Chapter 6: 1SE (page 358)
Determining inventory accounting principles
Ward Hardware used the FIFO inventory costing method in 2018. Ward plans to continue using the FIFO method in future years. Which accounting principle is most relevant to Ward’s decision?
The principle of consistency has been used in the given case.
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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
2. Net sales revenue for October totaled $26,000. Compute Right Now’s gross profitfor October using each method.
Assume that AB Tire Store completed the following perpetual inventory transactions for a line of tires:
May 1 Beginning merchandise inventory 16 tires @ \( 65 each
11 Purchase 10 tires @ \) 78 each
23 Sale 12 tires @ \( 88 each
26 Purchase 14 tires @ \) 80 each
29 Sale 18 tires @ $ 88 each
Requirements
4. Which method results in the largest gross profit, and why?
Question:This problem continues the Crystal Clear Cleaning problem begun in Chapter 2 and continued through Chapter 5.
Consider the December transactions for Crystal Clear Cleaning that were presentedin Chapter 5. (Cost data have been removed from the sale transactions.) Crystal Clearuses the perpetual inventory system.
Dec. 2 Purchased 1,000 units of inventory for \(4,000 on account from Sparkle
Company on terms, 5/10, n/20.
5 Purchased 1,200 units of inventory from Borax on account with terms
4/10, n/30. The total invoice was for \)6,000, which included a \(300
freight charge.
7 Returned 300 units of inventory to Sparkle from the December 2
purchase.
9 Paid Borax.
11 Sold 500 units of goods to Happy Maids for \)5,500 on account with
termsn/30.
12 Paid Sparkle.
15 Received 100 units with a sales price of \(1,100 of goods back from
customer Happy Maids.
21 Received payment from Happy Maids, settling the amount due in full.
28 Sold 500 units of goods to Bridget, Inc. on account for \)6,500. Terms
1/15,n/30.
29 Paid cash for utilities of \(550.
30 Paid cash for Sales Commission Expense of \)214.
31 Received payment from Bridget, Inc., less discount.
31 Recorded the following adjusting entries:
a. Physical count of inventory on December 31 showed 800 units of
goods on hand.
b. Depreciation, \(150.
c. Accrued salaries expense of \)2,100.
d. Estimated sales returns of \(1,500, with cost of \)540.
e. Prepared all other adjustments necessary for December (Hint: You willneed to review the adjustment information in Chapter 3 to determinethe remaining adjustments). Assume the cleaning supplies left atDecember 31 are $50.
Requirements
1. Prepare perpetual inventory records for December for Crystal Clear Cleaning usingthe FIFO inventory costing method. (Note: You must calculate the cost of goodssold on the 11th, 28th, and 31st (adjusting entry a).) Round per unit costs to twodecimal places.
Clarmont Resources, which uses the FIFO inventory costing method, has the following account balances at May 31, 2019, prior to releasing the financial statements for the year:
Merchandise Inventory, ending \( 13,500
Cost of Goods Sold 68,000
Net Sales Revenue 123,000
Clarmont has determined that the current replacement cost (current market value) of the May 31, 2019, ending merchandise inventory is \)12,400.
Requirements
1. Prepare any adjusting journal entry required from the information given.
Assume that AB Tire Store completed the following perpetual inventory transactions for a line of tires:
May 1 Beginning merchandise inventory 16 tires @ \( 65 each
11 Purchase 10 tires @ \) 78 each
23 Sale 12 tires @ \( 88 each
26 Purchase 14 tires @ \) 80 each
29 Sale 18 tires @ $ 88 each
Requirements
3. Compute cost of goods sold and gross profit using the weighted-average inventory costing method. (Round weighted-average cost per unit to the nearest cent and all other amounts to the nearest dollar.)
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