House of the organs Inc, Purchases organs from well known manufacturers and sell them at the retail level (A+)

House of the organs Inc,Purchases organs from well known manufacturers and sell them at the retail level. The organ sells, on the average, for $2,500 each. The average cost of the organs from manufacturers is $1,500.The cost that the company incurs in a typical month are presented below:

Costs Costs Formula

Selling:

Advertising $950 per month

Delivery of organs $60 per Organ sold

Sales salaries and commissions $4,800 per month, Plus 4% of sales

Utilities $650 per month

Depreciations of Sales facilities $5,000 per month

Administrative:

Executive salaries $13,500 per month

Depreciation of office Equipment $900 per month

Clerical $2,500 per month plus $40 per organ sold

Insurance $700 per month

During the November the company sold and delivered 60 Organs.

Required:

1. Prepare a Traditional income statement for November.

2. Prepare a contribution format income statement for November.show cost and revenues on both a total and unit basis down through contribution margin.

3. Refer to the income statement you prepared in 2 above. Why might it be misleading to show the fixed cost on a per unit basis.

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Sedato Company follows the practice of pricing its inventory at the lower-of-cost-or-market, on an individual-item basis (A+)

Sedato Company follows the practice of pricing its inventory at the lower-of-cost-or-market, on an individual-item basis.

Item No. Quantity Cost per Unit Cost to Replace Estimated Cost of Completion Normal

Selling Price and Disposal Profit

1320 1,200 $3.20 $3.00 $4.50 $0.35 $1.25

1333 900 2.70 2.30 3.40 0.50 0.50

1426 800 4.50 3.70 5.00 0.40 1.00

1437 1,000 3.60 3.10 3.20 0.45 0.90

1510 700 2.25 2.00 3.25 0.80 0.60

1522 500 3.00 2.70 3.90 0.40 0.50

1573 3,000 1.80 1.60 2.50 0.75 0.50

1626 1,000 4.70 5.20 6.00 0.50 1.00

Required:

From the information above, determine the amount of Sedato Company inventory.

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Belanna Corporation began operations on December 1, 2010 (A+)

Belanna Corporation began operations on December 1, 2010. The only inventory transaction in 2010 was the purchase of inventory on December 10, 2010, at a cost of $20 per unit. None of this inventory was sold in 2010. Relevant information is as follows.

Ending inventory in units

December 31, 2010 100

December 31, 2011, by purchase date

December 2, 2011 100

July 20, 2011 30 130

During the year the following purchases and sales were made.

Purchases Sales

March 15 300 units at $24 April 10 200

July 20 300 units at 25 August 20 300

September 4 200 units at 28 November 18 170

December 2 100 units at 30 December 12 200

The company uses the periodic inventory method.

Required:

Determine ending inventory under:

(1) Specific identification

(2) FIFO

(3) LIFO

(4) Average cost

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You are the vice-president of finance of Mickiewicz Corporation (A+)

You are the vice-president of finance of Mickiewicz Corporation, a retail company that prepared two different schedules of gross margin for the first quarter ended March 31, 2010. These schedules appear below.

Sales Cost of Goods Sold Gross Margin

($5 per unit)

Schedule 1 $150,000 $124,900 $25,100

Schedule 2 150,000 129,600 20,400

The computation of cost of goods sold in each schedule is based on the following data.

Units Cost per Unit Total Cost

Beginning inventory, January 1 10,000 $4.00 $40,000

Purchase, January 10 8,000 4.20 33,600

Purchase, January 30 6,000 4.25 25,500

Purchase, February 11 9,000 4.30 38,700

Purchase, March 17 12,000 4.40 52,800

Peggy Flemming, the president of the corporation, cannot understand how two different gross margins can be computed from the same set of data. As the vice-president of finance you have explained to Ms. Flemming that the two schedules are based on different assumptions concerning the flow of inventory costs, e.g., FIFO and LIFO. Schedules 1 and 2 were not necessarily prepared in this sequence of cost flow assumptions.

Required:

Prepare two separate schedules computing cost of goods sold and supporting schedules showing the composition of the ending inventory under both cost flow assumptions.

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Esplanade Company was formed on December 1, 2010 (A+)

Esplanade Company was formed on December 1, 2010. The following information is available from Esplanade’s inventory records for Product BAP.

Units Unit Cost

January 1, 2010 (beginning inventory) 600 $8.00

Purchases:

January 5, 2010 1,100 9.00

January 25, 2010 1,300 10.00

February 16, 2010 800 11.00

March 26, 2010 600 12.00

A physical inventory on March 31, 2010, shows 1,500 units on hand.

