Part 1: Write your answers in brief:
Q1: What are the differences between the periodic and the perpetual methods for tracking inventory? What are some advantages and disadvantages to each method?
Q2: Describe the differences between the FIFO and LIFO methods of inventory valuation. What might be some reasons a company would pick one method over another?
Q3: Under what circumstances would a company's cost of good solds be greater under the FIFO method than under the LIFO method?
Q4: What are R&D costs and how should they be treated in the financial statements?
Q5: What is goodwill? How is goodwill created and what impact does it have on a company's financial statements?
Q6: Many fixed assets are capitalized and then depreciated over time. Why are fixed assets depreciated, and what impact does this depreciation expense have on an company's cash flow for a period?
Part 2: Show the work for these solutions please:
KMG Corporation is in the business of manufacturing and selling seasonal handcrafts and other decorative items. The company operates one retail shop in the Seattle area, and also rents space at the famous Pike Place Market at which it displays and sells its merchandise. The following transactions for KMG Corportaion occurred during 2006:
1. On September 4, 2006, The company disposed of 2 obsolete computeres with an original cost of $1,000 each. The computers were fully depreciated at the time of the disposal, and KMG Corporation received no proceeds on the disposition.
2. On March 11, 2006, the company completed a special order for a local home gallery. The order included an arrangement of dried flowers and spring wreaths that cost the compay $1,500 to produce. The items were sold for $3,500 on March 17, 2006.
3. On November 30, 2006, the company sold 2 display cases to another vendor for $2,500 each. The display cases were purchased in January 2005 and had been used by KMG to display its inventory at the Market. The cases had a net book value of $1,000 each at the time of the sale.
Required:
Compute the gain or loss on fixed asset dispositions that KMG Corporation would recognized for the year ending December 31, 2006.
Part 3: Show solutions please:
The balance sheet of RA Corporation at December 31, 2005 is presented below. On December 31, 2005, AEV Corporation purchased RA Corporation for $850,000 in cash. How much goodwill would AEV Corporation record with respect to the purchase of RA Corporation? Assume the fair market value of all assets and liabilities at 12/31/2005 is equal to the book value of the assets and liabilities as reported in the balance sheet.
| RA Corporation |
| Balance Sheet |
| December 31, 2005 |
|
|
|
|
| Cash |
|
150,000 |
|
| Accounts Receivable |
350,000 |
|
| Property, Plant, and Equipment |
200,000 |
|
| Accumulated Depreciation |
(135,000) |
|
| Other Assets |
250,000 |
|
|
Total Assets |
815,000 |
|
|
|
|
|
|
|
|
|
| Accounts Payable |
175,000 |
|
| Accrued Compensation |
55,000 |
|
|
Total Liabilities |
230,000 |
|
|
|
|
|
| Common Stock |
50,000 |
|
| Additional Paid in Capital |
350,000 |
|
| Retained Earnings |
185,000 |
|
|
Total Shareholder's Equity |
585,000 |
|
|
|
|
|
|
Total Liabilities and Equity |
815,000 |
|