The document provides information about inventory cost flow assumptions and calculations for Perkins Inc. for the month of October 2017. It asks the reader to calculate ending inventory, cost of goods sold, gross profit, and gross profit rate using LIFO, FIFO, and average costing methods. It also asks the reader to compare the results of the three methods and identify which method most closely approximates physical flow of inventory.

1. 1
Ex: 5 B Zelli Company has a balance in its Accounts Receivable control account of
$15,000 on January 1, 2017. The subsidiary ledger contains three accounts: Kline Company,
balance $6,000; Black Company, balance $3,700; and Finney Company. During January, the
following receivable-related transactions occurred.
Credit Sales
$16,000
11,000
Collections
$12,000
4,000
Returns
$ -0-
4,500
Kline Company
Black Company
13,000 14,000 0 Finney Company
Instructions
(a) What is the January 1 balance in the Finney Company subsidiary account?
(b) What is the January 31 balance in the control account?
(c) Compute the balances in the subsidiary accounts at the end of the month.
Ex: 6 Magathan Company has a balance in its Accounts Payable control account of
$11,600 on January 1, 2017. The subsidiary ledger contains three accounts: Smythe
Company, balance $4,200; Edds Company, balance $2,600; and Willhite Company. During
January, the following receivable-related transactions occurred.
Purchases
$9,500
7,350
Payments
$8,400
2,600
Returns
$ -0-
3,100
Smythe Company
Edds Company
8,900 9,500 0 Willhite Company
Instructions
(a) What is the January 1 balance in the Willhite Company subsidiary account?
(b) What is the January 31 balance in the control account?
(c) Compute the balances in the subsidiary accounts at the end of the month.
Ex. 123 On September 30, after all monthly postings had been completed, the Accounts
Receivable control account in the general ledger had a debit balance of $240,000; the
Accounts Payable control account had a credit balance of $65,000.
The October transactions recorded in the special journals are presented below.
Special Journals
Sales journal
Purchases journal
Cash receipts journal
Cash payments journal
October Transactions
Total sales
Total purchases
Accounts receivable column total
Accounts payable column total
$140,000
45,000
105,000
30,000
Instructions
Compute the balances of the (1) Accounts Receivable and (2) Accounts Payable control
accounts after the monthly postings on October 31.
Ex. 116
Below are some typical transactions incurred by Farley Company.
____ 1. Purchase of merchandise on account.
____ 2. Collection on account from customers.
____ 3. Payment of employee's wages.
____ 4. Sales of merchandise for cash.
____ 5. Close Income Summary to owner's capital.
____ 6. Adjusting entry for depreciation on machinery.
____ 7. Payment of creditors on account.
____ 8. Purchase of office equipment on credit.
____ 9. Sales discount taken on goods sold on credit.
10. Sales of merchandise on account.
____ 11. Purchase of a delivery truck for cash.
____ 12. Return of merchandise purchased on credit.
____ 13. Payment of rent in advance.
____ 14. Adjusting entry for accrued interest expense.
____ 15. Purchase of office supplies for cash.

2. 2
For each transaction, indicate by the code letter the appropriate journal where the transaction
would be journalized.
CR — Cash Receipts Journal CP — Cash Payments Journal
S — Sales Journal P — Single-Column Purchases Journal
G — General Journal
Ex 12 The cost of all merchandise sold was 60% of the sales price. During January,
Boyden completed the following transactions.
Jan. 3 Purchased merchandise on account from Wortham Co. $10,000.
4 Purchased supplies for cash $80.
4 Sold merchandise on account to Milam $5,250, invoice no. 371, terms 1/10, n/30.
5 Returned $300 worth of damaged goods purchased on account from Wortham Co. on
January 3.
6 Made cash sales for the week totaling $3,150.
8 Purchased merchandise on account from Noyes Co. $4,500.
9 Sold merchandise on account to Connor Corp. $6,400, invoice no. 372, terms 1/10,
n/30.
11 Purchased merchandise on account from Betz Co. $3,700.
13 Paid in full Wortham Co. on account less a 2% discount.
13 Made cash sales for the week totaling $6,260.
15 Received payment from Connor Corp. for invoice no. 372.
15 Paid semi-monthly salaries of $14,300 to employees.
17 Received payment from Milam for invoice no. 371.
17 Sold merchandise on account to Bullock Co. $1,200, invoice no. 373, terms 1/10, n/30.
19 Purchased equipment on account from Murphy Corp. $5,500.
20 Cash sales for the week totaled $3,200.
20 Paid in full Noyes Co. on account less a 2% discount.
23 Purchased merchandise on account from Wortham Co. $7,800.
24 Purchased merchandise on account from Forgetta Corp. $5,100.
27 Made cash sales for the week totaling $4,230.
30 Received payment from Bullock Co. for invoice no. 373.
31 Paid semi-monthly salaries of $13,200 to employees.
31 Sold merchandise on account to Milam $9,330, invoice no. 374, terms 1/10, n/30.
Boyden Company uses the following journals.
1. Sales journal. 2. Single-column purchases journal.
3. Cash receipts journal with columns for Cash Dr., Sales Discounts Dr., Accounts
Receivable Cr., Sales Cr., Other Accounts Cr., and Cost of Goods Sold Dr./Merchandise
Inventory Cr.
4. Cash payments journal with columns for Other Accounts Dr., Accounts Payable Dr.,
Merchandise Inventory Cr., and Cash Cr.
5. General journal.
Instructions: Record the January transactions in the appropriate journals
Ex. 113 Lowry Company uses a sales journal, a cash receipts journal, and a general
journal to record transactions with its customers. Record the following transactions in the
appropriate journals. The cost of all merchandise sold was 70% of the sales price.
July 2 Sold merchandise for $15,000 to B. Rice on account. Credit terms 2/10, n/30. Sales
invoice No. 100.
July 5 Received a check for $800 from R. Hyatt in payment of his account.
July 8 Sold merchandise to F. Wenger for $900 cash.
July 10 Received a check in payment of Sales invoice No. 100 from B. Rice minus the 2%
discount.

