Penguin Parts, Inc., a nonpublic company following U.S. GAAP, is preparing its fiscal-year financial statements for the year ended February 28, Year 7. Christina Whitman, a staff accountant, prepared a memo to inform Robert Jensen, the controller, about the inventory issues for Penguin Parts. Robert has asked you to review the documentation and revise the memo, correcting any errors.

Penguin uses a periodic system of inventory.

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-------- Original Message -------- From: Christina Whitman, Staff Accountant Sent: March 4, Year 7, at 16:31:45 To: Robert Jensen, Controller Subject: Update on Inventory Accounting for Penguin Parts, Inc.

Robert,

Penguin Parts has been trying to reach an agreement with Domestique Cycling to sell products to high-end bicycle manufacturers. On February 1, Domestique and Penguin reached a consignment agreement for Domestique to act as an agent selling Penguins products. On February 5, Penguin shipped inventory costing $225,000 to Domestique. When the inventory was shipped, Penguin accrued revenue equal to the cost of the inventory on consignment.

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[Original Text] Penguin accrued revenue equal to the cost of the inventory on consignment.

Penguin accrued revenue at the full retail price of the inventory on consignment.

Penguin recorded deferred revenue at the full retail price of the inventory on consignment.

Penguin recorded deferred revenue at the retail price of the inventory on consignment less commissions.

Penguin did not recognize a sale; it merely reclassified goods shipped as inventory on consignment, an inventory subaccount.

From the February consignment statement, Domestique sold $100,000 of the inventory for $360,000. For February, Penguin recorded $260,000 in revenue and commission expense of $104,000.

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[Original Text] For February, Penguin recorded $260,000 in revenue and commission expense of $104,000.

Penguin did not recognize any sales in February because Domestique will not pay Penguin until March 5.

No entry was recorded on February 28, Year 7, because the sales had already been recorded when the inventory was shipped to Domestique.

For February, Penguin recorded sales of $216,000.

For February, Penguin recorded $360,000 in revenue and commission expense of $104,000.

For February, Penguin recorded $360,000 in revenue and commission expense of $144,000.

Perry Short was recently promoted to purchasing manager for Penguin. After soliciting offers from multiple vendors, he purchased Adelie Screws from Elite Importers because the cost per box was listed at $15, which was lower than the former recorded cost per unit of $20. When the purchase was recorded, the inventory of Adelie Screws was recognized at $18,000 ($15 per unit).

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[Original Text] $18,000 ($15 per unit).

$27,600 ($23 per unit).

$26,400 ($22 per unit).

$24,000 ($20 per unit).

$19,200 ($16 per unit).

A warehouse worker performed a physical inventory count after the close of business on February 28 and reported that there were 80 Chatham Ball Bearings on hand. After reconciling inventory, the number of Chatham Ball Bearings recorded for the inventory calculation is 215 units.

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[Original Text] After reconciling inventory, the number of Chatham Ball Bearings recorded for the inventory calculation is 215 units.

No reconciliation is needed; the number of Chatham Ball Bearings that should be recorded for the inventory calculation is 80 units.

After reconciling inventory, the number of Chatham Ball Bearings recorded for the inventory calculation is 183 units.

After reconciling inventory, the number of Chatham Ball Bearings recorded for the inventory calculation is 150 units.

After reconciling inventory, the number of Chatham Ball Bearings recorded for the inventory calculation is 190 units.

The Bohemian Hammers were introduced in January Year 7 and were marketed as a superior product. Unfortunately, it turned out that these hammers were inferior to existing products, driving down the price. The Bohemian Hammers have a unit disposal cost of $0.50, and Penguins normal profit margin is 10% of the selling price. For financial reporting for the year ended February 28, Year 7, to account for the Bohemian Hammers price decrease, cost of goods sold is increased by $22,500, decreasing inventory by $22,500.

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[Original Text] cost of goods sold is increased by $22,500, decreasing inventory by $22,500.

an $18,000 loss is recorded, decreasing inventory by $18,000.

a $19,200 loss is recorded, decreasing inventory by $19,200.

selling expenses are increased by $19,200, decreasing inventory by $19,200.

selling expenses are increased by $19,500, decreasing inventory by $19,500.

an $18,750 loss is recorded, decreasing inventory by $18,750.