CPA Practice Test 13
10 free CPA practice questions in the real exam format, covering the official content areas, with an explanation for every answer.
Question 1 of 10
Select Balance Sheet AccountsClient Records — Brightwater Cabinetry Co.
From: Nadia Okonkwo, Controller To: Staff Accountant Date: January 14, Year 4 Subject: Inventory and fixed-asset rollforwards
Please finish the December 31, Year 3 inventory and PP&E rollforwards. The count team flagged several ownership questions, and the fixed-asset clerk's draft rollforward has not been reviewed. Brightwater uses a periodic FIFO system. The books for Year 3 are still open.
Physical count memo — December 31, Year 3
1Goods counted in the plant and warehouse at FIFO cost: $512,000. No units in transit or held off-site were counted.
2Hardwood from Kingsley Hardwoods, cost $26,000, shipped FOB shipping point on December 29 and received January 3, Year 4. The invoice was recorded in purchases on December 30.
3Finished vanities shipped to Coastal Home Builders FOB destination on December 31, cost $9,500, delivered January 2, Year 4. The sale was recorded in January, Year 4.
4Hinge and drawer-slide stock held on consignment for Ardent Hinge Co., cost $14,000, was included in the count. Brightwater pays Ardent only when it uses the stock.
5Display cabinets out on consignment at Mapleton Design Center, cost $17,500, unsold at December 31.
6Cabinet hardware ordered from Tessaro Supply, cost $8,000, shipped FOB destination on December 30 and received January 5, Year 4. Not recorded in Year 3.
| Account | Amount |
|---|---|
| Inventory, January 1, Year 3 (final) | 498,000 |
| Purchases (includes the Kingsley Hardwoods invoice) | 2,140,000 |
| Freight-in | 38,000 |
| Purchase returns and allowances | 21,000 |
| Purchase discounts taken | 15,000 |
| Freight-out on customer deliveries | 29,000 |
| Sales revenue | 3,410,000 |
| Item | Amount |
|---|---|
| Balance, January 1, Year 3 | 1,450,000 |
| Addition: CNC router — invoice price | 180,000 |
| Addition: freight to deliver the router | 4,000 |
| Addition: installation and calibration of the router | 12,000 |
| Addition: two-year maintenance service contract on the router | 6,000 |
| Addition: repainting the showroom walls | 8,000 |
| Disposal: panel saw sold July 1 (cost) | (90,000) |
| Balance, December 31, Year 3 (draft) | 1,570,000 |
Board minutes, November 30, Year 3: management committed to a plan to sell the Ridge Road warehouse building, which is vacant and available for immediate sale, and listed it with a broker at a reasonable price. Sale is expected within nine months. All held-for-sale criteria were met on November 30. Building cost $300,000; accumulated depreciation $180,000; fair value less costs to sell $150,000. The building is still included in the PP&E rollforward.
Summary of selected guidance (paraphrased)
ASC 330-10-30: The cost of inventory includes all expenditures to bring goods to their existing condition and location, such as freight-in, net of returns and cash discounts taken. Selling costs such as delivery to customers are period expenses.
Ownership: goods shipped FOB shipping point belong to the buyer once shipped; goods shipped FOB destination belong to the seller until delivered. Consigned goods remain the inventory of the consignor.
ASC 360-10-30: The cost of property, plant and equipment includes the purchase price and all costs needed to bring the asset to the condition and location for its intended use, such as freight and installation. Ordinary repairs and service contracts for future periods are not capitalized as part of the asset.
ASC 360-10-45-9 and 45-14: A long-lived asset classified as held for sale is measured at the lower of its carrying amount and fair value less cost to sell, is no longer depreciated, and is presented separately in the balance sheet rather than within property, plant and equipment held and used.
Cell 1 — Ending inventory: enter the amount Brightwater should report as inventory at December 31, Year 3.