The beginning inventory for Waldo Co and data on purchases and sales for a three-month period are shown in Problem 7-1A

PR 7-2A LIFO Perpetual Inventory

The beginning inventory for Waldo Co and data on purchases and sales for a three-month period are shown in Problem 7-1A.

Instructions
1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 4, using the last-in, first-out method.
2. Determine the total sales, the total cost of merchandise sold, and the gross profit from sales for the period.
3. Determine the ending inventory cost.

Click here for the solution: The beginning inventory for Waldo Co and data on purchases and sales for a three-month period are shown in Problem 7-1A

Artic Appliances uses the periodic inventory system

PR 7-3A LIFO Periodic inventory by three methods

Artic Appliances uses the periodic inventory system. Details regarding the inventory of appliances at January 1, 2010, purchases invoices during the year, and the inventory count at December 31, 2010, are summarized as follows:

Inventory,
Purchases Invoices
Inventory Count,
Model January 1 1st 2nd 3rd December 31
BB900 27 at $213 21 at $215 18 at $222 18 at $225 30
C911 10 at 60 6 at 65 2 at 65 2 at 70 4
L100 6 at 305 3 at 310 3 at 316 4 at 317 4
N201 2 at 520 2 at 527 2 at 530 2 at 535 4
Q73 6 at 520 8 at 531 4 at 549 6 at 542 7
Z120 — 4 at 222 4 at 232 — 2
ZZRF 8 at 70 12 at 72 16 at 74 14 at 78 12

Instructions
1. Determine the cost of the inventory on December 31, 2010, by the first-in, first-out method. Present data in columnar form, using the following headings:

Model Quantity Unit Cost Total Cost

If the inventory of a particular model comprises one entire purchase plus a portion of another purchase acquired at a different unit cost, use a separate line for each purchase.

2. Determine the cost of the inventory on December 31, 2010, by the last-in, first-out method, following the procedures indicated in (1).

3. Determine the cost of the inventory on December 31, 2010, by the average cost method, using the columnar headings indicated in (1).

4. Discuss which method (FIFO or LIFO) would be preferred for income tax purposes in periods of (a) rising prices and (b) declining prices.

Click here for the solution: Artic Appliances uses the periodic inventory system

Holder-Webb Company began operations on January 1, 2005, and uses the average cost method of pricing inventory

E22-2 (Change in Principle—Inventory Methods) Holder-Webb Company began operations on January 1, 2005, and uses the average cost method of pricing inventory. Management is contemplating a change in inventory methods for 2008. The following information is available for the years 2005–2007.

Net Income Computed Using
2005: Average Cost = $15,000 FIFO: $19,000 LIFO: $12,000
2006: Average Cost = $18,000 FIFO: $23,000 LIFO: $14,000
2007: Average Cost= $20,000 FIFO: $25,000 LIFO: $17,000

Instructions
(Ignore all tax effects.)

(a) Prepare the journal entry necessary to record a change from the average cost method to the FIFO method in 2008.

(b) Determine net income to be reported for 2005, 2006, and 2007, after giving effect to the change in accounting principle.

(c) Assume Holder-Webb Company used the LIFO method instead of the average cost method during the years 2005–2007. In 2008, Holder-Webb changed to the FIFO method. Prepare the journal entry necessary to record the change in principle.

Click here for the solution: Holder-Webb Company began operations on January 1, 2005, and uses the average cost method of pricing inventory

Decker Company has five products in its inventory

P 9-1 Lower of cost or market

Decker Company has five products in its inventory. Information about the December 31, 2011, inventory follows.

Unit Replacement Selling
Product/ Quantity/ Unit Cost /unit replacement Cost/ unit selling Price_____
A /1,000 /$10/ $12 $16
B /800 /15/ 11/ 18
C/ 600 /3/ 2/ 8
D/ 200/ 7 /4/ 6
E /600 /14 /12 /13

The selling cost for each product consists of a 15 percent sales commission. The normal profit percentage for each product is 40 percent of the selling price.

Required:
1. Determine the balance sheet inventory carrying value at December 31, 2011, assuming the LCM rule is applied to individual products.
2. Determine the balance sheet inventory carrying value at December 31, 2011, assuming the LCM rule is applied to the entire inventory. Also, assuming that Decker recognizes an inventory write-down as a separate income statement item, determine the amount of the loss.

