Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 6 Inventories 289

is closed on the day inventory is taken. Dana believes that closing the store is the only way to

get an accurate inventory count.

Will switching to a perpetual inventory system strengthen Onsite Hardware’s control over

inventory items? Will switching to a perpetual inventory system eliminate the need for a phys-

ical inventory count? Explain.

Pacific Luggage Shop is a small retail establishment located in a large shopping mall. This shop

has implemented the following procedures regarding inventory items.

a. Whenever Pacific receives a shipment of new inventory, the items are taken directly to the

stockroom. Pacific’s accountant uses the vendor’s invoice to record the amount of inven-

tory received.

b. Since the shop carries mostly high-quality, designer luggage, all inventory items are

tagged with a control device that activates an alarm if a tagged item is removed from the

store.

c. Since the display area of the store is limited, only a sample of each piece of luggage is

kept on the selling floor. Whenever a customer selects a piece of luggage, the salesclerk

gets the appropriate piece from the store’s stockroom. Since all salesclerks need access to

the stockroom, it is not locked. The stockroom is adjacent to the break room used by all

mall employees.

State whether each of these procedures is an appropriate or inappropriate control proce-

dure. If it is inappropriate, explain why.

Beginning inventory, purchases, and sales data for portable CD players are as follows:

April 1 Inventory 35 units at $50

5 Sale 26 units

11 Purchase 15 units at $53

21 Sale 12 units

28 Sale 4 units

30 Purchase 7 units at $54

The business maintains a perpetual inventory system, costing by the first-in, first-out method.

Determine the cost of the merchandise sold for each sale and the inventory balance after each

sale, presenting the data in the form illustrated in Exhibit 5.

Assume that the business in Exercise 6-5 maintains a perpetual inventory system, costing by the

last-in, first-out method. Determine the cost of merchandise sold for each sale and the inventory

balance after each sale, presenting the data in the form illustrated in Exhibit 6.

Beginning inventory, purchases, and sales data for cell phones for March are as follows:

Inventory Purchases Sales

Mar. 1 25 Units at $90 Mar. 5 20 units at $94 Mar. 9 18 Units

21 15 units at $95 13 20 units

31 8 units

Assuming that the perpetual inventory system is used, costing by the lifo method, determine the

cost of merchandise sold for each sale and the inventory balance after each sale, presenting the

data in the form illustrated in Exhibit 6.

Exercise 6-4

Control of inventories

Goal 2

Exercise 6-5

Perpetual inventory using fifo

Goals3, 4

Inventory balance, April 30,
$802

Exercise 6-6

Perpetual inventory using lifo

Goals3, 4

Inventory balance, April 30,
$778

Exercise 6-7

Perpetual inventory using lifo

Goals3, 4

Inventory balance, March 31,
$1,295