Chapter 6: 5RQ (page 357)
Discuss some measures that should be taken to maintain control over merchandise inventory.
Measures for inventory control is an interconnected process that starts from inventory procurement and ends with inventory release from the stock.
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Question:Golf Unlimited carries an inventory of putters and other golf clubs. The sales price of each putter is \(119. Company records indicate the following for a particular line ofGolf Unlimited’s putters:
Date Item Quantity Unit Cost
Nov. 1 Balance 24 \) 53
6 Sale 20
8 Purchase 30 70
17 Sale 30
30 Sale 2
Requirements
2. Journalize Golf Unlimiteds inventory transactions using the LIFO inventory costingmethod. (Assume purchases and sales are made on account.)
Discuss the materiality concept. Is the dollar amount that is material the same for a company that has annual sales of \(10,000 compared with a company that has annual sales of \)1,000,000?
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.
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
1. Prepare a perpetual inventory record for the merchandise inventory using the FIFO 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
2. State whether each year’s net income—before your corrections—is understated oroverstated, and indicate the amount of the understatement or overstatement.
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