Effect of Errors in Physical Inventory

Missouri River Supply Co. sells canoes, kayaks, whitewater rafts, and other boating supplies. During the taking of its physical inventory on December 31, 20Y2, Missouri River Supply incorrectly counted its inventory as $548,360 instead of the correct amount of $564,810.

Enter all amounts as positive numbers.

a. State the effect of the error on the December 31, 20Y2, balance sheet of Missouri River Supply.

Balance Sheet Items	Understated/Overstated	Amount
Merchandise Inventory	UnderstatedOverstatedNo effect	$fill in the blank 2
Current Assets	UnderstatedOverstatedNo effect	fill in the blank 4
Total Assets	UnderstatedOverstatedNo effect	fill in the blank 6
Owner's Equity	UnderstatedOverstatedNo effect	fill in the blank 8

b. State the effect of the error on the income statement of Missouri River Supply for the year ended December 31, 20Y2.

Income Statement Items	Overstated/Understated	Amount
Cost of Merchandise Sold	OverstatedUnderstatedNo effect	$fill in the blank 10
Gross Profit	OverstatedUnderstatedNo effect	fill in the blank 12
Net Income	OverstatedUnderstatedNo effect	fill in the blank 14

c. If uncorrected, what would be the effect of the error on the 20Y3 income statement?

Income Statement Items	Overstated/Understated	Amount
Cost of Merchandise Sold	OverstatedUnderstatedNo Effect	$fill in the blank 16
Gross Profit	OverstatedUnderstatedNo Effect	fill in the blank 18
Net Income	OverstatedUnderstatedNo Effect	fill in the blank 20

d. If uncorrected, what would be the effect of the error on the December 31, 20Y3, balance sheet?

1. The December 31, 20Y3, balance sheet would be correct, since the 20Y2 inventory error reverses itself in 20Y3.
2. The December 31, 20Y3, balance sheet would be incorrect, since the 20Y2 inventory error overstates the beginning inventory in20Y3.
3. The December 31, 20Y3, balance sheet would be incorrect, since the 20Y2 inventory error understates the beginning inventory in 20Y3

Periodic Inventory by Three Methods

Dymac Appliances uses the periodic inventory system. Details regarding the inventory of appliances at January 1, purchases invoices during the next 12 months, and the inventory count at December 31 are summarized as follows:

Purchases Invoices
Model	Inventory, January 1	1st	2nd	3rd	Inventory Count, December 31
A10	__	4 at	$ 43	4 at	$ 46	4 at	$ 49	5
B15	8 at	$ 94	4 at	85	3 at	91	6 at	98	7
E60	3 at	74	3 at	64	15 at	67	9 at	69	5
G83	7 at	216	6 at	224	5 at	234	10 at	233	9
J34	12 at	77	10 at	79	16 at	86	16 at	87	13
M90	2 at	124	2 at	126	3 at	144	3 at	146	5
Q70	5 at	161	4 at	171	4 at	176	7 at	181	8

Required:

1. Determine the cost of the inventory on December 31 by the first-in, first-out method.

If the inventory of a particular model comprises one entire purchase plus a portion of another purchase acquired at a different unit cost, use a separate line for each purchase. If units are in inventory at two different costs, enter the units PURCHASED MOST RECENTLY first.

Dymac Appliances Cost of the Inventory-FIFO Method December 31
Model	Quantity		Unit Cost		Total Cost
A10	fill in the blank 1		$fill in the blank 2		$fill in the blank 3
A10	fill in the blank 4		fill in the blank 5		fill in the blank 6
B15	fill in the blank 7		fill in the blank 8		fill in the blank 9
B15	fill in the blank 10		fill in the blank 11		fill in the blank 12
E60	fill in the blank 13		fill in the blank 14		fill in the blank 15
G83	fill in the blank 16		fill in the blank 17		fill in the blank 18
J34	fill in the blank 19		fill in the blank 20		fill in the blank 21
M90	fill in the blank 22		fill in the blank 23		fill in the blank 24
M90	fill in the blank 25		fill in the blank 26		fill in the blank 27
Q70	fill in the blank 28		fill in the blank 29		fill in the blank 30
Q70	fill in the blank 31		fill in the blank 32		fill in the blank 33
Total					$fill in the blank 34

2. Determine the cost of the inventory on December 31 by the last-in, first-out method.

If the inventory of a particular model comprises one entire purchase plus a portion of another purchase acquired at a different unit cost, use a separate line for each purchase. If units are in inventory at two different costs, enter the OLDEST units first.

Dymac Appliances Cost of the Inventory-LIFO Method December 31
Model	Quantity		Unit Cost		Total Cost
A10	fill in the blank 35		$fill in the blank 36		$fill in the blank 37
A10	fill in the blank 38		fill in the blank 39		fill in the blank 40
B15	fill in the blank 41		fill in the blank 42		fill in the blank 43
E60	fill in the blank 44		fill in the blank 45		fill in the blank 46
E60	fill in the blank 47		fill in the blank 48		fill in the blank 49
G83	fill in the blank 50		fill in the blank 51		fill in the blank 52
G83	fill in the blank 53		fill in the blank 54		fill in the blank 55
J34	fill in the blank 56		fill in the blank 57		fill in the blank 58
J34	fill in the blank 59		fill in the blank 60		fill in the blank 61
M90	fill in the blank 62		fill in the blank 63		fill in the blank 64
M90	fill in the blank 65		fill in the blank 66		fill in the blank 67
M90	fill in the blank 68		fill in the blank 69		fill in the blank 70
Q70	fill in the blank 71		fill in the blank 72		fill in the blank 73
Q70	fill in the blank 74		fill in the blank 75		fill in the blank 76
Total					$fill in the blank 77

3. Determine the cost of the inventory on December 31 by the weighted average cost method.

Dymac Appliances Cost of the Inventory-Weighted Average Method December 31
Model	Quantity		Unit Cost		Total Cost
A10	fill in the blank		$fill in the blank 79		$fill in the blank 80
B15	fill in the blank		fill in the blank 82		fill in the blank 83
E60	fill in the blank 84		fill in the blank 85		fill in the blank 86
G83	fill in the blank 87		fill in the blank 88		fill in the blank 89
J34	fill in the blank 90		fill in the blank 91		fill in the blank 92
M90	fill in the blank 93		fill in the blank 94		fill in the blank 95
Q70	fill in the blank 96		fill in the blank 97		fill in the blank 98
Total					$fill in the blank 99

4.

FIFOLIFO

would be preferred for income tax purposes in periods of rising prices.

Beginning inventory and purchases and sales data for T-shirts are as follows:

Apr. 3	Inventory	24 units	@	$10
11	Purchase	26 units	@	$12
14	Sale	36 units
21	Purchase	18 units	@	$15
25	Sale	20 units

Assuming the business maintains a periodic inventory system, determine the cost of merchandise sold and ending inventory under the following assumptions:

1. FIFO
2. LIFO
3. Weighted average cost

In your computations, round the average cost per unit to two decimal places and round your final answers to the nearest dollar.

	FIFO	LIFO	Weighted Average Cost
Cost of merchandise sold	$fill in the blank 1	$fill in the blank 2	$fill in the blank 3
Ending inventory	$fill in the blank 4	$fill in the blank 5	$fill in the blank 6