Acct CH.6

1.
Multiple-Choice Exercise 6-1

If beginning inventory is $40,000, purchases are $215,000, and ending inventory is $35,000, what is
cost of goods sold as determined by the cost of goods sold model?
a.$140,000
b.$210,000
c.$220,000
d.$290,000
2. Multiple-Choice Exercise 6-2

Which of the following transactions would not result in an entry to the inventory account in the buyer's
accounting records under a perpetual inventory system?
a.The purchase of merchandise on credit
b.The return of merchandise to the supplier
c.The payment of a credit purchase of merchandise within the discount period
d.The payment of freight by the supplier for goods received by the buyer

Razor Company purchased $15,000 of inventory on credit with credit terms of 2/10, n/30. Razor paid
for the purchase within the discount period. How much did Razor pay for the inventory?
a.$14,700
b.$14,850
c.$15,000
d.$15,300

Which of the following transactions would not result in an adjustment to the inventory account under a
perpetual inventory system?
a.The sale of merchandise for cash
b.The sale of merchandise on credit
c.The receipt of payment from a customer within the discount period
d.The return of merchandise by a customer

U-Save Automotive Group purchased 10 vehicles during the current month. Two trucks were
purchased for $20,000 each, two SUVs were purchased for $31,000 each, and six hybrid cars were
purchased for $27,000 each. A review of the sales invoices revealed that five of the hybrid cars were
sold and that both trucks were sold. What is the cost of U-Save's ending inventory if it uses the
specific identification method?
a.$89,000
b.$129,000
c.$135,000
d.$175,000

Morgenstern Ltd. has the following units and costs for the month of April.
1. Beginning inventory, April 1, 1,000 units at $20 (Cost)
2. Purchase 1, April 9, 1,200 units at $23 (cost)
3. Sold, April 12, 2,100 units at $40 (Retail)
4. Purchase 2, April 22, 800 units at $25 (Cost)
If Morgenstern uses a perpetual inventory system, what is the cost of ending inventory under FIFO at
April 30?
a.$18,000
b.$22,300
c.$45,300
d.$49,600
Morgenstern Ltd. has the following units and costs for the month of April.
3. Sold, April 12, 2,100 units at $40 (Retail)
If Morgenstern uses a perpetual inventory system, what is the cost of ending inventory under
weighted average at April 30? (Note: Use four decimal places for per-unit calculations and round to
the nearest dollar.)
a.$20,280
b.$22,164
c.$$45,436
d.$47,320

When purchase prices are rising, which of the following statements is true?
a.LIFO produces a higher cost of goods sold than FIFO.
b.LIFO produces a higher cost for ending inventory than FIFO.
c.FIFO produces a lower amount for net income than LIFO.
d.Weighted average cost produces a higher net income than FIFO or LIFO.

Which method results in a more realistic amount for income because it matches the most current costs
against revenue?
a.FIFO
b.Weighted average cost
c.Specific identification
d.LIFO

Which of the following statements regarding the lower of cost and net realizable value (LCNRV) rule is
true?
a.The LCNRV rule is an application of the cost principle.
b.When the net realizable value of inventory drops below the cost of inventory, an adjustment is made to
decrease inventory to its net realizable value and decrease income.
c.If a company uses the LCNRV rule, there is no need to use a cost flow assumption such as FIFO, or
weighted average cost.
d.When the net realizable value of inventory is above the cost of inventory, an adjustment is made to
increase inventory to its net realizable value and increase income.

Which of the following statements is true with regard to the gross profit ratio?
1. An increase in cost of goods sold would increase the gross profit ratio (assuming sales remain
constant).
2. An increase in the gross profit ratio may indicate that a company is efficiently managing its inventory.
3. An increase in selling expenses would lower the gross profit ratio.
a.1
b.2
c.1 and 2
d.2 and 3

An increasing inventory turnover ratio indicates that:
a.a company has reduced the time it takes to purchase and sell inventory.
b.a company is having trouble selling its inventory.
c.a company may be holding too much inventory.
d.a company has sold inventory at a higher profit.

