INTERMEDIATE ACCOUNTING 321 FEB 28, 2018 TAD MILLER INVENTORY TEST
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1 INTERMEDIATE ACCOUNTING 321 FEB 28, 2018 TAD MILLER INVENTORY TEST WHAT S INCLUDED IN INVENTORY? The Tucson Corporation's fiscal year ends on December 31. Tucson determines inventory quantity by a physical count of inventory on hand at the close of business on December 31. Which of the following items should be included in the ending inventory. Please state next to each item 'include' or don't include. include don t include Goods purchased from a vendor shipped f.o.b. shipping point on December 24 that arrived on January 4. include don t include Goods shipped to a customer f.o.b. shipping point on December 27 which arrived at the customer's location on January 4. include don t include Goods purchased from a vendor shipped f.o.b. destination on Dec. 27 that arrived on January 5. include don t include Freight charges on goods purchased in the previous line include don t include Merchandise Tucson Corp. held on consignment for Phoenix, Inc. PURCHASES GROSS METHOD PERIODIC INVENTORY SYSTEM On Feb. 21 st, OUR COMPANY ordered merchandise with an invoice price of $400 having terms 1%/15 n/30 fob shipping point, which the supplier shipped on Feb. 22 nd. We received the merchandise on Feb. 24 th. Prepare the following entries 2. On what date would you record the purchase? Prepare the entry to record the purchase and be sure to date the journal entry. 3. On Feb. 28 th when we send the supplier a check for $ On Mar. 15 th when we pay the balance in our account 2/22 Purchases Accounts payable /28 Accounts payable Purchase discount 2.02 Cash /15 Accounts payable Cash
2 PURCHASES NET METHOD PERPETUAL INVENTORY SYSTEM On Jan, 28 th, OUR COMPANY ordered merchandise with an invoice price of $800 (40 units costing $20 apiece) having terms 1%/15 n/30 fob destination, which the supplier shipped on Jan. 30 th. We received the merchandise on Feb. 2 nd. Prepare the following entries 5. On what date would you record the purchase? Prepare the entry to record the purchase and be sure to date the journal entry. 6. On Feb. 8 th when we send the supplier a check for $ On Feb. 20 th when we return 5 units of merchandise to the supplier 8. On Feb. 28 th when we write a check to pay the balance in our account. 2/2 Inventory Accounts payable /8 Accounts payable Cash /20 Accounts payable Inventory /28 Accounts payable Interest expense 3.97 Cash FINANCIAL STATEMENT PRESENTATION a. What effect do the FOUR previous Journal Entries have on Current Assets? b. What effect do the FOUR previous Journal Entries have on Net Income? c. In which section(s) of the income statement will this be reported? Increase no effect Decrease Current Assets $_ 3.97 Increase no effect Decrease Net Income $ _ 3.97 This will be reported in which section of the Income Statement Operating Non Operating After Income Tax n/a
3 COST FLOW ASSUMPTIONS - PERPETUAL Use the information presented below for the next set of problems Purchases Sales Qty Cost qty price 1-Jan Jan Jan Jan Jan Jan Cash (or Acc Rec) Sales Cost of goods sold Inventory Use FIFO Perpetual to prepare the entry for the Jan. 15 th sale of 18 units for $12/unit. 11. Use LIFO-Perpetual to calculate Cost of Goods Sold for January and the inventory balance on Jan Use AVERAGE COST - PERPETUAL to calculate Cost of Goods Sold for January and the inventory balance on Jan. 31.
4 qty cost 1/1 beginning /17 purchase /28 purchase available sold inventory COST FLOW ASSUMPTIONS - PERIODIC OUR COMPANY. sold 47 units for $15 each. Use the following information for the next three problems 13. Use Average Cost Periodic to PREPARE THE CLOSING ENTRY (or Adjusting Entry), to record Cost of Goods Sold for January. 14. Use FIFO - Periodic to calculate Cost of Goods Sold and ending Inventory. 15. Use LIFO - Periodic to calculate Cost of Goods Sold and ending Inventory..
5 use this informat part no qty cost NRV item 16. LOWER OF COST OR NET REALIZABLE VALUE Use the information in the above table to calculate Lower of Cost or Net Realizable Value using the total inventory method. 17. LOWER OF COST OR NET REALIZABLE VALUE Use the information in the above table to calculate Lower of Cost or Net Realizable Value on an item by item basis. 18. LOWER OF COST OR NET REALIZABLE VALUE Prepare the necessary Journal Entry using the information from the previous problem. 20. LOWER OF COST OR MARKET Because OUR Co. uses LIFO, we must report the Lower of Cost of Market. Calculate Market for each of the products in the following table A1 A2 B11 B12 Replacement cost Selling price Direct selling costs Normal profit MARKET (fill in)
6 19. DOLLAR-VALUE LIFO On Jan. 1, 2016 OUR Co. adopted dollar-value LIFO. The inventory balance on that date was $3,000 and the cost index was The replacement cost of the inventory was $5,565 on 12/31/16 and $6,600 on 12/31/17. The cost indices were 1.10 for 2016 and 1.20 for Calculate the inventory values that we would report on the balance sheet for 12/31/16 and 12/31/17 using dollar-value LIFO. at in LIFO year-end index base-year layers index LIFO inventory costs dollars base-year layers balance 1/1/2016 3, , , , , /31/2016 5, , , , , /31/2017 6, , , DOLLAR-VALUE LIFO WITH A REDUCTION OF A PRIOR LAYER On Jan. 1, 2016 OUR Co. adopted dollar-value LIFO when the inventory balance was $8,000 and the cost index was The replacement cost of the inventory was $11,130 on 12/31/16 and $12,000 on 12/31/17. The cost indices were 1.10 for 2016 and 1.20 for Calculate the inventory values that we would report on the balance sheet for 12/31/16 and 12/31/17 using dollar-value LIFO. at in LIFO year-end index base-year layers index LIFO inventory costs dollars base-year layers balance 1/1/2016 8, , , , , /31/ , , , , , /31/ , , ,200.00
7 21. GROSS PROFIT METHOD OF ESTIMATING THE INVENTORY BALANCE On Jan. 1, 2018 OUR Co. had $200 inventory. Through Feb. 23 rd they had purchased $1,000 of merchandise. During the same period they had net sales of $1,500. The gross margin has averaged 25% over the last three years. Use the gross profit method to estimate the balance in the inventory account they would report if they were producing financial statements on Feb 23 rd. cost retail 1/1/18 balance sales 100.0% Purchases 1, , CoGS 75.0% available 1, , Gross Profi 25.0% sales 1, /23/17 balance CoGS 1, RETAIL METHOD SIMPLE Use the retail method which approximates average cost. On Jan. 1, 2018 OUR Co. had inventory costing $200 which was priced to sell for $350. During the year they purchased $1,900 of merchandise which they priced to sell for $2,650; they had net sales of $2,500. Use the retail method to estimate the cost of goods sold and the inventory balance OUR Co. will report on its financial statement. Calculate Ratios to 3 decimal places and dollar amounts to 2 decimal places. 23. PREPARE THE JOURNAL ENTRY TO RECORD THE INVENTORY BALANCE This may sound tricky but it is rather simple if you think about it for a minute. HINT: The Retail Method is a form of Periodic Inventory. cost retail 1/1/18 balance Purchases 1, , available 2, , sales 2, /31/18 balance CoGS 1, Cost of goods sold 1,750 Inventory 350 Inventory 200 Purchases 1,900
8 24. RETAIL METHOD WHICH APPROXIMATES AVERAGE COST Use the retail method which approximates average cost to estimate the cost of goods sold and inventory balance OUR Co. will report on its financial statement. Ratios to 3 decimal places and dollar amounts to 2 decimal places. Clearly indicate the balance they will report on the balance sheet. OUR Co. began the year with merchandise costing 1, which was priced to sell for 1, we purchased merchandise costing 11, which was priced to sell for 13, we had Markdowns Markups of Net Sales 13, ratio , Need to account for 15, sales 13, Inventory at Retail 1, , Cost of Goods Sold 25. CONVENTIONAL RETAIL METHOD WHICH APPROXIMATES LOWER OF COST AND NET REALIZABLE VALUE Use the retail method which approximates Lower of Cost and NRV to estimate the cost of goods sold and inventory balance OUR Co. will report on its financial statements. Ratios to 3 decimal places and dollar amounts to 2 decimal places. Clearly indicate the balance they will report on the balance sheet. OUR Co. began the year with merchandise costing which was priced to sell for we purchased merchandise costing 1, which was priced to sell for 2, we had Markdowns Markups of Net Sales 2, ratio , Need to account for 2, sales 2, markdowns Inventory at Retail , Cost of Goods Sold
9 26. LIFO RETAIL Use LIFO Retail Method to NRV to estimate the cost of goods sold and inventory balance OUR Co. will report on its financial statements. Ratios to 3 decimal places and the dollar amounts to 2 decimal places. Clearly indicate the balance we will report on the balance sheet. 1/1/18 Inventory balance which was priced to sell for Purchases 3, which was priced to sell for 6, Net Sales 5, layer # layer2 3, , available 3, , Net Sales 5, layer # layer , Inventory Cost of Goods Sold 2, CHANGE INVENTORY COST FLOW ASSUMPTION FROM AVERAGE COST TO FIFO OUR Co. used the average cost method to determine the 12/31/16 inventory balance of $100. During 2017, OUR Co. decided to change from average cost to FIFO. If we had used FIFO from the inception of the company, the 12/31/16 inventory balance would have been $97. On 12/31/17 we used FIFO to determine the inventory balance was $110. Is a Journal Entry necessary to record the change from Ave Cost to FIFO If a Journal Entry is necessary, prepare the Journal Entry Retained Earnings 3 Inventory 3 Yes or No 28. FINANCIAL STATEMENT PRESENTATION What effect will the previous journal entry have on current assets as of 12/31/16? What effect will the previous journal entry have on 2017 net income? If applicable, in which section of the income statement would any resulting revenues or gains be reported? Increase no effect Decrease Current Assets by what amount: $ _3 Increase no effect Decrease 2017 Net Income by what amount: $ 0 Reported in which section of the Income Statement: Operating Non Operating After Income Tax n/a
10 29. CHANGE INVENTORY COST FLOW ASSUMPTION FROM FIFO TO LIFO OUR Co. used FIFO to determine the 12/31/16 inventory balance of $125. During 2017, OUR Co. decided to change from FIFO to LIFO. We are unable to determine what the 12/31/16 inventory balance would have been if we had used LIFO from the inception of the company. On 12/31/17 we calculated the inventory balance to be $131 using FIFO. Is a Journal Entry necessary to record the change from FIFO to LIFO If a Journal Entry is necessary, prepare the Journal Entry Yes or No 30. ERRORS IN INVENTORY On Jan. 26, 2018 we realized that OUR Co. made an error in determining the 12/31/17 inventory balance. This error caused the 12/31/17 inventory balance to be understated by $17. We use a periodic inventory system. Is a Journal Entry necessary to correct this error If a Journal Entry is necessary, prepare the Journal Entry Inventory 17 Retained Earnings 17 Yes or No
11 31. ERRORS IN INVENTORY On Feb. 26, 2018 we realized that we had made an error in determining our 12/31/2016 inventory balance. This error caused the 12/31/2016 inventory balance to be overstated by $23. The 12/31/2017 Inventory balance was correct and there are no other errors. We use a periodic inventory system. Is a Journal Entry necessary to correct this error If a Journal Entry is necessary, prepare the Journal Entry Yes or No 32. FINANCIAL STATEMENT PRESENTATION What effect did the aforementioned error have on the 12/31/17 balance sheet and the 2017 income statement. What effect will the previously described ERROR have on current assets as of 12/31/16? What effect will the previously described ERROR have on retained earnings as of 12/31/16? What effect will the previously described error have on 2016 net income? $ understated no effect overstated Current Assets as of 12/31/17 $ understated no effect overstated Retained Earnings as of 12/31/17 $ 23 understated no effect overstated Net Income for 2017
12 33. INVENTORY Calculate the 1) average days in inventory and 2) inventory turnover ratio. Use this information to calculate ratios for the following problems 12/31/ /31/2014 Sales 4, , Cost of goods sold 2, , Gross profit 1, , Accounts receivable Inventory Ave Inv ( )/ days in INV CoGS 2,880 / 365 days 7.89 / day CoGS 2,880 2, turns Ave Inv ( )/2 480
PURCHASES - GROSS METHOD
INTERMEDIATE ACCOUNTING 321 MAY 21, 2016 TAD MILLER INVENTORY TEST 03. 2184 Round your answers to the nearest cent $xxx.xx PURCHASES - GROSS METHOD - PERIODIC INVENTORY SYSTEM On May 10 th Our Co. ordered
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