 the depreciation expense has to be adjusted so that the book value at the end of the useful life is $5,000.

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Homework Problem 2McKay Company

McKay Company purchased furniture for $5,400 on January 1, 1999. The useful life of the furniture is four years and the salvage value is $1,200. This assignment requires you to calculate the depreciation expense, accumulated depreciation and the book value at the end of the year, for each year of the useful life of the asset using (1) the straight-line method and (2) the double-declining balance method.




Book Value

1999 0.25 $1,050 $1,050 $4,3502000 0.25 $1,050 $2,100 $3,3002001 0.25 $1,050 $3,150 $2,2502002 0.25 $1,050 $4,200 $1,200Depreciable cost = cost - salvage valueDepreciation expense = depreciable cost / useful lifeAccumulated depreciation = accumulated depreciation at the beginning of the period +





1999 0.5 $2,700 $2,700 $2,7002000 0.5 $1,350 $4,050 $1,3502001 0.5 $ 150 $4,200 $1,2002002 0.5 $ 0 $4,200 $1,200Book value at the beginning of period = book value at the end of the previous periodDepreciation expense = book value at the beginning of period x double-declining rate

= book value x (2 / useful life)Accumulated depreciation = accumulated depreciation at the beginning of the period +

depreciation expenseBook value = cost - accumulated depreciationNote: For years 3 and 4 the depreciation expense has to be adjusted so that the book value at the end of the useful life is $1,200.

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Homework Problem 3Downtown Fitness Center

Downtown Fitness Center purchased exercise equipment for $8,400 on January 1, 1999. The useful life of the equipment is 4 years and the salvage value is $1,400. This assignment requires you to calculate the depreciation expense, accumulated depreciation and the book value at the end of the year, for each year of the useful life of the asset using (1) the straight-line method and (2) the double-declining balance method.




Book Value

1999 0.25 $1,750 $1,750 $6,6502000 0.25 $1,750 $3,500 $4,9002001 0.25 $1,750 $5,250 $3,1502002 0.25 $1,750 $7,000 $1,400Depreciable cost = cost - salvage valueDepreciation expense = depreciable cost / useful lifeAccumulated depreciation = accumulated depreciation at the beginning of the period +





1999 0.5 $4,200 $4,200 $4,2002000 0.5 $2,100 $6,300 $2,1002001 0.5 $ 700 $7,000 $1,4002002 0.5 $ 0 $7,000 $1,400Book value at the beginning of period = book value at the end of the previous periodDepreciation expense = book value x double-declining rate = book value x (2 / useful life)Accumulated depreciation = accumulated depreciation at the beginning of the period +


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Homework Problem 4McDermott Associates

McDermott Associates purchased a computer on January 1, 2000, for $2,800. The useful life of the asset is 4 years and the salvage value is $400. This assignment requires you to calculate the depreciation expense, accumulated depreciation and the book value at the end of the year, for each year of the useful life of the asset using (1) the straight-line method and (2) the double-declining balance method.




Book Value

2000 0.25 $600 $ 600 $2,2002001 0.25 $600 $1,200 $1,6002002 0.25 $600 $1,800 $1,0002003 0.25 $600 $2,400 $ 400Depreciable cost = cost - salvage valueDepreciation expense = depreciable cost / useful lifeAccumulated depreciation = accumulated depreciation at the beginning of the period +


Double-declining balance method



2000 0.5 $1,400 $1,400 $1,4002001 0.5 $ 700 $2,100 $ 7002002 0.5 $ 300 $2,400 $ 4002003 0.5 $ 0 $2,400 $ 400Book value at the beginning of period = book value at the end of the previous periodDepreciation expense = book value x double-declining rate = book value x (2 / useful life)Accumulated depreciation = accumulated depreciation at the beginning of the period +


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Homework QuizPlant Assets

1. Salvage Value is also referred to as: a. Book value

b. Carrying valuec. Residual valued. Current value

2. A plant asset's Book Value is: a. Its original cost.

b. Its Market value.c. The total of all expenses associated with it.d. Its acquisition cost less any accumulated depreciation.

