Problem 6-2B (40 minutes)
1. Compute cost of goods available for sale and units available for sale
Beginning inventory ……………………...
20 units @ $3,000
$ 60,000
April 6 …………………………………………..
30 units @ $3,500
105,000
April 17 ………………………………………….
5 units @ $4,500
22,500
April 25 ………………………………………….
10 units @ $4,800
48,000
Units available ……………………………….
65 units
Cost of goods available for sale ……..
$235,500
2. Units in ending inventory
Units available (from part 1) …………..…………..
65 units
Less: Units sold (35 + 25) …………………………..
60 units
Ending Inventory (units) ………………..…………
5 units
3.
Periodic Inventory
Ending
Inventory
Cost of
Goods Sold
a. FIFO
(5 x $4,800)……………………………………………………….
$24,000.00
(20x$3,000)+(30x$3,500)+(5x$4,500)+(5x$4,800) …
b. LIFO
(5 x $3,000)………………………………………………………
$15,000.00
(15x$3,000)+(30x$3,500)+(5x$4,500)+(10x$4,800)
c. Weighted average ($235,500/65=$3,623.08 [rounded])
(5 x $3,623.08)…………………………………………………..
$18,115.40
$235,500 [Goods Available] – $18,115.40 [Ending Inventory] ……
d. Specific identification
(5 x $4,500)……………………………………………………….
$22,500.00
$235,500 [Goods Available] – $22,500 [Ending Inventory] ………..
Problem 6-2B (Concluded)
4.
FIFO
LIFO
Weighted
Average
Specific
Identifi-
cation
Sales* ………………………………..
$770,000
$770,000
$770,000.00
$770,000
Less: Cost of goods sold …...
211,500
220,500
217,384.60
213,000
Gross profit ………………………..
$558,500
$549,500
$552,615.40
$557,000
*Sales = (35 units x $12,000) + (25 units x $14,000) = $770,000
Problem 6-3B (40 minutes)
1. Compute cost of goods available for sale and units available for sale
Beginning inventory ……………………...
150 units @ $300
$ 45,000
May 6 …………………………………………...
350 units @ $350
122,500
May 17 …………………………………………..
80 units @ $450
36,000
May 25 …………………………………………..
100 units @ $458
45,800
Units available ……………………………….
680 units
Cost of goods available for sale ……..
$249,300
2. Units in ending inventory
Units available (from part 1) …………..…………..
680 units
Less: Units sold (180 + 300) …………..…………..
480 units
Ending Inventory (units) ………………..…………
200 units
3a. FIFO perpetual
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
May 1
150 @ $300 = $ 45,000
May 6
350 @ $350 = $122,500
150 @ $300
350 @ $350 = $167,500
May 9
150 @ $300 = $ 45,000
30 @ $350 = $ 10,500
320 @ $350 = $112,000
May 17
80 @ $450 = $ 36,000
320 @ $350
80 @ $450 = $148,000
May 25
100 @ $458 = $ 45,800
320 @ $350
80 @ $450
100 @ $458 = $193,800
May 30
300 @ $350 = $105,000
20 @ $350
80 @ $450
100 @ $458 = $ 88,800
$160,500
Problem 6-3B (Continued)
3b. LIFO perpetual
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
May 1
150 @ $300 = $ 45,000
May 6
350 @ $350 = $122,500
150 @ $300
350 @ $350 = $167,500
May 9
180 @ $350 = $ 63,000
150 @ $300
170 @ $350 = $104,500
May 17
80 @ $450 = $ 36,000
150 @ $300
170 @ $350
80 @ $450 = $140,500
May 25
100 @ $458 = $ 45,800
150 @ $300
170 @ $350
80 @ $450
100 @ $458 = $186,300
May 30
100 @ $458 = $ 45,800
80 @ $450 = $ 36,000
120 @ $350 = $ 42,000
150 @ $300
50 @ $350 = $ 62,500
$186,800
3c. Weighted Average perpetual
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
May 1
150 @ $300 = $ 45,000
May 6
350 @ $350 = $122,500
150 @ $300
350 @ $350 = $167,500
(avg. = $335)
May 9
180 @ $335 = $ 60,300
320 @ $335 = $107,200
