Liberty Inc. is a retailer operating in Centralia. Liberty uses the perpetual inventory method. All sales returns from customers result in the goods being returned to inventory. (Assume that the inventory is not damaged.) Assume that there are no credit transactions; all amounts are settled in cash. You are provided with the following information for Liberty Inc. for the month of January 2014.

$$\begin{array}{c} \underline{\textbf{Date}}&\underline{\textbf{Description}}&\underline{\textbf{Quantity}}&\underline{\textbf{Unit Cost or Selling Price}}\\[3pt] \text{Dec. 31}&\text{Ending Inventory}&\text{140}&\text{\$\hspace{1pt}14}\\ \text{Jan. 2\hspace{5pt}}&\text{Purchase\hspace{36pt}}&\text{120}&\text{\hspace{5pt}15}\\ \text{Jan. 6\hspace{5pt}}&\text{Sale\hspace{56pt}}&\text{150}&\text{\hspace{5pt}30}\\ \text{Jan. 9\hspace{5pt}}&\text{Purchase\hspace{36pt}}&\text{\hspace{5pt}85}&\text{\hspace{5pt}17}\\ \text{Jan. 10}&\text{Sale\hspace{56pt}}&\text{\hspace{5pt}70}&\text{\hspace{5pt}35}\\ \text{Jan. 23}&\text{Purchase\hspace{36pt}}&\text{100}&\text{\hspace{5pt}20}\\ \text{Jan. 30}&\text{Sale\hspace{56pt}}&\text{110}&\text{\hspace{5pt}42}\\ \end{array}$$

Instructions

(a) For each of the following cost flow assumptions, calculate (i) cost of goods sold, (ii) ending inventory, and (iii) gross profit.
    (1) LIFO.
    (2) FIFO.
    (3) Moving-average. (Round cost per unit to three decimal places.)

A fire completely destroyed the warehouse of Albertson Painting Company on the night of May 12 of the current year. The accounting records of the company and $\$945.00$ of merchandise inventory were salvaged. The company does not maintain a perpetual inventory system. The insurance company therefore has requested an estimate of the merchandise inventory destroyed in the fire. Forms are given in the Working Papers. The following income statement is for the previous fiscal year.

$$\begin{matrix} \text{} & \text{Albertson Painting Company Income Statement } & \text{}\\ \text{} & \text{For Year Ended April 30, 20- -} & \text{}\\ \text{Operating Revenue:}\\ \text{Net Sales} & \text{} & \text{\$316,308.00}\\ \text{Cost of Merchandise Sold:} & \text{} & \text{}\\ \text{Beginning Inventory, May 1 (Prior Year).} & \text{\$15,348.27} & \text{}\\ \text{Net Purchases} & \text{156,282.02} & \text{}\\ \text{Merchandise Available for Sale} & \text{\$171,6 30.29} & \text{}\\ \text{Less Est. Ending Inv. April 30} & \text{17,271.99} & \text{}\\ \text{Cost of Merchandise Sold} & \text{} & \text{154,358. 30}\\ \text{Gross Profit on Operations} & \text{} & \text{\$161,949.70}\\ \text{Operating Expenses} & \text{} & \text{142,267.61}\\ \text{Net Income} & \text{} & \text{\$19,682.09}\\ \end{matrix}$$

The following additiona l financial information is obtained from the current year's accounting records.

$$\begin{matrix} \text{Net purchases, May 1 to May 12} & \text{\$ 3,377.02}\\ \text{Net sales, May 1 to May 12} & \text{11,216.44}\\ \text{Operating expenses, May 1 to May 12} & \text{4,937.70}\\ \end{matrix}$$

Calculate the prior year's gross profit on operations as a percentage of net sales. Round the percentage calculation to the nearest $0.1\%$.

Hemming Co. reported the following current-year purchases and sales for its only product.

Required

Hemming uses a perpetual inventory system. Determine the costs assigned to ending inventory and to cost of goods sold using (a) FIFO.