Ignoring taxes, if a company understates its ending inventory by $10,000 in the current year,
a.assets for the current year will be overstated by $10,000.
b.net income for the subsequent year will be overstated by $10,000.
c.cost of goods sold for the current year will be understated by $10,000.
d.retained earnings for the current year will be unaffected.

Which of the following statements is true for a company that uses a periodic inventory system?
a.The purchase of inventory requires a debit to Inventory.
b.The return of defective inventory requires a debit to Purchase Returns and Allowances.
c.The payment of a purchase within the discount period requires a credit to Purchase Discounts.
d.Any amounts paid for freight are debited to Inventory.

Lee Ltd. has the following units and costs for the month of April.
3. Sold 1, April 12, 2,100 units at $40 (Retail)
If Lee uses a periodic inventory system, what is the cost of goods sold under FIFO at April 30?
a.$18,000
b.$22,300
c.$45,300
d.$49,600

Lee Ltd. has the following units and costs for the month of April.
3. Sold 1, April 12, 2,100 units at $40 (Retail)
If Lee uses a periodic inventory system, what is the cost of ending inventory under weighted average
at April 30? (Note: Use four decimal places for per-unit calculations and round all other numbers to
the nearest dollar.)
a.$20,280
b.$22,164
c.$45,436
d.$47,320
17. Cornerstone Exercise 6-17

Applying the Cost of Goods Sold Model
Charest Company has the following data for 2022:
Item Units Cost

Inventory, 12/31/2021 980 $10,780
Purchases 4,480 49,280
Inventory, 12/31/2022 750 8,250
Required:
1. How many units were sold?
4,710
2. Using the cost of goods sold model, determine the cost of goods sold.
$51,810

Recording Purchase Transactions
Jeet Company and Reece Company use the perpetual inventory system. The following transactions
occurred during the month of April.
a. On April 1, Jeet purchased merchandise on account from Reece with credit terms of 2/10, n/30. The
selling price of the merchandise was $3,100, and the cost of the merchandise sold was $2,225.
b. On April 1, Jeet paid freight charges of $250 cash to have the goods delivered to its warehouse.
c. On April 8, Jeet returned $800 of the merchandise. The cost of the merchandise returned was $500.
d. On April 10, Jeet paid Reece the balance due.
Required:
1. Prepare the journal entries to record the April 1 purchase of merchandise and payment of freight
by Jeet.
April
Inventory 3,100
1
Accounts Payable 3,100
(Purchased inventory on
account)
April
Inventory 250
1
Cash 250
(Recorded the payment
of freight charges)
2. Prepare the journal entry to record the April 8 return of merchandise by Jeet.
April
Accounts Payable 800
8
Inventory 800
(Returned merchandise)
3. Prepare the journal entry to record the April 10 payment to Reece by Jeet. For a compound
transaction, if those boxes in which no entry is required, leave the box blank.
April
Accounts Payable 2,300 -
10
Cash - 2,254
Inventory - 46
(Paid accounts
payable within
discount period)

Recording Sales Transactions
occurred during the month of April:
a. On April 1, Jeet purchased merchandise on account from Reece with credit terms of 2/10, n/30. The
b. On April 1, Jeet paid freight charges of $250 cash to have the goods delivered to its warehouse.
c. On April 8, Jeet returned $800 of the merchandise. The cost of the merchandise returned was $500.
d. On April 10, Jeet paid Reece the balance due.
Required:
Prepare the journal entries to record these transactions on the books of Reece Company. For a
compound transaction, if those boxes in which no entry is required, leave the box blank.
April
Accounts Receivable 3,100
1
Sales 3,100
(Recorded sale on account)
April
Cost of Goods Sold 2,225
1
Inventory 2,225
(Recorded cost of merchandise sold)
April
Sales Returns and Allowances 800
8
Accounts Receivable 800
(Record return of merchandise)
April
Inventory 500
8
Cost of Goods Sold 500
(Recorded cost of merchandise
returned)
April
Cash 2,254 -
10
Sales Discount 46 -
Accounts Receivable - 2,300
(Received customer payment within
discount period)

Inventory Costing: FIFO
Filimonov Inc. has the following information related to purchases and sales of one of its inventory
items.
Date Description Units Purchased at Cost Units Sold at Retail

June 1 Beginning Inventory 200 units @ $10 = $2,000
9 Purchase 1 300 units @ $12 = $3,600
14 Sale 1 400 units @ $25
22 Purchase 2 250 units @ $14 = $3,500
29 Sale 2 225 units @ $25
The company uses a perpetual inventory system.
Required:
Calculate the cost of goods sold and the cost of ending inventory using the FIFO inventory costing
method.
Cost of goods sold $7,350
Cost of ending inventory $1,750
Inventory Costing: Weighted Average
items.

