Chapter 6: 4RQ (page 357)
What is the goal of conservatism?
The goal of conservatism is to prevent recording any unrealistic figures into the books of accounts.
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Nutriset Foods reports merchandise inventory at the lower-of-cost-or-market. Prior to releasing its financial statements for the year ended March 31, 2019, Nutriset’s preliminary income statement, before the year-end adjustments, appears as follows:
NUTRISET FOODS
Income Statement (Partial)
Year Ended March 31, 2019
Net Sales Revenue \( 118,000
Cost of Goods Sold 47,000
Gross Profit \) 71,000
Nutriset has determined that the current replacement cost of ending merchandise inventory is \(19,500. Cost is \)24,000.
Requirements
2. Prepare a revised partial income statement to show how Nutriset Foods should report sales, cost of goods sold, and gross profit.
Question:Hot Bread Bakery reported Net sales revenue of \(44,000 and cost of goods sold of \)33,000. Compute Hot Bread’s correct gross profit if the company made either of thefollowing independent accounting errors. Show your work.
a. Ending merchandise inventory is overstated by $8,000.
Question:This problem continues the Canyon Canoe Company situation from Chapter 5. At the beginning of the January 2019, Canyon Canoe Company decided to carry and sellT-shirts with its logo printed on them. Canyon Canoe Company uses the perpetualinventory system to account for the inventory. During February 2019, Canyon CanoeCompany completed the following merchandising transactions:
Feb. 2 Sold 60 T-shirts at \(10 each.
5 Purchased 50 T-shirts at \)6 each.
7 Sold 45 T-shirts for \(10 each.
8 Sold 20 T-shirts for \)10 each.
10 Canyon Canoe Company realized the inventory was running
low, so it placed a rush order and purchased 20 T-shirts. The
premium cost for these shirts was \(7 each.
12 Placed a second rush order and purchased 40 T-shirts at \)7
each.
13 Sold 20 T-shirts for \(10 each.
15 Purchased 50 T-shirts for \)6 each.
20 In order to avoid future rush orders, purchased 150 T-shirts.
Due to the volume of the order, Canyon Canoe Company
was able to negotiate a cost of \(5 each.
21 Sold 40 T-shirts for \)10 each.
22 Sold 35 T-shirts for \(10 each.
24 Sold 20 T-shirts for \)10 each.
25 Sold 45 T-shirts for \(10 each.
27 Sold 40 T-shirts for \)10 each.
Requirements
2. Provide a summary for the month, in both units and dollars, of the change in inventory in the following format:
Number of T-shirts | Dollar Amount | |
Beginning Balance | ||
Add: Purchases | ||
Less: Cost of goods sold | ||
Ending Balance |
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
3. Prepare a perpetual inventory record for the merchandise inventory using the weighted-average inventory costing method.
Some of M and C Electronics’s merchandise is gathering dust. It is now December 31, 2018, and the current replacement cost of the ending merchandise inventory is \(24,000 below the business’s cost of the goods, which was \)97,000. Before any adjustments at the end of the period, the company’s Cost of Goods Sold account has a balance of $380,000.
Requirements
2. At what amount should the company report merchandise inventory on the balance sheet?
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