The beginning inventory at RTE Office Supplies and data on purchases and sales for a three-month period ending August 31, 2014, are as follows:

$$\begin{array}{rlrrr} \text { Date } & \text { Transaction } & \begin{array}{c} \text { Number } \\ \text { of Units } \end{array} & \begin{array}{c} \text { Per } \\ \text { Unit } \end{array} & \text { Total } \\ \hline \text { June } 1 & \text { Inventory } & 500 & \$ 30.00 & \$ 15,000 \\ 10 & \text { Purchase } & 1,500 & 34,00 & 51,000 \\ 28 & \text { Sale } & 750 & 50.00 & 37,500 \\ 30 & \text { Sale } & 250 & 52.00 & 13,000 \\ \text { July } 5 & \text { Sale } & 100 & \$ 55.00 & \$ 5,500 \\ 10 & \text { Purchase } & 3,600 & 35.00 & 126,000 \\ 16 & \text { Sale } & 1,800 & 56.00 & 100,800 \\ 28 & \text { Sale } & 1,700 & 60.00 & 102,000 \\ \text { Aug. } 5 & \text { Purchase } & 3,000 & 35.80 & 107,400 \\ 14 & \text { Sale } & 2,000 & 60.00 & 120,000 \\ 25 & \text { Purchase } & 500 & 36.00 & 18,000 \\ 30 & \text { Sale } & 1,750 & 60.00 & 105,000 \\ \end{array}$$

Instructions

1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 3, using the first-in, first-out method.
2. Determine the total sales and the total cost of merchandise sold for the period. Journalize the entries in the sales and cost of merchandise sold accounts. Assume that all sales were on account.
3. Determine the gross profit from sales for the period.
4. Determine the ending inventory cost as of August 31, 2014.
5. Based upon the preceding data, would you expect the inventory using the last-in, first-out method to be higher or lower?

A fire completely destroyed the warehouse of Albertson Painting Company on the night of May 12 of the current year. The accounting records of the company and $945.00 of merchandise inventory were salvaged. The company does not maintain a perpetual inventory system. The insurance company therefore has requested an estimate of the merchandise inventory destroyed in the fire. Forms are given in the Working Papers. The following income statement is for the previous fiscal year.

$$\begin{array}{c} \textbf{Albertson Painting Company}\\ \textbf{Income Statement}\\ \textbf{For Year Ended April 30, 20--}\\ \end{array}$$

$$\begin{array}{lrr} \text{Operating Revenue:}\\ \qquad\text{Net Sales}&&\text{\$\hspace{1pt}316,308.00}\\ \text{Cost of Merchandise Sold:}\\ \qquad\text{Beginning Inventory, May 1 (Prior Year)}&\text{\$\hspace{5pt}15,348.27}\\ \qquad\text{Net Purchases}&\underline{\text{\hspace{6pt}156,282.02}}\\ \qquad\text{Merchandise Available for Sale}&\text{\$\hspace{0pt}171,630.29}\\ \qquad\text{Less Est. Ending Inv., April 30}&\underline{\text{\hspace{10pt}17,271.99}}\\ \qquad\text{Cost of Merchandise Sold}&&\underline{\text{\hspace{6pt}154,358.30}}\\ \text{Gross Profit on Operations}&&\text{\$\hspace{1pt}161,949.70}\\ \text{Operating Expenses}&&\underline{\text{\hspace{5pt}142,267.61}}\\ \text{Net Income}&&\underline{\underline{\text{\$\hspace{5pt}19,682.09}}}\\ \end{array}$$

The following additional financial information is obtained from the current year's accounting records.

Net purchases, May 1 to May 12                  $ 3,377.02
Net sales, May 1 to May 12                       11,216.44
Operating expenses, May 1 to May 12               4,937.70

Instructions:

4. Prepare an income statement for the period May 1 through May 12.

A fire completely destroyed the warehouse of Albertson Painting Company on the night of May 12 of the current year. The accounting records of the company and $945.00 of merchandise inventory were salvaged. The company does not maintain a perpetual inventory system. The insurance company therefore has requested an estimate of the merchandise inventory destroyed in the fire. Forms are given in the Working Papers. The following income statement is for the previous fiscal year.

