Posted: April 22nd, 2016

what would Stewart report on the balance sheet for inventory?

Case D. Steward Company reports the following inventory records for November 2010:

Date Activity #of Units Cost/Unit
November 1 Beginning balance 100 $18
November 4 Purchase 300 $19
November 7 Sale (@ $50 per unit) 200
November 13 Purchase 500 $21
November 22 Sale (@ $50 per unit) 500

Selling, administrative, and depreciate expenses for the month were $16,000. Stewart’s tax rate is 30 percent.

1. Calculate the cost of ending inventory and the cost of goods sold under each of the following methods:
a. First-in, first-out
b. Last-in, first out
c. Weighted average

2. Based on your answers in requirement (1)
a. What is the gross profit percentage under the FIFO method?
b. What is the net income under the LIFO method?
c. Which method would you recommend to Stewart for tax and financial reporting purposes? Explain your recommendation.

3. Stewart applied the lower cost of market method to value its inventory for reporting purposes at the end of the month. Assuming Stewart used the FIFO method and that inventory had a market replacement value of $19.50 per unit, what would Stewart report on the balance sheet for inventory? Why?

Case E. Matson Company purchased the following on January 1, 2011:

Office equipment at a cost of $50,000 with an estimated useful life to the company of three years and a residual value of $15,000. The company uses the double-declining-balance method of depreciation for the equipment.
Factory equipment at an invoice price of $820,000 plus shipping costs of $20,000. The equipment has an estimated useful life of 100,000 hours and no residual value. The company uses the units-of-production method of depreciation for the equipment.
A patent at a cost of $300,000 with an estimated useful life of 15 years. The company uses the straight-line method of amortization for intangible assets with no residual value.

1. Prepare a partial depreciation schedule for 2011, 2012, and 2013 for the following assets (round your answers to the nearest dollar):
a. Office equipment
b. Factory equipment. The company used the equipment for 8,000 hours in 2011, 9,200 hours in 2012, and 8,900 hours in 2013.

2. On January 1, 2014, Matson altered its corporate strategy dramatically. The company sold the factory equipment for $700,000 in cash. Record the entry related to the sale of the factory equipment.

3. On January 1, 2014, when the company changed its corporate strategy, its patent had estimated future cash flows of $210,000 and a fair value of $190,000. What would the company report on the income statement (account and amount) regarding the patent on January 2, 2014? Explain your answer.

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