Merchandise Inventory
Horngren'S Financial And Managerial Accounting ยท 135 exercises
13SE
Question: The periodic inventory records of Flexon Prosthetics indicate the following for the month of July:
Jul. 1 Beginning merchandise inventory 6 units @ \( 60 each
8 Purchase 5 units @ \) 67 each
15 Purchase 10 units @ \( 70 each
26 Purchase 5 units @ \) 85 each
At July 31, Flexon counts four units of merchandise inventory on hand.
Compute ending merchandise inventory and cost of goods sold for Flexon using theweighted-average inventory costing method.
2 step solution
Q14E
Match the accounting terms with the corresponding definitions.
1. Specific identification
2. Materiality concept
3. Last-in, first-out (LIFO)
4. Conservatism
5. Consistency principle
6. Weighted-average
7. Disclosure principle
8. First-in, first-out (FIFO)
a. Treats the oldest inventory purchases as the first units sold.
b. Requires that a company report enough information for outsiders to make knowledgeable decisions.
c. Identifies exactly which inventory item was sold. Usually used for higher cost inventory.
d. Calculates a weighted-average cost based on the cost of goods available for sale and the number of units available.
e. Principle whose foundation is to exercise caution in reporting financial statement items.
f. Treats the most recent/newest purchases as the first units sold.
g. Businesses should use the same accounting methods from period to period.
h. Principle that states significant items must conform to GAAP.
8 step solution
15E_3
Question: Super Mart, a regional convenience store chain, maintains milk inventory by the gallon.
The first month’s milk purchases and sales at its Freeport, Florida, location follow:
Nov. 2 Purchased 11 gallons @ \(2.15 each
6 Purchased 2 gallons @ \)2.80 each
8 Sold 6 gallons of milk to a customer
13 Purchased 3 gallons @ $2.85 each
14 Sold 4 gallons of milk to a customer
Requirements
3. Determine the amount that would be reported in ending merchandise inventoryon November 15 using the weighted-average inventory costing method. Round allamounts to the nearest cent.
2 step solution
15E_2
Question: Super Mart, a regional convenience store chain, maintains milk inventory by the gallon.
The first month’s milk purchases and sales at its Freeport, Florida, location follow:
Nov. 2 Purchased 11 gallons @ \(2.15 each
6 Purchased 2 gallons @ \)2.80 each
8 Sold 6 gallons of milk to a customer
13 Purchased 3 gallons @ $2.85 each
14 Sold 4 gallons of milk to a customer
Requirements
2. Determine the amount that would be reported in ending merchandise inventoryon November 15 using the LIFO inventory costing method
2 step solution
16E_2
Question: Golf Unlimited carries an inventory of putters and other golf clubs. The sales price of each putter is \(119. Company records indicate the following for a particular line ofGolf Unlimited’s putters:
Date Item Quantity Unit Cost
Nov. 1 Balance 24 \) 53
6 Sale 20
8 Purchase 30 70
17 Sale 30
30 Sale 2
Requirements
2. Journalize Golf Unlimited’s inventory transactions using the FIFO inventory costingmethod. (Assume purchases and sales are made on account.)
2 step solution
16E_1
Question: Golf Unlimited carries an inventory of putters and other golf clubs. The sales price of each putter is \(119. Company records indicate the following for a particular line ofGolf Unlimited’s putters:
Date Item Quantity Unit Cost
Nov. 1 Balance 24 \) 53
6 Sale 20
8 Purchase 30 70
17 Sale 30
30 Sale 2
Requirements
1. Prepare a perpetual inventory record for the putters assuming Golf Unlimited usesthe FIFO inventory costing method. Then identify the cost of ending inventoryand cost of goods sold for the month.
2 step solution
17E_2
Question: Golf Unlimited carries an inventory of putters and other golf clubs. The sales price of each putter is \(119. Company records indicate the following for a particular line ofGolf Unlimited’s putters:
Date Item Quantity Unit Cost
Nov. 1 Balance 24 \) 53
6 Sale 20
8 Purchase 30 70
17 Sale 30
30 Sale 2
Requirements
2. Journalize Golf Unlimiteds inventory transactions using the LIFO inventory costingmethod. (Assume purchases and sales are made on account.)
