The following financial statement data for years ending December 31 for Tango Company are shown below.

The following financial statement data for years ending December 31 for Tango Company are shown below.


2014 2013
Cost of merchandise sold $3,864,000 $4,001,500
Inventories:
Beginning of year 770,000 740,000
 End of year 840,000 770,000

a. Determine the inventory turnover for 2014 and 2013.

b. Determine the number of days’ sales in inventory for 2014 and 2013. Round to one decimal place.

c. Does the change in inventory turnover and the number of days’ sales in inventory from 2013 to 2014 indicate a favorable or an unfavorable trend?


Answer:

a. Inventory Turnover 2014 2013
Cost of merchandise sold
Inventories:
Beginning of year
End of year
Average inventory
Inventory turnover
$3,864,000 $4,001,500
$770,000 $740,000
$840,000 $770,000
$805,000 $755,000
[($770,000 + $840,000) ÷ 2] [($740,000 + $770,000) ÷ 2]
4.8 5.3
($3,864,000 ÷ $805,000) ($4,001,500 ÷ $755,000)
Number of Days’ Sales
b. in Inventory 2014 2013
Cost of merchandise sold
Average daily cost of
$3,864,000 $4,001,500
merchandise sold
Average inventory
Number of days’ sales in
inventory
$10,586.3 $10,963.0
($3,864,000 ÷ 365 days) ($4,001,500 ÷ 365 days)
$805,000 $755,000
[($770,000 + $840,000) ÷ 2] [($740,000 + $770,000) ÷ 2]
76.0 days 68.9 days
($805,000 ÷ $10,586.3) ($755,000 ÷ $10,963.0)
c. The decrease in the inventory turnover from 5.3 to 4.8 and the increase in the
number of days’ sales in inventory from 68.9 days to 76.0 days indicate
unfavorable trends in managing inventory.

The following financial statement data for years ending December 31 for Holland Company are shown below.

The following financial statement data for years ending December 31 for Holland Company are shown below.


2014 2013
Cost of merchandise sold $1,452,500 $1,120,000 Inventories:
Beginning of year 380,000 320,000
 End of year 450,000 380,000


a. Determine the inventory turnover for 2014 and 2013.

b. Determine the number of days’ sales in inventory for 2014 and 2013. Round to one decimal place.

c. Does the change in inventory turnover and the number of days’ sales in inventory from 2013 to 2014 indicate a favorable or an unfavorable trend?


Answer:

a. Inventory Turnover 2014 2013
Cost of merchandise sold
Inventories:
Beginning of year
End of year
Average inventory
Inventory turnover
$1,452,500 $1,120,000
$380,000 $320,000
$450,000 $380,000
$415,000 $350,000
[($380,000 + $450,000) ÷ 2] [($320,000 + $380,000) ÷ 2]
3.5 3.2
($1,452,500 ÷ $415,000) ($1,120,000 ÷ $350,000)
Number of Days’ Sales
b. in Inventory 2014 2013
Cost of merchandise sold
Average daily cost of
merchandise sold
Average inventory
Number of days’ sales in
inventory
$1,452,500 $1,120,000
$3,979.5 $3,068.5
($1,452,500 ÷ 365 days) ($1,120,000 ÷ 365 days)
$415,000 $350,000
[($380,000 + $450,000) ÷ 2] [($320,000 + $380,000) ÷ 2]
104.3 days 114.1 days
($415,000 ÷ $3,979.5) ($350,000 ÷ $3,068.5)
c. The increase in the inventory turnover from 3.2 to 3.5 and the decrease in the
number of days’ sales in inventory from 114.1 days to 104.3 days indicate
favorable trends in managing inventory.

During the taking of its physical inventory on December 31, 2014, Waterjet Bath Company incorrectly

During the taking of its physical inventory on December 31, 2014, Waterjet Bath Company incorrectly counted its inventory as $728,660 instead of the correct amount of $719,880. Indicate the effect of the misstatement on Waterjet Bath’s December 31, 2014, balance sheet and income statement for the year ended December 31, 2014.


