Chapter 6: 9RQ (page 357)
What does the lower-of-cost-or-market (LCM) rule require?
The historical cost and market cost (or net realizable cost) are the two parameters that are required under the LCM approach.
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Question:Assume that Toys Galore store bought and sold a line of dolls during December as follows:
Dec. 1 Beginning merchandise inventory 13 units @ \( 9 each
8 Sale 8 units @ \) 22 each
14 Purchase 16 units @ \( 14 each
21 Sale 14 units @ \) 22 each
Requirements
2. Compute the cost of goods sold, cost of ending merchandise inventory, and grossprofit using the LIFO inventory costing method.
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
6. If the business wanted to maximize gross profit, which method would it select?
Question:Assume that Toys Galore store bought and sold a line of dolls during December as follows:
Dec. 1 Beginning merchandise inventory 13 units @ \( 9 each
8 Sale 8 units @ \) 22 each
14 Purchase 16 units @ \( 14 each
21 Sale 14 units @ \) 22 each
Requirements
1. Compute the cost of goods sold, cost of ending merchandise inventory, and grossprofit using the FIFO inventory costing 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
2. State whether each year’s net income—before your corrections—is understated oroverstated, and indicate the amount of the understatement or overstatement.
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.
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