ch08HWSolutionsPlus - CHAPTER 8 Valuation of Inventories: A...

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CHAPTER 8 Valuation of Inventories: A Cost-Basis Approach SOLUTIONS TO EXERCISES EXERCISE 8-1 Items 2, 3, 5, 8, 10, 13, 14, 16, and 17 would be reported as inventory in the financial statements. The following items would not be reported as inventory: 1. Cost of goods sold in the income statement. 4. Not reported in the financial statements. 6. Cost of goods sold in the income statement. 7. Cost of goods sold in the income statement. 9. Interest expense in the income statement. 11. Advertising expense in the income statement. 12. Office supplies in the current assets section of the balance sheet. 15. Not reported in the financial statements. 18. Short-term investments in the current asset section of the balance sheet. EXERCISE 8-2 Inventory per physical count. ................................................. $441,000 Goods in transit to customer, f.o.b. destination. .................. + 33,000 Goods in transit from vendor, f.o.b. shipping point. ............ + 51,000 Inventory to be reported on balance sheet. .......................... $525,000 The consigned goods of $61,000 are not owned by Garza and were properly excluded. The goods in transit to a customer of $46,000, shipped f.o.b. shipping point, are properly excluded from the inventory because the title to the goods passed when they left the seller (Oliva) and therefore a sale and related cost of goods sold should be recorded in 2010. 1
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The goods in transit from a vendor of $73,000, shipped f.o.b. destination, are properly excluded from the inventory because the title to the goods does not pass to Garza until the buyer (Garza) receives them. EXERCISE 8-3 1. Include. Merchandise passes to customer only when it is shipped. 2. Do not include. Title did not pass until January 3. 3. Include in inventory. Product belonged to Webber Inc. at December 31, 2010. 4. Do not include. Goods received on consignment remain the property of the consignor. 5. Include in inventory. Under invoice terms, title passed when goods were shipped. EXERCISE 8-9 (a) Jan. 4 Accounts Receivable. ........................... 640 Sales (80 X $8). ............................. 640 Jan. 11 Purchases ($150 X $6.50). .................... 975 Accounts Payable. ....................... 975 Jan. 13 Accounts Receivable. ........................... 1,050 Sales (120 X $8.75). ...................... 1,050 Jan. 20 Purchases (160 X $7). ........................... 1,120 Accounts Payable. ....................... 1,120 2
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Jan. 27 Accounts Receivable. ........................... 900 Sales (100 X $9). ........................... 900 Jan. 31 Inventory ($7 X 110). ............................. 770 Cost of Goods Sold. .............................. 1,925* Purchases ($975 + $1,120). ......... 2,095 Inventory (100 X $6). .................... 600 *($600 + $2,095 – $770) (b) Sales ($640 + $1,050 + $900). ................ $2,590 Cost of goods sold. ................................ 1,925 Gross profit. ............................................ $ 665 (c) Jan. 4 Accounts Receivable. ............................ 640
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ch08HWSolutionsPlus - CHAPTER 8 Valuation of Inventories: A...

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