$$\begin{array}{c} \textbf{Albertson Painting Company}\\ \textbf{Income Statement}\\ \textbf{For Year Ended April 30, 20--}\\ \end{array}$$

$$\begin{array}{lrr} \text{Operating Revenue:}\\ \qquad\text{Net Sales}&&\text{\$\hspace{1pt}316,308.00}\\ \text{Cost of Merchandise Sold:}\\ \qquad\text{Beginning Inventory, May 1 (Prior Year)}&\text{\$\hspace{5pt}15,348.27}\\ \qquad\text{Net Purchases}&\underline{\text{\hspace{6pt}156,282.02}}\\ \qquad\text{Merchandise Available for Sale}&\text{\$\hspace{0pt}171,630.29}\\ \qquad\text{Less Est. Ending Inv., April 30}&\underline{\text{\hspace{10pt}17,271.99}}\\ \qquad\text{Cost of Merchandise Sold}&&\underline{\text{\hspace{6pt}154,358.30}}\\ \text{Gross Profit on Operations}&&\text{\$\hspace{1pt}161,949.70}\\ \text{Operating Expenses}&&\underline{\text{\hspace{5pt}142,267.61}}\\ \text{Net Income}&&\underline{\underline{\text{\$\hspace{5pt}19,682.09}}}\\ \end{array}$$

The following additional financial information is obtained from the current year's accounting records.

Net purchases, May 1 to May 12                  $ 3,377.02
Net sales, May 1 to May 12                       11,216.44
Operating expenses, May 1 to May 12               4,937.70

Instructions:

3. To calculate the cost of the inventory destroyed in the fire, subtract the cost of the merchandise inventory that was not destroyed from the estimate of the total merchandise inventory as of May 12.

The journal entry for the purchase of inventory on account using the perpetual inventory system is

The beginning inventory of merchandise at Dunne Co. and data on purchases and sales for a three-month period ending June 30, 2014, are as follows:

$$\begin{array}{rlcrrr} \text { Date } & \text { Transaction } & \begin{array}{c} \text { Number } \\ \text { of Units } \end{array} & \begin{array}{c} \text { Per } \\ \text { Unit } \end{array} & {\text { Total }} \\ \hline \text { Apr. } 3 & \text { Inventory } & 25 & \$ 1,200 & \$ 30,000 \\ 8 & \text { Purchase } & 75 & 1,240 & 93,000 \\ 11 & \text { Sale } & 40 & 2,000 & 80,000 \\ 30 & \text { Sale } & 30 & 2,000 & 60,000 \\ \text { May } 8 & \text { Purchase } & 60 & 1,260 & 75,600 \\ 10 & \text { Sale } & 50 & 2,000 & 100,000 \\ 19 & \text { Sale } & 20 & 2,000 & 40,000 \\ 28 & \text { Purchase } & 80 & 1,260 & 100,800 \\ \text { June } 5 & \text { Sale } & 40 & 2,250 & 90,000 \\ 16 & \text { Sale } & 25 & 2,250 & 56,250 \\ 21 & \text { Purchase } & 35 & 1,264 & 44,240 \\ 28 & \text { Sale } & 44 & 2,250 & 99,000 \end{array}$$

Instructions

1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 3, using the first-in, first-out method.

2. Determine the total sales and the total cost of merchandise sold for the period. Journalize the entries in the sales and cost of merchandise sold accounts. Assume that all sales were on account.

3. Determine the gross profit from sales for the period.

4. Determine the ending inventory cost on June 30, 2014.

5. Based upon the preceding data, would you expect the inventory using the last-in, first-out method to be higher or lower?

The beginning inventory of merchandise at Dunne Co. and data on purchases and sales for a three-month period ending June 30 are as follows:

$$\begin{array}{llcrr} \text { Date } & \text { Transaction } & \begin{array}{c} \text { Number } \\ \text { of Units } \end{array} & \begin{array}{c} \text { Per } \\ \text { Unit } \end{array} & \text { Total } \\ \hline \text {Apr. } 3 & \text { Inventory } & 25 & \$ 1,200 & \$ 30,000 \\ 8 & \text { Purchase } & 75 & 1,240 & 93,000 \\ 11 & \text { Sale } & 40 & 2,000 & 80,000 \\ 30 & \text { Sale } & 30 & 2,000 & 60,000 \\ \text {May } 8 & \text { Purchase } & 60 & 1,260 & 75,600 \\ 10 & \text { Sale } & 50 & 2,000 & 100,000 \\ 19 & \text { Sale } & 20 & 2,000 & 40,000 \\ 28 & \text { Purchase } & 80 & 1,260 & 100,800 \\ \text {June } 5 & \text { Sale } & 40 & 2,250 & 90,000 \\ 16 & \text { Sale } & 25 & 2,250 & 56,250 \\ 21 & \text { Purchase } & 35 & 1,264 & 44,240 \\ 28 & \text { Sale } & 44 & 2,250 & 99,000 \end{array}$$

