1. The following is
the accounting records or Denton Company for the year ended December 31,2013.
The company is a manufacturer of tools.
Physical count of
inventory at December 31,2013 was $1,520,000
Accounts payable at
December 31, 2013 was $1,200,000
Sales less sales
returns (Net Sales) for 2013 was $8,150,000
Additional information
is below:
i. Included in the
physical count were tools billed to a customer f.o.b. shipping point on
December 31, 2013. These tools had a cost o $31,000 and were billed at $40,000.
The shipment hasn’t been picked up by the shipper.
ii. Denton received an
invoice from a vendor for goods that shipped f.o.b shipping point on December
28,2013. The invoice total was $76,000.
iii. On December
30,2013, work in process inventory that cost $30,000 was outsourxed for further
processing.
iv. On December
31,2013, Denton received tools returned by customers. The tools are held
pending inspection in the returned goods are and were not included in the
year-end physical count. On January 8,2014, the tools that cost $32,000 were
inspected and returned to inventory. On
same date, credit memos of $47,000 were issued to the customers.
v. As of December
31,2013 tools shipped to a customer f.o.b destination on December 26,2013 were
still in transit. The cost of the tools was $26,000. The customer received the
goods on January 2,2014 and Denton Company issued a sales invoice for $42,000
on that date.
vi. Tools that cost
$27,000 were received from a vendor by the close of business on December
31,2013. However, they were not recorded on a receiving report until January 2,
2014. Therefore, the tools were not included in the December 31,2013’s physical
count. The invoice came with the tools and the invoice was included in accounts
payable at December 31,2013.
vii. Goods received
from a vendor on December 26,2013 were included in the physical count. However,
the $56,000 vendor invoice for the goods was not included in accounts payable
at December 31,2013 because accounts payable’s copy of the receiving report was
lost.
viii. On January 3,
2014, December’s shipping bill for $8,000 was received. One-half of the
associated inventory was included in the December 31,2013’s inventory count.
The freight charges were not included in the inventory or in the accounts
payable at December 31,2013.
Required:
Prepare a schedule of
adjustments to the initial amounts using the format below. Show separately the
effect, if any, of each of the transactions on the December 31,2013, amounts.
If the transactions would have no effect on the initial amount shown, state
none.
Inventory Accounts Payable Net Sales
Initial amounts $1,520,000 $1,200,000 $8,150,000
Adjustments (increase
or decrease):
i.
ii.
iii.
iv.
v.
vi.
vii
viii.
Total adjustments
Adjusted amounts
2. Norman Company is a
manufacturer. Below is information about one of its products.
Date Description Quantity Cost/Price ($)
Jan 1 Beginning inventory 1,000 12
Feb 4 Purchase 2,000 18
Feb 20 Sales 2,500 30
Apr 2 Purchase 3,000 23
Nov 4 Sale 2,200 33
Required
Compute ending
inventory and cost of goods sold as of December 31,2013 using each of the
following alternatives:
a. FIFO, periodic
system
b. FIFO, perpetual
system
c. LIFO, periodic
system
d. LIFO, perpetual
system
e. Average cost,
periodic system
f. Average cost,
perpetual system
3. Truman Company has
four products, A, B, C, and D. Below is its inventory information as of
December 31, 2013.
Product Sales Price Inventory Cost Replacement Cost Sales
Commission
A 500 470 460 50
B 540 450 430 60
C 900 830 610 80
D 1200 960 1000 130
The normal gross
profit percentage for each product is 20% of the sales price.
Required:
a. Determine the
balance sheet inventory carrying value as of December 31, 2013 assuming the LCM
rule is applied to individual product.
b. Determine the
balance sheet inventory carrying value as of December 31, 2013 assuming the LCM
rule is applied to entire inventory.
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