Problem 3

Gibbs Manufacturing Co. was incorporated on 1/2/12 but was unable to begin manufacturing activities until 8/1/12 because new factory facilities were not completed until that date. The Land and Buildings account at 12/31/12 per the books was as follows:

Date Item Amount

1/31/12 Land and dilapidated building $200,000

2/28/12 Cost of removing building 4,000

4/1/12 Legal fees 6,000

5/1/12 Fire insurance premium payment 5,400

5/1/12 Special tax assessment for streets 4,500

5/1/12 Partial payment of new building construction 170,000

8/1/12 Final payment on building construction 170,000

8/1/12 General expenses 30,000

12/31/12 Asset write-up 75,000

$664,900

Additional information:

1. To acquire the land and building on 1/31/12, the company paid $100,000 cash and 1,000 shares of its common stock (par value = $100/share) which is very actively traded and had a fair value per share of $140.

2. When the old building was removed, Gibbs paid Kwik Demolition Co. $4,000, but also received $1,500 from the sale of salvaged material.

3. Legal fees covered the following:

Cost of organization $2,500

Examination of title covering purchase of land 2,000

Legal work in connection with the building construction 1,500

$6,000

4. The fire insurance premium covered premiums for a three-year term beginning May 1, 2012.

5. General expenses covered the following for the period 1/2/12 to 8/1/12.

President's salary $20,000

Plant superintendent covering supervision of new building 10,000

$30,000

6. Because of the rising land costs, the president was sure that the land was worth at least $75,000 more than what it cost the company.

Instructions

Determine the proper balances as of 12/31/12 for a separate land account and a separate buildings account. Use separate T-accounts (one for land and one for buildings) labeling all the relevant amounts and disclosing all computations.

Problem 4

Early in 2012, Dobbs Corporation engaged Kiner, Inc. to design and construct a complete modernization of Dobbs's manufacturing facility. Construction was begun on Jan. 2, 2012 and was completed on December 31, 2012. Dobbs made the following payments to Kiner, Inc. during 2012:

Date Payment

January 2, 2012 $1,200,000

June 1, 2012 3,600,000

August 31, 2012 6,000,000

December 31, 2012 6,000,000

In order to help finance the construction, Dobbs issued the following during 2012:

1. $4,000,000 of 10-year, 9% bonds payable, issued at par on May 31, 2012, with interest payable annually on May 31.

2. 1,000,000 shares of no-par common stock, issued at $10 per share on October 1, 2012.

In addition to the 9% bonds payable, the only debt outstanding during 2012 was a $1,000,000, 12% note payable dated January 1, 2008 and due January 1, 2018, with interest payable annually on January 1.

Instructions

Compute the amounts of each of the following (show computations):

1. Weighted-average accumulated expenditures qualifying for capitalization of interest cost.

2. Avoidable interest incurred during 2012.

3. Total amount of interest cost to be capitalized during 2012.

Problem 5

At 12/31/12, the end of Jenner Company's first year of business, inventory was $4,100 and $2,800 at cost and at market, respectively.

Following is data relative to the 12/31/13 inventory of Jenner:

Original Net Net Realizable Appropriate

Cost Replacement Realizable Value Less Inventory

Item Per Unit Cost Value Normal Profit Value

A $ .65 $ .45

B .45 .40

C .70 .75

D .75 .65

E .90 .85

Selling price is $1.00/unit for all items. Disposal costs amount to 10% of selling price and a "normal" profit is 30% of selling price. There are 1,000 units of each item in the 12/31/13 inventory.

Instructions

(a) Prepare the entry at 12/31/12 necessary to implement the lower-of-cost-or-market procedure assuming Jenner uses a contra account for its balance sheet.

(b) Complete the last three columns in the 12/31/13 schedule above based upon the lower-of-cost-or-market rules.

(c) Prepare the entry(ies) necessary at 12/31/13 based on the data above.

(d) How are inventory losses disclosed on the income statement?

Problem 6

Doran Realty Company purchased a plot of ground for $900,000 and spent $2,100,000 in developing it for building lots. The lots were classified into Highland, Midland, and Lowland grades, to sell at $120,000, $90,000, and $60,000 each, respectively.

Instructions

1. Complete the table below to allocate the cost of the lots using a relative sales value method.

No. of Selling Total % of Apportioned Cost

Grade Lots Price Revenue Total Sales Total Per Lot

Highland 20 $ $ $ $

Midland 40 $ $

Lowland 100 $ $

160 $ $

2. Compute the gross profit for each grade and the total gross profit.

Problem 7

When you undertook the preparation of the financial statements for Telfer Company at January 31, 2013, the following data were available:

At Cost At Retail

Inventory, February 1, 2012 $70,800 $ 98,500

Markdowns 35,000

Markups 63,000

Markdown cancellations 20,000

Markup cancellations 10,000

Purchases 219,500 294,000

Sales 325,000

Purchases returns and allowances 4,300 5,500

Sales returns and allowances 10,000

Instructions

Compute the ending inventory at cost as of January 31, 2013, using the retail method which approximates lower of cost or market. Your solution should be in good form with amounts clearly labeled.

Problem 8

The records of Heese Stores provided the following data for the year:

Cost Retail

(Base inventory) Inventory, January 1 $150,000 $ 250,000

Net purchases 830,800 1,318,000

Sales 1,185,000

Other data are: Freight-in, $14,000; net markups, $8,000; net markdowns, $6,000; and the price index for the year is 110.

Instructions

Determine the approximate valuation of the final inventory by the dollar-value, LIFO-retail method. Label all figures..