Chapter 1 Problem 8-11 to 20 Multiple Choice
Problem 8-11 Answer A
Inventory, January 1 500,000
Purchases 2,000,000
Freight in 100,000
Purchase returns and allowances ( 120,000)
Purchase discounts ( 80,000) 1,900,000
Goods available for sale 2,400,000
Less: Cost of sales:
Sales 2,200,000
Sales returns ( 100,000)
Net sales 2,100,000
Cost of sales (2,100,000/125%) 1,680,000
Inventory, December 31 720,000
Problem 8-12 Answer B
Sales – 2007 6,000,000
Cost of sales:
Net purchases – 2007 5,500,000
Less: Inventory – December 31, 2007 1,000,000 4,500,000
Gross income 1,500,000
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Rate in 2007 (1,500,000/6,000,000) 25% Rate in 2008 (25% + 5%) 30%
Inventory – January 1, 2008 1,000,000
Net purchases – 2008 7,500,000
Goods available for sale 8,500,000
Less: Cost of sales (9,000,000 x 70%) 6,300,000
Inventory – December 31, 2008 2,200,000
Less: Undamaged merchandise (500,000 x 70%) 350,000
Realizable value of damaged merchandise 10,000 360,000
Fire loss 1,840,000
Problem 8-13 Answer C
Problem 8-14 Answer A
Sales – 2006 and 2007 7,400,000
Cost of sales:
Inventory – January 1, 2006 850,000
Purchases – 2006 and 2007 5,370,000
Goods available for sale 6,220,000
Less: Inventory – December 31, 2007 1,040,000 5,180,000
Gross income 2,220,000
Average rate (2,220,000/7,400,000) 30%
Inventory – January 1, 2008 1,040,000
Purchases – 2008 4,360,000
Goods available for sale 5,400,000
Less: Cost of sales (5,000,000 x 70%) 3,500,000
Inventory – December 31, 2008 1,900,000
Less: Goods consigned (300,000 x 70%) 210,000
Goods in transit 190,000 400,000
Fire loss 1,500,000
Problem 8-15 Answer C
Average gross profit rate (2,250,000/9,000,000) 25%
Inventory – January 1 660,000
Net purchases 4,240,000
Goods available for sale 4,900,000
Less: Cost of sales (5,600,000 x 75%) 4,200,000
Inventory – September 30 700,000
Less: Undamaged goods (60,000 x 75%) 45,000
Realizable value of damaged goods 25,000 70,000
Fire loss 630,000
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Problem 8-16 Answer D
3,200,000
Average rate = ------------------- = 40%
8,000,000
Inventory – January 1 500,000
Purchases (1,600,000 + 500,000 – 400,000) 1,700,000
Goods available for sale 2,200,000
Less: Cost of sales:
Collections 2,640,000
Accounts receivable – December 31 440,000
Accounts receivable – January 1 ( 480,000)
Sales 2,600,000
Cost of sales (2,600,000 x 60%) 1,560,000
Inventory – December 1 640,000
Less: Goods on consignment (200,000 x 60%) 120,000
Salvage value 20,000 140,000
Fire loss 500,000
Problem 8-17
Question 1 Answer A
Gross profit rate:
2005 (750,000/3,000,000) 25%
2006 (1,050,000/3,500,000) 30%
2007 (1,295,000/3,700,000) 35%
2008 40%
There seems to be a trend in the gross profit rate, which is a yearly increase of 5%. Thus, it can be safely assumed that the trend continues in 2008.
Inventory – January 1 500,000
Net purchases, January 1 – October 15 3,500,000
Goods available for sale 4,000,000
Less: Cost of sales:
Sales 3,840,000
Sales return and allowances ( 40,000)
Net sales 3,800,000
Cost of sales (3,800,000 x 60%) 2,280,000
Inventory – October 15 1,720,000
Less: Inventory not destroyed 320,000
Fire loss 1,400,000
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Question 2 Answer D
Goods available for sale 4,000,000
Cost of sales (70% x 3,800,000) 2,660,000
Inventory, October 15 1,340,000
Inventory not destroyed 320,000
Fire loss 1,020,000
Problem 8-18 Answer D
Problem 8-19 Answer A
Problem 8-20 Answer B
Net sales in 2007 8,000,000
Less: Cost of sales
Beginning inventory 2,000,000
Net purchases in 2007 4,800,000
Goods available for sale 6,800,000
Less: Ending inventory 1,200,000 5,600,000
Gross profit 2,400,000
Gross profit rate (2,400,000/8,000,000) 30%
Inventory, January 1, 2008 1,200,000
Net purchases – 2008 4,960,000
Goods available for sale 6,160,000
Less: Cost of sales
Sales 7,880,000
Less: Sales return and allowances 80,000
Net sales 7,800,000
Cost of sales (7,800,000 x 70%) 5,460,000
Estimated value of ending inventory 700,000
Less: Cost of inventory not stolen 100,000
Estimated cost of stolen inventory 600,000
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