Inventory Tracking Systems a. What is the difference between a periodic and a perpetual

Preparing Inventory Reports In your working papers, complete the manual inventory sheet for Carole’s Gift Shop. Use today’s date and your name as the clerk.

Determining Inventory Costs The following items were purchased by Kudos Leather Goods during the month of April: April 2 34 wallets @ $12.95 each April 8 24 wallets @ $13.10 each April 18 15 wallets @ $13.25 each April 26 20 wallets @ $13.27 each On April 1 the business had in inventory 19 wallets valued at $12.90 each. On April 30 the business had 36 wallets in inventory; of these wallets, 8 were purchased on April 2, 15 were purchased on April 8, 3 were purchased on April 18, and 10 were purchased on April 26. Instructions In your working papers, calculate the cost of the ending inventory using: a. the specific identification method b. the FIFO method c. the LIFO method d. the weighted average method

Analyzing a Source Document Read the following memorandum and complete the assigned task. Instructions 1. What is the new value of the ending inventory? 2. Assume that all 36 dolls were sold for $21.95. What is the gross profit for this item?

Inventory Records a. Why does a company need a control system for its merchandise inventory? b. What information does tracking inventory provide to a business?

Inventory Tracking Systems a. What is the difference between a periodic and a perpetual inventory system? b. What is the advantage to using a perpetual inventory system? Why is it difficult for some businesses to use it?

Physical Inventory Count a. When is the best time for a business to take a physical inventory? b. Which tracking system requires a physical inventory count for financial reporting purposes?

Inventory Costing Methods a. What is meant by the phrase “with the FIFO method, the inventory cost is based on the most recent costs”? b. Why does the inventory costing method used affect gross profit on sales and net income?

Lower-of-Cost-or-Market Rule a. In this rule, what is meant by the term cost? By the term market? b. State the lower-of-cost-or-market rule using your definitions of cost and market.

Consistency and Conservatism a. How does the consistency principle help the owners, creditors, and the general public? b. What approach to presenting income does the conservatism principle require?

Calculating the Cost of Ending Inventory Sunset Surfwear sells wet suits. On January 2 there were 21 wet suits at a total cost of $4,809 in inventory. At the end of the year, there were 17 wet suits in ending inventory. Of these, 1 was purchased on July 27, 10 were purchased on September 27, and 6 were purchased on November 29. Instructions Assign a cost to the ending inventory using the following: a. the specific identification method b. the FIFO method c. the LIFO method d. the weighted average cost method Analyze Determine which inventory method resulted in the lowest cost of ending inventory.

Completing an Inventory Sheet InBeat CD Shop assigns a cost to its inventory using the lower-of-cost-or-market rule. In your working papers, there is a partial inventory record. As an example, the first line of the inventory record has been completed. Instructions Complete the inventory record. Do the following: 1. Select the lower-of-cost-or-market value. Enter that amount in the Price to be Used column. 2. Calculate the total cost of each item by multiplying the units in ending inventory by the Price to be Used column. 3. Add the amounts in the Total Cost column to determine the total cost of the ending inventory. Analyze Identify how many items used market value rather than actual cost.

Calculating Gross Profit on Sales Using the four inventory costing methods, Shutterbug Cameras summarized the cost of its ending inventory as follows: Specific First-In, Last-In, Weighted Identification First-Out First-Out Average Cost $21,476.00 $21,581.40 $21,410.93 $21,447.36 Shutterbug Cameras also reported the following amounts: Net sales $53,874.92 Purchases available for sale 57,621.31 Instructions Using the preceding information, determine the cost of merchandise sold and the gross profit on sales for each of the inventory costing methods. Analyze Conclude which method resulted in the largest gross profit on sales.

Reporting Ending Inventory on the Income Statement Cycle Tech Bicycles operates on a fiscal year beginning January 1. At the beginning of the year, the shop had in stock six Model #8274, 10-speed bicycles, valued at $2,364 (6 bicycles @ $394 each). During the year the business made the following purchases: There were seven bicycles in inventory at the end of the period. During the year the bicycles sold for $675 each. Instructions 1. Calculate the cost of the ending inventory using the FIFO, LIFO, and weighted average cost methods. 2. Using the costs calculated in (1), determine the cost of merchandise sold for each inventory costing method. 3. Prepare a partial income statement for each inventory costing method showing sales and the calculation of gross profit on sales. Assume that the sales and purchases are net amounts. Analyze Identify the method that resulted in the lowest cost of merchandise sold.

Calculating Cost of Merchandise Sold and Gross Profit on Sales Buzz Newsstand started the month of May with the following inventory of disposable cameras: Buzz Newsstand uses the FIFO method to calculate the cost of its merchandise inventory. The May 31 physical inventory count indicated: Lenox 4 cameras Paterson 7 cameras Lancaster 5 cameras McMahon 5 cameras Instructions 1. How many units of each of the four cameras were sold during May? 2. Using the chart provided in your working papers, calculate the gross profit on sales for each type of camera. Analyze Conclude which camera sold the most number of units.