EXERCISE 1 LIFO & Average
• LoBianco Company’s record of transactions for the month of April was as follows.
Purchases sells
1-Apr 600 @ 6 3-Apr 500 @ 10
4-Apr 1500 @ 6.8 9-Apr 1300 @ 10
8-Apr 800 @ 6.4 11-Apr 600 @ 11
13-Apr 1200 @ 6.5 23-Apr 1200 @ 11
21-Apr 700 @ 6.6 27-Apr 900 @ 12
29-Apr 500 @ 6.7 4500 @
5300
1) LIFO and (2) average cost.
EXERCISE 2 Depreciation
1. Holt Company purchased a computer for $8,000 on January 1, 2011. Straight-line
depreciation is used, based on a 5-year life and a $1,000 salvage value. In 2013, the
estimates are revised. Holt now feels the computer will be used until December 31, 2014,
when it can be sold for $500. Compute the 2013 depreciation.
2. On January 1, 2010, a machine was purchased for $90,000. The machine has an estimated
salvage value of $6,000 and an estimated useful life of 5 years. The machine can operate for
100,000 hours before it needs to be replaced. The company closed its books on December 31
and operates the machine as follows: 2010, 20,000 hrs; 2011, 25,000 hrs; 2012, 15,000 hrs;
2013, 30,000 hrs; 2014, 10,000 hrs.
a. Straight-line method.
b. Activity method.
c. Double-declining-balance method.
EXERCISE 3 Gross Profit Method
1. (Gross Profit Method) Each of the following gross profit percentages is
expressed in terms of cost.
(a) 20%. (b) 25%. Instructions (c) 33%. (d) 50%.
• Indicate the gross profit percentage in terms of sales for each of the above.
EXERCISE 4 Gross Profit Method
2.Astaire Company uses the gross profit method to estimate inventory for monthly
reporting purposes. Presented below is information for the month of May.
Description Amount ($)
Inventory 160,000
Purchases (Gross) 640,000
Freight-In 30,000
Sales 1000000
Sales Returns 70,000
Purchase Discounts 12,000
(a) Compute the estimated inventory at May 31, assuming that the gross profit is
25% of sales.
(b) Compute the estimated inventory at May 31, assuming that the gross profit is
25% of cost.
EXERCISE 4 Gross Profit Method
3.Presented below is information related to Jerrold Corporation for the current
year.
Description Amount ($)
Beginning Inventory 600,000
Purchases 1,500,000
Sales 2,300,000
Instructions:- Compute the ending inventory, assuming that
(a) gross profit is 40% of sales; (b) gross profit is 60% of cost; (c) gross profit is 35%
of sales; and (d) gross profit is 25% of cost.
