Accounting homework

Chapter 6 Homework

Due Week 3 and worth 10 points

Directions: Answer the following four questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Submit your homework assignment using the homework assignment link in the course shell.

E6-1

Columbia Bank and Trust is considering giving Gallup Company a loan. Before doing so, it decides that further discussions with Gallup’s accountant may be desirable. One area of particular concern is the Inventory account, which has a year-end balance of $275,000. Discussions with the accountant reveal the following.

1. Gallup sold goods costing $55,000 to Bazil Company FOB shipping point on December 28. The goods are not expected to reach Bazil until January 12. The goods were not included in the physical inventory because they were not in the warehouse.

2. The physical count of the inventory did not include goods costing $95,000 that were shipped to Gallup FOB destination on December 27 and were still in transit at year-end.

3. Gallup received goods costing $25,000 on January 2. The goods were shipped FOB shipping point on December 26 by Lynch Co. The goods were not included in the physical count.

4. Gallup sold goods costing $51,000 to Lamey of Canada FOB destination on December 30. The goods were received in Canada on January 8. They were not included in Gallup’s physical inventory.

5. Gallup received goods costing $42,000 on January 2 that were shipped FOB destination on December 29. The shipment was a rush order that was supposed to arrive December 31. This purchase was included in the ending inventory of $275,000.

Instructions:

Determine the correct inventory amount on December 31.

E6-3

Mateo Inc. had the following inventory situations to consider at January 31, its year-end.

(a) Goods held on consignment for Schrader Corp. since December 12.

(b) Goods shipped on consignment to Lyman Holdings Inc. on January 5.

(c) Goods shipped to a customer, FOB destination, on January 29 that are still in transit.

(d) Goods shipped to a customer, FOB shipping point, on January 29 that are still in transit.

(e) Goods purchased FOB destination from a supplier on January 25, that are still in transit.

(f) Goods purchased FOB shipping point from a supplier on January 25, that are still in transit.

(g) Office supplies on hand at January 31.

Instructions:

Identify which of the preceding items should be included in inventory. If the item should not be included in inventory, state in what account, if any, it should have been recorded.

E6-7

Eggers Company reports the following for the month of June.

Date	Explanation	Units	Unit Cost	Total Cost
June 1	Inventory	120	$5	$ 600
12	Purchase	370	6	2,220
23	Purchase	200	7	1,400
30	Inventory	230

Instructions:

(a) Compute the cost of the ending inventory and the cost of goods sold under (1) FIFO, (2) LIFO, and (3) average-cost. (Round average unit cost to three decimal places).

(b) Which costing method gives the highest ending inventory? The highest cost of goods sold? Why?

(c) How do the average-cost values for ending inventory and cost of goods sold relate to ending inventory and cost of goods sold for FIFO and LIFO?

(d) Explain why the average cost is not $6.