Problem 1 - A company starts operations on October 1, Year One, holding 400 units of inventory which fills its store. This inventory cost $10 per unit. After that, enough inventory is bought on the last day of each month to bring the quantity on hand back to exactly 400 units. In October, 140 units were sold; in November, 150 units were sold; and in December, 180 units were sold. On October 31, the company bought units for $12 each; on November 30, the company bought units for $13 each; on December 31, the company bought units for $15 each.
1. What is the company's cost of goods sold if a periodic LIFO system is used?
2. What is the company's cost of goods sold if a perpetual LIFO system is used?
Problem 2 - Markov Corporation owns forests that are harvested with the wood sold to papermaking companies. Markov purchases a new tract of forest on January 1, Year One, for $360,000. Company officials estimate that 4,000 tons of wood can be harvested from the forest and sold. After that, the land will be worth about $20,000.
1. In Year One, 2,500 tons of wood are harvested, and 2,200 are sold for $120 per ton. Make any necessary journal entries.
2. In Year Two, the remaining 1,500 tons of wood are harvested, and then 1,800 tons are sold for $120 per ton. Make any necessary journal entries.
Problem 3 - The Monster Cookie Company buys a machine to make cookies on January 1, Year One. It costs $500,000 but has a $100,000 residual value and an expected life of ten years. Straight-line depreciation is to be applied. On January 1, Year Three, the company makes two changes to this machine. First, $30,000 is spent to add an attachment so that the company can make two types of cookies rather than just one. Second, the company spends $40,000 so that the machine will last five years longer than originally anticipated.
In connection with this machine, what figures are reported on the company's financial statements for Year Three?