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Assignment 3
Question 1:
(FIFO and LIFO—Periodic and Perpetual) Inventory information for UMB Corp.
discloses the following information for the month of June.
June 1 Balance 450 units @ $1
June 10 Sold 300 units @ $2.40
11 Purchased 1,200 units @ $2
15 Sold 750 units @ $2.50
20 Purchased 750 units @ $3
27 Sold 450 units @ $2.70
Instructions
(a) Assuming that the periodic inventory method is used, compute the cost of goods sold
and ending inventory under (1) LIFO, (2) FIFO, and (3) weighted average method.
(b) Assuming that the perpetual inventory method is used and costs are computed at the
time of each withdrawal, compute the cost of goods sold and ending inventory under (1)
LIFO and (2) FIFO.
Question 2:
(All sales and purchases are on credit.)
Indicate in each of the spaces provided the effect of the described errors on the various
elements of a company’s financial statements. Use the following codes: O = amount is
overstated; U = amount is understated; NE = no effect. Assume a periodic inventory
system.
Accounts Accounts Inventory
Sales
Costs of
Receivable Payble
Goods Sold
_____________________________________________________________________
1. Goods in transit shipped “f.o.b.
destination” by supplier were
recorded as a purchase but were
excluded from ending inventory.
________________________________________________________________________
2. Goods held on consignment were
included in inventory count and
recorded as a purchase.
________________________________________________________________________
3. Goods in transit shipped “f.o.b.
shipping point” were not recorded
as a sale and were included in
ending inventory.
________________________________________________________________________
4. Goods were shipped and appropriately
excluded from ending inventory
but sale was not recorded.
1
Question 3: Presented below are transactions related to Jennings, Inc.
May 10 Purchased goods billed at $20,000 subject to cash discount terms of 2/10, n/60.
11 Purchased goods billed at $18,200 subject to terms of 1/15, n/30.
19 Paid invoice of May 10.
24 Purchased goods billed at $16,500 subject to cash discount terms of 2/10, n/30.
Instructions
(a) Calculate the interest rate implied by the cash discount term of 2/10, n/60.
(b) Prepare general journal entries for the transactions above under the assumption that
purchases are to be recorded at net amounts after cash discounts and that discounts lost
are to be treated as financial expense.
(c) Assuming no purchase or payment transactions other than those given above, prepare
the adjusting entry required on May 31 if financial statements are to be prepared as of
that date.
2
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