The following information is available for Yancey Company:
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Ex. 191
The following information is available for Yancey
Company:
Beginning
inventory 600 units at $4
First purchase 900 units at $6
Second purchase 500 units at $7.20
Assume that
Waldrip uses a periodic inventory system and that there are 700 units left at
the end of the month.
Instructions
Compute
each of the following under the average-cost method:
(a) Cost of ending inventory.
(b) Cost of goods sold.
Ans:
N/A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 7, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
Ex. 192
Shanrock Company uses the periodic inventory
method and had the following inventory information available:
Units Unit Cost Total Cost
1/1 Beginning
Inventory 100 $4 $ 400
1/20 Purchase 400 $6 2,400
7/25 Purchase 200 $7 1,400
10/20 Purchase 300 $8 2,400
1,000 $6,600
A physical
count of inventory on December 31 revealed that there were 400 units on hand.
Instructions
Answer the
following independent questions and show computations supporting your answers.
1. Assume that the company uses the FIFO method.
The value of the ending inventory at December 31 is $__________.
2. Assume that the company uses the Average-Cost
method. The value of the ending inventory on December 31 is $__________.
3. Assume that the company uses the LIFO method.
The value of the ending inventory on December 31 is $__________.
4. Determine the difference in the amount of
income that the company would have reported if it had used the FIFO method
instead of the LIFO method. Would income have been greater or less?
Ans:
N/A, LO: 2, Bloom: AN, Difficulty: Hard, Min: 20, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
Ex. 193
Lester Company sells many products. Hackenberry
is one of its popular items. Below is an analysis of the inventory purchases
and sales of Hackenberry for the month of March. Lester Company uses the
periodic inventory system.
Purchases Sales
Units Unit Cost Units Selling Price/Unit
3/1 Beginning
inventory 100 $40
3/3 Purchase 60 $50
3/4 Sales 70 $80
3/10 Purchase 200 $55
3/16 Sales 80 $90
3/19 Sales 60 $90
3/25 Sales 40 $90
3/30 Purchase 40 $65
Instructions
(a) Using the FIFO assumption, calculate the
amount charged to cost of goods sold for March. (Show computations)
(b) Using the weighted average method, calculate
the amount assigned to the inventory on hand on March 31. (Show computations)
(c) Using the LIFO assumption, calculate the
amount assigned to the inventory on hand on March 31. (Show computations)
Ans:
N/A, LO: 2, Bloom: AP, Difficulty: Hard, Min: 20, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
Ex. 194
Gray Company uses the periodic inventory system
to account for inventories. Information related to Gray Company’s inventory at
October 31 is given below:
October 1 Beginning inventory 400 units @ $9.80 = $
3,920
8 Purchase 800 units @ $10.40 = 8,320
16 Purchase 600 units @ $10.80 = 6,480
24 Purchase 200 units
@ $11.80 = 2,360
Total
units and cost 2,000 units $21,080
Instructions
1. Show computations to value the ending
inventory using the FIFO cost assumption if 550 units remain on hand at October
31.
2. Show
computations to value the ending inventory using the weighted-average cost
method if 550 units remain on hand at October 31.
3. Show
computations to value the ending inventory using the LIFO cost assumption if
550 units remain on hand at October 31.
Ans:
N/A, LO: 2, Bloom: AP, Difficulty: Hard, Min: 20, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
Ex. 195
Ford Co. uses
a periodic inventory system. Its records show the following for the month of
May, in which 75 units were sold.
Units Unit
Cost Total Cost
May
1 Inventory 35 $ 8 $ 280
15
Purchases 30 12 360
24
Purchases 40 13 520
Totals 105 $1,160
Instructions
Compute the ending inventory at May 31 and cost of goods sold using the
FIFO and LIFO methods. Prove the amount allocated to cost of goods sold under
each method.
Ans:
N/A, LO: 2, Bloom: AP, Difficulty: Hard, Min: 20, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
Ex. 196
Washington
Bottom Company reports the following for the month of June.
Units Unit
Cost Total Cost
June 1
Inventory 300 $5 $1,500
12
Purchase 450 6 2,700
23
Purchase 750 8 6,000
30
Inventory 180
Instructions
(a) Compute
the cost of the ending inventory and the cost of goods sold under (1) FIFO and
(2) LIFO.
(b) Compute
the cost of the ending inventory and the cost of goods sold using the
average-cost method.
