6:11: Problems

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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:

Prepare inventory record cards for Products A and B for the year using the weighted average inventory cost flow assumption.
Calculate total cost of ending inventory at December 31, 2020.
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:

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.
Calculate the gross profit and the gross profit percentage.
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:

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.
Calculate the gross profit and the gross profit percentage.
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:

Calculate the LCNRV for each group.
Calculate the LCNRV for each individual product.
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:

Prepare a schedule of calculations to estimate the company's ending inventory at the end of the quarter using the gross profit method.
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:

Prepare a schedule of calculations to estimate the company's ending inventory at the end of the quarter using the retail inventory method.
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:

Calculate the impact of this error on the gross profit calculated for 2016 and 2017.
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.