Click here for the solution: Decker Company has five products in its inventory

Lance-Hefner Specialty Shoppes decided to use the dollar-value LIFO retail method to value its inventory

E 9-21 Dollar-value LIFO retail

Lance-Hefner Specialty Shoppes decided to use the dollar-value LIFO retail method to value its inventory. Accounting records provides the following information:

Merchandise Inventory, Jan 1, 2011 Cost 160,000 Retail 250,000
Net Purchases Cost 350,200 Retail 510,000
Net Markups Retail 7,000
Net Markdowns Retail 2,000
Net Sales Retail 380,000

Pertinent retail price indexes are as follows
January 1, 2011 1.00
December 31, 2011 1.10

Required:
Determine ending inventory and cost of goods sold.

Click here for the solution: Lance-Hefner Specialty Shoppes decided to use the dollar-value LIFO retail method to value its inventory

In its first month of operation, Moraine Company purchased 100 units of inventory for $6, then 200 units for $7, and finally 140 units for $8

BE6-5 In its first month of operation, Moraine Company purchased 100 units of inventory for $6, then 200 units for $7, and finally 140 units for $8. At the end of the month, 180 units remained. Compute the amount of phantom profit that would result if the company used FIFO rather than LIFO. Explain why this amount is referred to as phantom profit. The company uses the periodic method.

Click here for the solution: In its first month of operation, Moraine Company purchased 100 units of inventory for $6, then 200 units for $7, and finally 140 units for $8

Kale Thompson, an auditor with Sneed CPAs, is performing a review of Strawser Company's inventory account

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 Prepare a schedule to determine the correct inventory amount. Provide explanations for each item above, saying why you did or did not make an adjustment for each item.

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."

Click here for the solution: Kale Thompson, an auditor with Sneed CPAs, is performing a review of Strawser Company's inventory account

Eastman Company lost most of its inventory in a fire in December just before the year-end physical inventory was taken

P9-4 (Gross Profit Method) Eastman Company lost most of its inventory in a fire in December just before the year-end physical inventory was taken. Corporate records disclose the following.

Inventory (beginning) $ 80,000 Sales $415,000
Purchases 290,000 Sales returns 21,000
Purchase returns 28,000 Gross profit % based on net selling price 35%

Merchandise with a selling price of $30,000 remained undamaged after the fire, and damaged merchandise has a salvage value of $8,150. The company does not carry fire insurance on its inventory.

Instructions
Prepare a formal labeled schedule computing the fire loss incurred. (Do not use the retail inventory method.)

Click here for the solution: Eastman Company lost most of its inventory in a fire in December just before the year-end physical inventory was taken

Americus Camera Shop uses the lower-of-cost-or-market basis for its inventory

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

Click here for the solution: Americus Camera Shop uses the lower-of-cost-or-market basis for its inventory

Jones Company had 100 units in beginning inventory at a total cost of $10,000

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.

Instructions
(a) Compute the cost of the ending inventory and the cost of goods sold under (1) FIFO, (2) LIFO, and (3) average-cost.
(b) Which cost flow method would result in the highest net income?
(c) Which cost flow method would result in inventories approximating current cost in the balance sheet?
(d) Which cost flow method would result in Jones paying the least taxes in the first year?

Click here for the solution: Jones Company had 100 units in beginning inventory at a total cost of $10,000

In a period when prices are rising and inventory quantities are stable, the inventory method that would result

MULTIPLE CHOICE

1. In a period when prices are rising and inventory quantities are stable, the inventory method that would result in the highest ending inventory is:

2. The use of LIFO during a long inflationary period can result in:

3. The inventory method that will always produce the same amount for cost of goods sold in a periodic inventory system as in a perpetual inventory system would be:

4. The primary reason for the popularity of LIFO is that it gives:

5. When using the gross profit method to estimate ending inventory, it is not necessary to know:

6. Using the dollar-value LIFO retail method for inventory,:

7. Under the gross method, purchase discounts taken are:

8. In a periodic inventory system, the cost of inventories sold is:

9. An argument against the use of LCM is its lack of:

10. A retrospective treatment of prior years' financial statements is required when there is a change from:


Click here for the solution: In a period when prices are rising and inventory quantities are stable, the inventory method that would result

Journalize the following transactions using the perpetual inventory method

5. Journalize the following transactions using the perpetual inventory method.

Aug. 6 Purchased $830 of inventory on account from Johnston with terms of 2/10, n/30.
Aug. 8 Purchased $2,611 of inventory for cash from Pillner Company.
Aug.15 Paid for August 6 purchase from Johnston.
Aug. 17 Purchased $1,743 of merchandise on account from Luis Company with Terms of 3/15, n/45.


