E8.

1
Items 2, 3, 5, 8, 10, 13, 14, 16, and 17 would be reported as inventory in the financial statements.
The following items would not be reported as inventory:
1. Cost of goods sold should be reported in the income statement.
4. Not reported in the financial statements.
6. Cost of goods sold should be reported in the income statement.
7. Cost of goods sold should be reported in the income statement.
9. Interest expense should be reported in the income statement.
11. Advertising expense should be reportes in the income statement.
12. Office supplies in the current assets section of the statement of financial position.
15. Not reported in the financial statements.
18. Short-term investments in the current asset section of the statement of financial position.
E8.7
a) Feb. 1 Inventory [¥12,000 – (¥12,000 X 10%)] ......... 10,800
Accounts Payable .............................................10,800
Feb. 4 Accounts Payable
[¥3,000 – (¥3,000 X 10%)] .............................. 2,700
Inventory …...................................................... 2,700
Feb. 13 Accounts Payable (¥10,800 – ¥2,700)............. 8,100
Inventory (3% X ¥8,100) ……........................... 243
Cash.................................................................. 7,857
b) Feb. 1 Purchases [¥12,000 – (¥12,000 X 10%)]........ 10,800
Accounts Payable ........................................... 10,800
Feb. 4 Accounts Payable
[¥3,000 – (¥3,000 X 10%)] .............................. 2,700
Purchase Returns and Allowances................... 2,700
Feb. 13 Accounts Payable (¥10,800 – ¥2,700)............. 8,100
Purchase Discounts (3% X ¥8,100) ................... 243
Cash.................................................................. 7,857
c) Purchase price (list)................................................... ¥12,000
 Less: Trade discount (10% X ¥12,000) ......................... 1,200
Price on which cash discount based.............................. 10,800
Less: Cash discount (3% X ¥10,800)................................. 324
Net price...................................................................... ¥10,476
E8.8
c) Jan. 4 Accounts Receivable................................... 640
Sales (80 X $8)............................................. 640
Cost of Goods Sold...................................... 480
Inventory (80 X $6)...................................... 480
Jan. 11 Inventory.................................................... 975
Accounts Payable (150 X $6.50).................. 975
Jan. 13 Accounts Receivable................................. 1,050
Sales (120 X $8.75)..................................... 1,050
Cost of Goods Sold...................................... 770
Inventory
[(20 X $6) + (100 X $6.50)]........................... 770
Jan. 20 Inventory.................................................... 1,120
Accounts Payable (160 X $7)....................... 1,120
Jan. 27 Accounts Receivable................................... 900
Sales (100 X $9)............................................. 900
Cost of Goods Sold..................................... 675
Inventory
[(50 X $6.50) + (50 X $7)]............................. 675
(d) Sales ................................................................... $2,590
Cost of goods sold ($480 + $770 + $675)............ 1,925
Gross profit ........................................................ $ 665
E8.12
First-in, first-out Average cost
Sales ..................................................... €1,000,000 €1,000,000
Cost of goods sold:
 Inventory, Jan. 1 ..........................................€120,000 €120,000
Purchases ...................................................... 592,000 592,000
Cost of goods available................................. 712,000 712,000
Inventory, Dec. 31......................................... 260,000 220,950
Cost of goods sold..................................................................... 452,000 491,050
Gross profit ............................................................................... 548,000 508,950
Operating expenses ................................................................... 200,000 200,000
Net income.............................................................................. €348,000 €308,950
*Purchases
6,000 @ €22 = €132,000
10,000 @ €25 = 250,000
7,000 @ €30 = 210,000
€592,000
*Computation of inventory, Dec. 31:
First-in, first-out:
7,000 units @ €30 = €210,000
2,000 units @ €25 = 50,000
€260,000
*Average cost:
6,000 @ €20 = €120,000
6,000 @ €22 = 132,000
10,000 @ €25 = 250,000
7,000 @ €30 = 210,000
29,000 €712,000
Average cost/unit = €712,000 ÷ 29,000 = €24.55
Ending inventory = €24.55 x 9,000 = €220,950
E8.14
Current Year Subsequent Year
1. Working capital No effect No effect
Current ratio Overstated No effect
Retained earnings No effect No effect
 Net income No effect No effect
2. Working capital Overstated No effect
Current ratio Overstated No effect
Retained earnings Overstated No effect
Net income Overstated Understated
3. Working capital Overstated No effect
Current ratio Overstated No effect
Retained earnings Overstated No effect
Net income Overstated Understated

E8.15
390,000
a) = 1.95
200,000
390,000+22,000−13,000+ 3,000 402,000
b) 200,000−20,000 = 180,000 = 2.23
c)
Adjust Income Increase
Event Effect of error
(Decrease)
1. Understatement of ending
Decreases net income 22,000
inventory
2. Overstatement of purchases Decreases net income 20,000
3. Overstatement of ending
Increase net income (13,000)
inventory
4. Overstatement of advertising
expense; understatement
0
of cost of goods sold,
assuming goods sold.
29,000

BE9.1
BE9.2
BE9.10
BE9.11
E9.14
E9.15
E9.16