MTY Company

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The MTY Company is a wholesale company that purchases items from manufacturers and sells them to retail establishments.

On December 31, 2010 MTY Company had the following in ending inventory:

Product Code Quantity Cost Each Current Replacement
Cost Each

A2725Y 5,877 $65 $75
H7055K 4,223 46 42
K5109A 4,916 42 51
J4755T 637 63 79
L8785N 2,632 75 89
Y7689L 4,950 80 85
D8633U 3,358 33 31

Product J4755T has been replaced by product L8785N. MTY Company expects to be able to sell its remaining inventory of product J4755T at a discount to an outlet store for a net realizable value of $38 each. For all other items, the current replacement cost is equal to the current market value.

1) Compute the value of the inventory as of December 31, 2010 using each of the following assumptions:

a. The lower of cost or market method is applied directly to each item.

b. The lower of cost or market method is applied to the total inventory.

2) Prepare any necessary adjusting journal entries assuming that the company used the direct method, using each of the following assumptions

a. The lower of cost or market method is applied directly to each item.

b. The lower of cost or market method is applied to the total inventory.
Problem 4:

During the past year, a company completed the following transactions related to the acquisition of property and the construction thereon of a new factory:

A. Paid $138,000 to landscape the property. The landscaping is considered permanent in nature.

B. Paid $90,000 to have an old building removed from the property.

C. Paid $244,000 commission to the commercial real estate agency in payment for services provided related to the acquisition of the property.

D. Purchased factory machinery for $14,541,000.

E. Purchased a tract of land for $12,200,000. The land was larger than needed but the seller would not break up the parcel. The company intends to use 40% of the property for the new factory site and retain the remainder as an investment.

F. Paid an architect firm $173,000 to design the new factory building.

G. Received $2,700 in salvage from the materials removed from the old building that was removed from the property.

H. Paid $20,000 for building permits for the new factory.

I. Paid $191,000 to have the land excavated according to the architect’s plans in preparation for the factory building foundation to be poured.

J. Paid $20,863,000 to a contractor for the construction of the new factory building.

K. Paid $848,000 to have the factory machinery installed.

L. Paid $67,000 in back property taxes owed by a previous owner, now deceased.

M. Paid $76,000 to have the portion of the land to be used for the factory cleared and graded to level. The portion of the land held for investment was left heavily wooded.

N. Per an agreement with the local government, paid $322,000 to have a public road extended to the factory site.

O. Paid $91,000 for freight charges on the factory machinery.

P. Paid a law firm $35,000 for services related to perfecting the title on the land purchase.

Q. Paid $311,000 for the construction of driveways and parking lots on the property to service the factory building.

R. Borrowed $43,000,000 to pay for a portion of the costs for the property, buildings and equipment.


Ignoring any impact of interest:

1) Prepare the necessary journal entries to record the above transactions. Assume that all transactions were paid with cash.

Problem 5:

During the current year, the TMY Company completed construction of a new assembly facility. The facility will receive components from TMY Company’s other facilities and assemble them for shipment to distributors. The following transactions occurred in conjunction with the facility.

Item A: The city in which the new facility is located provided TMY Company with a parcel of land at no cost in exchange for TMY Company constructing the facility in the city. An appraisal indicated that $820,000 was the fair market value of the land. The land had an abandoned city maintenance facility that TMY Company paid $26,000 to have razed.

Item B: TMY Company entered into a contract with a local construction company to build the assembly facility. The agreed to price of the construction was $4,300,000. The contract called for TMY Company to pay the construction company $3,200,000 cash plus 37,000 shares of TMY Company common stock. The common stock has a $10 par value and, as TMY Company is a private corporation, the stock is not traded on any public stock exchange. The facility has been completed and the payment has been tendered to the construction company.

Item C: The assembly process does not involve heavy machinery and is completed by hand at assembly workstations. TMY Company received two bids from other companies to construct the necessary workstations. One bid was for $272,000 and the other was for $258,000. After considering the bids, TMY Company decided to construct the works