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Chapter 6: Q35PGB_3 (page 371)

Some of L and K Electronics鈥檚 merchandise is gathering dust. It is now December 31, 2018, and the current replacement cost of the ending merchandise inventory is\(32,000 below the business鈥檚 cost of the goods, which was \)98,000. Before any adjustmentsat the end of the period, the company鈥檚 Cost of Goods Sold account has a balanceof $410,000.

Requirements

3. At what amount should the company report cost of goods sold on the incomestatement?

Short Answer

Expert verified

COGS would be reported for $476,000 in the income statement.

Step by step solution

01

Cost of goods sold

The cost of goods sold is the direct material cost incurred for producing goods or services. This direct material cost includes raw material cost, transportation cost, installation cost, and any other value reduction in the inventory in the normal course of business.

02

COGS on the income statement

In the given case, the COGS has already been given at the value of $410,000. But there is a loss in inventory value due to the LCM rule. This loss has been adjusted to COGS in the previous sub-part.

So the new value of COGS to be reported on the balance sheet would be 鈥�

COGStobereported=GivenvalueofCOGS+Adjustment=$410,000+$66,000=$476,000

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Most popular questions from this chapter

Nature Foods Grocery reported the following comparative income statements for the years ended June 30, 2019 and 2018:

NATURE FOODS GROCERY
Income Statements
Years Ended June 30, 2019 and 2018

2019

2018

Net Sales Revenue

\( 134,000

\) 119,000

Cost of Goods Sold:

Beginning Merchandise Inventory

\(17,000

\)14,000

Net Cost of Purchases

78,000

67,000

Cost of Goods Available for Sale

95,000

81,000

Less: Ending Merchandise Inventory

18,000

17,000

Cost of Goods Sold

77,000

64,000

Gross Profit

57,000

55,000

Operating Expenses

26,000

21,000

Net Income

\( 31,000

\) 34,000

During 2019, Nature Foods Grocery discovered that ending 2018 merchandise inventory was overstated by $5,500.

Requirements

2. State whether each year鈥檚 net income鈥攂efore your corrections鈥攊s understated or overstated, and indicate the amount of the understatement or overstatement.

Clarmont 91影视, which uses the FIFO inventory costing method, has the following account balances at May 31, 2019, prior to releasing the financial statements for the year:

Merchandise Inventory, ending \( 13,500

Cost of Goods Sold 68,000

Net Sales Revenue 123,000

Clarmont has determined that the current replacement cost (current market value) of the May 31, 2019, ending merchandise inventory is \)12,400.

Requirements

1. Prepare any adjusting journal entry required from the information given.

Futuristic Electronic Center began October with 65 units of merchandise inventory that cost \(82 each. During October, the store made the following purchases:

Oct. 3 25 units @ \) 90 each

12 30 units @ \( 90 each

18 35 units @ \) 96 each

Futuristic uses the periodic inventory system, and the physical count at October 31 indicates that 80 units of merchandise inventory are on hand.

Requirements

2. Net sales revenue for October totaled $28,000. Compute Futuristic鈥檚 gross profit for October using each method.

What does the lower-of-cost-or-market (LCM) rule require?

Assume that AB Tire Store completed the following perpetual inventory transactions for a line of tires:

May 1 Beginning merchandise inventory 16 tires @ \( 65 each

11 Purchase 10 tires @ \) 78 each

23 Sale 12 tires @ \( 88 each

26 Purchase 14 tires @ \) 80 each

29 Sale 18 tires @ $ 88 each

Requirements

2. Compute cost of goods sold and gross profit using the LIFO inventory costing method.
See all solutions

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