Scenario #1: Inventory
Brabant Inc. recorded the following transactions for one of its successful items, a product called XL5:
|January 01||Opening inventory: 1,500 units @ $9.50 per unit.|
|Purchases:||January 01||2,200 units @ $10.50 per unit||$23,100|
|January 01||1,900 units @ $11 per unit||$20,900|
|February 01||1,300 units @ $11.50 per unit||$14,950|
|March 01||1,600 units @ $12 per unit||$19,200|
|Sales:||1,600 units @ $18.50 per unit|
|January 01||1,700 units @ $19 per unit||$29,600|
|January 01||1,100 units @ $19 per unit||$32,300|
|February 01||1,800 units @ $19.50 per unit||$20,900|
|February 01||6,200 units||$35,100|
a. Calculate the Ending Inventory for the three months ended March 31 under the following methods:
- First-in-first-out (FIFO)
- Average Cost
(Attach the supporting calculations)
b. Calculate the Cost of Goods Sold and the Gross Profit under the two methods.
Scenario #2: Depreciation and amortization
On April 1, 2012, Crépeau Ltd. acquired a machine priced at $212,000. It is estimated that this equipment will have a useful life of 8 years or 25,000 hours and a residual value of $12,000. The company’s year-end is December 31.
- Calculate depreciation expense using the Straight-Line method for the years 2012, 2013 and 2014. Show your calculations.
- Calculate depreciation expense using the Double Declining Balance method for the years 2012, 2013 and 2014. Show your calculations.
- If the machine was used for 2,000 hours in 2012, 6,000 hours in 2013 and 4,500 hours in 2014, calculate the annual depreciation expense for these three years using the Unit of Production Depreciation method. Show your calculations.
- For each method, calculate the balance in the accumulated amortization account as at December 31, 2014.
The East Quebec Corporation constructed a building at a cost of $2,100,000, and occupies it since January 3, 1993. As the roof accounts for a significant part of the cost of the building, the recording of this tangible capital asset was done on a component basis. Two accounts were then used, one for the structure of the building ($1,900,000) and the other for the roof structure ($200,000). The useful life of the building structure has been estimated at 30 years, with no residual value. The useful life of the roof structure has been estimated at 20 years, with no residual value. In January 2012, the roof was replaced at a cost of $300,000. It was estimated that the structure of the building would have a useful life of 14 years from January 2012, and that after that period the building would be demolished. The company’s year-end is December 31.
- Using the Straight-Line Method, what is the annual Depreciation Expense for the building and for the roof from 1993 to 2011.
- What is the Net Book Value of the old roof when it was replaced in January, 2012? What journal entry is needed to record the disposal and replacement of the old roof. (Show the amount of debit and credit to be posted on the accounting journal).
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