Exercise 6-17

Siren Company builds custom fishing lures for sporting goods stores. In its first year of operations, 2020, the company incurred the following costs.

Siren Company sells the fishing lures for $26.00. During 2020, the company sold 80,000 lures and produced 94,000 lures.

Prepare a variable costing income statement for 2020.

Prepare an absorption costing income statement for 2020.

The details of the January 1, 2020 purchase of property, plant & equipment by Concord Industries is as follows:

During 2020 Concord produced 150,000 units using its machinery. Calculate the 2020 depreciation for each of the property, plant & equipment items. (Round depreciation per unit to 2 decimal places, e.g. 7.25 and final answers to 0 decimal places, e.g. 5,125.)

Raleigh Department Store uses the conventional retail method for the year ended December 31, 2019. Available information follows:

1. The inventory at January 1, 2019, had a retail value of $50,000 and a cost of $36,200 based on the conventional retail method.
2. Transactions during 2019 were as follows:

Sales to employees are recorded net of discounts.

3. The retail value of the December 31, 2020, inventory was $104,325, the cost-to-retail percentage for 2020 under the LIFO retail method was 70%, and the appropriate price index was 107% of the January 1, 2020, price level.
4. The retail value of the December 31, 2021, inventory was $53,350, the cost-to-retail percentage for 2021 under the LIFO retail method was 69%, and the appropriate price index was 110% of the January 1, 2020, price level.

Required:
3. Assume Raleigh Department Store adopts the dollar-value LIFO retail method on January 1, 2020. Estimating ending inventory for 2020 and 2021.

Sandhill Growth Company is testing a number of new agricultural seeds that it has recently harvested. To stimulate interest, it has decided to grant five of its largest customers the unconditional right to return these products if not fully satisfied. The right of return extends for four months. Sandhill Growth sells these seeds on account for $1,700,000 (cost $600,000) on April 2, 2020. Customers are required to pay the full amount due by June 15, 2020. The company follows IFRS.

a)Prepare the journal entry for Sandhill Growth at April 2, 2020, assuming Sandhill Growth estimates returns of 20% based on prior experience

b)Assume that one customer returns the seeds on July 1, 2020. Prepare the journal entry to record this transaction, assuming this customer purchased $110,000 of seeds from Sandhill Growth.

c)Prepare the journal entry for Sandhill Growth at April 2, 2020, assuming Sandhill Growth estimates returns of 20% based on prior experience. Sandhill follows ASPE.

d)Assume that one customer returns the seeds on July 1, 2020.

Prepare the journal entry to record this transaction, assuming this customer purchased $110,000 of seeds from Sandhill Growth. Sandhill follows ASPE.

c)

Raleigh Department Store uses the conventional retail method for the year ended December 31, 2019. Available information follows:

1. The inventory at January 1, 2019, had a retail value of $45,000 and a cost of $27,500 based on the conventional retail method.
2. Transactions during 2019 were as follows:
   

Sales to employees are recorded net of discounts.

3. The retail value of the December 31, 2020, inventory was $56,100, the cost-to-retail percentage for 2020 under the LIFO retail method was 62%, and the appropriate price index was 102% of the January 1, 2020, price level.
4. The retail value of the December 31, 2021, inventory was $48,300, the cost-to-retail percentage for 2021 under the LIFO retail method was 61%, and the appropriate price index was 105% of the January 1, 2020, price level.

Required:
3. Assume Raleigh Department Store adopts the dollar-value LIFO retail method on January 1, 2020. Estimate ending inventory for 2020 and 2021.

On January 1, 2020, Peppard Inc. acquired all of the stock of Smith Telecom for $85,000 in cash. At the date of acquisition, Smith's shareholders' equity accounts were as follows:

Common Stock, $1 par: $1,000

APIC: $14,000

Retained Earnings: ($3,000)

Treasury Stock: ($200)

Total: $11,800

Both companies have a December 31 year end. At the date of acquisition, Smith reported net assets had book values approximating fair value. However, it had previously unreported indefinite life identifiable intangibles valued at $15,000, meeting ASC Topic 805 requirements for capitalization. Impairment losses in 2020 for identifiable intangibles were $600. Goodwill from this acquisition was not impaired in 2020. Smith reported net income of $900 in 2020, and paid no dividends. Peppard uses the complete equity method to report its investment in Smith on its own books.

Additional information:

The amount of Goodwill that resulted from this acquisition is $58,200.

The equity in net income reported on Peppard's books in 2020 is $300.

Required:

Prepare eliminating entries (C), (E), (R), and (O), required to consolidate Peppard's trial balance accounts with those of Smith on December 21, 2020.

At 1 July 2019, the balance in the Retained Earnings account of Melbourne Ltd was $3 500 000. The company’s share capital at the 1 July 2019 comprises 400 000 6% preference shares issued for $2.00 per share and 1 400 000 ordinary shares fully paid at $1 per share.
During the year ended 30 June 2020, the following events occurred:
1. On 1 February 2020, the directors declared and paid an interim ordinary dividend of $124 000 from retained earnings.
2. On 14 March 2020, the directors issued 20 000 ordinary bonus shares fully paid at $1.40 per share from retained earnings.
3. Profit for the year was $3 300 000.
4. On 30 June 2020, the directors declared a final ordinary dividend of $480 000. A dividend was also declared on the preference shares.
5. On 30 June 2020, the directors resolved to transfer $1 200 000 to a general reserve from retained earnings, and to transfer $2 000 000 from a previously created plant maintenance reserve back to retained earnings.

Required:

Prepare the journal entries for Twister Ltd for the years ending 30 June 2019 and 2020.

On December 31, 2019, Novak Inc. borrowed $4,440,000 at 13% payable annually to finance the construction of a new building. In 2020, the company made the following expenditures related to this building: March 1, $532,800; June 1, $888,000; July 1, $2,220,000; December 1, $2,220,000. The building was completed in February 2021. Additional information is provided as follows.

Determine the amount of interest to be capitalized in 2020 in relation to the construction of the building.

List of Accounts

Prepare the journal entry to record the capitalization of interest and the recognition of interest expense, if any, at December 31, 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Raleigh Department Store uses the conventional retail method for the year ended December 31, 2019. Available information follows:

1. The inventory at January 1, 2019, had a retail value of $35,000 and a cost of $29,050 based on the conventional retail method.
2. Transactions during 2019 were as follows:

Sales to employees are recorded net of discounts.

3. The retail value of the December 31, 2020, inventory was $46,800, the cost-to-retail percentage for 2020 under the LIFO retail method was 80%, and the appropriate price index was 104% of the January 1, 2020, price level.
4. The retail value of the December 31, 2021, inventory was $40,660, the cost-to-retail percentage for 2021 under the LIFO retail method was 79%, and the appropriate price index was 107% of the January 1, 2020, price level.

Question: Assume Raleigh Department Store adopts the dollar-value LIFO retail method on January 1, 2020. Estimating ending inventory for 2020 and 2021.