The recent financial statements of McLelland Clothing Inc. include the following data: |Particulars|Amount| |-|-:| Sales| $754,690 Cost of goods sold:$    $Computed under FIFO| 528,600$    $Computed under LIFO |555,000 Average inventory:$    $Computed under FIFO |72,200$    $Computed under LIFO| 45,800 **Required:** Calculate McLelland’s gross profit ratio (rounded to two decimal places), inventory turnover ratio (rounded to three decimal places), and the average days to sell inventory (assume a 365-day year and round to two decimal places) using the LIFO inventory costing method. Be sure to explain what each ratio means.

Raymond Company and Geeslin Company both use a perpetual inventory system. The following transactions occurred during the month of January:

Required:

Prepare the journal entries to record these transactions on the books of Raymond and Geeslin.

Mathis Company and Reece Company use the perpetual inventory system. The following transactions occurred during the month of April:

a. On April 1, Mathis purchased merchandise on account from Reece with credit terms of 2/10, n/30. The selling price of the merchandise was $3,100, and the cost of the merchandise sold was$2,225.

b. On April 1, Mathis paid freight charges of $250 cash to have the goods delivered to its warehouse.

c. On April 8, Mathis returned$800 of the merchandise which had originally cost Reece $500.

d. On April 10, Mathis paid Reece the balance due.

Required:

Prepare the journal entry to record the April 8 return of merchandise.

Callahan Company reported the following information for the current year:

Required:

Explain the meaning of each number.

Financial statement data for years ending December 31 for Tango Company follow:

$$\begin{array}{lcc} & \mathbf{2 0 Y 7} & \mathbf{2 0 Y 6} \\ \hline \begin{array}{l} \text { Cost of merchandise sold } \\ \text { Inventories: } \end{array} & \$ 3,864,000 & \$ 4,001,500 \\ \quad \text { Beginning of year } & 770,000 & 740,000 \\ \quad \text { End of year } & 840,000 & 770,000 \end{array}$$

a. Determine the inventory turnover for $20 \mathrm{Y} 7$ and $20 \mathrm{Y} 6$.

b. Determine the days' sales in inventory for $20 \mathrm{Y} 7$ and 20Y6. Use 365 days and round to one decimal place.

c. Does the change in inventory turnover and the days' sales in inventory from $20 \mathrm{Y} 6$ to $20 \mathrm{Y} 7$ indicate a favorable or an unfavorable trend?

Shaw Systems sells a limited line of specially made products, using television advertising campaigns in large cities. At year end, Shaw has the following data for its inventory:

$$\begin{array}{lcccc} \text { Item } & \begin{array}{c} \text { Number } \\ \text { of Units } \end{array} & \begin{array}{c} \text { Historical } \\ \text { Cost per Unit } \end{array} & \begin{array}{c} \text { Selling Price } \\ \text { per Unit } \end{array} & \begin{array}{c} \text { Disposal } \\ \text { Costs } \end{array} \\ \hline \text { Phone } & 625 & \$ 24 & \$ 25 & \$ 5 \\ \text { Stereo } & 180 & 177 & 200 & 10 \\ \text { Electric shaver } & 215 & 30 & 31 & 3 \\ \text { MP3 alarm clock } & 450 & 26 & 27 & 2 \\ \text { Handheld game system } & 570 & 40 & 45 & 3 \end{array}$$

Required:

What is the impact of applying the lower of cost or market rule on the financial statements of the current period? What is the impact on the financial statements of a subsequent period in which the inventory is sold?

Shaw Systems sells a limited line of specially made products, using television advertising campaigns in large cities. At year end, Shaw has the following data for its inventory:

$$\begin{array}{lcccc} \text { Item } & \begin{array}{c} \text { Number } \\ \text { of Units } \end{array} & \begin{array}{c} \text { Historical } \\ \text { Cost per Unit } \end{array} & \begin{array}{c} \text { Selling Price } \\ \text { per Unit } \end{array} & \begin{array}{c} \text { Disposal } \\ \text { Costs } \end{array} \\ \hline \text { Phone } & 625 & \$ 24 & \$ 25 & \$ 5 \\ \text { Stereo } & 180 & 177 & 200 & 10 \\ \text { Electric shaver } & 215 & 30 & 31 & 3 \\ \text { MP3 alarm clock } & 450 & 26 & 27 & 2 \\ \text { Handheld game system } & 570 & 40 & 45 & 3 \end{array}$$

Required:

Prepare the journal entry required to value the inventory at lower of cost or market.

Shaw Systems sells a limited line of specially made products, using television advertising campaigns in large cities. At year end, Shaw has the following data for its inventory:

$$\begin{array}{lcccc} \textbf{}&\textbf{Number}&\textbf{Historical}&\textbf{Selling Price}&\textbf{Disposal}\\ \textbf{Item}&\textbf{of Units}&\textbf{Cost per Unit}&\textbf{per Unit}&\textbf{Costs}\\\hline \text{Phone}&625&\$~~24&\$~~25&\$~~5\\ \text{Stereo}&180&~~177&~~200&~~10\\ \text{Electric shaver}&215&~~~~30&~~~~31&~~~~3\\ \text{MP3 alarm clock}&450&~~~~26&~~~~27&~~~~2\\ \text{Handheld game system}&570&~~~~40&~~~~45&~~~~3\\ \end{array}$$

Required:

1. Compute the carrying value of the ending inventory using the lower of cost or market rule applied on an item-by-item basis.

