Submitted by: Submitted by clutts21
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Category: Business and Industry
Date Submitted: 10/18/2013 09:20 AM
CHAPTER 3
BUSINESS INCOME AND EXPENSES, PART I
Group 1 - Multiple Choice Questions
1. C (LO 3.1) 6. D (LO 3.3) 12. A (LO 3.6) 18. C (LO 3.11)
2. C (LO 3.1) 7. C (LO 3.4) 13. E (LO 3.7) 19. E (LO 3.11)
3. E (LO 3.1) 8. D (LO 3.4) 14. E (LO 3.8) 20. C (LO 3.12)
4. D (LO 3.2) 9. B (LO 3.4) 15. B (LO 3.9) 21. C (LO 3.12)
5. B $25,000 + $185,000 – 10. C (LO 3.4) 16. C (LO 3.10) 22. E (LO 3.13)
$30,000 = $180,000 (LO 3.2) 11. D (LO 3.5) 17. C (LO 3.11)
Group 2 - Problems
1. See pages 57 and 58. (LO 3.1)
2. See the answer to Problem 1. (LO 3.1)
3. Gross income $50,000
Expenses:
Travel $ 1,000
Transportation
6,117 miles x $.555 $ 3,395
Entertainment in total $4,000 x 50% $ 2,000
7 gifts at $50 each, limited to $25 $ 175
Rent and utilities allocated to home office
20% x $10,000 $ 2,000
Total Expenses $ 8,570
Taxable Business Income $41,430 (LO 3.1)
4. a. FIFO inventory valuation:
10,000 boxes at $1.75 per box $ 17,500
5,000 boxes at $1.60 per box 8,000
Ending inventory $ 25,500
Cost of goods sold:
Beginning inventory $ 15,000
Add: Purchases ($16,000 + 32,000 + 17,500) 65,500
Cost of goods available for sale $ 80,500
Less: Ending inventory –25,500
Cost of goods sold $ 55,000
b. LIFO inventory valuation:
10,000 boxes at $1.50 per box $ 15,000
5,000 boxes at $1.60 per box 8,000
Ending inventory $ 23,000
Cost of goods sold:
Beginning inventory $ 15,000
51
Add: Purchases ($16,000 + 32,000 + 17,500) 65,500
Cost of goods available for sale $ 80,500
Less: Ending inventory –23,000
Cost of goods sold $ 57,500 (LO 3.2)
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