Merchandise Inventory

Empire State Carpets’s books show the following data. In early 2020, auditors found that the ending merchandise inventory for 2017 was understated by \(8,000 and that the ending merchandise inventory for 2019 was overstated by \)9,000. The ending merchandise inventory at December 31, 2018, was correct.

Requirements

3. Compute the inventory turnover and days’ sales in inventory using the corrected income statements for the three years. (Round all numbers to two decimals.)

Futuristic Electronic Center began October with 65 units of merchandise inventory that cost \(82 each. During October, the store made the following purchases:

Oct. 3                 25 units @ \) 90 each

12                       30 units @ \( 90 each

18                       35 units @ \) 96 each

Futuristic uses the periodic inventory system, and the physical count at October 31 indicates that 80 units of merchandise inventory are on hand.

Requirements

1. Determine the ending merchandise inventory and cost of goods sold amounts for the October financial statements using the FIFO, LIFO, and weighted-average inventory costing methods.

Futuristic Electronic Center began October with 65 units of merchandise inventory that cost \(82 each. During October, the store made the following purchases:

Oct. 3                 25 units @ \) 90 each

12                       30 units @ \( 90 each

18                       35 units @ \) 96 each

Futuristic uses the periodic inventory system, and the physical count at October 31 indicates that 80 units of merchandise inventory are on hand.

Requirements

2. Net sales revenue for October totaled $28,000. Compute Futuristic’s gross profit for October using each method.

Futuristic Electronic Center began October with 65 units of merchandise inventory that cost \(82 each. During October, the store made the following purchases:

Oct. 3                 25 units @ \) 90 each

12                       30 units @ \( 90 each

18                       35 units @ \) 96 each

Futuristic uses the periodic inventory system, and the physical count at October 31 indicates that 80 units of merchandise inventory are on hand.

Requirements

3. Which method will result in the lowest income taxes for Futuristic? Why? Which method will result in the highest net income for Futuristic? Why?

Exercise World began January with merchandise inventory of 90 crates of vitamins that cost a total of \(5,850. During the month, Exercise World purchased and soldmerchandise on account as follows:

Jan. 2 Purchase 130 crates @ \) 76 each

5 Sale 140 crates @ \( 100 each

16 Purchase 170 crates @ \) 86 each

27 Sale 180 crates @ $ 104 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.

Exercise World began January with merchandise inventory of 90 crates of vitamins that cost a total of \(5,850. During the month, Exercise World purchased and soldmerchandise on account as follows:

Jan. 2 Purchase 130 crates @ \) 76 each

5 Sale 140 crates @ \( 100 each

16 Purchase 170 crates @ \) 86 each

27 Sale 180 crates @ $ 104 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.

Exercise World began January with merchandise inventory of 90 crates of vitamins that cost a total of \(5,850. During the month, Exercise World purchased and soldmerchandise on account as follows:

Jan. 2 Purchase 130 crates @ \) 76 each

5 Sale 140 crates @ \( 100 each

16 Purchase 170 crates @ \) 86 each

27 Sale 180 crates @ $ 104 each

Requirements

3. Prepare a perpetual inventory record, using the weighted-average inventory costingmethod, and determine the company’s cost of goods sold, ending merchandiseinventory, and gross profit. (Round weighted-average cost per unit to the nearestcent and all other amounts to the nearest dollar.)

Exercise World began January with merchandise inventory of 90 crates of vitamins that cost a total of \(5,850. During the month, Exercise World purchased and soldmerchandise on account as follows:

Jan. 2 Purchase 130 crates @ \) 76 each

5 Sale 140 crates @ \( 100 each

16 Purchase 170 crates @ \) 86 each

27 Sale 180 crates @ $ 104 each

Requirements

4. If the business wanted to pay the least amount of income taxes possible, whichmethod would it choose?

Exercise World began January with merchandise inventory of 90 crates of vitamins that cost a total of \(5,850. During the month, Exercise World purchased and soldmerchandise on account as follows:

