c.
PROBLEM 8.1
A
SPORTS WORLD (concluded)
No. As shown in part a, the LIFO method resulted in the highest cost of goods sold figure, whereas
Education.
30 Minutes, Strong
(1) Average-cost method:
(a) Cost of goods sold on July 28:
4
,
980
$
19
,
920
$
(b) Ending inventory (4 units) at September 30:
,
,
$
g
(
,
$
,
$
,
,
,
$
g
(
)
(b) Ending inventory (4 units) at September 30: 5
,
000
$
15
,
300 20
,
300
$
(3) Last-in, first-out (LIFO) method:
(a) Cost of goods sold on July 28:
15
,
000
$
4
,
950 19
,
950
$
,
$
@
,
,
$
g
y,
p
PROBLEM 8.2
A
a. Cost of goods sold and ending inventory
SPEED WORLD CYCLES: PERPETUAL SYSTEM
Avera
g
e cost
(
as of Jul
y
22
;
$24
,
900 ÷ 5 units
)
Cost of
g
oods sold
(
4 units
@
$4
,
980
)
g
g
1 unit from Jul
y
22
p
urchase
@
$5
,
000
Endin
g
inventor
y,
Se
p
tember 30
3 units from Au
g
ust 3
p
urchase
@
$5
,
100
Cost of
g
oods sold
(
4 units
)
3 units from
p
urchase of Jul
y
22
@
$5
,
000
1 unit from
p
urchase of Jul
y
1
@
$4
,
950
,
$
b. (1)
(2)
In this situation, the LIFO method will minimize income taxes, as it assigns the most recent
and income tax returns. However, tax laws require a taxpayer using LIFO in its income tax
return also to use the LIFO method in its financial statements.
PROBLEM 8.2
A
SPEED WORLD CYCLES: PERPETUAL SYSTEM (concluded)
The FIFO method will result in the highest net income, as it assigns the oldest (lowest) costs to
the cost of goods sold. FIFO will result in the highest net income whenever the oldest purchase
costs are also the lowest—that is, in the common situation of rising prices.
Education.
20 Minutes, Medium
(1) Average-cost method:
Ending inventory at September 30:
5
,
025
$
20
,
100
$
Cost of goods sold through September 30: 40
,
200
$
20
,
,
$
,
$
,
,
$
,
$
,
,
$
(@
g
y
PROBLEM 8.3
A
a. Cost of goods sold and ending inventory
SPEED WORLD CYCLES: PERIODIC SYSTEM
Avera
g
e cost
(
$40
,
200 ÷ 8 units
)
Endin
g
inventor
y
(
4 units
@
$5
,
025
)
Cost of
g
oods available for sale
Education.
20 Minutes, Medium
a. Shrinkage loss – 40 trees
1
,
208
Inventor
y
1
,
208
p
(
@
)
g
g
1,000
Inventor
y
1,000
,
y
,
,
(
Cost of Goods Sold
(
1
)
Avera
g
e-cost method:
To record shrinka
g
e loss of 40 trees usin
g
avera
g
e cost of
$30.20
(
$10
,
570 ÷ 350 trees = $30.20
p
er tree
)
.
PROBLEM 8.4
A
MARY’S NURSER
Y
To record shrinka
g
e loss of 40 trees usin
g
the FIFO flow
b. Shrinka
g
e loss and LCM ad
j
ustment
(
1
)
Shrinka
g
e loss
,
first-in
,
first-out
(
FIFO
)
method:
Cost of Goods Sold
assum
p
tion
(
40 trees
@
$25
)
.
Education.
y
25 Minutes, Easy
U
n
it
s
U
n
it
C
os
t
T
o
t
a
l
C
os
t
a. Inventory and cost of goods sold:
(1) FIFO:
Fourth purchase (Dec.18) 17 320
$
5
,
440
$
Thi
r
d
purc
h
ase
(O
c
t
.
4)
5
315 1
,
575
Cost of
g
oods available for sale 22
,
606
$
10
306
3
y
Ending inventory, LIFO 22 6,648$
Cost of
g
oods available for sale 22
,
606
$
,
22
309
70
$
,
$
309
70
$
y
PROBLEM 8.5
A
CLEAR SOUND AUDIO
Cost of
g
oods sold:
Inventor
y
:
Cost of
g
oods sold:
E
di
,
$
20 Minutes, Medium
a.
