Full Name: Natalie Jimenez

Exercise Set A

EA1. LO 10.1 Calculate the goods available for sale for Atlantis Company, in units and in dollar amounts, given
the following facts about their inventory for the period:

Number of Units
Cost per Unit
Beginning inventory
140
$ 75
Purchased goods during the period
240
77
Sold goods during the period
80
125
Purchased goods during the period
220
80

Solution

Units
Total Cost
Beginning inventory
140
$10,500
+ Purchases
460
$36,080
= Goods available for sale
600
$46,580

EA2. LO 10.1 E Company accepts goods on consignment from R Company and also purchases goods from S
Company during the current month. E Company plans to sell the merchandise to customers during the following
month. In each of these independent situations, who owns the merchandise at the end of the current month and
should therefore include it in their company's ending inventory? Choose E, R, or S.
A. Goods ordered from R, delivered and displayed on E's showroom floor at the end of the current month.
B. Goods ordered from S, in transit, with shipping terms FOB destination.
C. Goods ordered from R, in transit, with no stated shipping terms.
D. Goods ordered from S, delivered and displayed on E's showroom floor at the end of the current month,
with shipping terms FOB destination.
E. Goods ordered from S, in transit, with shipping terms FOB shipping point.
Solution
A. R
B. S
C. R
D. E
 E. E

EA3. LO 10.1 The following information is taken from a company’s records. Applying the lower-of-cost-or-
market approach, what is the correct value that should be reported on the balance sheet for the inventory?

Cost per Unit

Market Value per Unit
Inventory item 1 (10 units)
$36
$35
Inventory item 2 (25 units)
20
20
Inventory item 3 (12 units)
6
8

Solution

Total Cost
Total Market Value
Inventory item 1 (10 units)
—
$350
Inventory item 2 (25 units)
$500
—
Inventory item 3 (12 units)
$72
—
Total inventory value, using LCM
—
$922

EA4. LO 10.2 Complete the missing piece of information involving the changes in inventory, and their
relationship to goods available for sale, for the two years shown:

2021
2022
Beginning inventory
$10,000
$7,000
Purchases
25,000
3,000
Goods available for sale
35,000
Ending inventory
7,000

Cost of goods sold

8,500

Solution

2021
2022
Beginning inventory
$10,000
$7,000
+ Purchases
+$25,000
+$3,000
= Goods available for sale
$35,000
$10,000
– Ending inventory
-$7,000
-$1,500
= Cost of goods sold
$28,000
$8,500

EA5. LO 10.2 Akira Company had the following transactions for the month.

Number of Units
Cost per Unit
Beginning inventory
150
$10
Purchased Mar. 31
160
12
Purchased Oct. 15
130
15
Ending inventory
50
?

Calculate the ending inventory dollar value for the period for each of the following cost allocation methods,
using periodic inventory updating.
• first-in, first-out (FIFO)
• last-in, first-out (LIFO)
• weighted average (AVG)
Solution
A.
Ending inventory
$750
B.
Ending inventory
$500
C.
Ending inventory
$610

EA6. LO 10.2 Akira Company had the following transactions for the month.

Number of Units
Cost
Beginning inventory
150
$1,500
Purchased Mar. 31
160
1,920
Purchased Oct. 15
130
1,950
Total goods available for sale
440
5,370
Ending inventory
50
?

Calculate the gross margin for the period for each of the following cost allocation methods, using periodic
inventory updating. Assume that all units were sold for $25 each. Provide your calculations.
• first-in, first-out (FIFO)
• last-in, first-out (LIFO)
• weighted average (AVG)

Solution
A.
Sales
$9,750
– COGS (goods available for sale – ending inventory)
$4,620
= Gross margin
$5,130
B.
Sales
$9,750
– COGS (goods available for sale – ending inventory)
$4,870
= Gross margin
 $4,880
C.
Avg =
Sales
$9,750
– COGS (GAFS-EI (round to the nearest dollar))
$4,760
= Gross margin
$4,990

EA7. LO 10.2 Prepare journal entries to record the following transactions, assuming periodic inventory
updating and first-in, first-out (FIFO) cost allocation.

