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Chapter 8 Inventories: Measurement
92. Listed below are 10 terms, followed by a list of phrases that describe or characterize
the terms. Match each phrase with the number for the correct term.
TERM
PHRASE
NUMBER
1. FIFO
Goods are transferred to another company but title
remains with transferor.
____
2. Average cost
Legal title passes when goods arrive at customer
location.
____
3. Consignment
Inventory is viewed as a quantity of value.
____
4. F.o.b. shipping point
Adjusts inventory at the end of the period.
____
5. Dollar-value LIFO
Items sold are those acquired last.
____
6. Perpetual inventory system
Legal title passes when goods are delivered to
common carrier.
____
7. LIFO
Items sold come from a mixture of goods acquired
during the period.
____
8. Periodic inventory system
Items sold are those acquired first.
____
9. F.o.b. destination
Continuously records changes in inventory.
____
10. LIFO conformity rule
If LIFO is used for income tax purposes, it must be
used for financial reporting.
____
Answer:
AICPA: FN Measurement
Chapter 8 Inventories: Measurement
Problems
93. Bascomb Company purchased $420,000 in merchandise on account during the month of April,
and merchandise costing $350,000 was sold on account for $425,000.
Required:
1. Prepare journal entries to record the purchases and sales assuming Bascomb uses a
perpetual inventory system.
2. Prepare journal entries to record the purchases and sales assuming Bascomb uses a
periodic inventory system.
Answer:
Chapter 8 Inventories: Measurement
94. Meteor Co. purchased merchandise on March 4, 2016, at a price of $30,000, subject to credit
terms of 2/10, n/30. Meteor uses the net method for recording purchases and uses a periodic
inventory system.
Required:
1. Prepare the journal entry to record the purchase.
2. Prepare the journal entry to record the appropriate payment if the entire invoice is paid on
March 11, 2016.
3. Prepare the journal entry to record the appropriate payment if the entire invoice is paid on
April 2, 2016.
Answer:
95. Slinky Company purchased merchandise on June 10, 2016, at a price of $20,000, subject to
credit terms of 2/10, n/30. Slinky uses the net method for recording purchases and uses a
perpetual inventory system.
Required:
1. Prepare the journal entry to record the purchase.
2. Prepare the journal entry to record the appropriate payment if the entire invoice is paid on
June 18, 2016.
3. Prepare the journal entry to record the appropriate payment if the entire invoice is paid on
July 8, 2016.
Answer:
Chapter 8 Inventories: Measurement
96. Bunker Auto Supply purchased merchandise on January 4, 2016, at a price of $70,000, subject
to credit terms of 2/10, n/30. Bunker uses the gross method for recording purchases and uses a
periodic inventory system.
Required:
1. Prepare the journal entry to record the purchase.
2. Prepare the journal entry to record the payment of one-half the invoice amount on January
11, 2016.
3. Prepare the journal entry to record the balance of the amount due on February 2, 2016.
Answer:
97. Patty's Pet Store purchased merchandise on October 10, 2016, at a price of $35,000, subject to
credit terms of 2/10, n/30. Patty's uses the gross method for recording purchases and uses
perpetual inventory system.
Required:
1. Prepare the journal entry to record the purchase.
2. Prepare the journal entry to record the payment of one-half the invoice amount on October
18, 2016.
3. Prepare the journal entry to record the payment of the balance of the amount due on
November 8, 2016.
Chapter 8 Inventories: Measurement
98. Boston Dollar Store uses the gross method to record purchase discounts and uses a perpetual
inventory system. Boston engaged in the following transactions during April:
4/12 Purchased $15,000 in merchandise subject to terms of 2/10, n/30. The goods were
shipped f.o.b. shipping point.
4/13 Received a billing from Orange Freight Lines for $300 for the 4/12 purchase.
4/15 Returned $1,000 of merchandise from the 4/12 purchase.
4/20 Paid balances due from 4/12 purchase.
Required:
Prepare journal entries to record the above transactions.
Answer:
Chapter 8 Inventories: Measurement
99. Hazelton Corporation uses a periodic inventory system and the LIFO method to value its
inventory. The company began 2016 with $59,000 in inventory of its only product. The
beginning inventory consisted of the following layers:
4,000 units at $6 per unit = $24,000
5,000 units at $7 per unit = 35,000
Total $59,000
During 2016, 6,000 units were purchased at $8 per unit and during 2017, 7,000 units were
purchased at $9 per unit. Sales, in units, were 7,000 and 12,000 during 2016 and 2017,
respectively.
Required:
1. Calculate cost of goods sold for 2016 and 2017.
2. Disregarding income tax, determine the LIFO liquidation profit or loss, if any, for 2016
and 2017.
Answer:
Chapter 8 Inventories: Measurement
100. The Tucson Corporation’s fiscal year ends on December 31. Tucson determines inventory
quantity by a physical count of inventory on hand at the close of business on December 31.
The company’s controller has asked for your help in deciding if the following items should be
included in the year-end inventory count.
1. Goods purchased from a vendor shipped f.o.b. shipping point on December 24 that arrived
on January 4.
2. Goods shipped f.o.b. shipping point on December 27 arrived at the customer’s location on
January 4.
3. Goods purchased from a vendor shipped f.o.b. destination on December 27 that arrived on
January 5.
4. Freight charges on goods purchased in 1.
5. Merchandise held on consignment for Masterwear, Inc.
6. Goods shipped f.o.b. destination on December 29 that arrived at the customer’s location
on January 2.
Required:
Determine if each of the six items above should be included or excluded from the company’s
year-end inventory.
Answer:
Use the following to answer questions 101–105:
The following information is taken from the accounting records of Rapid Runner Inc. for the year
2016. Missing information has been left blank.
Required: Compute the missing amounts.
101.
Cost of
goods
sold
Freight-in
Ending
inventory
Gross
Purchases
Sales
Purchase
discounts
Beginning
inventory
Gross
profit
Purchase
returns
95
5
30
6
20
8
12
Chapter 8 Inventories: Measurement
102.
Cost of
goods
sold
Freight-in
Ending
inventory
Gross
Purchases
Sales
Purchase
discounts
Beginning
inventory
Gross
profit
Purchase
returns
10
206
200
15
60
54
27
103.
Cost of
goods
sold
Freight-in
Ending
inventory
Gross
Purchases
Sales
Purchase
discounts
Beginning
inventory
Gross
profit
Purchase
returns
14
83
270
304
20
90
30
Chapter 8 Inventories: Measurement
104.
Cost of
goods
sold
Freight-in
Ending
inventory
Gross
Purchases
Sales
Purchase
discounts
Beginning
inventory
Gross
profit
Purchase
returns
237
22
147
300
400
150
163
50
105.
Cost of
goods
sold
Freight-in
Ending
inventory
Gross
Purchases
Sales
Purchase
discounts
Beginning
inventory
Gross
profit
Purchase
returns
33
239
350
511
36
220
213
Chapter 8 Inventories: Measurement
Use the following to answer questions 106–110:
The following information is taken from the accounting records of Madeline Inc. for the year 2016.
Missing information has been left blank. Inventory is the only supply that Madeline purchases on
credit.
Required: Compute the missing amounts.
106.
Jan. 1
accounts
payable
Jan. 1
inventory
Dec. 31
accounts
payable
Dec. 31
inventory
Cash paid to
inventory
suppliers
Cost of
goods sold
Net
purchases
100
62
85
324
365
350
107.
Jan. 1
accounts
payable
Jan. 1
inventory
Dec. 31
accounts
payable
Dec. 31
inventory
Cash paid to
inventory
suppliers
Cost of
goods sold
Net
purchases
99
222
179
595
636
675
108.
Jan. 1
accounts
payable
Jan. 1
inventory
Dec. 31
accounts
payable
Dec. 31
inventory
Cash paid to
inventory
suppliers
Cost of
goods sold
Net
purchases
107
324
29
279
928
883
109.
Jan. 1
accounts
payable
Jan. 1
inventory
Dec. 31
accounts
payable
Dec. 31
inventory
Cash paid to
inventory
suppliers
Cost of
goods sold
Net
purchases
55
184
78
99
700
110.
Jan. 1
accounts
payable
Jan. 1
inventory
Dec. 31
accounts
payable
Dec. 31
inventory
Cash paid to
inventory
suppliers
Cost of
goods sold
Net
purchases
80
72
606
583
621
Use the following to answer questions 111–115:
Shown below is activity for one of the products of Denver Office Equipment:
January 1 balance, 500 units @ $55 $27,500
Purchases:
January 10: 500 units @ $60
January 20: 1,000 units @ $63
Sales:
January 12: 800 units
January 28: 750 units
111. Required: Compute the January 31 ending inventory and cost of goods sold for January,
assuming Denver uses FIFO.
Chapter 8 Inventories: Measurement
112. Required: Compute the January 31 ending inventory and cost of goods sold for January,
assuming Denver uses LIFO and a perpetual inventory system.
113. Required: Compute the January 31 ending inventory and cost of goods sold for January,
assuming Denver uses average cost and a periodic inventory system.
114. Required: Compute the January 31 ending inventory and cost of goods sold for January,
assuming Denver uses average cost and a perpetual inventory system.
115. Required: Compute the January 31 ending inventory and cost of goods sold for January,
assuming Denver uses LIFO and a periodic inventory system.
Chapter 8 Inventories: Measurement
Use the following to answer questions 116–120:
Shown below is the activity for one of the products of Random Creations:
January 1 balance, 80 units @ $50 $4,000
Purchases:
January 18: 40 units @ $51
January 28: 40 units @ $52
Sales:
January 12: 30 units
January 22: 30 units
January 31: 45 units
116. Required: Compute the January 31 ending inventory and cost of goods sold for January,
assuming Random Creations uses FIFO.
117. Required: Compute the January 31 ending inventory and cost of goods sold for January,
assuming Random Creations uses LIFO and perpetual inventory system.
118. Required: Compute the January 31 ending inventory and cost of goods sold for January,
assuming Random Creations uses LIFO and a periodic inventory system.
Chapter 8 Inventories: Measurement
Chapter 8 Inventories: Measurement
119. Required: Compute the January 31 ending inventory and cost of goods sold for January,
assuming Random Creations uses average cost and a periodic inventory system.
120. Required: Compute the January 31 ending inventory and cost of goods sold for January,
assuming Random Creations uses average cost and a perpetual inventory system.
