Review do it apply rules of ownership to determine

Info icon This preview shows pages 34–36. Sign up to view the full content.

View Full Document Right Arrow Icon
REVIEW DO IT! Apply rules of ownership to determine inventory cost. (SO 1) Compute cost of goods sold under different cost flow methods. (SO 2) DO IT! DO IT! DO IT! DO IT! Compute inventory value under LCM. (SO 5) Compute inventory turnover ratio and assess inventory level. (SO 6) PDF Watermark Remover DEMO : Purchase from to remove the watermark
Image of page 34

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
4. Lima sold goods costing $35,000 to Emerick Co., FOB destination, on December 30. The goods were received at Emerick on January 8. They were not included in Lima’s physical inventory. 5. Lima received goods costing $44,000 on January 2 that were shipped FOB destination on December 29.The shipment was a rush order that was supposed to arrive December 31.This purchase was included in the ending inventory of $297,000. Instructions Determine the correct inventory amount on December 31. E6-2 Kale Thompson, an auditor with Sneed CPAs, is performing a review of Strawser Company’s inventory account. Strawser did not have a good year and top management is under pressure to boost reported income. According to its records, the inventory balance at year-end was $740,000. However, the following information was not considered when determining that amount. 1. Included in the company’s count were goods with a cost of $250,000 that the company is hold- ing on consignment.The goods belong to Superior Corporation. 2. The physical count did not include goods purchased by Strawser with a cost of $40,000 that were shipped FOB destination on December 28 and did not arrive at Strawser’s warehouse until January 3. 3. Included in the inventory account was $17,000 of office supplies that were stored in the ware- house and were to be used by the company’s supervisors and managers during the coming year. 4. The company received an order on December 29 that was boxed and was sitting on the load- ing dock awaiting pick-up on December 31.The shipper picked up the goods on January 1 and delivered them on January 6. The shipping terms were FOB shipping point. The goods had a selling price of $40,000 and a cost of $30,000. The goods were not included in the count because they were sitting on the dock. 5. On December 29 Strawser shipped goods with a selling price of $80,000 and a cost of $60,000 to District Sales Corporation FOB shipping point. The goods arrived on January 3. District Sales had only ordered goods with a selling price of $10,000 and a cost of $8,000. However, a sales manager at Strawser had authorized the shipment and said that if District wanted to ship the goods back next week, it could. 6. Included in the count was $40,000 of goods that were parts for a machine that the company no longer made. Given the high-tech nature of Strawser’s products, it was unlikely that these obsolete parts had any other use. However, management would prefer to keep them on the books at cost, “since that is what we paid for them, after all.” Instructions Prepare a schedule to determine the correct inventory amount. Provide explanations for each item above, saying why you did or did not make an adjustment for each item.
Image of page 35
Image of page 36
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern