ACC 5310 Exam 2 | Complete Solutions (Verified Answers) | Fall 2025

ACC 5310 Exam 2 | Complete Solutions (Verified Answers) | Fall 2025 Assume that Fey Company reports the following initial balance and subsequent purchase of inventory. Inventory balance at beginning of year 1,200 units @ $60 each $ 72,000 Inventory purchased during the year 1,800 units @ $90 each 162,000 Cost of goods available for sale during the year 3,000 units $234,000 Assume that 1,900 units are sold during the year. What amount is reported for cost of goods sold using the LIFO method? $168,000 The percent used up ratio indirectly measures the likelihood of future capital expenditures that the company will have to make. True Howell Corporation purchased a new machine costing $27,600 on January 1, 2017. The machine is expected to have a $1,800 salvage value at the end of its useful life of six years. What is the depreciation expense that Howell Corporation records for 2017 using the straight line method? $4,300 3 Mullen Company purchased a new machine costing $55,200 on January 1, 2017. The machine is expected to have a $3,600 salvage value at the end of its useful life of six years. What is the depreciation expense that Mullen Company records for 2017 using the double-declining-balance method? $17,200 Aiello, Inc. had the following inventory in its fiscal year. The company uses the FIFO method of accounting for inventory. Beginning Inventory, January 1: 104units @ $15.00 Purchase 160 units @ $18.00 Purchase 40 units @ $13.50 Purchase 88 units @ $15.75 Ending Inventory, December 31: 96units The company's cost of goods sold for its fiscal year is: $4,872.00 Costs of goods available for sale* $6,366.00 Less Ending Inventory 1,386.00 = 88 x $15.75 Less Ending Inventory 108.00 = 8 x $13.50 Cost of goods sold $4,872.00 *Cost of goods available for sale: ( 104 units x $15) + ( 160 units x $18) + ( 40 units x $13.50) + ( 88 units x $15.75) = $6,366.00 Aiello, Inc. had the following inventory in its fiscal year. The company uses the LIFO method of accounting for inventory. Beginning Inventory, January 1: 104 units @ $15.00 Purchase 160 units @ $18.00 Purchase 40 units @ $13.50 Purchase 88 units @ $15.75 Ending Inventory, December 31: 96units The company's cost of goods sold for its fiscal year is: $4,926.00 Costs of goods available for sale* $6,366.00 Less Ending Inventory 1,440.00 = 96 x $15 Cost of goods sold $4,926.00 *Cost of goods available for sale: ( 104 units x $15) + ( 160 units x $18) + ( 40 units x $13.50) + ( 88 units x $15.75) = $6,366.00 In times of falling prices, choosing LIFO over FIFO as an inventory cost method would affect the financial statements as follows: Cost of goods sold will be lower and ending inventory will be higher Next year, Chemical Corporation plans to build a laboratory dedicated to a special project. The company will not use the laboratory after the project is finished. Under GAAP, this laboratory should be expensed. True Assume that Barber Co. uses the LIFO inventory costing method for both tax and financial reporting purposes. The balance sheet reports inventories at $297 million. Then, in its footnotes, the company reports that inventories would have been $327 million had the company used the FIFO method. The difference between these two numbers ($30 million) is referred to as: LIFO reserve The January 28 (fiscal year-end) financial statements of Collette Inc. reported the following information (in millions). Year 2 Year 1 Cost of sales $1,213,918 $1,223,622 Inventories, net 468,611 437,396 LIFO reserve 3,476 3,275 If Collette had used the FIFO method of inventory costing, Year 2 inventory would have been $472,087 million FIFO Inventory = LIFO inventory + LIFO reserve = $468,611 million + $3,476 million = $472,087 million The January 28 (fiscal year-end) financial statements of Collette Inc. reported the