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)
Price …………………………………………………………………………….
$75,000
Transportation-in ………………………………………………………….
2,400
Insurance on shipment ………………………………………………….
300
Cleaning and refurbishing……………………………………………..
980
Total cost of inventory…………………………..……………………...
$78,680
Exercise 5-3 (45 minutes)
a. Specific identification
Exercise 5-3 (continued)
b. Weighted Average—Perpetual
Date
Goods Purchased
Cost of Goods Sold
1/1
140 @ $6.00
= $ 840.00
1/10
100 @ $6.00 = $ 600.00
40 @ $6.00
= $ 240.00
1/20
60 @ $5.00
40 @ $6.00
= $ 540.00
60 @ $5.00
(avg. cost is $5.40)
1/25
80 @ $5.40 = $ 432.00
20 @ $5.40
= $ 108.00
1/30
180 @ $4.50
20 @ $5.40
= $ 918.00
$1,032.00
180 @ $4.50
(avg. cost is $4.59)
c. FIFO—Perpetual
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
1/1
140 @ $6.00
= $ 840.00
1/10
100 @ $6.00 = $ 600.00
40 @ $6.00
= $ 240.00
1/20
60 @ $5.00
40 @ $6.00
= $ 540.00
60 @ $5.00
1/25
40 @ $6.00
40 @ $5.00
20 @ $5.00
= $ 100.00
1/30
180 @ $4.50
20 @ $5.00
= $ 910.00
$1,040.00
180 @ $4.50
1/1
140 @ $6.00
= $ 840.00
1/10
40 @ $6.00
= $ 240.00
1/20
40 @ $6.00
= $ 540.00
60 @ $5.00
1/25
1/30
20 @ $6.00
180 @ $4.50
= $ 440.00
Exercise 5-3 (Concluded)
Alternate Solution Format for FIFO and LIFO Perpetual
Ending Cost of
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
(180 units x $15 price)
Cost of goods sold …………..
1,025.00
1,032.00
1,040.00
1,020.00
Gross profit ……………………..
1,675.00
1,668.00
1,660.00
1,680.00
Expenses …………………….…..
1,250.00
1,250.00
1,250.00
1,250.00
Income before taxes …….…..
425.00
418.00
410.00
430.00
Income tax expense (40%) ………
170.00
167.20
164.00
172.00
Net income ………………….…..
$ 255.00
$ 250.80
$ 246.00
$ 258.00
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 Identification—Periodic
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)
Cost of goods sold …………..
1,025.00
923.40
1,040.00
810.00
Gross profit ……………………..
1,675.00
1,776.60
1,660.00
1,890.00
Expenses …………………….…..
1,250.00
1,250.00
1,250.00
1,250.00
Income before taxes …….…..
425.00
526.60
410.00
640.00
Income tax expense (40%) ………
170.00
210.64
164.00
256.00
Net income ………………….…..
