Question

Loyas inc reported net income of $ 65,000 for the current year. loyas determined that inventory was understated by $ 10,000 at the beginning of the year and understated by $ 5,000 at the end of the year. Assuming a tax rate of 30 percent, what is the corrected amount of net income for the year?  

$54,500

$ 61,500

$ 68,500

$ 75,500

Wally Place began using dollar value LIFO for costing its inventory last year. The base year layer consists of $500,000. Assuming there are no old layers of inventory besides the base layer and the current inventory at end of year prices equals $660,000, what is the ending inventory using dollar-value LIFO if the index for the current year is 1.10?

$ 600,000

$ 610,000

$660,000

$ 620,000

Nity Corporation, an commercial airline company, contracted in 2018 to purchase 500,000 barrels of jet fuel at $115 per barrel, delivery and payment to be made in June of 2020. By 12/31/2018, the price per barrel of jet fuel had dropped to $ 98. By 12/31/2019, the price per barrel of jet fuel was $108. On 12/31/2019, Nity should report:

unrealized loss from purchase commitment of $ 5,000,000

unrealized loss from purchase commitment of $ 3,500,000

unrealized gain from purchase commitment of $5,000,000

unrealized gain from purchase commitment of $3,500,000

On january 1, 2021, the balance in Star Company’s "allowance for Reduction of Inventory to Market '' was $ 10,000 (credit). At December 31,2021, the cost of Star Company's inventory was $ 160,000. It was estimated that the market value of these items was $ 130,000. At December 31, 2022, the cost Star Company’s inventory was $ 187,000. It was estimated that the market value of these items was $173,000. What is the adjustment to the "Allowance for reduction of inventory to Market” account in the December 31, 2022 adjusting entry ?

$24,000 debit

$ 14,000 credit

$14,000 debit

$ 24,000 credit

$16,000 debit

Tula Company exchanged machinery with an appraised value of $1,755,000, an original cost of $ 2,700,000 and accumulated depreciation of $1,350,000 with Gidy Corporation for machinery Gidy owns. Gidy also gave Tula $60,000 Doo in the exchange. This exchange is not expected to change future cash flows of either company. How much should Tula record approximately as the cost of the new machine?

$ 1,755,112

$ 1,695,787

$ 1,303,846

$1,289,344

On April 1, Brioch Company began construction of a small building. The following expenditures were incurred for construction

April 1 $ 72,000

May 1 180,000

July 1 270,000

November 1 87,000

The building was completed and occupied on November 1 of the same year. To help pay for construction $160,000 was borrowed on April 1 on a 11%, three-year note payable. The other debt outstanding during the year was a $ 750,000, 10% note issued two years ago, and a $600,000, 5.5% note issued three years ago. How much interest should Brioch capitalize for the year?

$ 16,680

$ 20,560

$21,160

$ 22,534

Answer 1

Required 1

Calculation of Increase or decrease in net income

Net Income after tax Add: Tax Expense (30% on income before tax) Income before tax Rectification of understated opening inventory Rectification of understated clsoing inventory Rectified income before tax Tax Expense @ 30% Rectified Net Income $ $ $ $ $ $ $ 65,000 27,857 92,857 (10,000) 5,000 87,857 (26,357) 61,500

So the coorect answer is: b) $61,500

Required 2

Current inventory at the end of year prices = $660,000

Current year index = 1.10

Thus, current inventory at the base year prices = $660,000 / 1.10

= $600,000

Under the dollar Value LIFO method, out of the $600,000 inventory (at base year prices), $500,000 inventory is the inventory purchase in the base year. Thus, the remaining inventory of $100,000 ($600,000 - $500,000) is the inventory purchase in the current year.

The Value of these $100,000 inventory at the current year prices would be = $100,000 * 1.10

= $110,000

Thus under the dollar Value LIFO method, the value of the closing inventory would be

= Base year inventory at base year prices + Current year purchases at current year prices

= $500,000 + $110,000

= $610,000

So the answer is b) $610,000

Required 3

Nity Corporation contracted in the year 2018 to purchase 500,000 barrels of jet fuel at $115.

By the end of 2018 i.e. 12/31/2018, cost of jet fuel was reduced to $98 per barrel. Thus, Nity would have reported a unrealized loss of $17 ($115 - $98) per barrel i.e. a total of $8,500,000 ($17 * 500,000 barrels).

By the end of 2019 i.e. 12/31/2019, cost of jet fuel was increased to $108 per barrel. Thus, Nity should report a unrealized gain of $10 ($108 - $98) per barrel i.e. a total of $5,000,000 ($10 * 500,000 barrels).

So the answer would be c) unrealized gain from purchase commitment of $5,000,000

Required 4

On Jan 1, 2021, "Allowance for Reduction of Inventory to Market " Account has a balance of $10,000 (credit).

On Dec 31, 2021, Company's inventory was $160,000 and its market value was $130,000, thus, Allowance for Reduction of Inventory to Market Account should have a credit balance of $30,000 ($160,000 - $130,000).

Since, the ledger already has a credit balance of $10000, we would have credited it with $20,000 in order to maintain the required balance of $30,000.

Similarly, on Dec 31, 2022, Company's inventory was $187,000 and its market value was $173,000. Thus, Allowance for Reduction of Inventory to Market Account should have a credit balance of $14,000 ($187,000 - $173,000).

Since, the ledger already has a credit balance of $30000, we shall debit it with $16,000 in order to maintain the required balance of $14,000.

So the answer would be: d) $16,000