220.
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. Assuming that Chow Company uses a perpetual inventory system, record the
transactions.
2. Prepare the top section of the multiple-step income statement through gross profit for
the month of June.
June 2
Accounts Payable
June 4
221.
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.
Inventory items
Hammers
Saws
Screwdrivers
6-145
222.
During 2018, Liberty Company has the following inventory transactions.
6-146
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 with a periodic inventory system, calculate ending inventory and cost of
goods sold.
2. Using LIFO with a periodic inventory system, 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.
Oct.
Purchase
6-149
223.
At the beginning of November, Donkey Inc.’s inventory consists of 50 units with a cost per
unit of $100. The following transactions occur during the month of November.
November 2
Purchase 80 units of inventory on account from Kong Inc. for $110 per
unit, terms 2/10, n/30.
November 3
Pay freight charges related to the November 2 purchase, $240.
November 9
Return 20 defective units from the November 2 purchase and receive
credit.
November
11
Pay Toad Inc. in full.
November
16
Sell 100 units of inventory to customers on account, $14,000. [
Hint
: The
cost of units sold from the November 2 purchase includes $110 unit cost
plus $3 per unit for freight less $2.20 per unit for the purchase discount, or
$111.80 per unit.]
November
20
Receive full payment from customers related to the sale on November 16.
November
21
Purchase 70 units of inventory from Toad Inc. for $120 per unit, terms
1/10, n/30.
November
24
Sell 50 units of inventory to customers for cash, $9,000.
Required:
1. Assuming that Donkey Inc. uses a FIFO perpetual inventory system to maintain its
internal inventory records, record the transactions.
2. Suppose by the end of November that the remaining inventory is estimated to have a
net realizable value per unit of $90, record any necessary adjustment for the lower of cost
and net realizable value.
3. Prepare the top section of the multiple-step income statement through gross profit for
the month of November after the adjustment for lower of cost and net realizable value.
November 2
