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237. Refer to the data for Learning Tree, Inc.
If the LIFO method is used, what is the amount assigned to the ending inventory on May 30?
238. Refer to the data for Learning Tree, Inc.
Explain why the amounts for ending inventory are different under the two average cost methods—weighted average
(periodic) and moving average (perpetual).
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239. Refer to the data for Learning Tree, Inc.
Explain why the amounts are different for LIFO under periodic and perpetual inventory systems.
240. Refer to the data for Share, Inc.
If the moving average method is used, how much is cost of goods sold for May?
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241. Refer to the data for Share, Inc.
If the moving average method is used, how much is ending inventory on May 30?
242. Refer to the data for Share, Inc.
Required
1. If the FIFO method is used, how much is ending inventory on May 30?
2. How does this differ from the amount calculated using a periodic system and FIFO?
243. Refer to the data for Share, Inc.
If the LIFO method is used, how much is cost of goods sold for May?
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Essay
244. Describe how the inventories of manufacturers differ from the inventories of retailers.
245. Several transactions of sales and purchase activities for Genoa Department Store are described below.
(A) Genoa purchases shoes from Nike on credit.
(B) Genoa returns defective shoes to Nike before payment is made to Nike for the shoes purchased in transaction A.
(C) Genoa pays for the shoes purchased from Nike.
(D) Genoa sells shoes to its customers for cash and on credit.
(E) Credit customers return shoes to Genoa for a refund.
(F) Credit customers pay their account balances to Genoa.
Required
For each transaction described of each transaction listed above on the company under a periodic inventory system.
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246. Flores Department Store currently uses the periodic inventory system.
Required
Explain what the advantages would be to Flores if it uses the perpetual inventory system. Assume that Flores can use a
computer system that is linked to its cash registers and that all products have bar codes that can be read by bar code
readers attached to the cash registers.
247. Giant-Mart purchased a large shipment of shoes from Right Balance, Inc. on credit near the end of its accounting
period. Right Balance shipped the shoes in January, and Giant-Mart received the shoes in February. Assume that Giant-
Mart’s accounting period ends on January 31, while Right Balance’s accounting period ends on May 31.
Required
If the shoes are shipped FOB destination point, who will pay the freight costs? If the shoes are shipped FOB shipping
point, who will pay the freight costs?
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248. Giant-Mart purchased a large shipment of shoes from Primus, Inc. on credit near the end of its accounting period.
Primus shipped the shoes in January and Giant-Mart received the shoes in February. Assume that Giant-Mart’s accounting
period ends on January 31, while Primus’ accounting period ends on May 31. Answer each independent question in the set
that follows.
Required
If the shoes are shipped FOB destination point, when should Giant-Mart record the purchase? If the shoes are shipped
FOB shipping point, when should Giant-Mart record the purchase?
249. Giant-Mart purchased a large shipment of shoes from Primus, Inc. on credit near the end of its accounting period.
Primus shipped the shoes in January and Giant-Mart received the shoes in February. Assume that Giant-Mart’s accounting
period ends on January 31, while Giant’s accounting period ends on May 31. Answer each independent question in the set
that follows.
Required
Under what shipping terms would Giant-Mart include the shoes as part of inventory on its January 31 balance sheet?
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250. Explain the relationship between the valuation of inventory and income measurement as it relates to the balance sheet
and the income statement.
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251. In the following information is taken from the 2017 annual reports of Focal Point Industries. (All figures have been
rounded to millions of dollars.)
Balance Sheet Data May 31, 2017 May 31, 2016
Raw materials $ 25.8 $ 52.1
Work in process 44.8 34.7
Finished goods 1,132.7 1,303.8
Inventories at FIFO 1,203.3 1,390.6
Adjustment to LIFO 5.6 21.9
Cash Flow Data (Operating Activities)
Net income $451.4 $399.9
Additions to net income:
Depreciation 198.2 100.2
Amortization 30.6 49.0
Changes in assets and liabilities:
Inventories 197.3 (58.0)
Accounts payable and other (170.4) (70.1)
Required
(1) Describe what costs are included in each of the three types of inventories listed above for Focal Point Industries.
(2) Even though the footnote describing the inventory costing method(s) used by Focal Point Industries is not provided
above, what can you conclude about the inventory costing method(s) used by the company?
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252. In the following information from the 2017 annual reports of Focal Point Industries all figures have been rounded to
millions of dollars.
Balance Sheet Data May 31, 2017 May 31, 2016
Raw materials $ 25.8 $ 52.1
Work in process 44.8 34.7
Finished goods 1,132.7 1,303.8
Inventories at FIFO 1,203.3 1,390.6
Adjustment to LIFO 5.6 21.9
Cash Flow Data (Operating Activities)
Net income $451.4 $399.9
Additions to net income:
Depreciation 198.2 100.2
Amortization 30.6 49.0
Changes in assets and liabilities:
Inventories 187.3 (58.0)
Accounts payable and other (170.4) (70.1)
Required
(1) Explain what the amount “adjustment to LIFO” represents. What effects has this “adjustment” had on Focal Point
Industries’ net earnings in 2016 and 2017?
(2) What method of determining cash flows from operating activities has Focal Point Industries used in preparing its
statement of cash flows? Explain your answer.
(3) From 2016 to 2017, what change in the inventory balance (increase or decrease) occurred in each year as a result of
operating activities? What was the effect on the company’s cash flow each year as a result of the inventory change?
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255. If an entity overstates its ending inventory for the current year, what are the effects on assets, cost of goods sold,
income before taxes, and retained earnings for the current year?
256. Assume that a company is experiencing increasing inventory prices and prepares its financial statements in
accordance with IFRS. Which costing method should it use to pay the least amount of taxes? Explain your answer.
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257. Bower Corp.’s cost of sales has remained steady over the last two years. During this same time period, however, its
inventory has increased considerably. What does this information tell you about the company’s inventory turnover?
Explain your answer.