Page 314 - Accounting Principles (A Business Perspective)

This book is licensed under a Creative Commons Attribution 3.0 License

Feb. 3 Cost of Goods Sold (-SE) 15,750 15,750
Merchandise Inventory (-A)
To record cost of $3 on 5,200 units sold
Mar. 15 Merchandise Inventory (+A) 15,600 15,600
Accounts Payable (+L)
To record purchase of 5,000 units at $3.12 on
Account.
May 4 Cost of Goods Sold (-SE) 14,040 14,040
Merchandise Inventory (-A)
To record cost of $3.12 on 4,500 units sold.
10 Merchandise Inventory (+A) 28,875 28,875
Accounts Payable (+L)
To record purchase of 8,750 units at $3.30 on
account.
Aug. 12 Merchandise Inventory (+A) 21,750 21,750
Accounts Payable (+L)
To record purchase of 6,250 units at $3.48 on
account
Sept. 16 Cost of Goods Sold (-SE) 27,525 27,525
Merchandise Inventory (-A)
To record costs of $3.48 and $3.30 on 6,250 units
at 1,750 units sold, respectively.
Oct. 9 Cost of Goods Sold (-SE) 23,880 23,880
Merchandise Inventory (-A)
To record costs of $3.30 and $3.12 on 7,000 units
and 250 units sold, respectively.
Nov. 20 Merchandise Inventory (+A) 13,950 13,950
Accounts Payable (+L)
To record purchase of 3,750 units at $3.72 on
account.
Solution to demonstration problem B a. Corrected net income:
2007 2008 2009 Total
Net income as reported $ 27,200 28,400 24,000 $ 79,600
Adjustments
(1) 880
(2) (880)
(920)
(3) 920
Corrected net income $ 28,080 26,600 24,920 $ 79,600
(1) Ending inventory understated ($ 5,680 - $ 4,800 = $ 880)
(2) Beginning inventory understated (5,680 – 4,800 = 880)
Ending inventory overstated (5,600 – 4,680 = 920)
(3) Beginning inventory overstated (5,600 – 4,680 = 920)
b. Computation of inventory:
Merchandise Inventory, January 1 $
40,000
Net cost of purchases 200,000
Cost of goods available for sale $
240,000
Less estimated cost of goods sold:
Net Sales $ 300,000
Gross margin ($300,000 X 0.30) 90,000
Estimated cost of goods sold 210,000
Inventory at cost, estimated by
gross margin method. $
30,000
c. Computation of inventory:
Cost Retail
Merchandise Inventory, January 1 $ 17,600 $ 25,000

Purchases 68,000 100,000
Transportation-in 1,900 —
Goods available for sale $ 87,500 $ 125,000
$
Cost/retail price ratio:
$87,500/$125,000 = 70%
Sales 101,000

Accounting Principles: A Business Perspective 315 A Global Text