2 step solution
17E_1
Question: Golf Unlimited carries an inventory of putters and other golf clubs. The sales price of each putter is \(119. Company records indicate the following for a particular line ofGolf Unlimited’s putters:
Date Item Quantity Unit Cost
Nov. 1 Balance 24 \) 53
6 Sale 20
8 Purchase 30 70
17 Sale 30
30 Sale 2
Requirements
1. Prepare Golf Unlimited’s perpetual inventory record for the putters assumingGolf Unlimited uses the LIFO inventory costing method. Then identify the costof ending inventory and cost of goods sold for the month.
2 step solution
18E_2
Question: Golf Unlimited carries an inventory of putters and other golf clubs. The sales price of each putter is \(119. Company records indicate the following for a particular line ofGolf Unlimited’s putters:
Date Item Quantity Unit Cost
Nov. 1 Balance 24 \) 53
6 Sale 20
8 Purchase 30 70
17 Sale 30
30 Sale 2
Requirements
2. Journalize Golf Unlimited’s inventory transactions using the weighted-averageinventory costing method. (Assume purchases and sales are made on account.)
2 step solution
18E_1
Question: Golf Unlimited carries an inventory of putters and other golf clubs. The sales price of each putter is \(119. Company records indicate the following for a particular line ofGolf Unlimited’s putters:
Date Item Quantity Unit Cost
Nov. 1 Balance 24 \) 53
6 Sale 20
8 Purchase 30 70
17 Sale 30
30 Sale 2
Requirements
1. Prepare Golf Unlimited’s perpetual inventory record for the putters assuming GolfUnlimited uses the weighted-average inventory costing method. Round weightedaveragecost per unit to the nearest cent and all other amounts to the nearest dollar.Then identify the cost of ending inventory and cost of goods sold for the month.
2 step solution
19E_5
Question: Assume that Toys Galore store bought and sold a line of dolls during December as follows:
Dec. 1 Beginning merchandise inventory 13 units @ \( 9 each
8 Sale 8 units @ \) 22 each
14 Purchase 16 units @ \( 14 each
21 Sale 14 units @ \) 22 each
Requirements
5. Which method results in a higher gross profit?
2 step solution
19E_4
Question: Assume that Toys Galore store bought and sold a line of dolls during December as follows:
Dec. 1 Beginning merchandise inventory 13 units @ \( 9 each
8 Sale 8 units @ \) 22 each
14 Purchase 16 units @ \( 14 each
21 Sale 14 units @ \) 22 each
Requirements
4. Which method results in a higher cost of ending merchandise inventory?
2 step solution
19E_3
Question: Assume that Toys Galore store bought and sold a line of dolls during December as follows:
Dec. 1 Beginning merchandise inventory 13 units @ \( 9 each
8 Sale 8 units @ \) 22 each
14 Purchase 16 units @ \( 14 each
21 Sale 14 units @ \) 22 each
Requirements
3. Which method results in a higher cost of goods sold?
2 step solution
19E_2
Question: Assume that Toys Galore store bought and sold a line of dolls during December as follows:
Dec. 1 Beginning merchandise inventory 13 units @ \( 9 each
8 Sale 8 units @ \) 22 each
14 Purchase 16 units @ \( 14 each
21 Sale 14 units @ \) 22 each
Requirements
2. Compute the cost of goods sold, cost of ending merchandise inventory, and grossprofit using the LIFO inventory costing method.
2 step solution
19E_1
Question: Assume that Toys Galore store bought and sold a line of dolls during December as follows:
Dec. 1 Beginning merchandise inventory 13 units @ \( 9 each
8 Sale 8 units @ \) 22 each
14 Purchase 16 units @ \( 14 each
21 Sale 14 units @ \) 22 each
Requirements
1. Compute the cost of goods sold, cost of ending merchandise inventory, and grossprofit using the FIFO inventory costing method.
2 step solution
Q 20E-1
Assume that AB Tire Store completed the following perpetual inventory transactions for a line of tires:
May 1 Beginning merchandise inventory 16 tires @ \( 65 each
11 Purchase 10 tires @ \) 78 each
23 Sale 12 tires @ \( 88 each
26 Purchase 14 tires @ \) 80 each
29 Sale 18 tires @ $ 88 each
Requirements
1. Compute cost of goods sold and gross profit using the FIFO inventory costing method.
2 step solution
Q 20E-2
Assume that AB Tire Store completed the following perpetual inventory transactions for a line of tires:
May 1 Beginning merchandise inventory 16 tires @ \( 65 each
11 Purchase 10 tires @ \) 78 each
23 Sale 12 tires @ \( 88 each
26 Purchase 14 tires @ \) 80 each
29 Sale 18 tires @ $ 88 each
Requirements
2. Compute cost of goods sold and gross profit using the LIFO inventory costing method.
2 step solution
Q 20E-3
Assume that AB Tire Store completed the following perpetual inventory transactions for a line of tires:
May 1 Beginning merchandise inventory 16 tires @ \( 65 each
11 Purchase 10 tires @ \) 78 each
23 Sale 12 tires @ \( 88 each
26 Purchase 14 tires @ \) 80 each
29 Sale 18 tires @ $ 88 each
Requirements
3. Compute cost of goods sold and gross profit using the weighted-average inventory costing method. (Round weighted-average cost per unit to the nearest cent and all other amounts to the nearest dollar.)
2 step solution
Q 20-4
Assume that AB Tire Store completed the following perpetual inventory transactions for a line of tires:
May 1 Beginning merchandise inventory 16 tires @ \( 65 each
11 Purchase 10 tires @ \) 78 each
23 Sale 12 tires @ \( 88 each
26 Purchase 14 tires @ \) 80 each
29 Sale 18 tires @ $ 88 each
Requirements
4. Which method results in the largest gross profit, and why?
2 step solution
Q 21E-1
Clarmont Resources, which uses the FIFO inventory costing method, has the following account balances at May 31, 2019, prior to releasing the financial statements for the year:
Merchandise Inventory, ending \( 13,500
Cost of Goods Sold 68,000
Net Sales Revenue 123,000
Clarmont has determined that the current replacement cost (current market value) of the May 31, 2019, ending merchandise inventory is \)12,400.
Requirements
1. Prepare any adjusting journal entry required from the information given.
2 step solution
Q 21E-2
Clarmont Resources, which uses the FIFO inventory costing method, has the following account balances at May 31, 2019, prior to releasing the financial statements for the year:
Merchandise Inventory, ending \( 13,500
Cost of Goods Sold 68,000
Net Sales Revenue 123,000
Clarmont has determined that the current replacement cost (current market value) of the May 31, 2019, ending merchandise inventory is \)12,400.
Requirements
2. What value would Clarmont report on the balance sheet at May 31, 2019, for merchandise inventory?
2 step solution
Q 22E-1
Nutriset Foods reports merchandise inventory at the lower-of-cost-or-market. Prior to releasing its financial statements for the year ended March 31, 2019, Nutriset’s preliminary income statement, before the year-end adjustments, appears as follows:
NUTRISET FOODS
Income Statement (Partial)
Year Ended March 31, 2019
Net Sales Revenue \( 118,000
Cost of Goods Sold 47,000
Gross Profit \) 71,000
Nutriset has determined that the current replacement cost of ending merchandise inventory is \(19,500. Cost is \)24,000.
Requirements
1. Journalize the adjusting entry for merchandise inventory, if any is required.
2 step solution
Q 22E-2
Nutriset Foods reports merchandise inventory at the lower-of-cost-or-market. Prior to releasing its financial statements for the year ended March 31, 2019, Nutriset’s preliminary income statement, before the year-end adjustments, appears as follows:
NUTRISET FOODS
Income Statement (Partial)
Year Ended March 31, 2019
Net Sales Revenue \( 118,000
Cost of Goods Sold 47,000
Gross Profit \) 71,000
Nutriset has determined that the current replacement cost of ending merchandise inventory is \(19,500. Cost is \)24,000.
Requirements
2. Prepare a revised partial income statement to show how Nutriset Foods should report sales, cost of goods sold, and gross profit.
