E8.

1
Items 2, 3, 5, 8, 10, 13, 14, 16, and 17 would be reported as inventory in the financial statements.
The following items would not be reported as inventory:
1. Cost of goods sold should be reported in the income statement.
4. Not reported in the financial statements.
6. Cost of goods sold should be reported in the income statement.
7. Cost of goods sold should be reported in the income statement.
9. Interest expense should be reported in the income statement.
11. Advertising expense should be reportes in the income statement.
12. Office supplies in the current assets section of the statement of financial position.
15. Not reported in the financial statements.
18. Short-term investments in the current asset section of the statement of financial position.
E8.7
a) Feb. 1 Inventory [¥12,000 – (¥12,000 X 10%)] ......... 10,800
Accounts Payable .............................................10,800
Feb. 4 Accounts Payable
[¥3,000 – (¥3,000 X 10%)] .............................. 2,700
Inventory …...................................................... 2,700
Feb. 13 Accounts Payable (¥10,800 – ¥2,700)............. 8,100
Inventory (3% X ¥8,100) ……........................... 243
Cash.................................................................. 7,857
b) Feb. 1 Purchases [¥12,000 – (¥12,000 X 10%)]........ 10,800
Accounts Payable ........................................... 10,800
Feb. 4 Accounts Payable
[¥3,000 – (¥3,000 X 10%)] .............................. 2,700
Purchase Returns and Allowances................... 2,700
Feb. 13 Accounts Payable (¥10,800 – ¥2,700)............. 8,100
Purchase Discounts (3% X ¥8,100) ................... 243
Cash.................................................................. 7,857
c) Purchase price (list)................................................... ¥12,000
 Less: Trade discount (10% X ¥12,000) ......................... 1,200
Price on which cash discount based.............................. 10,800
Less: Cash discount (3% X ¥10,800)................................. 324
Net price...................................................................... ¥10,476
E8.8
c) Jan. 4 Accounts Receivable................................... 640
Sales (80 X $8)............................................. 640
Cost of Goods Sold...................................... 480
Inventory (80 X $6)...................................... 480
Jan. 11 Inventory.................................................... 975
Accounts Payable (150 X $6.50).................. 975
Jan. 13 Accounts Receivable................................. 1,050
Sales (120 X $8.75)..................................... 1,050
Cost of Goods Sold...................................... 770
Inventory
[(20 X $6) + (100 X $6.50)]........................... 770
Jan. 20 Inventory.................................................... 1,120
Accounts Payable (160 X $7)....................... 1,120
Jan. 27 Accounts Receivable................................... 900
Sales (100 X $9)............................................. 900
Cost of Goods Sold..................................... 675
Inventory
[(50 X $6.50) + (50 X $7)]............................. 675
(d) Sales ................................................................... $2,590
Cost of goods sold ($480 + $770 + $675)............ 1,925
Gross profit ........................................................ $ 665
E8.12
First-in, first-out Average cost
Sales ..................................................... €1,000,000 €1,000,000
Cost of goods sold:
 Inventory, Jan. 1 ..........................................€120,000 €120,000
Purchases ...................................................... 592,000 592,000
Cost of goods available................................. 712,000 712,000
Inventory, Dec. 31......................................... 260,000 220,950
Cost of goods sold..................................................................... 452,000 491,050
Gross profit ............................................................................... 548,000 508,950
Operating expenses ................................................................... 200,000 200,000
Net income.............................................................................. €348,000 €308,950
*Purchases
6,000 @ €22 = €132,000
10,000 @ €25 = 250,000
7,000 @ €30 = 210,000
€592,000
*Computation of inventory, Dec. 31:
First-in, first-out:
7,000 units @ €30 = €210,000
2,000 units @ €25 = 50,000
€260,000
Average cost:
6,000 @ €20 = €120,000
6,000 @ €22 = 132,000
10,000 @ €25 = 250,000
7,000 @ €30 = 210,000
29,000 €712,000
Average cost/unit = €712,000 ÷ 29,000 = €24.55
Ending inventory = €24.55 x 9,000 = €220,950
E8.14
Current Year Subsequent Year
1. Working capital No effect No effect
Current ratio Overstated No effect
Retained earnings No effect No effect
 Net income No effect No effect
2. Working capital Overstated No effect
Current ratio Overstated No effect
Retained earnings Overstated No effect
Net income Overstated Understated
3. Working capital Overstated No effect
Current ratio Overstated No effect
Retained earnings Overstated No effect
Net income Overstated Understated