(avg. = $335)
May 17
80 @ $450 = $ 36,000
320 @ $335
80 @ $450 = $143,200
(avg. = $358)
May 25
100 @ $458 = $ 45,800
320 @ $335
80 @ $450
100 @ $458 = $189,000
(avg. = $378)
May 30
300 @ $378 = $113,400
200 @ $378 = $ 75,600
(avg. = $378)
$173,700
Problem 6-3B (Continued)
3d. Specific Identification
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
May 1
150 @ $300 = $ 45,000
May 6
350 @ $350 = $122,500
150 @ $300
350 @ $350 = $167,500
May 9
80 @ $300 = $ 24,000
100 @ $350 = $ 35,000
70 @ $300
250 @ $350 = $108,500
May 17
80 @ $450 = $ 36,000
70 @ $300
250 @ $350
80 @ $450 = $144,500
May 25
100 @ $458 = $ 45,800
70 @ $300
250 @ $350
80 @ $450
100 @ $458 = $190,300
May 30
200 @ $350 = $ 70,000
100 @ $458 = $ 45,800
70 @ $300
50 @ $350
80 @ $450 = $ 74,500
$174,800
Specific identification—Alternative Computation
Cost of goods sold—80 units from beginning inventory, 300 [100+200] units from May
6 purchase, and 100 units from May 25 purchase
Ending Cost of
Specific Identification Inventory Goods Sold
Problem 6-3B (Continued)
4.
FIFO
LIFO
Weighted
Average
Specific
Identifi-
cation
Sales* ………………………………..
$636,000
$636,000
$636,000
$636,000
Less: Cost of goods sold …...
160,500
186,800
173,700
174,800
Gross profit ………………………..
$475,500
$449,200
$462,300
$461,200
*Sales = (180 units x $1,200) + (300 units x $1,400) = $636,000
5. The manager of Aloha Company likely will prefer the FIFO method
Problem 6-4B (40 minutes)
1. Compute cost of goods available for sale and units available for sale
Beginning inventory ……………………...
150 units @ $300
$ 45,000
May 6 …………………………………………...
350 units @ $350
122,500
May 17 …………………………………………..
80 units @ $450
36,000
May 25 …………………………………………..
100 units @ $458
45,800
Units available ……………………………….
680 units
Cost of goods available for sale ……..
$249,300
2. Units in ending inventory
Units available (from part 1) …………..…………..
680 units
Less: Units sold (180 + 300) …………..…………..
480 units
Ending Inventory (units) ………………..…………
200 units
Problem 6-4B (Concluded)
3.
Periodic Inventory
Ending
Inventory
Cost of
Goods Sold
a. FIFO
(100 x $458.00) + (80 x $450.00) + (20 x $350.00) ..
$88,800.00
(150 x $300.00) + (330 x $350.00) ……………………….
b. LIFO
(150 x $300.00) + (50 x $350.00) ………………………..
$62,500.00
(100 x $458.00) + (80 x $450.00) + (300 x $350.00)
c. Weighted average ($249,300/680=$366.62 [rounded])
(200 x $366.62) …………………………………………………
$73,324.00
$249,300 [Goods Available] – $73,324 [Ending Inventory] ………..
d. Specific identification
(70x$300)+(50x$350)+(80x$450)+(0x$458) …………
$74,500.00
$249,300 [Goods Available] – $74,500 [Ending Inventory] ………..
4.
FIFO
LIFO
Weighted
Average
Specific
Identifi-
cation
Sales* ………………………………..
$636,000
$636,000
$636,000
$636,000
Less: Cost of goods sold …...
160,500
186,800
175,976
174,800
Gross profit ………………………..
$475,500
$449,200
$460,024
$461,200
*Sales = (180 units x $1,200) + (300 units x $1,400) = $636,000
5. The manager likely will prefer the FIFO method because it would yield
Problem 6-5B (50 minutes)
Per Unit
Total
Total
LCM Applied
Inventory Items
Units
Cost
Market
Cost
Market
to Items
Office furniture
Desks ………………..
536
$261
$305
$139,896
$163,480
$139,896
Credenzas …………
395
227
256
89,665
101,120
89,665
Chairs ………………..
