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Accounting Chapter 6 Homework Goods Sold Brief Exercises Brief Exercise 61

Page Count
14 pages
Word Count
2540 words
Book Title
Financial Accounting Connect Access Code 4th Edition
Authors
David Spiceland, Don Herrmann, Wayne Thomas
Chapter 6 - Inventory and Cost of Goods Sold
Chapter 6
Inventory and Cost of Goods Sold
REVIEW QUESTIONS
Question 6-1 (LO 6-1)
Inventory includes items a company intends for sale to customers. Inventory also includes items that
Question 6-2 (LO 6-1)
Question 6-3 (LO 6-1)
Raw materials inventory includes the cost of components that will become part of the finished
Question 6-4 (LO 6-2)
The cost of goods (or inventory) available for sale equals the cost of beginning inventory plus
Question 6-5 (LO 6-2)
The balance of cost of goods sold in the income statement represents the cost of inventory sold
Question 6-6 (LO 6-2)
A multiple-step income statement reports multiple levels of profitability. Gross profit equals net
Chapter 6 - Inventory and Cost of Goods Sold
Answers to Review Questions (continued)
Question 6-7 (LO 6-3)
Question 6-8 (LO 6-3)
The three most common inventory cost flow assumptions are FIFO (first-in, first-out), LIFO (last-in,
Question 6-9 (LO 6-4)
Question 6-10 (LO 6-4)
FIFO results in the highest reported amount of net income when inventory costs are rising. The
Question 6-11 (LO 6-4)
Since FIFO assumes the first purchases sell first, the amount it reports for ending inventory (in the
Question 6-12 (LO 6-4)
Question 6-13 (LO 6-5)
Question 6-14 (LO 6-5)
Chapter 6 - Inventory and Cost of Goods Sold
Answers to Review Questions (continued)
Question 6-15 (LO 6-6)
Cost of inventory is the net cost of purchases and freight, less purchase discounts, returns, and
Question 6-16 (LO 6-6)
Question 6-17 (LO 6-6)
The entry to adjust from cost to net realizable value for inventory write-downs includes a debit to
cost of goods sold (increase to expenses) and a credit to inventory (decrease to assets). The
Question 6-18 (LO 6-6)
Firms are required to report the falling value of inventory but not allowed to report the increasing
Question 6-19 (LO 6-7)
The inventory turnover ratio equals cost of goods sold divided by average inventory. The ratio shows
the number of times the firm sells its average inventory balance during a reporting period. The more
Chapter 6 - Inventory and Cost of Goods Sold
Answers to Review Questions (continued)
Question 6-20 (LO 6-7)
Gross profit equals net sales minus cost of goods sold. The gross profit ratio equals gross profit
Question 6-21 (LO 6-8)
Under the periodic system, the sale of inventory is recorded by increasing an asset account (cash or
Question 6-22 (LO 6-8)
Question 6-23 (LO 6-9)
Understating ending inventory in the current year will have the following effects in the current year:
Question 6-24 (LO 6-9)
Understating ending inventory in the current year will have the following effects in the following
year:
(a) assets (inventory) = no effect
(b) liabilities = no effect
Chapter 6 - Inventory and Cost of Goods Sold
BRIEF EXERCISES
Brief Exercise 6-1 (LO 6-1)
1.
b.
Brief Exercise 6-2 (LO 6-1)
1.
c.
