Financial Accounting Volume 1 2008 Valix-Peralta
Chapter 1 Problem 8-21 to 30
Problem 8-21 Answer A
Raw materials – January 1 300,000
Purchases 1,000,000
Freight in 100,000 1,100,000
Raw materials available for use 1,400,000
Less: Raw Materials – December 31 600,000
Raw materials used 800,000
Direct labor 800,000
Manufacturing overhead (50% x 800,000) 400,000
Total manufacturing cost 2,000,000
Add: Goods in process – January 1 1,000,000
Total goods in process 3,000,000
Less: Goods in process – December 31 (squeeze) 1,300,000
Cost of goods manufactured 1,700,000
Add: Finished goods – January 1 1,400,000
Goods available for sale 3,100,000
Less: Finished goods _ December 31 1,000,000
Cost of sales (70% x 3,000,000) 2,100,000
The amount of goods in process on December 31is computed as simply working back.
Problem 8-22
Requirement a
Physical inventory Purchases up to Purchases up to
May 31, 2008 May 31, 2008 June 30, 2008
Balances 950,000 6,750,000 8,000,000
1 - 75,000 -
2 - ( 10,000) ( 15,000)
3 - ( 20,000) ( 20,000)
4 ( 55,000) ( 55,000) -_ __
Adjusted 895,000 6,740,000 7,965,000
Inventory – July 1, 2007 875,000
Purchases up to May 31, 2008 6,740,000
Goods available for sale 7,615,000
Less: Inventory – May 31, 2008 895,000
Cost of sales 6,720,000
Sales up to May 31, 2008 8,400,000
Cost of sales 6,720,000
Gross profit 1,680,000
Rate (1,680,000/8,400,000) 20%
Requirement b
Sales for year ended June 30, 2008 9,600,000
Less: Sales for 11 months ended May 31, 2008 8,400,000
Sales for June 1,200,000
113
Cost of goods sold with profit (1,100,000 x 80%) 880,000
Cost of goods sold without profit 100,000
Cost of goods sold during June 2008 980,000
Requirement c
Inventory, July 1, 2007 875,000
Purchases for year ended June 30, 2008 (as adjusted) 7,965,000
Goods available for sale 8,840,000
Less: Cost of goods sold
Sales with profit (9,500,000 x 80%) 7,600,000
Sales without profit 100,000 7,700,000
Inventory, June 30, 2008 1,140,000
Problem 8-23
1. Accounts receivable – April 30 1,040,000
Writeoff 60,000
Collections (440,000 – 20,000) 420,000
Total 1,520,000
Less: Accounts receivable – March 31 920,000
Sales for April 600,000
Sales up to March 31 3,600,000
Total sales 4,200,000
2. Accounts payable – April 30 for April shipments 340,000
Payment for April merchandise shipments 80,000
Purchases of April 420,000
Purchases up to March 31 1,680,000
Total purchases 2,100,000
3. Inventory – January 1 1,880,000
Purchases 2,100,000
Less: Purchases return 20,000 2,080,000
Goods available for sale 3,960,000
Less: Cost of sales (4,200,000 x 60%) 2,520,000
Inventory – April 30 1,440,000
Less: Goods in transit 100,000
Salvage value 140,000 240,000
Fire loss 1,200,000
114
Problem 8-24 Answer B
Cost Retail
Inventory – January 1 280,000 700,000
Purchases 2,480,000 5,160,000
Freight in 75,000
Markup 500,000
Markup cancellation __ __ __ _ ( 60,000)
GAS 2,835,000 6,300,000
Cost ratio (2,835/6,300) 45%
Markdown ( 250,000)
Markdown cancellation _ __ _ 50,000
GAS – Average 2,835,000 6,100,000
Sales (5,000,000)
Shrinkage (2% x 5,000,000) ( 100,000)
Inventory – December 31 1,000,000
Conservative cost (1,000,000 x 45%) 450,000
The “approximate lower of average cost or market” retail is the same as the conservative or conventional retail.
Problem 8-25 Answer C
Cost Retail
Inventory – January 1 720,000 1,000,000
Purchases 4,080,000 6,300,000
Markup 700,000
Markdown __ _____ ( 500,000)
GAS 4,800,000 7,500,000
Cost ratio (4,800/7,500) 64%
Sales (5,900,000)
Shoplifting losses ( 100,000)
Inventory 1,500,000
Average cost (1,500,000 x 64%) 960,000
115
Problem 8-26 Answer D Problem 8-27 Answer A
Cost Retail Cost Retail
Beginning inventory Beginning inventory 600,000 1,500,000
and purchases 6,000,000 9,200,000 Purchases 3,000,000 5,500,000
Net markup ________ 400,000 Net markups 500,000
GAS 6,000,000 9,600,000 Net markdown __ _____ (1,000,000)
Net purchases 3,000,000 5,000,000
Cost ratio
(6,000/9,600) = 62.5% Cost ratio
(3,000/5,000) = 60%
Sales (7,800,000)
Net markdown ( 600,000) GAS 3,600,000 6,500,000
Ending inventory 1,200,000 Sales (4,500,000)
Ending inventory 2,000,000
Conservative cost
(1,200,000 x 62.5%) 750,000 FIFO cost
(2,000,000 x 60%) 1,200,000
Goods available for sale 6,000,000
Less: Ending inventory 750,000
Cost of sales 5,250,000
Problem 8-28 Answer A
Cost Retail
Inventory – January 1 1,200,000 1,800,000
Purchases 5,600,000 7,200,000
Freight in 400,000
Net markup 1,400,000
Net markdown ________ ( 600,000)
Net purchases (6,000/8,000) 75% 6,000,000 8,000,000
Goods available for sale 7,200,000 9,800,000
Sales (7,600,000)
Inventory – December 31 2,200,000
FIFO cost (2,200,000 x 75%) 1,650,000
Goods available for sale 7,200,000
Less: Inventory – December 31 1,650,000
Cost of goods sold 5,550,000
Problem 8-29 Answer C
Cost Retail
Available for sale 4,900,000 7,000,000
Markdown ( 100,000)
Sales (5,500,000)
Inventory, December 31 1,400,000
Average cost (1,400,000 x 71%) 994,000
Cost ratio (4,900,000 / 6,900,000) 71%
116
Problem 8-30
Cost Retail
Inventory, January 1 500,000 770,000
Purchases 3,070,000 4,300,000
Transportation in 70,000
Purchases return ( 25,000) ( 40,000)
Purchase discount ( 45,000)
Markup 100,000
Cancelation of markup ________ ( 30,000)
Goods available for sale – conservative 3,570,000 5,100,000
Cost ratio – conservative (357/510) 70%
Markdown ( 350,000)
Cancelation of markdown ________ 10,000
Goods available for sale – average cost 3,570,000 4,760,000
Cost ratio – average cost (357/476) 75%
Less: Sales 4,000,000
Sales return ( 80,000) 3,920,000
Inventory, December 31 at selling price 840,000
Conservative cost (840,000 x 70%) 588,000
Average cost (840,000 x 75%) 630,000
