23. Dicer uses the cost method to determine its ending inventory at cost. Assume

Question

23. Dicer uses the cost method to determine its ending inventory at cost. Assume the beginning inventory at cost was $260,000 and at retail was $396,000, purchases during the current year at cost were $1,370,000 and $2,200,000 at retail, freight-in on these purchases totaled $86,000, sales during the current year totaled $2,000,000, and net markups were $48,000 and net markdowns were $72,000, respectively. What is the ending inventory value at cost (to the nearest $1)?

A. $371,228 B. $338,092 C. $381,638 D. $286,804  

24. Waterway Industries traded in a manual pressing machine for an automated pressing machine and paid $40,500 cash. The old machine cost $466,000 and had accumulated depreciation of $135,000 up to that date and had a net book value of $331,000. The old machine had a fair value of $295,000.

Which of the following is the correct journal entry to record the exchange assuming a lack of commercial substance?

A. Cash    40,500 Equipment (new) 295,000 Loss on Disposal 36,000 Accum. Deprec. (old) 135,000   Equipment (new)   506,500

B. Equipment (new) 335,500 Loss on Disposal 36,000 Accum. Deprec. (old) 135,000   Equipment (new)   466,000   Cash      40,500

C.   Equipment (new) 641,500   Accum. Deprec. (old)   135,000   Equipment (old)   466,000   Cash     40,500

Explanation / Answer

Answer23 : option A is the correct answer

Step 1: Difference between the inventory value in retail and cost

$396000 +$220000+$48000-$2000000 -$72000 = $572000

this is the excess inventory remaining in the retail . now, we have to convert this in to cost value of inventory

Step 2:Calculating the Ratio of cost to retail = ($260000 +$1370000 +$86000)/(396000+2200000+48000) =0.649

this ratio will help us to convert the value in retail to cost

Step 3: Ending value inventory at costremaining inventory* cost to retail ratio = 572000 *0.649 = $371228

Answer 24: Option B is the answer

Manual pressing machine cost at fair value = 295000

Cash given to obtain automatic machine = 40500

New equipment cost = 335500

Similarly loss on disposal = Net value - fair value = $331000-$295000 = $36000

Accum. deprec. = old machine cost - book value = $466000 - $331000 = $135000

Eqipment new =$466000

Cash = 40500

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