Ex. 8–18 Cost Retail Merchandise inventory, June 1.................................. $160,000 $ 180,000 Purchases in June (net).............................................. 680,000 1,020,000 Merchandise available for sale .................................. $840,000 $1,200,000 Ratio of cost to retail price: 70%$1,200,000840,000 $==== Sales for June (net)..................................................... 875,000 Merchandise inventory, June 30, at retail price........ $ 325,000 Merchandise inventory, June 30, at estimated cost ($325,000 × 70%)...................... $ 227,500 Ex. 8–19 a. Merchandise inventory, Jan. 1 ................................... $180,000 Purchases (net), Jan. 1–May 17 ................................. 750,000 Merchandise available for sale .................................. $930,000 Sales (net), Jan. 1–May 17.......................................... $1,250,000 Less estimated gross profit ($1,250,000 × 35%)....... 437,500 Estimated cost of merchandise sold......................... 812,500 Estimated merchandise inventory, May 17............... $117,500 b. The gross profit method is useful for estimating inventories for monthly or quarterly financial statements. It is also useful in estimating the cost of merchandise destroyed by fire or other disasters.Ex. 8–20 a. Apple: 147.8 {$4,139,000,000 ÷ [($45,000,000 + $11,000,000) ÷ 2]} American Greetings: 3.1 {$881,771,000 ÷ [($278,807,000 + $290,804,000) ÷ 2]} b. Lower. Although American Greetings’ business is seasonal in nature, with most of its revenue generated during the major holidays, much of its nonholiday inventory may turn over very slowly. Apple, on the other hand, turns its inventory over very fast because it maintains a low inventory, which allows it to respond quickly to customer needs. Additionally, Apple’s computer products can quickly become obsolete, so it cannot risk building large inventories. Ex. 9–3 Initial cost of land ($35,000 + $125,000).................... $160,000 Plus: Legal fees.......................................................... $ 1,100 Delinquent taxes............................................... 12,500 Demolition of building...................................... 18,000 31,600 $191,600 Less salvage of materials .......................................... 3,600 Cost of land................................................................. $188,000 Ex. 9–4 a. No. The $859,600 represents the original cost of the equipment. Its replacement cost, which may be more or less than $859,600, is not reported in the financial statements. b. No. The $317,500 is the accumulation of the past depreciation charges on the equipment. The recognition of depreciation expense has no relationship to the cash account or accumulation of cash funds.Ex. 9–8 a. Credit to Accumulated Truck No. Rate per Mile Miles Operated Depreciation 1 20.0 cents 40,000 $ 8,000 2 21.0 12,000 2,100* 3 17.5 36,000 6,300 4 20.0 21,000 4,200 Total.............................................................................................. $20,600 * Mileage depreciation of $2,520 (21 cents ×××× 12,000) is limited to $2,100, which reduces the book value of the truck to $6,600, its residual value. b. Depreciation Expense—Trucks .................................... 20,600 Accumulated Depreciation—Trucks ....................... 20,600 Ex. 9–10 a. 10% of ($98,500 – $7,500) = $9,100 b. Year 1: 20% of $98,500 = $19,700 Year 2: 20% of ($98,500 – $19,700) = $15,760 Ex. 9–11 a. Year 1: 9/12 × [($54,000 – $10,800) ÷ 12] = $2,700 Year 2: ($54,000 – $10,800) ÷ 12 = $3,600 b. Year 1: 9/12 × 16 2/3% of $54,000 = $6,750 Year 2: 16 2/3% of ($54,000 – $6,750) = $7,875 Ex. 9–12 a. $15,000 [($800,000 – $200,000) ÷ 40] b. $500,000 [$800,000 – ($15,000 × 20 yrs.)] c. $14,000 [($500,000 – $150,000) ÷ 25 yrs.]Ex. 9–14 Capital expenditures: New component: 4, 6, 7 Replacement component: 1, 2, 9, 10 Revenue expenditures: 3, 5, 8 Ex. 9–16 a. Mar. 15 Removal Expense......................................... 1,500 Cash.......................................................... 1,500 b. Mar. 15 Depreciation Expense .................................. 6,000 Accumulated Depreciation ..................... 6,000 15 Accumulated Depreciation........................... 18,000 Carpet....................................................... 18,000 30 Carpet ............................................................ 45,000 Cash.......................................................... 45,000 c. Dec. 31 Depreciation Expense .................................. 2,250* Accumulated Depreciation ..................... 2,250 *($45,000 ÷ 15 years) × 9/12 Ex. 9–19 a. 2003 depreciation expense: $15,000 [($96,000 – $6,000) ÷ 6] 2004 depreciation expense: $15,000 2005 depreciation expense: $15,000 b. $51,000 ($96,000 – $45,000) c. Cash ................................................................................ 38,000 Accumulated Depreciation—Equipment...................... 45,000 Loss on Disposal of Fixed Assets ................................ 13,000 Equipment ................................................................. 96,000 d. Cash ................................................................................ 53,000 Accumulated Depreciation—Equipment...................... 45,000 Equipment ................................................................. 96,000 Gain on Disposal of Fixed Assets ........................... 2,000Ex. 9–22 a. Depreciation Expense—Equipment.............................. 8,000 Accumulated Depreciation—Equipment................. 8,000 b. Accumulated Depreciation—Equipment...................... 152,000 Equipment....................................................................... 385,000 Loss on Disposal of Fixed Assets ................................ 28,000 Equipment ................................................................. 280,000