CHAPTER 6

INVENTORY costing

CHAPTER STUDY OBJECTIVES

1. Describe the steps in determining inventory quantities. The steps in determining inventory quantities are (1) taking a physical inventory of goods on hand, and (2) determining the ownership of goods in transit, on consignment, and in similar situations.

2. Calculate cost of goods sold and ending inventory in a perpetual inventory system using the specific identification, FIFO, and weighted average methods of cost determination. Costs are allocated to the Cost of Goods Sold account each time a sale occurs in a perpetual inventory system. The cost is determined by specific identification or by one of two cost formulas: FIFO (first-in, first-out) and weighted average.

Specific identification is used for goods that are not ordinarily interchangeable. This method tracks the actual physical flow of goods, allocating the exact cost of each merchandise item to cost of goods sold and ending inventory.

The FIFO cost formula assumes a first-in, first-out cost flow for sales. Cost of goods sold consists of the cost of the earliest goods purchased. Ending inventory is determined by allocating the cost of the most recent purchases to the units on hand.

The weighted average cost formula is used for goods that are homogeneous or non-distinguishable. Under weighted average, a new weighted (moving) average unit cost is calculated after each purchase and applied to the number of units sold. Inventory is updated by subtracting cost of goods sold for each sale from the previous ending inventory balance.

3. Explain the financial statement effects of inventory cost determination methods. Specific identification results in the best match of costs and revenues on the income statement. When prices are rising, weighted average results in a higher cost of goods sold and lower profit than FIFO. Weighted average results in a better match on the income statement because it results in an expense amount made up of more current costs. On the balance sheet, FIFO results in an ending inventory that is closest to the current (replacement) value and the best balance sheet valuation. All three methods result in the same cash flow.

4. Determine the financial statement effects of inventory errors. An error in beginning inventory will have a reverse effect on profit in the current year (e.g., an overstatement of beginning inventory results in an overstatement of cost of goods sold and an understatement of profit). An error in the cost of goods purchased will have a reverse effect on profit (e.g., an overstatement of purchases results in an overstatement of cost of goods sold and an understatement of profit). An error in ending inventory will have a similar effect on profit (e.g., an overstatement of ending inventory results in an understatement of cost of goods sold and an overstatement of profit). If ending inventory errors are not corrected in the following period, their effect on profit for the second period is reversed and total profit for the two years will be correct. On the balance sheet, ending inventory errors will have the same effects on total assets and total owner’s equity, and no effect on liabilities.

5. Value inventory at the lower of cost and net realizable value. The cost of the ending inventory is compared with its net realizable value. If the net realizable value is lower, a write down is recorded, which results in an increase in cost of goods sold, and a reduction in inventory. The write down is reversed if the net realizable value of the inventory increases, but the value of the inventory can never be higher than its original cost.

6. Demonstrate the presentation and analysis of inventory. Ending inventory is reported as a current asset on the balance sheet at the lower of cost and net realizable value. Cost of goods sold is reported as an expense on the income statement. Additional disclosures include the cost determination method.

The inventory turnover ratio is a measure of liquidity. It is calculated by dividing the cost of goods sold by average inventory. It can be converted to days sales in inventory by dividing 365 days by the inventory turnover ratio.

7. Calculate ending inventory and cost of goods sold in a periodic inventory system using FIFO and weighted average inventory cost formulas (Appendix 6A). Under the FIFO cost formula, the cost of the most recent goods purchased is allocated to ending inventory. The cost of the earliest goods on hand is allocated to cost of goods sold. Under the weighted average cost formula, the total cost available for sale is divided by the total units available to calculate a weighted average unit cost. The weighted average unit cost is applied to the number of units on hand at the end of the period to determine ending inventory. Cost of goods sold is calculated by subtracting ending inventory from the cost of goods available for sale.

The main difference between applying cost formulas in a periodic inventory system and applying cost formulas in a perpetual inventory system is the timing of the calculations. In a periodic inventory system, the cost formula is applied at the end of the period. In a perpetual inventory system, the cost formula is applied at the date of each sale to determine the cost of goods sold.

