(10-15 min.) E 6-26B
Req. 1
Inventory
Beg. bal.
(6 units @ $170) 1,020
Purchases
Aug. 15
(8 units @ $172) 1,376
Cost of goods sold
26
(14 units @ $180) 2,520
(17 units @ $?)
?
Ending bal.
(11 units @ $?) ?
Cost of Goods Sold
Ending Inventory
(a) Specific
unit cost
(1 @ $170) +
(8 @ $172) +
(8 @ $180)
=
$2,986
(5 @ $170) +
(6 @ $180)
=
$1,930
(b)Average
cost
(17 × $175.57*)
=
$2,985
(11 × $175.57*)
=
$1,931
(c) FIFO
(6 @ $170) +
(8 @ $172) +
(3 @ $180)
=
$2,936
(11 @ $180)
=
$1,980
(d) LIFO
(14 @ $180) +
(3 @ $172)
=
$3,036
(6 @ $170) +
(5 @ $172)
=
$1,880
_____
*Average cost per
unit
=
($1,020 + $1,376 + $2,520)
=
$175.57
(6 + 8 + 14)
Req. 2
LIFO produces the highest cost of goods sold, $3,036.
Inc.
(10 min.) E 6-27B
Cost of goods sold:
LIFO ($3,036) − FIFO ($2,936) ……………………….
$ 100
× Income tax rate …………………………………………
× .40
Tax savings advantage of LIFO ………………………..
$ 40
(15 min.) E 6-28B
Req. 1
a.
FIFO
Cost of goods sold:
(12 @ $62) ……………………………………..
$744
Ending inventory:
(5 @ $62) + (3 @ $71) ……………………..
$523
b.
LIFO
Cost of goods sold:
(3 @ $71) + (9 @ $62) ……………………..
$771
Ending inventory:
(8 @ $62) ……………………………………….
$496
Req. 2
MusicMagic.net
Income Statement
Month Ended September 30, 2014
Sales revenue (12 @ $114) …………………………..………..
$1,368
Cost of goods sold ………………………………………………..
744
Gross profit… ……………………………………………………….
624
Operating expenses ………………………………………………
320
Income before income tax ……………………………………..
304
Income tax expense (35%) ……………………………………..
106
Net income……………………………………………………………
$ 198
Inc.
(15 min.) E 6-29B
Req. 1
Gross profit:
FIFO
LIFO
Sales revenue ……………………………………………
$1,235,000
$1,235,000
Cost of goods sold
FIFO: 95,000 × $7.20 ………………………………
684,000
LIFO: (60,000 × $5.20) + (20,000 × $6.10)
+ (15,000 × $7.20) …………………………
542,000
Gross profit ……………………………………………….
$551,000
$693,000
Req. 2
Gross profit under FIFO and LIFO differ because inventory costs
decreased during the period.
(5-10 min.) E 6-30B
Rose Tree Garden Supplies
Income Statement (partial)
Year Ended August 31, 2014
Sales revenue ……………………………………………………………….
$251,000
Cost of goods sold [$118,000 + ($34,000 − $32,000)] ……….
120,000
Gross profit ………………………………………………………………….
$131,000
Note: Cost is used for beginning inventory because cost is lower than
(15-20 min.) E 6-31B
a.
$ 122,000
$41,000 + $120,000 − $39,000 = $122,000
b.
$ 118,000
$240,000 − $122,000 = $118,000
c.
Must first solve for d
d.
$ 96,000
$137,000 − $41,000= $96,000
c.
$ 88,000
$28,000 + c − $96,000 = $20,000;
c = $88,000
e.
$ 97,000
$60,000 + $37,000 = $97,000
f.
$ 26,000
f + $55,000 − $21,000 = $60,000; f = $26,000
g.
$ 8,000
$10,000 + $33,000 − g = $35,000; g = $8,000
h.
$ 45,000
$80,000 − $35,000 = $45,000
Req. 1
Epperson Company
Income Statement
Year Ended December 31, 2014
Net sales ………………………………………..
$240,000
Cost of goods sold …………………………
Beginning inventory …………………..
$ 41,000
Net purchases …………………………...
120,000
Cost of goods available ……………..
161,000
Ending inventory ……………………….
(39,000)
Cost of goods sold …………………….
122,000
Gross profit ……………………………………
118,000
Operating and other expenses ………..
72,000
Net income …………………………………….
$46,000
(20-30 min.) E 6-32B
Req. 1
Company
Gross Profit
Percentage
Inventory Turnover
Epperson
$118
=
49.2%
$122
=
3.1 times
$240
($41 + $39) / 2
Griffith
$41
=
29.9%
$96
=
4 times
$137
($28 + $20) / 2
Norse
$37
=
38.1%
$60
=
2.6 times
$97
($26 + $21) / 2
Victory
$45
=
56.3%
$35
=
3.9 times
$80
($10 + $8) / 2
Req. 2
Victory has the highest gross profit percentage, 56.3%. Griffith has the
lowest gross profit percentage, 29.9%.
