Measuring and Reporting Inventories Practice Problems

Complete the practice problems. Check your answers after you finish.

Demonstration problem

Demonstration problem A 

Following are data related to Adler Company's beginning inventory, purchases, and sales:

Beginning Inventory and Purchases

Sales

Units

 

Unit Cost

 

Units

Beginning inventory 6,250

@

$3.00

February 3

5,250

March 15 5,000

@

3.12

May 4

4,500

May 10 8,750

@

3.30

September 16

8,000

August 12 6,250

@

3.48

October 9

7,250

November 20 3,750

@

3.72

 

 

30,000

 

 

 

25,000

 

a. Compute the ending inventory under each of the following methods:

Specific identification (assume ending inventory is taken equally from the August 12 and November 20 purchases).

FIFO: (a) Assume use of perpetual inventory procedure.

(b) Assume use of periodic inventory procedure.

LIFO: (a) Assume use of perpetual inventory procedure.

(b) Assume use of periodic inventory procedure.

Weighted-average: (a) Assume use of perpetual inventory procedure.

(b) Assume use of periodic inventory procedure.

(Carry unit cost to four decimal places and round total cost to nearest dollar.)


b. Give the journal entries to record the individual purchases and sales (Cost of Goods Sold entry

only) under the LIFO method and perpetual procedure.


Demonstration problem B 

a. Joel Company reported annual net income as follows:

2007.... USD 27,200

2008.... USD 28,400 2009.... USD 24,000

Analysis of the inventories shows that certain clerical errors were made with the following results:

 

Incorrect inventory amount

Correct inventory amount

2007 December 31

$4,800

$5,680

2008 December 31

5,600

4,680

 

What is the corrected net income for 2007, 2008, and 2009?

b. The records of Little Corporation show the following account balances on the day a fire destroyed

the company's inventory:

Merchandise inventory, January 1 USD 40,000

Net cost of purchases (to date) USD 200,000

Sales (to date) USD 300,000

Average rate of gross margin for the past five years 30 per cent of net sales.

Compute an estimated value of the ending inventory using the gross margin method. c. The records of Draper Company show the following account balances at year-end:

 

Cost

Retail

Merchandise inventory, January 1

$17,600

$25,000

Purchases

68,000

100,000

Transportation-in

1,900

 

Sales

 

101,000

 

Compute the estimated ending inventory at cost using the retail inventory method.



Source: Textbook Equity, https://learn.saylor.org/pluginfile.php/41219/mod_resource/content/3/AccountingPrinciples.pdf
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