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Title: Problem 6-7BA
QA_Ori:
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
Part 2
a. FIFO periodic
Total cost of 50,000 units available for sale $1,560,000
Less ending inventory on a FIFO basis
b. LIFO periodic
Total cost of 50,000 units available for sale $1,560,000
Less ending inventory on a LIFO basis
c. Weighted average periodic
Part 2
a. FIFO periodic
b. LIFO periodic
Title: Problem 6-8BA
QA_Ori:
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
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
Dec. 31, 2013, inventory
Part 2
If Shepard Company had been experiencing decreasing costs in the acquisition
of inventory, we would observe the opposite results in our comparisons.
Part 3
Advantages
LIFO: Assuming a trend of increasing costs, the advantage of using LIFO is that
Disadvantages
LIFO: Assuming a trend of increasing costs, the disadvantage of using LIFO is
FIFO: The disadvantage of using FIFO is that it will produce a greater tax
Part 1
QA_Ori:
MACKLIN COMPANY
Estimated Inventory
December 31
At Cost At Retail
Goods available for sale
Sales $782,300
Part 2
MACKLIN COMPANY
Inventory Shortage
December 31
amounts to the nearest dollar.
Title: Problem 6-10BB
QA_Ori:
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
Title: Serial Problem — SP 6, Success Systems Part A
QA_Ori:
1.
Per Unit Total Total
Inventory Items Units Cost Market Cost Market
Office productivity 3 $ 76 $ 74 $228 $222
Assuming LCM is applied to the “whole of inventory,” the $704 total cost of
inventory is less than the $710 total market value. Thus, the company would not
adjust the currently reported inventory value of $704.
2.
Per Unit Total Total LCM
Applied
Inventory Items Unit
s
Cost Market Cost Market To Items
Office productivity 3 $ 76 $ 74 $228 $222 $222
Title: Reporting in Action 3
QA_Ori:
Polaris’s inventories are its second largest assets (behind cash) at
Title: Reporting in Action 4
QA_Ori:
Reviewing notes to its financial statements, we see Note 1 under the
Title: Reporting in Action 5
QA_Ori:
a. Inventory turnover =
b. Days’ sales in inventory = x 365
QA_Edit:
a. Inventory turnover =
Cost of sales
Average inventory
Ending inventory
Cost of sales
b. Days’ sales in inventory = x 365
Title: Reporting in Action 6
QA_Ori:
Solution depends on the financial statement information obtained.
Title: Comparative Analysis 1
QA_Ori:
($ thousands)
Inventory turnover =
Polaris — current year
Arctic Cat — one year prior
Inventory turnover = = 3.64 times
Title: Comparative Analysis 2
QA_Ori:
Days’ sales in inventory = x 365
Current year — Polaris’s days’ sales in inventory
Cost of sales
Average inventory
Ending Inventory
Costs of Goods Sold
$367,492
($81,361 + $120,804)/2
Ending inventory
Cost of sales
One year prior —Polaris’s days’ sales in inventory
Title: Comparative Analysis 3
QA_Ori:
For all years examined here, Polaris manages its inventory more efficiently
than does Arctic Cat. Polaris’s inventory turnover is higher, and its days’ sales in
Title: Ethics Challenge 1
QA_Ori:
Profit Margin: In an economic environment of rising costs, the use of FIFO
Current Ratio: With rising costs, FIFO results in the most recent, higher
costs being reflected in ending inventory. This means that the balance sheet
$298,042
$1,916,366
FIFO inventory figure will be larger than under LIFO. In the numerator of the
Title: Ethics Challenge 2
QA_Ori:
First, it is true that managers have discretion in choosing an inventory
Second, the consistency concept does not allow frequent changes in inventory
costing methods by management. If Golf Challenge’s owner can justify the
Third, the full disclosure principle requires the owner to disclose to the bank that
Finally, if LIFO is currently being used for tax reporting, then the tax reporting
Title: Communicating in Practice
QA_Ori:
The body of the memo would likely recommend use of the LIFO method for this
start-up business. The memo should explain that this would allow for the
Title: Taking It to the Net 1
QA_Ori:
Apple designs, manufactures, and markets mobile communication and
Title: Taking It to the Net 2
QA_Ori:
Its summary of significant accounting policies (Note 1) reports: “Inventories
are stated at the lower of cost, computed using the first-in, first-out method, or
market.”
Title: Taking It to the Net 3
QA_Ori:
Its gross margin for 2011 is ($ millions)
Comment: Its gross margin ratio is on par with the industry average gross
Title: Taking It to the Net 4
QA_Ori:
2011 Inventory turnover* =
2011 Days’ sales in inventory* =
* $ millions
Comment: Its inventory turnover is higher (more favorable) than the
