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Quick Study 5-22B (15 minutes)
Goods available for sale
Inventory, January 1.......................................................................$190,000
Cost of goods purchased (net)..................................................... 352,000
Goods available for sale (at cost).................................................542,000
Quick Study 5-23 (10 minutes)
a. Both IFRS and U.S. GAAP provide broad and similar guidance on the
accounting for items and costs making up merchandise inventory.
b. Yes, companies reporting under IFRS can apply cost flow assumptions
in assigning costs to inventory. FIFO and weighted average are two
IFRS. (LIFO is not presently acceptable under IFRS.)
c. U.S. GAAP prohibits any later increase in the recorded value of
inventory that had been written down even if that decline in value is
EXERCISES
Exercise 5-1 (10 minutes)
1. The title will pass at “destination” which is Harlow Company’s
2. The consignor is Harris Company. The consignee is Harlow Company.
Exercise 5-2 (10 minutes)
Cost of inventory (estate’s contents)
Price........................................................................................ $75,000
Transportation-in.................................................................... 2,400
Exercise 5-3 (45 minutes)
a. Specific identification
Ending inventory—180 units from January 30, 5 units from January 20, and 15
units from beginning inventory
Ending Cost of
Specific Identification Inventory Goods Sold
(180 x $4.50) + (5 x $5.00) + (15 x $6.00)......... $ 925
Exercise 5-3 (continued)
b. Weighted Average—Perpetual
Date Goods Purchased Cost of Goods Sold Inventory Balance
1/1 140 @ $6.00 = $ 840.00
1/10 100 @ $6.00 = $ 600.00 40 @ $6.00 = $ 240.00
1/20 60 @ $5.00 40 @ $6.00 = $ 540.00
60 @ $5.00
(avg. cost is $5.40)
c. FIFO—Perpetual
Date Goods Purchased Cost of Goods Sold Inventory Balance
1/1 140 @ $6.00 = $ 840.00
1/10 100 @ $6.00 = $ 600.00 40 @ $6.00 = $ 240.00
1/20 60 @ $5.00 40 @ $6.00 = $ 540.00
60 @ $5.00
$1,040.00 180 @ $4.50
d. LIFO—Perpetual
Date Goods Purchased Cost of Goods Sold Inventory Balance
1/1 140 @ $6.00 = $ 840.00
1/10 100 @ $6.00 = $ 600.00 40 @ $6.00 = $ 240.00
1/20 60 @ $5.00 40 @ $6.00 = $ 540.00
60 @ $5.00
20 @ $6.00 20 @ $6.00 = $ 120.00
1/30 180 @ $4.50 20 @ $6.00 = $ 930.00
$1,020.00 180 @ $4.50
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Solutions Manual, Chapter 5 319
Exercise 5-3 (Concluded)
Alternate Solution Format for FIFO and LIFO Perpetual
Ending Cost of
Computations Inventory Goods Sold
c. FIFO
(180 x $4.50) + (20 x $5.00)............................................... $ 910.00
(100 x $6.00) + (40 x $6.00) + (40 x $5.00)....................... $1,040.00
Exercise 5-4 (20 minutes)
LAKER COMPANY
Income Statements
For Month Ended January 31
Specific
Identification
Weighted
Average FIFO LIFO
Sales......................................$2,700.00 $2,700.00 $2,700.00 $2,700.00
(180 units x $15 price)
Cost of goods sold............... 1,025.00 1,032.00 1,040.00 1,020.00
Income tax expense (40%).........
170.00 167.20 164.00 172.00
Net income............................$ 255.00 $ 250.80 $ 246.00 $ 258.00
2. Weighted average net income of $250.80 falls between the FIFO net
income of $246.00 and the LIFO net income of $258.00.
