Exercises for Chapters 8 and 9: Inventories 1. The following independent situations relate to inventory accounting. 1.1 Anastasia operates a retail store chain. The following information comprises some general ledges for the year 2013 Purchases $ 908,000 Freight-in 12,000 Freight-out 80,000 Import taxes on purchases 800 Purchase returns 1,300 Cash discounts on purchases 2,400 Cash discounts on sales 1,900 Interest on notes payable to suppliers 800 What is Anastasia's inventoriable cost for 2013? 1.2 Maria Inc. had 1,000 units of inventory on hand at June 1, 2013, costing $12 each. Purchases of inventory during June were as follows. June 3 Sales 200 units 15 Purchases 2,500 units, $13 each 16 Sales 1,000 units Maria Inc. uses perpetual inventory system. a) Compute cost of goods sold for the sale transaction on June 16, if the FIFO method is used. b) Compute cost of goods sold the sale transaction on June 16, if the weighted average cost method is used. 1.3 Information of Denver Company's inventory is as follows. Cost Net Realisable Value 31/12/2011 650,000 680,000 31/12/2012 780,000 712,000 31/12/2013 900,000 850,000 a) Prepare the journal entries required at December 31, 2012, assuming that the cost-of-goods- sold method of adjusting to LCNRV is used and crediting the Inventory account for the adjustment is preferred. b) Prepare the journal entries required at December 31, 2013, assuming that the loss method and an account of Allowance to Reduce Inventory to Net Realisable Value are used. 1.4 Assume that in an annual audit of Peter Hunt Corp at June 30, 2013, you find the following transactions nearing that closing date. State whether the record of merchandise is correct or incorrect for the inventory account at June 30, 2013, assuming that each of the amounts is material. a) Merchandise costing 8,900 was received on July 5, 2013, and the related purchase invoice was recorded on July 6, 2013. The invoice showed the shipment was made on June 28, 2013, f.o.b. destination. b) Merchandise costing 560 was remained in the ending inventory at June 30, 2013. The merchandise was marked 'on consignment'. c) A packing case containing a product costing 200 was standing in the shipping room and was marked "Hold for Shipment'. When the physical inventory was taken, this amount was included. Your investigation revealed that the customer's order was made on June 30, 2013, and the case was shipped and the customer was billed on July 2, 2013. 1.5 Rio Company signed a long-term, non-cancellable purchase commitment with one large supplier, Ronan Plc, of raw material on November 1, 2013, at an agreed price of $400,000. At December 31, 2013, the market price of raw material is $360,000. How would this matter be treated in the accounts and statements? Explain and show a journal entry if needed. 2. The records of Koriki Fashion report the following data for the month of August. Sales $ 97,000 Beginning inventory (at cost) $20,000 Sales returns 2,000 Beginning inventory (at sales price) 45,000 Markups 10,000 Purchase (at cost) 55,000 Markup cancellations 2,000 Purchase (at sales price) 98,000 Markdowns 9,400 Purchase returns (at cost) 2,000 Markdown cancellations 1,700 Purchase returns (at sales price) 3,800 Freight on purchases 2,400 Instructions Assuming that the company uses a cost-basis approach. Compute the amount of ending inventory, using periodic, weighted average cost flow. The units of goods available for sales and ending inventory are 1,500 and 400, respectively. 1. If gross profit method is used, compute the estimated ending inventory, assuming that the gross profit is 40% of sales. 2. If retail inventory method is used, compute the ending inventory at LCNRV