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6:11: Problems

  • Page ID
    33001
  • PROBLEM 6–1 (LO1)

    Southern Cross Company Limited made the following purchases and sales of Products A and B during the year ended December 31, 2020:

    Product A
    Units Unit Cost/Selling Price
    Jan. 07 Purchase #1 8,000 $12.00
    Mar. 30 Sale #1 9,000 16.00
    May 10 Purchase #2 12,000 12.10
    Jul. 04 Sale #2 14,000 17.00
    Product B
    Units Unit Cost/Selling Price
    Jan. 13 Purchase #1 5,000 $13.81
    Jul. 15 Sale #1 1,000 20.00
    Oct. 23 Purchase #2 7,000 14.21
    Dec. 14 Sale #2 8,000 21.00

    Opening inventory at January 1 amounted to 4,000 units at $11.90 per unit for Product A and 2,000 units at $13.26 per unit for Product B.

    Required:

    1. Prepare inventory record cards for Products A and B for the year using the weighted average inventory cost flow assumption.
    2. Calculate total cost of ending inventory at December 31, 2020.
    3. Calculate the gross profit percentage earned on the sale of
      1. Product A in 2020 and
      2. Product B in 2020.

    PROBLEM 6–2 (LO1) Challenge Question – Assigning Costs to Inventory

    Below are various inventory related transactions:

    Jan 1 Inventory, opening 500 units @ $10 = $5,000
    4 Sale 100 units @ $20 = 2,000
    6 Purchase 200 units @ $11 = 2,200
    8 Purchase return (from Jan 6 purchase) (10) units @ $11 = (110)
    9 Sale 200 units @ $22 = 4,400
    10 Sales return from customer from Jan 4 sale (returned to inventory) (15) units @ $22 = (330)
    15 Sale 150 units @ $23 = 3,450
    17 Purchase 300 units @ $9 = 2,700
    19 Sales return from customer from Jan 15 sale (beyond repair, disposed) (2) units $23 = (46)
    20 Sale 400 units @ $21 = 2,100

    Required:

    1. Complete an inventory record card (schedule) the same as the example shown in Figure 6.9 of the text and with totals at the bottom. Assume that the FIFO method was used.
    2. Calculate the gross profit and the gross profit percentage.
    3. What is the ending inventory balance at January 20, 2016?

    PROBLEM 6–3 (LO1) Assigning Costs to Inventory

    Below are various inventory related transactions:

    Purchases:

    Feb 1 Opening inventory 75 units @ $12
    Feb 7 Purchase 300 units @ $11
    Feb 14 Purchase return from Feb 7 10 units @ $11
    Feb 19 Purchase 400 units @ $9

    Sales Price: $24.00

    Units Sold:

    Feb 5 70 units
    Feb 12 180 units
    Feb 17 100 units
    Feb 23 80 units

    Required:

    1. Complete an inventory record card (schedule) the same as the example shown in Figure 6.9 of the text and with totals at the bottom. Assume that a weighted average cost method was used. Round unit costs to the nearest two decimals.
    2. Calculate the gross profit and the gross profit percentage.
    3. What is the ending inventory balance at February 23, 2016?

    PROBLEM 6–4 (LO2) Inventory Errors

    The following table shows the following financial data for AAA Ltd. for the year ended December 31, 2016:

    Financial Data
    For the year ended December 31, 2016
    2015 2016
    Cost of goods sold $ 500,000 $ 660,000
    Net income 250,000 350,000
    Total assets 1,500,000 1,400,000
    Equity 1,400,000 1,300,000

    The following errors were made:

    The inventory count for 2015 was overstated by $45,000.

    Required: Calculate the corrected cost of goods sold, net income, total assets and equity for 2015 and 2016.

    PROBLEM 6–5 (LO2) Inventory Errors

    Using the data from PROBLEM 6–4, the following table shows the following financial data for AAA Ltd. for the year ended December 31, 2016:

    Financial Data
    For the year ended December 31, 2016
    2015 2016
    Cost of goods sold $ 500,000 $ 660,000
    Net income 250,000 350,000
    Total assets 1,500,000 1,400,000
    Equity 1,400,000 1,300,000

    The following errors were made:

    The inventory count for 2015 was understated by $30,000.

    Required: Calculate the corrected cost of goods sold, net income, total assets and equity for 2015 and 2016.

    PROBLEM 6–6 (LO3) Lower of Cost and Net Realizable Value

    Below are the inventory details for Almac Flooring Ltd.:

    Ceramic Wall Tiles: # of Units Cost/Unit NRV/Unit

    White

    1,025

    5.00

    6.00

    Black

    875

    4.50

    4.25

    Slate

    645

    7.00

    7.11

    Beige

    325

    2.00

    2.25

    Marble Flooring:

    Cordoba

    10,000

    9.25

    9.35

    Carrerra

    12,000

    10.50

    10.50

    Maricha

    8,000

    11.50

    11.45

    Shower Waterproofing:

    Novo

    10,035

    9.85

    9.50

    Deetra

    9.86

    6.75

    7.15

    Required:

    1. Calculate the LCNRV for each group.
    2. Calculate the LCNRV for each individual product.
    3. Prepare the adjusting entries if any for parts (1) and (2).

    PROBLEM 6–7 (LO4) Estimating Inventory and Valuation – Gross Profit Method

    Varane Ltd. is required to submit an interim financial statement to their bank as part of the line-of-credit monitoring process. Below is information regarding their first quarter business for 2017:

    Ending inventory from the previous year $420,364
    Purchases 1,323,280
    Purchase returns 18,270
    Transportation-in 9,660
    Freight-out 2,300
    Sales 1,667,610
    Sales returns 13,230
    Operating expenses 130,500
    3-year rolling average gross profit 34%
    Income tax rate 30%

    Required:

    1. Prepare a schedule of calculations to estimate the company's ending inventory at the end of the quarter using the gross profit method.
    2. Prepare a multiple-step income statement for the first quarter ending March 31, 2017.

    PROBLEM 6–8 (LO4) Estimating Inventory and Valuation – Retail Inventory Method

    Ceabane Ltd. is required to submit an interim financial statement to their creditors. Below is information regarding their first six months for 2017:

    At Cost At Retail
    Ending inventory from the previous year $659,890 $1,298,010
    Purchases 4,660,362 8,958,180
    Purchase returns 73,920 167,090
    Sales 7,693,980
    Sales returns 62,440
    Additional information:
    Operating expenses $1,500,000
    Income tax rate 30%

    Required:

    1. Prepare a schedule of calculations to estimate the company's ending inventory at the end of the quarter using the retail inventory method.
    2. Prepare a multiple-step income statement for the first six months ending June 30, 2017.

    PROBLEM 6–9 (LO2)

    Partial income statements of Schneider Products Inc. are reproduced below:

    2016 2017
    Sales $50,000 $50,000
    Cost of Goods Sold 20,000 23,000
    Gross Profit $30,000 $27,000

    The 2016 ending inventory was overstated by $2,000 during the physical count. The 2017 physical inventory count was done properly.

    Required:

    1. Calculate the impact of this error on the gross profit calculated for 2016 and 2017.
    2. What is the impact of this error on total assets at the end of 2016 and 2017? Net assets?

    PROBLEM 6–10 (LO3)

    Reflex Corporation sells three products. The inventory valuation of these products is shown below for years 2017 and 2018.

    2017 2018
    Cost Market Unit Basis (LCNRV) Cost Market Unit Basis (LCNRV)
    Product X $14,000 $15,000 ? $15,000 $16,000 ?
    Product Y 12,500 12,000 ? 12,000 11,500 ?
    Product Z 11,000 11,500 ? 10,500 10,000 ?

    Total

    ?

    ?

    ?

    ?

    ?

    ?

    Required: If Reflex values its inventory using LCNRV/unit basis, complete the 2017 and 2018 cost, net realizable value, and LCNRV calculations.