8. Estimate ending inventory using the gross profit and retail inventory methods (Appendix 6B). Two methods of estimating inventories are the gross profit method and the retail inventory method. Under the gross profit method, the gross profit margin is applied to net sales to determine the estimated cost of goods sold. The estimated cost of goods sold is subtracted from the cost of goods available for sale to determine the estimated cost of the ending inventory. Under the retail inventory method, a cost-to-retail ratio is calculated by dividing the cost of goods available for sale by the retail value of the goods available for sale. This ratio is then applied to the ending inventory at retail to determine the estimated cost of the ending inventory.

Exercises

Exercise 1

Woodland Printers uses the perpetual inventory system. On September 30, 2021, the company’s year-end, a physical count was taken of the inventory on hand. The cost of the inventory on hand was determined to be $ 325,400. However, the accountant has questions about the following items:

1. On the store shelves, the staff counted 7 paintings held by Woodland on consignment from a local artist. The paintings are included on the inventory count at a cost of $ 4,200.

2. On September 30, a shipment of goods was sent to a customer, FOB destination. The cost of the goods shipped is $ 7,800, and freight, which is to be paid by Woodland, will cost $ 200. These items are not included in the inventory count. Delivery is expected to take three days.

3. On October 2, a freight company delivered goods that cost $ 10,000 to Woodland’s warehouse. The goods had been shipped by the vendor on September 29, FOB shipping point. Freight on this shipment will amount to $ 500 and will be paid by the appropriate party. The goods are not included on the inventory count.

4. On September 30, a loyal customer visited Woodland’s retail shop and asked that certain items be set aside for him. The goods set aside have a cost of $ 1,300. The customer intends to let Woodland know no later than October 2 whether or not he wishes to finalize the sale and have the goods shipped to his home. The freight will cost $ 50 and will be paid by Woodland. The sales person was fairly sure the customer will take the items, and so Woodland prepared the sales invoice on September 30. The items are not included on the inventory count.

5. Residing in Woodland’s warehouse is merchandise costing $ 5,000 that was purchased in September and found to be defective. Woodland’s purchasing manager has arranged with the vendor to accept return of the goods and has packaged them for return shipment. The vendor processed a credit to Woodland’s account on September 28, and has arranged to have the goods picked up on October 1. The items are included on the inventory count.

Instructions

Calculate the correct inventory balance at September 30, 2021. For each of the above items, explain the basis of your treatment of the item.

Exercise 2

Stockholm Furniture Sales uses the periodic inventory system. On April 30, 2021, the company’s year end, a physical count was taken of the inventory on hand in both the warehouse and the retail store area for the purpose of determining cost of goods sold and ending inventory value. The preliminary inventory list prepared by the warehouse manager shows a total inventory on hand of $ 738,000. The following are items that the warehouse manager noted on a separate sheet. None of these items are currently part of the final inventory listing because the manager was not sure how they should be treated for inventory purposes.

1. On April 30, Stockholm shipped an order to a customer, FOB shipping point. The cost of the goods shipped is $ 9,650. Freight, which is to be paid by the appropriate party, will cost $ 375.

2. On April 30, a customer visited Stockholm’s shop and selected a desk that she wanted to purchase and paid for it in full. The sales price of the desk was $ 3,500, and the cost was $ 2,200. The customer intends to send a truck to pick up the desk no later than May 2. The freight will cost $ 50 and will be paid by the customer. A “Sold” sign has been placed on the desk but it is still on display in the store.

3. Residing in Stockholm’s warehouse is furniture costing $ 21,000 that was purchased in April and needs to be returned. The goods were specially ordered for a customer who has since decided not to buy them after all. Stockholm’s supplier has agreed to accept return of the goods and will allow a full credit on Stockholm’s account as soon as they are received. A freight company is scheduled to pick up the merchandise on the morning of May 1, and so they have been set aside near the loading dock.

4. Stockholm sells some of its merchandise in smaller towns by placing samples on consignment with local hardware stores. The manager noted that 15 desks at a cost of $ 1,200 each and 30 chairs at $ 75 each are currently out on consignment.

5. On May 2, a freight company delivered goods that cost $ 65,000 to Stockholm’s warehouse. The goods had been shipped by the vendor on April 29, FOB destination. Freight on this shipment will amount to $ 400 and will be paid by the appropriate party.

Instructions

Calculate the correct inventory balance at April 30, 2021. For each of the above items, explain the basis of your treatment of the item.

Exercise 3

Fyodorov Company, using a periodic inventory system, has just completed a physical inventory count at year end, December 31, 2021. Only the items on the shelves, in storage, and in the receiving area were counted. The inventory amounted to $ 60,000. During the audit, the independent CPA discovered the following additional information:

1. There were goods in transit on December 31, 2021, from a supplier with terms FOB destination, costing $ 8,000. Because the goods had not arrived, they were excluded from the physical inventory count.

2. On December 27, 2021, a regular customer purchased goods for cash amounting to $ 1,000 and left them for pickup on January 4, 2022. Fyodorov Company had paid $ 500 for the goods and, because they were on hand, included them in the physical inventory count.

3. Fyodorov Company, on the date of the inventory count, received notice from a supplier that goods ordered earlier, at a cost of $ 4,000, had been delivered to the transportation company on December 28, 2021; the terms were FOB shipping point. Because the shipment had not arrived on December 31, 2021, it was excluded from the physical inventory.

4. On December 31, 2021, there were goods in transit to customers, with terms FOB shipping point, amounting to $ 800 (expected delivery on January 8, 2022). Because the goods had been shipped, they were excluded from the physical inventory count.

5. On December 31, 2021, Fyodorov Company shipped $ 2,500 worth of goods to a customer, FOB destination, in Thunder Bay. The goods arrived in Thunder Bay on January 5, 2022. Because the goods were not on hand, they were not included in the physical inventory count.

6. Fyodorov Company, as the consignee, had goods on consignment that cost $ 8,000. Because these goods were on hand as of December 31, 2021, they were included in the physical inventory count.

Instructions

Analyze the above information for Fyodorov Company and calculate a corrected amount for the ending inventory. Explain the basis for your treatment of each item.

Exercise 4

Dark Force Coffee is a sole proprietorship owned by Han Vader. The company is in its second year of operations and only has one coffee blend available in one size. Han does not have any background in accounting and would like your expertise to determine the individual and total impact of the following items on the ending inventory balance for the company’s December 31, 2021, year end.

1. Han keeps all inventory in his basement, which he claims has a total cost of $ 40,000 (500 units). Of this amount, 50 units costing $ 3,000 spilled and could not be salvaged or sold.

2. Han has 80 units with a cost of $ 5,500 loaded in a delivery van ready to be shipped to customers. The terms of these sales are FOB destination.

3. Han has decided to try and sell goods on consignment for the first time. At year end, Han has shipped out 100 units on consignment for a total cost of $ 7,750. These goods have not yet been sold by the consignee at year end and Han has not received any proceeds.

Exercise 5

Mana Company uses the perpetual inventory system and the weighted average cost formula. The following information is available for the month of June:

Date Explanation Units Unit Cost

Jun 1 Beginning Inventory 200 $ 10

Jun 15 Purchase 300 11

Jun 17 Sale 250 ?

Jun 24 Purchase 400 12

Instructions

Prepare a schedule to show cost of goods sold and the value of the ending inventory for the month of June.

Exercise 6

Gabbins Company uses the perpetual inventory system and the FIFO cost formula.

Purchases Sales

Units Unit Cost Units Selling Price/Unit

Mar 1 Beginning inventory 100 $ 50

3 Purchase 60 $ 60

4 Sales 70 $ 100

10 Purchase 200 $ 70

16 Sales 80 $ 110

19 Sales 80 $ 110

25 Sales 50 $ 110

30 Purchase 40 $ 75

Instructions

a) Using the inventory and sales data above, calculate the value assigned to cost of goods sold in March and to the ending inventory at March 31.

b) Prepare the journal entries to record the sales on March 4 and March 19. All sales are made on credit.

Exercise 7

Joe Coffee Equipment sells European style coffee makers and uses a perpetual inventory system. Its inventory records show that on June 1, Joe Coffee had 12 units on hand at a cost of $ 220 each. Transactions related to purchase and sale of coffee makers in June were as follows:

Instructions

For each of the following cost formulas, calculate the ending inventory as at June 30 and the cost of goods sold for the month of June. Prove the cost of goods sold calculations.

a) FIFO

b) Weighted Average (Round to the nearest cent)

Exercise 8

In July, Brilliant Jewellers Company purchased the following items:

On July 22, one ring from the July 2 purchase was sold for $ 19,500 and 2 rings from the July 20 purchase were sold for $ 1,520 each. All sales and purchases are made on credit.

Instructions

a) Calculate ending inventory and cost of goods sold using specific identification.

b) Prepare the journal entry to record the July 22 sale.

