Chapter 8 Accounting
Chapter 8 Accounting
Chapter 8
Inventory Estimation
PROBLEM 1: TRUE OR FALSE
1. FALSE – (50,000 gross profit ÷ 150,000 COGS) = 33.33%
GPR based on cost
4. FALSE
(10 + 140) = 150 TGAS;
(120 x 100%/120%) = 100 COGS;
150 – 100 = 50 ending inventory
5. TRUE
Inventory
beg. 20
Net
100
purchases 120 COGS (squeeze)
-
2. C
3. C
4. A
5. C
Solution:
GPR based on sales
Inventory
beg. 80,000
Net purchases
(340,000 – 4,000 + 339,000
12,000) 348,000 COGS (454K – 2K) x 75%
89,000 end.
2. D
Solution:
Inventory
beg. 162,000
3,018,60
Net purchases 3,412,000 0 COGS (4.654M - 10K) x 65%
555,400 end.
(56,000) Goods in-transit
(443,00
0) Actual inventory
56,400 Loss due to theft
3. D
Solution:
2001
Net sales (788,000 - 16,000) 772,000
Cost of sales:
Page |3
Inventory -
2002
173,12
beg. 0
COGS
Net purchases 627,40 652,80 [(836K - 20K) x
(692K - 64.6K) 0 0 80%]
147,72
0 end.
147,72
Ending inventory, 2002 0
Less: Cost of undamaged goods (24K selling price x (19,200
80%) )
Less: Salvage value of damaged goods (3,600)
124,92
Inventory loss 0
4. A
Solution:
Accounts payable Inventory
Page |4
5. A
Solution:
6. B
Solution:
Raw materials
beg. 11,000
Purchase
s 150,000 146,000 DM
15,000 end.
WIP
beg. 20,000
Direct materials 146,000
Direct labor 60,000
Factory overhead:
Indirect factory labor 30,000
Taxes and depn. - factory
bldg. 10,000
Utilities (60% x 25,000) 15,000 257,000 COGM
24,000 end.
Finished goods
beg. 12,500
260,50
COGM 257,000 0 COGS
9,000 end.
Page |5
7. D
Solutions:
Cost Retail
Inventory at January 1, 2002 45,000 75,000
Purchases 270,000 590,000
Freight-in 6,750
Markups 50,000
Markdowns (20,000)
TGAS 321,750 695,000
Net sales * (612,000)
Ending inventory at retail 83,000
8. C
Solution:
Page |6
Cost Retail
Inventory, January 1 20,000 28,000
Net purchases (a) 103,200 143,400
Departmental transfers-in (debit) 2,000 3,000
Departmental transfers-out (credit) (1,600) (2,400)
Net markups (12,000 - 4,000) 8,000
Net markdowns (24,000 - 6,000) (18,000)
Abnormal spoilage (theft and casualty loss) (10,000) (14,000)
Total goods available for sale 113,600 148,000
Net sales (b) (84,000)
Ending inventory at retail 64,000
(a)
Cost Retail
Purchases 110,600 160,600
Freight-In 4,000 -
Purchase discounts (1,000) -
Purchase returns (10,400) (17,200)
Net purchases 103,200 143,400
9. A
Solution:
FIFO cost ratio:
Cost ratio TGAS at cost less beg. inventory at cost
(FIFO cost =
method) TGAS at retail less beg. inventory at retail
FIFO cost ratio = [(113,600 – 20,000) ÷ (148,000 – 28,000)]
= 78%
10. A
Solution:
Cost Retail
Inventory, beg. 36,000
Purchases 320,000
Purchase discounts (3,000)
Freight-in 18,000
TGAS 371,000 530,000 (a)
(a)
Sales 454,000
Sales returns (2,000)
Ending inventory @ sales price 78,000
TGAS @ sales price 530,000
Page |8
Inventory
1,064,35
Jan. 1, 20x1 2
630,64
Purchases 482,016 4 COGS*
915,72 Jan. 7,
4 20x1
915,72
Inventory, Jan. 7, 20x1 4
(126,51
Less: Goods in transit (Jan. 6 purchase) 6)
(20,000
Less: Cost of undamaged goods )
Less: Salvage value of partially damaged goods (354 x
2) (708)
768,50
Inventory loss 0
P a g e | 10
5. Solution:
Accounts payable
30,000 beg.
Payments 480,000 510,000 Net purchases (squeeze)
end. 60,000
Inventory
beg. 80,000
Net COGS (585K - 15K) x
510,000
purchases 427,500 75%
Freight-in 5,000
167,500 end.
(28,000) goods in-transit
(32,000) consigned goods
(2,500) salvage value
105,000 Inventory loss
6. Solution:
Inventory
beg. 80,000
P a g e | 11
Gross
517,000
purchases 3,000 Purchase returns
Freight-in 5,000 4,000 Purchase discounts
427,500 COGS
(585K - 15K) x 100%/133 1/3%
167,500 end.
Undamaged (20% x
(33,500)
167.5K)
(25,125) Salvage value
(50% x 167.5K x 30%)
108,875 Inventory loss
7. Solutions:
Cost Retail
Inventory, beg. 300,000 375,000
Net purchases (a) 1,056,000 1,495,000
Departmental Transfers-In 2,000 3,000
Net mark-ups (20,000 – 2,000) 18,000
Net mark-downs (6,000 – (5,000)
1,000)
Abnormal spoilage (8,000) (11,000)
TGAS 1,350,000 1,875,000
Net sales (b) (1,375,000)
EI @ retail 500,000
(a)
@ cost: 1,180,000 + 30,000 - 150,000 - 4,000 = 1,056,000;
@ retail: 1,500,000 – 5,000 = 1,495,000
(b)
Cost ratios:
Average FIFO
Cost ratios 72.00% 70.00%
Multiply by: EI @ retail 500,000 500,000
Ending inventory @
cost 360,000 350,000
Average FIFO
TGAS @ cost 1,350,000 1,350,000
Ending inventory @ cost (360,000) (350,000)
Cost of goods sold 990,000 1,000,000