Type
Solution Manual
Book Title
N/A
ISBN 13
N/A

978-0078025754 Chapter 5 Solution Manual Part 1

March 26, 2020
Chapter 5
Inventories and Cost of Sales
QUESTIONS
1. (a) FIFO: The cost of the first (earliest) items purchased in inventory flow to cost of
2. Merchandise inventory is disclosed on the balance sheet as a current asset. It is
3. Incidental costs sometimes are ignored in computing the cost of inventory because
the expense of tracking such costs on a precise basis can outweigh the benefits
4. LIFO will result in the lower cost of goods sold when costs are declining because it
assigns the most recent, lower cost purchases to cost of goods sold.
5. The full-disclosure principle requires that the nature of the accounting change, the
6. No; changing the inventory method each period would violate the accounting
concept of consistency.
7. No; the consistency concept does not preclude changes in accounting methods
8. Many people make important business decisions based on period-to-period
fluctuations in a company's financial numbers, including gross profit and net
9. An inventory error that causes an understatement (or overstatement) for net income
in one accounting period, if not corrected, will cause an overstatement (or
10. Market usually means replacement cost of inventory when applied in the LCM.
11. The accounting constraint of conservatism guides preparers of accounting reports
12. Factors that contribute to inventory shrinkage are breakage, loss, deterioration,
decay, and theft.
13.B For interim reporting, companies can estimate costs of goods sold and ending
inventory by either the retail inventory method or the gross profit method.
14. On December 31, 2013, inventory as a percent of current assets is ($ millions):
$426 / $72,886 = 0.6%.
15. Cost of goods available for sale equals ending inventory plus cost of sales. As of
16. Cost of goods available for sale equals ending inventory plus cost of sales. As of
17. Merchandise inventory (in KRW millions) comprises 17.3% (computed as
QUICK STUDIES
Quick Study 5-1 (10 minutes)
Units in ending inventory
Quick Study 5-2 (10 minutes)
Cost ................................................................
$14,000
Plus
Transportation-in ..............................................
250
Quick Study 5-3 (10 minutes)
Beginning inventory .....................................
10 units @ $60
Plus
Quick Study 5-4 (10 minutes)
FIFOPerpetual
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
1/1
320 @ $3.00
= $ 960.00
1/9
80 @ $3.20
320 @ $3.00
Quick Study 5-5 (10 minutes)
LIFOPerpetual
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
1/1
320 @ $3.00
= $ 960.00
Quick Study 5-6 (10 minutes)
Weighted AveragePerpetual
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
1/1
320 @ $3.00
= $ 960.00
Quick Study 5-7A (10 minutes)
Ending Cost of
FIFOPeriodic Inventory Goods Sold
Quick Study 5-8A (10 minutes)
Ending Cost of
LIFOPeriodic Inventory Goods Sold
Quick Study 5-9A (10 minutes)
Ending Cost of
Weighted AveragePeriodic Inventory Goods Sold
Weighted Average ($1,550/ 500 = $3.10 cost per unit)
Quick Study 5-10 (25 minutes)
FIFOPerpetual
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
12/ 7
10 @ $ 6 = $ 60
10 @ $ 6
= $ 60.00
Quick Study 5-11
LIFOPerpetual
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
12/7
10 @ $ 6 = $ 60
10 @ $ 6
= $ 60
Quick Study 5-12
Weighted AveragePerpetual
Quick Study 5-13
Specific IdentificationPerpetual
Quick Study 5-14A (10 minutes)
Ending Cost of
FIFOPeriodic Inventory Goods Sold
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
12/7
10 @ $6 = $60
10 @ $6
= $ 60
Quick Study 5-15A (10 minutes)
Ending Cost of
LIFOPeriodic Inventory Goods Sold
Quick Study 5-16A (10 minutes)
Ending Cost of
Weighted AveragePeriodic Inventory Goods Sold
*If unit cost is not rounded, then ending inventory is $340 and cost of goods sold is $170.
Quick Study 5-17A (10 minutes)
Ending Cost of
Specific IdentificationPeriodic Inventory Goods Sold
Quick Study 5-18 (10 minutes)
1. LIFO
Quick Study 5-19 (20 minutes)
Per Unit
Total
Total
LCM -
Items
Inventory Items
Units
Cost
Market
Cost
Market
Mountain bikes
11
$600
$550
$ 6,600
$ 6,050
$ 6,050
Quick Study 5-20 (15 minutes)
a. Overstates 2015 cost of goods sold.
Quick Study 5-21 (10 minutes)
Quick Study 5-22B (15 minutes)
Goods available for sale
Inventory, January 1 ................................................................
$190,000
Quick Study 5-23 (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.
Specifically, merchandise inventory includes all items that a company
EXERCISES
Exercise 5-1 (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 5-2 (10 minutes)
Cost of inventory (estate’s contents)
Exercise 5-3 (45 minutes)
a. Specific identification
Exercise 5-3 (continued)
b. Weighted AveragePerpetual
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
1/1
140 @ $6.00
= $ 840.00
c. FIFOPerpetual
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
1/1
140 @ $6.00
= $ 840.00
d. LIFOPerpetual
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
1/1
140 @ $6.00
= $ 840.00
Exercise 5-3 (Concluded)
Alternate Solution Format for FIFO and LIFO Perpetual
Ending Cost of
Computations Inventory Goods Sold
Exercise 5-4 (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
1. LIFO method results in the highest net income of $258.00.
Exercise 5-5A (35 minutes)
Ending Cost of
Periodic Inventory Computations Inventory Goods Sold
a. Specific IdentificationPeriodic
Exercise 5-6 (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)

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