Horngrens accounting 10e solutions manual 6 63 p6

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Horngren’s Accounting   10/e    Solutions Manual6-63
P6-34ARequirement 1DateAccounts and ExplanationDebitCreditDec. 31Cost of Goods Sold20,000Merchandise Inventory20,000To write merchandise inventory down to market value.Requirement 2Merchandise inventory should be reported at $80,000 on the balance sheet.Calculations:$ 100,000Merchandise inventory prior to adjustment(20,000)Adjustment$ 80,000Merchandise inventory, adjustedRequirement 3Cost of goods sold should be reported at $430,000 on the income statement.Calculations:$ 410,000Cost of goods sold prior to adjustment 20,000Adjustment$ 430,000Cost of goods sold, adjustedRequirement 4The conservatism principle is most relevant to this situation.Horngren’s Accounting   10/e    Solutions Manual6-64
P6-35ARequirement 1Corrected income statements:EVERGREEN CARPETSIncome StatementsYears Ended December 2015, 2014, and 2013201520142013Net Sales Revenue$ 210,000$ 162,000$ 169,000Cost of Goods Sold:Beginning Merchandise Inventory$ 20,000$ 33,000(b)$ 41,000Net Cost of Purchases140,000108,00098,000Cost of Goods Available for Sale160,000141,000139,000Less: Ending Merchandise Inventory22,000(a)20,00033,000(b)Cost of Goods Sold138,000121,000106,000Gross Profit72,00041,00063,000Operating Expenses53,00018,00024,000Net Income$ 19,000$ 23,000$ 39,000Calculations:December 3120152013Incorrect Merchandise Inventory$ 29,000$ 27,000Understatement (Overstatement)(7,000)6,000Correct Merchandise Inventory$ 22,000(a)$ 33,000(b)Horngren’s Accounting   10/e    Solutions Manual6-65
Horngren’s Accounting   10/e    Solutions Manual6-66
P6-35A, cont.Requirement 2Before correction, net income is overstated by $7,000 in 2015, overstated by $6,000 in 2014, andunderstated by $6,000 in 2013.Calculations:201520142013Correct Net Income(c)$ 19,000$ 23,000$ 39,000Incorrect Net Income(26,000)(29,000)(33,000)Understatement (Overstatement)($ 7,000)($ 6,000)$ 6,000(c)Calculated in Requirement 1.Requirement 3Inventory turnover is 6.57 times in 2015, 4.57 times in 2014, and 2.86 in 2013. Days’ sales in inventory is 55.56 days in 2015, 79.87 days in 2014, and 127.62 days in 2013.Calculations:Average merchandise inventory=(Beginning merchandise inventory + Ending merchandise inventory) / 2Year Ended Dec. 31, 2015:=($20,000 + $22,000) / 2 =$21,000Year Ended Dec. 31, 2014:=($33,000 + $20,000) / 2 =$26,500Year Ended Dec. 31, 2013:=($41,000 + $33,000) / 2=$37,000Horngren’s Accounting   10/e    Solutions Manual6-67
P6-35A, cont.Inventory turnover=Cost of goods sold/ Average merchandise inventoryYear Ended Dec. 31, 2015:=$138,000 / $21,000 =6.57 times for the yearYear Ended Dec. 31, 2014:=$121,000 / $26,500 =4.57 times for the yearYear Ended Dec. 31, 2013:=$106,000 / $37,000=2.86 times for the yearDays’ sales in inventory=365 days / Inventory turnoverYear Ended Dec. 31, 2015:=365 days / 6.57 times=55.56 daysYear Ended Dec. 31, 2014:=365 days / 4.57 times=79.87 daysYear Ended Dec. 31, 2013:=365 days / 2.86 times=127.62 daysHorngren’s Accounting   10/e    Solutions Manual6-68
P6A-36ARequirement 1Using FIFO, ending merchandise inventory is $8,910 and cost of goods sold is $7,050.Using LIFO, ending merchandise inventory is $7,800 and cost of goods sold is $8,160.Using weighted-average, ending merchandise inventory is $8,360 and cost of goods sold is $7,600.Calculations:Goods Available for Sale:DateQuantityUnit CostTotal CostOct. 190 units× $ 70= $ 6,300320 units× $ 75= $ 1,5001240 units× $ 78= $ 3,1201860 units× $ 84= $ 5,040Totals210 units$ 15,960FIFO Ending Merchandise Inventory:QuantityUnit CostTotal Cost60 units× $ 84= $ 5,04040 units× $ 78= $ 3,12010 units× $ 75= $ 750Totals110 units$ 8,910Horngren’s Accounting   10/e    Solutions Manual6-69

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