2 step solution
23E_a
Question: Hot Bread Bakery reported Net sales revenue of \(44,000 and cost of goods sold of \)33,000. Compute Hot Bread’s correct gross profit if the company made either of thefollowing independent accounting errors. Show your work.
a. Ending merchandise inventory is overstated by $8,000.
2 step solution
23E_b
Question: Hot Bread Bakery reported Net sales revenue of \(44,000 and cost of goods sold of \)33,000. Compute Hot Bread’s correct gross profit if the company made either of thefollowing independent accounting errors. Show your work.
b. Ending merchandise inventory is understated by $8,000.
2 step solution
Q 24E-1
Nature Foods Grocery reported the following comparative income statements for the years ended June 30, 2019 and 2018:
| NATURE FOODS GROCERY | ||
| Income Statements | ||
| Years Ended June 30, 2019 and 2018 | ||
| 2019 | 2018 |
Net Sales Revenue | \( 134,000 | \) 119,000 |
Cost of Goods Sold: |
|
|
Beginning Merchandise Inventory | \(17,000 | \)14,000 |
Net Cost of Purchases | 78,000 | 67,000 |
Cost of Goods Available for Sale | 95,000 | 81,000 |
Less: Ending Merchandise Inventory | 18,000 | 17,000 |
Cost of Goods Sold | 77,000 | 64,000 |
Gross Profit | 57,000 | 55,000 |
Operating Expenses | 26,000 | 21,000 |
Net Income | \( 31,000 | \) 34,000 |
During 2019, Nature Foods Grocery discovered that ending 2018 merchandise inventory was overstated by $5,500.
Requirements
1. Prepare corrected income statements for the two years.
2 step solution
Q 24E-2
Nature Foods Grocery reported the following comparative income statements for the years ended June 30, 2019 and 2018:
| NATURE FOODS GROCERY | ||
| Income Statements | ||
| Years Ended June 30, 2019 and 2018 | ||
| 2019 | 2018 |
Net Sales Revenue | \( 134,000 | \) 119,000 |
Cost of Goods Sold: |
|
|
Beginning Merchandise Inventory | \(17,000 | \)14,000 |
Net Cost of Purchases | 78,000 | 67,000 |
Cost of Goods Available for Sale | 95,000 | 81,000 |
Less: Ending Merchandise Inventory | 18,000 | 17,000 |
Cost of Goods Sold | 77,000 | 64,000 |
Gross Profit | 57,000 | 55,000 |
Operating Expenses | 26,000 | 21,000 |
Net Income | \( 31,000 | \) 34,000 |
During 2019, Nature Foods Grocery discovered that ending 2018 merchandise inventory was overstated by $5,500.
Requirements
2. State whether each year’s net income—before your corrections—is understated or overstated, and indicate the amount of the understatement or overstatement.
2 step solution
Q 25E-1
Calm Day reported the following income statement for the year ended December 31, 2019:
| CALM DAY | ||
| Income Statement | ||
| Years Ended December 31, 2019 | ||
Net Sales Revenue |
| \( 128,000 |
Cost of Goods Sold: |
|
|
Beginning Merchandise Inventory | \) 9,000 |
|
Net Cost of Purchases | 62,000 |
|
Cost of Goods Available for Sale | 71,000 |
|
Less: Ending Merchandise Inventory | 12,200 |
|
Cost of Goods Sold |
| 58,800 |
Gross Profit |
| 69,200 |
Operating Expenses |
| 41,600 |
Net Income |
| $ 27,600 |
Requirements
1. Compute Calm Day’s inventory turnover rate for the year. (Round to two decimal places.)
2 step solution
Q 25E-2
Calm Day reported the following income statement for the year ended December 31, 2019:
