You have just been hired as a consultant to Tangier Industries, a newly formed company. The company president, John Meeks, is seeking your advice as to the appropriate inventory method Tangier should use to value its inventory and cost of goods sold. Mr. Meeks has narrowed the choice to LIFO and FIFO. He has heard that LIFO might be better for tax purposes, but FIFO has certain advantages for financial reporting to investors and creditors. You have been told that the company will be profitable in its first year and for the foreseeable future. Prepare a report for the president describing the factors that should be considered by Tangier in choosing between LIFO and FIFO.

Do not prepare a government-wide statement of activities since other governmental funds would affect that statement.

4–10 Operating Transactions, Special Topics, and Financial Statements. The City of Ashland’s General Fund had the following post-closing trial balance at April

30, 2010, the end of its fiscal year:  

Debits

Credit

Cash

$ 97,000  

Taxes Receivable—Delinquent

583,000  

Estimated Uncollectible Delinquent Taxes

$189,000

Interest and Penalties Receivable

26,280  

Estimated Uncollectible Interest and Penalties

11,160

Inventory of Supplies

16,100  

Vouchers Payable  

148,500

Due to Federal Government  

59,490

Reserve for Inventory of Supplies  

16,100

Fund Balance  

298,130  

$722,380

$722,380

During the year ended April 30, 2011, the following transactions, in summary form, with subsidiary ledger detail omitted, occurred:

1. The budget for FY 2011 provided for General Fund estimated revenues totaling $3,140,000 and appropriations totaling $3,100,000.

2. The city council authorized temporary borrowing of $300,000 in the form of a 120-day tax anticipation note. The loan was obtained from a local bank at a discount of 6 percent per annum (debit Expenditures for discount).

3. The property tax levy for FY 2011 was recorded. Net assessed valuation of taxable property for the year was $43,000,000, and the tax rate was $5 per $100. It was estimated that 4 percent of the levy would be uncollectible.

4. Purchase orders and contracts were issued to vendors and others in the amount of $2,059,000.

5. The County Board of Review discovered unassessed properties with a total taxable value of $500,000. The owners of these properties were charged with taxes at the city’s General Fund rate of $5 per $100 assessed value.

(You need not adjust the Estimated Uncollectible Current Taxes account.)

6. $1,961,000 of current taxes, $383,270 of delinquent taxes, and $20,570 of

interest and penalties were collected.

7. Additional interest and penalties on delinquent taxes were accrued in the amount of $38,430, of which 30 percent was estimated to be uncollectible.

8. Because of a change in state law, the city was notified that it will receive $80,000 less in intergovernmental revenues than was budgeted.

9. Total payroll during the year was $819,490. Of that amount, $62,690 was withheld for employees’ FICA tax liability, $103,710 for employees’ federal income tax liability, and $34,400 for state taxes; the balance was paid to employees in cash.

10. The employer’s FICA tax liability was recorded for $62,690.

11. Revenues from sources other than taxes were collected in the amount of $946,700.

12. Amounts due the federal government as of April 30, 2011, and amounts due for FICA taxes, and state and federal withholding taxes during the year were vouchered.

13. Purchase orders and contracts encumbered in the amount of $1,988,040 were filled at a net cost of $1,987,570, which was vouchered.14. Vouchers payable totaling $2,301,660 were paid after deducting a credit for purchases discount of $8,030 (credit Expenditures).

15. The tax anticipation note of $300,000 was repaid.16. All unpaid current year’s property taxes became delinquent. The balances of the current tax receivables and related un-collectibles were transferred to delinquent accounts.

17. A physical inventory of materials and supplies at April 30, 2011, showed a total of $19,100. Inventory is recorded using the purchases method in the General Fund; the consumption method is used at the government-wide level.

Required

a. Record in general journal form the effect of the above transactions on the General Fund and governmental activities for the year ended April 30, 2011. Do not record subsidiary ledger debits and credits.

b. Record in general journal form entries to close the budgetary and operating statement accounts.

c. Prepare a General Fund balance sheet as of April 30, 2011.

d. Prepare a statement of revenues, expenditures, and changes in fund balance for the year ended April 30, 2011. Do not prepare the government-wide financial statements.

Grogstore Co manufactures stainless-steel beer barrels. The manufacturing depot has two production departments: cutting and welding. The direct costs of producing each barrel are as follows:

Materials: 2 m2 of stainless steel @ $3 per m2

Labour – cutting: 15 minutes per barrel @ $14 per hour

Labour – welding: 20 minutes per barrel @ $18 per hour

Budgeted overhead costs for next year are:

$

Property costs

92,000

Managers’ salaries:

Cutting department

25,000

Welding department

28,000

General administration costs

143,000

Machine power

28,000

The following information relates to each of the production departments:

Cutting

Welding

Total

Floare Space(sq.m)

35

25

60

Nomber of employees

6

10

16

Labour hour

9,000

17,000

26,000

What price should Grogstore charge for the barrels if it wishes to earn a profit mark-up on total costs of 30 per cent?

Shock Wave, Inc. began work on a $7,000,000 contract in 2008 to construct an office building. During 2008, Shock Wave, Inc. incurred costs of $1,715,000. At December 31, 2008, the estimated future costs to complete the project total $3,185,000. Compute the estimated revenue and gross profit to be recognized in 2008.