Ch 8 Assigned Homework Solutions 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 6 10 20 minutes 2013 Sales 290 000 Sales Returns 2014 2015 360 000 410 000 11 000 13 000 20 000 279 000 347 000 390 000 20 000 32 000 Ending Inventory 32 000 37 000 44 000 Purchases 242 000 260 000 298 000 Net Sales Beginning Inventory Purchase Returns and Allowances Freight in 37 000 5 000 8 000 10 000 8 000 9 000 12 000 Cost of Good Sold 233 000 256 000 293 000 Gross Profit 46 000 91 000 97 000 This was given as the beginning inventory for 2014 This was calculated as the ending inventory for 2014 EXERCISE 8 11 10 15 minutes a b 370 000 200 000 1 85 to 1 370 000 22 000 13 000 3 000 382 000 2 06 to 1 200 000 15 000 c 185 000 Event Effect of Error Adjust Income Increase Decrease 1 Understatement of ending inventory Decreases net income 22 000 2 Overstatement of purchases Decreases net income 15 000 3 Overstatement of ending inventory Increases net income 13 000 4 Overstatement of advertising expense understatement of cost of goods sold 0 24 000 EXERCISE 8 13 15 20 minutes a Units in ending inventory Beginning balance 300 Purchase 1 300 Goods available 1 600 Sales 1 000 Ending balance 1 600 Cost of Goods Sold LIFO 500 13 6 500 500 12 6 000 Ending Inventory 300 10 3 000 300 12 12 500 2 FIFO LIFO 6 600 300 10 3 000 500 13 6 500 700 12 8 400 100 12 1 200 11 400 b 3 600 100 10 1 000 300 12 3 600 200 13 2 600 7 200 7 700 EXERCISE 8 13 Continued c Sales revenue 25 400 24 X 200 25 X 500 27 X 300 Cost of Goods Sold Gross Profit FIFO 11 400 200 10 100 10 14 000 400 12 300 12 Note FIFO periodic and FIFO perpetual provide the same gross profit and inventory value d LIFO matches more current costs with revenue When prices are rising as is generally the case this results in a higher amount for cost of goods sold and a lower gross profit As indicated in this exercise prices were rising and cost of goods sold under LIFO was higher EXERCISE 8 25 20 25 minutes Price Index 1 00 Base Year 80 000 Change from Prior Year 2011 Current 80 000 2012 115 500 1 05 110 000 2013 108 000 1 20 90 000 20 000 2014 122 200 1 30 94 000 4 000 2015 154 000 1 40 110 000 16 000 2016 176 900 1 45 122 000 12 000 30 000 EXERCISE 8 25 Continued Ending Inventory Dollar value LIFO 2011 80 000 2012 80 000 1 00 30 000 1 05 2015 80 000 1 00 10 000 1 05 80 000 10 500 80 000 4 000 1 30 5 200 31 500 16 000 1 40 22 400 111 500 2013 2014 118 100 80 000 1 00 80 000 2016 80 000 1 00 80 000 10 000 1 05 10 500 10 000 1 05 10 500 90 500 4 000 1 30 16 000 1 40 5 200 22 400 80 000 1 00 80 000 12 000 1 45 17 400 10 000 1 05 4 000 1 30 10 500 5 200 95 700 135 500