Jan. 2 Purchase 130 crates @ \) 76 each

5 Sale 140 crates @ \( 100 each

16 Purchase 170 crates @ \) 86 each

27 Sale 180 crates @ $ 104 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.

Exercise World began January with merchandise inventory of 90 crates of vitamins that cost a total of \(5,850. During the month, Exercise World purchased and soldmerchandise on account as follows:

Jan. 2 Purchase 130 crates @ \) 76 each

5 Sale 140 crates @ \( 100 each

16 Purchase 170 crates @ \) 86 each

27 Sale 180 crates @ $ 104 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.

Exercise World began January with merchandise inventory of 90 crates of vitamins that cost a total of \(5,850. During the month, Exercise World purchased and soldmerchandise on account as follows:

Jan. 2 Purchase 130 crates @ \) 76 each

5 Sale 140 crates @ \( 100 each

16 Purchase 170 crates @ \) 86 each

27 Sale 180 crates @ $ 104 each

Requirements

3. Prepare a perpetual inventory record, using the weighted-average inventory costingmethod, and determine the company’s cost of goods sold, ending merchandiseinventory, and gross profit. (Round weighted-average cost per unit to the nearestcent and all other amounts to the nearest dollar.)

 Exercise World began January with merchandise inventory of 90 crates of vitamins that cost a total of \(5,850. During the month, Exercise World purchased and soldmerchandise on account as follows:

Jan. 2 Purchase 130 crates @ \) 76 each

5 Sale 140 crates @ \( 100 each

16 Purchase 170 crates @ \) 86 each

27 Sale 180 crates @ $ 104 each

Requirements

4. If the business wanted to pay the least amount of income taxes possible, whichmethod would it choose?

Steel It began January with 55 units of iron inventory that cost \(35 each. During January, the company completed the following inventory transactions:

Units Unit Cost Unit Sales Price

Jan. 3 Sale 45 \) 83

8 Purchase 75 $ 52

21 Sale 70 85

30 Purchase 10 55

Requirements

1. Prepare a perpetual inventory record for the merchandise inventory using theFIFO inventory costing method.

Steel It began January with 55 units of iron inventory that cost \(35 each. During January, the company completed the following inventory transactions:

Units Unit Cost Unit Sales Price

Jan. 3 Sale 45 \) 83

8 Purchase 75 $ 52

21 Sale 70 85

30 Purchase 10 55

Requirements

2. Prepare a perpetual inventory record for the merchandise inventory using theLIFO inventory costing method.

Steel It began January with 55 units of iron inventory that cost \(35 each. During January, the company completed the following inventory transactions:

Units Unit Cost Unit Sales Price

Jan. 3 Sale 45 \) 83

8 Purchase 75 $ 52

21 Sale 70 85

30 Purchase 10 55

Requirements

3. Prepare a perpetual inventory record for the merchandise inventory using theweighted-average inventory costing method.

Steel It began January with 55 units of iron inventory that cost \(35 each. During January, the company completed the following inventory transactions:

Units Unit Cost Unit Sales Price

Jan. 3 Sale 45 \) 83

8 Purchase 75 $ 52

21 Sale 70 85

30 Purchase 10 55

Requirements

4. Determine the company’s cost of goods sold for January using FIFO, LIFO, andweighted-average inventory costing methods.

Steel It began January with 55 units of iron inventory that cost \(35 each. During January, the company completed the following inventory transactions:

Units Unit Cost Unit Sales Price

Jan. 3 Sale 45 \) 83

8 Purchase 75 $ 52

21 Sale 70 85

30 Purchase 10 55

Requirements

5. Compute gross profit for January using FIFO, LIFO, and weighted-average inventorycosting methods.

Steel It began January with 55 units of iron inventory that cost \(35 each. During January, the company completed the following inventory transactions:

Units Unit Cost Unit Sales Price

Jan. 3 Sale 45 \) 83

8 Purchase 75 $ 52

21 Sale 70 85

30 Purchase 10 55

Requirements

6. If the business wanted to maximize gross profit, which method would it select?

Some of L and K Electronics’s merchandise is gathering dust. It is now December 31, 2018, and the current replacement cost of the ending merchandise inventory is\(32,000 below the business’s cost of the goods, which was \)98,000. Before any adjustmentsat the end of the period, the company’s Cost of Goods Sold account has a balanceof $410,000.

Requirements

1. Journalize any required entries.

Some of L and K Electronics’s merchandise is gathering dust. It is now December 31, 2018, and the current replacement cost of the ending merchandise inventory is\(32,000 below the business’s cost of the goods, which was \)98,000. Before any adjustmentsat the end of the period, the company’s Cost of Goods Sold account has a balanceof $410,000.

Requirements

2. At what amount should the company report merchandise inventory on the balancesheet?

Some of L and K Electronics’s merchandise is gathering dust. It is now December 31, 2018, and the current replacement cost of the ending merchandise inventory is\(32,000 below the business’s cost of the goods, which was \)98,000. Before any adjustmentsat the end of the period, the company’s Cost of Goods Sold account has a balanceof $410,000.

Requirements

3. At what amount should the company report cost of goods sold on the incomestatement?

Some of L and K Electronics’s merchandise is gathering dust. It is now December 31, 2018, and the current replacement cost of the ending merchandise inventory is\(32,000 below the business’s cost of the goods, which was \)98,000. Before any adjustmentsat the end of the period, the company’s Cost of Goods Sold account has a balanceof $410,000.

Requirements

4. Which accounting principle or concept is most relevant to this situation?

Question: Antique Carpets’s books show the following data. In early 2020, auditors found that the ending merchandise inventory for 2017 was understated by \(8,000 and that theending merchandise inventory for 2019 was overstated by \)9,000. The ending merchandiseinventory at December 31, 2018, was correct.

Requirements

1. Prepare corrected income statements for the three years. 
2. State whether each year’s net income—before your corrections—is understated oroverstated, and indicate the amount of the understatement or overstatement. 

3. Compute the inventory turnover and days’ sales in inventory using the correctedincome statements for the three years. (Round all numbers to two decimals.)

Question: Antique Carpets’s books show the following data. In early 2020, auditors found that the ending merchandise inventory for 2017 was understated by \(8,000 and that theending merchandise inventory for 2019 was overstated by \)9,000. The ending merchandiseinventory at December 31, 2018, was correct.

Requirements

2. State whether each year’s net income—before your corrections—is understated oroverstated, and indicate the amount of the understatement or overstatement.

Question: Antique Carpets’s books show the following data. In early 2020, auditors found that the ending merchandise inventory for 2017 was understated by \(8,000 and that theending merchandise inventory for 2019 was overstated by \)9,000. The ending merchandiseinventory at December 31, 2018, was correct.

Requirements

1. Prepare corrected income statements for the three years.

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.

Requirements

3. Compute the inventory turnover and days’ sales in inventory using the correctedincome statements for the three years. (Round all numbers to two decimals.)

Right Now Electronic Center began October with 100 units of merchandise inventory that cost \(70 each. During October, the store made the following purchases:

Oct. 3 35 units @ \) 82 each

12 45 units @ \( 84 each

18 75 units @ \) 90 each

Right Now uses the periodic inventory system, and the physical count at October 31indicates that 130 units of merchandise inventory are on hand.

Requirements

1. Determine the ending merchandise inventory and cost of goods sold amountsfor the October financial statements using the FIFO, LIFO, and weighted-averageinventory costing methods.

Right Now Electronic Center began October with 100 units of merchandise inventory that cost \(70 each. During October, the store made the following purchases:

Oct. 3 35 units @ \) 82 each

12 45 units @ \( 84 each

18 75 units @ \) 90 each

Right Now uses the periodic inventory system, and the physical count at October 31indicates that 130 units of merchandise inventory are on hand.

Requirements

2. Net sales revenue for October totaled $26,000. Compute Right Now’s gross profitfor October using each method.

Right Now Electronic Center began October with 100 units of merchandise inventory that cost \(70 each. During October, the store made the following purchases:

Oct. 3 35 units @ \) 82 each

12 45 units @ \( 84 each

18 75 units @ \) 90 each

Right Now uses the periodic inventory system, and the physical count at October 31indicates that 130 units of merchandise inventory are on hand.

