E8-2 (L02) Inventoriable Goods and Costs

In your audit of Jose Oliva Company, you find that a physical inventory on December 31,
2017, showed merchandise with a cost of $441,000 was on hand at that date. You also
discover the following items were all excluded from the $441,000.

1. Merchandise of $61,000 which is held by Oliva on consignment. The consignor is the

Max Suzuki Company.
2. Merchandise costing $38,000 which was shipped by Oliva f.o.b. destination to a
customer on December 31, 2017. The customer was expected to receive the
merchandise on January 6, 2018.
3. Merchandise costing $46,000 which was shipped by Oliva f.o.b. shipping point to a
customer on December 29, 2017. The customer was scheduled to receive the
merchandise on January 2, 2018.
4. Merchandise costing $83,000 shipped by a vendor f.o.b. destination on December 30,
2017, and received by Oliva on January 4, 2018.
5. Merchandise costing $51,000 shipped by a vendor f.o.b. shipping point on December
31, 2017, and received by Oliva on January 5, 2018.

Instructions
Based on the above information, calculate the amount that should appear on Oliva’s
balance sheet at December 31, 2017, for inventory.

Inventory per physical count

E8-9 (L03) Periodic versus Perpetual Entries
Fong Sai-Yuk Company sells one product. Presented below is information for January for Fong
Sai-Yuk Company.

Dates Transaction
Jan. 1 Inventory 100 units at $5 each
4 Sale 80 units at $8 each
11 Purchase 150 units at $6 each
13 Sale 120 units at $8.75 each
20 Purchase 160 units at $7 each
27 Sale 100 units at $9 each

Fong Sai-Yuk uses the FIFO cost flow assumption. All purchases and sales are on account.

Instructions
(a) Assume Fong Sai-Yuk uses a periodic system. Prepare all necessary journal entries,
including the end-of-month closing entry to record cost of goods sold. A physical count
indicates that the ending inventory for January is 110 units.

Date Accounts Debit Credit

(b) Compute gross profit using the periodic system.

(c) Assume Fong Sai-Yuk uses a perpetual system. Prepare all necessary journal entries.

Date Accounts Debit Credit

(d) Compute gross profit using the perpetual system.
P8-3 (L02) Purchases Recorded Gross and Net
Some of the transactions of Torres Company during August are listed below. Torres uses the
periodic inventory method.

Date Transaction
Aug. 10 Purchased merchandise on account, $12,000, terms 2/10, n/30.
13 Returned part of the purchase of August 10, $1,200, and received credit on
account.
15 Purchased merchandise on account, $16,000, terms 1/10, n/60.
25 Purchased merchandise on account, $20,000, terms 2/10, n/30.
28 Paid invoice of August 15 in full.

Instructions
(a) Assuming that purchases are recorded at gross amounts and that discounts are to be
recorded when taken:
(1) Prepare general journal entries to record the transactions.
(2) Describe how the various items would be shown in the financial statements.

(1) Date Accounts Debit Credit

(2)
(b) Assuming that purchases are recorded at net amounts and that discounts lost are
treated as financial expenses:
(1) Prepare general journal entries to enter the transactions.
(2) Prepare the adjusting entry necessary on August 31 if financial statements are
to be prepared at that time.
(3) Describe how the various items would be shown in the financial statements.

(1) Date Accounts Debit Credit

(2)

(3)
(c) Which of the two methods do you prefer and why?
P8-4 (L03) Compute FIFO, LIFO, and Average-Cost
Hull Company’s record of transactions concerning part X for the month of April was as follows.

Purchases - Units and Unit Costs Sales - Total Units

April 1 Balance 100 @ $ 5.00 April 5 300
4 400 @ 5.10 12 200
11 300 @ 5.30 27 800
18 200 @ 5.35 28 150
26 600 @ 5.60
30 200 @ 5.80

Instructions
(a) Compute the inventory at April 30 on each of the following bases. Assume that perpetual
inventory records are kept in units only. Carry unit costs to the nearest cent.
(1) First-in, first-out (FIFO)
(2) Average-cost

(a) Purchases - Units Sales - Total Units

April 1 Balance 100 April 5 300

Assume costs are not computed for each withdrawal:

1. First-in, first-out
Date of Invoice No. Units Unit Cost Total Cost

Inventory, April 30 =

2 Average-cost
Date of Invoice No. Units Unit Cost Total Cost
 April 1 100

Inventory, April 30 =

(b) If the perpetual inventory record is kept in dollars, and costs are computed at the time of each
withdrawal, what amount would be shown as ending inventory in (1), (2), and (3) above? (Carry
average unit costs to four decimal places.)

Assume costs are computed for each withdrawal.

1. First-in, first-out
2 Average-cost
Purchased Sold Balance
No. of Unit No. of No. of
Date units cost units Unit cost units Unit cost Amount
Apr. 1

Apr. 4

Apr. 5

Apr. 11

Apr. 12

Apr. 18

Apr. 26

Apr. 27

Apr. 28

Apr. 30

Inventory, April 30 =