Answer:

Balance Sheet:
Merchandise inventory overstated*……………………
Current assets overstated………………………………
Total assets overstated…………………………………
Owner’s equity overstated………………………………
Income Statement:
Cost of merchandise sold understated………………
Gross profit overstated……………………………………
Net income overstated…………………………………
* $728,660 – $719,880 = $8,780
Amount of Misstatement
Overstatement (Understatement)
$8,780
8,780
8,780
8,780
$(8,780)
8,780
8,780

During the taking of its physical inventory on December 31, 2014, Sport Interiors Company incorrectly

During the taking of its physical inventory on December 31, 2014, Sport Interiors Company incorrectly counted its inventory as $113,900 instead of the correct amount of $118,350. Indicate the effect of the misstatement on Sport Interiors’ December 31, 2014, balance sheet and income statement for the year ended December 31, 2014.


Answer:

Balance Sheet:
Merchandise inventory understated*…………………
Current assets understated………………………………
Total assets understated………………………………
Owner’s equity understated……………………………
Income Statement:
Cost of merchandise sold overstated…………………
Gross profit understated………………………………
Net income understated…………………………………
* $118,350 – $113,900 = $4,450
Amount of Misstatement
Overstatement (Understatement)
$(4,450)
(4,450)
(4,450)
(4,450)
$ 4,450
 (4,450)
 (4,450)

On the basis of the following data, determine the value of the inventory at the lower of cost or market

On the basis of the following data, determine the value of the inventory at the lower of cost or market. Apply lower of cost or market to each inventory item, as shown in Exhibit 9.


Item
Inventory
Quantity
Unit
Cost Price
Unit
Market Price
JFW1 6,330 $10 $11
SAW9 1,140 36 34


Answer:

Commodity
Inventory
Quantity
Unit
Cost
Price
Unit
Market
Price
Total
Cost Market
Lower of
C or M
JFW1 6,330 $10 $11 $ 63,300 $ 69,630 $ 63,300
SAW9 1,140 36 34 41,040 38,760 38,760
Total $104,340 $108,390 $102,060

On the basis of the following data, determine the value of the inventory at the lower of cost or market

On the basis of the following data, determine the value of the inventory at the lower of cost or market. Apply lower of cost or market to each inventory item, as shown in Exhibit 9.


Item
Inventory
Quantity
Unit
Cost Price
Unit
Market Price
1107B 450 $80 $78
1110M 75 60 64


Answer:

Commodity
Inventory
Quantity
Unit
Cost
Price
Unit
Market
Price
Total
Cost Market
Lower of
C or M
1107B 450 $80 $78 $36,000 $35,100 $35,100
1110M 75 60 64 4,500 4,800 4,500
Total $40,500 $39,900 $39,600

The units of an item available for sale during the year were as follows:

The units of an item available for sale during the year were as follows:



Jan. 1 Inventory 20 units at $360 $ 7,200
Aug. 13 Purchase 260 units at $342 88,920
Nov. 30 Purchase 40 units at $357 14,280
Available for sale 320 units $110,400


There are 57 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost using (a) the first-in, first-out (FIFO) method; (b) the last-in, first-out (LIFO) method; and (c) the weighted average cost method.


Answer:
a. First-in, first-out (FIFO) method: $20,094 = (40 units × $357) + (17 units × $342)
b. Last-in, first-out (LIFO) method: $19,854 = (20 units × $360) + (37 units × $342)
c. Weighted average cost method: $19,665 (57 units × $345), where average cost = $345 = $110,400 ÷ 320 units

The units of an item available for sale during the year were as follows:Jan. 1 Inventory 24 units at $135 $

The units of an item available for sale during the year were as follows:


Jan. 1 Inventory 24 units at $135 $ 3,240
May 7 Purchase 36 units at $150 5,400
Nov. 23 Purchase 30 units at $162 4,860
Available for sale 90 units $13,500


There are 23 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost using (a) the first-in, first-out (FIFO) method; (b) the last-in, first-out (LIFO) method; and (c) the weighted average cost method.


Answer:
a. First-in, first-out (FIFO) method: $3,726 = 23 units × $162
b. Last-in, first-out (LIFO) method: $3,105 = 23 units × $135
c. Weighted average cost method: $3,450 (23 units × $150), where average cost = $150 = $13,500 ÷ 90 units

Beginning inventory, purchases, and sales for WCS12 are as follows:

Beginning inventory, purchases, and sales for WCS12 are as follows:


Oct. 1 Inventory 300 units at $8
13 Sale 175 units
22 Purchase 375 units at $10
29 Sale 280 units


Assuming a perpetual inventory system and using the weighted average method, determine (a) the weighted average unit cost after the October 22 purchase, (b) the cost of the merchandise sold on October 29, and (c) the inventory on October 31.


