Financial Accounting, 10/e 8-61
COMP8-1. (continued)
Case D (continued)
c. Weighted average
Cost of ending inventory:
Cost of goods available for sale $17,800 ($1,600 beg. + $16,200 purch.)
÷ Number of goods available ÷ 900 units
Cost per unit $19.78 per unit (rounded)
Req. 2
a. Gross profit under FIFO method
Sales revenue (700 units sold x $50) $35,000
b. Net income under LIFO method
Sales revenue
$35,000
Less: Cost of goods sold
14,300
20,700
Operating expenses
16,000
Pretax income
Net income
c. The LIFO method should be recommended to Tompkins for tax and financial
reporting purposes. Prices of inventory are rising. When prices rise, LIFO
COMP8-1. (continued)
Case D (continued)
Req. 3
For valuation purposes, ending inventory is to be reported at the lower of cost
or market, a conservative approach so that assets are not overstated, thus
Case E
Req. 1 Partial depreciation schedules:
a. Office equipment using double-declining-balance method
Year
Computation
Depreciation
Expense
Accumulated
Depreciation
Net Book
Value
2019
($60,000 – $0) x 2/3
40,000
40,000
20,000
2021
Fully depreciated
45,000
15,000
b. Factory equipment using units-of-production method
(Cost – Residual Value) / Total estimated production =Depreciation rate
($900,000 – $0) / 100,000 hours = $9.00 per hour
Year
Computation
Accumulated
Depreciation
Net Book
Value
2019
$9.00/hour x 8,000 hours
72,000
828,000
2020
$9.00/hour x 9,200 hours
82,800
745,200
Financial Accounting, 10/e 8-63
COMP8-1. (continued)
Case E
Req. 2
Cash (+A) ……………………………………………………………………
700,000
Req. 3
Net book value of patent = $330,000 cost – ($22,000 annual expense x 3 years)
= $264,000
$330,000 cost x 1/15 = $22,000 amortization expense per year
COMP8-2.
Req. 1
Debit
Credit
a.
Cash (+A)
97
Credit card discount (+XR, −R, −SE)
3
Sales revenue (+R, +SE)
100
($100 x 0.03 = $3 discount)
Allowance for doubtful accounts (−XA, +A)
3
Accounts receivable (−A)
3
c.
Bad debt expense (+E, −SE)
6
Allowance for doubtful accounts (+XA, −A)
6
(Beg. allow. $18
−
Write-off $3
−
End. allow. $21)
d.
Cost of sales (+E, −SE)
169
Inventories (−A)
Difference reduces inventory $169)
e.
Equipment (+A)
14
Cash (−A)
4
(Capitalize costs to have asset ready for use.)
f.1.
Depreciation expense (+E, −SE)
4
Accumulated depreciation (+XA, −A)
4
(Cost $20
−
Residual value $4) x 1/4
Cash (+A)
Accumulated depreciation (−XA, +A)
Loss on sale of equipment (+E, −SE)
1
Equipment (−A)
g.
Amortization expense
30
Software (−A)
(Cost $90 x 1/3)
Financial Accounting, 10/e 8-65
COMP8-2. (continued)
Req. 1 (continued)
Debit
Credit
h.
