Concept explainers
Real World Case 9–8
Various inventory issues; Chapters 8 and 9; Fred’s Inc.
• LO9–1, LO9–5, LO9–6
Real World Financials
Fred’s Inc. operates general merchandise retail discount stores and full-service pharmacies in the Southeastern United States. Access the company’s 10-K for the fiscal year ended January 30, 2016. You can find the 10-K by using EDGAR at www.sec.gov. Answer the following questions.
Required:
1. What inventory methods does Fred’s use to value its inventory?
2. Which price index does the company use in applying the retail inventory method?
3. A company that uses LIFO is allowed to provide supplemental disclosures reporting the effect of using another inventory method rather than LIFO. Using the supplemental LIFO disclosures provided by Fred’s, determine the income effect of using LIFO versus another method for the current fiscal year.
4. Calculate the company’s inventory turnover ratio for the fiscal year ended January 30, 2016.
5. Assume that in the next fiscal year the company decides to switch to the average cost method. Describe the accounting treatment required for the switch.
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INTERMEDIATE ACCOUNTING (LCPO)
- Palisade Creek Co. is a merchandising business that uses the perpetual inventory system. The account balances for Palisade Creek Co. as of May 1, 2016 (unless otherwise indicated), are as follows: During May, the last month of the fiscal year, the following transactions were completed: May 1. Paid rent for May, 5,000. 3. Purchased merchandise on account from Martin Co., terms 2/10, n/30, FOB shipping point, 36,000. 4. Paid freight on purchase of May 3, 600. 6. Sold merchandise on account to Korman Co., terms 2/10, n/30, FOB shipping point, 68,500. The cost of the merchandise sold was 41,000. 7. Received 22,300 cash from Halstad Co. on account. 10. Sold merchandise for cash, 54,000. The cost of the merchandise sold was 32,000. 13. Paid for merchandise purchased on May 3. 15. Paid advertising expense for last half of May, 11,000. 16. Received cash from sale of May 6. 19. Purchased merchandise for cash, 18,700. 19. Paid 33,450 to Buttons Co. on account. 20. Paid Korman Co. a cash refund of 13,230 for returned merchandise from sale of May 6. The invoice amount of the returned merchandise was 13,500 and the cost of the returned merchandise was 8,000. Record the following transactions on Page 21 of the journal: 20. Sold merchandise on account to Crescent Co., terms 1/10, n/30, FOB shipping point, 110,000. The cost of the merchandise sold was 70,000. 21. For the convenience of Crescent Co., paid freight on sale of May 20, 2,300. 21. Received 42,900 cash from Gee Co. on account. May 21. Purchased merchandise on account from Osterman Co., terms 1/10, n/30, FOB destination, 88,000. 24. Returned of damaged merchandise purchased on May 21, receiving a credit memo from the seller for 5,000. 26. Refunded cash on sales made for cash, 7,500. The cost of the merchandise returned was 4,800. 28. Paid sales salaries of 56,000 and office salaries of 29, 000. 29. Purchased store supplies for cash, 2,400. 30. Sold merchandise on account to Turner Co., terms 2/10, n/30, FOB shipping point, 78,750. The cost of the merchandise sold was 47,000. 30. Received cash from sale of May 20 plus freight paid on May 21. 31. Paid for purchase of May 21, less return of May 24. Instructions 1. Enter the balances of each of the accounts in the appropriate balance column of a four-column account. Write Balance in the item section, and place a check mark () in the Posting Reference column. Journalize the transactions for July, starting on Page 20 of the journal. 2. Post the journal to the general ledger, extending the month-end balances to the appropriate balance columns after all posting is completed. In this problem, you are not required to update or post to the accounts receivable and accounts payable subsidiary ledgers. 3. Prepare an unadjusted trial balance. 4. At the end of May, the following adjustment data were assembled. Analyze and use these data to complete (5) and (6). f. The adjustment for customer returns and allowances is 60,000 for sales and 35,000 for cost of merchandise sold. 5. (Optional) Enter the unadjusted trial balance on a IO-column end-of-period spreadsheet (work sheet), and complete the spreadsheet. 6. Journalize and post the adjusting entries. Record the adjusting entries on Page 22 of the journal. 7. Prepare an adjusted trial balance. 8. Prepare an income statement, a statement of owners equity, and a balance sheet. 