In early August 2007, Paul White, vice-president of finance of Savannah Petroleum Company (A+)

In early August 2007, Paul White, vice-president of finance of Savannah Petroleum Company, was reviewing a proposal that the company\’s parent, Edgewater Oil Company, participate in a joint venture with Gulf Coast Towing Company to make the American flag tanker Monterey a jumbo tanker. Edgewater held an option that gave it until September 18, 1977, to decide if it would join Gulf Coast in the venture.

Savannah Petroleum Company is a distributor of home heating and industrial fuel oil. It serves a number of heating oil retailers, industrial firms, and public utilities in southeastern Georgia. The company operates a fuel pier, tank farm, and truck-loading facility in Savannah, Georgia. All petroleum products are received by tanker and distributed to customers by barge or truck. Although most petroleum products are imported ……………………omitted……………………………..

In preparing his analysis, Mr. White realized that he should include adjustments for inflation, but he was uncertain as to how to reflect them in the relevant cost, revenue, and interest rate factors. He believed, however, that operating costs would increase by at least 5% per year, and that the charter rate would escalate during the life of the tanker to cover increased costs but would probably be fixed for three-year intervals by each lease agreement.

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Ripken Company’s ending inventory includes the following items (A+)

Ripken Company’s ending inventory includes the following items.

Per Unit

Product Units Cost Market

Helmets 41 $63 $59

Bats 34 81 113

Shoes 55 100 104

Uniforms 59 45 45

Required:

Compute the lower of cost or market for ending inventory applied separately to each product.

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3. Harold Co. reported the following current-year purchases and sales data for its only product (A+)

Harold Co. reported the following current-year purchases and sales data for its only product.

Date Activities Units Acquired at Cost Units Sold at Retail

Jan. 1 Beginning inventory 100 units @ $10=$1,000

Jan. 10 Sales 90 units@$40

Mar. 14 Purchase 250 units@ $15=3,750

Mar. 15 Sales 140 units @$40

July 30 Purchase 400 units @ $20= 8,000

Oct. 5 Sales 300 units @$40

Oct. 26 Purchase 600 units @ $25=15,000

Totals 1,350 units$27,750 530 units

Harold uses a perpetual inventory system.

Required:

1. Determine the costs assigned to ending inventory and to cost of goods sold using FIFO.

2. Determine the costs assigned to ending inventory and to cost of goods sold using LIFO.

3. Compute the gross margin for FIFO and LIFO method.

4. Assume that ending inventory is made up of 100 units from the March 14 purchase, 120 units from the July 30 purchase, and all 600 units from the October 26 purchase. Using the specific identification method, calculate the following.

(a) Cost of goods sold

(b) Gross profit

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Chess Company uses LIFO for inventory costing and reports the following financial data (A+)

Chess Company uses LIFO for inventory costing and reports the following financial data. It also recomputed inventory and cost of goods sold using FIFO for comparison purposes.

2011 2010

LIFO inventory $150 $100

LIFO cost of goods sold 730 670

FIFO inventory 220 125

FIFO cost of goods sold 685 —

Current assets (using LIFO) 210 180

Current liabilities 190 170

1. Compute its current ratio, inventory turnover, and days\’ sales in inventory for 2011 using (a) LIFO numbers and (b) FIFO numbers.

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2. Harold Co. reported the following current-year purchases and sales data for its only product (A+)

Harold Co. reported the following current-year purchases and sales data for its only product.

Date Activities Units Acquired at Cost Units sold at Retail

Jan. 1 Beginning Inventory 100 units @$10 = $1,000

Jan. 10 Sales 90 units @ $40

Mar. 14 Purchase 250 units @$15 = 3,750

Mar. 15 Sales 140 units @$40

July. 30 Purchase 400 units @$20 = $8,000

Oct. 5 Sales 300 units @ $40

Oct. 26 Purchase 600 units @$25 = $15,000

Totals 1,350 units $27,750 530 units

Harold uses a perpetual inventory system.

Requirements:

1) Determine the costs assigned to ending inventory and to cost of goods sold using FIFO.

2) Determine the costs assigned to ending inventory and to cost of goods sold using LIFO.

