ACC 205 Week 3

E5-16 Computing inventory and cost of goods sold amounts [1015 min]

Consider the following incomplete table of merchandiser's profit data:

Sales Sales Discounts Net Sales Cost of Goods Sold Gross Profit

$ 89,500 $ 1,560 $ 87,940 $ 60,200 (a)

103,600 (b) 99,220 (c) $ 34,020

66,200 2,000 (d) 40,500 (e)

(f) 2,980 (g) 75,800 36,720

Requirement

1. Calculate the missing table values to complete the table.

E6-23 Comparing cost of goods sold in a perpetual systemFIFO, LIFO, and average-cost methods [1520 min]

Assume that a JR Tire Store completed the following perpetual inventory transactions for a line of tires:

Beginning inventory 16 tires @ $ 65

Purchase 10 tires @ $ 78

Sale 12 tires @ $ 90

Requirements

1. Compute cost of goods sold and gross profit using FIFO.

2. Compute cost of goods sold and gross profit using LIFO.

3. Compute cost of goods sold and gross profit using average cost. (Round average cost per unit to the nearest cent and all other amounts to the nearest dollar.)

4. Which method results in the largest gross profit and why?

E6-28 Estimating ending inventory by the gross profit method [1015 min]

Deluxe Auto Parts holds inventory all over the world. Assume that the records for one auto part show the following:

Beginning inventory $ 220,000

Net purchases 800,000

Net sales 1,100,000

Gross profit rate 45%

Suppose this inventory, stored in the United States, was lost in a fire.

Requirement

1. Estimate the amount of the loss to Deluxe Auto Parts. Use the gross profit method.

Ethical Issue 5-1

Dobbs Wholesale Antiques makes all sales under terms of FOB shipping point. The company usually ships inventory to customers approximately one week after receiving the order. For orders received late in December, Kathy Dobbs, the owner, decides when to ship the goods. If profits are already at an acceptable level, Dobbs delays shipment until January. If profits for the current year are lagging behind expectations, Dobbs ships the goods during December.

Requirements

1. Under Dobbs FOB policy, when should the company record a sale?

2. Do you approve or disapprove of Dobbs manner of deciding when to ship goods to customers and record the sales revenue? If you approve, give your reason. If you disapprove, identify a better way to decide when to ship goods. (There is no accounting rule against Dobbs practice.)

P5-29A Journalizing purchase and sale transactionsperpetual inventory [2025 min]

Thelma's Amusements completed the following transactions during November 2012:

Requirement

1. Journalize the transactions on the books of Thelma's Amusements.

ACC205 Principles of Accounting I

Horngren, C.T., Harrison W.T., Oliver M.S. (2011). Accounting (9th ed). Upper Saddle River, New Jersey: Pearson Prentice Hall: ISBN: 9780132569057

Merchandise Inventory. Describe the inventory valuation methods FIFO and LIFO. Which items are included in ending inventory under each method?