Click here for the solution: Journalize the following transactions using the perpetual inventory method

Rick Company’s beginning inventory and purchases during the fiscal year ended December 31, 2012, were as follows

7. Rick Company’s beginning inventory and purchases during the fiscal year ended December 31, 2012, were as follows: (Note: The company uses a perpetual system of inventory.)

Units Unit Price Total Cost
January 1—Beginning inventory 18 $24 $432
March 12—Sold 13
April 11—Purchase 45 $29 $1,305
June 20—Sold 33
Aug 16—Purchase 35 $27 $945
Sept 11—Sold 29
Total Cost of Inventory
Ending inventory is 23 units. $2,682

What is the cost of goods sold for Rick Company for 2012 using LIFO?


Click here for the solution: Rick Company’s beginning inventory and purchases during the fiscal year ended December 31, 2012, were as follows

Assume that in Year 1, the ending merchandise inventory is overstated by $30,000

8. Assume that in Year 1, the ending merchandise inventory is overstated by $30,000. If this is the only error in Years 1 and 2, fill in the items below, indicating which items will be understated, overstated, or correctly stated for Years 1 and 2.

Item Year 1 Year 2
Ending inventory ___________ _____________
Beginning inventory ___________ _____________
Cost of goods sold ___________ _____________


Click here for the solution: Assume that in Year 1, the ending merchandise inventory is overstated by $30,000

Tessmer Manufacturing Company produces inventory in a highly automated assembly plant in Olathe, KS

Tessmer Manufacturing Company produces inventory in a highly automated assembly plant in Olathe, KS. The automated system is in its first year of operation and management is still unsure of the best way to estimate the overhead costs of operations for budgetary purposes. For the first six months of operation, the following data was collected:

Machine-hours Kilowatt-hours Total Overhead Costs
January 3,800 4,520,000 $138,000
February 3,650 4,340,000 136,800
March 3,900 4,500,000 139,200
April 3,300 4,290,000 136,800
May 3,250 4,200,000 126,000
June 3,100 4,120,000 120,000

Question 1: Use the high-low method to determine the estimating cost function with machine-hours as the cost driver.

Question 2: Use the high-low method to determine the estimating cost function with kilowatt-hours as the cost driver.

Question 3: For July, the company ran the machines for 3,000 hours and used 4,000,000 kilowatt-hours of power. The overhead costs totaled $114,000. Which cost driver was the best predictor for July?


Click here for the solution: Tessmer Manufacturing Company produces inventory in a highly automated assembly plant in Olathe, KS

How do manufacturing costs flow through inventory accounts?

3. How do manufacturing costs flow through inventory accounts?


Click here for the solution: How do manufacturing costs flow through inventory accounts?

On September 25, 2010 a hurricane destroyed the work in process inventory of Biloxi Corporation

Cost Accounting Foundations and Evolutions 8e Kinney and Raiborn

On September 25, 2010 a hurricane destroyed the work in process inventory of Biloxi Corporation. At the time, the company was in the process of manufacturing two custom jobs (B325 and Q428). Although all of Biloxi’s on site accounting records were destroyed, the following information is available from some backup off site records.

• Biloxi Corp. applies overhead at the rate of 85 percent of direct labor cost.
• The cost of goods sold for the company average 75 percent of selling price. Sales from January 1 to the date of the hurricane totaled 1,598,000.
• The company wages rate for production employees is $12.90 per hour. A total 25,760 direct labor hours were recorded from January 1 through September 25.
• As of September 25, $21,980 of direct material and 128 hours of direct labor had been recorded for Job B325. Also at that time, $14,700 of direct material and 240 hours of direct labor had been recorded for Job Q428.
• As of January 1, 2010, inventories were follows $19,500 of Raw Material and $68,900 of Finished Goods. Raw Materials purchased during 2010 totaled $843,276.
• The amount of Work in Process Inventory at January 1, 2010 was $14,600. Jobs B325 and Q428 were not in process on January 1.
• One job, R91, was completed and in the warehouse awaiting shipment on September 25. The total cost of this job was $165,600.