Ans:
N/A, LO: 2, Bloom: AP, Difficulty: Hard, Min: 20, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
Ex. 197
Queen Company is in the electronics industry and the price it pays for
inventory is decreasing.
Instructions
Indicate which inventory method will:
a. provide the highest
ending inventory.
b. provide the highest cost
of goods sold.
c. result in the highest
net income.
d. result in the lowest
income tax expense.
e. produce the most stable
earnings over several years.
Ans:
N/A, LO: 3, Bloom: C, Difficulty: Easy, Min: 4, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Quantitative Methods
Ex. 198
Vance Company
reported the following summarized annual data at the end of 2014:
Sales
revenue $1,000,000
Cost
of goods sold* 600,000
Gross
margin 400,000
Operating
expenses 250,000
Income
before income taxes $ 150,000
*Based
on an ending FIFO inventory of $250,000.
The income tax rate is 40%. The controller of the
company is considering a switch from FIFO to LIFO. He has determined that on a
LIFO basis, the ending inventory would have been $180,000.
Instructions
(a) Restate the summary information on a LIFO
basis.
(b) What
effect, if any, would the proposed change have on Vances income tax expense,
net income, and cash flows?
(c) If you were an owner of this business, what would your reaction be to
this proposed change?
Ans:
N/A, LO: 3, Bloom: E, Difficulty: Medium, Min: 25, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
Ex. 199
Compute
the lower-of-cost-or-market valuation for Gantner Company’s total inventory
based on the following:
Inventory Categories Cost Data Market Data
A $18,000 $16,900
B
13,900 14,600
C
21,000 20,500
Ans:
N/A, LO: 4, Bloom: AN, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving,
IMA: Quantitative Methods
Ex. 200
The controller of Alt Company is applying the
lower-of-cost-or-market basis of valuing its ending inventory. The following
information is available:
Cost Market
Lawnmowers:
Self-propelled $14,800 $17,000
Push
type 19,000 18,000
Total 33,800 35,000
Snowblowers:
Manual 29,800 31,000
Self-start 19,000 21,000
Total 48,800 52,000
Total
inventory $82,600 $87,000
Instructions
Compute the value of the ending inventory by
applying the lower-of-cost-or-market basis.
Ans:
N/A, LO: 4, Bloom: AP, Difficulty: Medium, Min: 15, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving,
IMA: Quantitative Methods
Ex. 201
Nolen Company is preparing the annual financial
statements dated December 31, 2014. Information about inventory stocked for
regular sale follows:
Quantity Unit Cost Replacement Cost
Item on Hand When Acquired (market) at year end
A 50 $20 $19
B 100 45 45
C 20 59 62
D 40 40 36
Instructions
Compute the valuation for the December 31, 2014,
inventory using the lower-of-cost-or-market basis.
Ans:
N/A, LO: 4, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
Ex. 202
Foley Company applied FIFO to its inventory
and got the following results for its ending inventory.
DVRs 140
units at a cost per unit of $59
DVD players 210 units at a cost per unit of $75
iPods 175
units at a cost per unit of $80
The cost of purchasing units at year-end
was DVRs $71, DVD players $68, and iPods $78.
Instructions
Determine the amount of ending inventory at
lower-of-cost-or-market.
Ans:
N/A, LO: 4, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
Ex. 203
Morton Watch Company reported the following
income statement data for a 2-year period.
2014
2015
Sales revenue $260,000 $320,000
Cost of goods sold
Beginning inventory 32,000 44,000
Cost of goods purchased 193,000 225,000
Cost of goods available for sale 225,000 269,000
Ending inventory 44,000 57,000
Cost of goods sold 181,000 212,000
Gross profit $ 79,000 $108,000
Mortan uses a periodic inventory system.
The inventories at January 1, 2014, and December 31, 2015, are correct.
However, the ending inventory at December 31, 2014, was overstated $5,000.
Instructions
(a) Prepare
correct income statement data for the 2 years.
(b) What
is the cumulative effect of the inventory error on total gross profit for the 2
years?
Ans:
N/A, LO: 5, Bloom: AN, Difficulty: Hard, Min: 15, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
Ex. 204
Wellington Company
reported net income of $60,000 in 2014 and $80,000 in 2015. However, ending
inventory was overstated by $7,000 in 2014.
Instructions
Compute the
correct net income for Wellington Company for 2014 and 2015.