2. Prepare the journal entry required to value the inventory at lower of cost or market.

3. What is the impact of applying the lower of cost or market rule on the financial statements of the current period? What is the impact on the financial statements of a subsequent period in which the inventory is sold?

Meredith’s Appliance Store has the following data for the items in its inventory at the end of the accounting period:

$$\begin{array}{lcccc} \text { Item } & \begin{array}{c} \text { Number } \\ \text { of Units } \end{array} & \begin{array}{c} \text { Historical } \\ \text { Cost per Unit } \end{array} & \begin{array}{c} \text { Selling Price } \\ \text { per Unit } \end{array} & \begin{array}{c} \text { Disposal } \\ \text { Costs } \end{array} \\ \hline \text { Window air conditioner } & 25 & \$ 180 & \$ 150 & \$ 45 \\ \text { Dishwasher } & 22 & 225 & 230 & 20 \\ \text { Refrigerator } & 35 & 420 & 450 & 25 \\ \text { Microwave } & 15 & 220 & 190 & 15 \\ \text { Washer (clothing) } & 28 & 180 & 260 & 40 \\ \text { Dryer (clothing) } & 18 & 210 & 275 & 50 \end{array}$$

Required:

What is the conceptual justification for valuing inventory at the lower of cost or market?

Meredith’s Appliance Store has the following data for the items in its inventory at the end of the accounting period:

$$\begin{array}{lcccc} \text { Item } & \begin{array}{c} \text { Number } \\ \text { of Units } \end{array} & \begin{array}{c} \text { Historical } \\ \text { Cost per Unit } \end{array} & \begin{array}{c} \text { Selling Price } \\ \text { per Unit } \end{array} & \begin{array}{c} \text { Disposal } \\ \text { Costs } \end{array} \\ \hline \text { Window air conditioner } & 25 & \$ 180 & \$ 150 & \$ 45 \\ \text { Dishwasher } & 22 & 225 & 230 & 20 \\ \text { Refrigerator } & 35 & 420 & 450 & 25 \\ \text { Microwave } & 15 & 220 & 190 & 15 \\ \text { Washer (clothing) } & 28 & 180 & 260 & 40 \\ \text { Dryer (clothing) } & 18 & 210 & 275 & 50 \end{array}$$

Required:

Prepare the journal entry required to value the inventory at lower of cost or market.

Meredith’s Appliance Store has the following data for the items in its inventory at the end of the accounting period:

$$\begin{array}{lcccc} \textbf{}&\textbf{Number}&\textbf{Historical}&\textbf{Selling Price}&\textbf{Disposal}\\ \textbf{Item}&\textbf{of Units}&\textbf{Cost per Unit}&\textbf{per Unit}&\textbf{Costs}\\\hline \text{Window air conditioner}&25&\$180&\$150&\$45\\ \text{Dishwasher}&22&~~225&~~230&~~20\\ \text{Refrigerator}&35&~~420&~~450&~~25\\ \text{Microwave}&15&~~220&~~190&~~15\\ \text{Washer (clothing)}&28&~~180&~~260&~~40\\ \text{Dryer (clothing)}&18&~~210&~~275&~~50\\ \end{array}$$

Required:

1. Compute the carrying value of Meredith’s ending inventory using the lower of cost or market rule applied on an item-by-item basis.

2. Prepare the journal entry required to value the inventory at lower of cost or market.

3. What is the conceptual justification for valuing inventory at the lower of cost or market?

Sheepskin Company sells to colleges and universities a special paper that is used for diplomas. Sheepskin typically makes one purchase of the special paper each year on January 1. Assume that Sheepskin uses a perpetual inventory system. You have the following data for the 3 years ending in 2019:

Required:

For each year, explain the cause of the differences in cost of goods sold under FIFO and LIFO.

Sheepskin Company sells to colleges and universities a special paper that is used for diplomas. Sheepskin typically makes one purchase of the special paper each year on January 1. Assume that Sheepskin uses a perpetual inventory system. You have the following data for the 3 years ending in 2019:

Required:

What would the ending inventory and cost of goods sold be for each year if LIFO is used?

Sheepskin Company sells to colleges and universities a special paper that is used for diplomas. Sheepskin typically makes one purchase of the special paper each year on January 1. Assume that Sheepskin uses a perpetual inventory system. You have the following data for the 3 years ending in 2019:

$$\begin{array}{ll} \textbf{2017}\\ \text{Beginning inventory}~~~~~~&\text{0 pages}\\ \text{Purchases}&\text{10,000 pages at \$1.60 per page}\\ \text{Sales}&\text{8,500 pages}\\ \textbf{2018}\\ \text{Beginning inventory}~~~~~~&\text{1,500 pages}\\ \text{Purchases}&\text{16,200 pages at \$2.00 per page}\\ \text{Sales}&\text{15,000 pages}\\ \textbf{2019}\\ \text{Beginning inventory}~~~~~~&\text{2,700 pages}\\ \text{Purchases}&\text{18,000 pages at \$2.50 per page}\\ \text{Sales}&\text{20,100 pages}\\ \end{array}$$

Required:

1. What would the ending inventory and cost of goods sold be for each year if FIFO is used?

2. What would the ending inventory and cost of goods sold be for each year if LIFO is used?

3. For each year, explain the cause of the differences in cost of goods sold under FIFO and LIFO.