Financial Accounting for Managers

1)Ski West, Incorporated, operates a downhill ski area near Lake Tahoe, California. An all-day adult lift ticket can be purchased for $85. Adult customers also can purchase a season pass that entitles the pass holder to ski any day during the season, which typically runs from December 1 through April 30. Ski West expects its season pass holders to use their passes equally throughout the season. The company's fiscal year ends on December 31. On November 6, 2024, Ski West sells a season pass to Jake Lawson for $450. What are the financial statement effects from the sale of the season pass on November 6, 2024 A company provides the following information related to its inventory. Inventory Number of Units Unit Cost Unit NRV Item A 3,800 $ 52 $ 46 Item B 4,200 28 30 Item C 2,500 34 31 Item D 1,300 22 2 Calculate ending inventory using the lower cost and net realizable value rule. Based on your analysis, prepare the journal entry needed to adjust the inventor 3)Sara's Boutique has the following transactions related to its top-selling Gucci purse for October. Date Transactions Units Unit Cost Total Cost October 1 Beginning inventory 6 $ 730 $ 4,380 October 4 Sale 4 October 10 Purchase 5 740 3,700 October 13 Sale 3 October 20 Purchase 4 750 3,000 October 28 Sale 7 October 30 Purchase 8 760 6,080 $ 17,160 1. Calculate ending inventory and cost of goods sold on October 31, using the specific identification method. The October 4 sale consists of purses from the beginning inventory, the October 13 sale consists of one purse from the beginning inventory and two purses from the October 10 purchase, and the October 28 sale consists of three purses from the October 10 purchase and four purses from the October 20 purchase. 2. Using FIFO, calculate the ending inventory and cost of goods sold on October 31 3. Using LIFO, calculate ending inventory and cost of goods sold at October 31.4. Using weighted-average cost, calculate the ending inventory and cost of goods sold on October 31. Note: Round your intermediate calculations to 4 decimal places and final answers to 2 decimal places.

Sample Solution

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Problem 1: Ski West Season Pass

Financial Statement Effects:

On November 6, 2024, when Ski West sells a season pass for $450, the following financial statement effects occur:

Balance Sheet:

Assets:
- Increase in Cash: $450 (received from the sale)
- Increase in Unearned Revenue: $450 (represents the liability to provide skiing access throughout the season)
Liabilities: No change.
Stockholders' Equity: No change.

Income Statement:

Revenue:
- No immediate recognition of revenue. $450 is deferred and will be recognized evenly throughout the ski season (December 1 - April 30). This is because Ski West has not yet fulfilled its obligation to provide the season pass holder with skiing access.
Expenses: No change.

Journal Entry:

Full Answer Section

November 6, 2024:

Cash                       450
Unearned Revenue             450

Problem 2: Inventory Valuation and Adjustment

Lower of Cost and Net Realizable Value (LCNRV)

To determine the ending inventory using LCNRV, compare the unit cost and net realizable value (NRV) for each item:

Item	Unit Cost	NRV	Lower Value
A	$52	$46	$46
B	$28	$30	$28
C	$34	$31	$31
D	$22	$2	$2

Total Ending Inventory Value:

Apply the lower value for each item:

Item A: 3,800 units * $46/unit = $174,800
Item B: 4,200 units * $28/unit = $117,600
Item C: 2,500 units * $31/unit = $77,500
Item D: 1,300 units * $2/unit = $2,600

Total Ending Inventory: $174,800 + $117,600 + $77,500 + $2,600 = $372,500

Inventory Adjustment Journal Entry:

Inventory Loss               (Original Cost - LCNRV)
Inventory                    (LCNRV)

Original Cost:

Item A: 3,800 units * $52/unit = $197,600
Item B: 4,200 units * $28/unit = $117,600
Item C: 2,500 units * $34/unit = $85,000
Item D: 1,300 units * $22/unit = $28,600

Total Original Cost: $197,600 + $117,600 + $85,000 + $28,600 = $429,800

Inventory Loss: $429,800 - $372,500 = $57,300

Journal Entry:

Inventory Loss             57,300
Inventory                    372,500

Problem 3: Sara's Boutique Inventory Valuation

Specific Identification:

Date	Transaction	Units (Source)	Unit Cost	Total Cost	Running Total
Oct 1	Beginning Inventory	6	$730	$4,380	$4,380
Oct 4	Sale	4 (BI)	$730	$2,920	$1,460
Oct 10	Purchase	5	$740	$3,700	$5,160
Oct 13	Sale	1 (BI) + 2 (Oct 10)	$730 + $740	$2,180	$2,980
Oct 20	Purchase	4	$750	$3,000	$5,980
Oct 28	Sale

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