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Problem 5-3A (Continued)
3b. LIFO perpetual
Date Goods Purchased Cost of Goods Sold Inventory Balance
1/1 600 @ $45.00 = $27,000
2/10 400 @ $42.00= $16,800 600 @ $45.00
400 @ $42.00 = $43,800
3/13 200 @ $27.00= $ 5,400 600 @ $45.00
400 @ $42.00 = $49,200
200 @ $27.00
9/10 500 @ $46.00
100 @ $50.00 = $28,000 400 @ $45.00 = $18,000
$59,200
LIFO alternate solution format
Cost of goods available for sale $77,200
Less: Cost of sales 500 @ $46 $23,000
100 @ 50 5,000
Proof of Ending Inventory
Problem 5-3A (Continued)
3c. Weighted Average
Date Goods Purchased Cost of Goods Sold Inventory Balance
1/1 600 @ $45.00 = $27,000
2/10 400 @ $42.00= $16,800 600 @ $45.00
400 @ $42.00 = $43,800
(avg. cost is $43.80)
9/5 500 @ $46.00= $23,000 400 @ $41.00
100 @ $50.00
500 @ $46.00 = $44,400
(avg. cost is $44.40)
9/10 600 @ $44.40 = $26,640 400 @ $44.40 = $17,760
$59,440
Problem 5-3A (Continued)
3d. Specific Identification
Cost of goods available for sale.................... $77,200
Less: Cost of Goods Sold
600 @ $45.00...................................... $27,000
300 @ $42.00...................................... 12,600
200 @ $27.00...................................... 5,400
Proof of Ending Inventory
100 @ $42 $ 4,200
4.
FIFO LIFO
Specific
Identifi-
cation
Weighted
Average
Sales (1,400 x $75)..................$105,000 $105,000 $105,000 $105,000
5. Montoure’s manager would likely prefer the FIFO method since this
Problem 5-4A (40 minutes)
1. Calculate cost of goods available for sale and units available for sale
Beginning inventory............................ 600 units @ $45.00 $27,000
Feb. 10.................................................. 400 units @ $42.00 16,800
2. Units in ending inventory
Units available (from part 1)............................1,800
Problem 5-4A (Concluded)
3.
Periodic Inventory
Ending
Inventory
Cost of
Goods Sold
a. FIFO
(400 x $46.00)............................................................ $18,400.00
(600x$45.00) + (400x$42.00) + (200x$27.00) +
(100x$50.00) + (100x$46.00).....................................
$58,800.00
b. LIFO
(400 x $45.00)............................................................ $18,000.00
(500 x $46.00) + (100 x $50.00) + (200 x $27.00) +
(400 x $42.00) + (200 x $45.00).................................
$59,200.00
4.
FIFO LIFO
Specific
Identifi-
cation
Weighted
Average
Sales (1,400 x $75)..................$105,000 $105,000 $105,000 $105,000
Less: Cost of goods sold....... 58,800 59,200 59,000 60,044
Gross profit.............................$ 46,200 $ 45,800 $ 46,000 $ 44,956
5. The manager would likely prefer the FIFO method since this methods’
Problem 5-5A (50 minutes)
Per Unit Total Total LCM Applied
to Items
Inventory Items Unit
s Cost Market Cost Market
Audio equipment:
Receivers................. 345 $ 90 $ 98 $ 31,050 $ 33,810 $ 31,050
CD players............... 260 111 100 28,860 26,000 26,000
MP3 players............. 326 86 95 28,036 30,970 28,036
Speakers.................. 204 52 41 10,608 8,364 8,364
Problem 5-6A (35 minutes)
Part 1
(a)
Cost of goods sold 2014 2015 2016
(b)
Net income 2014 2015 2016
Reported....................................... $ 230,000 $ 285,000 $ 241,000
Adjustments: 12/31/2014 error....... + 56,000 - 56,000
12/31/2015 error....... . - 20,000 + 20,000
Corrected..................................... $ 286,000 $ 209,000 $ 261,000
(c)
Total current assets 2014 2015 2016
Reported....................................... $1,255,000 $1,365,000 $1,200,000
(d)
Equity 2014 2015 2016
Reported....................................... $1,387,000 $1,530,000 $1,242,000
Adjustments: 12/31/2014 error....... + 56,000
12/31/2015 error....... _________ - 20,000 .
Corrected..................................... $1,443,000 $1,510,000 $1,242,000
Part 2
Total net income for the combined three-year period ($756,000) is not affected
by the errors. This is because these errors are "self-correcting"—that is, each
Part 3
The understatement of inventory by $56,000 results in an overstatement of cost of
Problem 5-7AA (25 minutes)
Part 1
Number and total cost of units available for sale
23,000 units in beginning inventory @ $15........................... $ 345,000
30,000 units purchased @ $18................................................ 540,000
39,000 units purchased @ $20................................................ 780,000
Part 2
a. FIFO periodic
Total cost of 150,000 units available for sale.................... $3,150,000
Less ending inventory on a FIFO basis
b. LIFO periodic
Total cost of 150,000 units available for sale.................... $3,150,000
Less ending inventory on a LIFO basis
c. Weighted average periodic
Total cost of 150,000 units available for sale.................... $3,150,000
Problem 5-8AA (50 minutes)
Part 1
QP CORP.
Income Statements Comparing FIFO, LIFO, and Weighted Average
For Year Ended December 31, 2015
FIFO LIFO
Weighted
Average
Sales...............................................................$200,000 $200,000 $200,000
Cost of goods sold
Inventory, Dec. 31, 2014.............................. 12,600 12,600 12,600
Cost of purchases....................................... 109,400 109,400 109,400
Cost of goods available for sale................ 122,000 122,000 122,000
Inventory, Dec. 31, 2015................................ 44,000 37,300 40,660
Supporting calculations FIFO LIFO
Weighted
Average
Dec. 31, 2014, inventory (700 x $18)................... $ 12,600 $ 12,600 $ 12,600
Purchases
1,700 x $19 = $32,300
800 x $20 = 16,000
500 x $21 = 10,500
Problem 5-8AA (Concluded)
Part 2
If QP Corp. had been experiencing declining costs in the acquisition of
inventory, we would observe the opposite results in our comparisons.
Part 3
Advantages
LIFO: Given the cost trends in the problem, the advantage of using LIFO is
that the lower net income will result in a lower tax obligation (tax deferral).
Disadvantages
LIFO: Given the cost trends in the problem, the disadvantage of using LIFO
is that the inventory figure, which is also reported on the balance sheet,