Griffith has the highest rate of inventory turnover, 4 times. Norse has
(15 min.) E 6-33B
Req. 1 and 2
1
2
FIFO
LIFO
Gross profit percentage
=
$158,000 − $80,800
$158,000 − $90,800
$158,000
$158,000
= 48.9%
= 42.5%
Inventory turnover
=
$80,800
$90,800
($12,000 + $24,000) / 2
($7,000 + $14,000) / 2
= 4.5 times
= 8.6 times
Req. 3
FIFO produces a higher gross profit percentage.
Req. 4
LIFO produces a higher rate of inventory turnover.
(10-15 min.) E 6-34B
Year ended January 31, 2014:
Millions
Budgeted cost of goods sold ($6,600 × 1.12) …………….
$7,392
Budgeted ending inventory ……………………………………..
1,900
Budgeted cost of goods available…………………………….
9,292
Actual beginning inventory ……………………………………..
(1,600)
Budgeted purchases ……………………………………………….
$7,692
(10-15 min.) E 6-36B
Lake Travis Marine Supply
Income Statement (Corrected)
Years Ended June 30, 2014 and 2013
2014
2013
Sales revenue
$146,000
$124,600
Cost of goods sold:
Beginning inventory
$19,000
$ 9,500
Net purchases
82,000
79,000
Cost of goods avail.
101,000
88,500
Ending inventory
(16,500)
(19,000)*
Cost of goods sold
84,500
69,500
Gross profit
61,500
55,100
Operating expenses
29,000
21,000
Net income
$ 32,500
$ 34,100
_____
*$12,000 + $7,000 = $19,000
Lake Travis Marine Supply actually performed poorly in 2014, compared
to 2013, with net income down from $34,100 to $32,500.
Quiz
Q6–37
a
($3,400 + $6,700 − $5,500 = $4,600)
Q6–38
c
($7,700 − $5,500 = $2,200)
Q6–39
d
Q6–40
a
[(700 @ $11.00) + (1,200 @ $11.50) = $21,500]
Q6-41
b
[(1,200 @ $11.50) + (200 @ $11) = $16,000]
Q6-42
d
Q6-43
c
($153,000 + $213,000 = $366,000)
Q6-44
a
Q6–45
b
Q6–46
c
[$627,000 − ($61,000 + $430,000 − $40,000) =
$176,000]
Q6–47
d
($25,000 + X − $17,000 = $92,000; X = $84,000)
Q6–48
b
Q6–49
a
[$310,000 ÷ {($23,000 + $38,000) ÷ 2}] = 10.2 times
Q6-50
b
Net sales = $486,000 ($490,000 − $4,000)
COGS = $55,000 + ($202,000 + $21,000 −
$4,600 − $6,000) − $44,000
= $223,400
GP% = ($486,000 − $223,400) / $486,000
= 54%
Q6-51
c
$56,000 + $79,000 − $95,000 (1 − .40) = $78,000
Q6-52
a
Q6-53
b
Problems
(20-30 min.) P 6-54A
Req. 1
Inventory ………………………………………………..
9,296,000
Accounts Payable ………………………………
9,296,000
Accounts Payable …………………………………..
8,968,000
Cash ………………………………………………….
8,968,000
Cash ………………………………………………………
5,500,000
Accounts Receivable ………………………………
10,285,000
Sales Revenue ……………………………………
15,785,000
Cost of Goods Sold (154,000 × $62.39*) ……
9,608,060
Inventory ……………………………………………
9,608,060
Operating Expenses ………………………………..
3,750,000
Cash ($3,750,000 × .70) ……………………….
2,625,000
Accrued Liabilities ($3,750,000 × .30) …..
1,125,000
Income Tax Expense ……………………………….
970,776
Income Tax Payable (see Req. 3) …………
970,776
_____
*($1,060,000 + $9,296,000) ÷ (20,000 + 32,000 + 52,000 + 62,000) = $62.39
Inc.
(continued) P 6-54A
Req. 2
Inventory
Beg. bal.
1,060,000
Purchases
9,296,000
COGS
9,608,060
End. bal.
747,940
Req. 3
Big Buy Store, Miami
Income Statement
Year Ended January 31, 2014
Sales revenue ……………………………………
$15,785,000
Cost of goods sold …………………………….
9,608,060
Gross profit ……………………………………….
6,176,940
Operating expenses… ………………………..
3,750,000
Income before tax ………………………………
2,426,940
Income tax expense (40%) ………………….
970,776
Net income ………………………………………..
$ 1,456,164
(20-30 min.) P 6-55A
Req. 1
The store uses FIFO.
This is apparent from the flow of costs out of inventory. For example, the
Req. 2
Cost of goods sold:
15
×
$32
=
$ 480
29
×
32
=
928
11
×
34
=
374
30
×
34
=
1,020
$2,802
Sales [(44 units × $67) + (41 units x $68)] ………………………
$5,736
Cost of goods sold ……………………………………………………..
(2,802)
Gross profit ………………………………………………………………..
$2,934
Req. 3
Cost of August 31 inventory (38 × $34) + (26 × $36)
$2,228
Inc.