Brief Exercise 6-3 (LO 6-2)
Beginning inventory
$ 8,000
Chapter 6 - Inventory and Cost of Goods Sold
Brief Exercise 6-4 (LO 6-2)
Company
Cost of
goods sold
Gross
profita
Operating
expenses
Net
incomeb
Lennon
(a) $10,000
$ 8,000
$3,500
$4,500
Chapter 6 - Inventory and Cost of Goods Sold
Brief Exercise 6-5 (LO 6-3)
Date
Transaction
Number
of units
Unit
cost
Ending
Inventory
Date
Transaction
Number
of units
Unit
cost
Cost of
Goods Sold
Jan. 1
Beginning inventory
60
$82
$ 4,920
Brief Exercise 6-6 (LO 6-3)
Date
Transaction
Number
of units
Unit
cost
Ending
Inventory
Date
Transaction
Number
of units
Unit
cost
Cost of
Goods Sold
Jan. 1
Beginning inventory
20
$82
$ 1,640
Chapter 6 - Inventory and Cost of Goods Sold
Brief Exercise 6-7 (LO 6-3)
Date
Transaction
Number
of units
Unit
cost
Total
Cost
Jan. 1
Beginning inventory
60
$82
$ 4,920
May 5
Purchase
250
85
21,250
Brief Exercise 6-8 (LO 6-3)
Date
Transaction
Number
of units
Unit
cost
Ending
Inventory
May 5
Purchase
20
$85
$1,700
Date
Transaction
Number
of units
Unit
cost
Cost of
Goods Sold
Jan. 1
Beginning inventory
60
$82
$ 4,920
Brief Exercise 6-9 (LO 6-4)
Inventory
Costs
Higher
total assets
Higher
cost of goods sold
Higher
net income
Chapter 6 - Inventory and Cost of Goods Sold
Chapter 6 - Inventory and Cost of Goods Sold
Brief Exercise 6-10 (LO 6-5)
February 2
Debit
Credit
Inventory
40,000
Accounts Payable
40,000
Brief Exercise 6-11 (LO 6-5)
February 2
Debit
Credit
Inventory
40,000
Accounts Payable
40,000
Chapter 6 - Inventory and Cost of Goods Sold
Brief Exercise 6-12 (LO 6-5)
February 2
Debit
Credit
Inventory
60,000
Brief Exercise 6-13 (LO 6-5)
February 2
Debit
Credit
Inventory
40,000
February 10
Debit
Credit
Accounts Payable
40,000
Inventory
1,200
Chapter 6 - Inventory and Cost of Goods Sold
Brief Exercise 6-14 (LO 6-6)
Inventory
Quantity
Lower of Cost
and NRV
Ending
Inventory
Ski jackets
20
$ 95
$1,900
Brief Exercise 6-15 (LO 6-6)
Inventory
Quantity
Lower of Cost
and NRV
Ending
Inventory
Optima cameras
110
$45
$4,950
Chapter 6 - Inventory and Cost of Goods Sold
Brief Exercise 6-16 (LO 6-7)
Inventory
turnover ratio
=
Cost of goods sold
=
$180,000
Average inventory
($55,000 + $45,000) / 2
Average days
in inventory
=
365
=
365
Inventory turnover ratio
3.6
Gross profit
ratio
=
Gross profit
=
($250,000 − $180,000)
Net sales
$250,000
Brief Exercise 6-17 (LO 6-8)
February 2
Debit
Credit
Purchases
40,000
March 17
Debit
Credit
Accounts Receivable
60,000
Brief Exercise 6-18 (LO 6-8)
February 2
Debit
Credit
Purchases
40,000
Accounts Payable
40,000
(Purchase inventory on account)
Brief Exercise 6-19 (LO 6-8)
February 2
Debit
Credit
Purchases
60,000
February 5
Debit
Credit
Accounts Payable
4,000
Chapter 6 - Inventory and Cost of Goods Sold
Brief Exercise 6-20 (LO 6-8)
February 2
Debit
Credit
Purchase
40,000
February 10
Debit
Credit
Accounts Payable
40,000
Brief Exercise 6-21 (LO 6-9)
Overstating ending inventory by $15,000 in 2018 has the following effects:
2018
Cost of goods sold is understated by $15,000.
Chapter 6 - Inventory and Cost of Goods Sold
Brief Exercise 6-22 (LO 6-9)
Overstating ending inventory by $15,000 in 2018 has the following effects:
2018
Inventory is overstated by $15,000.
Chapter 6 - Inventory and Cost of Goods Sold
EXERCISES
Exercise 6-1 (LO 6-2)
Beginning inventory
$ 55,000
Exercise 6-2 (LO 6-2)
Wayman Corporation
Multiple-step Income Statement
For the year ended December 31, 2018
Sales revenue
$390,000
Cost of goods sold
130,000
Gross profit
$260,000
Salaries expense
40,000
Chapter 6 - Inventory and Cost of Goods Sold
Exercise 6-3 (LO 6-2)
Requirement 1
Tisdale Incorporated
Multiple-step Income Statement
For the year ended December 31, 2018
Net sales
$300,000
Cost of goods sold
190,000
Gross profit
$110,000
Selling expenses
60,000
Requirement 2
While Tisdale Incorporated is able to report positive net income ($40,000), the
company does not appear to have much profit-generating potential. For its core
Exercise 6-4 (LO 6-3)
Requirement 1 FIFO
(a)
Date
Transaction
Number
of units
Unit
cost
Ending
Inventory
(b)
Date
Transaction
Number
of units
Unit
cost
Cost of
Goods Sold
Jan. 1
Beginning inventory
50
$42
$ 2,100
a First 440 units purchased are assumed sold

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