Question

10. Zeigler, Inc. reported the following information for the month of May: Sales $ 98,000 Beg. Inventory (May 1) $5,000 Ending Inventory 6,000 Cost of Goods Sold 55,000 Based on the information provided, what was the company's gross margin and what was the total amount of merchandise purchased during May? Consider T-acct analysis. Gross Margin Purchases $44,000 $52,000 $43,000 $54,000 $44,000 $56,000 $43,000 $56,000 $44,000 $53,000 எம் 11. The following inventory information was taken from the records of Falcon, Inc.: Market Value Item Quantity per Unit per Unit 50 $12 $ 9 40 20 10 10 The company reports inventory at the lower of cost or market (applied individually). After your analysis, and pg 282 review, the necessary adjusting entry would: a reduce assets and equity by $200. b. increase assets and equity by $180. c. reduce assets and increase liabilities by $400. d. increase assets and equity by $1,100.

Answer 1

10 Option (d) is correct

Gross Margin = Sales - Cost of goods sold

Gross Margin = $98000 - $55000

Gross Margin = $43000

For purchases, we will use the following equation:

Cost of goods sold = Beginning inventory + Purchases - Ending inventory

Putting the values in the above equation, we get,

$55000 = $5000 + Purchases - $6000

$55000 = Purchases - $1000

Purchases = $55000 + $1000 = $56000

11. Option (a) is correct

When the inventory is recorded at lower of cost or market value, then the reduction in the value of inventory decreases the assets and equity. Now, we will consider the decrease in cost of the inventory on individual basis.

Item B:

Cost is $12 per unit while market value is $9 per unit. So, market value is lower by $3 per unit. Total decrease in value :

Decrease = 50 qty * $3 = $150

Item G:

Cost is $17 per unit while market value is $20 per unit. Here the cost is lower than the market value. So, the inventory will be recorded at cost. There will be no adjustment here because the inventory would have been recorded on cost itself, when purchased.

Item S:

Cost is $10 per unit while market value is $5 per unit.Market value is lower by $5 per unit. Total decrease in value :

Decrease = 10 qty * $5 = $50

Total decrease in assets & equity = $150 + $50 = $200

So, Assets & equity will be reduced by $200.