The following information is available for the Kleinschmidt Corporation for 2013:
Beginning inventory $112,000
Merchandise purchases (on account) 265,000
Freight charges on purchases (on account) 16,000
Merchandise returned to supplier (for credit) 6,000
Ending inventory 123,000
Sales (on account) 350,000
Cost of merchandise sold 264,000
Required:
Applying both a perpetual and a periodic inventory system, prepare the journal entries that summarize the transactions that created these balances. Include all end-of-period adjusting entries indicated.
Exercise 8-2
Goods in transit; consignment
LO8-2
Text: E 8-7
The December 31, 2013, year-end inventory balance of the Delphi Printing Company is $317,000. You have been asked to review the following transactions to determine if they have been correctly recorded.
1. Materials purchased from a supplier and shipped to Delphi f.o.b. destination on December 28, 2013, were received on January 2, 2014. The invoice cost of $50,000 is not included in the preliminary inventory balance.
2. At year-end, Delphi had $12,000 of merchandise on consignment from the Harvey Company. This merchandise is included in the preliminary inventory balance.
3. On December 29, merchandise costing $17,000 was shipped to a customer f.o.b. shipping point and arrived at the customer's location on January 3, 2014. The merchandise is not included in the preliminary inventory balance.
4. Materials purchased from a supplier and shipped to Delphi f.o.b. shipping point on December 28, 2013 were received on January 4, 2014. The invoice cost of $32,000 is not included in the preliminary inventory balance.
Required:
Determine the correct inventory amount to be reported on Delphi's 2013 balance sheet.
Exercise 8-3
Trade and purchase discounts; the gross method and the net method compared
LO8-3
Text: E 8-11
The Kavendish Company, a manufacturer of commercial-use washing machines, sold 50 units to the E-z Sleep Motel chain on January 14, 2013. The units have a list price of $800 each, but E-z Sleep was given a 25% trade discount. The terms of the sale were 2/10, n30. E-z Sleep uses a periodic inventory system.
Required:
1. Prepare the journal entries to record the purchase by E-z Sleep on January 14 and payment on January 23, 2013, using the gross method of accounting for purchase discounts.
2. Prepare the journal entries to record the purchase on January 14 and payment on February 13, 2013, using the gross method of accounting for purchase discounts.
3. Repeat requirements 1 and 2 using the net method of accounting for purchase discounts.
Exercise 8-4
Inventory cost flow methods; perpetual system
LO8-1 LO8-4
Text: E 8-14
The Alpenrose Milk Company uses a perpetual inventory system. The following transactions affected its merchandise inventory during the month of March, 2013:
March 1 - Inventory on hand - 3,000 units; cost $8.00 each.
March 8 - Purchased 5,000 units for $8.40 each.
March 14 - Sold 4,000 units for $14.00 each.
March 18 - Purchased 6,000 units for $8.20 each.
March 25 - Sold 7,000 units for $14.00 each.
March 31 - Inventory on hand - 3,000 units.
Required:
Determine the inventory balance Alpenrose would report on its March 31, 2013, balance sheet and the cost of goods sold it would report on its March, 2013, income statement using each of the following cost flow methods:
1. First-in, first-out (FIFO)
2. Last-in, first-out (LIFO)
3. Average cost
Exercise 8-5
Average cost method; periodic and perpetual systems
LO8-1 LO8-4
Text: E 8-16
The following information is taken from the inventory records of the Bauxite Company:
Beginning inventory, 4/1/13 7,000 units @ $22.00
Purchases:
4/5 6,000 units @ $22.65
4/26 9,000 units @ $24.00
Sales:
4/11 5,000 units
4/28 8,000 units
9,000 units were on hand at the end of April.
Required:
1. Assuming that Bauxite uses a periodic inventory system and employs the average cost method, determine cost of goods sold for April and April's ending inventory.
PROBLEMS
Problem 8-1
Various inventory transactions; determining inventory and cost of goods sold
LO8-1 through
LO8-4
Text: P 8-4
The Helmut and King Corporation began 2013 with inventory of 8,000 units of its only product. The units cost $10.00 each. The company uses a periodic inventory system and the LIFO cost method. The following transactions occurred during 2013:
1. Purchased 40,000 additional units at a cost of $11.00 per unit. Terms of the purchases were 2/10, n30, and 80% of the purchases were paid for within the 10 day discount period. The company uses the gross method to record purchase discounts. The merchandise was purchased f.o.b. shipping point and freight charges of $1.00 per unit were paid by Helmut and King.
2. Sales for the year totaled 46,000 units at $20.00 per unit.
3. On December 28, 2013, Helmut and King purchased 5,000 additional units at $12.00 each (price includes freight of $1.00 per unit). The goods were shipped f.o.b. shipping point and arrived at Helmut and King's warehouse on January 4, 2014. The terms of the purchase were n30.
4. 2,000 units were on hand at the end of 2013.
Required:
Determine ending inventory and cost of goods sold for 2013.
Problem 8-2
Various inventory costing methods
LO8-1 LO8-4
Text: P 8-5
Callahan & Sons began 2013 with 10,000 units of its principle product. The cost of each unit is $25.00. Merchandise transactions for the month of January, 2013, are as follows:
Purchases
Date of
Purchase Units Unit Cost* Total Cost
Jan. 4 8,000 $ 24.00 $192,000
Jan. 22 7,000 27.00 189,000
Totals 15,000 $381,000
* includes purchase price and cost of freight.
Sales for the month totaled 13,000 units, leaving 12,000 units on hand at the end of the month.
Required:
Calculate January's ending inventory and cost of goods sold for the month using each of the following alternatives:
1. FIFO, periodic system
2. LIFO, periodic system
3. Average cost, periodic system