Question 1: (5 Marks)

Question 1: (5 Marks)

During June, the following changes in inventory took place:

June1Balance1,400 units @SR 24

14Purchased900 units @36

24Purchased700 units @30

8Sold400 units @50

10Sold1,000 units @40

29Sold500 units @44

Perpetual inventories are maintained in units only.

Instructions

What is the cost of the ending inventory under the following methods?(Show calculations.)

(a)FIFO.

(b)Average Cost.

Question 2: (5 Marks)

A Company began operations in 2020 and determined its ending inventory at cost and at a LCNRV at December 31, 2020, and December 31, 2021. This information is presented below.

CostNet Realizable Value

31/12/20 SR 520,000SR 485,000

31/12/21615,000585,000

Instructions

(a)Prepare the journal entries required at December 31, 2020, and December 31, 2021, assuming that the inventory is recorded at LCNRV, using a perpetual inventory system and the cost-of-goods-sold method.

(b) Prepare the journal entries required at December 31, 2020, and December 31, 2021, assuming that the inventory is recorded at cost, using a perpetual system and the loss method.

(c)Which of the two methods above provides the higher net income in each year?

Question 3:(5 Marks)

On March 1, a Company began construction of a small building. The following expenditures were incurred for construction:

March 1SR75,000April 1SR74,000

May 1180,000June 1270,000

July 1100,000

The building was completed and occupied on July 1. To help pay for construction SR50,000 was borrowed on March 1 on a 12%, three-year note payable. The only other debt outstanding during the year was a SR500,000, 10% note issued two years ago.

Instructions

(a)Calculate the weighted-average accumulated expenditures.

(b)Calculate avoidable interest.