Ans:
N/A, LO: 5, Bloom: AP, Difficulty: Medium, Min: 6, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
Ex. 205
For each of the independent events listed below,
analyze the impact on the indicated items at the end of the current year by
placing the appropriate code letter in the box under each item.
Code: O = item is overstated
U =
item is understated
NA = item
is not affected
Events
Items
Assets
Owners Equity
Cost of Goods Sold
Net Income
1. A
physical count of goods on hand at the end of the current year resulted in
some goods being counted twice.
2. The
ending inventory in the previous period was overstated.
3. Goods
purchased on account in December of the current year and shipped FOB shipping
point were recorded as purchases, but were not included in the count of goods
on hand on December 31 because they had not arrived by December 31.
4. Goods
purchased on account in December of the current year and shipped FOB
destination were recorded as purchases, but were not included in the count of
goods on hand on December 31 because they had not arrived by December 31.
5. The internal auditors discovered that theendinginventory
in the previous period wasunderstated $17,000 and that the ending inventory in the current period
was overstated $27,000.
Ans:
N/A, LO: 5, Bloom: AN, Difficulty: Medium, Min: 20, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
Ex. 206
Baden’s Hardware
Store prepared the following analysis of cost of goods sold for the previous
three years:
2013
2014 2015
Beginning inventory 1/1 $40,000 $18,000 $25,000
Cost of goods purchased 50,000 55,000
70,000
Cost of goods available for sale 90,000 73,000 95,000
Ending inventory 12/31 18,000 25,000 40,000
Cost of goods sold $72,000 $48,000 $55,000
Net income for the years 2013, 2014, and 2015 was
$70,000, $60,000, and $55,000, respectively. Since net income was consistently
declining, Mr.Baden
hired a new accountant to investigate the cause(s) for the declines.
The
accountant determined the following:
1. Purchases
of $25,000 were not recorded in 2013.
2. The
2013 December 31 inventory should have been $24,000.
3. The
2014 ending inventory included inventory costing $5,000 that was purchased FOB
destination and in transit at year end.
4. The
2015 ending inventory did not include goods costing $4,000 that were shipped on
December 29 to Sampson Plumbing Company, FOB shipping point. The goods were
still in transit at the end of the year.
Instructions
Determine the
correct net income for each year. (Show all computations.)
Ans:
N/A, LO: 5, Bloom: AN, Difficulty: Hard, Min: 25, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
Ex. 207
Galena Pharmacy
reported cost of goods sold as follows:
2014 2015
Beginning inventory $ 54,000 $ 64,000
Cost of goods purchased
847,000 891,000
Cost of goods available for sale 901,000 955,000
Ending inventory 64,000 55,000
Cost of goods sold $837,000 $900,000
Jim Holt, the
bookkeeper, made two errors:
(1) 2014 ending inventory was
overstated by $7,000.
(2) 2015 ending inventory was
understated by $16,000.
Instructions
Assuming the errors had not been corrected,
indicate the dollar effect that the errors had on the items appearing on the
financial statements listed below. Also indicate if the amounts are overstated
(O) or understated (U).
2014 2015
Overstated/ Overstated/
Amount Understated
Amount Understated
Total assets $_________ _______ $_________ _______
Owners equity $_________ _______ $_________ _______
Cost of goods sold $_________ _______ $_________ _______
Net income $_________ _______ $_________ _______
Ans:
N/A, LO: 5, Bloom: AN, Difficulty: Hard, Min: 20, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
Ex. 208
This information is available for
Eaton’s Photo Corporation for 2014 and 2015.
2014
2015
Beginning inventory $
200,000 $ 300,000
Ending inventory 300,000 380,000
Cost of goods sold 1,150,000 1,330,000
Sales revenue 1,600,000 1,900,000
Instructions
Calculate
inventory turnover, days in inventory, and gross profit rate for Eaton’s Photo
Corporation for 2014 and 2015. Comment on any trends.
Ans:
N/A, LO: 6, Bloom: AP, Difficulty: Hard, Min: 20, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
Ex. 209
The
following information is available for Heller Company:
Beginning
inventory $ 60,000
Cost of
goods sold 640,000
Ending
inventory 100,000
Sales
revenue 1,000,000
Instructions
Compute each of the following:
(a) Inventory turnover.
(b) Days in inventory.
