Download 2162 Final ch 8-9 Inventory

INTERMEDIATE ACCOUNTING 321
INVENTORY
MARCH 2016
TAD MILLER
TEST 04. 2162
INVENTORY
1. PURCHASE NET METHOD RETURN IN THE DISCOUNT PERIOD. On Feb. 5th, MMC purchased
merchandise at a price of $2,000 with terms 5/15, n30. MMC recorded the purchase using
the net method. Prepare the entry when MMC makes a $1,000 payment on Feb. 14th.
2. PURCHASE NET METHOD PARTIAL PAYMENT SUBSEQUENT TO DISCOUNT PERIOD
entry when MMC pays their remaining balance on Feb. 29th.
11/5
Prepare the
Inventory
1,900.00
Accounts payable
1,900.00
3. WHAT EFFECT DOES THE 2/29 JOURNAL ENTRY HAVE ON THE FINANCIAL STATEMENTS
$___________
increase
no effect
decrease
Current Assets
$___________
increase
no effect
decrease
Gross Profit
$___________
increase
no effect
decrease
Net Income
4. PURCHASE GROSS METHOD RETURN IN THE DISCOUNT PERIOD On Feb. 5th, MMC purchased
merchandise at a price of $7,000 with terms 3/15, n30. MMC recorded the purchase using
the gross method. Prepare the entry when MMC returns goods costing $1,000 on Feb. 7th.
5. PURCHASE GROSS METHOD PARTIAL PAYMENT IN THE DISCOUNT PERIOD
when MMC makes a $5,000 payment on Feb. 13th.
2/5
product
Prepare the entry
Purchases
7,000.00
Accounts payable
7,000.00
cost
selling
price
A
B
subtotal
50.00
100.00
150.00
90.00
105.00
195.00
C
D
subtotal
total
60.00
95.00
155.00
305.00
80.00
100.00
180.00
375.00
6. LOWER OF COST AND NET REALIZABLE VALUE – BY INDIVIDUAL ITEMS MMC pays a 10%
commission on every item it sells. In addition, they pay delivery costs equal to 5% of the cost
of each item.
a. Calculate Lower of Cost and NRV using the individual item method. $__________
b. Prepare the required journal entry
7. WHAT EFFECT DOES THE JOURNAL ENTRY FROM THE PREVIOUS PROBLEM HAVE ON
$___________
increase
no effect
decrease
Current Assets
$___________
increase
no effect
decrease
Gross Profit
$___________
increase
no effect
decrease
Net Income
8. LOWER OF COST AND NRV – BY CATEGORIES Use the following data to Calculate Lower of
Cost and NRV using the logical category method.
product
cost
NRV
A
B
subtotal
150.00
300.00
235.50
268.50
C
D
subtotal
total
180.00
285.00
207.00
255.75
LOWER OF COST AND NRC
9. LOWER OF COST OR NRV – ENTIRE INVENTORY
product
quantity
cost
per unit
selling
price
$___________
$_______________
NRV
A
B
subtotal
10
8
40.00
100.00
45.00
105.00
38.50
89.50
C
D
subtotal
total
6
19
80.00
40.00
110.00
45.00
95.00
38.50
10. DOLLAR VALUE LIFO On Jan. 1, 2014 MMC adopted dollar-value LIFO. The inventory value
on that date was $200. The inventory value on 12/31/14 was $234 at year-end costs; and the
value on 12/31/15 was $297 at year-end costs. The cost index was 1.04 for 2014 and 1.08 for
2015. Use dollar-value LIFO to calculate the amount you will report for inventory on the
12/31/14 and 12/31/15 balance sheets.
11. DOLLAR VALUE LIFO REDUCTION OF A PRIOR LAYER On Jan. 1, 2014 MMC adopted dollarvalue LIFO. The inventory value on that date was $300. The inventory value on 12/31/14 was
$371 at year-end costs; and the value on 12/31/15 was $374 at year-end costs. The cost
index was 1.06 for 2014 and 1.10 for 2015. Use dollar-value LIFO to calculate the amount
you will report for inventory on the 12/31/14 and 12/31/15 balance sheets.
12. GROSS PROFIT METHOD OF ESTIMATING INVENTORY BALANCE
Use the Gross Profit Method to
estimate the inventory balance in one of MMC’s warehouses. They began the year with $300 in
inventory; they purchased $750 of goods during the period and recorded net sales of $1,000. Over the
last three years the gross profit ratio has consistently been 40%. Estimate the expected balance in
inventory.
13. RETAIL METHOD- SIMPLE
Use the Retail Method which approximated average cost to estimate
MMC’s cost of goods sold and inventory balance you will report on the balance sheet. They began the
year with $120 in inventory which was priced to sell for $195; they purchased $300 of merchandise
which they priced to sell for $505. During the year they and recorded net sales of $550.
14. PREPARE THE JOURNAL ENTRY TO RECORD INVENTORY BALANCE AT COST
This may seem tricky
but it is rather simple if you think about it for a minute.
15. RETAIL METHOD AVERAGE COST
Use the Retail Method which approximates average cost to
estimate ending inventory you will report on the balance sheet and cost of goods sold.
Calculate Ratios to 3 digits.
MMC began the year with merchandise
They purchases merchandise
They had
Sales included
costing $ 1,240
costing $ 3,816
Markdowns of $ 100
which was priced to sell for $ 2,000
which they priced to sell for $ 5,875
net sales of $ 5,425
and in Markups of $ 125
16. CONVENTIONAL RETAIL METHOD – LOWER OF COST OR NET REALIZABLE VALUE Use
Conventional Retail which approximates lower of cost or net realizable value to estimate
ending inventory you will report on the balance sheet and cost of goods sold. Calculate
Ratios to 3 digits.
MMC began the year with merchandise
They purchases merchandise
They had
Sales included
costing $ 1,240
costing $ 3,816
Markdowns of $ 100
which was priced to sell for $ 2,000
which they priced to sell for $ 5,875
net sales of $ 5,425
and in Markups of $ 125
17. CONVENTIONAL RETAIL – NORMAL SPOILAGE Use Conventional Retail which approximates
lower of cost or net realizable value to estimate ending inventory you will report on the
balance sheet and cost of goods sold. Calculate Ratios to 3 digits.
MMC began the year with merchandise
They purchases merchandise
Normal spoilage totaled
They had
Sales included
costing $ 1,240
costing $ 3,816
which was priced to sell for $ 2,000
which they priced to sell for $ 5,875
$ 100
net sales of $ 5,425
Markups of $ 125
18. RETAIL LIFO Use LIFO Retail to estimate ending inventory you will report on the balance
sheet and cost of goods sold. Calculate Ratios to 3 digits.
MMC began the year with merchandise
They purchases merchandise
They had
costing $ 1,240
costing $ 3,816
which was priced to sell for $ 2,000
which they priced to sell for $ 5,875
net sales of $ 5,425
19. CHANGE IN INVENTORY METHOD FROM AVERAGE COST TO FIFO MMC used the average cost
method to determine inventory of $123 on its 12/31/15 balance sheet. In 2016 the company
decided to change to FIFO. If the company had used FIFO from its inception. The 12/31/15
inventory balance would have been $145.
a. Is any Journal Entry necessary to record the change from Ave Cost to FiFO?
b. If a Journal Entry is necessary, prepare the necessary journal entry.
YES or NO
20. CHANGE IN INVENTORY METHOD FROM FIFO TO LIFO ORVC Co. used FIFO to calculate their
12/31/15 inventory of $435. In 2016 the company decided to change to LIFO. The company
is unable to determine what the 12/31/15 inventory balance would have been if it had used
LIFO from its inception.
a. Is any Journal Entry necessary to record the change from FiFO to LIFO?
b. If a Journal Entry is necessary, prepare the necessary journal entry.
21. CHANGE IN INVENTORY
METHODS Use and “X”
to indicate the proper
method to account for
each of the four
changes described in
left-hand columns of
the table.
YES or NO
this change is accounted for
change
from
to
1 Ave Cost to
2 Ave Cost to
4
LIFO
to
6
FIFO
to
FIFO
LIFO
FIFO
LIFO
cumulative
effect
prospectively retrospectively
22. INVENTORY ERRORS MMC made a mathematical error which caused their 12/31/15 ending
inventory to be overstated by $17. Prepare the Journal Entry necessary to correct this error
when it is detected in March 2016.
c. Is a Journal Entry necessary to correct this error?
d. If a Journal Entry is necessary, prepare the necessary journal entry.
YES or NO
23. WHAT EFFECT DID THE AFOREMENTIONED ERROR IN ENDING INVENTORY HAVE HAD ON THE
12/31/15 FINANCIAL STATEMENTS. Please notice the question refers to the 12/31/15 financial
statements.
Current Assets would have been
overstated
correct understated
by $___________
Net Income would have been
overstated
correct understated
by $___________
24. INVENTORY ERRORS MMC made a mathematical error which caused their 12/31/14 ending
inventory to be understated by $9. There were no other errors in the 2014 or 2015 financial
statements. Prepare the Journal Entry necessary to correct this error when it is detected in
March 2016.
a. Is a Journal Entry necessary to correct this error?
b. If a Journal Entry is necessary, prepare the necessary journal entry.
YES or NO
25. What effect did the aforementioned error in Ending Inventory have on the two year period
ending 12/31/15 financial statements. Please notice the question refers to a two year period.
Retained Earnings as of 12/31/15 would have been
overstated
correct understated
by $___________
Cost of Goods Sold from 1/1/14-12/31/15 would have been
overstated
correct understated
by $___________
correct understated
by $___________
Gross Profit from 1/1/14-12/31/15 would have been
overstated