9 Purchase 1 300 units @ $12 = $3,600
14 Sale 1 400 units @ $25
22 Purchase 2 250 units @ $14 = $3,500
29 Sale 2 225 units @ $25
The company uses a perpetual inventory system.
Required:
Calculate the cost of goods sold and the cost of ending inventory using the weighted average method.
(Note: Use four decimal places for per-unit calculations and round all other numbers to the nearest
dollar.)

Effects of Inventory Costing Methods
items.

9 Purchase 1 300 units @ $12 = $3,600
14 Sale 1 400 units @ $25
22 Purchase 2 250 units @ $14 = $3,500
29 Sale 2 225 units @ $25
Required:
1. In a period of rising prices, which inventory costing method produces the higher amount for ending
inventory?
FIFO
2. In a period of rising prices, which inventory costing method produces the higher net income?
FIFO
3. In a period of rising prices, which inventory costing method produces the lower payment for
income taxes?
Weighted average
4. In a period of rising prices, which inventory method generally produces the more realistic amount
for cost of goods sold?
Weighted average
In a period of rising prices, which inventory method generally produces the more realistic amount for
inventory?
FIFO
Would your answer change if inventory prices were decreasing during the period?
No

Recording Purchase Transactions
occurred during the month of April:
1. On April 1, Jeet purchased merchandise on account from Reece with credit terms of 2/10, n/30. The
2. On April 1, Jeet paid freight charges of $250 cash to have the goods delivered to its warehouse.
3. On April 8, Jeet returned $800 of the merchandise. The cost of the merchandise returned was $500.
4. On April 10, Jeet paid Reece the balance due.
Assume that Jeet uses a periodic inventory system.
Required:
1. Prepare the journal entry to record the April 1 purchase of merchandise and payment of freight by
Jeet.
April
Purchases 3,100
1
account)
April
Transportation-In 250
1
Cash 250
(Paid cash for shipping fees)
2. Prepare the journal entry to record the April 8 return of merchandise.
April
8
Purchase Returns and
800
Allowances
3. Prepare the journal entry to record the April 10 payment to Reece. For those boxes in which no
entry is required, leave the box blank.
April
10
Cash - 2,254
Purchase Discounts - 46
(Recorded payment within
the discount period)
24. Exercise 6-41

Recording Purchases
Compass Inc. purchased 1,250 bags of insulation from Glassco Corp. The bags of insulation cost $5.50
each. Compass paid Tremblay Trucking $320 to have the bags of insulation shipped to its warehouse.
Compass returned 50 bags that were defective and paid for the remainder. Assume that Compass
uses the perpetual inventory system and that Glassco did not offer a purchase discount. (Note: You
are doing the accounting for Compass Inc.)
Required:
1. Prepare the journal entry to record the purchase of the bags of insulation.
Inventory 6,875
account)
2. Prepare the entry to record the payment for shipping.
Inventory 320
Cash 320
(Paid shipping fees)
3. Prepare the entry for the return of the defective bags.
Inventory 275
4. Prepare the entry to record the payment for the bags kept by Compass.
Cash 6,600
(Paid for bags
purchased on account)
5. What is the total cost of this purchase?
$6,920
25. Exercise 6-42

Recording Purchases
Doha Enterprises uses the perpetual system to record inventory transactions. In a recent month, Doha
engaged in the following transactions.
a. On April 1, Doha purchased merchandise on credit for $25,150 with terms 2/10, n/30.
b. On April 2, Doha purchased merchandise on credit for $28,200 with terms 3/15, n/25.
c. On April 9, Doha paid for the purchase made on April 1.
d. On April 25, Doha paid for the merchandise purchased on April 2.
Required:
Prepare journal entries for these four transactions. For a compound transaction, if those boxes in
which no entry is required, leave the box blank.
April
Inventory 25,150
1

credit)
April
Inventory 28,200
2
credit)
April
9
Cash - 24,647
Inventory - 503
(Paid within the discount
period)
April
25
Cash 28,200
(Paid outside the
discount period)
26. Exercise 6-43

