Intermediate Accounting Kieso 16e Test Bank 8.3
BRIEF EXERCISES
BE. 8-148—Recording purchases at net amounts.
Flint Co. records purchase discounts lost and uses perpetual inventories. Prepare journal entries in general journal form for the following:
(a) Purchased merchandise costing $3,500 with terms 2/10, n/30.
(b) Payment was made thirty days after the purchase.
BE. 8-149—Recording purchases at net amounts.
Dill Co. records purchases at net amounts and uses periodic inventories. Prepare entries for the following:
June 11 Purchased merchandise on account, $15,000, terms 2/10, n/30.
15 Returned part of June 11 purchase, $800, and received credit on account.
30 Prepared the adjusting entry required for financial statements.
BE. 8-150—Comparison of FIFO and LIFO.
During periods of rising prices, the use of FIFO (as compared with LIFO) will result in what effect on the financial statements?
EXERCISES
Ex. 8-151—FIFO and LIFO inventory methods.
During June, the following changes in inventory item 27 took place:
June 1 Balance 1,400 units @ $36
14 Purchased 800 units @ $54
24 Purchased 700 units @ $45
8 Sold 400 units @ $75
10 Sold 1,000 units @ $60
29 Sold 500 units @ $66
Perpetual inventories are maintained.
Instructions
What is the cost of the ending inventory for item 27 under the following methods? (Show calculations.)
(a) FIFO.
(b) LIFO.
Ex. 8-152—FIFO and LIFO periodic inventory methods.
The Rock Shop shows the following data related to an item of inventory:
Inventory, January 1 300 units @ $5.00
Purchase, January 9 900 units @ $5.40
Purchase, January 19 210 units @ $6.00
Inventory, January 31 300 units
Instructions
(a) What value should be assigned to the ending inventory using FIFO?
(b) What value should be assigned to cost of goods sold using LIFO?
Ex. 8-153—Perpetual LIFO.
A record of transactions for the month of May was as follows:
Purchases Sales
May 1 (balance) 400 @ $5.20 May 3 200 @ $7.00
4 1,300 @ $5.10 6 1,000 @ 7.00
8 800 @ $5.30 12 900 @ 7.50
14 700 @ $5.40 18 400 @ 7.50
22 1,200 @ $5.50 25 1,400 @ 8.00
29 500 @ $5.55
Assuming that perpetual inventory records are kept in dollars, determine the ending inventory using LIFO.
Ex. 8-154—Perpetual LIFO and Periodic FIFO.
Matlock Corporation sells item A as part of its product line. Information as to balances on hand, purchases, and sales of item A are given in the following table for the first six months of 2017.
Quantities
Unit Price
Date Purchased Sold Balance of Purchase
January 11 — — 400 $4.65
January 24 1,300 — 1,700 $4.90
February 8 — 300 1,400 —
March 16 — 560 840 —
June 11 600 — 1,440 $5.10
Instructions
(a) Compute the ending inventory at June 30 under the perpetual LIFO inventory pricing method.
(b) Compute the cost of goods sold for the first six months under the periodic FIFO inventory pricing method.
Ex. 8-155—Analysis of gross profit.
During 2017, King’s Drug Company experienced a significant increase in the rate of gross profit on sales, compared with the rate it has averaged in recent years. You are asked to determine the most likely reason for this improvement. Support your answer.
The following data are from the records of the company:
2017 sales (at an average price of $50 a unit) were $2,300,000.
2017 purchases (at an average cost of $30 a unit) were $1,200,000.
The company uses the LIFO inventory method and has used it since 1988.
Ex. 8-156—Dollar-value LIFO method.
Part A. Judd Company has a beginning inventory in year one of $1,400,000 and an ending inventory of $1,694,000. The price level has increased from 100 at the beginning of the year to 110 at the end of year one. Calculate the ending inventory under the dollar-value LIFO method.
Part B. At the end of year two, Judd's inventory is $1,886,000 in terms of a price level of 115 which exists at the end of year two. Calculate the inventory at the end of year two continuing the use of the dollar-value LIFO method.
PROBLEMS
Pr. 8-157—Inventory cut-off.
Vogts Company sells TVs. The perpetual inventory was stated as $38,500 on the books at December 31, 2017. At the close of the year, a new approach for compiling inventory was used and apparently a satisfactory cut-off for preparation of financial statements was not made. Some events that occurred are as follows.