Exercise 9

Fly Company uses a perpetual inventory system. Beginning inventory is 2,500 T-shirts at a cost $ 2.50 per shirt. During the year Fly had the following inventory transactions:

All purchases and sales are on account.

Instructions

a) Calculate the cost of goods sold and ending inventory using weighted average. Round per unit amounts to two decimal places.

b) Prepare journal entries to record the February 18 and the August 29 sales. All sales and purchases are made in cash.

Exercise 10

The Lighting Showcase sells many different light bulbs and uses a perpetual inventory system. During February 2021, the company had beginning inventory, purchases, and sales for bulb 101 as follows:

Instructions

Prepare a schedule to determine the cost of goods sold and ending inventory using the FIFO cost formula for the period ended February 28, 2021.

Exercise 11

The Lighting Showcase sells many different light bulbs and uses a perpetual inventory system. During February 2021, the company had beginning inventory, purchases, and sales for bulb 101 as follows:

Instructions

a) Prepare a schedule to determine the cost of goods sold and ending inventory using the weighted average cost formula for the period ended February 28, 2021. Round per unit amounts to two decimal places.

b) Assuming Lighting Showcase used FIFO cost formula instead of the weighted average cost formula, what balance would be reported for inventory at February 28, 2021? What impact would this have on the profit/loss?

Exercise 12

O’Meara Sales sells golf bags and uses a perpetual inventory system. O’Meara’s inventory records show that at March 1, there were 30 units on hand at a cost of $ 135 each. Transactions related to the purchase and sale of golf bags in March were as follows:

Instructions

a) For each of the following cost formulas, calculate the ending inventory as at March 31 and the cost of goods sold for the month of March.

i. FIFO

ii. Weighted Average (round per unit cost to two decimal places)

b) Calculate the gross profit and gross profit margin that will be reported under each of the two cost formulas.

c) Assume that O’Meara is motivated to report the highest profit possible. Which method will they prefer? Would your answer be different if the cost of golf bags was increasing, instead of decreasing? What if the cost was fluctuating randomly? Assume the selling price of the golf bags is the same regardless of which cost formula is used.

Exercise 13

Inventory data for Mason Concrete Products for the year ended December 31, 2021, are as follows:

Beginning inventory 50 units at $ 150 each

March 31 purchase 50 units at $ 155 each

Sales from January 1 to June 30 60 units

July 1 purchase 55 units at $ 160 each

Sales from July 1 to December 31 70 units

September 30 purchase 60 units at $ 170 each

Instructions

Compute the perpetual ending inventory balance on December 31, 2021, using FIFO.

Exercise 14

Inventory data for Mason Concrete Products for the year ended December 31, 2021, are as follows:

Beginning inventory 50 units at $ 150 each

March 31 purchase 50 units at $ 155 each

Sales from January 1 to June 30 60 units

July 1 purchase 55 units at $ 160 each

Sales from July 1 to December 31 70 units

September 30 purchase 60 units at $ 170 each

Instructions

Compute the perpetual ending inventory balance on December 31, 2021, using weighted average. Assume sales take place after the purchases for the two half-year periods. Round amounts to two decimal places.

Exercise 15

Rocky Company reported the following summarized information at the end of 2021:

Sales revenue $ 1,200,000

Cost of goods sold* 800,000

Gross profit 400,000

Operating expenses 150,000

Profit $ 250,000

*Calculated using ending FIFO inventory of $ 250,000.

The controller of the company is considering a switch from FIFO to weighted average. He has determined that under weighted average, the ending inventory would have been $ 150,000.

Instructions

a) Restate the above summarized information using weighted average.

b) What effect, if any, would the proposed change have on Rocky's profit and cash flows?

c) If you were an owner of this business, what would your reaction be to this proposed change?

Exercise 16

Pete’s Packaging reported its cost of goods sold as follows:

The ending inventory in 2020 was overstated by $ 6,500.

Instructions

a) Calculate the correct cost of goods sold for both years.

b) Describe how the error has affected the financial statements for 2020 and for 2021, and for the two years combined.

Exercise 17

Robin Auto Parts reported the following information in its income statement for the periods ending December 31, 2020 and 2021:

Additional Information:

While completing Robin’s 2022 financial statements, the accountant realized that errors had been made in previous years’ inventory calculations. The correct ending inventory at December 31, 2019, was $ 6,000, the correct ending inventory at December 31, 2020 was $ 4,000, and the correct ending inventory at December 31, 2021 was $ 7,000.

