Page 310 - Accounting Principles (A Business Perspective)

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and Purchases
Unit
Units Cost Units
Beginning inventory 6,250 @ $3.00 February 3 5,250
March 15 5,000 @ 3.12 May 4 4,500
May 10 8,750 @ 3.30 September 16 8,000
August 12 6,250 @ 3.48 October 9 7,250
November 20 3,750 @ 3.72
30,000 25,000
a. Compute the ending inventory under each of the following methods:
Specific identification (assume ending inventory is taken equally from the August 12 and November 20
purchases).
FIFO: (a) Assume use of perpetual inventory procedure.
(b) Assume use of periodic inventory procedure.
LIFO: (a) Assume use of perpetual inventory procedure.

(b) Assume use of periodic inventory procedure.
Weighted-average: (a) Assume use of perpetual inventory procedure.
(b) Assume use of periodic inventory procedure.
(Carry unit cost to four decimal places and round total cost to nearest dollar.)
b. Give the journal entries to record the individual purchases and sales (Cost of Goods Sold entry only) under the
LIFO method and perpetual procedure.
Demonstration problem B a. Joel Company reported annual net income as follows:

2007.... USD 27,200
2008.... USD 28,400
2009.... USD 24,000
Analysis of the inventories shows that certain clerical errors were made with the following results:
Incorrect inventory amount Correct inventory amount
2007 December 31 $4,800 $5,680
2008 December 31 5,600 4,680

What is the corrected net income for 2007, 2008, and 2009?
b. The records of Little Corporation show the following account balances on the day a fire destroyed the
company's inventory:
Merchandise inventory, January 1 USD 40,000

Net cost of purchases (to date) USD 200,000
Sales (to date) USD 300,000
Average rate of gross margin for the past five years 30 per cent of net sales.
Compute an estimated value of the ending inventory using the gross margin method.
c. The records of Draper Company show the following account balances at year-end:
Cost Retail
Merchandise inventory, January 1 .$17,600 $25,000
Purchases 68,000 100,000
Transportation-in 1,900
Sales 101,000
Compute the estimated ending inventory at cost using the retail inventory method.

Accounting Principles: A Business Perspective 311 A Global Text