Required:

Prepare schedules to compute the ending inventory at March 31, 2010, under each of the following inventory methods. Assume Esplanade Company uses the periodic inventory method.

(a) FIFO

(b) LIFO

(c) Weighted average

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The net income per books of Adamson Company was determined without knowledge of the errors indicated (A+)

The net income per books of Adamson Company was determined without knowledge of the errors indicated.

Year Net income per books Error in Ending Inventory

2006 $50,000 Overstated $5,000

2007 52,000 Overstated 9,000

2008 54,000 Understated 11,000

2009 56,000 No error

2010 58,000 Understated 2,000

2011 60,000 Overstated 10,000

Required:

Complete the work sheet to show the adjusted net income figure for each of the 6 years after taking into account the inventory errors.

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Thomason Company makes the following errors during the current year (A+)

Thomason Company makes the following errors during the current year. (In all cases, assume ending inventory in the following year is correctly stated.)

1. Both ending inventory and purchases and related accounts payable are understated. (Assume this purchase was recorded and paid for in the following year.)

2. Ending inventory is overstated, but purchases and related accounts payable are recorded correctly.

3. Ending inventory is correct, but a purchase on account was not recorded. (Assume this purchase was recorded and paid for in the following year.)

Indicate the effect of each of these errors on working capital, current ratio (assume that the current ratio is greater than 1), retained earnings, and net income for the current year and the subsequent year.

1. Working capital

Current ratio

Retained earnings

Net income

2. Working capital

Current ratio

Retained earnings

Net income

3. Working capital

Current ratio

Retained earnings

Net income

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Chippewas Company sells one product (A+)

Chippewas Company sells one product. Presented below is information for January for the Chippewas Company.

Jan. 1 Inventory 100 units at $6 each

4 Sale 80 units at $8 each

11 Purchase 150 units at $6.50 each

13 Sale 120 units at $8.75 each

20 Purchase 160 units at $7 each

27 Sale 100 units at $9 each

Chippewas uses the FIFO cost flow assumption. All purchases and sales are on account.

Required:

(a) Assume Chippewas uses a periodic system. Prepare all necessary journal entries, including the end-of-month closing entry to record cost of goods sold. A physical count indicates that the ending inventory for January is 110 units.

(b) Compute gross profit using the periodic system.

(c) Assume Chippewas uses a perpetual system. Prepare all necessary journal entries.

(d) Compute gross profit using the perpetual system.

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Presented below is a list of items that may or may not be reported as inventory in a company’s December 31 balance sheet (A+)

Presented below is a list of items that may or may not be reported as inventory in a company’s December 31 balance sheet.

Indicate which of these items would typically be reported as inventory in the financial statements. If an item should not be reported as inventory, indicate how it should be reported in the financial statements.

1. Goods sold on an installment basis (bad debts can be reasonably estimated).

2. Goods out on consignment at another company’s store.

3. Goods purchased f.o.b. shipping point that are in transit at December 31.

4. Goods purchased f.o.b. destination that are in transit at December 31.

5. Goods sold to another company, for which our company has signed an agreement to repurchase at a set price that covers all costs related to the inventory.

6. Goods sold where large returns are predictable.

7. Goods sold f.o.b. shipping point that are in transit at December 31.

8. Freight charges on goods purchased.

9. Interest costs incurred for inventories that are routinely manufactured.

10. Materials on hand not yet placed into production by a manufacturing firm.

11. Costs incurred to advertise goods held for resale.

12. Office supplies.

13. Raw materials on which a manufacturing firm has started production, but which are not completely processed.

14. Factory supplies.

15. Goods held in consignment from another company

16. Costs identified with units completed by a manufacturing firm, but not yet sold.

17. Goods sold f.o.b. destination that are in transit at December 31.

18. Short-term investments in stocks and bonds that will be resold in the near future.

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On December 31, 2010, Conchita Martinez Company signed a $1,000,000 note to Sauk City Bank (A+)

On December 31, 2010, Conchita Martinez Company signed a $1,000,000 note to Sauk City Bank. The market interest rate at that time was 12%. The stated interest rate on the note was 10%, payable annually. The note matures in 5 years. Unfortunately, because of lower sales, Conchita Martinez’s financial situation worsened. On December 31, 2012, Sauk City Bank determined that it was probable that the company would pay back only $600,000 of the principal at maturity. However, it was considered likely that interest would continue to be paid, based on the $1,000,000 loan.

Required:

(a) Determine the amount of cash Conchita Martinez received from the loan on December 31, 2010.

(b) Prepare a note amortization schedule for Sauk City Bank up to December 31, 2012.

( c) Determine the loss on impairment that Sauk City Bank should recognize on December 31, 2012.

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