Accounts Payable 4500 Accounts Payable 6 X 30 180 Inventory 180 Accounts

Accounts payable 4500 accounts payable 6 x 30 180

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Accounts Payable ............................................ 4,500 Accounts Payable (6 X $30) ..................................... 180 Inventory ........................................................... 180 Accounts Receivable (125 X $50) ............................ 6,250 Sales .................................................................. 6,250 Cost of Goods Sold (125 X $30) ............................... 3,750 8-14
Inventory ........................................................... 3,750 8-15
BRIEF EXERCISE 8-3 December 31 inventory per physical count $200,000 Goods-in-transit purchased FOB shipping point 15,000 Goods-in-transit sold FOB destination 22,000 December 31 inventory $237,000 BRIEF EXERCISE 8-4 Cost of goods sold as reported $1,400,000 Overstatement of 12/31/06 inventory (110,000) Overstatement of 12/31/07 inventory 45,000 Corrected cost of goods sold $1,335,000 12/31/07 retained earnings as reported $5,200,000 Overstatement of 12/31/07 inventory (45,000 ) Corrected 12/31/07 retained earnings $5,155,000 BRIEF EXERCISE 8-5 Weighted average cost per unit $11,850 = $11.85 1,000 Ending inventory 300 X $11.85 = $3,555 Cost of goods available for sale $11,850 Deduct ending inventory 3,555 Cost of goods sold (700 X $11.85) $ 8,295 8-16
BRIEF EXERCISE 8-6 Ending inventory (April 23) 300 X $13 = $3,900 Cost of goods available for sale $11,850 Deduct ending inventory 3,900 Cost of goods sold $ 7,950 BRIEF EXERCISE 8-7 April 1 250 X $10 = $2,500 April 15 50 X $12 = 600 Ending inventory $3,100 Cost of goods available for sale $11,850 Deduct ending inventory 3,100 Cost of goods sold $ 8,750 BRIEF EXERCISE 8-8 2005 $100,000 2006 $123,200 ÷ 1.10 = $112,000 $100,000 X 1.00 $100,000 $12,000* X 1.10 13,200 $113,200 *$112,000 – $100,000 2007 $134,560 ÷ 1.16 = $116,000 $100,000 X 1.00 $100,000 $12,000 X 1.10 13,200 $4,000** X 1.16 4,640 $117,840 **$116,000 – $112,000 8-17
BRIEF EXERCISE 8-9 2006 inventory at base amount ($21,708 ÷ 1.08) $20,100 2005 inventory at base amount (19,750 ) Increase in base inventory $ 350 2006 inventory under LIFO Layer one $19,750 X 1.00 $19,750 Layer two $ 350 X 1.08 378 $20,128 2007 inventory at base amount ($25,935 ÷ 1.14) $22,750 2006 inventory at base amount 20,100 Increase in base inventory $ 2,650 2007 inventory under LIFO Layer one $19,750 X 1.00 $19,750 Layer two $ 350 X 1.08 378 Layer three $ 2,650 X 1.14 3,021 $23,149 8-18
SOLUTIONS TO EXERCISES EXERCISE 8-1 (15–20 minutes) Items 1, 3, 5, 8, 11, 13, 14, 16, and 17 would be reported as inventory in the financial statements. The following items would not be reported as inventory: 2. 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. 10. 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 (10–15 minutes) Inventory per physical count $441,000 Goods in transit to customer, f.o.b. destination + 38,000 Goods in transit from vendor, f.o.b. seller + 51,000 Inventory to be reported on balance sheet $530,000 The consigned goods of $61,000 are not owned by Jose Oliva 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 2007. The goods in transit from a vendor of $83,000, shipped f.o.b. destination, are properly excluded from the inventory because the title to the goods does not pass to Oliva until the buyer (Oliva) receives them.

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