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121
262) A company has the following transactions during March:
March 3 Purchases inventory on account for $3,500, terms 2/10, n/30.
March 5 Pays freight costs of $200 on inventory purchased on March 3.
March 6 Returns inventory with a cost of $500.
March 12 Pays the full amount due on March 3 purchase.
March 29 Sells all inventory purchased on March 3 (less those returned on March 6)
for $5,000 on account.
Record all transactions, including the month-end adjustment to cost of goods sold, assuming the
company uses a periodic inventory system and has no beginning inventory.
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263) A company understated its ending inventory balance by $8,000 in 2021. What impact will
this error have on cost of goods sold and gross profit in 2021 and 2022?
264) A company overstated its ending inventory balance by $6,000 in 2021. What impact will this
error have on cost of goods sold and gross profit in 2021 and 2022?
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265) A company understated its ending inventory balance by $5,000 in 2021. What impact will
this error have on total assets and retained earnings in 2021 and 2022 (ignoring tax effects)?
266) A company overstated its ending inventory balance by $9,000 in 2021. What impact will this
error have on total assets and retained earnings in 2021 and 2022 (ignoring tax effects)?
267) Giles Manufacturing has the following transactions for the month of June 2021:
Date
Transactions
Units
Cost per Unit
Total Cost
June 1
Beginning inventory
17
$240
$4,080
June 7
Sale
12
June 12
Purchase
13
230
2,990
June 15
Sale
11
June 24
Purchase
14
220
3,080
June 27
Sale
15
June 29
Purchase
8
210
1,680
$11,830
Required:
1. Calculate ending inventory and cost of goods sold at June 30, 2021, using the specific
identification method. The June 7 sale consists of beginning inventory, the June 15 sale consists of
three units from beginning inventory and eight from the June 12 purchase, and the June 27 sale
consists of one unit from beginning inventory and fourteen units from the June 24 purchase.
2. Using FIFO, calculate ending inventory and cost of goods sold at June 30, 2021.
3. Using LIFO, calculate ending inventory and cost of goods sold at June 30, 2021.
4. Using weighted-average cost, calculate ending inventory and cost of goods sold at June 30,
2021.
268) Nadal Athletic has the following transactions related to its inventory for the month of August
2021:
Date
Transactions
Units
Cost per Unit
Total Cost
Aug. 1
Beginning inventory
7
$130
$910
Aug. 4
Sale ($150 each)
5
Aug. 11
Purchase
9
120
1,080
Aug. 13
Sale ($160 each)
7
Aug. 20
Purchase
12
110
1,320
Aug. 26
Sale ($170 each)
10
Aug. 29
Purchase
12
100
1,200
$4,510
Required:
1. Calculate ending inventory and cost of goods sold at August 31, 2021, using the specific
identification method. The August 4 sale consists of units from beginning inventory, the August 13
sale consists of units from the August 11 purchase, and the August 26 sale consists of two units
from beginning inventory and eights units from the August 20 purchase.
2. Using FIFO, calculate ending inventory and cost of goods sold at August 31, 2021.
3. Using LIFO, calculate ending inventory and cost of goods sold at August 31, 2021.
4. Using weighted-average cost, calculate ending inventory and cost of goods sold at August 31,
2021.
5. Calculate sales revenue and gross profit under each of the four methods.
6. Comparing FIFO and LIFO, which one provides the more meaningful measure of ending
inventory? Explain.
7. If Nadal chooses to report inventory using LIFO, record the LIFO adjustment.
269) At the beginning of June, Chow Company has a balance in inventory of $2,100. The
following transactions occur during the month of June.
June 2 Purchase radios on account from Air One for $2,400, terms 3/15, n/45.
June 4 Pay freight charges related to the June 2 purchase from Air One, $400.
June 8 Return defective radios to Air One and receive credit, $600.
June 10 Pay Air One in full.
June 11 Sell radios to customers on account, $5,000, that had a cost of $3,300.
June 18 Receive payment on account from customers, $3,100.
June 20 Purchase radios on account from Motion Unlimited for $3,300, terms 3/10, n/30.
June 23 Sell radios to customers for cash, $4,800, that had a cost of $3,200.
June 26 Return damaged radios to Motion Unlimited and receive credit of $300.
June 28 Pay Motion Unlimited in full.
Required:
1. Record the transactions above, assuming Chow Company uses a perpetual inventory system.
2. Prepare the top section of the multiple-step income statement through gross profit for the month
of June.
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270) A home improvement store carries the following items:
Inventory Items
Quantity
Cost per Unit
NRV per unit
Lower of
Cost and
NRV
Hammers
110
$6
$7
_______
Saws
60
11
9
_______
Screwdrivers
120
3
2
_______
Drills
50
22
21
_______
1-gallon paint cans
150
5
6
_______
Paint brushers
170
7
8
_______
Required:
1. Compute the total cost of inventory.
2. Determine whether each inventory item would be reported at cost or net realizable value.
Multiply the quantity of each inventory item by the appropriate cost or NRV amount and place the
total in the "Lower of Cost and NRV" column. Then determine the total of that column.
3. Compare your answers in Requirement 1 and Requirement 2 and then prepare any necessary
adjustment to write down inventory from cost to net realizable value.
4. Discuss the financial statement effects of using lower of cost and net realizable value to report
inventory.
271) During 2021, Liberty Company has the following inventory transactions.
Date
Transaction
Units
Cost
Total Cost
Jan. 1
Beginning inventory
10
$430
$4,300
Apr. 9
Purchase
22
470
10,340
Oct. 4
Purchase
18
400
7,200
50
$21,840
Jan. 1-Dec. 31
Sales
44
Because trends change frequently, Liberty estimates that the remaining six units have a net
realizable value at December 31 of only $300 each.
Required:
1. Using FIFO, calculate ending inventory and cost of goods sold.
2. Using LIFO, calculate ending inventory and cost of goods sold.
3. Determine the amount of ending inventory to report using the lower of cost and net realizable
value under FIFO. Record any necessary adjustment.
