Inventory Quantity
Lower of Cost
or Market
Ending
Inventory
Shirts 52 $ 75 $ 3,900
MegaDriver 12 180 2,160
MegaDriver II 40 320 12,800
Debit Credit
Cost of Goods Sold 840
Lewis Clark
Beginning inventory $ 13,000 $ 16,000
Add: Purchases 132,000 140,000
Less: Purchase returns (4,000) (28,000)
Cost of goods available for sale 141,000 128,000
Less: Ending inventory (9,000) (32,000)
Lewis Clark
Inventory = Cost of goods sold $132,000 $96,000
Exercise 6-14
Requirement 1
Requirement 2
Requirement 3
The write-down of inventory has the effects of reducing total assets (inventory),
Exercise 6-15
Requirement 1
Requirement 2
turnover
ratio Average inventory ($13,000 + $9,000) /2 ($16,000 + $32,000) /2
Lewis Clark
Average
days in
inventory
=365 365 365
Inventory turnover
ratio
12.0 4.0
Gross
profita
Operating
Incomeb
Income before
income taxesc
Net
Incomed
Henry $13,600 $ 8,500 $7,600 $6,300
Henry Grace James
Requirement 3
Requirement 4
Lewis seems to be managing its inventory more efficiently. For Lewis, inventory turns
Exercise 6-16
Requirement 1
a Gross profit = net sales − cost of goods sold
b Operating income = gross profit − operating expenses
Requirement 2
Gross
profit
ratio
=Gross profit $13,600 $8,400 $4,800
Net sales $17,000 $21,000 $24,000
May 2
Purchases 2,500
May 3
Freight-In 120
May 5
Accounts Payable 480
May 10
Accounts Payable 2,020
Purchase Discounts 101
May 30
Accounts Receivable 3,650
May 31 Debit Credit
Inventory (ending) 0
Cost of Goods Sold 2,039
Purchase Returns 480
Purchase Discounts 101
Henry has the most favorable gross profit ratio.
Exercise 6-17
Requirement 1
Requirement 2
Purchases 2,500
Freight-In 120
July 5
Purchases 67,200
July 8
Accounts Payable 6,400
July 13
Accounts Payable 60,800
Purchase Discounts 1,216
July 28
Accounts Receivable 79,800
July 31 Debit Credit
Inventory (ending) 0
Cost of Goods Sold 59,584
Purchase Returns 6,400
Purchase Discounts 1,216
August 6 Debit Credit
Purchases 6,800
Exercise 6-18
Requirement 1
Requirement 2
Exercise 6-19
August 7
Freight-In 200
August 10
Accounts Payable 400
August 14
Accounts Payable 6,400
Purchase Discounts 320
August 23
Accounts Receivable 6,900
August 31 Debit Credit
Inventory (ending) 1,570
Cost of Goods Sold 4,710
Purchase Returns 400
Purchase Discounts 320
Purchases 6,800
Requirement 2
Balance Sheet Income Statement
Year Assets Liabilities
Stockholders’
equity Revenues
Cost of
goods sold Gross Profit
Current O N O N U O
Following N N N N O U
Exercise 6-20
Requirement 1
When goods are shipped FOB destination, title transfers from the seller to the buyer
once the goods reach the buyer. This means that Mulligan Corporation (buyer)
Requirement 2