Recording Purchases and Shipping Terms
On May 12, Digital Distributors received three shipments of merchandise. The first was shipped FOB
shipping point, had a total invoice price of $142,500, and was delivered by a trucking company that
charged an additional $8,300 for transportation charges. The second was shipped FOB shipping point
and had a total invoice price of $87,250, including transportation charges of $5,700 that were prepaid
by the seller. The third shipment was shipped FOB destination and had an invoice price of $21,650,
excluding transportation charges of $1,125 paid by the seller. Digital uses a perpetual inventory
system. Digital has not paid any of the invoices.
Required:
Prepare journal entries to record these purchases.
Journalize the entries to record the first shipment and transportation charges, if required.
May
Inventory 142,500
12
(Purchased inventory
on account)
May
Inventory 8,300
12
(Incurred shipping
costs)
Journalize the entries to record the second shipment and transportation charges, if required. If no
entry is required, type "No entry required" and leave the amount boxes blank.
May
Inventory 87,250
12
account)
May
No entry required -
12
No entry required -
(Paid shipping costs, if
required)
Journalize the entries to record the third shipment and transportation charges, if required. If no entry
is required, type "No entry required" and leave the amount boxes blank.
May
Inventory 21,650
12
account)
May
No entry required -
12
No entry required -
(Paid shipping costs, if
required)
27. Exercise 6-44

Recording Sales and Shipping Terms
Milano Company shipped the following merchandise during the last week of December 2022. All sales
were on credit.
Sales Price Shipping Terms Date Goods Shipped Date Goods Received
$5,460 FOB shipping point December 27 January 3
$3,800 FOB destination December 29 January 5
$4,250 FOB destination December 29 December 31
Required:
1. Compute the total amount of sales revenue recognized by Milano from these transactions.
$8,050
2. If Milano included all of the above shipments as revenue, what would be the effect on the financial
statements? Enter all amounts as positive numbers.
Sales revenue Overstated by $3,800
Net income Overstated by $3,800
Assets (accounts receivable) Overstated by $3,800
Shareholders' equity Overstated by $3,800
28. Exercise 6-45

Recording Purchases and Sales
Printer Supply Company sells computer printers and printer supplies. One of its products is a toner
cartridge for laser printers. At the beginning of 2022, there were 225 cartridges on hand that cost $62
each. During 2022, Printer Supply purchased 1,475 cartridges at $62 each. After inspection, Printer
Supply determined that 15 cartridges were defective and returned them to the supplier. Printer Supply
also sold 830 cartridges at $95 each, and sold an additional 710 cartridges at $102 each after a mid-
year selling price increase. Customers returned 20 of the cartridges that were purchased at $102 to
Printer Supply for various reasons. Assume that Printer Supply uses a perpetual inventory system.
Required:
1. Prepare summary journal entries to record the purchases, sales, and return of inventory. Assume
that all purchases and sales are on credit but that no discounts were offered.
Record the entry for the purchases during the year.
Inventory 91,450
account)
Record the entry for the return, by Printer Supply, of the cartridges to its supplier.
Inventory 930
(Recorded return of
defective cartridges
to supplier)
Record the entry for the sales during the year.
Sales Revenue 151,270
(Sold inventory on
account)
Record the entry for the cost of goods sold related to the sales during the year.
Inventory 98,480
(Recorded cost of
inventory sold)
Record the entry for the return, by customers, of the cartridges to Printer Supply.
Sales Returns and Allowances 2,040
(Recorded return of defective
cartridges by customers)
Inventory 1,240
Cost of goods sold 1,240
(Recorded return of defective
cartridges by customers)
2. What is the cost of ending inventory, cost of goods sold, and gross profit for 2022?
Gross profit $54,990
29. Exercise 6-52

