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Chapter 6: 4RQ (page 357)
What is the goal of conservatism?
The goal of conservatism is to prevent recording any unrealistic figures into the books of accounts.
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Steel Mill began August with 50 units of iron inventory that cost \(35 each. During August, the company completed the following inventory transactions:
Units Unit Cost Unit Sales Price
Aug. 3 Sale 45 \) 85
8 Purchase 90 $ 54
21 Sale 85 88
30 Purchase 15 58
Requirements
6. If the business wanted to maximize gross profit, which method would it select?
Nutriset Foods reports merchandise inventory at the lower-of-cost-or-market. Prior to releasing its financial statements for the year ended March 31, 2019, Nutriset’s preliminary income statement, before the year-end adjustments, appears as follows:
NUTRISET FOODS
Income Statement (Partial)
Year Ended March 31, 2019
Net Sales Revenue \( 118,000
Cost of Goods Sold 47,000
Gross Profit \) 71,000
Nutriset has determined that the current replacement cost of ending merchandise inventory is \(19,500. Cost is \)24,000.
Requirements
1. Journalize the adjusting entry for merchandise inventory, if any is required.
Question:This problem continues the Crystal Clear Cleaning problem begun in Chapter 2 and continued through Chapter 5.
Consider the December transactions for Crystal Clear Cleaning that were presentedin Chapter 5. (Cost data have been removed from the sale transactions.) Crystal Clearuses the perpetual inventory system.
Dec. 2 Purchased 1,000 units of inventory for \(4,000 on account from Sparkle
Company on terms, 5/10, n/20.
5 Purchased 1,200 units of inventory from Borax on account with terms
4/10, n/30. The total invoice was for \)6,000, which included a \(300
freight charge.
7 Returned 300 units of inventory to Sparkle from the December 2
purchase.
9 Paid Borax.
11 Sold 500 units of goods to Happy Maids for \)5,500 on account with
termsn/30.
12 Paid Sparkle.
15 Received 100 units with a sales price of \(1,100 of goods back from
customer Happy Maids.
21 Received payment from Happy Maids, settling the amount due in full.
28 Sold 500 units of goods to Bridget, Inc. on account for \)6,500. Terms
1/15,n/30.
29 Paid cash for utilities of \(550.
30 Paid cash for Sales Commission Expense of \)214.
31 Received payment from Bridget, Inc., less discount.
31 Recorded the following adjusting entries:
a. Physical count of inventory on December 31 showed 800 units of
goods on hand.
b. Depreciation, \(150.
c. Accrued salaries expense of \)2,100.
d. Estimated sales returns of \(1,500, with cost of \)540.
e. Prepared all other adjustments necessary for December (Hint: You willneed to review the adjustment information in Chapter 3 to determinethe remaining adjustments). Assume the cleaning supplies left atDecember 31 are $50.
Requirements
1. Prepare perpetual inventory records for December for Crystal Clear Cleaning usingthe FIFO inventory costing method. (Note: You must calculate the cost of goodssold on the 11th, 28th, and 31st (adjusting entry a).) Round per unit costs to twodecimal places.
Right Now Electronic Center began October with 100 units of merchandise inventory that cost \(70 each. During October, the store made the following purchases:
Oct. 3 35 units @ \) 82 each
12 45 units @ \( 84 each
18 75 units @ \) 90 each
Right Now uses the periodic inventory system, and the physical count at October 31indicates that 130 units of merchandise inventory are on hand.
Requirements
3. Which method will result in the lowest income taxes for Right Now? Why? Whichmethod will result in the highest net income for Right Now? Why?
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
1. Prepare Golf Unlimited’s perpetual inventory record for the putters assuming GolfUnlimited uses the weighted-average inventory costing method. Round weightedaveragecost per unit to the nearest cent and all other amounts to the nearest dollar.Then identify the cost of ending inventory and cost of goods sold for the month.
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