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Chapter 6: 5RQ (page 357)

Discuss some measures that should be taken to maintain control over merchandise inventory.

Short Answer

Expert verified

Measures for inventory control is an interconnected process that starts from inventory procurement and ends with inventory release from the stock.

Step by step solution

01

Merchandise control

Merchandise control is related to the authorized and controlled accounting system for making purchases and sales. This control ensures merchandise safety, flow record, and wastage reduction.

02

Measures for taking merchandise control

Following measures are taken to accomplish merchandise control –

a) Merchandise should be purchased from the only approved vendors and with proper authorization.

b) Properly tracking the purchased inventory and checking or documentation and damaged items at the time of delivery.

c) Proper recording of damaged inventory and its removal from the stock.

d) Annual counting of physical inventory to prevent theft, damage, or error.

e) Maintaining a proper record of sold or removed inventory from the stock.

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Most popular questions from this chapter

Question:Hot Bread Bakery reported Net sales revenue of \(44,000 and cost of goods sold of \)33,000. Compute Hot Bread’s correct gross profit if the company made either of thefollowing independent accounting errors. Show your work.

b. Ending merchandise inventory is understated by $8,000.

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

1. Prepare Boston Cycle’s perpetual inventory record assuming the company uses theLIFO inventory costing method.

Some of L and K Electronics’s merchandise is gathering dust. It is now December 31, 2018, and the current replacement cost of the ending merchandise inventory is\(32,000 below the business’s cost of the goods, which was \)98,000. Before any adjustmentsat the end of the period, the company’s Cost of Goods Sold account has a balanceof $410,000.

Requirements

1. Journalize any required entries.

Assume that AB Tire Store completed the following perpetual inventory transactions for a line of tires:

May 1 Beginning merchandise inventory 16 tires @ \( 65 each

11 Purchase 10 tires @ \) 78 each

23 Sale 12 tires @ \( 88 each

26 Purchase 14 tires @ \) 80 each

29 Sale 18 tires @ $ 88 each

Requirements

3. Compute cost of goods sold and gross profit using the weighted-average inventory costing method. (Round weighted-average cost per unit to the nearest cent and all other amounts to the nearest dollar.)

Question:Broadway Communications reported the following figures in its annual financial statements:

Cost of Goods Sold $ 18,400

Beginning Merchandise Inventory 560

Ending Merchandise Inventory 450

Compute the rate of inventory turnover and days’ sales in inventory for BroadwayCommunications. (Round to two decimal places.)
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