Intermediate financial reporting standard

Intermediate financial reporting standard

1. ABC Corporation had the following inventory transactions for the month of December 20X5:

 

Date in December

Transaction Type

Amount (units)

Price per unit

 

1

Opening balance

400

$5.12

 

3

Purchase

1,100

$5.21

 

15

Purchase

900

$5.44

 

22

Purchase

250

$5.65

 

2

Sale

300

$6.50

 

6

Sale

800

$6.50

 

18

Sale

700

$8.00

 

25

Sale

150

$8.00

As at December 31, 20X5, ABC had 700 units of inventory on hand. What is the value of the inventory held by ABC as at December 31, 20X5, if the company uses the FIFO inventory valuation method under a periodic inventory system?

a) $3,611

b) $3,721

c) $3,815

d) $3,861

2. The accountant at Rocketfire Corp. needs to estimate the company’s quarter-end inventory to complete its interim financial statements. Rocketfire has a relatively small product offering and a captive market. As such, it has been able to maintain a constant gross margin of 40% over the last three years. Extracts from the company’s general ledger follow:

Sales (gross) $330,000

Sales returns and allowances 5,400

Purchases (gross) 175,000

Purchase discounts 6,000

Opening inventory 45,000

What amount should Rocketfire report on its financial statements as ending inventory estimated using the gross profit method?

a) $16,000

b) $19,240

c) $25,240

d) $84,160

3. In early 20X1, Textron Inc. entered into an agreement with Scantech Ltd. for the construction of a new office building. It is expected to take three years to complete construction. The initial total estimated cost of the building was $28 million and the price of the contract was set at $38 million. At December 31, 20X1, the total cumulative cost incurred was $18 million. Due to increasing costs of materials, the total estimated cost of the project at the end of 20X1 was $31 million. By the end of the 20X2 fiscal year, an additional $9 million of costs was incurred. At December 31, 20X2, the total estimated cost of the project remained the same as at December 31, 20X1.

What amount should Textron recognize as gross profit (the profit element) for the December 31, 20X2, fiscal year?

a) $2.0 million

b) $3.2 million

c) $4.0 million

d) $6.1 million

4. On January 1, 20X3, Gaudreau Enterprises sold goods and accepted a $200,000, five-year interest-free note from the purchaser. The note was repayable at $40,000 per annum, with the first payment due on December 31, 20X3. The market rate of interest for similar notes was 6% per annum. Gaudreau Enterprises only records adjusting entries at year end, and all amounts are material.

What amount of interest revenue should Gaudreau Enterprises accrue at its December 31, 20X3 year end?

a) $8,316

b) $8,967

c) $10,110

d) $12,000

5. On July 1, 20X3, Clear Water Corporation received a $45,000, three-year, 6% note receivable from a customer for services performed. Interest is payable annually, with the first payment due on June 30, 20X4. The market rate for similar notes is 8%. Clear Water has a December 31 fiscal year end.

How much interest revenue should Clear Water recognize in the December 31, 20X3, fiscal year?

a) $1,350

b) $1,707

c) $2,700

d) $3,414

Solution: