Problem 1: On March 1, 2007, Geoffrey Company acquired real estate, on which it planned to construct a small office building, by paying $90,000 in cash. An old warehouse on the property was demolished at a cost of $8,200; the salvaged materials were sold for $1,700.
Additional expenditures before construction began included $1,500 attorney's fee for work concerning the land purchase, $5,000 real estate broker's fee, $9,100 architect's fee, and $14,000 to put in driveways and a parking lot.
Instructions:
(a) Determine the amount to be reported as the cost of the land.
(b) For each cost not used in part (a), indicate the account to be debited.
Problem 2: This information is available for the Automotive and Other Operations Divisions of General Motors Corporation for 2004. General Motors uses the LIFO inventory method.
(in millions) 2004
Beginning inventory $ 10,960
Ending inventory 11,717
LIFO reserve 1,442
Current assets 55,515
Current liabilities 74,892
Cost of goods sold 150,053
Sales 161,545
Instructions:
(a) Calculate the inventory turnover ratio and days in inventory.
(b) Calculate the current ratio based on inventory as reported using LIFO.
(c) Calculate the current ratio after adjusting for the LIFO reserve.
(d) Comment on any difference between parts (b) and (c).