Question text

Inventory Costing Methods—Perpetual Method

Chou Sales Corporation uses the perpetual inventory system. On January 1, 2018, Chen had 1,000 units of product A with a unit cost of $20 per unit. A summary of purchases and sales during 2018 follows:

Required
a. Assume that Chou uses the first-in, first-out method. Compute the cost of goods sold for 2018 and the ending inventory balance at December 31, 2018, for product A.

b. Assume that Chou uses the last-in, first-out method. Compute the cost of goods sold for 2018 and the ending inventory balance at December 31, 2018, for product A.

c. Assume that Chou uses the weighted-average cost method. Compute the cost of goods sold for 2018 and the ending inventory balance at December 31, 2018, for product A. Do not round until your final answers. Round to the nearest dollar.

Benson Manufacturing Company was started on January 1, 2018, when it acquired $81,000 cash by issuing common stock. Benson immediately purchased office furniture and manufacturing equipment costing $7,000 and $34,400, respectively. The office furniture had an eight-year useful life and a zero salvage value. The manufacturing equipment had a $3,600 salvage value and an expected useful life of four years. The company paid $11,100 for salaries of administrative personnel and $15,700 for wages to production personnel. Finally, the company paid $7,800 for raw materials that were used to make inventory. All inventory was started and completed during the year. Benson completed production on 4,000 units of product and sold 3,050 units at a price of $15 each in 2018. (Assume that all transactions are cash transactions and that product costs are computed in accordance with GAAP.)

Required

1. Determine the total product cost and the average cost per unit of the inventory produced in 2018. (Round "Average cost per unit" to 2 decimal places.)

2. Determine the amount of cost of goods sold that would appear on the 2018 income statement. (Do not round intermediate calculations.)

3. Determine the amount of the ending inventory balance that would appear on the December 31, 2018, balance sheet. (Do not round intermediate calculations.)

4. Determine the amount of net income that would appear on the 2018 income statement. (Round your answer to the nearest dollar amount.)

5. Determine the amount of retained earnings that would appear on the December 31, 2018, balance sheet. (Round your answer to the nearest dollar amount.)

6. Determine the amount of total assets that would appear on the December 31, 2018, balance sheet. (Round your answer to the nearest dollar amount.)

Lacy Construction has a noncontributory, defined benefit pension plan. At December 31, 2018, Lacy received the following information:

The expected long-term rate of return on plan assets was 10%. There were no AOCI balances related to pensions on January 1, 2018. At the end of 2018, Lacy amended the pension formula creating a prior service cost of $34 million.

Required:
1. Determine Lacy's pension expense for 2018.
2. Prepare the journal entry(s) to record Lacy’s pension expense, gains or losses, prior service cost, funding, and payment of retiree benefits for 2018

Determine Lacy's pension expense for 2018.

Prepare the journal entry(s) to record Lacy’s pension expense, gains or losses, prior service cost, funding, and payment of retiree benefits for 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions. (i.e., 10,000,000 should be entered as 10).)

1. Record the pension expense.

2. Record the gain or loss on plan assets.

3. Record the prior service cost.

4. Record the funding.

5. Record the payment of benefits.

Long-term Contracts

Koolman Construction Company began work on a contract in 2017. The contract price is $3,000,000, and the company determined that its performance obligation was satisfied over time. Other information relating to the contract is as follows:

Required:

1. Compute the gross profit or loss recognized in 2017 and 2018.

2. Prepare the appropriate sections of the income statement for each year.

Prepare the appropriate sections of the ending balance sheet for the year 2017.

Prepare the appropriate sections of the ending balance sheet for 2018.