Lower of Cost and Net Realizable Value
Meredith's Appliance Store has the following data for the items in its inventory at the end of the
accounting period:
Item Number of Units Historical Cost per Unit Net Realizable Value per Unit
Window air conditioner 18 $194 $110
Dishwasher 30 240 380
Refrigerator 27 415 405
Microwave 19 215 180
Washer (clothing) 32 195 248
Dryer (clothing) 21 197 245
Required:
1. Compute the carrying value of Meredith's ending inventory using the lower of cost and net
realizable value (LCNRV) rule applied on an item-by-item basis.
$33,912
2. Prepare the journal entry required to value the inventory at LCNRV.
Inventory 2,447
(Reduced inventory to
net realizable)
3. CONCEPTUAL CONNECTION: What is the conceptual justification for valuing inventory at LCNRV?
The input in the box below will not be automatically graded, but may be reviewed and considered by
your instructor.
30. Exercise 6-55

Effects of an Error in Ending Inventory
Waymire Company prepared the partial statements of earnings presented below for 2022 and 2021.
2022 2021
$538,20 $483,70
Sales revenue
0 0
Cost of goods sold:
$39,30 $32,10
Beginning inventory
0 0
343,20 292,70
Purchases
0 0
382,50 324,80
Cost of goods available for sale
0 0
(46,80 (39,30
Ending inventory 335,700 285,500
0) 0)
Gross margin 202,500 198,200
(167,20 (151,60
Operating expenses
0) 0)
$ $
Income before taxes
35,300 46,600
During 2023, Waymire's accountant discovered that ending inventory for 2022 had been overstated by
$8,200.
Required:
1. Prepare corrected 1. Prepare corrected statements of earnings for 2022 and 2021. for 2022 and
2021. Use the minus sign for negative values.
Waymire Company
Income Statement
For 2022 and 2021
2022 2022 2021 2021
Sales revenue $538,200 $438,700
Cost of goods sold:
Beginning inventory $31,100 $32,100
Purchases 343,200 292,700
Cost of goods
374,300 324,800
available for sale
Ending inventory 46,800 327,500 31,100 293,700
Gross margin 210,700 190,000
Operating expenses 167,200 151,600
Income before taxes $43,500 $38,400
2. Prepare a schedule showing each financial statement item affected by the error and the amount of
the error for that item. Indicate whether each error is an overstatement (+) or an understatement (-).
If no entry is required, leave the amount box blank.
Waymire Company
Financial Statement
For 2021 and 2022
2021 2022
Beginning
8,200 8,200
inventory
Ending
8,200 8,200
inventory
Shareholders'
8,200 -
equity
Cost of goods
8,200 8,200
sold
Gross margin 8,200 8,200
Income
8,200 8,200
before taxes

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1.

Multiple-Choice Exercise 6-1

2. Multiple-Choice Exercise 6-2

3. Multiple-Choice Exercise 6-3

4. Multiple-Choice Exercise 6-4

5. Multiple-Choice Exercise 6-5

6. Multiple-Choice Exercise 6-6

8. Multiple-Choice Exercise 6-8

9. Multiple-Choice Exercise 6-9

10. Multiple-Choice Exercise 6-10

11. Multiple-Choice Exercise 6-11

12. Multiple-Choice Exercise 6-12

13. Multiple-Choice Exercise 6-13

14. Multiple-Choice Exercise 6-14

15. Multiple-Choice Exercise 6-15

16. Multiple-Choice Exercise 6-16

17. Cornerstone Exercise 6-17

Item Units Cost

18. Cornerstone Exercise 6-18

19. Cornerstone Exercise 6-19

20. Cornerstone Exercise 6-20

Date Description Units Purchased at Cost Units Sold at Retail

Date Description Units Purchased at Cost Units Sold at Retail

22. Cornerstone Exercise 6-22

Date Description Units Purchased at Cost Units Sold at Retail

23. Cornerstone Exercise 6-26

24. Exercise 6-41

25. Exercise 6-42

Accounts Payable 25,150

26. Exercise 6-43

27. Exercise 6-44

28. Exercise 6-45

29. Exercise 6-52

30. Exercise 6-55

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