Depreciation expense (+E, −SE)
21
Accumulated depreciation (+XA, −A)
Building – (Cost $189 – residual value $9) x 1/20]
Income tax expense (+E, −SE)
Income taxes payable (+L)
Computation of pretax income after transactions and adjustments and income tax
expense:
Sales revenue
$2,487
(a)
+ 100
Gross sales
2,587
Less: Credit card discounts
53
(a)
3
Net sales
2,531
Expenses: Per trial balance
2,162
(c)
6
(d)
5
(g)
30
(h)
21
Total expenses
Pretax income
Effective tax rate
COMP8-2. (continued)
Req. 2
Cash
Accounts
Receivable
Allowance for
Doubtful Accounts
Bal. 570
Bal. 373
Bal. 18
a. 97
e 4
b 3
b 3
c 6
f.2. 3
Bal. 666
Bal. 370
Bal. 21
Land
Bal. 539
Bal. 59
Bal. 22
d 169
Bal. 370
Bal. 59
Bal. 22
Bal. 189
Bal. 360
Bal. 222
e 14
f.2. 20
f.2. 16
f.1. 4
Bal. 189
Bal. 354
Bal. 231
Software
Patents
Goodwill
Bal. 90
Bal. 1
Bal. 161
g 30
Bal. 60
Bal. 1
Bal. 161
Accounts
Payable
Accrued
Liabilities
Income Taxes
Payable
Bal. 252
Bal. 182
Bal. 16
e 10
i 33
Bal. 262
Bal. 182
Bal. 49
Common
Bal. 49
Bal. 3
Bal. 243
Bal. 49
Bal. 3
Bal. 243
Retained
Earnings
Revenue
Discounts
Bal. 1,107
Bal. 2,487
Bal. 53
a. 3
Bal. 1,107
Bal. 2,587
Bal. 56
Financial Accounting, 10/e 8-67
COMP8-2. (continued)
Req. 2 (continued)
Cost
of Sales
Advertising
Expense
Utilities
Expense
Bal. 1,306
Bal. 145
Bal. 85
d 169
Bal. 1,475
Bal. 145
Bal. 85
Expense
Expense
Expense
Bal. 625
Bal. 0
Bal. 0
Bal. 25
Bal. 30
Interest
Expense
Bal. 1
Bal. 0
Bal. 0
c 6
Bal. 1
Bal. 6
Bal. 1
Income Tax
Expense
Bal. 0
i 33
Bal. 33
COMP8-2. (continued)
Req. 2 (continued)
OLSON SPORTS, INC.
Adjusted Trial Balance (Revised)
December 31, 2020
($ in thousands)
Debit
Credit
Cash
666
Accounts receivable
370
Allowance for doubtful accounts
21
Inventories
Prepaid expenses
Land
Building
189
Equipment
354
Accumulated depreciation
Software
Patents
Goodwill
161
Accounts payable
262
Accrued liabilities
182
Income taxes payable
49
Long-term debt
49
Common stock
3
Additional paid-in capital
243
Retained earnings
Sales revenue
Credit card discounts
Cost of sales
Advertising expense
145
Utilities expense
Wages expense
625
Depreciation expense
Amortization expense
Loss on sale of equipment
Interest expense
Income tax expense
Financial Accounting, 10/e 8-69
COMP8-2. (continued)
Req. 3.
OLSON SPORTS, INC.
Income Statement
For the Year Ended December 31, 2020
(in thousands)
Net sales revenue ($2,587−$56)
$2,531
Cost of sales
1,475
Gross profit
1,056
Operating Expenses:
Advertising expense
145
Utilities expense
Wages expense
625
Amortization expense
Bad debt expense
6
Loss on sale of equipment
1
Operating Income
139
Other Item:
Interest expense
1
Pretax income
138
Income tax expense
33
Net Income
$ 105
OLSON SPORTS, INC.
Statement of Stockholders’ Equity
For the Year Ended December 31, 2020
(in thousands)
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Total
Stockholders’
Equity
Balance, January 1, 2020
$ 1,107
105
Balance, December 31, 2020
COMP8-2. (continued)
Req. 3 (continued)
OLSON SPORTS, INC.
Balance Sheet
December 31, 2020
(in thousands)
ASSETS
Current Assets:
Cash
$ 666
Accounts receivable (net of allowance for doubtful accounts of $21)
349
Prepaid expenses
Total current assets
Property, plant, and equipment:
Land
Building
189
Equipment
354
Less: Accumulated depreciation
Property, plant, and equipment, net
Software
Patents
Goodwill
161
Total assets
$2,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable
$ 262
Accrued liabilities
182
Income taxes payable
49
Total current liabilities
Long-term debt
Total liabilities
Common stock
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
Financial Accounting, 10/e 8-71
CASES AND PROJECTS
ANNUAL REPORT CASES
CP8–1. (dollar amounts in thousands)
1. The company spent $169,469 on property and equipment in the 2017 fiscal year
2. The estimated useful life of leasehold improvements is the lesser of 10 years or the
3. The original cost of fixtures and equipment held by the company at the end of the
most recent reporting year was $1,143,140 (disclosed in Note 7).
4. Current depreciation expense is $158,969 (disclosed in Note 7). NOTE: The
amount reported on the Income Statement is $167,421 because this amount
includes amortization expense.
5.
Fixed asset
=
Net Sales (Operating Revenues)
=
$3,795,549
=
5.30
turnover
Average Net Fixed Assets
($724,239 + $707,797)/2