3) Compute the gross margin for FIFO and LIFO method.

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2. Park Company reported the following March purchases and sales data for its only product (A+)

Park Company reported the following March purchases and sales data for its only product.

Date Activities Units Acquired at Cost Units sold at Retail

Mar. 1 Beginning Inventory 150 units @$7.00 = $1,050

Mar. 10 Sales 90units @ $15

Mar. 20 Purchase 220 units @$6.00 = 1,320

Mar. 25 Sales 145 units @$15

Mar. 30 Purchase 90 units @$5.00 = 450

Totals 460 units $2,820 235 units

Park uses a perpetual inventory system. For specific identification, ending inventory consists of 225 units, where 90 are from the March 30 purchase, 80 are from the March 20 purchase, and 55 are from beginning inventory.

Required:

1. Determine the cost assigned to ending inventory and to cost of goods sold using specific identification.

2. Determine the cost assigned to ending inventory and to cost of goods sold using weighted average.(Due to rounding, the sum of Cost of Goods Sold and Ending inventory may not equal the Cost of Good available for sales.

3. Determine the cost assigned to ending inventory and to cost of goods sold using FIFO.

4. Determine the cost assigned to ending inventory and to cost of goods sold using LIFO.

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2. Duke Associates, antique dealers, purchased the contents of an estate for $37,500 (A+)

Duke Associates, antique dealers, purchased the contents of an estate for $37,500. Terms of the purchase were FOB shipping point, and the cost of transporting the goods to Duke Associates’ warehouse was $1,200. Duke Associates insured the shipment at a cost of $150. Prior to putting the goods up for sale, they cleaned and refurbished them at a cost of $490.

Required:

1 Determine the cost of the inventory acquired from the estate.

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Manno Corporation has the following information available concerning its postretirement benefit plan for 2012 (A+)

Manno Corporation has the following information available concerning its postretirement benefit plan for 2012.

Service cost $40,000

Interest cost 47,400

Actual return on plan assets 26,900

Required:

1 Compute Manno\’s 2012 postretirement expense.

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Lahey Corp. has three defined-benefit pension plans as follows (A+)

Lahey Corp. has three defined-benefit pension plans as follows.

Pension Assets Projected Benefit

(at Fair Value) Obligation

Plan X $600,000 $500,000

Plan Y 900,000 720,000

Plan Z 550,000 700,000

Required:

1 How will Lahey report these multiple plans in its financial statements?

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Listed below are items that are commonly accounted for differently for financial reporting purposes than they are for tax purposes (A+)

Listed below are items that are commonly accounted for differently for financial reporting purposes than they are for tax purposes.

For each item below, indicate whether it involves:

(1) A temporary difference that will result in future deductible amounts and, therefore, will usually give rise to a deferred income tax asset.

(2) A temporary difference that will result in future taxable amounts and, therefore, will usually give rise to a deferred income tax liability.

(3) A permanent difference.

Use the appropriate number to indicate your answer for each.

(a) The MACRS depreciation system is used for tax purposes, and the straight-line depreciation method is used for financial reporting purposes for some plant assets.

(b) A landlord collects some rents in advance. Rents received are taxable in the period when they are received.

(c) Expenses are incurred in obtaining tax-exempt income.

(d) Costs of guarantees and warranties are estimated and accrued for financial reporting purposes.

(e) Installment sales of investments are accounted for by the accrual method for financial reporting purposes and the installment method for tax purposes.

(f) Interest is received on an investment in tax-exempt municipal obligations.

(g) For some assets, straight-line depreciation is used for both financial reporting purposes and tax purposes but the assets\’ lives are shorter for tax purposes.

(h) Proceeds are received from a life insurance company because of the death of a key officer. (The company carries a policy on key officers.)

(i) The tax return reports a deduction for 80% of the dividends received from U.S. corporations. The cost method is used in accounting for the related investments for financial reporting purposes.

(j) Estimated losses on pending lawsuits and claims are accrued for books. These losses are tax deductible in the period(s) when the related liabilities are settled.

(k) Expenses on stock options are accrued for financial reporting purposes.

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