HW Chpt 6
Start Date: 23 Jul 2012 at 01:00 AM
Due Date: 30 Jul 2012 at 01:00 AM
Student Access after Due Date: Yes. Attempts after Due Date will be Marked Late
Graded: Yes
E6-2
Kale Thompson, an auditor with Sneed CPAs, is performing a review of Strawser Company's inventory account. Strawser did not have a good year and top management is under pressure to boost reported income. According to its records, the inventory balance at year-end was $740,000. However, the following information was not considered when determining that amount.
Instructions
Determine the correct inventory amount. (If answer is zero, please enter 0. Do not leave any fields blank. If amount has a negative effect, use either a negative sign preceding the number eg -45 or parentheses eg (45).)
Ending inventory-as reported. $
1. Included in the company's count were goods with a cost of $250,000 that the company is holding on consignment. The goods belong to Superior Corporation.
2. The physical count did not include goods purchased by Strawser with a cost of $40,000 that were shipped FOB destination on December 28 and did not arrive at Strawser's warehouse until January 3.
3. Included in the inventory account was $17,000 of office supplies that were stored in the warehouse and were to be used by the company's supervisors and managers during the coming year.
4. The company received an order on December 29 that was boxed and was sitting on the loading dock awaiting pick-up on December 31. The shipper picked up the goods on January 1 and delivered them on January 6. The shipping terms were FOB shipping point. The goods had a selling price of $40,000 and a cost of $30,000.The goods were not included in the count because they were sitting on the dock.
5. On December 29 Strawser shipped goods with a selling price of $80,000 and a cost of $60,000 to District Sales Corporation FOB shipping point. The goods arrived on January 3. District Sales had only ordered goods with a selling price of $10,000 and a cost of $8,000. However, a sales manager at Strawser had authorized the shipment and said that if District wanted to ship the goods back next week, it could.
6. Included in the count was $40,000 of goods that were parts for a machine that the company no longer made. Given the high-tech nature of Strawser's products, it was unlikely that these obsolete parts had any other use. However, management would prefer to keep them on the books at cost, "since that is what we paid for them, after all."
Correct inventory $
E6-7
Jones Company had 100 units in beginning inventory at a total cost of $10,000. The company purchased 200 units at a total cost of $26,000. At the end of the year, Jones had 80 units in ending inventory.
Compute the cost of the ending inventory and the cost of goods sold under (1) FIFO, (2) LIFO, and (3) average-cost.
FIFO LIFO Average-Cost
Ending Inventory $ $ $
Cost of goods sold $ $ $
Which cost flow method would result in the highest net income?
Which cost flow method would result in inventories approximating current cost in the balance sheet?
Which cost flow method would result in Jones paying the least taxes in the first year?
E6-9
Americus Camera Shop uses the lower-of-cost-or-market basis for its inventory. The following data are available at December 31.
Item Units Unit Cost Market
Cameras
Minolta 5 $170 $156
Canon 6 150 152
Light Meters
Vivitar 12 125 115
Kodak 14 120 135
Instructions
Determine the amount of the ending inventory by applying the lower-of-cost-or-market basis.
$
E6-11
Lebo Hardware reported the cost of goods sold as follows:
2008
2009
Beginning Inventory $20,000 $30,000
Cost of goods purchased 150,000
175,000
Cost of goods available for sale 170,000 205,000
Ending inventory 30,000
35,000
Cost of goods sold $140,000
$170,000
Lebo made two errors: (1) 2008 ending inventory was overstated by $3,000 and (2) 2009 ending inventory was understated $6,000.
Instructions
Compute the correct cost of goods sold for each year.
2008 2009
Cost of goods sold $ $
P6-2A
Glanville Distribution markets CDs of the performing artist Harrilyn Clooney. At the beginning of March, Glanville had in beginning inventory 1,500 Clooney CDs with a unit cost of $7. During March Glanville made the following purchases of Clooney CDs.
March 5 3,000 @ $8 March 21 4,000 @ $10
March 13 5,500 @ $9 March 26 2,000 @ $11
During March 12,500 units were sold. Glanville uses a periodic inventory system.
Determine (1) the ending inventory and (2) the cost of goods sold under each of the assumed cost flow methods (FIFO, LIFO, and average-cost). (Round average-cost per unit to 3 decimal places, e.g. 2.250 for computations. Round final answers to 0 decimal places, e.g. 125.)
FIFO LIFO Average Cost
Ending Inventory $ $ $
Cost of Goods Sold $ $ $
Determine the cost of goods available for sale.
$
Which cost flow method results in (1) the highest inventory amount for the balance sheet and (2) the highest cost of goods sold for the income statement?
Highest inventory amount
Highest cost of goods sold
P6-5A
You are provided with the following information for Pavey Inc. for the month ended October 31, 2008. Pavey uses a periodic method for inventory.
Date
Description
Units
Unit Cost or
Selling Price
October 1 Beginning inventory 60 $25
October 9 Purchase 120 26
October 11 Sale 100 35
October 17 Purchase 70 27
October 22 Sale 60 40
October 25 Purchase 80 28
October 29 Sale 110 40
Instructions
(a) Calculate (i) ending inventory, (ii) cost of goods sold, (iii) gross profit, and (iv) gross profit rate under each of the following methods. (Round weighted-average cost per unit to 3 decimal places, e.g. 2.250. Use the rounded amount for future computations. Round gross profit rate to 1 decimal place, e.g. 10.5 and all other answers to 0 decimal places, e.g. 125.)
(1) LIFO.
(2) FIFO.
(3) Average-cost.
LIFO FIFO Average Cost
Ending inventory $ $ $
Cost of goods sold $ $ $
Gross profit $ $ $
Gross profit rate % % %
(b) Compare results for the three cost flow assumptions.
What cost flow results in the lowest inventory value.
What cost flow results in the lowest cost of goods sold.
What cost flow results in the lowest gross profit.
What cost flow results in the lowest gross profit rate.