Number of Units
Cost per Unit
Jan. 2, purchased merchandise for resale
300
$ 21
Jan. 12, purchased merchandise for resale
200
24
Jan. 16, sold merchandise for $40 per unit
220

Solution
Jan. 2
Purchases
$6,300

Accounts Payable

$6,300

Jan. 12
Purchases
$4,800

Accounts Payable

$4,800

Jan. 16
Accounts Receivable
$8,800

Sales Revenue
 
$8,800

EA8. LO 10.3 Calculate the cost of goods sold dollar value for A65 Company for the month, considering the
following transactions using perpetual inventory updating. Provide calculations for first-in, first-out (FIFO).

Number of Units
Unit Cost
Sales
Beginning inventory
800
$50

Purchased
600
52

Sold
400

$80
Sold
350

90
Ending inventory
650

Solution
FIFO (perpetual) Inventory

Cost of Goods Purchased

Cost of Goods Sold

Cost of Inventory Remaining

Number of Units
Unit Cost
Total Cost

Number of Units
Unit Cost
Total Cost
 Number of Units
Unit Cost
Total Cost
Beginning
 
 
 
 
 
 
 
 
800
$50
$40,000
 
 
 
 
 
 
 
 
 
 
 
 
Purchase
600
$52
$31,200

800
$50
$40,000
 

600
$52
$31,200
 

Sale

400
$50
$20,000

400
$50
$20,000
 

600
$52
$31,200
 

Sale
 350
$50
$17,500

50
$50
$2,500
 

600
$52
$31,200
 
 
 
 
 
 
 
 
 
 
 
 
Total Purchases
 
$31,200
 
Total COGS
*
 
 
 
 

EA9. LO 10.3 Calculate the cost of goods sold dollar value for A66 Company for the month, considering the
following transactions under three different cost allocation methods and using perpetual inventory updating.
Provide calculations for last-in, first-out (LIFO).

Number of Units
Unit Cost
Sales
Beginning inventory
800
 $50

Purchased
600
52

Sold
400

$80
Sold
350

90
Ending inventory
650

Solution

LIFO (perpetual) Inventory

Cost of Goods Purchased

Cost of Goods Sold

Cost of Inventory Remaining

Number of Units
Unit Cost
Total Cost

Number of Units
Unit Cost
Total Cost

Number of Units
Unit Cost
Total Cost
Beginning
 
 
 
 
 
  
 
 
800
$50
$40,000
 
 
 
 
 
 
 
 
 
 
 
 
Purchase
600
$52
$31,200

800
$50
$40,000
 

600
$52
$31,200
 
Sale

400
$52
$20,800

800
$50
$40,000
 

200
$52
$10,400
 

Sale

150
$50
$7,500

650
$50
$32,500
 
 
  
 
 
200
$52
$10,400
 
—
 —
—
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Purchases
 
$31,200
 
Total COGS
$38,700
 
 
 

EA10. LO 10.3 Calculate the cost of goods sold dollar value for A67 Company for the month, considering the
following transactions under three different cost allocation methods and using perpetual inventory updating.
Provide calculations for weighted average (AVG).

Number of Units
Unit Cost
 Sales
Beginning inventory
800
$50

Purchased
600
52

Sold
400

$80
Sold
350

90
Ending inventory
650

Solution
AVG (perpetual) Inventory

Cost of Goods Purchased

Cost of Goods Sold

Cost of Inventory Remaining

Number of Units
Unit Cost
Total Cost

Number of Units
Unit Cost
Total Cost

Number of Units
Unit Cost
Total Cost
Beginning

800
 $50
$40,000
 

Purchase
600
$52
$31,200

1,400
$50.86
$71,200
 

Sale

400
$50.86
$20,344

1,000
$50.86
$50,860
 
Sale

350
$50.86
$17,801

650
$50.86
$33,059
 
 
 
 
 
 
 
 
 
 
 
 
Total Purchases
 
$31,200
 
Total COGS
$38,145
 
 
 
 

EA11. LO 10.3 Prepare journal entries to record the following transactions, assuming perpetual inventory
updating and first-in, first-out (FIFO) cost allocation. Assume no beginning inventory.

