Booth Sales uses the perpetual inventory system for the purchase and sale of inventory and had the following information available on August 31, 2014:

Required
1. Calculate the cost of goods sold and the cost of the ending inventory for August under each of the following inventory costing methods:
(a) Moving-weighted-average cost,
(b) FIFO cost.
2. Prepare the journal entries required to record the August transactions using the perpetual inventory system with FIFO costing.
3. An internal audit has discovered that two new employees-an accounting clerk and an employee from the purchasing department-have been stealing merchandise and covering up the shortage by changing the inventory records. For example, if 130 units were purchased at $20 per unit, they would record it as 100 units purchased at $26 per unit and then steal the other 30 units.
The external auditors examined the accounting records prior to the employment of the two individuals and noted that the company had an average gross margin rate of 50 percent. They estimate that 90 percent of the incorrectly costed units have been sold. Use the gross margin method to estimate the cost of the inventory shortage (under the FIFO costing method) and give the journal entry required to correct it.
4. What would be the effect on the net income for the year ending August 31, 2014, if the inventory shortage had not been discovered? For the year ending August 31, 2015?

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Cost or Selling Price per Unit $15 14 25 Purchases and Sales Aug. 1 Number of Units 810 2,250 1,800 1,575 2,600 1,800 2,700 3,600 Balance of inventory Purchased Sold 15 12 Purchased Sold 26 17 16 21 Purchased 25 29 20 27 Purchased Sold