146.
The Valley Garden Company had the following transactions:
(A) Prepare journal entries for Valley Garden assuming the company uses a perpetual
inventory.
(B) Prepare journal entries for Valley Garden assuming the company uses a periodic
inventory.
147.
Effects of errors in inventory valuation
Show the effect, if any, of each of the following errors on ending inventory, cost of goods
sold, gross profit on sales, and net income by placing the appropriate symbol in each
column. In use is the periodic inventory system. Use the following symbols: O =
Overstated, U = Understated, NE = No Effect.
148.
Gross profit method
Horizon Company had sales of $1,750,000 during the current period and a gross profit rate
of 40%. The company’s cost of goods available for sale during the period was $1,400,000.
The company’s ending inventory must have amounted to $_______________.
149.
Gross profit method
On April 30, Greenfield Sales, Inc. lost its entire inventory in a flood. The following
information is available from the company’s accounting records, which were recovered
from the waterproof safe:
The gross profit of Greenfield Sales, Inc. over the past several years has consistently
averaged 35% of net sales. Using the gross profit method, estimate the cost of the
inventory lost in the flood on April 30.
8-98
150.
Gross profit method
The Walnut Shop is a furniture company that uses a periodic inventory system. On
February 8, 2015, a fire destroyed all the furniture on display in the company’s main
showroom. Fortunately, $35,000 of the company’s inventory was located in a separate
warehouse and was not damaged by the fire.
Walnut Shop now is attempting to determine the cost of the merchandise destroyed in the
fire from the following information:
Compute the following (show computations):
151.
Retail method
Omega Signs uses the retail method to estimate ending inventory in its monthly financial
statements. The following information is available for the month ended April 30:
Using the retail method:
152.
Retail method
Global Office Supply uses the retail method to estimate ending inventory in its monthly
financial statements. The following information is available for the month ended July 31:
Using the retail method:
153.
Retail method
Many large retailers take a physical inventory near year-end and state in their annual
report that inventory has been valued by the “retail method.” What does this mean? (Your
answer should address [1] whether inventory is valued in the financial statements at cost
or retail prices, and [2] how this dollar amount is determined.)
154.
The Multi-Tech Company uses the gross profit method to estimate inventories. Fill in the
missing amounts.
155.
Inventory turnover
In the spaces provided, indicate the likely effect of each of the following events or
strategies upon the inventory turnover rate in the coming period. Use the following code
letters: I for Increase, D for Decrease, and NE for No Effect.
____ (a) Reduced sales prices in order to increase sales volume.
______ (b) Ordered substantially larger amounts of merchandise in order to receive a
volume discount from the supplier.
______ (c) Switched from the FIFO flow assumptions to LIFO during a period of rising
prices.
______ (d) Placed sales clerks on commission, rather than a fixed monthly salary.
______ (e) Decided to offer customers a wider selection of merchandise available for
immediate delivery.
156.
Inventory turnover
In the spaces provided, indicate the likely effect of each of the following events or
strategies upon the inventory turnover rate. Use the following code letters: I for Increase,
D for Decrease, and NE for No Effect.
______ (a) Switched from the LIFO flow assumption to FIFO during a period of rising
prices.
______ (b) Dramatically increased advertising expense.
______ (c) Increased the sales price of merchandise that is so popular it is difficult to keep
in stock.
______ (d) Implemented internal control procedures to reduce a serious inventory
shrinkage problem.
______ (e) Switched from a restrictive credit policy to offering liberal terms to credit
customers.