Question

1.) A hospitality operation may maintain a number of different inventory accounts. What determines if an inventory account is classified as a current asset or an other asset?

2.) What is the key word that defines the difference between direct cost and indirect cost?

3.) A new restaurant purchased the following wine during the first month of operations:

March 2: Purchased 12 each 750 ml bottles of M & B wine @ $12.50 each.

March 16: Purchased 24 each 750 ml bottles of M & B wine @ $13.50 each.

March 31: Sold 32 bottles during March @ $26 each. Determine the value of the ending inventory and cost of sales for M & B for March using the following:

a. First-in, first-out method

b. Last-in, first-out method

c. Weighted average method

4.) Identify the missing dollar amounts in the equation shown below:

BI + P - EI = CS

$38,000 + ? - $24,000 = $102,000

5.) A hospitality operation began with retained earnings of $146,000. During the year, cash dividends of $100,000 were paid to the owners. Net income for the year was $228,000. Answer the following:

a. What is the ending balance of retained earnings?

b. What would be the ending balance of retained earnings if a net loss of $12,200 had been reported rather than the net income?

Answer 1

1.Inventory is a current asset when the business intends to sell them within the next accounting period or within twelve months from the day it's listed in the balance sheet.

So the intention of the hsopital whether to sell them or to use them for obtaining further benefits determines whether Inventory is Current Asset or not.

2.If the cost is diectly attributable to the production then theyare called Direct Costs.

Indirect Costs cannot be directly assigned to a product.Hence the key word Directly Attributable to the production or make goods available for sale determines the difference between Direct and indirect Costs.

Direct Costs:DirectLabour,direct Material

Indirect Costs: Administrative Expenses,Interest on Bank borrowings(other than Working Capital)

3.

a. First In First Out Method

b.Last In First Out Method

c.Weighted Average Method

4. Cost of Goods Sold= Beginning Inventory+Purchases-Closing Inventory
= BI+P-CI

5. a.

	Opening Retained Earnings(a)	146000
	Net Income(b)	228000
	(a+b)	374000
	Less: Dividends paid(c)	100000
	Closing Retained Earnings[(a+b)-c]	274000

b

Opening Retained Earnings(a)	146000
Net Income(b)	-12200
(a+b)	133800
Less: Dividends paid (c)	100000
Closing Retained Earnings[(a+b)-c]	33800