Instructions

a) Calculate the correct cost of goods sold and gross profit for 2020 and for 2021.

b) Calculate the inventory turnover for 2020 and 2021:

(i) using the originally reported information; and

(ii) using the corrected information.

c) Calculate the gross profit margin for 2020 and 2021:

(i) using the originally reported information; and

(ii) using the corrected information.

d) Explain how the errors will have caused management performance to be improperly evaluated.

Exercise 18

Labco Company reported the following partial income statement for the previous two years of operations:

2021 2022

Sales $ 340,000 $ 360,000

Cost of goods sold 181,000 187,000

Gross profit $ 159,000 $ 173,000

Additional Information:

Beginning inventory $ 36,000 $ 37,000

Cost of goods purchased 182,000 196,000

Cost of goods available for sale 218,000 233,000

Ending inventory (37,000) (46,000)

Cost of goods sold $ 181,000 $ 187,000

The company accountant, while reviewing the financial records of the company, noticed that the December 31, 2021, ending inventory was understated by $ 5,000.

Instructions

a) Prepare the correct partial income statement data for 2021 and 2022.

b) What is the cumulative effect of the inventory error on total gross profit for the two years?

Exercise 19

O’Shea’s General Store, in St. John’s, NL, prepared the following analysis of cost of goods sold for the previous three years:

2020 2021 2022

Beginning inventory, Jan. 1 $ 40,000 $ 18,000 $ 25,000

Cost of goods purchased 50,000 97,000 70,000

Deduct ending inventory, Dec. 31 (18,000) (25,000) (40,000)

Cost of goods sold $ 72,000 $ 90,000 $ 55,000

Profit for the years 2020, 2021, and 2022 was $ 83,000, $ 32,000, and $ 67,000, respectively. Since income had declined so much from 2020 to 2022, Mrs. O’Shea hired an accountant to investigate the cause(s) for the decline.

The accountant determined the following:

1. Purchases of $ 42,000 that occurred in 2020 were not recorded until 2021.

2. The 2020 ending inventory should have been $ 23,000.

3. The 2021 ending inventory included inventory costing $ 6,000 that was purchased FOB destination point and was in transit at year end.

4. The 2022 ending inventory did not include goods costing $ 3,000 that were shipped on December 29 to Otter Plumbing Company, FOB shipping point. The goods were still in transit at the end of the year.

Instructions

Determine the correct income for each year. (Show all calculations.)

Exercise 20

For each of the independent events listed below, using a perpetual inventory system, analyze the impact on the indicated items at the end of the current year by placing the appropriate code letter in the box under each item.

Code: O = item is overstated

U = item is understated

NA = item is not affected

Owner’s Cost of Net

Events Assets Equity Goods Sold Income

————————————————————————————————————————————————————

1. The ending inventory in the previous period was overstated.

————————————————————————————————————————————————————

2. A physical count of goods on hand at the

end of the current year resulted in some

goods being counted twice.

————————————————————————————————————————————————————

3. Goods purchased on account in December of the current year and shipped FOB destination were recorded as purchases, but were not included in the count of goods on hand on December 31 because they had not arrived by December 31.

————————————————————————————————————————————————————

4. Goods purchased on account in December of the current year and shipped FOB shipping point were recorded as purchases, but were not included in the count of goods on hand on December 31 because they had not arrived by December 31.

————————————————————————————————————————————————————

5. The internal auditors discovered that the

ending inventory in the previous period

was understated $ 15,000 and that the

ending inventory in the current period

was overstated $ 25,000.

Exercise 21

Sharleen’s Wigs reported cost of goods sold as follows:

2021 2022

Beginning inventory $ 54,000 $ 64,000

Cost of goods purchased 847,000 891,000

Deduct ending inventory (64,000) (55,000)

Cost of goods sold $ 837,000 $ 900,000

Roxanna made two errors:

1. 2021 ending inventory was overstated by $ 3,000.

2. 2022 ending inventory was understated by $ 9,000.

Instructions

Assuming the errors had not been corrected, indicate the dollar effect that the errors had on the items appearing on the financial statements listed below. Also indicate if the amounts are overstated (O) or understated (U).

