exercises

Exercise 8-1

Perpetual and periodic inventory systems compared

· LO1

  The following information is available for the Kleinschmidt Corporation for 2009:

      Beginning inventory  $112,000

      Merchandise purchases (on account)  265,000

      Freight charges on purchases (on account)  16,000

      Merchandise returned to supplier (for credit)  6,000

      Ending inventory  123,000

      Sales (on account)  350,000

      Cost of merchandise sold  264,000

Required:

Applying both a perpetual and a periodic inventory system, prepare the journal entries that summarize the transactions that created these balances.  Include all end-of-period adjusting entries indicated.

Exercise 8-2

Trade and purchase discounts; the gross method and the net method compared 

· LO3

  The Kavendish Company, a manufacturer of commercial-use washing machines, sold 50 units to the E-z Sleep Motel chain on January 14, 2009.  The units have a list price of $800 each, but E-z Sleep was given a 25% trade discount.  The terms of the sale were 2/10, n30. E-z Sleep uses a periodic inventory system.

Required:

1. Prepare the journal entries to record the purchase by E-z Sleep on January 14 and payment on January 23, 2009, using the gross method of accounting for purchase discounts.

2. Prepare the journal entries to record the purchase on January 14 and payment on February 13, 2009, using the gross method of accounting for purchase discounts.

3. Repeat requirements 1 and 2 using the net method of accounting for purchase discounts.

Exercise 8-3

Goods in transit; consignment 

· LO2

  The December 31, 2009, year-end inventory balance of the Delphi Printing Company is $317,000.  You have been asked to review the following transactions to determine if they have been correctly recorded.

1. Materials purchased from a supplier and shipped to Delphi f.o.b. destination on December 28, 2009, were received on January 2, 2010.  The invoice cost of $50,000 is not included in the preliminary inventory balance.

2. At year-end, Delphi had $12,000 of merchandise on consignment from the Harvey Company.  This merchandise is included in the preliminary inventory balance.

3. On December 29, merchandise costing $17,000 was shipped to a customer f.o.b. shipping point and arrived at the customer’s location on January 3, 2010.  The merchandise is not included in the preliminary inventory balance.

4. Materials purchased from a supplier and shipped to Delphi f.o.b. shipping point on December 28, 2009 were received on January 4, 2010. The invoice cost of $32,000 is not included in the preliminary inventory balance.

Required:

Determine the correct inventory amount to be reported on Delphi's 2009 balance sheet.

Exercise 8-4

Inventory cost flow methods; perpetual system

· LO4

  The Alpenrose Milk Company uses a perpetual inventory system.  The following transactions affected its merchandise inventory during the month of March, 2009:

March 1 — Inventory on hand — 3,000 units; cost $8.00 each.

March 8  — Purchased 5,000 units for $8.40 each.

March 14 — Sold 4,000 units for $14.00 each.

March 18 — Purchased 6,000 units for $8.20 each.

March 25 — Sold 7,000 units for $14.00 each.

March 31 — Inventory on hand — 3,000 units.

Required:

Determine the inventory balance Alpenrose would report on its March 31, 2009, balance sheet and the cost of goods sold it would report on its March, 2009, income statement using each of the following cost flow methods:

      1. First-in, first-out (FIFO)

      2. Last-in, first-out (LIFO)

      3. Average cost

Exercise 8-5

Average cost method; periodic and perpetual systems

· LO1 LO4

  The following information is taken from the inventory records of the Bauxite Company:

      Beginning inventory, 4/1/09 7,000 units @ $22.00

      Purchases:

            4/5 6,000 units @ $22.65

            4/26 9,000 units @ $24.00

      Sales:

            4/11 5,000 units

            4/28 8,000 units

        9,000 units were on hand at the end of April.

Required:

1. Assuming that Bauxite uses a periodic inventory system and employs the average cost method, determine cost of goods sold for April and April’s ending inventory.

2. Repeat requirement 1 assuming that the company uses a perpetual inventory system.

Exercise 8-6

Dollar-value LIFO

· LO8

  On January 1, 2009, the Delbridge Company adopted the dollar-value LIFO method for its one inventory pool.  The pool’s value on this date was $832,000.  The 2009 and 2010 ending inventory valued at year-end costs were $954,000 and $975,000, respectively.  The appropriate cost indexes are 1.02 for 2009 and 1.05 for 2010.

Required:

Calculate the inventory value at the end of 2009 and 2010 using the dollar-value LIFO method.

PROBLEMS

Problem 8-1

Various inventory transactions; determining inventory and cost of goods sold

· LO1 through LO3

  The Helmut and King Corporation began 2009 with inventory of 8,000 units of its only product.  The units cost $10.00 each.  The company uses a periodic inventory system and the LIFO cost method.  The following transactions occurred during 2009:

1. Purchased 40,000 additional units at a cost of $11.00 per unit.  Terms of the purchases were 2/10, n30, and 80% of the purchases were paid for within the 10 day discount period.  The company uses the gross method to record purchase discounts.  The merchandise was purchased f.o.b. shipping point and freight charges of $1.00 per unit were paid by Helmut and King.

2. Sales for the year totaled 46,000 units at $20.00 per unit.

3. On December 28, 2009, Helmut and King purchased 5,000 additional units at $12.00 each (price includes freight of $1.00 per unit).  The goods were shipped f.o.b. shipping point and arrived at Helmut and King’s warehouse on January 4, 2010.  The terms of the purchase were n30.

4. 2,000 units were on hand at the end of 2009.

Required:

   Determine ending inventory and cost of goods sold for 2009.

Problem 8-2

Various inventory costing methods

· LO1 LO4

  Callahan & Sons began 2009 with 10,000 units of its principle product.  The cost of each unit is $25.00.  Merchandise transactions for the month of January, 2009, are as follows:

      Purchases

       Date of  

      Purchase Units Unit Cost* Total Cost

      Jan.  4 8,000 $ 24.00   $192,000

      Jan.  22 7,000  27.00  189,000

         Totals 15,000  $381,000

      * includes purchase price and cost of freight.

  Sales for the month totaled 13,000 units, leaving 12,000 units on hand at the end of the month.

Required:

Calculate January’s ending inventory and cost of goods sold for the month using each of the following alternatives:

      1.  FIFO, periodic system

      2.  LIFO, periodic system

      3.  Average cost, periodic system