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Chapter 6: 9SE_2 (page 359)

Question:New York Pool Supplies’s merchandise inventory data for the year ended December 31, 2019, follow:

Net Sales Revenue\( 58,000

Cost of Goods Sold:

Beginning Merchandise Inventory\) 4,900

Net Cost of Purchases 32,500

Cost of Goods Available for Sale37,400

Less: Ending Merchandise Inventory 4,700

Cost of Goods Sold32,700

Gross Profit $ 25,300

Requirements

2. How would the inventory error affect New York Pool Supplies’s cost of goodssold and gross profit for the year ended December 31, 2020, if the error is not correctedin 2019?

Short Answer

Expert verified

If the error is not corrected in 2019, the COGS would be overstated and gross profit would be understated by $1,800 in 2020.

Step by step solution

01

Step-by-Step-SolutionStep1: COGS in 2020 if the error is not corrected

If the error is not corrected then the opening inventory for 2020 would also be overstated by $1,800.

In such a case, the COGS for 2020 would be overstated by the same amount i.e. $1,800. This is so because the ending inventory is added purchased value to compute COGS.

02

Gross profit in 2020 if the error is not corrected

As discussed above, the COGS would be overstated in 2020 if the error is not corrected.

So in his case, the gross profit for 2020 would be understated by the same amount which is $1,800. This is so as the gross profit is the difference between the net revenue and COGS.

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Most popular questions from this chapter

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

5. Compute gross profit for January using FIFO, LIFO, and weighted-average inventorycosting methods.

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:This problem continues the Canyon Canoe Company situation from Chapter 5. At the beginning of the January 2019, Canyon Canoe Company decided to carry and sellT-shirts with its logo printed on them. Canyon Canoe Company uses the perpetualinventory system to account for the inventory. During February 2019, Canyon CanoeCompany completed the following merchandising transactions:

Feb. 2 Sold 60 T-shirts at \(10 each.

5 Purchased 50 T-shirts at \)6 each.

7 Sold 45 T-shirts for \(10 each.

8 Sold 20 T-shirts for \)10 each.

10 Canyon Canoe Company realized the inventory was running

low, so it placed a rush order and purchased 20 T-shirts. The

premium cost for these shirts was \(7 each.

12 Placed a second rush order and purchased 40 T-shirts at \)7

each.

13 Sold 20 T-shirts for \(10 each.

15 Purchased 50 T-shirts for \)6 each.

20 In order to avoid future rush orders, purchased 150 T-shirts.

Due to the volume of the order, Canyon Canoe Company

was able to negotiate a cost of \(5 each.

21 Sold 40 T-shirts for \)10 each.

22 Sold 35 T-shirts for \(10 each.

24 Sold 20 T-shirts for \)10 each.

25 Sold 45 T-shirts for \(10 each.

27 Sold 40 T-shirts for \)10 each.

Requirements

2. Provide a summary for the month, in both units and dollars, of the change in inventory in the following format:

Number of T-shirts

Dollar Amount

Beginning Balance

Add: Purchases

Less: Cost of goods sold

Ending Balance

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.

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.
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