Ch 6: Homework

BE6.3 (LO 2) In its first month of operations, Tatung Electronics made three
purchases of merchandise in the following sequence: (1) 300 units at NT$180, (2)
400 units at NT$210, and (3) 200 units at NT$240. Assuming there are 420 units
on hand, compute the cost of the ending inventory under the (a) FIFO method and
(b) average-cost method. Tatung uses a periodic inventory system. (Round
average unit cost to two decimal places.) (12 points)

The concluding inventory using the FIFO method comprises 200 units
priced at NT$240 and 220 units priced at NT$210, resulting in a
combined allocation of NT$94,200 (comprising NT$48,000 and
NT$46,200).

A) Average unit cost is NT$206.67 computed as follows:

300 X NT$180 = NT$54,000

400 X NT$210 = 84,000

200 X NT$240 = 48,000

900 NT$186,000

NT$186,000 ÷ 900 = NT$206.67 (rounded).

The cost of the ending inventory is NT$86,801.40 or (420 X NT$206.67).

BE6.6 (LO 4) Blackburn Appliance Center accumulates the following cost and net
realizable value data at December 31.
Inventory Cost Net Realizable
Categories Data Value Data
Cameras £12,000 £12,100
Camcorders 9,420 9,200
Blu-ray players 14,000 12,800
Compute the lower of cost or net realizable value valuation for the company’s total
inventory. (6 points)

The underreporting of ending inventory led to an overstatement of €5,000 in the

cost of goods sold and an understatement of €5,000 in net income. The accurate
net income for 2017 stands at €95,000, calculated as €90,000 plus €5,000. The
total assets in the financial statement will be underestimated by the same amount
as the understated ending inventory, which is €5,000.

BE6.7 (LO 4) At December 31, 2025, the following information was available for Tai
Lin Goods: ending inventory HK$400,000, beginning inventory HK$580,000,
cost of goods sold HK$2,842,000, and sales revenue HK$3,800,000. Calculate
inventory turnover and days in inventory for Tai Lin. (12 points)

Inventory turnover: 2,842,000 / 490,000 = 5.8

Days in inventory: 365 / 5.8 = 62.9 days

BE6.9 (LO 6) At May 31, Chang Dancewear has net sales of ¥330,000 and cost of
goods available for sale of ¥230,000. Compute the estimated cost of the ending
inventory, assuming the gross profit rate is 45%. (6 points)

Net sales.............................................................................. ¥330,000

Less: Estimated gross profit (45% X ¥330,000)............... 148,500

Estimated cost of goods sold............................................ ¥181,500

Cost of goods available for sale........................................ ¥230,000

Less: Estimated cost of goods sold................................. 181,500

Estimated cost of ending inventory.................................. ¥ 48,500

DO IT! 6.1 (LO 1) Recife Apparel just took its physical inventory. The count of
inventory items on hand at the company’s business locations resulted in a total
inventory cost of R$300,000. In reviewing the details of the count and related
inventory transactions, you discover the following.
1. Recife sent inventory costing R$18,000 on consignment to Rio Company. All of
this inventory is at Rio’s showrooms on December 31.
2. The company did not include in the inventory count the goods (cost, R$20,000)
that were purchased on December 28, terms FOB shipping point. The goods are
in transit on December 31.
3. The company did not include in the inventory count the goods (cost, R$17,000)
that were sold with terms of FOB shipping point. The goods are in transit on
 December 31.
Compute the correct December 31 inventory. (6 points)

Inventory per physical count..................................................... R$300,000

Inventory out on consignment.................................................. 18,000

Inventory purchased, in transit at year-end............................. 20,000

Inventory sold, in transit at year-end........................................ 0

Correct December 31 inventory............................................... R$338,000

E6.5 (LO 2) Zambian Co. uses a periodic inventory system. Its records show the
following for the month of May, in which 68 units were sold.
Units Unit Cost Total Cost
May 1 Inventory 30 €9 €270
15 Purchases 22 11 242
24 Purchases 38 12 456
Totals 90 €968
Instructions
Compute the ending inventory at May 31 and cost of goods sold using the FIFO and
average-cost methods. Prove the amount allocated to cost of goods sold under each
method. (Round all unit cost calculations for the average-cost method to the nearest
cent and total cost to the nearest euro.) (20 points)