Long-term Contracts

Koolman Construction Company began work on a contract in 2017. The contract price is $3,000,000, and the company determined that its performance obligation was satisfied over time. Other information relating to the contract is as follows:

2017 2018
Costs incurred during the year $ 600,000 $ 700,000
Estimated costs to complete, December 31 $1,400,000 $1,200,000
Billings during the year $500,000 $850,000
Collections during the year $400,000 $800,000

Required:

1. Compute the gross profit or loss recognized in 2017 and 2018.

KOOLMAN CONSTRUCTION COMPANY
Gross Profit / Loss
2017 and 2018
                                                             2017           2018         
Construction costs incurred to date $_______ $ _______
Estimated costs to complete $ ________ $ ________
Total estimated costs $ _________ $ __________
Percentage completed %_________ %________
Revenue to date $_________ $ __________
Revenue recognized in current year $_______ $ _________
Costs incurred in current year __________    __________
Profit (loss) recognized $________ $ _________

2. Prepare the appropriate sections of the income statement for each year.

KOOLMAN CONSTRUCTION COMPANY
Partial Income Statement
For the Years Ended December 31, 2017 and 2018
                                        2017                     2018
Construction revenue $ ________ $_____________
Construction expense __________    ____________
Gross profit (loss) $___________    $____________

Prepare the appropriate sections of the ending balance sheet for the year 2017.

KOOLMAN CONSTRUCTION COMPANY
Partial Balance Sheet
December 31, 2017
Current Assets:

Accounts receivable: $__________
Inventory:

Construction in progress $___________
Less: Partial billings    $_____________
Costs and recognized profit not yet billed   $__________

Prepare the appropriate sections of the ending balance sheet for 2018.

KOOLMAN CONSTRUCTION COMPANY
Partial Balance Sheet
December 31, 2018
Current Assets:
Accounts receivable: $________________
Inventory:
Construction in progress $____________
Less: Partial billings _________________
Costs and recognized profit not yet billed ______________

Baird Manufacturing Company was started on January 1, 2018, when it acquired $81,000 cash by issuing common stock. Baird immediately purchased office furniture and manufacturing equipment costing $9,800 and $24,900, respectively. The office furniture had an 8-year useful life and a zero salvage value. The manufacturing equipment had a $3,300 salvage value and an expected useful life of three years. The company paid $11,500 for salaries of administrative personnel and $15,800 for wages to production personnel. Finally, the company paid $16,360 for raw materials that were used to make inventory. All inventory was started and completed during the year. Baird completed production on 4,800 units of product and sold 3,880 units at a price of $15 each in 2018. (Assume that all transactions are cash transactions and that product costs are computed in accordance with GAAP.) Required Determine the total product cost and the average cost per unit of the inventory produced in 2018. (Round "Average cost per unit" to 2 decimal places.) Determine the amount of cost of goods sold that would appear on the 2018 income statement. (Do not round intermediate calculations.) Determine the amount of the ending inventory balance that would appear on the December 31, 2018, balance sheet. (Do not round intermediate calculations.) Determine the amount of net income that would appear on the 2018 income statement. Determine the amount of retained earnings that would appear on the December 31, 2018, balance sheet. Determine the amount of total assets that would appear on the December 31, 2018, balance sheet. a. total product cost? average cost per unit? b. cost of good sold? c. ending inventory? d. net income? e. retained earning? f. total asset?

On January 1, 2017, Palka, Inc., acquired 70 percent of the outstanding shares of Sellinger Company for $1,625,400 in cash. The price paid was proportionate to Sellinger’s total fair value, although at the acquisition date, Sellinger had a total book value of $2,060,000. All assets acquired and liabilities assumed had fair values equal to book values except for a patent (six-year remaining life) that was undervalued on Sellinger’s accounting records by $252,000. On January 1, 2018, Palka acquired an additional 25 percent common stock equity interest in Sellinger Company for $608,125 in cash. On its internal records, Palka uses the equity method to account for its shares of Sellinger.

During the two years following the acquisition, Sellinger reported the following net income and dividends:

Show Palka’s journal entry to record its January 1, 2018, acquisition of an additional 25 percent ownership of Sellinger Company shares.

Prepare a schedule showing Palka’s December 31, 2018, equity method balance for its Investment in Sellinger account.

A. Record the acquisition of an additional 25 percent ownership of Sellinger Company shares on January 01, 2018

B.  Prepare a schedule showing Palka’s December 31, 2018, equity method balance for its Investment in Sellinger account. (Amounts to be deducted should be indicated with a minus sign.)

Initial Value for Acuqisition

Adjusted subsidiary net income 2017

Subsidiary dividends 2017

Adjusted fair value of newly acquired shares

Adjusted subsidiary 2018 net income

Subsidiary dividends 2018

Investment in Sellinger 12/13/18

The controllers of Splish Brothers, Inc. and Marigold Corp. both ask you whether their companies can reclassify short-term obligations as long-term. Here are the facts surrounding both companies’ short-term debt.

