Question: Tori Amos Corporation began operations on December 1, 2016. The only inventory transaction in 2016 was the purchase of inventory on December 10, 2016, at a cost of $20 per unit. None of this inventory was sold in 2016. Relevant information is as follows.
Ending inventory units
December 31, 2016 100
December 31, 2017, by purchase date
December 2, 2017 100
July 20, 2017 50 150
During the year, the following purchases and sales were made.
March 15 300 units at $24 April 10 200
July 20 300 units at 25 August 20 300
September 4 200 units at 28 November 18 150
December 2 100 units at 30 December 12 200
The company uses the periodic inventory method.
(a) Determine ending inventory under (1) specific identification, (2) FIFO, (3) LIFO, and (4) average cost.
(b) Determine ending inventory using dollar-value LIFO. Assume that the December 2, 2017, purchase cost is the current cost of inventory. (Hint: The beginning inventory is the base layer priced at $20 per unit.)
Ending inventory under the given methods are as follow –
Specific Identification $4,250
Dollar value LIFO $3,500
(1) Ending inventory by specific identification
(2) Ending inventory at FIFO
(3) Ending inventory at LIFO
(4) Ending inventory at Average cost
So the ending inventory at dollar value LIFO is $3,500.
Arruza Co. is considering switching from the specific-goods LIFO approach to the dollar-value LIFO approach. Because the financial personnel at Arruza know very little about dollar-value LIFO, they ask youto answer the following questions.
(a) What is a LIFO pool?
(b) Is it possible to use a LIFO pool concept and not use dollar-value LIFO? Explain.
(c) What is a LIFO liquidation?
(d) How are price indexes used in the dollar-value LIFO method?
(e) What are the advantages of dollar-value LIFO over specific-goods LIFO?
Question: In your audit of Jose Oliva Company, you find that a physical inventory on December 31, 2017, showed merchandise with a cost of $441,000 was on hand at that date. You also discover the followingitems were all excluded from the $441,000.
1. Merchandise of $61,000 which is held by Oliva on consignment. The consignor is the Max Suzuki Company.
2. Merchandise costing $38,000 which was shipped by Oliva f.o.b. destination to a customer on December 31, 2017. The customerwas expected to receive the merchandise on January 6, 2018.
3. Merchandise costing $46,000 which was shipped by Oliva f.o.b. shipping point to a customer on December 29, 2017. Thecustomer was scheduled to receive the merchandise on January 2, 2018.
4. Merchandise costing $83,000 shipped by a vendor f.o.b. destination on December 30, 2017, and received by Oliva on January4, 2018.
5. Merchandise costing $51,000 shipped by a vendor f.o.b. shipping point on December 31, 2017, and received by Oliva onJanuary 5, 2018.
Based on the above information, calculate the amount that should appear on Oliva’s balance sheet at December 31, 2017, for inventory.
Presented below is information related to Dino Radja Company.
Ending Inventory Price
Date (End-of-Year Prices) Index
December 31, 2014 $ 80,000 100
December 31, 2015 115,500 105
December 31, 2016 108,000 120
December 31, 2017 122,200 130
December 31, 2018 154,000 140
December 31, 2019 176,900 145
Compute the ending inventory for Dino Radja Company for 2014 through 2019 using the dollar-value LIFO method.
Colin Davis Machine Company maintains a general ledger account for each class of inventory, debiting such accounts for increases during the period and crediting them for decreases. The transactions below relate to the Raw Materials inventory account, which is debited for materials purchased and credited for materials requisitioned for use.
1. An invoice for $8,100, terms f.o.b. destination, was received and entered January 2, 2017. The receiving report shows that the materials were received December 28, 2016.
2. Materials costing $28,000, shipped f.o.b. destination, were not entered by December 31, 2016, “because they were in a railroad car on the company’s siding on that date and had not been unloaded.”
3. Materials costing $7,300 were returned to the supplier on December 29, 2016, and were shipped f.o.b. shipping point. The return was entered on that date, even though the materials are not expected to reach the supplier’s place of business until January 6, 2017.
4. An invoice for $7,500, terms f.o.b. shipping point, was received and entered December 30, 2016. The receiving report shows that the materials were received January 4, 2017, and the bill of lading shows that they were shipped January 2, 2017.
5. Materials costing $19,800 were received December 30, 2016, but no entry was made for them because “they were ordered with a specified delivery of no earlier than January 10, 2017.”
Prepare correcting general journal entries required at December 31, 2016, assuming that the books have not been closed.
At December 31, 2016, Stacy McGill Corporation reported current assets of $370,000 and current liabilities of $200,000. The following items may have been recorded incorrectly.
1. Goods purchased costing $22,000 were shipped f.o.b. shipping point by a supplier on December 28. McGill received andrecorded the invoice on December 29, 2016, but the goods were not included in McGill’s physical count of inventorybecause they were not received until January 4, 2017.
2. Goods purchased costing $15,000 were shipped f.o.b. destination by a supplier on December 26. McGill received andrecorded the invoice on December 31, but the goods were not included in McGill’s 2016 physical count of inventorybecause they were not received until January 2, 2017.
3. Goods held on consignment from Claudia Kishi Company were included in McGill’s December 31, 2016, physical countof inventory at $13,000.
4. Freight-in of $3,000 was debited to advertising expense on December 28, 2016.
(a) Compute the current ratio based on McGill’s balance sheet.
(b) Recompute the current ratio after corrections are made.
(c) By what amount will income (before taxes) be adjusted up or down as a result of the corrections?
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