Chapter 6: 12RQ (page 357)
When does an inventory error cancel out, and why?
Inventory error is cancelled out after two periods due to the opposite effects of the inventory error for the current period and the upcoming period.
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Right Now Electronic Center began October with 100 units of merchandise inventory that cost \(70 each. During October, the store made the following purchases:
Oct. 3 35 units @ \) 82 each
12 45 units @ \( 84 each
18 75 units @ \) 90 each
Right Now uses the periodic inventory system, and the physical count at October 31indicates that 130 units of merchandise inventory are on hand.
Requirements
1. Determine the ending merchandise inventory and cost of goods sold amountsfor the October financial statements using the FIFO, LIFO, and weighted-averageinventory costing methods.
Right Now Electronic Center began October with 100 units of merchandise inventory that cost \(70 each. During October, the store made the following purchases:
Oct. 3 35 units @ \) 82 each
12 45 units @ \( 84 each
18 75 units @ \) 90 each
Right Now uses the periodic inventory system, and the physical count at October 31indicates that 130 units of merchandise inventory are on hand.
Requirements
3. Which method will result in the lowest income taxes for Right Now? Why? Whichmethod will result in the highest net income for Right Now? Why?
Question:Boston Cycles started October with 12 bicycles that cost \(42 each. On October 16, Boston bought 40 bicycles at \)68 each. On October 31, Boston sold 34 bicycles for$100 each.
Preparing a perpetual inventory record and journal entries— Weighted-average
Requirements
2. Journalize the October 16 purchase of merchandise inventory on the account and theOctober 31 sale of merchandise inventory on the account.
Right Now Electronic Center began October with 100 units of merchandise inventory that cost \(70 each. During October, the store made the following purchases:
Oct. 3 35 units @ \) 82 each
12 45 units @ \( 84 each
18 75 units @ \) 90 each
Right Now uses the periodic inventory system, and the physical count at October 31indicates that 130 units of merchandise inventory are on hand.
Requirements
2. Net sales revenue for October totaled $26,000. Compute Right Now’s gross profitfor October using each method.
Question:Antique Carpets’s books show the following data. In early 2020, auditors found that the ending merchandise inventory for 2017 was understated by \(8,000 and that theending merchandise inventory for 2019 was overstated by \)9,000. The ending merchandiseinventory at December 31, 2018, was correct.
2019 | 2018 | 2017 | |
Net Sales Revenue | \( 212,000 | \) 161,000 | \( 170,000 |
Cost of Goods Sold: | |||
Beginning Merchandise Inventory | \)22,000 | \(28,000 | \)41,000 |
Net cost of purchase | 131,000 | 100,000 | 86,000 |
Cost of goods available for sale | 153,000 | 128,000 | 127,000 |
Less: Ending Merchandise Inventory | 34,000 | 22,000 | 28,000 |
Cost of goods sold | 119,000 | 106,000 | 99,000 |
Gross Profit | 93,000 | 55,000 | 71,000 |
Operating Expenses | 63,000 | 28,000 | 39,000 |
Net Income | \( 30,000 | \) 27,000 | $ 32,000 |
Requirements
1. Prepare corrected income statements for the three years.
2. State whether each year’s net income—before your corrections—is understated oroverstated, and indicate the amount of the understatement or overstatement.
3. Compute the inventory turnover and days’ sales in inventory using the correctedincome statements for the three years. (Round all numbers to two decimals.)
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