687
49
43
33,663
29,541
29,541
Bookshelves ……..
421
93
82
39,153
34,522
34,522
Filing cabinets
Two–drawer ……….
114
81
70
9,234
7,980
7,980
Four–drawer ………
298
135
122
40,230
36,356
36,356
Lateral ……………….
75
104
118
7,800
8,850
7,800
Office equipment
Fax machines ……
370
168
200
62,160
74,000
62,160
Copiers ……………..
475
317
288
150,575
136,800
136,800
Telephones ……….
302
125
117
37,750
35,334
35,334
Total …………………….
$610,126
$627,983
$580,054
1. Lower of cost or market for inventory applied separately = $580,054
2.
Dec 31
Cost of Goods Sold ………………………………………….….
30,072
Merchandise Inventory …………………………..…..….
30,072
To adjust inventory cost to market.
$30,072 = $610,126 – $580,054
Problem 6-6B (35 minutes)
Part 1
(a)
Cost of goods sold
2012
2013
2014
Reported ……………………………..
$ 207,200
$ 213,800
$ 197,030
Adjustments: 12/31/2012 error
+ 18,000
– 18,000
12/31/2013 error
________
– 26,000
+ 26,000
Corrected …………………………….
$ 225,200
$ 169,800
$ 223,030
(b)
Net income
2012
2013
2014
Reported ……………………………..
$ 175,800
$ 212,270
$ 184,910
Adjustments: 12/31/2012 error
– 18,000
+ 18,000
12/31/2013 error
________
+ 26,000
– 26,000
Corrected …………………………….
$ 157,800
$ 256,270
$ 158,910
(c)
Total current assets
2012
2013
2014
Reported ……………………………..
$ 276,000
$ 277,500
$ 272,950
Adjustments: 12/31/2012 error
– 18,000
12/31/2013 error
________
+ 26,000
________
Corrected …………………………….
$ 258,000
$ 303,500
$ 272,950
(d)
Equity
2012
2013
2014
Reported …………………………………….
$ 314,000
$ 315,000
$ 346,000
Adjustments: 12/31/2012 error
– 18,000
12/31/2013 error
________
+ 26,000
________
Corrected ………………………………..….
$ 296,000
$ 341,000
$ 346,000
Part 2
Total net income for the combined three-year period ($572,980) is not affected by
understatement (or overstatement) in the following year.
Part 3
The overstatement of inventory by $18,000 results in an understatement of cost of
goods sold by that same amount. The $18,000 understatement of cost of goods
Problem 6-7BA (25 minutes)
Part 1
Number and total cost of units available for sale
6,500 units in beginning inventory @ $35 ………………………..
$ 227,500
11,500 units purchased @ $33 ………………………………………….
379,500
13,400 units purchased @ $32 ………………………………………….
428,800
11,000 units purchased @ $29 ………………………………………….
319,000
7,600 units purchased @ $27 ………………………………………….
205,200
50,000 units available for sale …………………………………………..
$1,560,000
Part 2
a. FIFO periodic
Total cost of 50,000 units available for sale…….
$1,560,000
Less ending inventory on a FIFO basis
7,600 units @ $27………………………………………
$205,200
900 units @ $29………………………………………
26,100
231,300
Cost of goods sold ………………………………………..
$1,328,700
b. LIFO periodic
Total cost of 50,000 units available for sale…….
$1,560,000
Less ending inventory on a LIFO basis
6,500 beg. inv. units @ $35 ………………………….
$227,500
2,000 units @ $33………………………………………..
66,000
293,500
Cost of goods sold ………………………………………..
$1,266,500
c. Weighted average periodic
Total cost of 50,000 units available for sale…….
$1,560,000
Less ending inventory at weighted average cost
($1,560,000/50,000) x 8,500 units………………….
265,200
Cost of goods sold ………………………………………..
$1,294,800
Problem 6-8BA (30 minutes)
Part 1
SHEPARD COMPANY
Income Statements Comparing FIFO, LIFO, and Weighted Average
For Year Ended December 31, 2013
FIFO
LIFO
Weighted
Average
Sales ……………………………………………………..
