Exercise 1 (30 points) The grocery store Buycheap promotes and sells books of the famous writer XYZ. At the beginning of May, Buycheap had 5,000 books in beginning inventory with a unit cost of 4. During May, Buycheap made the following purchases of XYZ's books. May 7: 4,000 units @ 5 May 11: 2,000 units @ 6 May 19:5,000 units @ 4 May 28: 3,000 units @ 3 During May, 15,000 units were sold. Buycheap uses a periodic inventory system. Instructions (a) Determine the cost of goods available for sale (b) Determine (1) the ending inventory and (2) the cost of goods sold under the two assumed cost flow methods (FIFO and average cost). (c) Which cost flow method results in (1) the higher inventory amount for the statement of financial position and (2) the higher cost of goods sold for the income statement? Exercise 2 (30 points) Troubador Limited has the following equity accounts on January 1, 2020: Share Capital- Ordinary (6 par. 100,000 shares issued) 600,000, Share Premium-Ordinary 150,000, and Retained Earnings 100,000. In 2020, the company had the following treasury share transactions April. 1: Purchased 5,000 shares at 10 per share. May 1: Sold 800 shares at 13 per share. Sept. 1: Sold 2,000 shares at 10 per share. Nov. 1: Sold 1,500 shares at 7 per share. Troubador uses the cost method of accounting for treasury shares. In 2020, the company reported net income of 40,000. Instructions ME Exercise 2 (30 points) Troubador Limited has the following equity accounts on January 1, 2020: Share Capital - Ordinary (6 par, 100,000 shares issued) 600,000, Share Premium-Ordinary 150,000, and Retained Earnings 100,000. In 2020, the company had the following treasury share transactions. April. 1: Purchased 5,000 shares at 10 per share. May 1: Sold 800 shares at 13 per share. Sept. 1: Sold 2,000 shares at E10 per share. Nov. 1: Sold 1,500 shares at 7 per share. Troubador uses the cost method of accounting for treasury shares. In 2020, the company reported net income of 40,000 Instructions a. Journalize the treasury share transactions, and prepare the closing entry at December 31, 2020, for net income. b. Open T-accounts for (1) Share Premium-Treasury, (2) Treasury Shares, and (3) Retained Earnings. Post to these accounts (without using a posting reference) c. Prepare the equity section for Troubador Limited at December 31, 2020 9 ME Exercise 3 (75 points) Below you find the comparative statements of financial position for the company Rain Ltd. 2020 2019 Assets Land Equipment Accumulated depreciation - equipment Inventory Accounts receivable Cash Total Equity and Liabilities Share capital - ordinary (EUR 1 par) Retained earnings Bonds payable Accounts payable 73 000 100 000 180 000 200 000 - 66 000 - 34 000 170 000 187 000 85 000 71 000 83 000 33 000 525 000 557 000 216 000 194 000 80 000 35 000 525 000 174 000 136 000 200 000 47 000 557 000 Additional information 1. Net Income for 2020 was 125,000. 2. Equipment which cost 20,000 and had accumulated depreciation of C3,600 was sold for 7,000 3. Cash dividends of 67.000 were declared and paid 4. Bonds payable amounting to 120,000 were redeemed for cash 120,000 5. Ordinary shares were issued for C42,000 cash 6 land was sold for its book value of 27.000 Instructions Prepare a statement of cash flows for 2020 using the indirect method Exercise 4 (30 points) Beer Delivery purchased a delivery truck for a price of $5,000 on January 1, 2020. Related expenditures consist of sales taxes equal to $1,000, painting and lettering for $500, motor vehicle license of $800, and a three-year accident insurance policy for $1,200. The truck has an expected residual value of $600 and is expected to be driven 200,000 miles over its estimated useful life of 7 years. Actual miles driven were 35,000 in 2020 and 20,000 in 2021. Instructions a. Compute the book value of the truck on January 1, 2020 b. Compute depreciation expense for 2020 and 2021 using (1) the straight-line method, (2) the units-of-activity method, and (3) the double-declining balance method. c. Assume that Beer Delivery uses the straight-line method. 1. Prepare the journal entry to record 2020 depreciation 2. Show how the truck would be reported in the December 31, 2020, statement of financial position d. Which of the three depreciation methods would maxime the operating cash flow reported in the Statement of Cash Flows Briefly explain