Problem 5-1 Inventory Cost Issue

A furniture store inventory includes two beds that are identical with respect to appearance, quality, and brand name. However, the store purchased the beds at different times for different prices. The first bed cost the store $400, and the second bed cost $450. Assume the store sells one of the beds for $600. Also assume the store manager cannot identify which bed was sold.

Required

Determine the gross margin on the sale of the bed.

Problem 5-2 Inventory Cost Flow Assumptions

Crystal Apple Sales Company began Year 2 with cash of $2,000, inventory of $3,600 (200 crystal apples that cost $18 each), $2,500 of common stock, and $3,100 of retained earnings. The following events occurred during Year 2.

1.Crystal Apple purchased additional inventory twice during Year 2. The first purchase consisted of 800 apples that cost $20 each, and the second consisted of 1,200 apples that cost $24 each. The purchases were on account.

2.The company sold 2,040 apples for cash at a selling price of $40 each.

3.The company paid $44,800 cash on accounts payable for inventory purchases.

4.Crystal Apple paid $26,000 cash for operating expenses.

Required

a.Record the events in ledger T-accounts or using the horizontal financial statements model using the three different cost flow assumptions: FIFO and weighted average.

b.Prepare an income statement, a balance sheet, and a statement of cash flows under each of the TWO cost flow assumptions.

Problem 5-3 Lower of Cost or Market for Inventory

Pleasant Grove Electronics carries four different types of calculators. The quantities, costs, and market values are shown below. Based on this information, determine the necessary lower of cost or market (LCM) write-down assuming Pleasant Grove determines LCM on an individual basis. Use a horizontal financial statements model to show how the write-down would affect the balance sheet, income statement, and statement of cash flows.

Type

Quantity

Unit

Cost

Unit

Market

A

100

$12.00

$15.00

B

550

8.00

6.00

C

710

25.00

24.00

D

240

20.00

Problem 5-1 Inventory Cost Issue

A furniture store inventory includes two beds that are identical with respect to appearance, quality, and brand name. However, the store purchased the beds at different times for different prices. The first bed cost the store $400, and the second bed cost $450. Assume the store sells one of the beds for $600. Also assume the store manager cannot identify which bed was sold.

Required

Determine the gross margin on the sale of the bed.

Problem 5-2 Inventory Cost Flow Assumptions

Crystal Apple Sales Company began Year 2 with cash of $2,000, inventory of $3,600 (200 crystal apples that cost $18 each), $2,500 of common stock, and $3,100 of retained earnings. The following events occurred during Year 2.

1.Crystal Apple purchased additional inventory twice during Year 2. The first purchase consisted of 800 apples that cost $20 each, and the second consisted of 1,200 apples that cost $24 each. The purchases were on account.

2.The company sold 2,040 apples for cash at a selling price of $40 each.

3.The company paid $44,800 cash on accounts payable for inventory purchases.

4.Crystal Apple paid $26,000 cash for operating expenses.

Required

a.Record the events in ledger T-accounts or using the horizontal financial statements model using the three different cost flow assumptions: FIFO and weighted average.

b.Prepare an income statement, a balance sheet, and a statement of cash flows under each of the TWO cost flow assumptions.

Problem 5-3 Lower of Cost or Market for Inventory

Pleasant Grove Electronics carries four different types of calculators. The quantities, costs, and market values are shown below. Based on this information, determine the necessary lower of cost or market (LCM) write-down assuming Pleasant Grove determines LCM on an individual basis. Use a horizontal financial statements model to show how the write-down would affect the balance sheet, income statement, and statement of cash flows.

Type

Quantity

Unit

Cost

Unit

Market

A

100

$12.00

$15.00

B

550

8.00

6.00

C

710

25.00

24.00

D

240

20.00

22.00

Week 5 Tutorial problems Problem 5-1 - Inventory Cost Issue A furniture store inventory includes two beds that are identical with respect to appearance, quality, and brand name. However, the store purchased the beds at different times for different prices. The first bed cost the store $400, and the second bed cost $450. Assume the store sells one of the beds for $600. Also assume the store manager cannot identify which bed was sold. Required Determine the gross margin on the sale of the bed. Problem 5-2 - Inventory Cost Flow Assumptions Crystal Apple Sales Company began Year 2 with cash of $2,000, inventory of $3,600 (200 crystal apples that cost $18 each). $2,500 of common stock, and $3,100 of retained earnings. The following events occurred during Year 2 1. Crystal Apple purchased additional inventory twice during Year 2. The first purchase consisted of 800 apples that cost $20 each, and the second consisted of 1,200 apples that cost $24 each. The purchases were on account. 2. The company sold 2,040 apples for cash at a selling price of $40 each 3. The company paid $44.800 cash on accounts payable for inventory purchases. 4. Crystal Apple paid $26,000 cash for operating expenses Required a. Record the events in ledger T-accounts or using the horizontal financial statements model using the three different cost flow assumptions FIFO and weighted average b. Prepare an income statement, a balance sheet. and a statement of cash flows under each of the TWO cost flow assumptions Problem 5-3 - Lower of Cost or Market for Inventory Pleasant Grove Electronics carries four different types of calculators. The quantities, costs, and market values are shown below. Based on this information, determine the necessary lower of cost or market (LCM) write-down assuming Pleasant Grove determines LCM on an individual basis. Use a horizontal financial statements model to show how the write-down would affect the balance sheet income statement, and statement of cash flows. UU Type Oathy Costa Be C 750 D300 31200350 8.00.00 25.0000 20.00 22.00