Exercise 1
Mark Price 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
|
$ 160,000
|
|
Purchases (gross)
|
640,000
|
|
Freight-in
|
30,000
|
|
Sales revenue
|
1,000,000
|
|
Sales returns
|
70,000
|
|
Purchase discounts
|
12,000
|
(a) Compute the estimated inventory at May 31, assuming that the gross profit is 30% of sales.
(b) Compute the estimated inventory at May 31, assuming that the gross profit is 30% of cost.
Brief Exercise 2
Garcia Corporation purchased a truck by issuing an $80,000, 4-year, zero-interest-bearing note to Equinox Inc. The market rate of interest for obligations of this nature is 10%.
Prepare the journal entry to record the purchase of this truck. Previn Brothers Inc. purchased land at a price of $27,000. Closing costs were $1,400. An old building was removed at a cost of $10,200. What amount should be recorded as the cost of the land?
Brief Exercise 3
Mohave Inc. purchased land, building, and equipment from Laguna Corporation for a cash payment of $315,000. The estimated fair values of the assets are land $60,000, building $220,000, and equipment $80,000. At what amounts should each of the three assets be recorded?
Brief Exercise 4
Fielder Company obtained land by issuing 2,000 shares of its $10 par value common stock. The land was recently appraised at $85,000. The common stock is actively traded at $40 per share.
Prepare the journal entry to record the acquisition of the land.
Brief Exercise 5
Navajo Corporation traded a used truck (cost $20,000, accumulated depreciation $18,000) for a small computer with a fair value of $3,300. Navajo also paid $500 in the transaction.
Prepare the journal entry to record the exchange. (The exchange has commercial substance.)
Brief Exercise 6
Mehta Company traded a used welding machine (cost $9,000, accumulated depreciation $3,000) for office equipment with an estimated fair value of $5,000. Mehta also paid $3,000 cash in the transaction.
Prepare the journal entry to record the exchange. (The exchange has commercial substance.)
Multiple Choice Question
Which of the following is the recommended approach to handling interest incurred in financing the construction of property, plant and equipment?
Capitalize only the actual interest costs incurred during construction.
Charge construction with all costs of funds employed, whether identifiable or not.
Capitalize interest costs equal to the prime interest rate times the estimated cost of the asset being constructed.
Capitalize no interest during construction.