Problem 6-3A (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
200 @ 27 5,400
Problem 6-3A (Continued)
3c. Weighted Average
Date Goods Purchased Cost of Goods Sold Inventory Balance
1/1 600 @ $45.00 = $27,000
3/15 800 @ $41.00 = $32,800 400 @ $41.00 = $16,400
8/21 100 @ $50.00= $ 5,000 400 @ $41.00
100 @ $50.00 = $21,400
(avg. cost is $42.80)
Problem 6-3A (Continued)
3d. Specific Identification
Cost of goods available for sale……………..… $77,200
Less: Cost of Goods Sold
250 @ $46.00…………………………….…. 11,500
Total cost of goods sold…………………………... 59,000
Ending Inventory……………………………………… $18,200
Proof of Ending Inventory
100 @ $42 $ 4,200
50 @ $50 $ 2,500
250 @ $46 11,500
Ending Inventory…. 400 units $18,200
4.
FIFO LIFO
Specific
Identifi-
cation
Weighted
Average
5. Montoure’s manager would likely prefer the FIFO method since this
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
3.
Ending Cost of
Periodic Inventory Inventory 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
d. Specific identification
(100 x $42.00) + (50 x $50.00) + (250 x $46.00)....... $18,200.00
$77,200 [Goods Available] – $18,200.00 [Ending Inventory]......... $59,000.00
4.
FIFO LIFO
Specific
Identifi-
cation
Weighted
Average
5. The manager would likely prefer the FIFO method since this methods’
gross profit is the largest at $46,200. This would give the manager the
highest bonus based on gross profit.
Problem 6-5A (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
Video equipment:
Handheld LCDs…….. 480 150 125 72,000 60,000 60,000
Equity 2014 2015 2016
Reported………………………………… $1,387,000 $1,530,000 $1,242,000
Adjustments: 12/31/2014 error……. + 56,000
Part 2
Total net income for the combined three-year period ($756,000) is not affected
Part 3
The understatement of inventory by $56,000 results in an overstatement of cost of
goods sold by that same amount. The $56,000 overstatement of cost of goods
Problem 6-7AA (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
150,000 units available for sale ………………..….….…….…….….. $3,150,000
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
Less ending inventory at weighted average
Problem 6-8AA (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……………….…….…….….. 78,000 84,700 81,340
Gross profit……………………………………..….…. 122,000 115,300 118,660
Operating expenses…………………….…….…… 20,000 20,000 20,000
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 6-8AA (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.
gross profit, and lower net income.
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