Hornacek Company uses the gross profit method to estimate inventory for monthly reporting purposes. Presented below is information for the month of May. Inventory, May 1 $ 120,000 Purchases (gross) 770,000 Freight-in 32,000 Sales revenue 1,050,000 Sales returns 70,000 Purchase discounts 48,000 Instructions (a) Compute the estimated inventory at May 31, assuming that the gross profit is 20% of sales. (b) Compute the estimated inventory at May 31, assuming that the gross profit is 20% of cost.

A building was constructed last year for Agro Co. for use as a production facility. Construction began on January 1 and was completed on December 31. The payments to the contractor were as follows. Date Payment 1/1 $500,000 4/1 600,000 8/1 800,000 10/1 500,000 To finance construction of the building, a $850,000, 10% construction loan was taken out on January 1. The loan was repaid on December 31. The firm had two sources of general debt: $600,000 note payable, 9% annual interest, and $800,000 par value bonds, 7.5% annual interest. Determine the amount of interest to be capitalized.

This machinery was acquired by trading in used machinery. Facts concerning the trade- in are as follows. Cost of machinery traded (old machine) $120,000 Accumulated depreciation to date of sale (old machine) 50,000 Fair value of machinery traded (old machine) 93,000 Cash received 7,000 Fair value of machinery acquired (new machine) 86,000 Record the journal entry for the above nonmonetary asset exchange for the following scenarios:

a. The transaction has commercial substance. b. The transaction lacks commercial substance.

9. (4 points) The records of Air Buds Boutique report the following data for the month of April. Sales revenue $116,300 Purchases (at cost) $51,500 Sales returns 6,100 Purchases (at sales price) 88,500 Markups 9,100 Purchase returns (at cost) 2,100 Markup cancellations 1,700 Purchase returns (at sales price) 3,000 Markdowns 7,800 Beginning inventory (at cost) 17,564 Markdown cancellations 1,900 Beginning inventory (at sales price) 42,500 Freight on purchases 2,600 Compute the ending inventory as indicated below.

a. Ending inventory using conventional (LCM) retail inventory method

b. Ending inventory using LIFO retail inventory method