Instructions

1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one previously illustrated, using the first-in, first-out method.
2. Determine the total sales and the total cost of merchandise sold for the period. Journalize the entries in the sales and cost of merchandise sold accounts. Assume that all sales were on account.
3. Determine the gross profit from sales for the period.
4. Determine the ending inventory cost on June 30.
5. Based upon the preceding data, would you expect the inventory using the last-in, first-out method to be higher or lower?

A fire completely destroyed the warehouse of Albertson Painting Company on the night of May 12 of the current year. The accounting records of the company and $945.00 of merchandise inventory were salvaged. The company does not maintain a perpetual inventory system. The insurance company therefore has requested an estimate of the merchandise inventory destroyed in the fire. Forms are given in the Working Papers. The following income statement is for the previous fiscal year.

$$\begin{array}{c} \textbf{Albertson Painting Company}\\ \textbf{Income Statement}\\ \textbf{For Year Ended April 30, 20--}\\ \end{array}$$

$$\begin{array}{lrr} \text{Operating Revenue:}\\ \qquad\text{Net Sales}&&\text{\$\hspace{1pt}316,308.00}\\ \text{Cost of Merchandise Sold:}\\ \qquad\text{Beginning Inventory, May 1 (Prior Year)}&\text{\$\hspace{5pt}15,348.27}\\ \qquad\text{Net Purchases}&\underline{\text{\hspace{6pt}156,282.02}}\\ \qquad\text{Merchandise Available for Sale}&\text{\$\hspace{0pt}171,630.29}\\ \qquad\text{Less Est. Ending Inv., April 30}&\underline{\text{\hspace{10pt}17,271.99}}\\ \qquad\text{Cost of Merchandise Sold}&&\underline{\text{\hspace{6pt}154,358.30}}\\ \text{Gross Profit on Operations}&&\text{\$\hspace{1pt}161,949.70}\\ \text{Operating Expenses}&&\underline{\text{\hspace{5pt}142,267.61}}\\ \text{Net Income}&&\underline{\underline{\text{\$\hspace{5pt}19,682.09}}}\\ \end{array}$$

The following additional financial information is obtained from the current year's accounting records.

Net purchases, May 1 to May 12                  $ 3,377.02
Net sales, May 1 to May 12                       11,216.44
Operating expenses, May 1 to May 12               4,937.70

Instructions:

2. Use the percentage calculated in part (1) and the current year's financial information to calculate an estimate of the total merchandise inventory as of May 12.

The beginning inventory of merchandise at Francesca Co. and data on purchases and sales for a three-month period are as follows:

$$\begin{array}{lrlccc} \textbf { Date } && \textbf { Transaction } & \begin{array}{c} &\textbf { Number } \\ &\textbf { of Units } \end{array} & \begin{array}{c} \textbf { Per } \\ \textbf { Unit } \end{array} &\textbf { Total } \\ \hline \text { July/ } & 3 & \text { Inventory } & 75 & \$ 1,500 & \$ 112,500 \\ & 8 & \text { Purchase } & 150 & 1,800 & 270,000 \\ &11 & \text { Sale } & 90 & 3,000 & 270,000 \\ &30 & \text { Sale } & 45 & 3,000 & 135,000 \\ \text { Aug. }& 8 & \text { Purchase } & 125 & 2,000 & 250,000 \\ &10 & \text { Sale } & 110 & 3,000 & 330,000 \\ &19 & \text { Sale } & 80 & 3,000 & 240,000 \\ &28 & \text { Purchase } & 100 & 2,200 & 220,000 \\ \text { Sept. }& 5 & \text { Sale } & 60 & 3,500 & 210,000 \\ &16 & \text { Sale } & 50 & 3,500 & 175,000 \\ &21 & \text { Purchase } & 180 & 2,400 & 432,000 \\ &28 & \text { Sale } & 90 & 3,500 & 315,000 \end{array}$$

Instructions

1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 3, using the first-in, first-out method.
2. Determine the total sales and the total cost of merchandise sold for the period. Journalize the entries in the sales and cost of merchandise sold accounts. Assume that all sales were on account.
3. Determine the gross profit from sales for the period.
4. Determine the ending inventory cost.
5. Based upon the preceding data, would you expect the inventory using the last-in, first-out method to be higher or lower?