Ans:
N/A, LO: 6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
aEx. 210
Winsor Company uses the perpetual inventory
system and the LIFO method. The following information is available for the
month of May:
May 1 Beginning inventory 20 units @ $5
10 Purchase 20
units @ $8
15 Sales 15
units
18 Purchase 10
units @ $9
21 Sales 15
units
30 Purchase 10
units @ $10
Instructions
Prepare a schedule to show cost of
goods sold and the value of the ending inventory for the month of May.
Ans:
N/A, LO: 7, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
The following information is available for Yancey
Company:Beginning
inventory 600 units at $4First purchase 900 units at $6Second purchase 500 units at $7.20Assume that
Waldrip uses a periodic inventory system and that there are 700 units left at
the end of the month.InstructionsCompute
each of the following under the average-cost method:(a) Cost of ending inventory.(b) Cost of goods sold.Ans:
N/A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 7, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: ReportingShanrock Company uses the periodic inventory
method and had the following inventory information available: Units Unit Cost Total Cost1/1 Beginning
Inventory 100 $4 $ 4001/20 Purchase 400 $6 2,4007/25 Purchase 200 $7 1,40010/20 Purchase 300 $8 2,400 1,000 $6,600A physical
count of inventory on December 31 revealed that there were 400 units on hand.InstructionsAnswer the
following independent questions and show computations supporting your answers.1. Assume that the company uses the FIFO method.
The value of the ending inventory at December 31 is $__________.2. Assume that the company uses the Average-Cost
method. The value of the ending inventory on December 31 is $__________.3. Assume that the company uses the LIFO method.
The value of the ending inventory on December 31 is $__________.4. Determine the difference in the amount of
income that the company would have reported if it had used the FIFO method
instead of the LIFO method. Would income have been greater or less?Ans:
N/A, LO: 2, Bloom: AN, Difficulty: Hard, Min: 20, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: ReportingLester Company sells many products. Hackenberry
is one of its popular items. Below is an analysis of the inventory purchases
and sales of Hackenberry for the month of March. Lester Company uses the
periodic inventory system. Purchases Sales Units Unit Cost Units Selling Price/Unit3/1 Beginning
inventory 100 $403/3 Purchase 60 $503/4 Sales 70 $803/10 Purchase 200 $553/16 Sales 80 $903/19 Sales 60 $903/25 Sales 40 $903/30 Purchase 40 $65Instructions(a) Using the FIFO assumption, calculate the
amount charged to cost of goods sold for March. (Show computations)(b) Using the weighted average method, calculate
the amount assigned to the inventory on hand on March 31. (Show computations)(c) Using the LIFO assumption, calculate the
amount assigned to the inventory on hand on March 31. (Show computations)Ans:
N/A, LO: 2, Bloom: AP, Difficulty: Hard, Min: 20, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: ReportingGray Company uses the periodic inventory system
to account for inventories. Information related to Gray Company’s inventory at
October 31 is given below:October 1 Beginning inventory 400 units @ $9.80 = $
3,920 8 Purchase 800 units @ $10.40 = 8,320 16 Purchase 600 units @ $10.80 = 6,480 24 Purchase 200 units
@ $11.80 = 2,360 Total
units and cost 2,000 units $21,080Instructions1. Show computations to value the ending
inventory using the FIFO cost assumption if 550 units remain on hand at October
31.2. Show
computations to value the ending inventory using the weighted-average cost
method if 550 units remain on hand at October 31.3. Show
computations to value the ending inventory using the LIFO cost assumption if
550 units remain on hand at October 31.Ans:
N/A, LO: 2, Bloom: AP, Difficulty: Hard, Min: 20, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: ReportingFord Co. uses
a periodic inventory system. Its records show the following for the month of
May, in which 75 units were sold.Units Unit
Cost Total CostMay
1 Inventory 35 $ 8 $ 28015
Purchases 30 12 36024
Purchases 40 13 520Totals 105 $1,160InstructionsCompute the ending inventory at May 31 and cost of goods sold using the
