Problem 3-5 Inventory Valuation You are engaged in an audit of the Kumatsu Company for the year ended December 31, 2016. To reduce the workload at year-end, the company took its annual physical inventory under your observation on November 30, 2016. The company's inventory account, which includes raw materials and work in process, is on a perpetual basis and it uses the first-in, first out method of pricing. It has no finished goods inventory. The company's physical inventory revealed that the book inventory of $181,710 was understated by $9,000. To avoid distorting the interim financial statements, the company decided not to adjust the book inventory until year-end except for obsolete inventory items. Your audit revealed this information about the November 30 inventory: a. Pricing tests showed that the physical inventory was overpriced by $6,600. Footing and extension errors resulted in a $450 understatement of the physical inventory. c. Direct labor included in the physical inventory amounted to $30,000. Overhead was included at the rate of 200% of direct labor. You determined that the amount of direct labor was correct and the overhead rate was proper. d. The physical inventory included obsolete materials recorded at $750. During December these materials were removed from the inventory account by a charge to cost of sales. Your audit also disclosed the following information about the December 31, 2016 Inventory. e. Total debits to certain accounts during December are: Purchases $ 74.100 Direct labor 36.300 Manufacturing overhead expense 75.600 OO Cost of sales 205.800 . The cost of sales of $205,800 included direct labor of $41,400. g. Normal scrap loss on established product lines is negligible. However, a special order started and completed during December had excessive scrap loss of $2,400, which was charged to Manufacturing overhead expense. Required: Compute the following: Inventory per physical count on November 30, 2016. 2. Correct amount of the physical count at November 30, 2016. 3. Without prejudice to your answers to question 1 and 2, assume that the correct amount of the inventory at November 30, 2016 was $173,100 compute: Materials inventory at December 31, 2016 b. Amount of direct labor cost included in the December 31, 2016 inventory. Correct inventory amount at December 31, 2016. Problem 3-6 FIFO Costing Method Gabriel Co., sells electric stoves. It uses the perpetual inventory system and allocates cost to inventory on a first-in, first-out basis. The company's reporting date is December 31. At December 1, 2016, inventory on hand consisted of 350 stoves at $820 each and 43 stoves at $850 each. During the month ended December 31, 2016, the following inventory transactions occurred (all purchases and sales transactions are on credit); 2016 Dec. 1. Sold 300 stoves for $1,200 each. 3 Five stoves were returned by customers. They had originally cost $820 each and were sold for $1,200 each. 9. Purchased 55 stoves at $910 each 10 Purchased 76 stoves at $960 each. 15. Sold 86 stoves for $1,350 each. 17. Returned one damaged stove to the supplier. This stove had been purchased on December 9. 22. Sold 60 stoves for $1,250 each. 26 Purchased 72 stoves at $980 each. Required: 1. What is the FIFO cost of Gabriel Co.'s inventory on December 31, 2016. 2. What is the cost of goods sold on December 31, 2016? 3. What is Gabriel Co.'s gross profit in December 2016?Problem 3-7 Correcting inventory Errors: Perpetual Inventory System Charles Company uses perpetuat inventory system and reports inventory at a lower of FIFO or net realizable value. Charles Company's inventory control account balance at June 30, 2016. was $442,000. A physical count conducted on that day found inventory on hand worth 5440.400. Net realizable value of each inventory item held for sale exceeded cost. Your Investigation of the discrepancy disclosed the following: 1. Goods worth $13,200 held on consignment tor Burton (30.. had been included in the physical count. 2. Goods costing 52,400 were purchased on credit from Amy Company on June 2?, 2016, on FOB shipping point terms. The goods were shipped on June 28. 2016, but as they had not arrived by June 30. 2016, were not included in the physical count. The purchase invoice was received and processed on June 30. 2016. 3. Goods costing $4,800 were sold on credit to Acer Co. for $7,800 on June 28, 2016, on FOB destination terms. The goods were still in transit on June 30, 2016. The sales invoice was processed and recorded on June 29. 2016. 4. Goods costing $5,460 were purchased on credit [FOB destination} from Bonny Company on June 28, 2016. The goods were received on June 29. 2016, and included in the physical count. The purchase invoice was received on July 2, 2016. 5. On June 30. 2016, Charles Company sold goods costing $125.00 on credit [FOB shipping point) terms to Picasso Corp, for $19,200. The goods were dispatched from the warehouse on June 30, 2016, but the sales invoice had not been processed at that date. 6. Damaged inventory items valued at $5,300 were discovered during the physimal count. These items Were still recorded on June 30, 2016, but Were omitted from the physical count records pending their writeoff. Required: What is the adjusted Inventory balance on June 30, 2016'? Problem 3-8 Correcting Inventory Turnover and Average Days to Sell Inventory The following Information was taken from the audited nancial statements of Horseshoe Inc. Inventories: December 31. 2016 5 ?91.000 December 31. 2015 T44.000 December 31r 2014 220.000 2016 2015 Sales $| 0.332 .000 0 0053.4 00 Cost of goods sold 4.432.000 4.246.000 Net profit 952.300 ?34.000 Required: Based on the preceding Information. compute for the following: 1. 2015 inventory turnover 3. 2015 average days to sell inventory 2. 2016 inventory turnover 4. 2010 average days to sell inventory Problem 3-9 Retail Inventory Method You were checking the books and records of inventory of Cornblue Shop for the month of December: Sales 5 198.000 Sales returns 4.000 Additional markups 20.000 Markup cancellations 3.000 Markdowns 18.600 Markdown cancellations 5.600 Freig htin 4.800 Purchases at cost 96.000 Purchases at retail 1?6.000 Purchase returns at cost 4.000 Purchase retums at retail 6.000 Beginning Inventory at cost 80.000 Beginning inventory at retail 93.000 Required: What is the cost of Cornblue Shop's ending inventory under the retail inventory [average cost} method