| CALM DAY | ||
| Income Statement | ||
| Years Ended December 31, 2019 | ||
Net Sales Revenue |
| \( 128,000 |
Cost of Goods Sold: |
|
|
Beginning Merchandise Inventory | \) 9,000 |
|
Net Cost of Purchases | 62,000 |
|
Cost of Goods Available for Sale | 71,000 |
|
Less: Ending Merchandise Inventory | 12,200 |
|
Cost of Goods Sold |
| 58,800 |
Gross Profit |
| 69,200 |
Operating Expenses |
| 41,600 |
Net Income |
| $ 27,600 |
Requirements
2. Compute Calm Day’s days’ sales in inventory for the year. (Round to two decimal places.)
2 step solution
Q 26E-1
Assume that Jump Coffee Shop completed the following periodic inventory transactions for a line of merchandise inventory:
Jun. 1 Beginning merchandise inventory 17 units @ \( 15 each
12 Purchase 5 units @ \) 19 each
20 Sale 14 units @ \( 37 each
24 Purchase 11 units @ \) 23 each
29 Sale 13 units @ $ 37 each
Requirements
1. Compute ending merchandise inventory, cost of goods sold, and gross profit using the FIFO inventory costing method.
3 step solution
Q 26E-2
Assume that Jump Coffee Shop completed the following periodic inventory transactions for a line of merchandise inventory:
Jun. 1 Beginning merchandise inventory 17 units @ \( 15 each
12 Purchase 5 units @ \) 19 each
20 Sale 14 units @ \( 37 each
24 Purchase 11 units @ \) 23 each
29 Sale 13 units @ $ 37 each
Requirements
2. Compute ending merchandise inventory, cost of goods sold, and gross profit using the LIFO inventory costing method.
3 step solution
Q 26E-3
Assume that Jump Coffee Shop completed the following periodic inventory transactions for a line of merchandise inventory:
Jun. 1 Beginning merchandise inventory 17 units @ \( 15 each
12 Purchase 5 units @ \) 19 each
20 Sale 14 units @ \( 37 each
24 Purchase 11 units @ \) 23 each
29 Sale 13 units @ $ 37 each
Requirements
3. Compute ending merchandise inventory, cost of goods sold, and gross profit using the weighted-average inventory costing method. (Round weighted-average cost per unit to the nearest cent and all other amounts to the nearest dollar.)
3 step solution
Q27E-1
Consider the data of the following companies which use the periodic inventory system:
Company | Net Sales Revenue | Beginning Merchandise Inventory | Net Cost of Purchases | Ending Merchandise Inventory | Cost of Goods Sold | Gross Profit |
Large | \( 105,000 | \) 23,000 | \( 59,000 | \) 22,000 | (a) | $45,000 |
Small | (b) | 27,000 | 94,000 | (c) | 99,000 | 40,000 |
Medium | 96,000 | (d) | 58,000 | 24,000 | 68,000 | (e) |
Petite | 80,000 | 8,000 | (f) | 6,500 | (g) | 44,000 |
Requirements
1. Supply the missing amounts in the preceding table.
7 step solution
Q27E-2
Consider the data of the following companies which use the periodic inventory system
Company | Net Sales Revenue | Beginning Merchandise Inventory | Net Cost of Purchases | Ending Merchandise Inventory | Cost of Goods Sold | Gross Profit |
Large | \( 105,000 | \) 23,000 | \( 59,000 | \) 22,000 | (a) | \(45,000 |
Small | (b) | 27,000 | 94,000 | (c) | 99,000 | 40,000 |
Medium | 96,000 | (d) | 58,000 | 24,000 | 68,000 | (e) |
Petite | 80,000 | 8,000 | (f) | 6,500 | (g) | 44,000 |
Requirements
2. Prepare the income statement for the year ended December 31, 2019, for Large Company, which uses the periodic inventory system. Include a complete heading, and show the full computation of cost of goods sold. Large’s operating expenses for the year were \)12,000.
2 step solution
Q28PGA_1
Fit Gym began January with merchandise inventory of 78 crates of vitamins that cost a total of \(4,290. During the month, Fit Gym purchased and sold merchandise on account as follows:
Jan. 5 Purchase 156 crates @ \) 64 each
13 Sale 180 crates @ \( 100 each
18 Purchase 114 crates @ \) 75 each
26 Sale 150 crates @ $ 116 each
Requirements
1. Prepare a perpetual inventory record, using the FIFO inventory costing method, and determine the company’s cost of goods sold, ending merchandise inventory, and gross profit.
