Question

20. Davis Hardware Company uses a perpetual inventory system. Davis purchases inventory costing S620 and then sells the inventory to a customer for $960 on account. How should Davis record the sale of inventory? 620 620 960 960 960 960 620 A. Inventory Cost of Goods Sold Sales Revenue Accounts Receivable B. Accounts Receivable Sales Revenue Cost of Goods Sold Inventory C. Inventory Gain Sales Revenue D. Accounts Receivable Sales Revenues Gain 620 620 340 960 960 620 340 21. Real Angus Steakhouse purchased land for $75,000 cash. They also incurred commissions of $4,500, property taxes of $5,000, and title insurance of $800. The $5,000 in property taxes includes $4,000 in back taxes paid by Real Angus on behalf of the seller and $1,000 due for the current year after the purchase date. For what amount should Real Angus Steakhouse record the land? A. $83,500 B. 584,300 C. 585,300. D. $75,000 2. Costello Company purchased a computer that cost $10,000. It had an estimated useful life of 5 years and no residual value. The computer was depreciated by the straight-line method and was sold at the end of the second year of use for $5,000 cash. Costello should record: A. a loss of $1,000 B. a gain of $1,000. C. neither a gain nor a loss - the computer was sold at its book value. D. neither a gain nor a loss - the gain that occurred in this case would not be recognized.

Answer 1

20.

The entry to record sale of inventory under perpetual inventory system will be prepared as follows:

Accounts Receivable	960
Sales Revenue		960
Cost of Goods Sold	620
Inventory		620

Therefore, the correct answer is B.

21.

The amount for which the land should be recorded will be calculated as follows:

Cost of land = Cash paid + Commissions paid + Property taxes paid (excluding current taxes) + Title insurance

                     = 75,000 + 4,500 + 4,000 + 800

                     = 84,300

Therefore, the correct answer is B.

22.

Annual depreciation on computer = (Cost - Residual value) / Useful life = (10,000 - 0) / 5 = 2,000

The computer was used for 2 years.

Therefore, accumulated depreciation = 2,000 x 2 = 4,000

And, book value of computer = Cost - Accumulated depreciation = 10,000 - 4,000 = 6,000

The computer was sold for 5,000

Therefore,

Loss on sale = Book value - Selling price = 6,000 - 5,000 = 1,000

Therefore, the correct answer is A.