Exercises

E 5-1
1. Journalize the purchase and sales transaction during the year under the
perpetual and periodic system.

Perpetual:
Merchandise Inventory 5.900,00
Accounts Payable 5.900,00
Cash 2.187,50
Accounts Receivable 6.562,50
Sales 8.750,00
Cost of Goods Sold 5.650,00
Merchandise Inventory 5.650,00

Periodic:
Purchases 5.900,00
Accounts Payable 5.900,00
Cash 2.187,50
Accounts Receivable 6.562,50
Sales 8.750,00

2. Show the amounts of ending inventory, cost of goods sold, sales, and gross
margin in their appropriate statements.

Ending Inventory= Beg Inv + Purchases - Cost of Goods Sold

Statement of financial
= 740+5.900-5.650 = 990 position

Cost of Goods Sold: 5.650 Income Statement

Sales = 8.750 Income Statement

Gross Margin = Sales -

COGS= 3.100 Income Statement

3. Compute amount of cost of goods sold under periodic system.

Cost of Goods Sold cannot be computed because the physical count is not given. If
we assume that the records are correct then both methods will yield the same result.
E 5-2 Write the name of the inventory method that best fits assuming that:
1) Prices are rising 2) Prices are falling

Rising Falling
1. Reflects the most current costs in cost of goods sold. LIFO LIFO
2. Results in tax savings. LIFO FIFO
3. Results in higher income. FIFO LIFO
4. Reflects the most current costs in the ending inventory. FIFO FIFO
Specific
5. Used to account for paintings, cars, and similar special items. Identification
6. Results in income figure that is in the middle ground. Weighted Average

E 5-3 Show the effect, if any, of each of the following errors by placing the appropriate
symbol in each column if periodic inventory system is used.
O = overstated
U = understated
NE = no effect

Error Ending Cost of Gross Net

Inventory Goods profit on Income
Sold Sales
Purchases are overstated NE O U U
Beginning inventory is overstated NE O U U
Net sales are understated NE NE U U
Beginning inventory is understated NE U O O
Ending inventory is understated O U U
Ending inventory is overstated U O O

E5-4 During 20X7, Boutiqué Yellow Rose had beginning inventory of TL 234.000,
ending inventory of TL 310.000 and cost of goods sold of TL 1.325.000. Compute the
inventory turnover ratio and average number of days inventory on hand.

 234.000  310.000 272.000

Average inventory= 2

Inventory Turnover Ratio= (1.325.000 / 272.000) = 4.87

365 4.87  74.95

Average # of Days Inventory on Hand=
E 5-5

Item Quantity Unit Cost Unit Market Total Cost Total Market
S 75 32 25 2.400 1.875
M 150 30 31 4.500 4.650
L 65 35 37 2.275 2.405
XL 42 39 37 1.638 1.554
Total 10.813 10.484

Item by Item Basis: 1.875+4.500+2.275+1.554=10.204

E 5-6
Sales 520.000
Gross Margin (25%) 130.000
COGS 390.000

BeginningInventory  Purchases  EndingInventory  COGS

83.000  315.000  EndingInventory  390.000
EndingInventory  8.000

E 5-7 The merchandise inventory of Sunshine Company was destroyed by fire on 25

May. The following data were obtained from the accounting records:
1 January Merchandise Inventory TL 25.000
1 January – 25 May Purchases (net) 16.000
Sales (net) 32.000
Estimated gross profit rate 40%

Estimated cost of goods sold 19.200

(32.000*60%)

Beginning inventory 25.000

Purchases 16.000
Less: cost of goods sold -19.200
Estimated ending inventory 21.800

E 5-8 On the basis of the following data, estimate the cost of the merchandise inventory
at 30 June, by the retail method:

Cost Retail Ratio

1 June Merchandise Inventory TL 143.680 TL 207.500 69%
1-30 June Purchases (net) 85.400 124.500 69%
1-30 June Sales (net) 100.000
30 June Merchandise inventory 160.800 232.000 69%
P 5-1
Assuming that the company uses 1) the periodic inventory system;
and
2) the perpetual inventory system.
units unit cost total cost
Inventory 01-Jul 1.000 5 5.000
Purchases
02-Jul 300 6,70 2.010
08-Jul 200 5,50 1.100
18-Jul 300 6,50 1.950
30-Jul 950 7,60 7.220
Total Available 2.750 17.280
Sold 12-Jul 500
22-Jul 500
25-Jul 750
1.750
Ending Inventory 1.000
 1) PERIODIC
A.FIFO
Ending Inventory
units unit cost total cost
950 7,60 7.220
50 6,50 325
1.000 7.545
Cost of Goods Sold
units unit cost total cost
1000 5 5.000
300 6,70 2.010
200 5,50 1.100
250 6,50 1.625
1.750 9.735
Or alternatively
COGS = Cost of Goods Available for Sale - Ending Inventory
; and
Ending Inventory = Cost of Goods Available for Sale - COGS
thus
COGS = 17.280 - 7.545 = 9.735
End. Inv = 17.280 - 9.735 = 7.545

1) PERIODIC
B.LIFO
Ending Inventory
units unit cost total cost
1.000 5 5.000
Cost of Goods Sold
units unit cost total cost
950 7,60 7.220
300 6,50 1.950
200 5,50 1.100
300 6,70 2,010
1.750 12.280

PERIODIC – WEIGHTED AVERAGE

Total cos tofgoodsavailableforsale 17.280

  6,28TL / unit
Tota lg oodsavailableforsale 2.750
EndingInventory  1.000  6,28  6.283,64
COGS  1.750  6,28  10.996,36

Perpetual FIFO Purchases Sales Balance

unit units COG unit
Date units cost total sold unit cost S units cost total cost
1.00
01-Jul 1.000 5 5.000 0 5 5.000
1.00
02-Jul 300 6,0 2.010 0 5 5.000

300 6,7 2.010

1.00
08-Jul 200 5,50 1.100 0 5 5.000
300 6,7 2.010

200 5,5 1.100

12-Jul 500 5 2.500 500 5 2.500
300 6,7 2.010

200 5,5 1.100

18-Jul 300 6,50 1.950 500 5 2.500
300 6,7 2.010
200 5,5 1.100

300 6,5 1.950

22-Jul 500 5 2.500 300 6,7 2.010
200 5,5 1.100

300 6,5 1.950

25-Jul 300 6,7 2.010 50 6,5 325
200 5, 1.100

250 6,5 1.625

30-Jul 950 7,60 7.220 50 6,5 325

950 7.6 7220

1.750 9.735 7.545

PERPETUAL LIFO Purchases Sales Balance

COG
Date units unit cost total units sold unit cost S units unit cost total cost
5.00
01-Jul 1.000 5 0 1.000 5 5.000
2.01
02-Jul 300 6,70 0 1.000 5 5.000

300 6,7 2.010

1.10
08-Jul 200 5,50 0 1.000 5 5.000
300 6,7 2.010

200 5,5 1.100

12-Jul 200 5,5 1.100 1.000 5 5.000

300 6,7 2.010

1.95
18-Jul 300 6,50 0 1.000 5 5.000
 300 6,5 1.950
22-Jul 300 6,5 1.950 800 5 4.000

200 5 1.000

25-Jul 750 5 3.750 50 5 250

7.22
30-Jul 950 7,60 0 50 5 250

950 7.6 7.220

9.810 7.470

Purchases Sales Balance

Date Units unit cost total units sold unit cost COGS units unit cost to
01-Jul 1.000 5 5.000 1.000 5
02-Jul 300 6,70 2.010 1.300 5,392308

08-Jul 200 5,50 1.100 1.500 5,406667

12-Jul 500 5,406667 2.703,3333 1.000 5,406667

18-Jul 300 6,50 1.950 1.300 5,658974

22-Jul 500 5,658974 2.829,4872 800 5,658974

25-Jul 750 5,658974 4.244,2308 50 5,658974

30-Jul 950 7,60 7.220 1.000 7,502949

1.750 9.777
P 5-2
action date units unit cost total cost unit price total sale
Beginning 01-Mar 1.400 4 5.600
Buy 04-Mar 100 3,5 350
Buy 15-Mar 400 4,5 1.800
Buy 31-Mar 100 5 500
Sell 10-Mar 500 7 3.500
Sell 20-Mar 600 7 4.200
Sell 24-Mar 650 8 5.200
Total Units: 2.000 Total Sold: 1.750End. Inv : 250
Total Cost 8.250

Periodic FIFO:
04-Mar Purchases 350
Accounts Payable 350
10-Mar Accounts Receivable 3.500
Sales 3.500
15-Mar Purchases 1.800
Accounts Payable 1.800
20-Mar Accounts Receivable 4.200
Sales 4.200
24-Mar Accounts Receivable 5.200
Sales 5.200
31-Mar Purchases 500
Accounts Payable 500

Ending Inventory:
250 units: units unit cost total cost
100 5 500
150 4,5 675
250 1.175

Closing Entries;
1) Sales 12.900
Merchandise Inventory 1.175
Income Summary 14.075
2) Income Summary 8.250
Merchandise Inventory 5.600
Purchases 2.650

Periodic LIFO:
Journal entries are the same journal entries prepared for
FIFO.
However, Ending inventory value will be different.

Ending Inventory 250 units:

units unit cost total cost
250 4 1.000

Closing Entries:
1) Sales 12.900
Merchandise Inventory 1.000
Income Summary 13.900
2) Income Summary 8.250
Merchandise Inventory 5.600
Purchases 2.650

PERPETUAL FIFO

Purchases Sales Balance

units unit
Date units unit cost total sold unit cost COGS units cost total cost
01-Mar 1.400 45.600 1.400 4 5.600
04-
Mar 100 3,5 350 1.400 4 5.600
100 3,5 350
10-
Mar 500 4 2.000 900 4 3.600
100 3,5 350
15-
Mar 400 4,5 1.800 900 4 3.600
100 3,5 350
400 4,5 1.800
20-
Mar 600 4 2.400 300 4 1.200
100 3,5 350
400 4,5 1.800
24-
Mar 300 4 1.200 150 4,5 675
100 3,5 350
250 4,5 1.125
31-Mar 100 5 500 150 4,5 675
100 5 500
7.075 1.175
Journal Entries
Merchandise
04-Mar Inventory 350
Accounts Payable 350
10-Mar Accounts Receivable 3.500
Sales 3.500
COGS 2.000
Merchandise Inv. 2.000
Merchandise
15-Mar Inventory 1.800
Accounts Payable 1.800
20-Mar Accounts Receivable 4.200
Sales 4.200
COGS 2.400
Merchandise Inv. 2.400
24-Mar Accounts Receivable 5.200
Sales 5.200
COGS 2.675
Merchandise Inv. 2.675
Merchandise
31-Mar Inventory 500
Accounts Payable 500

Closing Entries:
1) Sales 12.900
Income Summary 12.900

2) Income Summary 7.075

COGS 7.075
PERPETUAL LIFO

Purchases Sales Balance

units
Date units unit cost total sold unit cost COGS units unit cost total cost
5.60 1.40
01-Mar 1.400 4 0 0 4 5.600
04- 1.40
Mar 100 3,5 350 0 4 5.600
100 3,5 350
10- 1.00
Mar 100 3,5 350 0 4 4.000
400 4 1.600
15- 1.80 1.00
Mar 400 4,5 0 0 4 4.000
400 4,5 1.800
20-
Mar 400 4,5 1.800 800 4 3.200
200 4 800

24-
Mar 650 4 2.600 150 4 600

31-Mar 100 5 500 150 4 600

100 5 500
7.150 1.100

Journal Entries
04-Mar Merchandise 350
 Inventory
Accounts Payable 350
10-Mar Accounts Receivable 3.500
Sales 3.500
COGS 1.950
Merchandise Inv. 1.950
Merchandise
15-Mar Inventory 1.800
Accounts Payable 1.800
20-Mar Accounts Receivable 4.200
Sales 4.200
COGS 2.600
Merchandise Inv. 2.600
24-Mar Accounts Receivable 5.200
Sales 5.200
COGS 2.600
Merchandise Inv. 2.600
Merchandise
31-Mar Inventory 500
Accounts Payable 500

Closing Entries:
1) Sales 12.900
Income Summary 12.900

2) Income Summary 7.150

COGS 7.150

P 5-3
A) ITEM BY ITEM
Item Units Unit cost Unit Total
market LCM Inventory
A 150 12 14 12 1.800
B 230 10 9 9 2.070
C 350 7 6,5 6,5 2.275
D 690 11 12,5 11 7.590
Value of Inventory 13.735
P 5-4
32  10  320
a. Ending Inventory= 56  13  728 = 320  728  1.048

Cost of Goods Sold= Cost of Goods Available for Sale-Ending Inventory

2.675-1.048= 1.627

b. Weighted Average Method (Periodic Inventory)

AverageUnitCost  2.675  255  10.49

EndingInventory  10.49  88  923
COGS  2.675  923  1.752

c. FIFO Method (Periodic Inventory)

EndingInventory   65  13   23  10   1.075

COGS  2.675  1.075  1.600

d. LIFO Method (Periodic Inventory)

EndingInventory   70  9   18  10  810

COGS  2.675  810  1.865

e. Weighted Average Method (Perpetual Inventory)

Date Quantity Unit Cost (TL) Amount (TL)

1 Feb 70 9 630
5 Feb 120 10 1.200
Average Unit Cost 190 9.63 1.830
(1.830  190  9.63)
12 Feb (92) 9.63 (886)
19 Feb 65 13 845
Average Unit Cost 163 10.98 1.789
(1.789  163  10.98)
24 Feb (75) 10.98 (824)
Ending Inventory 88 10.98 965

COGS  2.675  965  1.710

f. FIFO Method (Perpetual Inventory)

Date Quantity Unit Cost Amount Ending Inventory

1 Feb 70 9 630
5 Feb 120 10 1.200 1.930
12 Feb (92) 850 980
 70  9   22  10  98  10 
19 Feb 65 13 845 1.825
 98  10
 65 * 13
24 Feb (75) 750 1.075
 75  10  23  10
 65 * 13

Ending Inventory=1.075
COGS  2.675  1.075  1.600

g. LIFO Method (Perpetual Inventory)

Date Quantity Unit Cost Amount Ending Inventory

1 Feb 70 9 630
5 Feb 120 10 1.200 1.930
12 Feb (92) 920 910
92  10  70  9
 28  10
19 Feb 65 13 845 1.755
 70  9 
 28  10 
 65  13
24 Feb (75) 945 810
 65  13  70  9 
10  10 18  10

Ending Inventory=810
COGS  2.675  810  1.865

P 5-5
Unit Purchase Sales
Date Quantity Unit Cost Price Amount Amount
1-Jun 150 5 750
4-Jun 400 6 2.400
8-Jun (200) 10 2.000
12-Jun 500 6 3.000
16-Jun (350) 10 3.500
20-Jun (250) 11 2.750
24-Jun 600 7 4.200
28-Jun (300) 11 3.300
29-Jun (200) 11 2.200
Goods Available for Sale 1.650 10.350
Sales (1.300) 13.750
Ending Inventory 350

Weighted Average

10.350  1.650  6.27

EndingInventory  350  6.27  2.195
COGS  10.350  2.194,5  8.155
GrossM arg in  13.750  8.155  5.595

FIFO

EndingInventory  350  7  2.450

COGS  10.350  2.450  7.900
GrossM arg in  13.750  7.900  5850
.

LIFO

 150  5 
EndingInventory     1950
.
 200  6
COGS  10.350  1950
.  8.400
GrossM arg in  13.750  8.400  5.350
P 5-6 Below appear selected data from the records of Hey and Mey Companies:

HEY Company

Cost Retail Ratio

Inventory, 1 April TL 294.975 TL 445.650 66%
Transactions during April:
Purchases 90.700 146.450
61%
Purchase discount 810
Sales 115.245 180.500 Average
Sales returns and allowances 3.200 65%
Inventory, 30 April 269.620

MEY Company

Cost
Inventory, 1 April TL 195.500
Transactions during April:
Purchases 310.900
Purchase discount 2.900
Sales 405.000
Sales returns and allowances 4.100
Estimated gross profit rate 34%
Estimated cost of sales 264.594
(405.000-4.100)*66%
Estimated ending inventory 238.906
(195.500+310.900-2900-264594)

P5-7