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Chapter 6: 7RQ (page 357)
When using a perpetual inventory system and the weighted-average inventory costing method, when does the business compute a new weighted-average cost per unit?
The average cost is computed after making every purchase.
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Question:Antique Carpets鈥檚 books show the following data. In early 2020, auditors found that the ending merchandise inventory for 2017 was understated by \(8,000 and that theending merchandise inventory for 2019 was overstated by \)9,000. The ending merchandiseinventory at December 31, 2018, was correct.
2019 | 2018 | 2017 | |
Net Sales Revenue | \( 212,000 | \) 161,000 | \( 170,000 |
Cost of Goods Sold: | |||
Beginning Merchandise Inventory | \)22,000 | \(28,000 | \)41,000 |
Net cost of purchase | 131,000 | 100,000 | 86,000 |
Cost of goods available for sale | 153,000 | 128,000 | 127,000 |
Less: Ending Merchandise Inventory | 34,000 | 22,000 | 28,000 |
Cost of goods sold | 119,000 | 106,000 | 99,000 |
Gross Profit | 93,000 | 55,000 | 71,000 |
Operating Expenses | 63,000 | 28,000 | 39,000 |
Net Income | \( 30,000 | \) 27,000 | $ 32,000 |
Requirements
1. Prepare corrected income statements for the three years.
Right Now Electronic Center began October with 100 units of merchandise inventory that cost \(70 each. During October, the store made the following purchases:
Oct. 3 35 units @ \) 82 each
12 45 units @ \( 84 each
18 75 units @ \) 90 each
Right Now uses the periodic inventory system, and the physical count at October 31indicates that 130 units of merchandise inventory are on hand.
Requirements
3. Which method will result in the lowest income taxes for Right Now? Why? Whichmethod will result in the highest net income for Right Now? Why?
Steel Mill began August with 50 units of iron inventory that cost \(35 each. During August, the company completed the following inventory transactions:
Units Unit Cost Unit Sales Price
Aug. 3 Sale 45 \) 85
8 Purchase 90 $ 54
21 Sale 85 88
30 Purchase 15 58
Requirements
5. Compute gross profit for August using FIFO, LIFO, and weighted-average inventory costing methods.
What account is debited when recording the adjusting entry to write down merchandise inventory under the LCM rule?
Question:Assume that Toys Galore store bought and sold a line of dolls during December as follows:
Dec. 1 Beginning merchandise inventory 13 units @ \( 9 each
8 Sale 8 units @ \) 22 each
14 Purchase 16 units @ \( 14 each
21 Sale 14 units @ \) 22 each
Requirements
5. Which method results in a higher gross profit?
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