3. 3
July 15 Sold merchandise for $9,000 to J. Mays on account. Credit terms 2/10, n/30. Sales
invoice No. 101.
July 18 Borrowed $25,000 cash from United Bank signing a 6-month, 10% note.
July 20 Sold merchandise for $12,000 to C. Kane on account. Credit terms 2/10, n/30. Sales
invoice No. 102.
July 25 Issued a credit (reduction) of $600 to C. Kane as an allowance for damaged
merchandise previously sold on account.
July 31 Received a check from J. Mays for $5,000 as payment on account
Ex. 114
Goren Company uses a single-column purchases journal, a cash payments journal, and a
general journal to record transactions with its suppliers and others. Record the following
transactions in the appropriate journals.
Oct. 5 Purchased merchandise on account for $20,000 from Hendry Company. Terms: 2/10
n/30; FOB shipping point.
Oct. 6 Paid $7,200 to Federated Insurance Company for a two-year fire insurance policy.
Oct. 8 Purchased store supplies on account for $700 from Flint Supply Company. Terms:
2/10 n/30.
Oct. 11 Purchased merchandise on account for $14,000 from Adler Corporation. Terms: 2/10
n/30; FOB shipping point.
Oct. 13 Granted a reduction of $3,000 to Adler Corporation for merchandise purchased on
October 11 and returned because of damage.
Oct. 15 Paid Hendry Company for merchandise purchased on October 5, less discount.
Oct. 16 Purchased merchandise for $8,000 cash from Clifford Company.
Oct. 21 Paid Adler Corporation for merchandise purchased on October 11, less merchandise
returned on October 13, less discount.
Oct. 25 Purchased merchandise on account for $22,000 from Eaton Company. Terms: 2/10
n/30; FOB shipping point.
Oct. 31 Purchased office equipment for $30,000 cash from Pate Office Supply Company.
P6-7C The management of Malone Co. asks your help in determining the comparative effects
of the FIFO and LIFO inventory cost flow methods. For 2017, the accounting records
show the following data.
Inventory, January 1 (10,000 units) $ 37,000
Cost of 110,000 units purchased
Selling price of 90,000 units sold
Operating expenses
479,000
630,000
120,000
Units purchased consisted of 40,000 units at $4.20 on May 10; 50,000 units at $4.40 on
August 15; and 20,000 units at $4.55 on November 20. Income taxes are 30%.
Instructions