2021 2022

Overstated/ Overstated/

Amount Understated Amount Understated

Total assets $ ______ ______ $ ______ ______

Owner’s equity $ ______ ______ $ ______ ______

Cost of goods sold $ ______ ______ $ ______ ______

Profit $ ______ ______ $ ______ ______

Exercise 22

For each of the independent events listed below, using a perpetual inventory system, analyze the impact on the indicated items at the end of the current year by placing the appropriate code letter in the box under each item.

Code: O = item is overstated

U = item is understated

NA = item is not affected

Cost of Gross Operating Net

Events Goods Sold Profit Expenses Income

————————————————————————————————————————————————————

1. Overstating beginning inventory.

————————————————————————————————————————————————————

2. Understating beginning inventory.

————————————————————————————————————————————————————

3. Overstating ending inventory.

————————————————————————————————————————————————————

4. Understating ending inventory.

————————————————————————————————————————————————————

Exercise 27

The following information is available from the financial statements of Complete Home Furnishings. The company is a manufacturer of home furnishings, and its sales are mainly on credit.

(In millions)

2022 2021

Sales $ 76,704 $ 69,656

Cost of goods sold 49,761 47,257

Beginning inventory 26,031 14,816

Ending inventory 34,162 26,031

Total current assets 87,246 76,857

Total current liabilities 33,589 33,671

Instructions

Evaluate the company’s liquidity position for 2022. As part of your analysis, calculate the current ratio, inventory turnover ratio, and days in inventory for the company for 2022 and 2021.

Exercise 28

The following information is available for Dahlia’s Deli for three recent years:

The ending inventory at December 31, 2019 was $ 36,000.

Instructions

Calculate the inventory turnover, the days sales in inventory, and gross profit margin for Dalhia’s Deli for each of the three years, and comment on any trends.

Exercise 29

Data relating to Jaso Jerseys’ cost of goods sold and inventory balances are as follows:

The beginning inventory at January 1, 2020 was $ 92,200.

Instructions

Calculate the inventory turnover and the days sales in inventory for Jaso Jerseys for each of the three years. (Round ratios to two decimal places)

*Exercise 30

Willets Coffee Equipment sells European-style coffee makers and uses a periodic inventory system. Its inventory records show that at July 1, Willets had 12 units on hand at a cost of $ 220 each. Transactions related to purchase and sale of coffee makers in July were as follows:

Instructions

For each of the following cost formulas, calculate the ending inventory as at July 31 and the cost of goods sold for the month of July. Prove the cost of goods sold calculations. Round dollar amounts to two decimal places.

a) FIFO

b) Weighted Average

Exercise 31

Inventory data for Mason Concrete Products for the year ended December 31, 2021, are as follows:

Beginning inventory 50 units at $ 150 each

March 31 purchase 50 units at $ 155 each

Sales from January 1 to June 30 60 units

July 1 purchase 55 units at $ 160 each

Sales from July 1 to December 31 70 units

September 30 purchase 60 units at $ 170 each

Instructions

Compute the periodic ending inventory balance on December 31, 2021, using:

a. FIFO

b. Weighted average

*Exercise 32

Garcia Sales sells golf bags and uses a periodic inventory system. Garcia’s inventory records show that at April 1, there were 30 units on hand at a cost of $ 135 each. Transactions related to purchase and sale of golf bags in April were as follows:

Instructions

a) For each of the following cost formulas, calculate the ending inventory as at April 30 and the cost of goods sold for the month of April. Prove the cost of goods sold calculations.

i. FIFO

ii. Weighted Average

b) Calculate the gross profit and gross profit margin that will be reported under each of the two cost formulas.

c) Assume that Garcia is motivated to report the highest profit possible. Which method will they prefer? Would your answer be different if the cost of golf bags was increasing, instead of decreasing? What if the cost was fluctuating randomly? Assume Garcia cannot change the selling price of their product.

*Exercise 33

Chico Company uses the periodic inventory method and had the following inventory information available:

Units Unit Cost Total Cost

Jan 1 Beginning Inventory 200 $ 4 $ 800

Jan 20 Purchase 400 5 2,000

Jul 25 Purchase 300 7 2,100

Oct 20 Purchase 400 8 3,200

1,300 $ 8,100

A physical count of inventory on December 31 revealed that there were 600 units on hand.

Instructions