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5-87
EXERCISE 5-11B
a.
a.
b.
c.
d.
e.
f.
g.
Item
Quantity
Cost
Per
Unit
Mkt.
Value Per
Unit
Unit Lower
Cost/Mkt.
Total
Cost
Total
Lower
Cost/Mkt.
(b x c)
(b x e)
A
400
$20
$18
$18
$8,000
$7,200
B
500
25
24
24
12,500
12,000
C
300
10
12
10
3,000
3,000
Totals
$23,500
$22,200
The inventory would be carried at $22,200, the lower of cost or
market applied to individual inventory items.
b.
Account Title
Debit
Credit
Cost of Goods Sold (Inventory Loss)*
1,300
Merchandise Inventory
1,300
*$23,500 − $22,200 = $1,300
5-88
EXERCISE 5-12B
Frank’s Hunting Supplies
a. Gross Margin: Sales x Gross Margin %
$850,000 x 20% = $170,000
b. Cost of Goods Sold: Sales x Cost of Goods Sold %
5-89
EXERCISE 5-13B
June 14 Inventory Account Balance
$130,000
Less: Cost of Unrecorded Sales
(20,000)
Correct Inventory Balance
110,000
Less: 5% Shrinkage
(5,500)
Less: Amount of Inventory in
Showroom
(50,000)
Inventory Destroyed by Fire
$ 54,500
5-90
EXERCISE 5-14B
Bosh Company
The uncounted inventory will only affect The Bosh Company’s financial
5-91
EXERCISE 5-15B
Oak Co.
Item Number
Year
Amount Affected
Effect
1.
2016
Beginning Inventory
NA
2.
2016
Purchases
NA
3.
2016
Goods Available for Sale
NA
4.
2016
Cost of Goods Sold
Overstated
5.
2016
Gross Margin
Understated
6.
2016
Net Income
Understated
7.
2017
Beginning Inventory
Understated
8.
2017
Purchases
NA
9.
2017
Goods Available for Sale
Understated
10.
2017
Cost of Goods Sold
Understated
11.
2017
Gross Margin
Overstated
12.
2017
Net Income
Overstated
5-92
EXERCISE 5-16B
Most of Walmart’s operations outside the United States are probably in
LIFO.
5-93
EXERCISE 5-17B
a. If the company uses U.S. GAAP, the lower-of-cost-or-market rule
2017.
5-94
PROBLEM 5-18B
a.
Allen Insulation, Inc.
Inventory Purchases
Beginning Inventory
200
@
$120
=
$24,000
First Purchase
130
@
124
=
16,120
Second Purchase
220
@
128
=
28,160
Total
550
$68,280
a. (1) Cost of Goods Sold:
FIFO
Units
Cost
per
Unit
Cost of
Goods Sold
From Beginning Inventory
200
@
$120
=
$24,000
From First Purchase
130
@
124
=
16,120
From Second Purchase
20
@
128
=
2,560
Total
350
$42,680
Ending Inventory:
FIFO
Units
Cost
per
Unit
Ending
Inventory
From Second Purchase
200
@
$128
=
$25,600
a. (2) Cost of Goods Sold:
LIFO
Units
Cost
per
Unit
Cost of
Goods Sold
From Second Purchase
220
@
$128
=
$28,160
From First Purchase
130
@
124
=
16,120
Total
350
$44,280
Ending Inventory:
LIFO
From Beginning Inventory
200
@
$120
=
$24,000
Total Ending Inventory
200
$24,000
5-95
PROBLEM 5-18B (cont.)
a. (3)
Weighted Average
Total Cost
Total Units
=
Cost per Unit
$68,280
550
=
$124.145
Weighted Average
Cost of Goods Sold:
350 units
@
$124.145
=
$43,451
Ending Inventory:
200 units
@
$124.145
=
$24,829
Allen Insulation, Inc.
Computation of Income Tax Expense and Net Income
FIFO
LIFO
Weighted
Average
Sales (350 units @ $320)
$112,000
$112,000
$112,000
Cost of Goods Sold
(42,680)
(44,280)
(43,451)
Gross Margin
69,320
67,720
68,549
Operating Expenses
(24,000)
(24,000)
(24,000)
Income Before Tax
45,320
43,720
44,549
Income Tax (40%)
(18,128)
(17,488)
(17,820)
Net Income
$ 27,192
$ 26,232
$ 26,729
PROBLEM 5-18B (cont.)
5-97
PROBLEM 5-18B (cont.)
b. (1) FIFO
Cash
Common Stock
Bal. 36,000
Bal. 25,000
3a. 112,000
1. 16,120
2. 28,160
Retained Earnings
4. 24,000
Bal. 35,000
5. 18,128
Bal. 61,592
Sales Revenue
3a. 112,000
Merchandise Inventory
Bal. 24,000
Cost of Goods Sold
1. 16,120
3b. 42,680
2. 28,160
3b. 42,680
Bal. 25,600
Operating Expenses
4. 24,000
Income Tax Expense
5. 18,128
PROBLEM 5-18B (cont.)
5-99
PROBLEM 5-18B (cont.)
b. (2) LIFO
Cash
Common Stock
Bal. 36,000
Bal. 25,000
3a. 112,000
1. 16,120
2. 28,160
Retained Earnings
4. 24,000
Bal. 35,000
5. 17,488
Bal. 62,232
Sales Revenue
3a. 112,000
Merchandise Inventory
Bal. 24,000
Cost of Goods Sold
1. 16,120
3b. 44,280
2. 28,160
3b. 44,280
Bal. 24,000
Operating Expenses
4. 24,000
Income Tax Expense
5. 17,488
