Accounting 2 Problems

Marvin Gaye Company  has been have difficulty obtaining key raw materials for its manufacturing process. The company therefore signed a long-term noncancelable commitment with its largest supplier of this raw material on November 30,2014, at an agreed price of $400,000. December 1, 2014, the raw material had declined in price to $365,000.

What entry would you make on December 31, 2014, to recognize these facts.

Dec 31

Tim Legler requires an estimate of the cost of goods lost by fire on March 9. Merchandise on January 1 was $38,000. Purchases since January 1 were $72,000; freight-in, purchase return and allowances, $2,400. Sales are made at 331/3% above cost and totaled $100,000 to March 9. Goods costing $10,900 were left undamaged by the fire; remaining goods were destroyed.

Compute the costs of good destroyed.

Maddox Specialty Company, a division of Lost World Inc., manufactures three models of gear shift components for bicycles that are sold to bicycle manufacturers, retailers, and catalog outlets. Since beginning operations in 1990, Maddox has used normal absorption costing and has assumed a first-in, first-out cost flow in its perpetual inventory system. The balances of the accounts at the end of Maddox’s fiscal year, November 30, 2014, are shown below. The inventories are stated at cost before any year-end adjustments.

Finished goods $647,000

Work in process 112,500

Raw materials 264,000

Factory supplies 69,000

The following information relates to Maddox’s inventory and operations.

1.Finished goods inventory consists of the items analyzed below.

                                                                 Cost                       Market

Down shifter

Standard model                                 67,500                              67,000

Click adjustment model                     94,500                              89,000

Deluxe model                                    108,000                             110,000

Total down tube shifters                   270,000                              266,000

Bar end shifter      

Standard model                                  83,000                              90,050

Click adjustment model                     99,000                               97,550

Total bar end shifters                          182,000                            187,600

Head tube shifter

Standard model                                  78,000                             77,650

Click adjustment model                      117,000                           119,300

Total head tube shifters                     195,000                           196,950

Total finished goods                           647,700                           650,550

2.One-half of the head tube shifter  finished goods inventory is held by catalog outlets on consignment.

3.Three-quarters of the bar end shifter finished goods inventory has been pledged as collateral for a bank loan.

4.One-half of the raw materials balance represents derailleurs acquired at a contracted price 20% above the current market price. The,market value of the rest of the raw materials is $127,400.

5.The total market value of work in process inventory is $108,700.

6.Included in the cost of factory supplies are obsolete items with an historical cost $4,200. The market value of the remaining factory supplies is $65,900.

7.Maddox applies the lower-of-cost-or-market method to each of the three types of shifters in finished goods inventory. For each of the other three inventory accounts, Maddox applies the lower-of-cost or-market method to the total of each inventory account.

8.Consider all amounts presented above to be material in relation to Maddox’s financial statements taken as a whole.

(a)Prepare the inventory section of Maddox’s balance sheet as of November 30, 2015

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