Question

2. Calculate the following, and place the calculated solution on the appropriate line. In all cases, assume the companies that are the subject of the question are US corporations using US GAAP. a. Berful sells a product. It had one item in beginning inventory that cost $60,000, and purchased two more--one for $70,000, and later, one for $80,000. If two of the three items were sold this year, determine the cost of goods sold under the following cost flow assumptions.

FIFO ______________ LIFO ______________ Weighted Average ____________

1. Berful buys a machine for $45,000 on the first day of the year. The machine is expected to have a life of 5 years or 100,000 units, and to have a salvage value of $5,000. Calculate the first year depreciation under the following methods.

Straight-line method              _______________

Double-declining balance     _______________

2. Calculate the correct balance of cash resulting from the following data by preparing a bank reconciliation, and place the correct balance on the line below.

Balance per bank statement          5,845.49

Balance per books                          4,479.48

Deposits in transit                            1,654.24

Outstanding checks                        3,028.89

Bank Service Charge                          8.64

                   Ending cash balance   _______________

Answer 1

A.

FIFO: 2 of 3 units are sold. For FIFO we start with oldest unit first and go in forward chronological order. So, COGS= 60,000 (OP) + 70,000 (1st Purchase) = $ 130,000

LIFO: For LIFO we start with latest unit first and go in backward chronological order. So COGS = 80,000 (2nd) + 70,000 (1st) = $ 150,000.

Weighted Average: Assuming the sale is made after the 2nd purchase we have total available for sale as (60,000+70,000+80,000) = $ 210,000. So, 2/3 are sold. Hence COGS = 210,00*2/3 = 140,000

B. Depreciation under,

SLM=> (Cost-Salvage value) /life Ie. (45,000-5000)/5 = $ 8,000.

DDB=> 1/life*200% Ie, 1/5*200% = 40%. So Depreciation => 45,000*40% = $ 18,000.

C.

Deposits in Transit and Outstanding checks do not require any adjustments. So, adjusted balance is,

Existing balance Ie, 4479.48 - Bank Charges Ie 8.64 = $ 4,470.84