Requirements

3. Which method will result in the lowest income taxes for Right Now? Why? Whichmethod will result in the highest net income for Right Now? Why?

Question: This problem continues the Canyon Canoe Company situation from Chapter 5. At the beginning of the January 2019, Canyon Canoe Company decided to carry and sellT-shirts with its logo printed on them. Canyon Canoe Company uses the perpetualinventory system to account for the inventory. During February 2019, Canyon CanoeCompany completed the following merchandising transactions:

Feb. 2 Sold 60 T-shirts at \(10 each.

5 Purchased 50 T-shirts at \)6 each.

7 Sold 45 T-shirts for \(10 each.

8 Sold 20 T-shirts for \)10 each.

10 Canyon Canoe Company realized the inventory was running

low, so it placed a rush order and purchased 20 T-shirts. The

premium cost for these shirts was \(7 each.

12 Placed a second rush order and purchased 40 T-shirts at \)7

each.

13 Sold 20 T-shirts for \(10 each.

15 Purchased 50 T-shirts for \)6 each.

20 In order to avoid future rush orders, purchased 150 T-shirts.

Due to the volume of the order, Canyon Canoe Company

was able to negotiate a cost of \(5 each.

21 Sold 40 T-shirts for \)10 each.

22 Sold 35 T-shirts for \(10 each.

24 Sold 20 T-shirts for \)10 each.

25 Sold 45 T-shirts for \(10 each.

27 Sold 40 T-shirts for \)10 each.

Requirements

1. Assume Canton Canoe Company began February with 94 T-shirts in inventorythat cost $5 each. Prepare the perpetual inventory records for February using theFIFO inventory costing method.

Question: This problem continues the Canyon Canoe Company situation from Chapter 5. At the beginning of the January 2019, Canyon Canoe Company decided to carry and sellT-shirts with its logo printed on them. Canyon Canoe Company uses the perpetualinventory system to account for the inventory. During February 2019, Canyon CanoeCompany completed the following merchandising transactions:

Feb. 2 Sold 60 T-shirts at \(10 each.

5 Purchased 50 T-shirts at \)6 each.

7 Sold 45 T-shirts for \(10 each.

8 Sold 20 T-shirts for \)10 each.

10 Canyon Canoe Company realized the inventory was running

low, so it placed a rush order and purchased 20 T-shirts. The

premium cost for these shirts was \(7 each.

12 Placed a second rush order and purchased 40 T-shirts at \)7

each.

13 Sold 20 T-shirts for \(10 each.

15 Purchased 50 T-shirts for \)6 each.

20 In order to avoid future rush orders, purchased 150 T-shirts.

Due to the volume of the order, Canyon Canoe Company

was able to negotiate a cost of \(5 each.

21 Sold 40 T-shirts for \)10 each.

22 Sold 35 T-shirts for \(10 each.

24 Sold 20 T-shirts for \)10 each.

25 Sold 45 T-shirts for \(10 each.

27 Sold 40 T-shirts for \)10 each.

Requirements

2. Provide a summary for the month, in both units and dollars, of the change in inventory in the following format:

Question: This problem continues the Crystal Clear Cleaning problem begun in Chapter 2 and continued through Chapter 5.

Consider the December transactions for Crystal Clear Cleaning that were presentedin Chapter 5. (Cost data have been removed from the sale transactions.) Crystal Clearuses the perpetual inventory system.

Dec. 2 Purchased 1,000 units of inventory for \(4,000 on account from Sparkle

Company on terms, 5/10, n/20.

5 Purchased 1,200 units of inventory from Borax on account with terms

4/10, n/30. The total invoice was for \)6,000, which included a \(300

freight charge.

7 Returned 300 units of inventory to Sparkle from the December 2

purchase.

9 Paid Borax.

11 Sold 500 units of goods to Happy Maids for \)5,500 on account with         

termsn/30.

12 Paid Sparkle.

15 Received 100 units with a sales price of \(1,100 of goods back from

customer Happy Maids.

21 Received payment from Happy Maids, settling the amount due in full.

28 Sold 500 units of goods to Bridget, Inc. on account for \)6,500. Terms 

1/15,n/30.

