ACCT1000 In-class Demonstration Exercise

Name Section No. Class No.

Student no.: - - - Date:

E6.1 (LO 1) Determine the correct inventory amount.

Premier Bank and Trust is considering giving Alou Company a loan. Before doing so,
management decides that further discussions with Alou’s accountant may be desirable. One
area of particular concern is the inventory account, which has a year‐end balance of
£297,000. Discussions with the accountant reveal the following.

1. Alou sold goods costing £38,000 to Comerico Company, FOB shipping point, on
December 28. The goods are not expected to arrive at Comerico until January 12. The
goods were not included in the physical inventory because they were not in the warehouse.
2. The physical count of the inventory did not include goods costing £91,000 that
were shipped to Alou FOB destination on December 27 and were still in transit at
year‐end.
3. Alou received goods costing £25,000 on January 2. The goods were shipped FOB
shipping point on December 26 by Grant Co. The goods were not included in the
physical count.
4. Alou sold goods costing £35,000 to Emerick Co., FOB destination, on December 30.
The goods were received at Emerick on January 8. They were not included in Alou’s
physical inventory.
5. Alou received goods costing £44,000 on January 2 that were shipped FOB shipping
point on December 29. The shipment was a rush order that was supposed to arrive
December 31. This purchase was included in the ending inventory of £297,000.
Instructions
Determine the correct inventory amount on December 31.

Ending inventory—physical count 297,000

1. -

2. -

3. 25,000

4. 35,000

5. -

Correct inventory 357,000

E6.16 (LO 2) Apply Cost Flow methods to Perpetual inventory system

Zhu Boards sells a snowboard, Xpert, that is popular with snowboard enthusiasts. The
following information relates to Zhu’s purchase and sales of Xpert snowboards
during September. Assume that Zhu uses a perpetual inventory system

Date Explanation Units Unit Cost Total Cost

Sept. 1 Inventory 23 HK$ 970 HK$ 22,310
Sept. 12 Purchases 45 1,020 45,900
Sept. 19 Purchases 20 1,040 20,800
Sept. 26 Purchases 44 1,050 46,200
Totals 132 HK$135,210

Date Explanation Units Unit Price Total Revenue

Sept. 5 Sale 12 HK$1,990 HK$ 23,880
Sept. 16 Sale 50 2,030 101,500
Sept. 29 Sale 59 2,090 123,310
Totals 121 HK$248,690
Instruction:
a. Compute ending inventory at September 30 using FIFO and Moving-average costs
FIFO method
Date Purchases Cost of Goods Sold Balance
Cont’d . . . E6.16 (LO 2) Apply Cost Flow methods to Perpetual inventory system

Date Explanation Units Unit Cost Total Cost

Sept. 1 Inventory 23 HK$ 970 HK$ 22,310
Sept. 12 Purchases 45 1,020 45,900
Sept. 19 Purchases 20 1,040 20,800
Sept. 26 Purchases 44 1,050 46,200
Totals 132 HK$135,210

Date Explanation Units Unit Price Total Revenue

Sept. 5 Sale 12 HK$1,990 HK$ 23,880
Sept. 16 Sale 50 2,030 101,500
Sept. 29 Sale 59 2,090 123,310
Totals 121 HK$248,690

Moving-average costs method

Date Purchases Cost of Goods Sold Balance

b. Which costing method produces (1) the higher ending inventory valuation and (2)
the lower ending inventory valuation?
Ans: (1) The higher ending inventory is under the method.
(2) The lower ending inventory is under
method.
E6.8 (LO 4) Determine ending inventory under LCNRV.
Kinshasa Camera Shop uses the lower‐of‐cost‐or‐net realizable value basis for its inventory.
The following data are available at December 31.
Item Units Unit Cost Net Realizable Value
Cameras:
Minolta 8 $170,000 $156,000
Canon 6 150,000 152,000
Light meters:
Vivitar 12 125,000 115,000
Kodak 14 115,000 135,000

Instructions

Determine the amount of the ending inventory by applying the lower‐of‐cost‐or‐net realizable
value basis.
E6.19 Determine ending inventory at cost using retail method.

Zapatos Stores uses the retail inventory method for its two departments, Women’s Shoes and
Men’s Shoes. The following information for each department is obtained.

Item Women’s Shoes Men’s Shoes

Beginning inventory at cost $ 36,500 $ 45,000
Cost of goods purchased at cost 150,000 136,300
Net sales 178,000 185,000
Beginning inventory at retail 46,000 60,000
Cost of goods purchased at retail 187,000 185,000

Instructions

Compute the estimated cost of the ending inventory for each department under the retail
inventory method.

Women’s Shoes Men’s Shoes

Cost Retail Cost Retail
Beginning Inventory 36,500 46,000 45,000 60,000
Cost Of Goods Purchased 150,000 187,000 136,300 185,000
Cost Of Goods Available for Sales 186,500 233,000 181,300 245,000
Less: Sales 178,000 185,000
Closing Inventory 55,000 60,000

Cost-to-Retail Ratio 186,500 0.8 181,300 0.74

233,000 245,000

Estimated Closing Inventory at Cost 44,000 44,400

P6.10 (LO 6) Estimate inventory loss using gross profit method.
Lisbon Pottery lost 70% of its inventory in a fire on March 25, 2020. The accounting records
showed the following gross profit data for February and March.
February March (to 3/25)
Net sales $300,000 $260,000
Net purchases 197,800 191,000
Freight‐in 2,900 4,000
Beginning inventory 4,500 25,200
Ending inventory 25,200 ?

Lisbon is fully insured for fire losses but must prepare a report for the insurance company.

Instructions
a. Compute the gross profit rate for the month of February.

Net Sales 300,000

Cost of Goods Sold
Beginning Inventory 4,500
Net Purchases 197,800
Add: Freight-in 2,900 200,700
Cost of Goods Available for Sales 205,200
Ending Inventory 25,200 180,000
Gross Profit 120,000
Gross Profit Rate

Gross profit rate = 120,000/300,000 = 0.4

Cont’d. . . P6.10 (LO 6) Estimate inventory loss using gross profit method.
Lisbon Pottery lost 70% of its inventory in a fire on March 25, 2020. The accounting records
showed the following gross profit data for February and March.
February March (to 3/25)
Net sales $300,000 $260,000
Net purchases 197,800 191,000
Freight‐in 2,900 4,000
Beginning inventory 4,500 25,200
Ending inventory 25,200 ?

Lisbon is fully insured for fire losses but must prepare a report for the insurance company.
Instructions

b. Using the gross profit rate for February, determine both the estimated total inventory
and inventory lost in the fire in March.

Net Sales 260,000

Estimated Gross Profit 104,000
Estimated Cost of Goods Sold 156,000

Beginning Inventory 25,200

Net Purchases 191,000
Freight-in 4,000
Cost of Goods Purchased 195,000
Cost Of Goods Available for Sales 220,200
Less: Estimated Cost of Goods Sold 156,000
Estimated Ending Inventory 64,200
Loss Inventory 44,940