Splish Brothers, Inc. On December 31, 2017, Splish Brothers, Inc. has $1,760,000 of short-term debt in the form of notes payable to Michaels State Bank due February 5, 2018. On January 28, 2018, Splish Brothers issued 17,600 shares of common stock at $75 per share. Splish Brothers used the proceeds of $1,320,000 from the stock issuance, along with $572,000 in cash to retire the short-term debt and associated accrued interest on February 5, 2018. Splish Brothers will issue its December 31, 2017 financial statements on February 25, 2018.

Marigold Corp. On December 31, 2017, Marigold Corp. has $2,640,000 of short-term notes payable to Indiana Bank & Trust. The notes are due on January 31, 2018. Marigold retired the notes, along with $176,000 in accrued interest, in full on January 31, 2018. On February 11, 2018, Marigold obtained $3,960,000 in long-term financing from Terre Haute Bank & Trust. The new debt bears interest at 5 percent, with interest payments due annually. Marigold will issue its December 31, 2017 financial statements on February 28, 2018.

Prepare partial balance sheets for Splish Brothers, Inc. and Marigold Corp. at December 31, 2017, showing how both companies’ short-term debt should be presented, including footnote disclosures.

The unadjusted trial balance of the Manufacturing Equitable at December 31, 2018, the end of its fiscal year, included the following account balances. Manufacturing’s 2018 financial statements were issued on April 1, 2019.

Other information:

1. The bank notes, issued August 1, 2018, are due on July 31, 2019, and pay interest at a rate of 12%, payable at maturity.
2. The mortgage note is due on March 1, 2019. Interest at 11% has been paid up to December 31 (assume 11% is a realistic rate). Manufacturing intended at December 31, 2018, to refinance the note on its due date with a new 10-year mortgage note. In fact, on March 1, Manufacturing paid $297,000 in cash on the principal balance and refinanced the remaining $1,018,000.
3. Included in the accounts receivable balance at December 31, 2018, were two subsidiary accounts that had been overpaid and had credit balances totaling $18,650. The accounts were of two major customers who were expected to order more merchandise from Manufacturing and apply the overpayments to those future purchases.
4. On November 1, 2018, Manufacturing rented a portion of its factory to a tenant for $36,000 per year, payable in advance. The payment for the 12 months ended October 31, 2019, was received as required and was credited to rent revenue.

Required:
1. Prepare any necessary adjusting journal entries at December 31, 2018, pertaining to each item of other information (a–d).
2. Prepare the current and long-term liability sections of the December 31, 2018, balance sheet.
  

The unadjusted trial balance of the Manufacturing Equitable at December 31, 2018, the end of its fiscal year, included the following account balances. Manufacturing’s 2018 financial statements were issued on April 1, 2019. Accounts receivable $ 102,500 Accounts payable 39,400 Bank notes payable 614,000 Mortgage note payable 1,294,000 Other information: The bank notes, issued August 1, 2018, are due on July 31, 2019, and pay interest at a rate of 12%, payable at maturity. The mortgage note is due on March 1, 2019. Interest at 11% has been paid up to December 31 (assume 11% is a realistic rate). Manufacturing intended at December 31, 2018, to refinance the note on its due date with a new 10-year mortgage note. In fact, on March 1, Manufacturing paid $272,000 in cash on the principal balance and refinanced the remaining $1,022,000. Included in the accounts receivable balance at December 31, 2018, were two subsidiary accounts that had been overpaid and had credit balances totaling $19,750. The accounts were of two major customers who were expected to order more merchandise from Manufacturing and apply the overpayments to those future purchases. On November 1, 2018, Manufacturing rented a portion of its factory to a tenant for $33,600 per year, payable in advance. The payment for the 12 months ended October 31, 2019, was received as required and was credited to rent revenue. Required: 1. Prepare any necessary adjusting journal entries at December 31, 2018, pertaining to each item of other information (a–d). 2. Prepare the current and long-term liability sections of the December 31, 2018, balance sheet.