Purchase Solution

# 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

(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.

##### 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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