On December 31, 2010, Paperville computed an ending inventory valuation of $250,000. The accounts for 2010 have

been adjusted and closed. Subsequently, the independent auditor located several discrepancies in the 2010 ending

inventory. These were discussed with the accounting manager, who then prepared the following table.

1. Merchandise in store (at 50% above cost) . . . . . . . . . . . . . . . . . . . . . . . $250,000

2. Merchandise out on consignment at sales price

(cost of inventory is $4,000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000

3. Goods held on consignment from Davis Electronics at sales price

(sales commission, 20% of sales price, included) . . . . . . . . . . . . . . . 4,000

4. Goods purchased, in transit (shipped FOB shipping point,

estimated freight, not included, $800), invoice price. . . . . . . . . . . . . . 5,000

5. Goods out on approval, sales price, $2,500, cost, $1,000 . . . . . . . . . . . 2,500

Total inventory as corrected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $271,500

Required

The auditor did not agree with the corrected inventory amount of $271,500. Compute the correct ending inven-

tory amount by modifying the corrected balance of $271,500.

Naperville Company maintains perpetual inventory records on a FIFO basis for the three main products distributed

by the company. Aphysical inventory is taken at each year-end to check the perpetual inventory records. The fol-

lowing information relates to one of its products for the month ended June 2020.

Date Units Unit Cost

June 1 Beginning inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000 $8.10

Purchases and sales (in order)

June 3 Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 8.15

June 4 Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000

June 8 Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,000 8.20

June 9 Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,000

June 15 Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000 8.40

June 18 Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000 8.25

June 20 Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,000

June 29 Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 8.10

June 30 Ending inventory (per count) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,500

Required

a. Reconstruct the perpetual inventory record for this product.

b. Prepare eight journal entries (in chronological order) for the above five purchases and three sales. Assume

that the selling price is $22 per unit. Also prepare a journal entry for any inventory shortage.

c. Prepare the income statement ending with gross margin. Compute the gross profit as a percentage of sales

from this income statement.