Reference no: EM131160493
INVENTORY ERRORS Assume that in year 1, the ending merchandise inventory is understated by $40,000. If this is the only error in years 1 and 2, indicate which items will be understated, overstated, or correctly stated for years 1 and 2.
Year I Year 2
Ending merchandise inventory
Beginning merchandise inventory
Cost of goods sold
Gross profit
Net income
Ending owner's capital
JOURNAL ENTRIES-PERIODIC INVENTORY Amy Douglas owns a business called Douglas Distributors. The following transactions took place during January of the current year. Journalize the transactions in a general journal using the periodic inventory method.
Jan. 5 Purchased merchandise on account from Elite Warehouse, $4,100.
8 Paid freight charge on merchandise purchased, $300.
12 Sold merchandise on account to Memories Unlimited, $5,200.
15 Received a credit memo from Elite Warehouse for merchandise returned, $700.
22 Issued a credit memo to Memories Unlimited for merchandise returned, $400.
JOURNAL ENTRIES-PERPETUAL INVENTORY Doreen Woods owns a small variety store. The following transactions took place during March of the current year. Journalize the transactions in a general journal using the perpetual inventory method.
Mar. 3 Purchased merchandise on account from Corner Galleria, $3,500.
7 Paid freight charge on merchandise purchased, $200.
13 Sold merchandise on account to Sonya Specialties, $4,250. The cost of the merchandise was $2,550.
18 Received a credit memo from Corner Galleria for merchandise returned, $900.
22 Issued a credit memo to Sonya Specialties for merchandise returned, $500. The cost of the merchandise was $300.
ENDING INVENTORY COSTS Danny Steele owns a small specialty store, named Steele's Storeroom, whose year-end is June 30.
Determine the total amount that should be included in Steele's Storeroom's year-end inventory. A physical inventory taken on
June 30 reveals the following:
Cost of merchandise on the showroom floor and in the warehouse $42,600
Goods held on consignment (consignor is Quality Manufacturer) 7,600
Goods that Steele's Storeroom, as the consignor, has for sale at the location of Midtown Galleria 8,300
Sales invoices indicate that merchandise was shipped on June 28, terms FOB shipping point, delivered at buyer's receiving dock on
July 6 $4350
Sales invoices indicate that merchandise was shipped on June 26, terms FOB destination, delivered at buyer's receiving dock on
July 1 2,800LOWER-OF-COST-OR-MARKET Bouie Company's beginning inventory and purchases during the fiscal year ended December 31, 20--, were as follows:
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Units
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Unit Price
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Total Cost
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Jan. 1
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Beginning inventory
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20
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$30
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$ 600
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Mar. 5
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1st purchase
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22
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34
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748
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Sept. 9
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2nd purchase
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24
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35
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840
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Dec. 8
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3rd purchase
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22
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40
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880
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88
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$3,068
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There are 20 units of inventory on hand on December 31.
1. Calculate the total amount to be assigned to the ending inventory under each of the following periodic inventory methods:
(a) FIFO
(b) Weighted-average (round calculations to two decimal places)
2. Assume that the market price per unit (cost to replace) of Bouie's inventory on December 31, 20--, was $39. Calculate the total amount to be assigned to the ending inventory on December 31 under each of the following methods:
(a) FIFO lower-of-cost-or-market
(b) Weighted-average lower-of-cost-or-market
3. What journal entry would be made under lower-of-cost-or-market for parts 2(a) and (b) above?
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