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    Financial Accounting Inventories

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    Dyer Company had a beginning inventory of 200 units at a cost of $12 per unit on August 1. During the month, the following purchases and sales were made.

    Purchases Sales
    August 4 250 units at $13 August 7 150 units
    August 15 350 units at $15 August 11 100 units
    August 28 200 units at $14 August 17 250 units
    August 24 220 units

    Dyer uses a periodic inventory system.

    Instructions: Determine ending inventory and cost of goods sold under (a) average cost, (b) FIFO, and (c) LIFO.

    (a) Average cost:
    Ending inventory = $____________; cost of goods sold = $_____________.

    (b) FIFO:
    Ending inventory = $_____________; cost of goods sold = $____________.

    (c) LIFO:
    Ending inventory = $_____________; cost of goods sold = $____________.

    Thomas Company purchased equipment for $800,000 cash on January 1, 2002. The estimated life is 5 years or 1,000,000 units; salvage value is estimated at $50,000. Actual activity was 180,000 units in 2002, and 200,000 units in 2003.

    Instructions: Compute the annual depreciation expense for 2002 and 2003, and book value at December 31, 2003, under the following depreciation methods: (a) units-of-activity, (b) straight-line, and (c) double-declining-balance.

    (a) Units-of-activity
    2002 depreciation = $_______________.

    2003 depreciation = $_______________.

    12/31/03 book value = $_______________.

    (b) Straight-line
    2002 depreciation = $_______________.

    2003 depreciation = $_______________.

    12/31/03 book value = $_______________.

    (c) Double-declining-balance
    2002 depreciation = $_______________.

    2003 depreciation = $_______________.

    12/31/03 book value = $_______________.

    The condensed financial statements of Farr Corporation for 2003 are presented below.

    Farr Corporation Farr Corporation
    Balance Sheet Income Statement
    December 31, 2003 For the Year Ended December 31, 2003

    Assets Revenues $2,000,000
    Current assets Expenses
    Cash and temporary Cost of goods sold 1,020,000
    investments $ 60,000 Selling and administrative
    Accounts receivable 70,000 expenses 680,000
    Inventories 140,000 Interest expense 50,000
    Total current assets 270,000 Total expenses 1,750,000
    Property, plant, and Income before income taxes 250,000
    equipment (net) 730,000 Income tax expense 100,000
    Total assets $1,000,000 Net income $ 150,000

    Liabilities and Stockholders' Equity
    Current liabilities $ 100,000
    Long-term liabilities 380,000
    Stockholders' equity 520,000
    Total liabilities and
    stockholders' equity $1,000,000

    Additional data as of December 31, 2002: Inventory = $100,000; Total assets = $800,000; Stockholders' equity = $480,000.

    Instructions: Compute the following listed ratios for 2003 showing supporting calculations.

    (a) Current ratio = .

    (b) Debt to total assets ratio = .

    (c) Times interest earned = .

    (d) Inventory turnover = .

    (e) Profit margin = .

    (f) Return on stockholders' equity = .

    (g) Return on assets = .

    PART VIII - STATEMENT OF CASH FLOWS (15 points)
    Presented below is information related to the operations of Tanner Corporation.
    December
    2003 2002 2003
    Cash $ 55,000 $ 40,000 Sales $380,000
    Accounts receivable 60,000 48,000 Cost of goods sold 190,000
    Inventory 30,000 22,000 Gross profit 190,000
    Prepaid expenses 15,000 20,000 Depreciation expense 14,000
    Land 39,000 20,000 Other operating expenses 143,000
    Building 100,000 100,000 Income from operations 33,000
    Accumulated depreciation- Loss on equipment sale 3,000
    building (17,000) (8,000) Income before income taxes 30,000
    Equipment 58,000 80,000 Income tax expense 9,000
    Accumulated depreciation- Net income $ 21,000
    equipment (15,000) (20,000)
    Total $325,000 $302,000

    Accounts payable $ 40,000 $ 29,000
    Bonds payable 0 100,000
    Common stock 200,000 100,000
    Retained earnings 85,000 73,000
    Total $325,000 $302,000

    Additional information:
    (a) In 2003, Tanner declared and paid a cash dividend.
    (b) The company converted $100,000 of bonds into common stock.
    (c) Equipment with a cost of $22,000 and a book value of $12,000 was sold for $9,000. Land was acquired for cash.
    (d) Prepaid expenses pertain to operating expenses; accounts payable pertains to merchandise purchases.

    Instructions:
    (a) Prepare a statement of cash flows in proper form for 2003, using the indirect method.

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    https://brainmass.com/business/finance/financial-accounting-inventories-14745

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    Solution Summary

    This shows a statement of cash flows and other information, then shows how to compute ratios and a statement of cash flows using the indirect method.

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