3. The Accumulated Depreciation account is credited when: a. An asset is traded for a similar asset

b. A new asset is purchasedc. The depreciation expense for the year is recordedd. An asset is traded for a dissimilar asset

4. Depreciation can best be defined as: a. A method of accumulating funds for the asset replacement.

b. A procedure for reducing the carrying cost of a Plant Asset to current market value.c. A plan for deriving tax benefitsd. A mechanism for allocating a Plant Asset's cost over its useful life.

5. To properly calculate Depreciation Expense, which of the following is NOT required? a. The Plant Asset's acquisition cost.

b. The Plant Asset's estimated salvage value. c. The dollar amount of the cash down payment made on the Plant Asset.d. The Plant Asset's estimated useful life.

6. Which of the following items is required when recording an entry for the sale of a Plant Asset? a. Record depreciation expense on the Plant Asset up to the date of sale.

b. Remove the Plant Asset and related Accumulated Depreciation from the accounting records.

c. Record any gain or loss on the sale of the Plant Asset.d. All the above are necessary

7. Dividing a Plant Asset's cost by its estimated useful life yields: a. Its Book value

b. Its Accumulated depreciationc. Its Carrying value d. None of the above

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8. On January 1, 2001, Mark's Printing purchases equipment for $12,600. The equipment has an estimated useful life of 3 years. The equipment will have a $1,200 salvage value at the end of its life. The depreciation expense for the year ending December 31, 2001, using the straight-line depreciation will be:

a. $4,200b. $3,800c. $1,900d. $ 950

9. On January 1, 2001, Mark's Printing purchases equipment for $12,600. The equipment has an estimated useful life of 3 years. The equipment will have a $1,200 salvage value at the end of its life. The depreciation expense for the year ending December 31, 2003, using the straight-line depreciation will be:

a. $4,200 b. $3,800c. $1,900d. $ 950

10. Werner Company purchased a machine on January 1, 2001, for $48,000 cash. The estimated useful life of the machine is 4 years, after which time it is expected to have a salvage value of $8,000. Assuming that the straight-line depreciation method is used, what will be the machine's book value on December 31, 2002?

a. $16,000b. $24,000c. $30,000d. $28,000

11. What is the gain or loss on the sale of a Plant Asset originally costing $12,000, with Accumulated Depreciation of $5,000 that is sold for $4,000?

a. $1,000 lossb. $3,000 lossc. $3,000 gaind. $8,000 loss

12. On January 1, 2002, Langley, Inc. purchases equipment for $40,000. The equipment has an estimated useful life of 5 years and a salvage value of $4,000. Langley Company uses the straight-line depreciation method for all its assets. If Langley sells the equipment for $24,000 on December 31, 2003, it will have:

a. A $4,000 lossb. A $4,000 gainc. A $1,600 lossd. A $1,600 gain

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13. A Plant Asset costing $32,000 with an estimated life of 4 years is scrapped after 3 years. Straight-Line depreciation (with no salvage value) is employed. The loss recognized on disposal is:

a. $ 4,000 b. $ 8,000 c. $10,000 d. $16,000

14. On January 1, 2002, Langley, Inc. purchases equipment for $40,000. The equipment has an estimated useful life of 5 years and a salvage value of $4,000. Langley Company uses the straight-line depreciation method for all its assets. If Langley scraps the equipment on December 31, 2003, it will have:

a. A $25,600 loss b. A $21,600 gain c. A $21,600 loss d. A $25,600 gain

15. A machine with a cost of $130,000 has an estimated residual value of $10,000 and an estimated life of 4 years. What is the amount of depreciation for the first full year, using the Double Declining Balance method?

a. $16,250b. $60,000c. $32,500 d. $65,000

16. A machine with a cost of $130,000 has an estimated residual value of $10,000 and an estimated life of 4 years. What is the amount of depreciation for the third full year, using the Double Declining Balance method?

a. $16,250 b. $60,000 c. $32,500d. $65,000

17. A machine with a cost of $130,000 has an estimated residual value of $10,000 and an estimated life of 4 years. What is the Book Value at the end of the fourth full year, using the Double Declining Balance method?

a. $ 6,250b. $ 8,125c. $10,000d. $16,250

18. A Plant Asset costing $320,000 has a Salvage Value of $20,000 and an estimated life of 5 years. Double-Declining Balance depreciation is employed. What is the amount of depreciation for the first full year?

a. $120,000b. $128,000c. $150,000d. $160,000

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19. A Plant Asset costing $320,000 has a Salvage Value of $20,000 and an estimated life of 5 years. Double-Declining Balance depreciation is employed. What is the amount of depreciation for the third full year?

a. $ 37,500b. $ 40,000c. $ 43,200d. $ 46,080

20. A Plant Asset costing $320,000 has a Salvage Value of $20,000 and an estimated life of 5 years. Double-Declining Balance depreciation is employed. What is the Plant Asset's Book Value at the end of the second full year?

a. $ 108,000b. $ 115,200c. $ 75,000d. $ 80,000

21. Parker Company purchased furniture for $6,400 on January 1, 2000. The salvage value of the furniture is $800 and it's useful life is eight years. Parker Company uses the straight-line depreciation method. The depreciation expense for 2000 is:a. $800b. $700c. $1,400d. $1,600

22. Parker Company purchased furniture for $6,400 on January 1, 2000. The salvage value of the furniture is $800 and it's useful life is eight years. Parker Company uses the straight-line depreciation method. The depreciable cost of the asset is:a. $6,400b. $800c. $5,600d. $4,800

23. Parker Company purchased furniture for $6,400 on January 1, 2000. The salvage value of the furniture is $800 and it's useful life is eight years. Parker Company uses the straight-line depreciation method. The accumulated depreciation on December 31, 2003, is:a. $2,800b. $3,200c. $2,100d. $2,400

Note: If students get number 21 wrong, they will get number 23, plus number 24 wrong.

24. Parker Company purchased furniture for $6,400 on January 1, 2000. Parker Company uses the straight-line depreciation method. The salvage value of the furniture is $800 and it's useful life is eight years. The book value on December 31, 2003, is:a. $5,600b. $3,600c. $4,300d. $4,000

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25. Long Corporation purchased equipment for $5,000 on January 1, 2000. The useful life of the equipment is 5 years and its salvage value is $1,000. Long Corporation uses the double-declining balance method. The double-declining balance rate of depreciation is:a. 0.10b. 0.20c. 0.25d. 0.40

26. Long Corporation purchased equipment for $5,000 on January 1, 2000. The useful life of the equipment is 5 years and its salvage value is $1,000. Long Corporation uses the double-declining balance method. The depreciation expense for 2001 is:a. $1,400b. $1,360c. $1,200d. $1,600

27. Long Corporation purchased equipment for $5,000 on January 1, 2000. The useful life of the equipment is 5 years and its salvage value is $1,000. Long Corporation uses the double-declining balance method. The accumulated depreciation on December 31, 2001, is:a. $3,200b. $2,800c. $2,400d. $200

Note: If students get number 26 wrong they will get number 27 and 28 wrong.

28. Long Corporation purchased equipment for $5,000 on January 1, 2000. The useful life of the equipment is 5 years and its salvage value is $1,000. Long Corporation uses the double-declining balance method. The book value on December 31, 2001, is:a. $800b. $2,100c. $1,800d. $3,000

29. Suppose a business sells equipment on January 1, 2004 for $2,400. The furniture was purchased on January 1, 2000, for $8,000. Its useful life is 8 years and salvage value is $1,600. Assume that the business uses the straight-line method for calculating depreciation. At the time of the sale of the asset, the business recognizes:a. a loss of 5,600b. a loss of $4,000c. a loss of $2,400d. a loss of $1,600

30. Suppose a business sells equipment on January 1, 2004 for $5,200. The furniture was purchased on January 1, 2000, for $8,000. Its useful life is 8 years and salvage value is $1,600. Assume

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that the business uses the straight-line method for calculating depreciation. At the time of the sale of the asset, the business recognizes:a. a gain of $400

b. a loss of $2,800 c. a loss of $1,200 d. no gain or loss is recognized

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financial accounting intmod5_2

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