9. Prepare and post the closing entries. Record the closing entries on Page 23 of the journal. Indicate closed accounts by inserting a line in both the Balance columns opposite the closing entry. Insert the new balance in the owners capital account. 10. Prepare a post-closing trial balance.arrow_forwardk 6 HW - Con O Young Thug - Livin It Up (with ezto.mheducation.com {3 Saved Help Save & Exit Check my E7-5 (Algo) Calculating Ending Inventory and Cost of Goods Sold Under FIFO, LIFO, and Average Cost LO7-2 Nittany Company uses a periodic inventory system. At the end of the annual accounting period, December 31 of the current year, the accounting records provided the following information for product 1: Units Unit Cost Inventory, December 31, prior year For the current year: 1,970 $6 Purchase, March 21 Purchase, August 1 Inventory, December 31, current year 5,050 2,840 9. 4,130 Required: Compute ending inventory and cost of goods sold for the current year under FIFO, LIFO, and average cost inventory costing methods. (Round "Average cost per unit" to 2 decimal places and final answers to nearest whole dollar amount.) FIFO LIFO Average Cost Ending inventory Cost of goods soldarrow_forwardCNOWv2 Student Help x + enow.com/ilrn/takeAssignment/takeAssignmentMain.do?invoker=&takeAssignmentSession Locato... 시기 wsing Protection X Chapter 9 < Cost of merchandise sold Inventories: Beginning of year eBook Inventory Turnover and Days' Sales in Inventory Financial statement data for years ending December 31 for Amsterdam Company follow: End of year 20Y4 20Y3 X Inventory Turnover 20Y4 Show Me How 20Y3 CengageNOWv2 | Online t X Search 20Y4 $3,598,900 593,000 648,000 a. Determine the inventory turnover for 20Y4 and 20Y3. Round to one decimal place. Print Item 20Y3 $3,015,630 b. Determine the days' sales in inventory for 20Y4 and 20Y3. Assume 365 days a year. Round interim calculations and final answers to one decimal place. OL 589,600 Days' Sales in Inventory days days c. Does the change in the inventory turnover and the days' sales in inventory from 20Y3 to 20Y4 indicate a favorable or an unfavorable 593,000 10 Q 813 PrtSc Insert S 1 3/arrow_forward
- Item5 Part 3 of 4 Item 5 Required information Skip to question [The following information applies to the questions displayed below.] Warnerwoods Company uses a perpetual inventory system. It entered into the following purchases and sales transactions for March. Date Activities Units Acquired at Cost Units Sold at Retail March 1 Beginning inventory 230 units @ $53.60 per unit March 5 Purchase 290 units @ $58.60 per unit March 9 Sales 390 units @ $88.60 per unit March 18 Purchase 150 units @ $63.60 per unit March 25 Purchase 280 units @ $65.60 per unit March 29 Sales 260 units @ $98.60 per unit Totals 950 units 650 units 3. Compute the cost assigned to ending inventory using (a) FIFO, (b) LIFO, (c) weighted average, and (d) specific identification. For specific identification, units sold include 130 units from beginning inventory, 260 units from the March 5 purchase, 110 units from the March 18…arrow_forwardPROBLEM 13: II Company wholesales bicycles and accounts for its inventory using the perpetual inventory system. Al its purchases and sales are on credit. The company's reporting date is December 31. During the month ended December 31, 2022, the following inventory transactions took place: 12/01 hventory on hand consisted of 350 bicycles at P820 each and 43 bicydes at P850 each. 12/02 Sold 300 bicycles for P1,200 each. 12/03 Five bicycles were returned by a customer. They had originally cost P820 each and were sald for P1.200 each. Purchased 55 bicydles at P910 each. Purchased 76 bicydles at P960 each. 12/09 12/12 12/15 Sold 86 bicycles for P1350 each. 12/16 Returned one damaged bicyde to the suppier which had been purchased on December 9. Sold 60 bicycles for P1,250 each. Purchased 72 bicydles at P980 each. Two bicyces sold on December 22 were returned by a customer. The bicydes were badly damaged so it was decided to write them off. They had origindly cost P910each 12/22 12/26 12/29…arrow_forwardBookmarks Window Help eBook Chapter 6 Homework 12 Date Jan. 1 Apr. 19 June 30 Perpetual Inventory Using FIFO The following units of a particular item were available for sale during the calendar year: Jan. 1 Inventory 3,900 units at $41 Apr. 19 Sale 2,500 units June 30 4,400 units at $45 Sept. 2 4,800 units Nov. 15 1,800 units at $47 The firm maintains a perpetual inventory system. Determine the cost of goods sold for each sale and the inventory balance after each sale, assuming the first-in, first-out method. Present the data in the form illustrated in Exhibit 3. Under FIFO, if units are in inventory at two different costs, enter the units with the LOWER unit cost first in the Cost of Goods Sold Unit Cost column and in the Inventory Unit Cost column. Sept. 2 Nov. 15 Dec. 31 Feedback 0 Check My Work M Purchase Sale Purchase Quantity 4,400 1,800 ✓ Balances Print Item BE Purchases Unit Cost MAR 7 45 v2.cengagenow.com 47 Total Cost $198,000 ✓ 84,600✔ Schedule of Cost of Goods Sold FIFO…arrow_forward
