On June 1, 2015, Frack Corp. sold merchandise with a list price of $5,000 to Floopy on account. Frack allowed trade discounts of 30%. Credit terms were 2/15, n/40 and the sale was made FOB shipping point. Frack prepaid $200 of delivery costs for Floopy as an accommodation. On June 12, 2015, Frack received from Floopy a remittance in full payment. Prepare the general journal entries (without explanations) for Frack to record the events. Frack uses the periodic method for sales and gross method for sales discounts.
General Journal:
Date Account Debit Credit
Question 2 (14 points)
A client, Floppy Co., sells lawn mowers and garden tillers. The garden tillers are purchased from Badly Built LLC and sold to customers without modification. The lawn mowers, however, are purchased from several contractors. Floppy then makes ongoing design refinements to the mowers before selling them to customers.
The lawn mowers cost $200. Floppy then makes the design refinements at a cost of $85 per lawn mower. Floppy stores the lawn mowers in its own warehouse and sells them directly to retailers at a list price of $500. Floppy uses the FIFO inventory method. Approximately two-thirds of new lawn mower sales involve trade-ins. For each used lawn mower traded in and returned to Floppy, retailers receive a $40 allowance regardless of whether the trade-in was associated with a sale of a year 2 or year 3 model. Floppy’s net realizable value on a used lawn mower averages $25.
At December 31, year 2, Floppy’s inventory of new lawn mowers includes both year 2 and year 3 models. When the year 3 model was introduced in September year 2, the list price of the remaining year 2 model lawn mowers was reduced below cost. Floppy is experiencing rising costs.
Floppy has contacted your firm for advice on how to report the carrying value of inventory, the impact of the decline in value on the year 2 models, and the effects of using the FIFO method on their December 31, year 2 financial statements.
All freight bills are paid directly to the freight companies.
Floppy had the following information regarding the garden tiller inventory for the fiscal year ended December 31, Y2:
Purchases $210,000
Purchase discounts 38,000
Purchase returns 17,500
Freight-in 12,100
Freight-out 18,000
Beginning inventory 42,900
Ending inventory 34,250
Prepare a Schedule of Cost of Goods Sold for the fiscal year ended December 31, Y2:
Question 3 (14 points)
Flim Co. sells one product, which it purchases from various suppliers. Flim’s trial balance at December 31, year 2, included the following accounts:
Sales (33,000 units @ $16) $528,000
Sales discounts 7,500
Purchases 368,900
Purchase discounts 18,000
Freight-in 5,000
Freight-out 11,000
Flim Co.’s inventory purchases during year 2 were as follows:
Date Units Cost per Unit Total Cost
Beginning inventory, January 1 8,000 $8.20 $65,600
Purchases, quarter ended March 31 12,000 8.25 99,000
Purchases, quarter ended June 30 15,000 7.90 118,500
Purchases, quarter ended September 30 13,000 7.50 97,500
Purchases, quarter ended December 31 7,000 7.70 53,900
Total 55,000 $434,500
Additional information:
Flim’s accounting policy is to report inventory in its financial statements at the lower of cost or market, applied to total inventory. Cost is determined under the last-in, first-out (LIFO) method.
Flim has determined that, at December 31 year 2, the replacement cost of its inventory was $8 per unit and the net realizable value was $8.80 per unit. Flim’s normal profit margin is $1.05 per unit.
From this information, complete the following schedules.
Part a.
SUPPORTING SCHEDULE OF ENDING INVENTORY
December 31, Year 2
Inventory at cost (LIFO) Units Cost per Unit Total Cost
Part b.
Part b:
Flim Company
Schedule of Cost of Goods Sold
For the Year Ended December 31, Y2
Beginning Inventory
Purchases
Less: Purchase Discounts
Purchase Returns
Net Purchases
Plus: Freight-in
Goods Available for Sale
Ending Inventory
Cost of Goods Sold
Question 4
The following information pertains to Frack Corp.’s 2015 cost of goods sold:
Inventory, 12/31/14 $ 90,000
2015 purchases 134,000
2015 write-off of obsolete inventory 24,000
Inventory, 12/31/15 30,000
The inventory written off became obsolete due to an unexpected and unusual technological advance by a competitor. In its 2015 income statement, what amount should Frack report as cost of goods sold?
Question 5
On December 15, 2015, Frack purchased goods costing $100,000. The terms were FOB shipping point. Costs incurred by Frack in connection with the purchase and delivery of the goods were as follows:
Normal freight charges $3,000
Handling costs 2,000
Insurance on shipment 200
Abnormal freight charges for express shipping 1,500
The goods were received on December 17, 2015. What is the amount that Frack should charge to:
a. inventory
b. current period expense
Question 6
Flip Co. adopted the dollar-value LIFO inventory method as of January 1, 2015. A single inventory pool and an internally computed price index are used to compute Flip’s LIFO inventory layers. Information about Flip’s dollar value inventory follows:
Inventory
Date At base year cost At dollar value LIFO
1/1/14 $90,000 $90,000
2014 layer 20,000 30,000
2015 layer 40,000 80,000
What were the price indexes used to compute Flip’s: (Round all values to one decimal place.)
a. 2014 dollar value LIFO inventory layer
b. 2015 dollar value LIFO inventory layer
Question 7
Flip Company’s usual sales terms are net sixty days, FOB shipping point. Sales, net of returns and allowances, totaled $2,300,000 for the year ended December 31, 2015, before year-end adjustments. Additional data are as follows:
>> On December 27, 2015, Flip authorized a customer to return, for full credit, goods shipped and billed at $80,000 on December 15, 2015. The returned goods were received by Flip on January 4, 2016, and a $80,000 credit memo was issued and recorded on the same date.
>> Goods with an invoice amount of $50,000 were billed and recorded on January 3, 2016. The goods were shipped on December 30, 2015.
>> Goods with an invoice amount of $100,000 were billed and recorded on December 30, 2015. The goods were shipped on January 3, 2016.
Flip’ adjusted net sales for 2015 should be?
Question 8
Flip Co.’s accounts payable balance at December 31, 2015, was $2,200,000 before considering the following data:
>> Goods shipped to Flip FOB shipping point on December 22, 2015, were lost in transit. The invoice cost of $40,000 was not recorded by Flip. On January 7, 2016, Flip filed a $40,000 claim against the common carrier.
>> Goods shipped to Flip FOB destination on December 20, 2015, were received on January 6, 2016. The invoice cost was $50,000.
What amount should Flip report as accounts payable in its December 31, 2015 balance sheet?
Question 9
Flip Co.’s inventory at December 31, 2015, was $1,500,000 based on a physical count priced at cost, and before any necessary adjustment for the following:
>> Merchandise costing $90,000, shipped FOB shipping point from a vendor on December 30, 2015, was received and recorded on January 5, 2016.
>> Goods in the shipping area were excluded from inventory although shipment was not made until January 4, 2016. The goods, billed to the customer FOB destination on December 30, 2015, had a cost of $120,000.
What amount should Flip report as inventory in its December 31, 2015 balance sheet?
Question 10
On January 1, 2016, Flip, Inc. contracted with the city of Bigger to provide custom built desks for the city schools. The contract made Flip the city’s sole supplier and required Flip to supply no less than 4,000 desks and no more than 5,500 desks per year for two years. In turn, Bigger agreed to pay a fixed price of $105 per desk. During 2016, Flip produced 5,000 desks for Bigger. At December 31, 2016, 2,500 of these desks were segregated from the regular inventory and were accepted and awaiting pickup by Bigger. Bigger paid Flip $450,000 during 2016. What amount should Flip recognize as contract revenue in 2016?