FIFO and LIFO methods. Prove the amount allocated to cost of goods sold under
each method.Ans:
N/A, LO: 2, Bloom: AP, Difficulty: Hard, Min: 20, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: ReportingWashington
Bottom Company reports the following for the month of June.Units Unit
Cost Total CostJune 1
Inventory 300 $5 $1,50012
Purchase 450 6 2,70023
Purchase 750 8 6,00030
Inventory 180Instructions(a) Compute
the cost of the ending inventory and the cost of goods sold under (1) FIFO and
(2) LIFO.(b) Compute
the cost of the ending inventory and the cost of goods sold using the
average-cost method.Ans:
N/A, LO: 2, Bloom: AP, Difficulty: Hard, Min: 20, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: ReportingQueen Company is in the electronics industry and the price it pays for
inventory is decreasing.InstructionsIndicate which inventory method will:a. provide the highest
ending inventory.b. provide the highest cost
of goods sold.c. result in the highest
net income.d. result in the lowest
income tax expense.e. produce the most stable
earnings over several years.Ans:
N/A, LO: 3, Bloom: C, Difficulty: Easy, Min: 4, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Quantitative MethodsVance Company
reported the following summarized annual data at the end of 2014: Sales
revenue $1,000,000 Cost
of goods sold* 600,000 Gross
margin 400,000 Operating
expenses 250,000 Income
before income taxes $ 150,000 *Based
on an ending FIFO inventory of $250,000.The income tax rate is 40%. The controller of the
company is considering a switch from FIFO to LIFO. He has determined that on a
LIFO basis, the ending inventory would have been $180,000.Instructions(a) Restate the summary information on a LIFO
basis.(b) What
effect, if any, would the proposed change have on Vances income tax expense,
net income, and cash flows?(c) If you were an owner of this business, what would your reaction be to
this proposed change?Ans:
N/A, LO: 3, Bloom: E, Difficulty: Medium, Min: 25, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: ReportingCompute
the lower-of-cost-or-market valuation for Gantner Company’s total inventory
based on the following: Inventory Categories Cost Data Market Data A $18,000 $16,900 B
13,900 14,600 C
21,000 20,500Ans:
N/A, LO: 4, Bloom: AN, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving,
IMA: Quantitative MethodsThe controller of Alt Company is applying the
lower-of-cost-or-market basis of valuing its ending inventory. The following
information is available: Cost Market Lawnmowers: Self-propelled $14,800 $17,000 Push
type 19,000 18,000 Total 33,800 35,000Snowblowers: Manual 29,800 31,000 Self-start 19,000 21,000 Total 48,800 52,000 Total
inventory $82,600 $87,000InstructionsCompute the value of the ending inventory by
applying the lower-of-cost-or-market basis.Ans:
N/A, LO: 4, Bloom: AP, Difficulty: Medium, Min: 15, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving,
IMA: Quantitative MethodsNolen Company is preparing the annual financial
statements dated December 31, 2014. Information about inventory stocked for
regular sale follows: Quantity Unit Cost Replacement Cost Item on Hand When Acquired (market) at year end A 50 $20 $19 B 100 45 45 C 20 59 62 D 40 40 36InstructionsCompute the valuation for the December 31, 2014,
inventory using the lower-of-cost-or-market basis.Ans:
N/A, LO: 4, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: ReportingFoley Company applied FIFO to its inventory
and got the following results for its ending inventory.DVRs 140
units at a cost per unit of $59DVD players 210 units at a cost per unit of $75iPods 175
units at a cost per unit of $80The cost of purchasing units at year-end
was DVRs $71, DVD players $68, and iPods $78.InstructionsDetermine the amount of ending inventory at
lower-of-cost-or-market.Ans:
N/A, LO: 4, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: ReportingMorton Watch Company reported the following
income statement data for a 2-year period. 2014
2015
Sales revenue $260,000 $320,000Cost of goods soldBeginning inventory 32,000 44,000Cost of goods purchased 193,000 225,000Cost of goods available for sale 225,000 269,000Ending inventory 44,000 57,000Cost of goods sold 181,000 212,000Gross profit $ 79,000 $108,000Mortan uses a periodic inventory system.
The inventories at January 1, 2014, and December 31, 2015, are correct.