- GLO402 - Based on Problem 4-2A Lowe's Company LO P1, P2 Prepare journal entries to record the following merchandising transactions of Lowe's, which uses the perpetual inventory system. (Hint: It will help to identify each receivable and payable; for example, record the purchase on August 1 in Accounts Payable-Aron.) 1 Purchased merchandise from Aron Company for $7,500 under credit terms of 1/10, n/30, FOB destination, invoice dated August 1. 5 Sold merchandise to Baird Corp. for $5,200 under credit terms of 2/10, n/60, FOB destination, invoice dated August 5. The merchandise had cost $4,000. 8 Purchased merchandise from Waters Corporation for $5,400 under credit terms of 1/10, n/45, FOB shipping point, invoice dated August 8. Aug. Aug. Aug. Aug. 9 Paid $125 cash for shipping charges related to the August 5 sale to Baird Corp. Aug. 10 Baird returned merchandise from the August 5 sale that had cost Lowe's $400 and sold for $600. The was merchandise was restored to inventory. Aug. 12…arrow_forwardPROBLEM 13: III Company wholesales bicycles and accounts for its inventory usingtheperpetual inventory system. All its purchases and sales are on credit. The company’s reportingdate is December 31. During the month ended December 31, 2022, the following inventorytransactions took place: 12/01 Inventory on hand consisted of 350 bicycles at P820 each and 43 bicycles at P850 each. 12/02 Sold 300 bicycles for P1,200 each. 12/03 Five bicycles were returned by a customer. They had originally cost P820 each and were sold for P1,200 each. 12/09 Purchased 55 bicycles at P910 each. 12/12 Purchased 76 bicycles at P960 each. 12/15 Sold 86 bicycles for P1,350 each. 12/16 Returned one damaged bicycle to the supplier which had been purchased on December 9. 12/22 Sold 60 bicycles for P1,250 each. 12/26 Purchased 72 bicycles at P980 each. 12/29 Two bicycles sold on December 22 were returned by a customer. The bicycles were badly damaged so it was decided to write them off. They had…arrow_forwardTestbank Multiple Choice Question 92 On September 1, Bramble purchased $39800 of inventory items on credit with the terms 1/15, net 30, FOB destination. Freight charges were $830. Payment for the purchase was made on September 18. Assuming Bramble uses the perpetual inventory system and the net method of accounting for purchase discounts, what amount is recorded as the liability from this purchase? O $ 39402. O $ 39800. O $ 40630. O $ 40232.arrow_forward
- uo 11:.0 A itc.birzeit.edu Z9. 1 0 * JAWWAL I. Question 14 Not yet answered Marked out of 1.0 P Flag question The following information is available from Carron Company's 2019 accounting records: Purchases $530,000 Purchase discounts .10,000 Freight-out ..40,000 Beginning inventory 160,000 Ending inventory 215,000 Freight- in .7,000 Purchases returns and allowances...7,000 Requirement: Calculate the cost of goods sold for the year 2019. (When writing your answer do not use commas or sign of the dollar. For example, if your answer is $1,500, write it as 1500) Answer: IIarrow_forwardHomework Question 10 of 11 Account Titles and Explanation Pharoah Company buys merchandise on account from Shamrock Company. The selling price of the goods is $1,385 and the cost of the goods sold is $650. Both companies use perpetual inventory systems. Journalize the transactions on the books of both companies. (If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Pharoah Shamrock (To record sale of merchandise) -/1 Debit = Credit :arrow_forwardeBook Oct. 1 Perpetual Inventory Using FIFO Beginning inventory, purchases, and sales for Item Zeta9 are as follows: 15 Show Me How Inventory Sale Purchase Sale 1 Check My Work 42 units @ $19 35 units 42 units @ $23 15 units 1 Assuming a perpetual inventory system and using the first-in, first-out (FIFO) method, determine (a) the cost of goods sold on October 24 and (b) the inventory on October 31. a. Cost of goods sold on October 24 b. Inventory on October 31 All work saved. Email Inarrow_forward
- Accounting (Text Only)AccountingISBN:9781285743615Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage LearningCornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning