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Chapter 8: Q5BE (page 422)
Question:Data for Amsterdam Company are presented in BE8-4. Compute the April 30 inventory and the April cost of
goods sold using the FIFO method.
The ending inventory on April 30 was $5,150 and the cost of goods sold amounts to$6,700.
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You are asked to travel to Milwaukee to observe and verify the inventory of the Milwaukee branch of one of your clients. You arrive on Thursday, December 30, and find that the inventory procedures have justbeen started. You spot a railway car on the sidetrack at the unloading door and ask the warehouse superintendent, Buck Rogers,how he plans to inventory the contents of the car. He responds, 鈥淲e are not going to include the contents in the inventory.鈥�
Later in the day, you ask the bookkeeper for the invoice on the carload and the related freight bill. The invoice lists the variousitems, prices, and extensions of the goods in the car. You note that the carload was shipped December 24 from Albuquerque,f.o.b. Albuquerque, and that the total invoice price of the goods in the car was \(35,300. The freight bill called for a payment of\)1,500. Terms were net 30 days. The bookkeeper affirms the fact that this invoice is to be held for recording in January.
Instructions
(a) Does your client have a liability that should be recorded at December 31? Discuss.
(b) Prepare a journal entry(ies), if required, to reflect any accounting adjustment required. Assume a perpetual inventory
system is used by your client.
(c) For what possible reason(s) might your client wish to postpone recording the transaction?
Distinguish between product costs and period costs as they relate to inventory.
Zonker Inc. purchases 500 units of an item at an invoice cost of \(30,000. What is the cost per unit? If the goods are shipped f.o.b. shipping point and the freight bill was\)1,500, what is the cost per unit if Zonker Inc. pays the freight charges? If these items were bought on 2/10, n/30terms and the invoice and the freight bill were paid within the 10-day period, what would be the cost per unit?
At the balance sheet date, Clarkson Company held title to goods in transit amounting to $214,000. This amount was omitted from the purchases figure for the year and also from the ending inventory. What is the effect of this omission on the net income for the year as calculated when the books are closed? What is the effect on the company鈥檚 financial position as shown in its balance sheet? Is materiality a factor in determining whether an adjustment for this item should be made?
Explain the following terms.
(a) LIFO layer.
(b) LIFO reserve.
(c) LIFO effect.
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