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Chapter 6: 14RQ (page 357)
How is days’ sales in inventory calculated, and what does it measure?
Days’ sales in inventory are calculated for getting the time period for converting to sales by comparing the number of days to the inventory turnover for a particular period.
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Question:Boston Cycles started October with 12 bicycles that cost \(42 each. On October 16, Boston bought 40 bicycles at \)68 each. On October 31, Boston sold 34 bicycles for$100 each.
Preparing a perpetual inventory record and journal entries—LIFO
Requirements
2. Journalize the October 16 purchase of merchandise inventory on the account and theOctober 31 sale of merchandise inventory on the account.
Steel It began January with 55 units of iron inventory that cost \(35 each. During January, the company completed the following inventory transactions:
Units Unit Cost Unit Sales Price
Jan. 3 Sale 45 \) 83
8 Purchase 75 $ 52
21 Sale 70 85
30 Purchase 10 55
Requirements
4. Determine the company’s cost of goods sold for January using FIFO, LIFO, andweighted-average inventory costing methods.
Fit Gym began January with merchandise inventory of 78 crates of vitamins that cost a total of \(4,290. During the month, Fit Gym purchased and sold merchandise on account as follows:
Jan. 5 Purchase 156 crates @ \) 64 each
13 Sale 180 crates @ \( 100 each
18 Purchase 114 crates @ \) 75 each
26 Sale 150 crates @ $ 116 each
Requirements
2. Prepare a perpetual inventory record, using the LIFO inventory costing method, and determine the company’s cost of goods sold, ending merchandise inventory, and gross profit.
Question:Antique Carpets’s books show the following data. In early 2020, auditors found that the ending merchandise inventory for 2017 was understated by \(8,000 and that theending merchandise inventory for 2019 was overstated by \)9,000. The ending merchandiseinventory at December 31, 2018, was correct.
2019 | 2018 | 2017 | |
Net Sales Revenue | \( 212,000 | \) 161,000 | \( 170,000 |
Cost of Goods Sold: | |||
Beginning Merchandise Inventory | \)22,000 | \(28,000 | \)41,000 |
Net cost of purchase | 131,000 | 100,000 | 86,000 |
Cost of goods available for sale | 153,000 | 128,000 | 127,000 |
Less: Ending Merchandise Inventory | 34,000 | 22,000 | 28,000 |
Cost of goods sold | 119,000 | 106,000 | 99,000 |
Gross Profit | 93,000 | 55,000 | 71,000 |
Operating Expenses | 63,000 | 28,000 | 39,000 |
Net Income | \( 30,000 | \) 27,000 | $ 32,000 |
Requirements
1. Prepare corrected income statements for the three years.
2. State whether each year’s net income—before your corrections—is understated oroverstated, and indicate the amount of the understatement or overstatement.
3. Compute the inventory turnover and days’ sales in inventory using the correctedincome statements for the three years. (Round all numbers to two decimals.)
Question:Golf Unlimited carries an inventory of putters and other golf clubs. The sales price of each putter is \(119. Company records indicate the following for a particular line ofGolf Unlimited’s putters:
Date Item Quantity Unit Cost
Nov. 1 Balance 24 \) 53
6 Sale 20
8 Purchase 30 70
17 Sale 30
30 Sale 2
Requirements
2. Journalize Golf Unlimited’s inventory transactions using the weighted-averageinventory costing method. (Assume purchases and sales are made on account.)
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