California Inc., through no fault of its own, lost an entire plant due to anearthquake on May 1, 2016. In preparing its insurance claim on theinventory loss, the company developed the following data: Inventory onJanuary 1, 2016, $300,000; sales and purchases from January 1, 2016, toMay 1, 2016, $1,300,000 and $875,000, respectively. Californiaconsistently reports a 40% gross profit. The estimated inventory on May 1,2016, is:a. $302,500.b. $360,000.c. $395,000.d. $455,000.

To estimate the inventory lost in the earthquake on May 1, 2016, we use the gross profit method.…

Answered: California Inc., through no fault of…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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California Inc., through no fault of its own, lost an entire plant due to an earthquake on May 1, 2018. In preparing its insurance claim on the inventory loss, the company developed the following data: Inventory January 1, 2018, $300,000; sales and purchases from January 1, 2018, to May 1, 2018, $1,300,000 and $875,000, respectively, California consistently reports a 40% gross profit. The estimated inventory on May 1, 2018, is: $395,000. $455,000. $302,500. C$360,000.
A company through no fault of its own, lost an entire building due to an earthquake on May 1, 2024. In preparing its insurance claim on the inventory loss, the company developed the following data: Inventory January 1, 2024, $350,000; sales and purchases from January 1, 2024, to May 1, 2024, $1,110,000 and $945,000, respectively. The company consistently reports a 40% gross profit. The estimated inventory on May 1, 2024, is:
Ivanhoe Distribution Co. has determined its December 31, 2017 inventory on a LIFO basis at $890,000. Information pertaining to that inventory follows: Estimated selling price $ 9,20,000 Estimated cost of disposal 30,000 Normal profit margin 1,10,000 Current replacement cost 8,10,000 Ivanhoe records losses that result from applying the lower-of-cost-or- market rule. At December 31, 2017, the loss that Ivanhoe should recognize is a.$0. b. $80000. c. $30000. d. $110000.
The Cecil-Booker Vending Company changed its method of valuing inventory from the average cost method tothe FIFO cost method at the beginning of 2018. At December 31, 2017, inventories were $120,000 (average costbasis) and were $124,000 a year earlier. Cecil-Booker’s accountants determined that the inventories would havetotaled $155,000 at December 31, 2017, and $160,000 at December 31, 2016, if determined on a FIFO basis. Atax rate of 40% is in effect for all years.One hundred thousand common shares were outstanding each year. Income from continuing operations was$400,000 in 2017 and $525,000 in 2018. There were no discontinued operations either year.Required:1. Prepare the journal entry to record the change in accounting principle. (All tax effects should be reflected inthe deferred tax liability account.)2. Prepare the 2018–2017 comparative income statements beginning with income from continuing operations.Include per share amounts.
In 2022, Sargent Company experienced a major casualty loss. The roof of its warehouse collapsed in an ice storm and destroyed its entire inventory. The company began the year with inventory of $300. It made purchases of $5,640 but returned $80 worth of merchandise. Sales prior to the ice storm were $9,400. Sargent must use the gross profit method to determine inventory on hand on the date of the casualty. The following is an excerpt of its income statement for the last three years. 2019 2020 2021 Net Sales $5,000 $6,000 $9,000 Cost of Goods Sold 2,150 2,340 3,312 General and Administrative Expense 500 600 900 Depreciation Expense 125 200 325 Operating Income $2,225 $2,860 $4,463 Requirement. Assume that Sargent uses the most recent three years of net sales and cost of goods sold to determine its historical gross profit. What are estimated cost of goods sold, estimated gross profit, and estimated ending…
During 2016, WMC Corporation discovered that its ending inventories reported on its financial statements were misstated by the following amounts: 2014 understated by $120,000 2015 overstated by 150,000 WMC uses the periodic inventory system and the FIFO cost method. Required: 1. Determine the effect of these errors on retained earnings at January 1, 2016, before any adjustments. Explain your answer. (Ignore income taxes.) 2. Prepare a journal entry to correct the error. 3. What other step(s) would be taken in connection with the error?
In 2016, J J Dishes changed its method of valuing inventory from the FIFO method to the LIFO method. At December 31, 2015, J J’s inventories were $96 million (FIFO). J J’s records were insufficient to determine what inventories would have totaled if determined on a LIFO cost basis. Briefly describe the steps J J should take to report the change.
Mikrokosmos Co. prepared its annual financial statements on a calendar-year basis. In 2020, Mikrokosmos Co. experience an impairment in its inventory. Their inventories (which cost P1,320,000) only have a net realizable value of P1,100,000. As a matter of policy, they record any write-downs in inventory as part of “Loss on Inventory Writedown” (LIW) and uses an allowance account as a valuation account for inventory. During 2021, the same cost of inventories further went down to only 1,050,000 net realizable value. Which among the following best describes the journal entry for the impairment at year 2021? A. A debit to LIW and credit to Allowance for Inventory Writedown, P170,000 B. A debit to Allowance for Inventory Writedown and credit to LIW, P50,000 C. A debit to Allowance for Inventory Writedown and credit to LIW, P170,000 D. A debit to LIW and credit to Allowance for Inventory Writedown, P50,000
The Cecil-Booker Vending Company changed its method of valuing inventory from the average cost method to the FIFO cost method at the beginning of 2016. At December 31, 2015, inventories were $120,000 (average cost basis) and were $124,000 a year earlier. Cecil-Booker’s accountants determined that the inventories would have totaled $155,000 at December 31, 2015, and $160,000 at December 31, 2014, if determined on a FIFO basis. A tax rate of 40% is in effect for all years. One hundred thousand common shares were outstanding each year. Income from continuing operations was $400,000 in 2015 and $525,000 in 2016. There were no discontinued operations either year. Required: 1. Prepare the journal entry to record the change in accounting principle. (All tax effects should be reflected in the deferred tax liability account.) 2. Prepare the 2016–2015 comparative income statements beginning with income from continuing operations. Include per share amounts.
In 2016, CPS Company changed its method of valuing inventory from the FIFO method to the average cost method. At December 31, 2015, CPS’s inventories were $32 million (FIFO). CPS’s records indicated that the inventories would have totaled $23.8 million at December 31, 2015, if determined on an average cost basis. Required: 1. Prepare the journal entry to record the adjustment. (Ignore income taxes.) 2. Briefly describe other steps CPS should take to report the change.
Coastal Shores Inc. (CSI) was completely destroyed by Hurricane Fred on August 5, 2013. At January 1, CSI reported an inventory of $170,000. Sales from January 1, 2013, to August 5, 2013, totaled $480,000 and purchases totaled $195,000 during that time. CSI normally shows a gross profit percentage of 40%. The estimated inventory loss due to Hurricane Fred would be:
In 2018, the Barton and Barton Company changed its method of valuing inventory from the FIFO method to theaverage cost method. At December 31, 2017, B & B’s inventories were $32 million (FIFO). B & B’s recordsindicated that the inventories would have totaled $23.8 million at December 31, 2017, if determined on anaverage cost basis. Ignoring income taxes, what journal entry will B & B use to record the adjustment in 2018?Briefly describe other steps B & B should take to report the change.

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