1. Iowa Steakhouse opened a new restaurant on the site of an existing building. It paid the owner $520,000 for the land and building, of which it attributes $104,000 to the land and $416,000 to the building. Iowa incurred legal costs of $25,200 to conduct a title search and prepare the necessary legal documents for the purchase. It then paid $71,800 to renovate the building to make it suitable for Iowa’s use. Property and liability insurance on the land and building for the first year was $24,000, of which $8,000 applied to the period during renovation and $16,000 applied to the period after opening. Property taxes on the land and building for the first year totaled $30,000, of which $10,000 applied to the period during renovation and $20,000 applied to the period after opening. Calculate the amounts that Iowa Steakhouse should include in the Land account and in the Building account. (10 points)2. Sears reports in millions of dollars on its balance sheet for year-end Year 6 and Year 5 as follows:Year 6Year 5Credit Card Receivables27,37124,932Less: Allowance for Uncollectibles(821)(808)It reports charge-offs [synonym for write-offs] of accounts receivable during Year 6 of 4.5 percent of its average gross receivables of $26,000 million and that Bad Debt Expense is 3.5 percent of credit card sales. What were Sears’ credit card sales for Year 6? (6 points)3. For the following six items, assume that Talbot Company, a growing profitable company, has large and growing inventories. Assume that Talbot Company has been using a FIFO cost flow assumption and plans to switch to LIFO for both financial reporting and tax reporting. Assume that Talbot pays all income taxes currently, as accrued, in cash.Required:Fill in each of the blanks below with one of these: larger, smaller, unchanged, or insufficient (information given to answer question). Several years after the switch from FIFO to LIFO: (12 points)1.Working capital will be __________.2.Accounts payable will be __________.3.On the statement of cash flows, cash provided by operating activities will be ________.4.Total shareholders’ equity will be __________.5.Deferred tax balance on the balance sheet will be __________.6.Inventory turnover will be __________.4. Inventory flows for Toy Elmo Company for the month of January are as follows:# of unitsUnit costBeginning inventory*250$1.00Purchases:January 31001.10January 151501.15January 173001.05Sales:January 5200January 18100January 24150*Assume the same for FIFO, LIFO, and weighted average cost flow assumptions.Required:Compute the cost of goods sold and ending inventory for the Toy Elmo Company using cost flow assumption and the following assumptions: (18 points)a.FIFO under a periodic inventory systemb.LIFO under a periodic inventory systemc.Weighted average under a periodic inventory systemd.FIFO under a perpetual inventory systeme.LIFO under a perpetual inventory systemf.Weighted average under a perpetual inventory system
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