Determine the following amounts:
a. Cost of goods sold for the year
b. Cost of goods manufactured during the year
c. Amount of applied overhead for each job in WIP Inventory
d. Cost of WIP Inventory destroyed by the hurricane
e. Cost of RM Inventory destroyed by the hurricane.


Click here for the solution: On September 25, 2010 a hurricane destroyed the work in process inventory of Biloxi Corporation

The entry to record the cost of inventory sold includes a credit to cost of goods sold

1. The entry to record the cost of inventory sold includes a credit to cost of goods sold.

2. The faster the sale of inventory and the collection of cash, the higher the profits will be for a business.

3. In the closing entry process, the sales returns and allowances account is credited.

4. Operating expenses are divided into administrative expenses and selling expenses on the income statement.

5. A merchandiser purchases inventory on account under a perpetual inventory system with terms of 2/10 n/30. The merchandiser would:

Question 6
Ending inventory equals the number of units on hand multiplied by the unit cost.

Question 7
Sales revenue minus sales returns and allowances and sales discounts equals

Question 8
Under a perpetual inventory system, the adjusting entry to account for inventory shrinkage would include a:

Question 9
In period of increasing prices, FIFO produces lower cost of goods sold and higher gross profit than LIFO.

Question 10
An error in ending inventory carries over into the next period.

Question 11
Which of the following inventory costing methods is the LEAST likely to mimic the actual physical flow of inventory?

Question 12
Which of the following principles require the application of the lower-of-cost-or-market rule?

Question 13
A company makes two errors in the physical count of inventory. Beginning inventory was understated by $28,000 and ending inventory is understated by $43,000. Which of the following will be the net effect of the two errors?

Question 14
A deposit in transit has been recorded by the company but not by the bank.

Question 15
To maintain effective internal control, all incoming mail should be opened by a mailroom employee who has access to the accounting records.

Question 16
The initial entry to establish a petty cash fund involves a debit to cash and a credit to petty cash.

Question 17
Internal control does not:

Question 18
A check drawn by the depositor for $205 in payment of a liability was recorded in the journal as $502. This item would be included in the bank reconciliation as a(n):

Question 19
The entry to reimburse the petty cash fund includes a:

Question 20
Under the allowance method, the entry to write off an account that has been deemed uncollectible has no effect on the total asset's of the firm.

Question 21
The allowance method and the direct write-off method are both methods of aging accounts

Question 22
A written promise to pay a specified amount of money at a particular future date is referred to as a promissory note.

Question 23
One method of establishing control over collections of accounts receivable is to:

Question 24
Using the balance sheet approach to estimate uncollectibles, accounts, which are 90 days old,are:

Question 25
Under the direct write-off method, the entry to record an uncollectible account has the following effect on the financial statements:


Click here for the solution: The entry to record the cost of inventory sold includes a credit to cost of goods sold

A few years ago, Largo Industries implemented an inventory auditing system at an installed cost of $175,000

A few years ago, Largo Industries implemented an inventory auditing system at an installed cost of $175,000. Since then, it has taken depreciation deductions totaling $124,250. What is the system's current book value? If Largo sold the system for $110,000 how much recaptured depreciation would result?


Click here for the solution: A few years ago, Largo Industries implemented an inventory auditing system at an installed cost of $175,000

Presented below is data relative to the 12/31/10 inventory of Lance Company

Presented below is data relative to the 12/31/10 inventory of Lance Company:

Number Units Original Cost Total Current
Item In Inventory Per Unit Original Cost Replacement Cost
A 3,000 $1.09 $3,270 $1.08
B 3,000 1.30 3,900 1.15
C 3,000 1.50 4,500 1.05
D 3,000 1.60 4,800 1.65
E 3,000 1.80 5,400 1.70
Total 15,000 $21,870

LCM
Upper Lower Inventory
Limit Limit Designated Valuation
Item ("Ceiling") ("Floor") Market (Totals)
A $1.80 $1.30 $1.09 $3270
B $1.80 $1.30 $1.30 $3900
C $1.80 $1.30 $1.50 $4500
D $1.80 $1.30 $1.65 4800
E $1.80 $1.30 $1.70 $5100
Total $21,570

Additional Data:
Selling price is $2.00/unit for all items. Disposal costs amount to 10% of selling price and a "normal" profit is 35% of selling price.

Instructions
Complete the last four columns above.


Click here for the solution: Presented below is data relative to the 12/31/10 inventory of Lance Company