Questions -
Q1. Worthmore Bank and Trust is considering giving Madsen Company a loan. Before doing so, it decides that further discussions with Madsen's accountant may be desirable. One area of particular concern is the Inventory account, which has a year-end balance of $281,260. Discussions with the accountant reveal the following.
1. Madsen sold goods costing $56,230 to Allen Company FOB shipping point on December 28. The goods are not expected to reach Allen until January 12. The goods were not included in the physical inventory because they were not in the warehouse.
2. The physical count of the inventory did not include goods costing $87,740 that were shipped to Madsen FOB destination on December 27 and were still in transit at year-end.
3. Madsen received goods costing $25,460 on January 2. The goods were shipped FOB shipping point on December 26 by Lynch Co. The goods were not included in the physical count.
4. Madsen sold goods costing $51,960 to Finet of Canada FOB destination on December 30. The goods were received in Canada on January 8. They were not included in Madsen's physical inventory.
5. Madsen received goods costing $42,760 on January 2 that were shipped FOB destination on December 29. The shipment was a rush order that was supposed to arrive December 31. This purchase was included in the ending inventory of $281,260.
Determine the correct inventory amount on December 31.
Q2. Laib Camera Shop Inc. uses the lower-of-cost-or-market basis for its inventory. The following data are available at December 31.
|
Units
|
Cost/Unit
|
Market Value/Unit
|
|
Cameras
|
|
|
|
|
Minolta
|
5
|
$168
|
$158
|
|
Canon
|
7
|
139
|
154
|
|
Light Meters
|
|
|
|
|
Vivitar
|
13
|
132
|
106
|
|
Kodak
|
11
|
114
|
145
|
What amount should be reported on Laib Camera Shop's financial statements, assuming the lower-of-cost-or-market rule is applied?
Q3. Sprague Company reported these income statement data for a 2-year period.
|
2012
|
2011
|
|
Sales revenue
|
$251,500
|
$211,260
|
|
Beginning inventory
|
40,240
|
32,192
|
|
Cost of goods purchased
|
203,212
|
174,038
|
|
Cost of goods available for sale
|
243,452
|
206,230
|
|
Less: Ending inventory
|
55,330
|
40,240
|
|
Cost of goods sold
|
188,122
|
165,990
|
|
Gross profit
|
$63,378
|
$45,270
|
Sprague Company uses a periodic inventory system. The inventories at January 1, 2011, and December 31, 2012, are correct. However, the ending inventory at December 31, 2011, is overstated by $8,048.
(a) Prepare correct income statement data for the 2 years.
(b) What is the cumulative effect of the inventory error on total gross profit for the 2 years?
Q4. Newell Company just took its physical inventory. The count of inventory items on hand at the company's business locations resulted in a total inventory cost of $412,200. In reviewing the details of the count and related inventory transactions, you have discovered the following items that had not been considered.
1. Newell has sent inventory costing $38,472 on consignment to Victoria Company. All of this inventory was at Victoria's showrooms on December 31.
2. The company did not include in the count inventory (cost, $27,480) that was sold on December 28, terms FOB shipping point. The goods were in transit on December 31.
3. The company did not include in the count inventory (cost, $17,862) that was purchased with terms of FOB shipping point. The goods were in transit on December 31.
Compute the correct December 31 inventory.