The beginning inventory at Keats Office Supplies and data on purchases and sales for a three-month period are as follows:

$$\begin{array}{rllcrr} \textbf { Date } & \textbf { Transaction } & \begin{array}{c} \textbf { Number } \\ \textbf { of Units } \end{array} & \begin{array}{c} \textbf { Per } \\ \textbf { Unit } \end{array} & \textbf { Total } \\ \hline \text { Mar. 1} & \text { Inventory } & 300 & \$ 20 & \$ 6,000 \\ 10 & \text { Purchase } & 500 & 21 & 10,500 \\ 28 & \text { Sale } & 400 & 35 & 14,000 \\ 30 & \text { Sale } & 250 & 40 & 10,000 \\ \text { Apr. 5 } & \text { Sale } & 80 & 40 & 3,200 \\ 10 & \text { Purchase } & 450 & 22 & 9,900 \\ 16 & \text { Sale } & 250 & 42 & 10,500 \\ 28 & \text { Sale } & 150 & 45 & 6,750 \\ \text { May 5} & \text { Purchase } & 175&24 & 4,200 \\ 14 & \text { Sale } & 160 & 50 & 8,000 \\ 25 & \text { Purchase } & 150 & 25 & 3,750 \\ 30 & \text { Sale } & 140 & 50 & 7,000 \end{array}$$

Instructions

1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 3, using the first-in, first-out method.
2. Determine the total sales and the total cost of merchandise sold for the period. Journalize the entries in the sales and cost of merchandise sold accounts. Assume that all sales were on account.
3. Determine the gross profit from sales for the period.
4. Determine the ending inventory cost.
5. Based upon the preceding data, would you expect the inventory using the last-in, first-out method to be higher or lower?

Johnson Corporation began the year with inventory of 10,000 units of its only product. The units cost $8 each. The company uses a perpetual inventory system and the FIFO cost method. The following transactions occurred during the year:

a. Purchased 50,000 additional units at a cost of$10 per unit. Terms of the purchases were 2/10, n/30, and 100% of the purchases were paid for within the 10-day discount period. The company uses the gross method to record purchase discounts. The merchandise was purchased f.o.b. shipping point and freight charges of $0.50 per unit were paid by Johnson.

b. 1,000 units purchased during the year were returned to suppliers for credit. Johnson was also given credit for the freight charges of$0.50 per unit it had paid on the original purchase. The units were defective and were returned two days after they were received.

c. Sales for the year totaled 45,000 units at $18 per unit.

d. On December 28, Johnson purchased 5,000 additional units at$10 each. The goods were shipped f.o.b. destination and arrived at Johnson’s warehouse on January 4 of the following year.

e. 14,000 units were on hand at the end of the year.

1. Determine ending inventory and cost of goods sold at the end of the year.

2. Assuming that operating expenses other than those indicated in the above transactions amounted to $150,000, determine income before income taxes for the year.

3. For financial reporting purposes, the company uses LIFO (amounts based on a periodic inventory system). Record the year-end adjusting entry for the LIFO reserve, assuming the balance in the LIFO reserve at the beginning of the year is$15,000.

4. Determine the amount the company would report as income before taxes for the year under LIFO. Operating expenses other than those indicated in the above transactions amounted to $150,000.

Laker Company reported the following January purchases and sales data for its only product

Required

The company uses a perpetual inventory system. Determine the cost assigned to ending inventory and to cost of goods sold using (a) specific identification. (Round per unit costs and inventory amounts to cents.) For specific identification, ending inventory consists of 200 units, where 180 are from the January 30 purchase, 5 are from the January 20 purchase, and 15 are from beginning inventory.