126.
Rio Company uses the FIFO inventory costing method and has a perpetual inventory system.
All purchases and sales were cash transactions. The records reflected the following for
January, 2016:
Units
Unit
Cost
Beginning inventory
100
$1.00
Purchase, January 6
200
1.20
Sale, January 10 (at $2.40 per
unit)
110
Purchase, January 14
100
1.30
Sale, January 29 (at $2.60 per
unit)
170
Required:
Determine the following:
A. 2016 cost of goods available for sale
B. 2016 cost of goods sold
C. 2016 ending inventory
D. The journal entries for January 6 and 10.
January
Cash
January
Sales revenue
127.
Given a particular set of facts and assumptions, the following pairs of amounts were
computed using FIFO and LIFO. For each pair of amounts, indicate which amount resulted
from applying FIFO, and which amount resulted from applying LIFO.
A.
Unit costs are increasing; ending inventory is:
1.
$20,650
2.
$19,400
B.
Unit costs are increasing; cost of goods sold is:
1.
$10,650
2.
$9,400
C.
Unit costs are decreasing; ending inventory is:
1.
$5,500
2.
$5,000
D.
Unit costs are decreasing; cost of goods sold is:
1.
$6,200
2.
$7,000
128.
Boulder, Inc. is computing its inventory at December 31, 2016. The following information
relates to the five major inventory items regularly stocked for resale:
Item
Quantity
on Hand
Ending
Inventory,
December
31, 2016
Unit Cost
when
Acquired
(FIFO)
Net Realizable
Value
(Market) at
December 31,
2016
A
100
$40
$35
B
150
$50
$52
C
25
$100
$80
D
300
$60
$62
E
700
$15
$12
Required:
Using the lower of cost or market rule (LCM or net realizable value), compute the total
valuation for each inventory item at December 31, 2016, and the total inventory valuation.
129.
Cutting Edge Technologies reported the following information in its 2016 annual report:
(In millions)
Net sales revenue
$18,860
Cost of sales
11,010
December 31, 2015 inventory
1,840
December 31, 2016 inventory
1,550
Required:
1. Determine the inventory turnover ratio. (Round your answer to two decimal places.)
2. Determine the average days to sell inventory. (Round your answer to a whole number.)
3. Explain the meaning of each ratio.
130.
Quest Inc. provided the following disclosure note to the financial statements in its annual
report:
Inventories are stated at the lower of cost or market. The cost of inventories has been
determined using last in first out (LIFO) method. Cost of goods sold under LIFO costing were
$22.2 billion for 2016 and ending inventory under LIFO was $1.3 billion. Inventory in 2015
under LIFO costing was $1.2 billion. The LIFO Reserve account carried a credit balance of
$0.8 billion in 2016 and $0.6 billion in 2015.
Required:
Compute the following:
1.
FIFO ending inventory balance
at year end 2015
_______________
2.
FIFO ending inventory balance
at year end 2016
_______________
3.
FIFO cost of goods sold for
year end 2016
_______________
4.
Inventory turnover under LIFO
costing for 2016
_______________
5.
Inventory turnover under FIFO
costing for 2016
_______________
131.
Dows Company prepared income statements that reflected pretax income of $21,000 for 2015
and $30,000 for 2016. An audit has determined that there were two errors in the inventory
amounts as follows:
Amount
Reported
Correct
Amount
Ending inventory,
2015
$15,000
$14,000
Ending inventory,
2016
18,000
16,000
Required:
Determine the correct pretax income amount for each year (show computations; assume the
errors were not corrected):
132.
For each independent situation given below, determine the effect on pretax income for each.
Enter “O” to indicate pretax income is overstated, “U” to indicate pretax income is
understated, or “NA” to indicate that pretax income is not affected.
Independent Situations
Effect on Pretax
Income
2015
2016
A.
2015 ending inventory is
overstated.
B.
2015 ending inventory is
understated.
C.
2016 ending inventory is
overstated.
D.
2016 beginning inventory is
overstated.
E.
2015 beginning inventory is
understated.
F.
2016 beginning inventory is
understated and 2016
ending inventory is
understated by the same
amount.
Independent Situations
A.
2015 ending inventory is
overstated.
2015 ending inventory is
understated.
C.
2016 ending inventory is
overstated.
133.
Redford Company hired a new store manager in October 2015, who determined the ending
inventory on December 31, 2015, to be $50,000. In March, 2016, the company discovered that
the December 31, 2015 ending inventory should have been $58,000. The December 31, 2016,
inventory was correct. Ignore income taxes.
Required:
Complete the following table to show the effects of the inventory error on the four amounts
listed. Give the amount of the discrepancy and indicate whether it was overstated (O),
understated (U), or had no effect (N).
Year
Ending
Inventory
Cost of Goods
Sold
Net
Income
2015
________
________
________
2016
________
________
________
8,000 (U)
8,000 (O)
8,000 (U)
8,000 (U)
8,000 (O)
134.
Sideline Company reported net income for 2015 of $70,000 and in 2016 of $84,000 (both after
income taxes at a 30% rate). It was discovered in 2016 that the ending inventory for 2015 was
understated by $2,000 (before any income tax effect).
Required:
Calculate the correct net income (after income tax of 30%) for 2015 and 2016
135.
A company provided the following disclosure note to the financial statements in its newest
annual report:
During the current and prior year, the company reduced certain inventory quantities that were
valued at lower LIFO costs prevailing in prior years. The effect of these physical reductions
was to increase after-tax earnings this year by $90 million, $.30 per share, and $98 million, or
$.327 per share last year.
Required:
1. Explain why the reduction in inventory quantity increased after-tax earnings for this
company.
2. If the company had been using FIFO costing, would the reductions in inventory quantity
during the two years have increased after-tax earnings? Explain.
136.
Assume Webster Company buys bicycle helmets at a unit cost of $30 and sells them at a unit
price of $52. There was no inventory at the beginning of the period.
Required:
Provide the journal entries required below by entering the account code of the appropriate
account and the amount for each debit and credit:
Account Name
Account Code
Inventory
A
Purchases
B
Cost of goods sold
C
Sales revenue
D
Cash
E
Transactions
Debits
Credits
Code
Amount
Code
Amount
A.
Purchased 100 units for cash assuming
the perpetual inventory system is used.
B.
Purchased 100 units for cash assuming
the periodic inventory system is used.
C.
Sold 100 units for cash assuming the
perpetual inventory system is used.
D.
Sold 100 units for cash assuming the
periodic inventory system is used.
Purchased 100 units for cash assuming
the perpetual inventory system is used.
Purchased 100 units for cash assuming
the periodic inventory system is used.
137.
Prepare the journal entries for the transactions listed below under each: Periodic inventory
system and Perpetual inventory system.
A.
Purchased merchandise for cash, $1,000.
B.
Sold merchandise for $600 cash that had cost
$480 (cost is 80% of the sales price).
C.
Accepted a sales return from a customer: sales
price $30. A cash refund was given to the
customer. The goods were returned to regular
inventory.
D.
Returned goods to the vendor because they did
not meet our specification; $50 cash refund was
received.
Cash
Cash
Cash
Cash
Sales Rev.
Sales Rev.
COGS
Merch. Inv.