following information (in thousands). Year 2 Year 1 Cost of sales $1,213,918 $1,223,622 Inventories, net 468,611 437,396 LIFO reserve 3,476 3,275 If Collette had used the FIFO method of inventory costing, Year 2 COGS would have been: $1,213,717 thousand FIFO COGS = LIFO COGS - Increase in LIFO reserve = $1,213,918 - ( $3,476 - $3,275 ) = $1,213,717 thousand The annual financial statements of Valley Vineyards, Inc. include the following footnote: Note 4. Property and Equipment Dec. 31, Year 2 Dec. 31, Year 1 Construction in progress $359,527 $385,827 Land 8,063,716 5,089,472 Winery buildings and hospitality center 14,458,309 13,756,320 Equipment 10,122,593 9,055,987 33,004,145 28,287,606 Less accumulated depreciation (12,897,082) (11,654,901) $20,107,063 $16,632,705 Depreciation expense $1,003,564 $955,353 The average useful life of Valley's depreciable assets at the end of its year is: 23.6 years Average useful life = Avg. depreciable asset cost / Depreciation expense =([( $33,004,145 - $359,527 - $8,063,716 ) + ( $28,287,606 - $385,827 - $5,089,472 )] / 2 ) / $1,003,564 = 23.6 years 1. The year-end financial statements of Collette Inc. reported the following information (in thousands): Year 2 Year 1 Cost of sales $1,441,527 $1,453,051 Inventories, net 585,764 546,745 LIFO reserve 4,345 4,094 The year 2 average days inventory outstanding is: 143.4 days Average days inventory outstanding = (365 x Avg. Inventory) / COGS =[365 x (( $585,764 + $546,745 )/2)] / $1,441,527 = 143.4 days 1. The year-end financial statements of City Health Corporation reported the following information (in millions): Year 2 Year 1 Net sales $168,650 $145,626 Cost of sales 141,236 120,424 Inventories, net 14,760 14,001 The inventory turnover ratio for Year 2 is: 9.82 Inventory turnover = COGS / Average inventory = $141,236 /[( $14,760 + $14,001 ) / 2] = 9.82 1. Car Facts Inc. reports sales of $15,081,362 thousand and cost of sales of $13,691,824 thousand for the fiscal year ended February 28. The gross profit for the year is: $1,389,538 thousand Gross profit = Sales – COGS = $15,081,362 thousand - $13,691,824 thousand = $1,389,538 thousand. 1. Hasten Corporation has the following metrics for the year. Amount in days Days sales outstanding 34.7 Days payables outstanding 23.6 Days inventory outstanding 56.1 The cash conversion cycle for the year is: 67.2 days Cash conversion cycle = Days sales outstanding + Days inventory outstanding - Days payable outstanding = 34.7 + 56.1 - 23.6 = 67.2 days 1. One difference between straight-line and double-declining-balance depreciation methods is that: None of the above An asset is impaired when the asset's carrying value is Greater than the sum of undiscounted expected cash flows The year-end financial statement of Wando's Vineyards reported Net revenues of $19,425,412 and Cost of goods sold of $7,204,884 in year 2. Note 3 to the financial statements reported that Inventories consisted of: Year 2 Year 1 Winemaking and packaging materials $654,269 $552,234 Work-in-process 5,307,211 4,846,961 Finished goods 3,615,045 3,106,775 Total inventories $9,576,525 $8,505,970 The inventory turnover for Year 2 was 0.8 Inventory turnover = COGS / Average inventory = $7,204,884 /[( $9,576,525 + $8,505,970 )/2] = 0.8 Dow Chemical Corporation plans to build a laboratory dedicated to a special project. The company will not use the laboratory after the project is finished. Under GAAP, this laboratory should be Expensed in the current year The year-end financial statements for North Railway report the following information: Year ended December 31,(In millions) Year 2 Year 1 Revenues $19,829 $21,967 Property and equipment, net 49,000 47,608 Total assets 84,122 81,703 The annual property, plant and equipment turnover is 0.41 Turnover = Revenues / Average PPE, net= $19,829 /[( $49,000 + $47,608) / 2] = 0.41 The year end financial statements for Pratt Inc., report the following information: Year ended December 31,(In millions) Year 2 Year 1 Depreciation expense $86.8 $83.5 Property and equipment, net 565.5 540.8 Land 37.7 40.0 Accumulated depreciation 932.0 917.2 Which of the following estimates the property and equipment's percent-used-up at December 31, Year 2? 