UNIVERSITY / INSTITUTE: Adams State College
CLASS / COURSE: BUS 306 Intermediate Accounting II
BUS 306 Intermediate Accounting II
Inter. II Exam 1 Ch 8-10
Directions: Show all of your work in excel and label each problem.
The following information is taken from the accounting records of Rapid Runner Inc. for the year 2011. Missing information has been left blank.
Required: Compute the missing amounts.
Shown below is activity for one of the products of Denver Office Equipment:
3. Required: Compute the ending inventory and cost of goods sold assuming Denver uses LIFO and a perpetual inventory system.
4. Required: Compute the ending inventory and cost of goods sold assuming Denver uses average cost and a periodic inventory system.
5. Harley Inc. uses the conventional retail method to estimate its ending inventories. The following data has been summarized for December 31, 2011:
Required: Estimate the cost of ending inventory applying the conventional retail method.
6. Henderson Company uses the gross profit method to estimate ending inventory and cost of goods sold when preparing monthly financial statements required by its bank. Inventory on hand at the end of July was $122,500. The following information for the month of August was available from company records:
In addition, the controller is aware of $10,000 of inventory that was stolen during August from one of the company's warehouses.
Required: 1. Calculate the estimated inventory at the end of August, assuming a gross profit ratio of 30%.
2. Calculate the estimated inventory at the end of August, assuming a markup on cost of 25%.
7. Trask Inc. uses the average cost retail method to estimate its ending inventory. Partial information at June 30, 2011, is as follows:
Required: Assuming Trask's cost-to-retail = 60%, compute Trask's beginning inventory at retail.
8. Mad Hatter Enterprises purchased new equipment for $365,000, terms f.o.b. shipping point. Other costs connected with the purchase were as follows:
Determine the capitalized cost of the equipment.
9. On January 3, 2011, Michelson & Sons acquired a tract of land just outside the city limits. The land and existing building were purchased for $2.4 million. Michelson paid $400,000 and signed a noninterest-bearing note requiring the company to pay the remaining $2,000,000 on December 31, 2012. An interest rate of 7% properly reflects the time value of money for this type of loan agreement. Transfer taxes, title insurance and other costs totaling $24,000 were paid at closing.
During February, the old building was demolished at a cost of $120,000, and an additional $100,000 was paid to clear and grade the land. Construction of a new building began on March 1 and was completed on October 30. Construction expenditures were as follows:
Michelson did not borrow specifically for the construction project, but did have the following debt outstanding throughout 2011:
$6,000,000, 8% long-term note payable
$2,000,000, 5% long-term note payable
In December, the company purchased equipment and office furniture and fixtures for a lump-sum price of $800,000. The fair values of the equipment and the furniture and fixtures were $540,000 and $360,000, respectively. In December, Michelson paid $340,000 for the construction of parking lots and landscaping.
1. Determine the initial values of the various assets that Michelson acquired or constructed during 2011.
2. How much interest expense will Michelson report in its 2011 income statement?
10. Eli Company purchased assets of Whitney Inc. at auction for $1,560,000. An independent appraisal of the fair value of the assets acquired is listed below:
Prepare the journal entry to record the purchase of the assets.
11. Cool Globe Inc. entered into two transactions, as follows:
1. Purchased equipment paying $20,000 down and signed a noninterest-bearing note requiring the balance to be paid in four annual installments of $20,000 on the anniversary date of the contract. Based on Bright Light's 12% borrowing rate for such transactions, the implicit interest cost is $19,253.
2. Purchased a tract of land in exchange for $10,000 cash down payment and a noninterest-bearing note requiring five $10,000 annual payments, with the first annual payment in one year. The fair value of the land is $46,000.
Prepare the journal entries for these transactions.
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