E8.15
390,000
a) = 1.95
200,000
390,000+22,000−13,000+ 3,000 402,000
b) 200,000−20,000 = 180,000 = 2.23
c)
Adjust Income Increase
Event Effect of error
(Decrease)
1. Understatement of ending
Decreases net income 22,000
inventory
2. Overstatement of purchases Decreases net income 20,000
3. Overstatement of ending
Increase net income (13,000)
inventory
4. Overstatement of advertising
expense; understatement
0
of cost of goods sold,
assuming goods sold.
29,000

BE9.1
Item Cost NRV LCNRV
Skis 190 212 – (19 + 32) = 161 161
Boots 106 145 – (8 + 29) = 108 106
Parkas 53 73.75 – (2.5 + 21.25) = 50 50

BE9.2
a)
Item Cost NRV LCNRV
Item by item
Jokers 2,000 2,100 2,000
Penguins 5,000 4,950 4,950
 Riddlers 4,400 4,625 4,400
Scarecrows 3,200 3,830 3,200
Total 14,600 15,505 14,550

b) 1. Penguins only: €50 (5,000 – 4,950)

2. None on a whole group: €15,505 > €14,600
BE9.10
Cost Retail
Beginning inventory..................................................... $12,000 $20,000
Net purchases ................................................................ 120,000 170,000
Net markups.................................................................... 10,000
Totals..............................................................................$132,000 200,000
Deduct:
Net markdowns ................................................... 7,000
Sales .................................................................... 147,000
Ending inventory at retail .................................... $46,000
Cost-to-retail ratio: $132,000 ÷ $200,000 = 66%
Ending inventory at LCNRV: 66% x $46,000 = $30,360
BE9.11
Inventory turnover:
6,486.825 / [(1,297.009 + 1,581.297) / 2] = 4.51 times
Average days to sell inventory:
365 / 4.51 = 80.9 days
E9.14
a)
Inventory, May 1 (at cost) ............................................................................. €160,000
Purchases (at cost)............................................................................................ 640,000
Purchase discounts........................................................................................... (12,000)
Freight-in........................................................................................................... 30,000
Goods available (at cost) .............................................................. 818,000
Sales (at selling price) .............................................................. €1,000,000
Sales returns (at selling price)..................................................... (70,000)
Net sales (at selling price)........................................................... 930,000
Less: Gross profit (25% of €930,000)......................................... 232,500
Sales (at cost).......................................................................................... 697,500
Approximate inventory, May 31 (at cost) ............................................ €120,500
b)
Gross profit as a percent of sales must be computed:
25% / (100% + 25%) = 20% of sales (sales = cogs + gross profit)
Inventory, May 1 (at cost).............................................................................. €160,000
Purchases (at cost)........................................................................................... 640,000
Purchase discounts ......................................................................................... (12,000)
Freight-in.......................................................................................................... 30,000
Goods available (at cost)........................................................................ 818,000
Sales (at selling price).............................................. €1,000,000
Sales returns (at selling price)..................................... (70,000)
Net sales (at selling price)............................................ 930,000
Less: Gross profit (20% of €930,000) ........................ 186,000
Sales (at cost)........................................................................................ 744,000
Approximate inventory, May 31 (at cost)............................................ € 74,000
E9.15
a)
Merchandise on hand, January 1.............................................................. $ 38,000
Purchases..................................................................................................... 92,000
Less: Purchase returns and allowances....................................................... (2,400)
Freight-in...................................................................................................... 3,400
Total merchandise available (at cost)............................................... 131,000
Cost of goods sold..................................................................................... (90,000)
Ending inventory......................................................................................... 41,000
Less: Undamaged goods ............................................................................ 10,900
Estimated fire loss..................................................................................... $30,100
*Gross profit = (33 1/3%) / (100% + 33 1/3%) = 25% of sales
*Cost of goods sold = 75% x $120,000 = $90,000
b)
Cost of goods sold = (1 – 33 1/3%) x $120,000 = $80,000
Ending inventory……………………...............................................$51,000
Less: Undamaged goods.................................................................... 10,900
Estimated fire loss ........................................................................... $40,100
E9.16
Beginning inventory ....................................................................... $170,000
Purchases .......................................................................................... 450,000
620,000
Purchase returns ............................................................................... (30,000)
Goods available (at cost)................................................................... 590,000
Sales ............................................................................... $650,000
Sales returns..................................................................... (24,000)
Net sales............................................................................ 626,000
Less: Gross profit (30% x $626,000)............................... (187,800) 438,200
Estimated ending inventory (unadjusted for damage)........................ 151,800
Less: Goods on hand—undamaged (at cost)
$21,000 X (1 – 30%)................................................................. 14,700
Less: Goods on hand—damaged (at netrealizable value)………......... 5,300
Fire loss on inventory ....................................................................... $131,800