Exercise 5-5A (35 minutes)
Ending Cost of
Periodic Inventory Computations Inventory Goods Sold
a. Specific Identification—Periodic
b. Weighted Average—Periodic
($1,950 / 380 units = $5.13* average cost per unit)
c. FIFO—Periodic
(180 x $4.50) + (20 x $5.00)....................................$ 910.00
d. LIFO—Periodic
(140 x $6.00) + (60 x $5.00)....................................$1,140.00
(180 x $4.50)........................................................... $ 810.00
*rounded to dollars and cents
Exercise 5-6 (20 minutes)
LAKER COMPANY
Income Statements
For Month Ended January 31
Specific
Identification
Weighted
Average FIFO LIFO
Sales......................................$2,700.00 $2,700.00 $2,700.00 $2,700.00
(180 units x $15 price)
Cost of goods sold............... 1,025.00 923.40 1,040.00 810.00
Gross profit...........................1,675.00 1,776.60 1,660.00 1,890.00
1. LIFO method results in the highest net income of $384.00.
income of $246.00 and the LIFO net income of $384.00.
3. If costs were rising instead of falling, then the FIFO method would yield
the highest net income.
Exercise 5-7 (20 minutes)
a. FIFO—Perpetual
Date Goods Purchased Cost of Goods Sold Inventory Balance
1/1 200 @ $10 = $ 2,000
1/10 150 @ $10 = $ 1,500 50 @ $10 = $ 500
3/14 350 @ $15 = $5,250 50 @ $10 = $ 5,750
350 @ $15
3/15 50 @ $10 100 @ $15 = $ 1,500
250 @ $15 = $ 4,250
b. LIFO—Perpetual
Date Goods Purchased Cost of Goods Sold Inventory Balance
1/1 200 @ $10 = $ 2,000
1/10 150 @ $10 = $ 1,500 50 @ $10 = $ 500
7/30 450 @ $20 = $ 9,000 50 @ $10
50 @ $15 = $ 10,250
450 @ $20
10/5 50 @ $10
430 @ $20 = $8,600 50 @ $15 = $ 1,650
20 @ $20
Exercise 5-7 (Concluded)
Alternate Solution Format
Ending Cost of
Inventory Goods Sold
a. FIFO
(100 x $25) + (120 x $20)........................................................ $4,900
(100 x $15)+ (330 x $20)...................................................... $13,850
b. LIFO
FIFO Gross Margin
Sales revenue (880 units sold x $40 selling price)......................... $35,200
LIFO Gross Margin
Sales revenue (880 units sold x $40 selling price)......................... $35,200
Exercise 5-8 (15 minutes)
a. Specific Identification method—Cost of goods sold
Cost of goods available for sale............................................. $18,750
Ending inventory under specific identification
3/14 purchase ( 45 @ $15) ...............................................$ 675
b. Specific Identification method—Gross margin
Sales revenue (880 units sold x $40 selling price)................ $35,200
Exercise 5-9A (20 minutes)
Cost of goods available for sale = $18,750 (given in Exercise 5-7)
Ending Cost of
Periodic Inventory System Inventory Goods Sold
a. FIFO—Periodic
(100 x $25) + (120 x $20)............................................ $4,900
(200 x $10) + (350 x $15) + (330 x $20)..................... $13,850
b. LIFO—Periodic
c.
FIFO—Periodic Gross Margin
Sales revenue (880 units sold x $40 selling price)................. $35,200
Gross margin............................................................................. $21,350
LIFO—Periodic Gross Margin
Sales revenue (880 units sold x $40 selling price)................. $35,200
Exercise 5-10 (15 minutes)
Per Unit Total Total LCM Applied
to Items
Inventory Items Unit
s
Cost Market Cost Market
Helmets........... 24 $50 $54 $1,200 $1,296 $1,200
Bats.................. 17 78 72 1,326 1,224 1,224
Shoes............... 38 95 91 3,610 3,458 3,458
Exercise 5-11 (20 minutes)
1. a. LIFO ratio computations
LIFO current ratio (2015) = $220/$200 = 1.1
b. FIFO ratio computations
FIFO current ratio (2015) = $300*/$200 = 1.5
2. The use of LIFO versus FIFO for Cruz markedly impacts the ratios computed.
Specifically, LIFO makes Cruz appear worse in comparison to FIFO numbers
Exercise 5-12 (25 minutes)
2. Reported income figures
Year 2014 Year 2015 Year 2016
Sales.............................. $850,000 $850,000 $850,000
Cost of goods sold
Beginning inventory..... $250,000 $230,000 $250,000