However, the ending inventory at December 31, 2014, was overstated $5,000.Instructions(a) Prepare
correct income statement data for the 2 years.(b) What
is the cumulative effect of the inventory error on total gross profit for the 2
years?Ans:
N/A, LO: 5, Bloom: AN, Difficulty: Hard, Min: 15, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: ReportingWellington Company
reported net income of $60,000 in 2014 and $80,000 in 2015. However, ending
inventory was overstated by $7,000 in 2014.InstructionsCompute the
correct net income for Wellington Company for 2014 and 2015.Ans:
N/A, LO: 5, Bloom: AP, Difficulty: Medium, Min: 6, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: ReportingFor each of the independent events listed below,
analyze the impact on the indicated items at the end of the current year by
placing the appropriate code letter in the box under each item. Code: O = item is overstated U =
item is understated NA = item
is not affectedEventsItemsAssetsOwners EquityCost of Goods SoldNet Income1. A
physical count of goods on hand at the end of the current year resulted in
some goods being counted twice.2. The
ending inventory in the previous period was overstated.3. Goods
purchased on account in December of the current year and shipped FOB shipping
point were recorded as purchases, but were not included in the count of goods
on hand on December 31 because they had not arrived by December 31.4. Goods
purchased on account in December of the current year and shipped FOB
destination were recorded as purchases, but were not included in the count of
goods on hand on December 31 because they had not arrived by December 31.5. The internal auditors discovered that theendinginventory
in the previous period wasunderstated $17,000 and that the ending inventory in the current period
was overstated $27,000.Ans:
N/A, LO: 5, Bloom: AN, Difficulty: Medium, Min: 20, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: ReportingBaden’s Hardware
Store prepared the following analysis of cost of goods sold for the previous
three years: 2013
2014 2015 Beginning inventory 1/1 $40,000 $18,000 $25,000Cost of goods purchased 50,000 55,000
70,000Cost of goods available for sale 90,000 73,000 95,000Ending inventory 12/31 18,000 25,000 40,000Cost of goods sold $72,000 $48,000 $55,000Net income for the years 2013, 2014, and 2015 was
$70,000, $60,000, and $55,000, respectively. Since net income was consistently
declining, Mr.Baden
hired a new accountant to investigate the cause(s) for the declines.The
accountant determined the following:1. Purchases
of $25,000 were not recorded in 2013.2. The
2013 December 31 inventory should have been $24,000.3. The
2014 ending inventory included inventory costing $5,000 that was purchased FOB
destination and in transit at year end.4. The
2015 ending inventory did not include goods costing $4,000 that were shipped on
December 29 to Sampson Plumbing Company, FOB shipping point. The goods were
still in transit at the end of the year.InstructionsDetermine the
correct net income for each year. (Show all computations.)Ans:
N/A, LO: 5, Bloom: AN, Difficulty: Hard, Min: 25, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: ReportingGalena Pharmacy
reported cost of goods sold as follows: 2014 2015 Beginning inventory $ 54,000 $ 64,000Cost of goods purchased
847,000 891,000Cost of goods available for sale 901,000 955,000Ending inventory 64,000 55,000Cost of goods sold $837,000 $900,000Jim Holt, the
bookkeeper, made two errors:(1) 2014 ending inventory was
overstated by $7,000.(2) 2015 ending inventory was
understated by $16,000.InstructionsAssuming the errors had not been corrected,
indicate the dollar effect that the errors had on the items appearing on the
financial statements listed below. Also indicate if the amounts are overstated
(O) or understated (U). 2014 2015 Overstated/ Overstated/ Amount Understated
Amount UnderstatedTotal assets $_________ _______ $_________ _______Owners equity $_________ _______ $_________ _______Cost of goods sold $_________ _______ $_________ _______Net income $_________ _______ $_________ _______Ans:
N/A, LO: 5, Bloom: AN, Difficulty: Hard, Min: 20, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: ReportingThis information is available for
Eaton’s Photo Corporation for 2014 and 2015. 2014
2015 Beginning inventory $
200,000 $ 300,000Ending inventory 300,000 380,000Cost of goods sold 1,150,000 1,330,000Sales revenue 1,600,000 1,900,000InstructionsCalculate
inventory turnover, days in inventory, and gross profit rate for Eaton’s Photo
Corporation for 2014 and 2015. Comment on any trends.Ans:
N/A, LO: 6, Bloom: AP, Difficulty: Hard, Min: 20, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: ReportingThe
following information is available for Heller Company:Beginning
inventory $ 60,000Cost of
goods sold 640,000Ending
inventory 100,000Sales
revenue 1,000,000InstructionsCompute each of the following:(a) Inventory turnover.(b) Days in inventory.Ans:
N/A, LO: 6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: ReportingWinsor Company uses the perpetual inventory
system and the LIFO method. The following information is available for the
month of May:May 1 Beginning inventory 20 units @ $5 10 Purchase 20
units @ $8 15 Sales 15
units 18 Purchase 10
units @ $9 21 Sales 15
units 30 Purchase 10
units @ $10InstructionsPrepare a schedule to show cost of
goods sold and the value of the ending inventory for the month of May.Ans:
N/A, LO: 7, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
