Chapter 6: 1RQ (page 357)
Which principle states that businesses should use the same accounting methods and procedures from period to period?
The principle of consistency governs to use of the same accounting methods and procedures from time to time.
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Question:The periodic inventory records of Flexon Prosthetics indicate the following for the month of July:
Jul. 1 Beginning merchandise inventory 6 units @ \( 60 each
8 Purchase 5 units @ \) 67 each
15 Purchase 10 units @ \( 70 each
26 Purchase 5 units @ \) 85 each
At July 31, Flexon counts four units of merchandise inventory on hand.
Compute ending merchandise inventory and cost of goods sold for Flexon using theLIFO inventory costing method.
Question:Empire State Carpets’s books show the following data. In early 2020, auditors foundthat the ending merchandise inventory for 2017 was understated by \(8,000 and thatthe ending merchandise inventory for 2019 was overstated by \)9,000. The ending merchandiseinventory at December 31, 2018, was correct.
2019 | 2018 | 2017 | |
Net Sales Revenue | \( 220,000 | \) 162,000 | \( 176,000 |
Cost of Goods Sold: | |||
Beginning Merchandise Inventory | \)22,000 | \(29,000 | \)46,000 |
Net cost of purchase | 132,000 | 90,000 | 76,000 |
Cost of goods available for sale | 154,000 | 119,000 | 122,000 |
Less: Ending Merchandise Inventory | 32,000 | 22,000 | 29,000 |
Cost of goods sold | 122,000 | 97,000 | 93,000 |
Gross Profit | 98,000 | 65,000 | 83,000 |
Operating Expenses | 72,000 | 38,000 | 48,000 |
Net Income | \( 26,000 | \) 27,000 | $ 35,000 |
Requirements
3. Compute the inventory turnover and days’ sales in inventory using the correctedincome statements for the three years. (Round all numbers to two decimals.)
How is inventory turnover calculated, and what does it measure?
When using the periodic inventory system, which inventory costing method(s) always produces the same result as when using the perpetual inventory system?
Accounting for inventory using the perpetual inventory system—
FIFO, LIFO, and weighted-average, and comparing FIFO, LIFO, and weighted-average Steel Mill began August with 50 units of iron inventory that cost \(35 each. During August, the company completed the following inventory transactions:
Units Unit Cost Unit Sales Price
Aug. 3 Sale 45 \) 85
8 Purchase 90 $ 54
21 Sale 85 88
30 Purchase 15 58
Requirements
4. Determine the company’s cost of goods sold for August using FIFO, LIFO, and weighted-average inventory costing methods.
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