sm08v10 570-926

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Athabasca University, Edmonton *

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926

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Accounting

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Apr 3, 2024

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EXERCISE 8-10 (20-25 minutes) (a) Errors in Inventories Yea r Net Income Per Books Add Over- statement Jan. 1 Deduct Under- statement Jan. 1 Deduct Over - statement Dec. 31 Add Under- statement Dec. 31 Corrected Net Income 2008 $ 50,000 $5,000 $ 45,000 2009 52,000 $5,000 9,000 48,000 2010 54,000 9,000 $11,000 74,000 2011 56,000 $11,000 45,000 2012 58,000 2,000 60,000 2013 60,000 2,000 10,000 48,000 $330,000 $320,000 (b) Balance Revised Original Retained Corrected Retained Net Income Earnings Net Income Earnings 2008 $ 50,000 $ 50,000 $ 45,000 $ 45,000 2009 52,000 102,000 48,000 93,000 2010 54,000 156,000 74,000 167,000 2011 56,000 212,000 45,000 212,000 2012 58,000 270,000 60,000 272,000 2013 60,000 $ 330,000 48,000 $ 320,000 $ 330,000 $ 320,000

BRIEF EXERCISE 8-10 (a) Perpetual moving average cost: Purchased Sold Balance Date No. of units Unit cost Amou nt No. of units Unit cost Amou nt No. of units Unit cost Amount Nov 1 250 $12 $3,000 250 $12.00 $ 3,000 Nov 15 400 14 5,600 650 13.23 (1) 8,600 Nov 19 600 $13.23 $7,938 50 13.23 662 Nov 23 350 15 5,250 400 14.78 (2) 5,912 Cost of Goods sold: $7,938 Ending Inventory Nov 30: $5,912 (1) ($3,000 + $5,600) = $ 13.23 (250 units + 400 units) (2) ($662 + $5,250) = $ 14.78 (50 units + 350 units) (b) Perpetual First-in, first out. Purchased Sold Balance Date No. of units Unit cost No. of units Unit cost Amoun t No. of units Unit cost Amount Nov 1 Beg. Bal. 250 $12 $ 3,000 Nov 15 400 14 250 12 } 8,600 400 14 } Nov 19 250 12 3,000 700 350 14 4,900 50 14 Nov 23 350 15 50 14 } 350 15 } 5,950 $7,900 Cost of Goods sold: $7,900 Ending Inventory Nov 30: $5,950

BRIEF EXERCISE 8-11 a) Assuming public company reporting under IFRS: Item Cost Estimated Selling Price Estimated Disposal Costs NRV LC and NRV Neutrinos $1,820 $2,100 $100 $2,000 $1,820 Ocillinos 5,000 4,900 100 4,800 4,800 Electrons 4,290 4,625 200 4,425 4,290 Protons 3,200 4,210 100 4,110 3,200 $14,310 $15,335 $14,110 (b) Assuming Antimatter is a private company reporting under ASPE: There would be no difference in accounting.

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PROBLEM 8-14 (a) Assuming costs are not calculated for each withdrawal (units available, 6,600, minus units issued, 4,700, equals ending inventory at 1,900 units): 1. First-in, first-out. Date of Invoice No. Units Unit Cost Total Cost May 23 400 $3.40 $1,360 May 28 1,500 $3.60 5,400 $6,760 2. Weighted Average cost. Cost of goods available: Date of Invoice No. Units Unit Cost Total Cost Beg. Bal. 1,150 $2.90 $ 3,335 May 2 1,050 3.00 3,150 May 10 600 3.20 1,920 May 18 1,000 3.30 3,300 May 23 1,300 3.40 4,420 May 28 1,500 3.60 5,400 Total Available 6,600 $21,525 Average cost per unit = $21,525  6,600 = $ 3.26 Cost of inventory May 31 = 1,900 X $3.26 = $6,194 (rounded)

(b) FIFO Sales $ 34,075* Cost of goods sold Beginning inventory $ 3,335 Purchases 18,190 Less: ending inventory (from a) (6,760) 14,765 Gross profit $ 19,310 Gross profit rate 56.7% Weighted Average Sales $ 34,075 Cost of goods sold Beginning inventory $ 3,335 Purchases 18,190 Less: ending inventory (from a) (6,194) 15,331 Gross profit $ 18,744 Gross profit rate 55.0% * Sales of 4,700 units at average selling price of $7.25 = $34,075 The gross profit rate is affected by the choice of cost flow method, as there is a consistent increasing trend in the unit cost. FIFO has the highest gross profit and gross profit rate since its ending inventory is priced at the highest, most recent costs.

(c) Assuming costs are calculated at the time of each withdrawal, the calculations to determine the inventory on this basis are given below. 1. First-in, first-out. The inventory would be the same in amount as in part (a), $6,760 2. Moving average cost. Received Issued Balance Date No. of units Unit cost No. of units Unit cost No. of units Unit cost Amount May 1 1,150 $2.9000 $3,335.00 May 2 1,050 $3.00 2,200 2.9477 6,485.00 May 7 700 $2.9477 1,500 2.9477 4,421.61 May 10 600 3.20 2,100 3.0200 6,341.61 May 13 500 3.0200 1,600 3.0200 4,831.61 May 18 1,000 3.30 2,600 3.1275 8,131.61 May 18 300 3.1275 2,300 3.1275 7,193.36 May 20 1,100 3.1275 1, 200 3.1275 3,753.11 May 23 1,300 3.40 2,500 3.2692 8,173.11 May 26 800 3.2692 1, 700 3.2692 5,557.75 May 28 1,500 3.60 3,200 3.4243 10,957.75 May 31 1,300 3.4243 1,900 3.4243 6,506.16 Inventory, May 31 is $6,506.16 Under Moving Average Cost. A new average cost would be calculated each time a purchase was made instead of only once for all items purchased during the year.

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