64.8% Percent used up = Accumulated depreciation / Average depreciable asset cost = $932.0 / [( $565.5 + $932.0 - $37.7) + ($540.8 + $917.2 - $40.0) / 2] = 64.8% LIFO inventory costing yields more accurate reporting of the inventory balance on the balance sheet. False Computing Cost of Goods Sold and Ending Inventory Under FIFO, LIFO, and Average Cost Assume that Madden Company reports the following initial balance and subsequent purchase of inventory. Inventory balance at beginning of year 1,300 units @ $150 each $195,000 Inventory purchased during the year 1,700 units @ $180 each 306,000 Cost of goods available for sale during the year 3,000 units $501,000 Assume that 2,000 units are sold during the year. Compute the cost of goods sold for the year and the inventory on the year-end balance sheet under the following inventory costing methods. Ending inventory (FIFO) = unit unit cost = 1,000 $180 = $180,000 COGS (FIFO) = total COGS for sale - ending inventory = $501,000 - $180,000 = $321,000 Ending inventory (LIFO) = unit unit cost = 1,000 $150 = $150,000 COGS (LIFO) = total COGS for sale - ending inventory = $501,000 - $150,000 = $351,000 Ending inventory (Average cost) = total cost / total unit ending inventory unit = $501,000/3,000 1,000 = $167,000 COGS (Average cost) = total COGS available for sale - ending inventory (weighted average) = $501,000 - $167,000 = $334,000 Applying and Analyzing Inventory Costing Methods At the beginning of the current period, Chen carried 1,000 units of its product with a unit cost of $32. A summary of purchases during the current period follows. Units Unit Cost Cost Beginning Inventory 1,000 $32 $32,000 Purchase #1 1,800 34 61,200 Purchase #,400 Purchase #3 1,200 41 49,200 During the current period, Chen sold 2,800 units. (a) Assume that Chen uses the first-in, first-out method. Compute both cost of good sold for the current period and the ending inventory balance. Use the financial statement effects template to record cost of goods sold for the period. Answer for Ending inventory balance $ Answer for Cost of goods sold $ Use negative signs with answers, when appropriate. Balance Sheet Transaction Cash Asset + Noncash Assets = Liabilities + Contributed Capital + Earned Capital Record FIFO cost of goods sold Income Statement Revenue - Expenses = Net Income Record FIFO cost of goods sold (b) Assume that Chen uses the last-in, first-out method. A) Beginning inventory is 1,000, purchase 1 is 800. He sold 2,800 which is beginning inventory + purchase 1. Therefore, ending inventory = purchase 2 and 3. = 30,400 + 49,200 = $79,600 COGS = beginning inventory of 1,000 + purchase 1 of 800 = 32,000 + 61,200 = 93,200 Balance Sheet = -93,200 in non-cash assets and earned capital Income statement = 93,200 in expenses and -93,200 in net income B) Ending inventory with LIFO = sales come from last inventory purchased first. Therefore, 2,800 sold comes from purchase 3 (1,200) + purchase 2 (800) + 800 from purchase 1. Ending inventory = 1,000 from purchase 1 34 + 1,000 from beginning inventory 32 = 34,000 + 32,000 = $66,000 COGS = sales from purchase 3, 2 and 800 from 1 = (1,200 41) + (800 38) + (800 * 34) = 49,200 + 30,400 + 27,200 = $106,800 C) Average cost method = COGS is accounted for using the average cost of all purchases Average cost = (1,000 32) + (1,800 34) + (800 38) + (1,200 41) / (1,000 + 1,800 + 800 + 1,200) =36 Ending inventory = units remaining * average cost = 2,000 * 36 = $72,000 COGS = 2,800 (units sold) * 36 (average cost) = 100,800 D) 1. FIFO 2. LIFO 3. FIFO Analyzing Inventory for Two Retail Grocery Companies Carrefour Group (headquartered in Boulogne-Billancourt, France) and Tesco PLC (headquartered in Welwyn Garden City, UK) compete head-to-head in the grocery space in the UK, Ireland, Central Europe, and North Africa. The following information comes from their 2018 annual reports. Carrefour Group in in€ millions Tesco PLC £ millions Sales € 76,000 € 78,315 £57,491 £55,917 Cost of sales 60,850 62,311 54,141 53,015 Gross profit 15,150 16,004 3,350 2,902 Inventory 6,135 6,690 2,263 2,301 Total assets 47,378 47,813 44,862 45,853 Required a. Calculate gross profit margin for each year for both companies. Note: Round percentage to one decimal place (for example, enter 6.7% for 6.6555%). Carrefour Group Tesco PLC Gross A) Gross profit margin % = (gross profit / sales) * 100 Carrefour Group 2018 (15,150/76,000) * 100 = 19.9% Carrefour Group 2017 (16,004/78,315) * 100 = 20.4% Tesco PLC 2018 (3,350/57,491) * 100 =5.8% Tesco PLC 2017 (2,902/55,917) * 100 = 5.2% B) Common size inventory = (inventory /total assets) * 100 Carrefour Group 2018 (6,135/47,378) * 100 = 12.9% Carrefour Group 2017 (6,690/47,813) * 100 = 14.0% Tesco PLC 2018 (2,263/44,862) * 100 =5.0% Tesco PLC 2017 (2,301/45,853) * 100 = 5.0% C) Inventory turnover = (cost of sales/average inventory) Carrefour Group 2018 (60,850/6,412.5) = 9.5 Tesco PLC 2018 (54,141/2,282) = 23.7 Average inventory = (beginning inventory + ending inventory)/2 Carrefour Group 2018 (6,135 + 6,690) / 2 = 6,412.5 Tesco PLC 2018 (2,263 + 2,301) / 2 = 2,282 Average inventory days = (avg. inventory/COGS) *365 Carrefour Group 2018 (6,412.5/60,850) * 365 = 38.5 Tesco PLC 2018 (2,282/54,141) * 365 = 15.4 D) 1. Tesco PLC 2. Carrefour Group 3. Tesco PLC 4. Tesco PLC Computing Depreciation A delivery van costing $37,000 is expected to have a $2,900 salvage value at the end of its useful life of five years. Assume that the truck was purchased on January 1. Compute the depreciation expense for the first two calendar years under the straight-line depreciation method. Annual depreciation under the straight line depreciation method is calculated using following equation Annual depreciation = (cost of asset - salvage value) / life of asset = (37,000 - 2,900) / 5 =6,820 Under straight line depreciation method, same amount of depreciation is charged every year during the life of asset. Therefore, depreciation for year 1 and year 2 will be same. Computing Depreciation, Net Book Value, and Gain or Loss on Asset Sale Zimmer Company owns an executive plane that originally cost $1,280,000. It has recorded straight-line depreciation on the plane for seven full years, calculated assuming a $160,000 expected salvage value at the end of its estimated 10-year useful life. Zimmer disposes of the plane at the end of the seventh year. a. At the disposal date, what is the (1) cumulative depreciation expense and (2) net book value of the plane? (1) Cumulative depreciation expense $ (2) Net book value $ b. How much gain or loss is reported at disposal if the sales price is: Note: Do not use a negative sign with your answers. Sales Price Gain or Loss 1.A cash amount equal to the plane’s net book value. $ 2.$285,000 $ 3.$700,000 $ A) Depreciation = (cost - salvage value) / useful life Depreciation = (1,280,000 - 160,000) / 10-year = 112,000 1. Cumulative depreciation expense = 7th year disposal 112,000 * 7 = 784,000 2. Net book value = cost - accumulated depreciation 1,280,000 - 784,000 = 496,000 B) 1. 496,000 - 496,000 = 0 2. 285,000 - 496,000 = 211,000 loss 3. 