$400,000
$400,000
$400,000
Cost of goods sold
Inventory, Dec. 31, 2012 ………………………..
48,720
48,720
48,720
Cost of purchases…………………………………
261,280
261,280
261,280
Cost of goods available for sale …………….
310,000
310,000
310,000
Inventory, Dec. 31, 2013 ………………………..
65,000
58,160
62,000
Cost of goods sold ……………………………….
245,000
251,840
248,000
Gross profit ……………………………………………
155,000
148,160
152,000
Operating expenses ……………………………….
60,000
60,000
60,000
Income before taxes ……………………………….
95,000
88,160
92,000
Income taxes expense (40%) …………………..
38,000
35,264
36,800
Net income …………………………………………….
$ 57,000
$ 52,896
$ 55,200
Supporting calculations
FIFO
LIFO
Weighted
Average
Dec. 31, 2012, inventory (840 x $58) ………………
$ 48,720
$ 48,720
$ 48,720
Purchases
600 x $59 = $ 35,400
1,205 x $61 = 73,505
700 x $64 = 44,800
1,655 x $65 = 107,575
261,280
261,280
261,280
Total cost of goods available
$310,000
$310,000
$310,000
Dec. 31, 2013, inventory
FIFO:
1,000 x $65 = 65,000
$ 65,000
LIFO:
840 x $58 = $48,720
160 x $59 = 9,440
$ 58,160
W.A.:
($310,000/5,000) x 1,000
$ 62,000
Problem 6-8BA (Concluded)
Part 2
If Shepard Company had been experiencing decreasing costs in the
acquisition of inventory, we would observe the opposite results in our
Part 3
Advantages
LIFO: Assuming a trend of increasing costs, the advantage of using LIFO is
Disadvantages
LIFO: Assuming a trend of increasing costs, the disadvantage of using
LIFO is the inventory figure, which is also reported on the income
Problem 6-9BB (25 minutes)
Part 1
MACKLIN COMPANY
Estimated Inventory
December 31
At Cost At Retail
Goods available for sale
Beginning inventory ………………………………………
$ 90,022
$115,610
Cost of goods purchased ……………………………….
502,250
761,830
Goods available for sale …………………………………
$592,272
$877,440
Sales ……………………………………………………………….
$782,300
Less: Sales returns …………………………………………..
(3,460)
Net sales …………………………………………………………
$778,840
Ending inventory at retail ($877,440 – $778,840) ..
$ 98,600
Cost ratio: $592,272/$877,440 = 0.675 or 67.5%
Ending inventory at cost ($98,600 x 67.5%) ……….……..
$ 66,555
Part 2
MACKLIN COMPANY
Inventory Shortage
December 31
At Cost At Retail
Estimated inventory (from part 1) ……………………....
$66,555.00
$98,600.00
Physical inventory* …………………………………………....
54,303.75
80,450.00
Inventory shortage …………………………………………....
$12,251.25
$18,150.00
* $54,303.75 = $80,450 (given) x 67.5% (from part 1)—some students may round amounts
to the nearest dollar.
Problem 6-10BB (25 minutes)
OTINGO EQUIPMENT CO.
Estimated Inventory at March 31
At Cost
At Retail
Goods available for sale
Inventory, January 1 …………………………………
$ 802,880
Cost of goods purchased ………………………….
2,209,636
Goods available for sale …………………………...
3,012,516
Less estimated cost of goods sold
Sales ………………………………………………………..
$3,760,260
Less sales returns ……………………………………
(79,300)
Net sales ………………………………………………….
$3,680,960
Estimated cost of goods sold
[$3,680,960 x (1 – 35%)] …………………………
(2,392,624)
Estimated March 31 inventory ……………………..
$ 619,892
SERIAL PROBLEM — SP 6
Serial Problem — SP 6, Success Systems (20 minutes)
Part A
1.
Per Unit
Total
Total
Inventory Items
Units
Cost
Market
Cost
Market
Office productivity ………..
3
$ 76
$ 74
$228
$222
Desktop publishing……….
2
103
100
206
200
Accounting …………………..
3
90
96
270
288
Totals …………………………..
$704
$710
Assuming LCM is applied to the “whole of inventory,” the $704 total cost