Rayre Books uses the retail inventory method to estimate its monthly ending inventories. The following information is available for two of its departments of October 31, 2019.
At Decemer31, Rayre Books takes a physical inventory at retail. The actual retail values of the inventories in each department are Hardcovers $744,000 and Paperbacks $335,000.
Instructions
- Determine the estimated cost of the ending inventory for each department at October 31, 2019, using the retail inventory method.
- Compute the ending inventory at cost for each department at December 31, assuming the cost-to-retail ratios for the year are 75% for Hardcovers and 75% for Paperbacks.
Tri-State Bank and Trust is considering giving Wilfred Company a loan. Before doing so, management decides that further discussions with wilfred's accountant may be desirable. One area of particular concern is the inventory account, which has a year-end balance of $297,000. Discussions with the accountant reveal the following.
- Wilfred sold goods costing $38,000 to Lilja Company, FOB shipping point, on December 28. The goods are not expected to arrive at Lilja until January 12. The goods were not included in the physical inventory because they were not in the warehouse.
- The physical count of the inventory did not include goods costing $95,000 that were shipped to Wilfred FOB destination on December 27 and were still in transit at year-end
- Wilfred received goods costing $22,000 on January 2. The goods were shipped FOB shipping point on December 26 by Brent Co. The goods were not included in the physical count.
- Wilfred sold goods costing $35,000 to Jesse Co., FOB destination, on December 30. The goods were received at Jesse on January 8. They were not included in Wilfred's physical inventory.
- Wilfred received goods costing $44,000 on January 2 that were shipped FOB destination on December 29. The shipment was a rush order that was supposed to arrived December 31. This purchase was included in the ending inventory of $297,000.
Instructions
Determine the correct inventory amount on December 31.Kari Downs, an auditor with Wheeler CPAs, is performing a review of Depue Company's inventory account. Depue did not have a good year, and top management is under pressure to boost reported income. According to its records, the inventory balance at year-end was $740,000. However, the following information was not considered when determining that amount.
- Included in the company's count were goods with a cost of $250,000 that the company is holding on consignment. The goods belong to Kroeger Corporation.
- The physical count did not include goods purchased by Depue with a cost of $40,000 that were shipped FOB destination on December 28 and did not arrive at Depue warehouse until January 3.
- Included in the inventory account was $14,000 of office supplies that were stored in the warehouse and were to be used by the company's supervisors and managers during the coming year.
- The company received an order on December 29 that was boxed and sitting on the loading dock awaiting pick-up on December 31. The shipper picked up the goods on January 1 and delivered them on January 6. The shipping terms were FOB shipping not included in the count because they were sitting on the dock.
- On December 29, Depue shipped goods with a selling price of $80,000 and a cost of $60,000 to Macchia Sales Corporation FOB shipping point. The goods arrived on January 3. Macchia had only ordered goods with a selling price of $10,000 and a cost of $8,000. However, a sales manager at Depue had authorized the shipment and said that if Machia wanted to ship the goods back next week, it could.
- Included in the count was $40,000 of goods that were parts for a machine that the company no longer made. Given the high-tech nature of Depue's products, it was unlikely that these obsolete parts had any other use. However, management would prefer to keep them on the books at cost, "since that is what we paid for them, after all."
Instructions
Prepare a schedule to determine the correct inventory amount. Provide explanations for each item above, saying why you did or did not make an adjustment for each item.
On December 1, Kiyak Electronics Ltd. has three DVD players left in stock. All are identical, all are priced to sell at $150. One of the three DVD players left in stock, with serial #1012, was purchased on june 1 at a cost of $100. Another, with serial #1045, was purchased on November 1 for $88. the last player, serial #1056, was purchased on November 30 for $80.
Instructions
- Calculate the cost of goods sold using the FIFO periodic inventory method assuming that two of the three players were sold by the end of December, Kiyak Electronics year-end.
- If Kiyak Electronics used the specific identification method instead of the FIFO method, how might it alter its earnings by "selectively choosing" which particular players to sell to ethe two customers? What would Kiyak's cost of goods sold be if the company wished to minimize earnings? Maximize earnings?
- Which of the two inventory methods do you recommend that Kiyak use? Explain why.
Elsa's Boards sells a snowboard, Xpert, that is popular with snowboard enthusiasts, Information relating to Elsa's purchases of Xpert snowboards during September is shown below. During the same month, 121 Xpert snowboards were sold. Elsa's uses a periodic inventory system.
Instructions
- Compute the ending inventory at September 30 and cost of goods sold using the FIFO and LIFO methods. Prove the amount allocated to cost of goods sold under each method.
- For both FIFO and LIFO, calculate the sum of ending inventory and cost of goods sold. What do you notice about the answers you found for each method?
Ballas Co. uses a periodic inventory system. Its records show the following for the month of May, in which 68 units were sold.
Instructions
Compute the ending inventory at May 31 and cost of goods sold using the FIFO and LIFO methods. Prove the amount allocated to cost of goods sold under each method.
Moath Company reports the following for the month of June.
Instructions
- Compute the cost of ending inventory and the cost of goods sold under (1) FIFO and (2) LIFO.
- Which costing method gives the higher ending inventory?. Why?
- Which method results in the higher cost of goods sold?. Why?
Shawn Company had 100 units in beginning inventory at a total cost of $10,000. The company purchased 200 units at a total cost of $26,000. At the end of the year, Shawn had 75 units in ending inventory.
Instructions
- Compute the cost of ending inventory and the cost of goods sold under (1) FIFO, (2) LIFO and (3) average-cost.
- Which costing method gives the higher ending inventory?. Why?
- Which method results in the higher cost of goods sold?. Why?
Inventory data for Moath Company are presented below.
Instructions
- Compute the cost of ending inventory and the cost of goods sold using average-cost method.
- Will the results in (a) be higher or lower than the results under (1) FIFO and (2) LIFO.
- Why the average unit cost not $6?
Elliott's Hardware reported cost of goods sold as follows.
Elliott's made two errors: (1) 2019 ending inventory was overstated $3,000, and (2) 2020 ending inventory was understated $5,000.
Instructions
Compute the correct cost of goods sold for each year.
Minhajur Rahaman
