6.10: Exercises

EXERCISE 6–1 (LO1)

Laplante Inc. uses the perpetual inventory system. The following transactions took place during January 2021.

Date		Units	Unit Cost
Jan. 1	Opening Inventory	100	$1
7	Purchase #1	10	2
9	Sale #1	80
21	Purchase #2	20	3
24	Sale #2	40

Required: Using the table below, calculate cost of goods sold for the January 9 and 24 sales, and ending inventory using the FIFO cost flow assumption.

		Purchased (Sold)			Balance
Date		Units	Unit Cost	COGS	Units		Unit Cost		Total Cost
Jan. 1	Opening Inventory				100	×	$1	=	$100
7	Purchase #1
9	Sale #1
21	Purchase #2
24	Sale #2

EXERCISE 6–2 (LO1)

Using the information from EXERCISE 6–1, calculate the cost of goods sold for the January 9 and 24 sales, and ending inventory using the Specific Identification cost flow assumption. Assume that:

1. on January 9, the specific units sold were 72 units from opening inventory and 8 units from the January 7 purchase and
2. the specific units sold on January 24 were 23 units from opening inventory and 17 units from the January 21 purchase.

EXERCISE 6–3 (LO1)

ABBA uses the weighted average inventory cost flow assumption under the perpetual inventory system. The following transactions took place in January 2018.

Date		Units	Unit Selling Price/Cost
Jan. 1	Opening Inventory	2,000	$0.50
5	Sale #1	1,200	5.00
6	Purchase #1	1,000	2.00
10	Purchase #2	500	1.00
16	Sale #2	2,000	6.00
21	Purchase #3	1,000	2.50

All sales are made on account. Round all per unit costs to two decimal places.

Required:

1. Record the journal entry for the January 5 sale. Show calculations for cost of goods sold.
2. Record the journal entry for the January 16 sale. Show calculations for cost of goods sold.
3. Calculate ending inventory in units, cost per unit, and total cost.

EXERCISE 6–4 (LO2)

Listed below are four common accounting errors.

	2016 Statements				2017 Statements
Errors	Opening Invent.	Ending Invent.	2016 Total Assets	2016 Net Income	Opening Invent.	Ending Invent.	2017 Total Assets	2017 Net Income
1. Goods purchased in 2016 were included in the December 31, 2016 inventory, but the transaction was not recorded until early 2017.	N/E
2. Goods purchased in 2017 were included in December 31, 2016 inventory, and the transaction was recorded in 2016.	N/E

Required: Use N/E (No Effect), O (Overstated), or U (Understated) to indicate the effect of each error on the company's financial statements for the years ended December 31, 2016 and December 31, 2017. The opening inventory for the 2016 statements is done.

EXERCISE 6–5 (LO2)

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

	2021	2022	2023
Sales	$30,000	$40,000	$50,000
Cost of Goods Sold	20,000	23,000	25,000
Gross Profit	$10,000	$17,000	$25,000

Required:

1. Calculate the impact of the two errors listed below on the gross profit calculated for the three years:
   1. The 2021 ending inventory was understated by $2,000.
   2. The 2023 ending inventory was overstated by $5,000.
2. What is the impact of these errors on Total Assets?

EXERCISE 6–6 (LO3)

Erndale Products Ltd. has the following items in inventory at year-end:

Item	Units	Cost/Unit	NRV/Unit
X	2	$50	$60
Y	3	150	75
Z	4	25	20

Required: Calculate the cost of ending inventory using LCNRV on

1. A unit-by-unit basis
2. A group inventory basis.

EXERCISE 6–7 (LO4)

Windy City Insurance Ltd. has received a fire-loss claim of $45,000 from Balton Corp. A fire destroyed Balton's inventory on May 25, 2015. Balton has an average gross profit of 35%. You have obtained the following information:

Inventory, May 1, 2015	$80,000
Purchases, May 1 - May 25	150,000
Sales, May 1 - May 25	300,000

Required:

1. Calculate the estimated amount of inventory lost in the fire.
2. How reasonable is Balton's claim?

EXERCISE 6–8 (LO5)

The following account balances for Cost of Goods Sold and Merchandise Inventory were extracted from Able Corp.'s accounting records:

	2025	2024	2023	2022	2021
Cost of Goods Sold	370,000	400,000	420,000	440,000	450,000
Merchandise Inventory	120,000	111,250	88,750	111,250	88,750

Required:

1. Calculate the Merchandise Inventory Turnover for each of the years 2022 to 2025.
2. Is the change in Able Corp.'s Merchandise Inventory Turnover ratio favourable or unfavourable? Explain.