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SOLUTION
Exercise 10 (LESSON 2)
CASE 1
At 31 December Year 1, James White and Co carried out its annual physical stocktaking, counting 25 CD players, each of which had cost £100. During Year 2, further purchases were made as follows:
Month CD players Purchased
Unit price
£ March 5 100 May 10 110 June 8 115 September 6 120 November 12 125
Annual sales totalled 52 CD players, at total sales revenue of £9,350. Dates of sale are not recorded.
a) Calculate the amount of purchases during Year 2: Purchase amount = 5X100 + 10X110+8X115+6X120+12X125= 4740 £
b) If the first-in, first-out (FIFO) method of inventory (stock) valuation is used, what is the amount of closing inventory (stock)?
Cost of goods sold (COGS)= 25X100+5X100+10X110+8X115+4X120= 5500£
Ending inventory= 2X120+12X125= 1740£
c) If the average cost method of inventory (stock) valuation is used, what is the cost per CD player in closing inventory (stock)? Average cost= total amount of inventory/total inventory numbers= 7240/66= 109.7£
COGS= 52X109.7= 5704.4£
Ending/closing inventory= ((25+5+10+8+6+12)-52)X109.7= 1535.8£
CASE 2 The Ash Company has inventory (trading stock) which includes the following three items:
Description Total Purchase cost
Total Selling Price
Distribution costs of selling items of inventory (stock)
Net realizable value Tables 4,500€ 3,250€ 350€ 2900 Chairs 3,000€ 2,800€ 400€ 2400 Beds 5,300€ 5,500€ 400€ (^) 5100
a) Calculate the book value of each of these inventories. Book value losses = (4500-2900) + (3000-2400)+(5300-5100)= 2400
b) Record, if necessary, the transaction in the Journal book.
2400 Impairment expenses Accumulated impairment 2400
CASE 3
Spring Hill, Inc., sells merchandise to customers worldwide in a highly competitive industry. During June, Spring Hill completed the following transactions:
- June 1: Purchased 200 units of merchandise for $11 each, FOB shipping point.
- June 1: Paid $205 of freight costs for the merchandise.
- June 3: Paid $1,200 to the local radio station for an advertising campaign related to the merchandise.
- June 9: Sold 180 units of the merchandise to customers for $26 each.
Required:
- Determine the cost of the inventory on the books of Spring Hill, Inc., on June 2. Inventory Cost= 200X11+205= 2405 $
- When will the costs that are included in inventory become expenses? Inventory costs will become an expense when the inventory is sold
CASE 4
Good Health, LLP, completed the following inventory transactions during the month of August:
a. used cash to purchase $620,000 of merchandise b. purchased $190,000 of merchandise on account c. paid freight costs of $33,000 on merchandise purchased FOB shipping point d. returned $12,000 of defective merchandise to the supplier (negative) e. used cash to purchase $210,000 of merchandise f. paid the purchasing manager’s monthly salary of $11,000 (NO) g. purchased $45,000 of merchandise on account h. paid the sales staff’s $22,000 salary for the month (NO) i. paid freight costs of $9,000 on merchandise purchased. j. paid the $17,000 utility bill for the month (NO)
Required: Determine the cost of merchandise purchased for the month
Cost of merchandise purchased= 620000+190000+33000-12000 + 210000 + 45000 + 90000 = 1,146,