1. TVs shipped to a customer January 2, 2018, costing $5,000 were included in inventory at December 31, 2017. The sale was recorded in 2018.
2. TVs costing $15,000 received December 30, 2017, were recorded as received on January 2, 2018.
3. TVs received during 2017 costing $4,600 were recorded twice in the inventory account.
4. TVs shipped to a customer December 28, 2017, f.o.b. shipping point, which cost $10,000, were not received by the customer until January, 2018. The TVs were included in the ending inventory.
5. TVs on hand that cost $6,100 were never recorded on the books.
Instructions
Compute the correct inventory at December 31, 2017.
Pr. 8-158—Analysis of errors.
(All sales and purchases are on credit.)
Indicate in each of the spaces provided the effect of the described errors on the various elements of a company's financial statements. Use the following codes: O = amount is overstated; U = amount is understated; NE = no effect. Assume a periodic inventory system.
Accounts Accounts Cost of
Receivable Inventory Payable Sales Goods Sold
EXAMPLE: Excluded goods in rented
warehouse from inventory NE U NE NE O
count.
1. Goods in transit shipped "f.o.b. destination" by supplier were recorded as a purchase but were excluded from ending inventory.
2. Goods held on consignment were included in inventory count and recorded as a purchase.
3. Goods in transit shipped "f.o.b. shipping point" were not recorded as a sale and were included in ending inventory.
4. Goods were shipped and appro-priately excluded from ending inventory but sale was not recorded.
Pr. 8-159—Accounting for purchase discounts.
Otto Corp. purchased merchandise during 2017 on credit for $700,000; terms 2/10, n/30. All of the gross liability except $100,000 was paid within the discount period. The remainder was paid within the 30-day term. At the end of the annual accounting period, December 31, 2017, 90% of the merchandise had been sold and 10% remained in inventory. The company uses a periodic system.
Instructions
(a) Assuming that the net method is used for recording purchases, prepare the entries for the purchase and two subsequent payments.
(b) What dollar amounts should be reported for the final inventory and cost of goods sold under the (1) net method; (2) gross method? Assume that there was no beginning inventory.
Pr. 8-160—Inventory methods.
Jones Company was formed on December 1, 2016. The following information is available from Jones's inventory record for Product X.
Units Unit Cost
January 1, 2017 (beginning inventory) 2,400 $18.00
Purchases:
January 5, 2017 3,900 $20.00
January 25, 2017 3,600 $21.00
February 16, 2017 1,500 $22.00
March 15, 2017 2,700 $23.00
A physical inventory on March 31, 2017, shows 3,000 units on hand.
Instructions
Prepare schedules to compute the ending inventory at March 31, 2017, under each of the following inventory methods:
(a) FIFO.
(b) LIFO.
(c) Weighted-average.
Show supporting computations in good form.
Pr. 8-161—Dollar-value LIFO.
Aber Company manufactures one product. On December 31, 2016, Aber adopted the dollar-value LIFO inventory method. The inventory on that date using the dollar-value LIFO inventory method was $900,000. Inventory data are as follows:
Inventory at Price index
Year year-end prices (base year 2016)
2017 $1.260,000 1.05
2018 1,840,000 1.15
2019 1,900,000 1.25
Instructions
Compute the inventory at December 31, 2017, 2018, and 2019, using the dollar-value LIFO method for each year.
Pr. 8-162—Dollar-value LIFO.
Gott Company adopted the dollar-value LIFO inventory method on 12/31/16. On this date, its inventory consisted of the following items.
Item Number of Units Cost Per Unit Total Cost
X 300 $2.50 $ 750
Y 900 4.50 4,050
$4,800
Additional information: December 31
2017 2018
1. Units of X in inventory 450 600
2. Cost of each X unit $3.00 $3.25
3. Units of Y in inventory 1,200 1,800
4. Cost of each Y unit $5.50 $6.00
Instructions
(a) Compute the price index for 2017. Round to 2 decimal places.
(b) Calculate the 12/31/17 inventory. Label all numbers.
(c) Compute the price index for 2018. Round to 2 decimal places.
(d) Calculate the 12/31/18 inventory. Label all numbers.