29 Paid cash for utilities of \(550.

30 Paid cash for Sales Commission Expense of \)214.

31 Received payment from Bridget, Inc., less discount.

31 Recorded the following adjusting entries:

a. Physical count of inventory on December 31 showed 800 units of

goods on hand.

b. Depreciation, \(150.

c. Accrued salaries expense of \)2,100.

d. Estimated sales returns of \(1,500, with cost of \)540.

e. Prepared all other adjustments necessary for December (Hint: You willneed to review the adjustment information in Chapter 3 to determinethe remaining adjustments). Assume the cleaning supplies left atDecember 31 are $50.

Requirements

2. Journalize the transactions for December 11th, 28th, and 31st (adjusting entry aonly) using the perpetual inventory record created in Requirement 1.

Question: This problem continues the Crystal Clear Cleaning problem begun in Chapter 2 and continued through Chapter 5.

Consider the December transactions for Crystal Clear Cleaning that were presentedin Chapter 5. (Cost data have been removed from the sale transactions.) Crystal Clearuses the perpetual inventory system.

Dec. 2 Purchased 1,000 units of inventory for \(4,000 on account from Sparkle

Company on terms, 5/10, n/20.

5 Purchased 1,200 units of inventory from Borax on account with terms

4/10, n/30. The total invoice was for \)6,000, which included a \(300

freight charge.

7 Returned 300 units of inventory to Sparkle from the December 2

purchase.

9 Paid Borax.

11 Sold 500 units of goods to Happy Maids for \)5,500 on account with         

termsn/30.

12 Paid Sparkle.

15 Received 100 units with a sales price of \(1,100 of goods back from

customer Happy Maids.

21 Received payment from Happy Maids, settling the amount due in full.

28 Sold 500 units of goods to Bridget, Inc. on account for \)6,500. Terms 

1/15,n/30.

29 Paid cash for utilities of \(550.

30 Paid cash for Sales Commission Expense of \)214.

31 Received payment from Bridget, Inc., less discount.

31 Recorded the following adjusting entries:

a. Physical count of inventory on December 31 showed 800 units of

goods on hand.

b. Depreciation, \(150.

c. Accrued salaries expense of \)2,100.

d. Estimated sales returns of \(1,500, with cost of \)540.

e. Prepared all other adjustments necessary for December (Hint: You willneed to review the adjustment information in Chapter 3 to determinethe remaining adjustments). Assume the cleaning supplies left atDecember 31 are $50.

Requirements

1. Prepare perpetual inventory records for December for Crystal Clear Cleaning usingthe FIFO inventory costing method. (Note: You must calculate the cost of goodssold on the 11th, 28th, and 31st (adjusting entry a).) Round per unit costs to twodecimal places.

The Davis Lamp Company (DLC) is a wholesale company that purchases lamps from the manufacturer and resells them to retail stores. The company has three inventory items: desk lamps, table lamps, and floor lamps. DLC uses a perpetual inventory system, FIFO method. DCL owns land with a building, which is separated into two parts: office space and warehouse space. All expenses associated with the office are categorized as Administrative Expenses. All expenses associated with the warehouse, which is used for the shipping and receiving functions of the company, are categorized as Selling Expenses. In addition to the land and building, DLC also owns office furniture and equipment and warehouse fixtures. The company uses one accumulated depreciation account for all the depreciable assets.

The trial balance for DLC as of September 30, 2018 follows:

Merchandise Inventory as of September 30 consists of the following lamps:

Item                 Quantity           Unit Cost          Total Cost

Desk Lamp       2,500                   \( 8                   \) 20,000

Table Lamp      3,000                    18                      54,000

Floor Lamp      2,000                    26                      52,000

Total                                                                   \( 126,000

During the fourth quarter of 2018, DLC completed the following transactions: 

Oct. 1 Purchased lamps on account from Blue Ridge Lights, terms n/30, FOB destination:

5,000 desk lamps at \)9 each

7,500 table lamps at \(19 each

2,500 floor lamps at \)25 each

12 Sold lamps on account to Atlas Home Furnishings, terms 2/10, n/30:

4,000 table lamps at \(45 each

15 Sold lamps on account to Hiawassee Office Supply, terms 2/10, n/30:

1,000 desk lamps at \)20 each

20 Received a check from Atlas Home Furnishings for full amount owed on Oct. 12 sale.

23 Received a check from Hiawassee Office Supply for full amount owed on Oct. 15 sale.

28 Sold lamps on account to Parkway Home Stores, terms 2/10, n/30:

3,500 table lamps at \(45 each

1,500 floor lamps at \)65 each

30 Paid amount due to Blue Ridge Lights from Oct. 1 purchase.

31 Paid salaries, \(40,000 (75% selling, 25% administrative).

31 Paid utilities, \)2,500 (60% selling, 40% administrative).

Nov. 1 Sold lamps on account to Hiawassee Office Supply, terms 2/10, n/30:

3,000 desk lamps at \(20 each

5 Purchased lamps on account from Blue Ridge Lights, terms n/30, FOB destination:

5,000 desk lamps at \)10 each

10,000 table lamps at \(21 each

5,000 floor lamps at \)27 each

5 Received a check from Parkway Home Stores for full amount owed on Oct. 28 sale.

8 Received a check from Hiawassee Office Supply for full amount owed on Nov. 1 sale.

10 Purchased and paid for supplies: \(325 for the office; \)675 for the warehouse.

15 Sold lamps on account to Anderson Office Supply, n/30:

2,000 desk lamps at \(20 each

18 Sold lamps on account to Go-Mart Discount Stores, terms 1/10, n/30:

2,000 table lamps at \)45 each

2,000 floor lamps at \(65 each

28 Received a check from Go-Mart Discount Stores for full amount owed on Nov. 18 sale.

30 Paid salaries, \)40,000 (75% selling, 25% administrative).

30 Paid utilities, \(2,670 (60% selling, 40% administrative).

Dec. 5 Paid amount due to Blue Ridge Lights from Nov. 5 purchase.

15 Received a check from Anderson Office Supply for full amount owed on Nov. 15 sale.

15 Paid dividends, \)50,000.

27 Sold lamps on account to Atlas Home Furnishings, terms 2/10, n/30:

4,500 desk lamps at \(20 each

5,000 table lamps at \)45 each

31 Paid salaries, \(40,000 (75% selling, 25% administrative).

31 Paid utilities, \)3,200 (60% selling, 40% administrative).

 Requirements

1. Open general ledger T-accounts and enter opening balances as of September 30, 2018.

2. Open inventory records for the three inventory items and enter opening balances as of September 30, 2018. Complete the inventory records using the following transactions: Oct. 1, 12, 15, 28; Nov. 1, 5, 15, 18, and Dec. 27.

3. Record the transactions in the general journal.

4. Post transactions to the general ledger.

5. Prepare adjusting entries for the year ended December 31, 2018, and post to the ledger:

a. Depreciation, \(48,500 (75% selling, 25% administrative).

b. Supplies on hand: office, \)200; and warehouse, $650.

c. A physical inventory account resulted in the following counts: desk lamps, 1,990; table lamps, 5,995; and floor lamps, 6,000. Update the inventory records.

6. Prepare an adjusted trial balance.

7. Provide a summary for the month, in both units and dollars, of the change in inventory for each item in the following format:

Does the sum of the ending balances in the inventory records match the balance in Merchandise Inventory in the general ledger? If not, review the transactions to find your error.

8. Prepare Davis Lamp Company’s multi-step income statement and statement of retained earnings for the year ended December 31, 2018, and a classified balance sheet as of December 31, 2018. 

9. Calculate the following ratios for DLC as of December 31, 2018: gross profit percentage, inventory turnover, and days’ sales in inventory.

10. Record and post the closing entries.

11. Prepare a post-closing trial balance.

Question: Suppose you manage Campbell Appliance. The store’s summarized financial statements for 2019, the most recent year, follow:

Assume that you need to double net income. To accomplish your goal, it will be very difficult to raise the sales prices you charge because there is a discount appliance store nearby. Also, you have little control over your cost of goods sold because the appliance manufacturers set the amount you must pay.

Identify several strategies for doubling net income.