2 step solution
Q28PGA_2
Fit Gym began January with merchandise inventory of 78 crates of vitamins that cost a total of \(4,290. During the month, Fit Gym purchased and sold merchandise on account as follows:
Jan. 5 Purchase 156 crates @ \) 64 each
13 Sale 180 crates @ \( 100 each
18 Purchase 114 crates @ \) 75 each
26 Sale 150 crates @ $ 116 each
Requirements
2. Prepare a perpetual inventory record, using the LIFO inventory costing method, and determine the company’s cost of goods sold, ending merchandise inventory, and gross profit.
2 step solution
Q28PGA_3
Fit Gym began January with merchandise inventory of 78 crates of vitamins that cost a total of \(4,290. During the month, Fit Gym purchased and sold merchandise on account as follows
Jan. 5 Purchase 156 crates @ \) 64 each
13 Sale 180 crates @ \( 100 each
18 Purchase 114 crates @ \) 75 each
26 Sale 150 crates @ $ 116 each
Requirements
3. Prepare a perpetual inventory record, using the weighted-average inventory costing method, and determine the company’s cost of goods sold, ending merchandise inventory, and gross profit. (Round weighted-average cost per unit to the nearest cent and all other amounts to the nearest dollar.)
2 step solution
Q28PGA_4
Fit Gym began January with merchandise inventory of 78 crates of vitamins that cost a total of \(4,290. During the month, Fit Gym purchased and sold merchandise on account as follows:
Jan. 5 Purchase 156 crates @ \) 64 each
13 Sale 180 crates @ \( 100 each
18 Purchase 114 crates @ \) 75 each
26 Sale 150 crates @ $ 116 each
Requirements
4. If the business wanted to pay the least amount of income taxes possible, which method would it choose?
2 step solution
Q29PGA_1
Steel Mill began August with 50 units of iron inventory that cost \(35 each. During August, the company completed the following inventory transactions:
Units Unit Cost Unit Sales Price
Aug. 3 Sale 45 \) 85
8 Purchase 90 $ 54
21 Sale 85 88
30 Purchase 15 58
Requirements
1. Prepare a perpetual inventory record for the merchandise inventory using the FIFO inventory costing method.
2 step solution
Q29PGA_2
Steel Mill began August with 50 units of iron inventory that cost \(35 each. During August, the company completed the following inventory transactions:
Units Unit Cost Unit Sales Price
Aug. 3 Sale 45 \) 85
8 Purchase 90 $ 54
21 Sale 85 88
30 Purchase 15 58
Requirements
2. Prepare a perpetual inventory record for the merchandise inventory using the LIFO inventory costing method.
2 step solution
Q29PGA_3
Steel Mill began August with 50 units of iron inventory that cost \(35 each. During August, the company completed the following inventory transactions:
Units Unit Cost Unit Sales Price
Aug. 3 Sale 45 \) 85
8 Purchase 90 $ 54
21 Sale 85 88
30 Purchase 15 58
Requirements
3. Prepare a perpetual inventory record for the merchandise inventory using the weighted-average inventory costing method.
2 step solution
Q29PGA_4
Accounting for inventory using the perpetual inventory system—
FIFO, LIFO, and weighted-average, and comparing FIFO, LIFO, and weighted-average Steel Mill began August with 50 units of iron inventory that cost \(35 each. During August, the company completed the following inventory transactions:
Units Unit Cost Unit Sales Price
Aug. 3 Sale 45 \) 85
8 Purchase 90 $ 54
21 Sale 85 88
30 Purchase 15 58
Requirements
4. Determine the company’s cost of goods sold for August using FIFO, LIFO, and weighted-average inventory costing methods.
2 step solution
Q29PGA_5
Steel Mill began August with 50 units of iron inventory that cost \(35 each. During August, the company completed the following inventory transactions:
Units Unit Cost Unit Sales Price
Aug. 3 Sale 45 \) 85
8 Purchase 90 $ 54
21 Sale 85 88
30 Purchase 15 58
Requirements
5. Compute gross profit for August using FIFO, LIFO, and weighted-average inventory costing methods.
4 step solution
Q29PGA_6
Steel Mill began August with 50 units of iron inventory that cost \(35 each. During August, the company completed the following inventory transactions:
Units Unit Cost Unit Sales Price
Aug. 3 Sale 45 \) 85
8 Purchase 90 $ 54
21 Sale 85 88
30 Purchase 15 58
Requirements
6. If the business wanted to maximize gross profit, which method would it select?
2 step solution
Q30PGA_1
Some of M and C Electronics’s merchandise is gathering dust. It is now December 31, 2018, and the current replacement cost of the ending merchandise inventory is \(24,000 below the business’s cost of the goods, which was \)97,000. Before any adjustments at the end of the period, the company’s Cost of Goods Sold account has a balance of $380,000.
