Question 1. LO 10 - Items to include in inventory

The following notes pertain to the inventory held by Champ's Pet Food Emporium:

a. Champ's Pet Food Emporium had inventory on hand of $217,490 on December 31, 2020.

b. Merchandise costing $3,498 arrived January 5, 2021 and was recorded in the purchases journal on that date. The inventory was purchased f.o.b. shipping point and was sent from the supplier's warehouse on December 29.

c. Champ's Pet Food ships goods to customers f.o.b. shipping point. On December 31, goods with a cost of $15,300 were recorded as sold for $32,600. The goods left the warehouse on December 31. The customers will receive the goods on January 3.

d. Champ's Pet Food has merchandise costing $4,500 at a consignment seller's location. It has not been included in the physical count.

Assume that a perpetual inventory system is used.

Required:

Determine the correct dollar value for the inventory on December 31, 2020.

Question 2. LO 10 - Record inventory transactions

Ultimate Comfort Ware (UCW) sells high-end yoga pants to local retailers. It begins the month with 74 pairs of pants on hand, with a cost per pair of $47. UCW had the following transactions during the month of May:

May 2 Purchased 125 pairs of yoga pants at $48 per pair from Luxury Athletics Inc.

Terms of purchase are n/30.

May 14 Returned 5 pairs of yoga pants to Luxury Athletics for full credit, and paid

for the remainder of the purchase.

May 18 Purchased 43 pairs of yoga pants at $46 each from Cotton Textiles. Terms of

purchase are n/30.

May 22 Arranged an allowance of $85 from Cotton Textiles for pants delivered in the

wrong colour.

May 25 Made payment to Cotton Textiles.

May 26 Sold 95 pairs of yoga pants on account at a selling price of $99 each.

Required:

1. Prepare journal entries for each of the above transactions, assuming a periodic inventory system is used.

2. Prepare the adjusting entry required for inventory on May 31, assuming that ending inventory has a cost of $6,100.

Question 3. LO 10 - Inventory methods

AMB Retail Inc. sells ceramic planters to its customers. Information about the planters stocked in inventory is given below.

Date

Purchased

(Units)

Sold

(Units)

Cost

(Per Unit)

Balance

(Units)

July 1

$ 8.00

82

July 6

25

57

July 14

135

8.10

192

July 21

85

107

July 25

30

8.05

137

Required:

1. Calculate closing inventory and cost of goods sold under the following inventory methods:

a. Perpetual, FIFO

b. Periodic, Weighted-Average Cost

2. Assume that the item is sold for $12.75. For each method above, determine the gross profit for the year.

Question 4. LO 11 - Record lower of cost and net realizable value

The cost and net realizable value of the inventory for Manitoba Corporation are as follows:

Year Ended

Cost

NRV

Dec. 31, 2020

$297,500

$285,500

Dec. 31, 2021

260,100

255,400

Dec. 31, 2022

286,700

288,900

Manitoba records its inventory at cost and uses an allowance account to make any necessary adjustments at year end. Manitoba Corporation uses a perpetual inventory system. Manitoba's first year of operations is 2020.

Required:

Prepare any journal entries required at each year end for inventory valuation.

Question 5. LO 11 - Effect of errors in inventory

The Hilldale Toy Company reported income for the year ended March 31, 2019 of $45,000, and a net loss for the year ended March 31, 2020 of $10,000. The company's accountant determined that the following errors were made.

On March 31, 2019, some inventory was accidentally omitted from the inventory count. As a result, inventory at the end of 2019 was understated by $17,000.

One page of the 2020 inventory count sheets was counted twice in error. As a result, inventory was overstated by $12,000.

Required:

Determine the correct income (or loss) for both 2019 and 2020.