700,000 - 496,000 = 204,000 gain Which of the following estimates are not always required when calculating depreciation expense? Select all that apply. Salvage value Central Supply purchased a new printer for $64,125 . The printer is expected to operate for nine (9) years, after which it will be sold for salvage value (estimated to be $6,413 ). How much is the first year's depreciation expense if the company uses the double-declining-balance method? $14,250 Depreciation rate: 2 × Straight-line rate (1/Useful life) = 2 × (1/9) Depreciation expense, Year 1: $64,125 x 2 x 1/9 = $14,250 Fey Enterprises recorded a restructuring charge of $15.4 million during the year related entirely to the closing of its division located in Austin, Texas. The company's financial statement footnotes indicated that expected employee separation payments amounted to $12.0 million and that fixed asset write-downs accounted for the remainder. Fey had never before incurred restructuring charges. At the end of the year, the company's balance sheet included a restructuring accrual of $2,565,000. The cash flow effect of Fey Enterprises' restructuring during the year is: $9,435,000 The total restructuring charge accrued was $12.0 million because asset write-downs are not accrued. That is, there is no credit to a liability account for write-downs, the assets are credited (reduced). Thus, the company must have paid $12,000,000 - $2,565,000 = $9,435,000 in cash during the year. Big Tech Corporation recorded pretax restructuring charges of $981.8 million during the year. The charges consisted of asset write-downs of $647 million, costs associated with exit or disposal activities of $94 million, and employee severance costs of $240.8 million. The company paid $103 million cash to settle these restructuring charges during the year. At year end, the restructuring accrual associated with these charges was $231.8 million Of the $981.8 million total restructuring charge, only the exit costs and severance costs must eventually be settled in cash. The asset write downs are not accrued—they reduce the assets on the balance sheet. The company accrued $94 million + $240.8 million = $334.8 million as a liability. Thus, if the company paid $103 million cash, the remaining accrual is $231.8 million at year end. Acadia, Inc. recorded restructuring charges of $188,434 thousand during the year related entirely to anticipated employee separation payments. Acadia, Inc. had never before incurred restructuring charges. At the end of the year, the company's balance sheet included a restructuring accrual of $23,714 thousand. The cash flow effect of Acadia's restructuring during the year was $164,720 thousand The total restructuring charge accrued was $188,434 thousand of which $23,714 thousand was still unpaid (a liability) at the end of the year. The difference of $164,720 thousand must have been paid in cash during the year. The cash flow effect is $164,720 thousand Other than raw materials and manufacturing overhead, what is the third component of inventories for manufacturing companies? Direct labor The three components of manufacturing costs are direct materials, direct labor, and manufacturing overhead. True In general, in a period of falling prices, LIFO produces higher gross profits than FIFO. True Companies using LIFO are required to disclose the amount at which inventory would have been reported had it used FIFO. Similarly, companies using FIFO are required to disclose what their inventory would have been if the company had used LIFO. False Increasing inventory turnover rate will improve profitability. False The cash conversion cycle is defined as: Days sales outstanding - Days inventory outstanding + Days payable outstanding. False In order to estimate depreciation expense using the double-declining-balance method, managers must estimate the asset's useful life and its salvage value. False When a firm uses an accelerated method of depreciation for tax reporting in order to minimize its tax burden, it will not really save any tax dollars in the end because depreciation method merely changes the timing of the depreciation expenses but not the total.