Question

4.   Dutch Company has the following products in its ending inventory. Compute the lower of cost or market for inventory (a) as a whole and (b) applied separately to each product.
			Per Unit
	Product	Quantity	Cost			Market
	Wooden Shoes	25		$ 65			$ 50
	Cheese Rounds	20			40			45
	Granny Bikes	40			85			80

    5. On the date of the balance sheet, Armani Co. had $10,000 of inventory in transit to Saks Company via a public carrier. A) Should Armani include the inventory if the terms were FOB Shipping Point? B) If the terms were FOB Destination should Armani include the inventory?

6. The following information was taken from Taylor Enterprises. The following two errors were made in the physical inventory counts:
   1. 2015 ending inventory was understated by $7000
   2. 2016 ending inventory was overstated by $3000
   3. Compute the correct Cost of goods sold for both 2015 and 2016

                                                                           2016               2015

     Beginning Inventory                                                  $60,000          $50,000

     Cost of good purchased                                             420,000          400,000

     Ending Inventory                                                          55,000            60,000

     Cost of goods sold                                                     $425,000         $390,000

Answer 1

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Dutch
Answer a	A	B	C=A*B	D	E=A*D
Product	Units	Cost Per unit	Cost	NRV per unit	NRV
Wooden Shoes	25.00	65.00	1,625.00	50.00	1,250.00
Cheese Rounds	20.00	40.00	800.00	45.00	900.00
Granny Bikes	40.00	85.00	3,400.00	80.00	3,200.00
Total Inventory			5,825.00		5,350.00

Ending Inventory- Lower of C or E= $ 5,350.

Answer b	A	B	C=A*B	D	E=A*D	F= Lower of C or E
Product	Units	Cost Per unit	Cost	NRV per unit	NRV	Lower of Cost or NRV
Wooden Shoes	25.00	65.00	1,625.00	50.00	1,250.00	1,250.00
Cheese Rounds	20.00	40.00	800.00	45.00	900.00	800.00
Granny Bikes	40.00	85.00	3,400.00	80.00	3,200.00	3,200.00
Ending Inventory						5,250.00

Armani Co.

Answer a

If terms are FOB shipping point then its buyer responsibility to take care of freight as soon as the goods are shipped. So it should not be included in the books of Armani.

If terms are FOB destination then its seller responsibility to take care of freight till the goods have reached destination. So it should be included in the books of Armani.

Taylor	2015	2016
Cost of goods sold as provided	425,000.00	390,000.00
Less: Ending inventory of 2015 understated	(7,000.00)	-
Add: Ending inventory of 2015 understated	-	7,000.00
Less: Ending inventory of 2016 overstated		(3,000.00)
Correct Cost of goods sold	418,000.00	394,000.00