Question

Complete the requirements for each of the following independent cases:    

The following represents selected data from recent financial statements of Dr Pepper Snapple Group:    

DR PEPPER SNAPPLE GROUP, INC. Consolidated Balance Sheets (partial)
(in millions)	December 31, 2014					December 31, 2013
Assets
Current assets:
Cash and cash equivalents		$	215				$	66
Accounts receivable (net of allowances of $11 and $18, respectively)			527					542

Consolidated Statements of Income (partial)
	For the Year Ended December 31
(In millions)	2014			2013			2012
Net sales	$	5,750		$	5,626		$	5,624
Net income	$	720		$	645		$	650

    

Case D. Stewart Company reports the following inventory records for November:

    

INVENTORY
Date	Activity	# of Units	Cost/Unit
November 1	Beginning balance	150	$	16
November 4	Purchase	310		17
November 7	Sale (@ $56 per unit)	200
November 13	Purchase	505		19
November 22	Sale (@ $56 per unit)	525

Selling, administrative, and depreciation expenses for the month were $15,200. Stewart’s tax rate is 40 percent.    

1. Calculate the cost of ending inventory and the cost of goods sold under each of the following methods using periodic inventory system: (Do not round intermediate calculations.)

    
2-a. What is the gross profit percentage under the FIFO method? (Round your percentage answer to 2 decimal places (i.e. 0.1234 should be entered as 12.34).)

  
2-b. What is net income under the LIFO method?

3. Stewart applied the lower of cost or market method to value its inventory for reporting purposes at the end of the month. Assuming Stewart used the FIFO method and that inventory had a market replacement value of $17.80 per unit, what would Stewart report on the balance sheet for inventory?

Case E. Matson Company purchased the following on January 1, 2016:

    
• Office equipment at a cost of $56,000 with an estimated useful life to the company of three years and a residual value of $16,800. The company uses the double-declining-balance method of depreciation for the equipment.

• Factory equipment at an invoice price of $828,000 plus shipping costs of $23,000. The equipment has an estimated useful life of 115,000 hours and no residual value. The company uses the units-of-production method of depreciation for the equipment.

• A patent at a cost of $403,000 with an estimated useful life of 13 years. The company uses the straight-line method of amortization for intangible assets with no residual value.  

The company's year ends on December 31.

1-a. Prepare a partial depreciation schedule of office equipment for 2016, 2017, and 2018. (Do not round intermediate calculations.)

1-b. Prepare a partial depreciation schedule of factory equipment. The company used the equipment for 9,000 hours in 2016, 10,200 hours in 2017, and 9,900 hours in 2018. (Do not round intermediate calculations.)

2. On January 1, 2019, Matson altered its corporate strategy dramatically. The company sold the factory equipment for $714,900 in cash. Prepare the entry related to the sale of the factory equipment. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

3. On January 1, 2019, when the company changed its corporate strategy, its patent had estimated future cash flows of $277,000 and a fair value of $253,000. What would the company report on the income statement (account and amount) regarding the patent on January 2, 2019?

Answer 1

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Case D
		Units	Cost
Beginning Inventory		150	$                                 2,400
Add: Purchase		815	$                               14,865	Average rate
Cost of good available for sale		965	17,265	$        17.89
Less: Sold units		$                            -725
Ending inventory units		$                              240
Part 1
FIFO
Cost of goods sold		Units	Unit Cost	Total Cost
		150	$                                      16	$        2,400
		310	$                                      17	$        5,270
		$                              265	$                                      19	$        5,035
Total Cost of Goods Sold FIFO				$      12,705
Ending Inventory		$                              240	$                                      19	$        4,560
LIFO
Cost of goods sold		Units	Unit Cost	Total Cost
		505	$                                      19	$        9,595
		220	$                                      17	$        3,740
Total Cost of Goods Sold LIFO				$      13,335
Ending Inventory		150	$                                      16	$        2,400
		90	$                                      17	$        1,530
Total ending inventory				$        3,930
Weighted average
		Units	Unit Cost	Total Cost
Cost of goods sold		725	$                                 17.89	$      12,971
Ending inventory		$                              240	$                                 17.89	$        4,294
Part 2a
Sales Revenue	725*$56	$                        40,600
Less: Cost of goods sold		$                       -12,705
Gross Profit		$                        27,895
Part 2b
Sales Revenue	725*$56	$                        40,600
Less: Cost of goods sold		$                       -13,335
Gross Profit		$                        27,265
Less: S&A Expense		$                       -15,200
Net Income		$                        12,065
Part 3
Inventory calculated	240 units*$19	$                          4,560
Market Replacement	240 units*$17.80	$                          4,272
As per lower of cost or market value,
Reported amount will be		$                          4,272
Case E
Part 1a
Year	Working	Depreciation Expense	Accumulate Depreciation	Book Value
				$      56,000
Year 2016	$56,000*2/3 or 66.66%	$                        37,333	$                               37,333	$      18,667
Year 2017	$18,667-$16,800	$                          1,867	$                               39,200	$      16,800
Part 1b
Per hour Depreciation	$851,000/115,000 Hours	$                             7.40	per hour
Year	Working	Depreciation Expense	Accumulate Depreciation	Book Value
				$    851,000
Year 2016	9,000 hours*$7.40	$                        66,600	$                               66,600	$    784,400
Year 2017	10,200 hours*$7.40	$                        75,480	$                            142,080	$    708,920
Year 2018	9,900 hours*$7.40	$                        73,260	$                            215,340	$    635,660
Part 2
Book value on 1 Jan 2019		$                      635,660
Sale Value		$                      714,900
Journal Entry
Date	Account	Debit	Credit
Jan 1 2019	Cash	$                      714,900
	Accumulated Depreciation	$                      215,340
	Gain on Sale of Office Equipment		$                               79,240
	Office Equipment		$                            851,000
Part 3
Initial Cost of patent		$                      403,000
3 Years Amortization	$403,000/13 years*3 Years	$                       -93,000
Book Value on 1 Jan 2019		$                      310,000
Future cash Flow		$                      277,000
Fair value		$                      253,000
Since Future cash flow is less than Book value, it needs to be impared and reduced to Fair value
Income Statement:
Impairment Loss	$310,000-$253000	$                        57,000
(Book value-Fair value)