Answer:

a. Weighted average unit cost: $9.50
Inventory total cost after purchase on October 22:
125 units @ $8 $1,000
375 units @ $10 3,750
500 $4,750
Weighted average unit cost = $9.50 ($4,750 ÷ 500 units)
b. Cost of merchandise sold (October 29): $2,660 (280 units × $9.50)
c. Inventory, October 31: $2,090 (220 units × $9.50)

Beginning inventory, purchases, and sales for ZT901 are as follows:

Beginning inventory, purchases, and sales for ZT901 are as follows:


July 1 Inventory 100 units at $60
8 Sale 60 units
15 Purchase 120 units at $75
27 Sale 84 units


Assuming a perpetual inventory system and using the weighted average method, determine (a) the weighted average unit cost after the July 15 purchase, (b) the cost of the merchandise sold on July 27, and (c) the inventory on July 31.


Answer:

a. Weighted average unit cost: $71.25
Inventory total cost after purchase on July 15:
40 units @ $60 $ 2,400
120 units @ $75 9,000
160 $11,400
Weighted average unit cost = $71.25 ($11,400 ÷ 160 units)
b. Cost of merchandise sold (July 27): $5,985 (84 units × $71.25)
c. Inventory, July 31: $5,415 (76 units × $71.25)

Beginning inventory, purchases, and sales for Item Foxtrot are as follows:

Beginning inventory, purchases, and sales for Item Foxtrot are as follows:


Mar. 1 Inventory 270 units at $18
8 Sale 225 units
15 Purchase 375 units at $20
27 Sale 240 units

Assuming a perpetual inventory system and using the last-in, first-out (LIFO) method, determine (a) the cost of merchandise sold on March 27 and (b) the inventory on March 31.


Answer:

a. Cost of merchandise sold (March 27):
$4,800 = (240 units × $20)
b. Inventory, March 31:
45 units @ $18 $ 810
135 units @ $20 2,700
180 $3,510

Beginning inventory, purchases, and sales for Item Echo are as follows:

Beginning inventory, purchases, and sales for Item Echo are as follows:


June 1 Inventory 100 units at $50
4 Sale 80 units
23 Purchase 125 units at $60
26 Sale 90 units





Assuming a perpetual inventory system and using the last-in, first-ou (LIFO) method, determine (a) the cost of merchandise sold on June 26 and (b) the inventory on June 30.


Answer:

a. Cost of merchandise sold (June 26):
$5,400 = (90 units × $60)
b. Inventory, June 30:
20 units @ $50 $1,000
35 units @ $60 2,100
55 $3,100

Beginning inventory, purchases, and sales for Item Delta are as follows:

Beginning inventory, purchases, and sales for Item Delta are as follows:


July 1 Inventory 50 units at $15
7 Sale 44 units
15 Purchase 90 units at $18
24 Sale 40 units




Assuming a perpetual inventory system and using the first-in, first-out (FIFO) method, determine (a) the cost of merchandise sold on July 24 and (b) the inventory on July 31.


Answer:

a. Cost of merchandise sold (July 24):
6 units @ $15 $ 90
34 units @ $18 612
40 $702
b. Inventory, July 31: $1,008 = 56 units × $18

Beginning inventory, purchases, and sales for Item Charlie are as follows:

Beginning inventory, purchases, and sales for Item Charlie are as follows:


May 1 Inventory 45 units at $120
9 Sale 30 units
13 Purchase 60 units at $130
28 Sale 18 units




Assuming a perpetual inventory system and using the first-in, first-out (FIFO) method, determine (a) the cost of merchandise sold on May 28 and (b) the inventory on May 31.


Answer:

a. Cost of merchandise sold (May 28):
15 units @ $120 $1,800
3 units @ $130 390
18 $2,190
b. Inventory, May 31: $7,410 = 57 units × $130

Three identical units of Item Beta are purchased during June, as shown below.

Three identical units of Item Beta are purchased during June, as shown below.



Item Beta Units Cost
June 2 Purchase 1 $ 50
12 Purchase 1 60
23 Purchase 1 70
Total 3 $180
Average cost per unit $ 60 ($180 ÷ 3 units)


Assume that one unit is sold on June 27 for $110. Determine the gross profit for June and ending inventory on June 30 using the (a) first-in, first-out (FIFO); (b) last-in, first-out (LIFO); and (c) weighted average cost methods.


