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Cost of bricks set in kilns during the

year
Add inventories of bricks in kilns,
Nov. 1, 1919:

Green
Half burned

Burned ....
Burning cost (exhibit G).....
Add work overhead on burned bricks

(exhibit H) ..
Total ....
Less spoiled and broken bricks sold..
Cost of bricks through and still in

kilns
Deduct inventories, Oct. 31, 1920, in

kilns :
Green

100,000 $ 856.50
Half burned. 250,000 3,274.75
Burned 100,000 1,868.30

15,900.00

16,380,000 $301,684.00

830,000 2,000.00

15,550,000 $299,684.00

8.565 13.099 18.683

19.4493 2.25

21.70096

Total inventories

450,000 5,999.55 Cost of bricks removed from kilns... 15,100,000 $293,684.45 Unloading (exhibit I)........

34,000.00 Total cost of bricks put in yards..... 15,100,000 $327,684.45 Add inventory of bricks in yard, Nov. 1, 1919 ...

55,000 893.75 Total bricks available for sale.... 15,155,000 $328,578.20 Less inventory, bricks in yard, Oct. 31, 1920...

655,000 14,214.12 Cost of bricks sold

14,500,000 $314,364.08

16.25

21.70096

$9.068 is the burning cost per M, not including spoilage and work overhead. The rate including these items is:

$19,4493 cost per M of burned bricks removed from kilns

8.565 cost per M of bricks set in kilns 10.8843 cost per M of burning good bricks

75

Exhibit L

$415,000.00

1,500.00 $413,500.00

314,364.08 $99,135.92

The NationAL SHALE Brick COMPANY, INC.

Profit and Loss Statement

November 1, 1919, to October 31, 1920 Sales-brick

Less allowances on sales..
Net sales

Deduct:
Cost of bricks sold (exhibit K).......
Gross profit on sales

Deduct:
Administrative expense:
Office supplies and expenses.

$ 2,500.00
Salaries-officers

10,000.00 Salaries-office

4,000.00 Net profit on operations

Deduct:
Financial charges :
Discounts on sales....

$4,500.00
Interest on bonds*.

6,750.00 Net profit for the year.

16,500.00 $82,635.92

11,250.00 $71,385.92

$ 7,500.00

The quarry rentals paid in advance at November

1, 1919, were. The rentals for the current year were. Minimum payable in cash.

$ 6,300.00

4,000.00

2,300.00 $5,200.00

$25,000.00

Excess deducted from rentals paid in advance....
Balance of rentals paid in advance..
The depreciation reserve at November 1, 1919, was
Credits during the year:

Tunnel kilns
Periodic kilns
Gas producer
Dryer tunnels
Mill—pans and machines
Power-house
Sheds and stables
Pans and machines
Power-house machinery

Quarry machinery
Balance at October 31, 1920....

$11,250.00
10,000.00
5,000.00

750.00
500.00
250.00
400.00
5,000.00
1,500.00
1,000.00

35,650.00 $60,650.00

Interest has been paid on the bonds for only nine months. If the bonds were outstanding the entire year, there is $2,250.00 accrued interest. However, the date of issue is unknown.

76

Exhibit M

$ 2,000.00 22,000.00

THE NATIONAL SHALE BRICK COMPANY, INC.

Balance-sheet
October 31, 1919

Assets
Current assets:

Cash

Accounts receivable
Inventories:
Green bricks in dryers-
800,000 @ $6.04..

$ 4,834.00
Green bricks in kilns-
100,000 @ $8.565..

856.50 Bricks burning in kilns250,000 @ $13.099..

3,274.75 Burned bricks in kilns— 100,000 @ $18.683...

1,868.30
Burned bricks in yard-
655,000 @ $21.70.....

14,214.12 $25,047.67
Fixed assets:
Buildings :
Tunnel kilns

$150,000.00 Periodic kilns

100,000.00 Gas producer

50,000.00 Dryer tunnels

10,000.00 Mill-pans and machines

10,000.00 Power-house

5,000.00 Sheds and stables

2,000.00 $327,000.00 Machinery and equipment: Pans and machines

$50,000.00 Power-house

15,000.00 Quarry

10,000.00 75,000.00

49,047.67

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Question 2:

(a) The X Y Z company, established for ten years, has a machinery and equipment account which has been increased from year to year as new equipment purchases have been made. It appears also that certain renewals and repairs have been charged to this account. Each year a credit has been made to the account for depreciation, offset by corresponding debit to profit and loss account, the ratio of depreciation being adequate. The company now disposes of a part of its plant at a price equal to what was paid for it seven years previously and credits the entire amount to machinery and equipment account. What adjustments, if any, are needed to correct the account?

(b) The company also has several delivery trucks charged to truck account at cost, against which it has set up depreciation at end of each year by credit to a separate reserve for depreciation of trucks, debiting the amount to profit and loss account. truck was purchased January 1, 1918, for $4,000.00. Depreciation has been provided at 20% per annum. On December 31, 1919, it is wrecked by collision ; $1,000.00 is obtained from the insurance company and $250,000 obtained from salvage. What entries are needed to adjust the ledger accounts ?

Answer to Question 2:

(a) Ordinary renewals and repairs should not have been charged to the asset account, and they should be taken out and charged to surplus, except those of the current year, which should be charged to profit and loss.

As the asset account had been credited with depreciation, the balance of the account represented the carrying value of the machinery and equipment (plus renewals and repairs, which will be taken out). The account should have been credited with the carrying value of the portion of the plant sold. The entry for the sale should be reversed and an entry made crediting the asset account with cost less depreciation and crediting surplus with the depreciation written off, not because it was depreciation but because it is the difference between carrying value and selling price, and this difference is an extraneous profit. While we are adjusting the accounts it would be

advisable to take the depreciation credits out of the asset account and set them up in a reserve. (b) Cash

$1,250.00 Reserve for depreciation.

1,600.00 Surplus

1,150.00 Truck account.

$4,000.00 To record the wreck of a truck costing......

$4,000.00 Insurance

$1,000.00 Salvage

250.00 1,250.00

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Question 3:

In a certain department of a large dry-goods house the purchases for a year were $30,000.00. They were in the first place marked up for "selling" purposes to $45,000.00. Later additional mark-ups amounting to $2,000.00 were made and mark-downs were also recorded aggregating $5,000.00. At the end of the fiscal period there were found to be on hand goods of the marked selling value of $10,000.00. State how you would arrive at their inventory value for the purpose of closing the books, and calculate the amount. Explain fully. Answer to Question 3:

I should recommend taking a physical inventory for purposes of closing the books because the method of approximating cost from the figures given is based on averages and will not give accurate results unless the mark-ups and mark-downs applied proportionately to all goods purchased and sold. The approximate inventory could be computed as follows: Original selling price

$45,000.00 Add mark-ups

2,000.00

Total.
Less mark-downs

47,000,00 5,000.00

Net

$42,000.00

$42,000.00 – $30,000.00 = 140%, ratio of selling price to cost. $10,000.00 – 140% = $7,142.86, approximate cost.

Solutions will be continued in the February issue.

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