Chapter 05 – Reporting and Analyzing Inventories
1. Ending inventories at September 29, 2012: $791.
2. September 29, 2012: $791 / $176,064 = 0.0045 or 0.45%
3. Apple’s inventories are its smallest asset at September 29, 2012.
Goodwill has a slightly larger balance, but every other asset account is
4. Reviewing notes to its financial statements, we see from Note 1 under
the subheading “inventories” that Apple’s inventories are stated at the
5. a. Inventory turnover =
Average inventory = ($791+ $776) / 2
6. Solution depends on the financial statement information obtained.
Cost of sales
Average inventory
Chapter 05 – Reporting and Analyzing Inventories
1. Inventory turnover =
Apple — current year
Inventory turnover = = 112.1 times
Cost of sales
Average inventory
$87,846
($791 + $776) / 2
($35 + $0 ) / 2
Solutions Manual, Chapter 5
63
2. Days’ sales in inventory = x 365
Current year — Apple’s days’ sales in inventory
= ($791/$87,846) x 365 = 3.29 days
3. For the most recent year, Apple manages its inventory more efficiently
than does Google. Apple’s inventory turnover is higher, and its days’
sales in inventory is shorter. For the prior years, Google manages it
Ending Inventory
Costs of Goods Sold
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McGraw-Hill Education.
Financial Accounting, 7th Edition
64
1. Profit Margin: In an economic environment of rising costs, the use of
FIFO results in a lower cost of goods sold than LIFO. If cost of goods
sold is lower, then net income will be higher. A higher net income will
2. First, it is true that managers have discretion in choosing an inventory
costing method. It appears, however, that Golf Challenge’s owner does
not understand that changing methods can only be done very
selectively over time. A change in method must be justified by
management for improving the financial reporting of the company.
reporting method must also change due to the LIFO Conformity Rule—
which demands that if LIFO is used for tax reporting, it must be used
for financial reporting.
Chapter 05 – Reporting and Analyzing Inventories
Communicating in Practice — BTN 5-4
1. Apple designs, manufactures, and markets mobile communication and
2. Its summary of significant accounting policies (Note 1) reports:
3. Its gross margin for 2011 is ($ millions)
Sales ……………………………………………………………
$108,249
Cost of sales ………………………………………………..
(64,431)
Gross margin ……………………………………………….
$ 43,818
Gross margin ratio is: $43,818 / $108,249 = 0.405 or 40.5%
Comment: Its gross margin ratio is on par with the industry average
gross margin ratio of 40%.
4. 2011 Inventory turnover* =
$64,431/ [($776 + $1,051)/2] = 70.5 times
2011 Days’ sales in inventory* =
($776 / $64,431) x 365 = 4.4 days
* $ millions
© 2015 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
actual cost. Total cost of goods sold is tallied based on these individual
cost assignments. The new inventory balance is perpetually determined to
be the amount after sales at actual cost is deducted.
(a) and (b) Procedures:
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
Jan. 1
50 @ $100 = $ 5,000
Jan.10
30 @ $ 100 = $ 3,000
20 @ $100 = $ 2,000
Jan.14
150 @ $120 = $18,000
20 @ $100 = $ 2,000
150 @ $120 = 18,000
$20,000
Feb.15
100 @ $ 120 = $12,000
20 @ $100 = $ 2,000
50 @ $120 = 6,000
$ 8,000
Apr.30
200 @ $150 = $30,000
20 @ $100 = $ 2,000
50 @ $120 = 6,000
200 @ $150 = 30,000
$38,000
Sept 26
300 @ $200 = $60,000
20 @ $100 = $ 2,000
50 @ $120 = 6,000
200 @ $150 = 30,000
300 @ $200 = 60,000
$98,000
Oct. 5
100 @ $ 150 = $15,000
250 @ $ 200 = $50,000
20 @ $100 = $ 2,000
50 @ $120 = 6,000
100 @ $150 = 15,000
50 @ $200 = 10,000
$80,000
$33,000