Quick Study 6-22B (15 minutes)
Goods available for sale
Inventory, January 1……………………………………………………………$190,000
Quick Study 6-23 (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
c. U.S. GAAP prohibits any later increase in the recorded value of
EXERCISES
Exercise 6-1 (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 6-2 (10 minutes)
Cost of inventory (estate’s contents)
Price………………………………………………………………………….. $75,000
Exercise 6-3 (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
Exercise 6-3 (continued)
b. Weighted Average—Perpetual
Date Goods Purchased Cost of Goods Sold Inventory Balance
1/1 140 @ $6.00 = $ 840.00
c. FIFO—Perpetual
Date Goods Purchased Cost of Goods Sold Inventory Balance
1/1 140 @ $6.00 = $ 840.00
d. LIFO—Perpetual
Date Goods Purchased Cost of Goods Sold Inventory Balance
1/1 140 @ $6.00 = $ 840.00
Exercise 6-3 (Concluded)
Alternate Solution Format for FIFO and LIFO Perpetual
Ending Cost of
Computations Inventory Goods Sold
c. FIFO
Exercise 6-4 (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
1. LIFO method results in the highest net income of $258.00.
2. Weighted average net income of $250.80 falls between the FIFO net
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
d. LIFO—Periodic
*rounded to dollars and cents
Exercise 6-6 (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
1. LIFO method results in the highest net income of $384.00.
Exercise 6-7 (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
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
3/14 350 @ $15 = $ 5,250 50 @ $10 = $ 5,750
350 @ $15
3/15 50 @ $10 = $ 1,250
300 @ $15 = $ 4,500 50 @ $15
Exercise 6-7 (Concluded)
Alternate Solution Format
Ending Cost of
Inventory Goods Sold
a. FIFO
(100 x $25) + (120 x $20)……………………………………………….. $4,900
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 6-8 (15 minutes)
a. Specific Identification method—Cost of goods sold
Cost of goods available for sale…………………………………….. $18,750
Ending inventory under specific identification
b. Specific Identification method—Gross margin
Sales revenue (880 units sold x $40 selling price)…………… $35,200
Exercise 6-9A (20 minutes)
Ending Cost of
Periodic Inventory System Inventory Goods Sold
a. FIFO—Periodic
b. LIFO—Periodic
c.
FIFO—Periodic Gross Margin
LIFO—Periodic Gross Margin
Exercise 6-10 (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
Exercise 6-11 (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
on the current ratio (1.1 vs. 1.5) but better on inventory turnover (5.5 vs. 3.8)
Exercise 6-12 (25 minutes)
1. Correct gross profit = $850,000 – $500,000 = $350,000 (for each year)
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