i)

Larsen's Hardware Store prepared the following analysis of cost of goods sold for the previous three years:

200120022003

Beginning inventory 1/1 $40,000$18,000$25,000

Cost of goods purchased 50,00055,000 70,000

Cost of goods available for sale 90,00073,00095,000

Ending inventory 12/31 18,00025,000 40,000

Cost of goods sold $72,000$48,000$55,000

Net income for the years 2001, 2002, and 2003 was $70,000, $60,000, and $55,000, respectively. Since net income was consistently declining, Mr. Larsen hired a new accountant to investigate the cause(s) for the declines.

The accountant determined the following:

1.Purchases of $25,000 were not recorded in 2001.

2.The 2001 December 31 inventory should have been $25,000.

3.The 2002 ending inventory included inventory costing $3,000 that was purchased FOB destination and in transit at year end.

4.The 2003 ending inventory did not include goods costing $4,000 that were shipped on December 29 to Sampson Plumbing Company, FOB shipping point. The goods were still in transit at the end of the year.

Instructions

Determine the correct net income for each year.(Show all computations.)

(ii)

Adler Department Store prepares monthly financial statements but only takes a physical count of merchandise inventory at the end of the year. The following information has been developed for the month of July:

At Cost At Retail

Beginning inventory$50,000$60,000

Merchandise purchases130,000180,000

The net sales for July amounted to $200,000.

Instructions

Use the retail inventory method to estimate the ending inventory at cost for July. Show all computations to support the answer.

(iii)

Edsen Company suffered a loss of its inventory on March 28 due to a fire in its warehouse.As a basis for filing a claim with its insurance company, Edsen Company developed the following information:

March net sales through March 28$500,000

Beginning Inventory, March 1190,000

Merchandise purchases through March 28250,000

The company has experienced an average gross profit rate of 30% in the past and this rate appears to be appropriate in the current period.

Instructions

Using the gross profit method, prepare estimate of the cost of the inventory destroyed by fire on March 28. Show all computations in good form.

iv)

The inventory of Snider Company was destroyed by fire on April 1.From an examination of the accounting records, the following data for the first three months of the year are obtained:

Sales$195,000

Sales Returns and Allowances5,000

Purchases75,000

Freight-In3,500

Purchase Returns and Allowances4,000

Instructions

Determine the merchandise lost by fire, assuming a beginning inventory of $60,000 and a gross profit rate of 40% on net sales.