ch-1(inventory) Assignment-I

part I
1. Before inventory purchases are recorded, the receiving report should be reconciled to what
documents?
2. Why is it important to periodically take a physical inventory when using a perpetual inventory
system?
3. If merchandise inventory is being valued at cost and the price level is decreasing, which of the
three methods of costing FIFO, LIFO, or weighted average cost will yield (a) the highest
inventory cost, (b) The lowest inventory cost, (c) the highest gross profit, and (d) the lowest
gross profit?
4. If inventory is being valued at cost and the price level is steadily rising, which of the three
methods of costing FIFO, LIFO, or weighted average cost will yield the lowest annual income
tax expense? Explain.
5. BSC Company identifies the following items for possible inclusion in the taking of a physical
inventory. Indicate whether each item should be included or excluded from the inventory taking.

(a) Goods shipped on consignment by BSC to another company.

(b) Goods in transit from a supplier shipped FOB destination.

(c) Goods held on consignment from another company.

Part II
1. ABC retail Company reported the following income statement data for a 2-year period.
2011 2012
Sales revenue $ 210,000 $ 250,000
Cost of goods sold
Beginning inventory 32,000 44,000
Cost of goods purchased 173,000 202,000
Cost of goods available for sale 205,000 246,000
Ending inventory 44,000 52,000
Cost of goods sold 161,000 194,000
Gross profit $ 49,000 $ 56,000

ABC uses a periodic inventory system. The inventories at January 1, 2011, and December
31, 2012, are correct. However, the ending inventory at December 31, 2011, was
overstated by $5,000.
Instructions
(a) Prepare correct income statement data for the 2 years.
(b) What is the cumulative effect of the inventory error on total gross profit for the 2
years?
2. You are provided with the following information for MSS Company for the month ended
June 30, 2012. MSS uses the perpetual method for inventory.
Unit Cost or r
Date Description Quantity Selling Price
June 1 Beginning inventory 40 $40
June 4 Purchase 135 44
June 10 Sale 110 70
June 11 Sale return 15 70
June 18 Purchase 55 46
June 18 Purchase return 10 46
June 25 Sale 65 75
June 28 Purchase 30 50

Instructions
Calculate (i) ending inventory, (ii) cost of goods sold, (iii) gross profit, and (iv) gross profit rate
under each of the following methods. (1) LIFO. (2) FIFO. (3) moving-average cost. (b)
Compare results for the three cost flow assumptions
3. The units of an item available for sale during the year were as follows:

Jan. 1 Inventory 18 units at $1,440

4. Vodafone Camera Shop uses the lower-of-cost-or-market basis for its inventory. The
following data are available at December 31.
et Item Units Unit Cost Market
Cameras:
Minolta 5 $170 $156
Canon 6 150 152
Light meters:
Vivitar 12 125 115
Kodak 14 120 135
Instructions
Determine the amount of ending inventory by applying the lower-of-cost-or-market basis?

5. On the basis of the following data, estimate the cost of the merchandise inventory at April 30
using retail and gross profit methods?
Cost Retail
April 1 Merchandise inventory $ 180,000 $ 300,000
April 1–30 Purchases (net) 1,200,000 2,000,000
 April 1–30 fright in 200,000 220,000
April 1–30 Sales (net) 2,025,000
Sales return and allowance 25,000
Estimated Gross profit rate (40%)
6. Microsoft Company reported the following information for November and December 2012.
November December
Cost of goods purchased $500,000 $ 610,000
Inventory, beginning-of-month 100,000 120,000
Inventory, end-of-month 120,000 ????
Sales revenue 800,000 1,000,000
Microsoft’s ending inventory at December 31 was destroyed in a fire.
Instructions
(a) Compute the gross profit rate for November.
(b) Using the gross profit rate for November, determine the estimated cost of inventory lost in the fire
during December.