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Chapter 6: Q35PGB_1 (page 371)

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.

Short Answer

Expert verified

The cost of goods sold would be debited, and inventory would be credited by the reduced amount,which is $66,000.

Step by step solution

01

Reduction in inventory value

Based on the lower of cost or net realizable value, the inventory has been reduced by the following amount -Reductionininventoryvalue=Historicalcost-Netrealizablevalue=$98,000-$32,000=$66,000

02

Journal Entry

The reduced value of inventory would be treated as normal loss and would be adjusted in the cost of goods sold. The journal entry would be as follows –

Date

Description

Debit

Credit

Dec 31, 2018

Cost of goods sold

$66,000

Merchandise Inventory

$66,000

Being ending inventory adjusted for lower replacement cost

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Most popular questions from this chapter

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.

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

2. At what amount should the company report merchandise inventory on the balancesheet?

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

3. Which method results in a higher cost of goods sold?

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

4. If the business wanted to pay the least amount of income taxes possible, which method would it choose?

Accounting for inventory using the perpetual inventory system—

FIFO, LIFO, and weighted-average, and comparing FIFO, LIFO, and weighted-average 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

4. Determine the company’s cost of goods sold for August using FIFO, LIFO, and weighted-average inventory costing methods.
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