1. Describe the operating cycle of Alaska Gold Company. At what stage in this cycle does the company incur costs of gold production? When is cash collected from customers? When does the company recognize revenues?
Cost of production is incurred at producing stage. Cash is collected at point of sale. Revenue is recognized at point of sale.
2. In your opinion, at what stage in its operating cycle should Alaska Gold Company recognize revenue? Why? (For this question, ignore the constraints imposed by generally accepted accounting principles.)
I think it should be producing completion stage because it'll more accurately depict the way the company is operating.
3. How does Alaska Gold Company account for “thawing costs”? Is this appropriate? Why or why not?
Thawing cost are depreciated on the units-of-production basis over the estimated yards of gravel benefited. I believe it is appropriate because the thawing process maybe results in materials used for many years.
4. Calculate the market price of gold per ounce at yearend 1975, 1976 and 1977. Gold inventory in Oz:
75 prod. 12632, 76 prod. 14320, 77 prod. 11563
Gold inventory at cost
75 prod. 1262524, 76 prod. 2856511(sum), 77 prod. (4990286-2856511)=2133775
End of year
5. Assume that Alaska Gold Company recognized revenue from gold mining at the time that production is completed (rather than the time of sale). Also assume that, as part of recognizing revenue at the time of production, inventories are revalued to fair market value (rather than left at historical cost). Prepare statements of gross margin (i.e., revenue less related costs) for 1975, 1976, and 1977 to reflect these assumptions. (Note that Alaska Gold’s gross margin as reported was $847,732 for 1977 and zero for 1976 and 1975. What would gross margin have been each year if Alaska Gold had...
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