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Chapter 6: Q 20E-3 (page 363)

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.)

Short Answer

Expert verified

Cost of goods sold: $2,190

Gross Profit: $450

Step by step solution

01

Step-by-Step-SolutionStep 1: Computation of cost of goods sold using weighted average

Date
Purchase/opening
Sales
Balance

Units

Cost per unit

Amount

Units

Cost per unit

Amount

Units

Cost per unit

Amount

May1

16

$65

$1,040

16

$65

$1,040

11

10

$78

$780

26

$70

$1,820

23

12

$70

$840

14

$70

$980

26

14

$80

$1,120

28

$75

$2,100

29

18

$75

$1,350

10

$75

$750

Total

40

$2,940

30

$2,190

10

$75

$750

02

Calculation of gross profit

NetRevenue=Salevalueof23rdMay+Salevalueof29thMay=12×$88+18×$88=30×$88=$2,640

GrossProfit=NetRevenue-Costofgoodssold=$2,640-$2,190=$450

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Most popular questions from this chapter

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

2. State whether each year’s net income—before your corrections—is understated oroverstated, and indicate the amount of the understatement or overstatement.

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— Weighted-average

Requirements

2. Journalize the October 16 purchase of merchandise inventory on the account and theOctober 31 sale of merchandise inventory on the account.

Question:Assume that Toys Galore store bought and sold a line of dolls during December as follows:

Dec. 1 Beginning merchandise inventory 13 units @ \( 9 each

8 Sale 8 units @ \) 22 each

14 Purchase 16 units @ \( 14 each

21 Sale 14 units @ \) 22 each

Requirements

1. Compute the cost of goods sold, cost of ending merchandise inventory, and grossprofit using the FIFO inventory costing method.

Clarmont Resources, which uses the FIFO inventory costing method, has the following account balances at May 31, 2019, prior to releasing the financial statements for the year:

Merchandise Inventory, ending \( 13,500

Cost of Goods Sold 68,000

Net Sales Revenue 123,000

Clarmont has determined that the current replacement cost (current market value) of the May 31, 2019, ending merchandise inventory is \)12,400.

Requirements

1. Prepare any adjusting journal entry required from the information given.

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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