Units Unit Cost Total Cost

May 1 Inventory 30 €9 €270
15 Purchases 22 11 242
24 Purchases 16 12 192
Totals 68 €704

AVERAGE-COST
Cost of goods available for sale........................................................... €968
Less: Ending inventory (22 X €10.76*)................................................ 237

Cost of goods sold................................................................................ €731

968 / 90 = 10.76
68 units x 10.76 = 731 (rounded off to a whole number)

E6.10 (LO 3) Bamburgh Hardware reported cost of goods sold as follows.

2024 2025
Beginning inventory € 20,000 € 30,000
Cost of goods purchased 150,000 175,000
Cost of goods available for sale 170,000 205,000
Ending inventory 30,000 35,000
Cost of goods sold €140,000 €170,000
Bamburgh made two errors: (1) 2024 ending inventory was overstated €2,000, and (2)
2025 ending inventory was understated €6,000.
Instructions
Compute the correct cost of goods sold for each year. (10 points)
2024 2025
Beginning inventory € 20,000 € 30,000
Cost of goods purchased 150,000 175,000
Cost of goods available for sale 170,000 203,000
Ending inventory 28,000 41,000
Cost of goods sold €142,000 €162,000

30,000 – 2,000 = 28,000

35,000 – 6,000 = 41,000

*E6.14 (LO 5) Roselle TVs uses a perpetual inventory system. For its flat-screen
television sets, the January 1 inventory was 3 sets at €600 each. On January 10,
Roselle purchased 6 units at €648 each. The company sold 2 units on January 8
and 4 units on January 15.
Instructions
Compute the ending inventory under (1) FIFO and (2) moving-average cost. (Round
the unit cost to the nearest cent.) (12 points)

FIFO
Date Purchases Cost of Goods Sold Balance
Jan 1 3 x 600 = €1,800
8 (2 x 600) €1,200 600
10 (6 x 648) 3,888 1 x 600
6 x 648 4,488
15 (1 x 600)
(3 x 648) €2,544 (3 x 648) 1,944

Moving-Average Cost

Date Purchases Cost of Goods Sold Balance

Jan 1 (3 x 600) = €1,800
8 (2 x 600) €1,200 (1 x 600) 600
10 (6 x 648) 3,888 (7 x 641.14) 4,488

15 (4 x 641.14) €2,565 (3 x 641.14) 1,923

Average cost = (600 + 3,888) / 7 = 641.14

E6.18 (LO 6) The inventory of Ipswich Books was destroyed by fire on March 1.
From an examination of the accounting records, the following data for the first 2
months of the year are obtained: Sales Revenue £51,000, Sales Returns and
Allowances £1,000, Purchases £31,200, Freight-In £1,200, and Purchase Returns
and Allowances £1,800.
Instructions
Determine the merchandise lost by fire, assuming: (12 points)
a. A beginning inventory of £20,000 and a gross profit rate of 40% on net sales.

Net sales (£51,000 – £1,000)................................................... £50,000

Less: Estimated gross profit (40% X £50,000)..................... 20,000

Estimated cost of goods sold................................................ £30,000

Beginning inventory............................................................... £20,000

Cost of goods purchased (£31,200 – £1,800 + £1,200)........ 30,600

Cost of goods available for sale............................................ 50,600

Less: Estimated cost of goods sold..................................... 30,000

Estimated cost of merchandise lost...................................... £20,600

b. A beginning inventory of £30,000 and a gross profit rate of 32% on net sales.

Net sales.................................................................................. £50,000

Less: Estimated gross profit (32% X £50,000)..................... 16,000

Estimated cost of goods sold................................................ £34,000

Beginning inventory............................................................... £30,000

Cost of goods purchased....................................................... 30,600

Cost of goods available for sale............................................ 60,600

Less: Estimated cost of goods sold..................................... 34,000

Estimated cost of merchandise lost...................................... £26,600