Answer:

a. First-in, first-out (FIFO)
b. Last-in, first-out (LIFO)
c. Weighted average cost
Gross Profit Ending Inventory
June June 30
$60 ($110 – $50) $130 ($60 + $70)
$40 ($110 – $70) $110 ($50 + $60)
$50 ($110 – $60) $120 ($60 × 2)

Three identical units of Item Alpha are purchased during February, as shown below.

Three identical units of Item Alpha are purchased during February, as shown below.


Item Alpha Units Cost
Feb. 9 Purchase 1 $ 40
17 Purchase 1 42
26 Purchase 1 44
Total 3 $126
Average cost per unit $ 42 ($126 ÷ 3 units)

Assume that one unit is sold on February 28 for $75. Determine the gross profit for February and ending inventory on February 28 using the (a) first-in, first-out (FIFO); (b) last-in, first-out (LIFO); and (c) weighted average cost methods.


Answer:

a. First-in, first-out (FIFO)
b. Last-in, first-out (LIFO)
c. Weighted average cost
Gross Profit
February
$35 ($75 – $40)
$31 ($75 – $44)
$33 ($75 – $42)
Ending Inventory
February 28
$86 ($42 + $44)
$82 ($40 + $42)
$84 ($42 × 2)

Based on the following data, estimate the cost of the ending merchandise inventory:Sales (net) $1,450,000

Based on the following data, estimate the cost of the ending merchandise inventory:


Sales (net) $1,450,000
Estimated gross profit rate 42%
Beginning merchandise inventory $ 100,000
Purchases (net) 860,000
Merchandise available for sale $ 960,000




Answer:


Merchandise available for sale………………………………………………… $960,000
Less cost of merchandise sold [$1,450,000 × (100% – 42%)]……………… 841,000
Estimated ending merchandise inventory…………………………………… $119,000

Based on the following data, estimate the cost of the ending merchandise inventory:Sales (net) $9,250,000

Based on the following data, estimate the cost of the ending merchandise inventory:


Sales (net) $9,250,000
Estimated gross profit rate 36%
Beginning merchandise inventory $ 180,000
Purchases (net) 5,945,000
Merchandise available for sale $6,125,000



Answer:


Merchandise available for sale………………………………………………… $6,125,000
Less cost of merchandise sold [$9,250,000 × (100% – 36%)]…………… 5,920,000
Estimated ending merchandise inventory…………………………………… $ 205,000

The merchandise inventory was destroyed by fire on December 13. The following data were obtained from the accounting records

The merchandise inventory was destroyed by fire on December 13. The following data
were obtained from the accounting records:


Jan. 1 Merchandise inventory $ 350,000
Jan. 1–Dec. 13 Purchases (net) 2,950,000
Sales (net) 4,440,000
Estimated gross profit rate 35%




a. Estimate the cost of the merchandise destroyed.

b. Briefly describe the situations in which the gross profit method is useful.

Answer:


a. Merchandise inventory, January 1 $ 350,000
Purchases (net), January 1–December 31 2,950,000
Merchandise available for sale $3,300,000
Sales (net), January 1–December 31 $4,440,000
Less estimated gross profit ($4,440,000 × 35%) 1,554,000
Estimated cost of merchandise sold 2,886,000
Estimated merchandise inventory, December 31 $ 414,000


b. The gross profit method is useful for estimating inventories for monthly or quarterly financial statements. It is also useful in estimating the cost of merchandise destroyed by fire or other disasters.

On the basis of the following data, estimate the cost of the merchandise inventory at June 30 by the retail method:

On the basis of the following data, estimate the cost of the merchandise inventory at June 30 by the retail method:


Cost Retail
June 1 Merchandise inventory $ 165,000 $ 275,000
June 1–30 Purchases (net) 2,361,500 3,800,000
June 1–30 Sales (net) 3,550,000

Answer:


Cost Retail
Merchandise inventory, June 1 $ 165,000 $ 275,000
Purchases in June (net) 2,361,500 3,800,000
Merchandise available for sale $2,526,500 $4,075,000
$2,526,500 Ratio of cost to retail price: $4,075,000 = 62%
Sales for June (net) 3,550,000
Merchandise inventory, June 30, at retail price $ 525,000
Merchandise inventory, June 30,
at estimated cost ($525,000 × 62%) $ 325,500