Requirements
1. Journalize any required entries.
2 step solution
Q30PGA_2
Some of M and C Electronics’s merchandise is gathering dust. It is now December 31, 2018, and the current replacement cost of the ending merchandise inventory is \(24,000 below the business’s cost of the goods, which was \)97,000. Before any adjustments at the end of the period, the company’s Cost of Goods Sold account has a balance of $380,000.
Requirements
2. At what amount should the company report merchandise inventory on the balance sheet?
2 step solution
Q30PGA_3
Some of M and C Electronics’s merchandise is gathering dust. It is now December 31, 2018, and the current replacement cost of the ending merchandise inventory is \(24,000 below the business’s cost of the goods, which was \)97,000. Before any adjustments at the end of the period, the company’s Cost of Goods Sold account has a balance of $380,000.
Requirements
3. At what amount should the company report cost of goods sold on the income statement?
2 step solution
Q30PGA_4
Some of M and C Electronics’s merchandise is gathering dust. It is now December 31, 2018, and the current replacement cost of the ending merchandise inventory is \(24,000 below the business’s cost of the goods, which was \)97,000. Before any adjustments at the end of the period, the company’s Cost of Goods Sold account has a balance of $380,000.
Requirements
4. Which accounting principle or concept is most relevant to this situation?
2 step solution
31PGA_2
Question: Empire State Carpets’s books show the following data. In early 2020, auditors foundthat the ending merchandise inventory for 2017 was understated by \(8,000 and thatthe ending merchandise inventory for 2019 was overstated by \)9,000. The ending merchandiseinventory at December 31, 2018, was correct.
| 2019 | 2018 | 2017 |
Net Sales Revenue | \( 220,000 | \) 162,000 | \( 176,000 |
Cost of Goods Sold: |
|
|
|
Beginning Merchandise Inventory | \)22,000 | \(29,000 | \)46,000 |
Net cost of purchase | 132,000 | 90,000 | 76,000 |
Cost of goods available for sale | 154,000 | 119,000 | 122,000 |
Less: Ending Merchandise Inventory | 32,000 | 22,000 | 29,000 |
Cost of goods sold | 122,000 | 97,000 | 93,000 |
Gross Profit | 98,000 | 65,000 | 83,000 |
Operating Expenses | 72,000 | 38,000 | 48,000 |
Net Income | \( 26,000 | \) 27,000 | $ 35,000 |
Requirements
2. State whether each year’s net income—before your corrections—is understated oroverstated, and indicate the amount of the understatement or overstatement.
2 step solution
31PGA_1
Question: Empire State Carpets’s books show the following data. In early 2020, auditors foundthat the ending merchandise inventory for 2017 was understated by \(8,000 and thatthe ending merchandise inventory for 2019 was overstated by \)9,000. The ending merchandiseinventory at December 31, 2018, was correct.
| 2019 | 2018 | 2017 |
Net Sales Revenue | \( 220,000 | \) 162,000 | \( 176,000 |
Cost of Goods Sold: |
|
|
|
Beginning Merchandise Inventory | \)22,000 | \(29,000 | \)46,000 |
Net cost of purchase | 132,000 | 90,000 | 76,000 |
Cost of goods available for sale | 154,000 | 119,000 | 122,000 |
Less: Ending Merchandise Inventory | 32,000 | 22,000 | 29,000 |
Cost of goods sold | 122,000 | 97,000 | 93,000 |
Gross Profit | 98,000 | 65,000 | 83,000 |
Operating Expenses | 72,000 | 38,000 | 48,000 |
Net Income | \( 26,000 | \) 27,000 | $ 35,000 |
Requirements
1. Prepare corrected income statements for the three years.
3 step solution