Number of Units
Cost per Unit
Jan. 2, purchased merchandise for resale
300
 $ 21
Jan. 12, purchased merchandise for resale
200
24
Jan. 16, sold merchandise for $40 per unit
220

Solution
Jan. 2
Merchandise Inventory
$6,300

 
Accounts Payable

$6,300

Jan. 12
Merchandise Inventory
$4,800

 
Accounts Payable

$4,800

Jan. 16
Accounts Receivable
$8,800

 
Sales Revenue

$8,800

Jan. 16
Cost of Merchandise Sold
$4,620

 
Merchandise Inventory
 $4,620

EA12. LO 10.3 Prepare Journal entries to record the following transactions, assuming perpetual inventory
updating, and last-in, first-out (LIFO) cost allocation. Assume no beginning inventory.

Number of Units
Cost per Unit
Mar. 12, purchased merchandise for resale
5,000
$ 90
Mar. 15, purchased merchandise for resale
3,500
100
Mar. 16, sold merchandise for $40 per unit
2,000

Solution
Mar. 12
Merchandise Inventory
450,000
 
 
Accounts Payable
 
450,000

Mar. 15
Merchandise Inventory
350,000
 
 
Accounts Payable
 
350,000

Mar. 16
Accounts Receivable
400,000
 
 
Sales Revenue
 
400,000
 Mar. 16
Cost of Merchandise Sold
200,000
 
 
Merchandise Inventory
 
200,000

EA13. LO 10.4 If a group of inventory items costing $15,000 had been omitted from the year-end inventory
count, what impact would the error have on the following inventory calculations? Indicate the amount and the
effect, as either U (understated), O (overstated), or N (neither).
Solution
Inventory Item
None or Amount
Understated, Overstated, or Neither
Beginning Inventory
none
neither
Purchases
none
neither
Goods Available for Sale
none
neither
Ending Inventory
$15,000
understated
Cost of Goods Sold
$15,000
overstated

EA14. LO 10.4 If Wakowski Company's ending inventory was actually $86,000 but was adjusted at year end to
a balance of $68,000 in error, what would be the impact on the presentation of the balance sheet and income
statement for the year that the error occurred, if any?
Solution
Balance Sheet
Amount
Overstated or Understated
Merchandise Inventory
$18,000
U
Current Assets
$18,000
U
Total Assets
$18,000
U
Retained Earnings
$18,000
U
 
Income Statement

Cost of Goods Sold

$18,000
O
Gross Profit/Gross Margin
$18,000
U
Net Income
$18,000
U

EA15. LO 10.4 Shetland Company reported net income on the year-end financial statements of $125,000.
However, errors in inventory were discovered after the reports were issued. If inventory was understated by
$15,000, how much net income did the company actually earn?

Solution
Net income
$125,000
+ Add back to adjust for excess COGS deducted
$15,000
Net income
$140,000

EA16. LO 10.5 Compute Altoona Company's (a) inventory turnover ratio and (b) number of days' sales in
inventory ratio, using the following information.

Cost of goods sold

$722,000
Beginning inventory
53,000
Ending inventory
67,000

Solution

A.
Cost of Goods Sold
$722,000
÷ Average Inventory
$60,000
= Inventory Turnover Ratio
12.03
B.
Average Inventory
$60,000
÷ Average Daily Cost of Goods Sold
$1,978.08
= Number of Days' Sales in Inventory Ratio
30.33

EA17. LO 10.5 Complete the missing pieces of McCarthy Company's inventory calculations and ratios.
Solution
Beginning Inventory
$8,500
Purchases
92,000
Goods Available for Sale
100,500
Ending Inventory
9,400
Cost of Goods Sold
91,100
Turnover Ratio
10.18
Days' Sales in Inventory
35.86

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