$ 255.00
$ 315.96
$ 246.00
$ 384.00
1. LIFO method results in the highest net income of $384.00.
Exercise 5-7 (20 minutes)
a. FIFO—Perpetual
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
1/1
200 @ $10
= $ 2,000
1/10
150 @ $10 = $ 1,500
50 @ $10
= $ 500
3/14
350 @ $15 = $5,250
50 @ $10
= $ 5,750
350 @ $15
3/15
50 @ $10
100 @ $15
= $ 1,500
250 @ $15 = $ 4,250
7/30
450 @ $20 = $9,000
100 @ $15
= $10,500
450 @ $20
10/5
100 @ $15
330 @ $20 = $ 8,100
120 @ $20
= $ 2,400
10/26
100 @ $25 = $2,500
120 @ $20
______
100 @ $25
= $ 4,900
$13,850
b. LIFO—Perpetual
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
1/1
200 @ $10
= $ 2,000
1/10
150 @ $10 = $ 1,500
50 @ $10
= $ 500
3/14
350 @ $15 = $ 5,250
50 @ $10
= $ 5,750
350 @ $15
3/15
50 @ $10
= $ 1,250
300 @ $15 = $ 4,500
50 @ $15
7/30
450 @ $20 = $ 9,000
50 @ $10
50 @ $15
= $ 10,250
450 @ $20
10/5
50 @ $10
430 @ $20 = $8,600
50 @ $15
= $ 1,650
20 @ $20
10/26
100 @ $25 = $ 2,500
50 @ $10
50 @ $15
20 @ $20
= $ 4,150
_______
100 @ $25
$14,600
Exercise 5-7 (Concluded)
Alternate Solution Format
Ending Cost of
Inventory Goods Sold
a. FIFO
Exercise 5-9A (20 minutes)
Cost of goods available for sale = $18,750 (given in Exercise 5-7)
Ending Cost of
Periodic Inventory System Inventory Goods Sold
a. FIFO—Periodic
(100 x $25) + (120 x $20) ……………………………………… $4,900
(200 x $10) + (350 x $15) + (330 x $20) …………………. $13,850
Exercise 5-10 (15 minutes)
Per Unit
Total
Total
LCM Applied
to Items
Inventory Items
Units
Cost
Market
Cost
Market
Helmets ………..
24
$50
$54
$1,200
$1,296
$1,200
Bats ……………..
17
78
72
1,326
1,224
1,224
Shoes …………..
38
95
91
3,610
3,458
3,458
Uniforms ……...
42
36
36
1,512
1,512
1,512
$7,648
$7,490
$7,394
Lower of cost or market of inventory by product = $7,394
Exercise 5-11 (20 minutes)
1. a. LIFO ratio computations
LIFO current ratio (2015) = $220/$200 = 1.1
LIFO inventory turnover (2015) = $740/ [($110+$160)/2] = 5.5
2. The use of LIFO versus FIFO for Cruz markedly impacts the ratios computed.
Specifically, LIFO makes Cruz appear worse in comparison to FIFO numbers
on the current ratio (1.1 vs. 1.5) but better on inventory turnover (5.5 vs. 3.8)
Exercise 5-12 (25 minutes)
1. Correct gross profit = $850,000 – $500,000 = $350,000 (for each year)
2. Reported income figures
Year 2014
Year 2015
Year 2016
Sales …………………………….
$850,000
$850,000
$850,000
Cost of goods sold
Beginning inventory …..
$250,000
$230,000
$250,000
Cost of purchases ………
500,000
500,000
500,000
Good available for sale ……
750,000
730,000
750,000
Ending inventory ………..
230,000
250,000
250,000
Cost of goods sold ……..
520,000
480,000
500,000
Gross profit ………………….
$330,000
$370,000
$350,000
Exercise 5-13 (20 minutes)
= 4.7 times
= 7.0 times $97,400/$643,825 x 365 days = 55.2 days
Analysis comment: It appears that during a period of increasing sales, Palmer
Exercise 5-14A (20 minutes)
Ending
Inventory
Cost of
Goods Sold
a. Specific identification
(50 x $2.90) + (50 x $2.80) + (50 x $2.50) ………….
$410.00
$3,855 [Goods Available] – $410.00 [Ending Inventory] …………
$3,445.00
b. Weighted average ($3,855/1,500 = $2.57)
150 x $2.57 [rounded to cents] ………………………………….
385.50
$3,855 [Goods Available] – $385.50 [Ending Inventory] …………
3,469.50
c. FIFO
(150 x $2.90)…………………………..………………………
435.00
(96 x $2.00) + (220 x $2.25) + (544 x $2.50) +
(480 x $2.80) + (10 x 2.90) ………………………….
3,420.00
d. LIFO
(96 x $2.00) + (54 x $2.25) ……………………………….
313.50
(160 x $2.90) + (480 x $2.80) + (544 x $2.50) +
(166 x $2.25) …………………………..…………………
3,541.50
Income effect: FIFO provides the lowest cost of goods sold, the
highest gross profit, and the highest net income, which is not
unexpected during a period of rising costs.