2015
2014
2013
Net sales 875,000$ 840,000$ 820,000$
PROBLEM 8.6
A
HEALTH FOODS
Cost of Goods Sold:
$480,000 – $40,000 = $440,000 2013:
Education.
25 Minutes, Medium
a.
462
,
000
$
840
,
000
55%
409
200
(
)
g
52
$
$
(
)
(p
$
46
6
$
(
)
,
(
)
g
g
G
ross pro
fit
328
,
464
$
c.
Cost ratio for the current
y
ear:
CDs and recorded music in other formats can easily fit into someone’s pocket and “walk out of the
warehouse.” Thus, it is important that effective controls be in place to reduce inventory shrinkage.
Cost of
g
oods available for sale
Retail
p
rices of
g
oods available for sale
Cost ratio
(
$462
,
000 ÷ $840
,
000
)
(
1
)
Estimated cost of
g
oods sold:
PROBLEM 8.7
A
BETWEEN THE EARS
Education.
,
$
20 Minutes, Strong
a. Computations based on LIFO valuation of inventory:
(1) Inventory turnover rate:
(3) Gross profit rate:
Gross Profit = 116,674
$
24.9%
Net Sales 469,162$
b.
c. You would ex
p
ect the ratios to be different under FIFO as follows:
Inventory turnover rate: Cost of goods sold lower, inventory higher,
d. The average days required to collect outstanding receivables is computed by dividing 365 days by
a company’s accounts receivable turnover rate. The turnover rate is computed by dividing net
sales by average accounts receivable. Thus, the lower a company’s average accounts receivable,
The company must have encountered increasing replacement costs for its merchandise during the
year.
PROBLEM 8.8
A
WAL-MAR
T
Education.
35 Minutes, Medium
Jan 22 14
,
800
Inventor
y
14
,
800
Jan 22 15
,
050
Inventor
y
15
,
050
,
y
,
(
)
g
,
(
)
g
Cost of Goods Sold
SOLUTIONS TO PROBLEMS SET B
PROBLEM 8.1B
DOBBINS SUPPLY, INC.
Cost of Goods Sold
a.
2015
General Journal
(1) Specific identification method:
To record cost of 700 cartrid
g
es sold to Foster
Office Fitters: 300 units
@
$20
;
400 units
@
$22.
(
2
)
Avera
g
e-cost method:
g
b. Inventory subsidiary ledger records:
(1) Specific identification method: DOBBINS SUPPLY INC. (cont.)
Date Units Unit Cost Total Units Unit Cost
Cost of
Goods Sold Units Unit Cost Balance
Dec 12 400 20
$
8
,
000
$
400 20
$
8
,
000
$
Jan 16 1
,
200 22 26
,
400 400 20
1
,
200 22 34
,
400
Jan 22 300 20
$
100 20
400 22 14
,
800
$
800 22 19
,
600
(2)
A
vera
g
e-cos
t
me
th
o
d
:
Date Units Cost Total Units Unit Cost
Cost of
Goods Sold Units Cost Balance
Dec 12 400 20
$
8
,
000
$
400 20.00
$
8
,
000
$
Jan 16 1
,
200 22 26
,
400 1
,
600 21.50 34
,
400
Jan 22 700 21.50
$
15
,
050
$
900 21.50 19
,
350
* $34,400 total cost ÷ 1,600 units = $21.50 average unit cost.
(3) First-in, first-out (FIFO) method:
,
,
,
,
$
,
$
,
Date Units Unit Cost Total Units Unit Cost
Goods Sold Units Unit Cost Balance
Dec 12 400 20
$
8
,
000
$
400 20
$
8
,
000
$
Jan 16 1
,
200 22 26
,
400 400 20
1
,
200 22 34
,
400
Jan 22 700 22
$
15
,
400
$
400 20
500 22 19
,
000
PROBLEM 8.1B
PURCHASED SOLD
BALANCE
PURCHASED SOLD BALANCE
$
,
$
$
,
$