PROBLEMS
Problem 1 - A Heath Limited is trying to determine the value of its ending inventory at February 28, 2008, the company's year end. The accountant counted everything that was in the warehouse as of February 28, which resulted in an ending inventory valuation of $48,000. However, she didn't know how to treat the following transactions so she didn't record them.
(a) On February 26, Heath shipped to a customer goods costing $800. The goods were shipped FOB shipping point, and the receiving report indicates that the customer received the goods on March 2.
(b) On February 26, Seller Inc. shipped goods to Heath FOB destination. The invoice price was $350. The receiving report indicates that the goods were received by Heath on March 2.
(c) Heath had $500 of inventory at a customer's warehouse "on approval." The customer was going to let Heath know whether it wanted the merchandise by the end of the week, March 4.
(d) Heath also had $400 of inventory on consignment at a Jasper craft shop.
(e) On February 26, Heath ordered goods costing $750. The goods were shipped FOB shipping point on February 27. Heath received the goods on March 1.
(f) On February 28, Heath packaged goods and had them ready for shipping to a customer FOB destination. The invoice price was $350; the cost of the items was $250. The receiving report indicates that the goods were received by the customer on March 2.
(g) Heath had damaged goods set aside in the warehouse because they are no longer saleable. These goods originally cost $400 and, originally, Heath expected to sell these items for $600.
Instructions - For each of the above transactions, specify whether the item in question should be included in ending inventory, and if so, at what amount. For each item that is not included in ending inventory, indicate who owns it and what account, if any, it should have been recorded in.
Problem 2 - Glanville Distribution markets CDs of the performing artist Harrilyn Clooney. At the beginning of March, Glanville had in beginning inventory 1,500 Clooney CDs with a unit cost of $7. During March Glanville made the following purchases of Clooney CDs.
March 5 3,000 @ $8 March 21 4,000 @ $10
March 13 5,500 @ $9 March 26 2,000 @ $11
During March 12,500 units were sold. Glanville uses a periodic inventory system.
Instructions -
(a) Determine the cost of goods available for sale.
(b) Determine ( 1 ) the ending inventory and (2) the cost of goods sold under each of the assumed cost flow methods (FIFO, LIFO, and average-cost). Prove the accuracy of the cost of goods sold under the FIFO and LIFO methods.
(c) Which cost flow method results in (1) the highest inventory amount for the balance sheet and (2) the highest cost of goods sold for the income statement?
Problem 3 - Eddings Company had a beginning inventory of 400 units of Product XNA at a cost of $8.00 per unit. During the year, purchases were:
Feb. 20 - 600 units at $9
May 5 - 500 units at $10
Aug. 12 - 300 units at $11
Dec. 8 - 200 units at $12
Eddings Company uses a periodic inventory system. Sales totaled 1,500 units.
Instructions
(a) Determine the cost of goods available for sale.
(b) Determine (1) the ending inventory, and (2) the cost of goods sold under each of the assumed cost flow methods (FIFO, LIFO, and average). Prove the accuracy of the cost of goods sold under the FIFO and LIFO methods.
(c) Which cost flow method results in (1) the lowest inventory amount for the balance sheet, and (2) the lowest cost of goods sold for the income statement?