4. 4
(a) Prepare comparative condensed income statements for 2017 under FIFO and LIFO.
(Show computations of ending inventory.)
(b) Answer the following questions for management.
(1) Which inventory cost flow method produces the most meaningful inventory amount for the
balance sheet? Why?
(2) Which inventory cost flow method produces the most meaningful net income? Why?
(3) Which inventory cost flow method is most likely to approximate actual physical flow of the
goods? Why?
(4) How much additional cash will be available for management under LIFO than under FIFO?
Why?
(5) How much of the gross profit under FIFO is illusory in comparison with the gross profit
under LIFO?
P6-5B You are provided with the following information for Perkins Inc. for the month
ended October 31, 2017. Perkins uses a periodic method for inventory.
Unit Cost or
Date
October 1
October 9
October 11
October 17
October 22
October 25
October 29
Description
Beginning inventory
Purchase
Sale
Purchase
Sale
Purchase
Sale
Units
60
120
100
70
60
80
110
Selling Price
$25
26
35
27
40
28
40
Instructions
(a) Calculate (i) ending inventory, (ii) cost of goods sold, (iii) gross profit, and (iv) gross
profit rate under each of the following methods.
(1) LIFO. (2) FIFO. (3) Average-cost.
(b) Compare results for the three cost flow assumptions.
E6-2B Jack Hoskins, an auditor with Lopez CPAs, is performing a review of Hobson
Company’s inventory account. Hobson did not have a good year and top management is
under pressure to boost reported income. According to its records, the inventory balance at
year-end was $550,000. However, the following information was not considered when
determining that amount.
1. The physical count did not include goods purchased by Hobson with a cost of $30,000
that were shipped FOB destination on December 28 and did not arrive at Hobson’s
warehouse until January 3.
2. Included in the company’s count were goods with a cost of $170,000 that the company
is holding on consignment. The goods belong to Discland Corporation.
3. Included in the inventory account was $21,000 of office supplies that were stored in the
warehouse and were to be used by the company’s supervisors and managers during the
coming year.
4. The company received an order on December 29 that was boxed and was sitting on the
loading dock awaiting pick-up on December 31. The shipper picked up the goods on
January 1 and delivered them on January 6. The shipping terms were FOB shipping
point. The goods had a selling price of $29,000 and a cost of $19,000. The goods were
not included in the count because they were sitting on the dock.
5. On December 29 Hobson shipped goods with a selling price of $60,000 and a cost of
$36,000 to Gavin Corporation FOB shipping point. The goods arrived on January 3.
Gavin had only ordered goods with a selling price of $10,000 and a cost of $6,000. However,
a sales manager at Hobson had authorized the shipment and said that if Gavin
wanted to ship the goods back next week, it could.
6. Included in the count was $27,000 of goods that were parts for a machine that the
company no longer made. Given the high-tech nature of Hobson’s products, it was unlikely

5. 5
that these obsolete parts had any other use. However, management would prefer to
keep them on the books at cost, “since that is what we paid for them, after all.”
Instructions
Prepare a schedule to determine the correct inventory amount. Provide explanations for
each item above, saying why you did or did not make an adjustment for each item.
E6-4B Stanton sells a surfboard, Flash, that is popular with surfing enthusiasts. Below
is information relating to the company’s purchases of Flash surfboard during July. During the
same month, 88 Flash surfboards were sold. Stanton uses a periodic inventory
system.
Date Explanation Units Unit Cost Total Cost
July 1
July 12
July 19
July 26
Inventory
Purchases
Purchases
Purchases
total
20
35
15
40
110
$ 120
125
128
130
$ 2,400
4,375
1,920
5,200
$13,895
Instructions
Compute the ending inventory at September 30 and cost of goods sold using the FIFO
and LIFO methods. Prove the amount allocated to cost of goods sold under each
method.
E6-10B Ngvyen Company applied FIFO to its inventory and got the following results for
its ending inventory.
Cameras
DVD players
iPods
200 units at a cost per unit of $55
300 units at a cost per unit of $70
300 units at a cost per unit of $75
The cost of purchasing units at year-end was Cameras $50, DVD players $65, and iPods
$80.
Instructions
Determine the amount of ending inventory at lower-of-cost-or-market.
E6-11B Pesina Software reported cost of goods sold as follows.
2016 2017
Beginning inventory $ 27,000 $ 40,000
Cost of goods purchased 200,000 235,000
Cost of goods available for sale 227,000 275,000
Ending inventory 40,000 45,000
Cost of goods sold $187,000 $230,000
Pesina made two errors: (1) 2016 ending inventory was overstated $4,000, and (2) 2017
ending inventory was understated $9,000.
Instructions
Compute the correct cost of goods sold for each year.
E6-12B Benelli Watch Company reported the following income statement data for a
2-year period.
2016 2017
Sales revenue $300,000 $350,000
Cost of goods sold
Beginning inventory 40,000 55,000
Cost of goods purchased 186,000 217,000

6. 6
Cost of goods available for sale 226,000 272,000
Ending inventory 55,000 53,000
Cost of goods sold 171,000 219,000
Gross profit $129,000 $131,000
Benelli uses a periodic inventory system. The inventories at January 1, 2016, and December
31, 2017, are correct. However, the ending inventory at December 31, 2016, was
overstated $7,000.
Instructions
(a) Prepare correct income statement data for the 2 years.
(b) What is the cumulative effect of the inventory error on total gross profit for the 2 years?
(c) Explain in a letter to the president of Benelli Watch Company what has
happened—i.e., the nature of the error and its effect on the financial statements.
E6-14B The cost of goods sold computations for Brady Company and Perez Company are
shown below.
Brady Company Perez Company
Beginning inventory $ 55,000 $ 82,000
Cost of goods purchased 300,000 400,000
Cost of goods available for sale 355,000 482,000
Ending inventory 75,000 88,000
Cost of goods sold $280,000 $394,000
Instructions
(a) Compute inventory turnover and days in inventory for each company.
(b) Which company moves its inventory more quickly?