(20-30 min.) P 6-56A
Req. 1
Inventory
Beg. bal.
(67 units @ $25) 1,675
Purchases:
May 6
(101 units @ $27) 2,727
18
(163 units @ $29) 4,727
Cost of goods sold
26
(41 units @ $30) 1,230
(323 units @ $?)
?
End. bal.
(49 units @ $?) ?
Cost of Goods Sold
Ending Inventory
Average cost
323 × $27.85* = $8,996
49 × $27.85* = $1,365
____
*Average cost
=
($1,675 + $2,727 + $4,727 + $1,230)
= $27.85
per unit
(67 + 101 + 163 + 41)
FIFO
(67 @ $25) + (101 @ $27)
(41 @ $30) +
+ (155 @ $29)
= $8,897
(8 @ $29)
= $1,462
LIFO
(41 @ $30) + (163 @ $29) +
(101 @ $27) + (18 @ $25)
= $9,134
49 @ $25
= $1,225
(continued) P 6-56A
Req. 2
LIFO cost of goods sold is highest because (a) prices are rising and (b)
Req. 3
Camp Surplus
Income Statement
Month Ended May 31, 2014
Sales revenue (323 x $51) ……………………………………
$16,473
Cost of goods sold ……………………………………………..
8,996
Gross profit ………………………………………………………..
7,477
Operating expenses ……………………………………………
3,250
Income before income taxes ………………………………..
4,227
Income tax expense (30%) …………………………………..
1,268
Net income …………………………………………………………
$ 2,959
(30-40 min.) P 6-57A
Req. 1 (partial income statements)
Fisher Aviation
Partial Income Statement
Year Ended July 31, 2014
AVERAGE
FIFO
LIFO
Sales revenue
$128,560
$128,560
$128,560
Cost of goods sold
68,652
68,258
69,020
Gross profit
$ 59,908
$ 60,302
$ 59,540
Computations of cost of goods sold:
Average cost
=
($5,148 + $2,880 + $63,992 + $3,984)
=
$7.59
per unit
(720 + 400 + 8,420 + 480)
Average cost COGS = 9,045 × $7.59
=
$68,652
FIFO COGS
=
(720 @ $7.15) + (400 @ $7.20) + (7,925 @ $7.60)
=
$68,258
LIFO COGS
=
(480 @ $8.30) + (8,420 @ $7.60) + (145 @ $7.20)
=
$69,020
Req. 2
(15-30 min.) P 6-58A
a. Canton Trade Mart should apply the lower-of-cost-or-market rule to
b.
Cost of Goods Sold ……………………..
7,000
Inventory ………………………………
7,000
To write inventory down to market value.
Canton Trade Mart should report the following amounts in its financial
statements:
c.
BALANCE SHEET
Inventory at market (which is lower than
cost of $98,000) ………………………………………………..
$91,000*
d.
INCOME STATEMENT
Cost of goods sold ($410,000 + $7,000) …………………
$417,000
_____
*$98,000 − $7,000 = $91,000
e. Relevance and Representational faithfulness are the reasons to account
for inventory at the lower of cost or market value. Representational
Student responses may vary.
Inc.
(20-25 min.) P 6-59A
Req. 1
Sweet Treats, Inc.
Coffee Time Corp.
Dollars in Millions
Gross profit percentage:
Sales ………………………….
$542
$7,777
Cost of goods sold ……..
474
3,180
Gross profit ………………..
$ 68
$4,597
Gross profit
$68
= 12.5%
$4,597
= 59.1%
percentage:
$542
$7,777
Inventory turnover:
Cost of goods sold
=
$474
$3,180
Average inventory
($36 + $20) / 2
($541 + $625) / 2
= 16.9 times
= 5.5 times
Req. 2
These statistics are unclear. The numbers suggest that Coffee Time
Corp. should be more profitable because it has a higher gross profit
(25-30 min.) P 6-60A
Req. 1 (estimate of ending inventory by the gross profit method)
Beginning inventory ………………………………..
$ 67,200
Purchases ………………………………………………
$410,800
Less: Purchase discounts ……………………
(15,000)
Purchase returns ………………………..
(10,600)
Net purchases …………………………………….
385,200
Cost of goods available …………………………..
452,400
Cost of goods sold:
Sales revenue ……………………………………..
$695,000
Less: Sales returns …………………………..
(12,000)
Net sales …………………………………………….
683,000
Less: Estimated gross profit of 45%……..
(307,350)
Estimated cost of goods sold ………………
375,650
Estimated cost of ending inventory ………….
$ 76,750
(continued) P 6-60A
Req. 2 (income statement through gross profit)
Whitfield Company
Income Statement (partial)
Two Week Period Ending August 15 (date of the fire)
Sales revenue ……………………………………………
$695,000
Less: Sales returns …………………………………….
(12,000)
Net sales revenue ………………………………….
683,000
Cost of goods sold …………………………………….
375,650*
Gross profit ……………………………………………….
$307,350
_____
*Cost of goods sold:
Beginning inventory ………………………………………..
$ 67,200
Purchases ………………………………..
$410,800
Less: Purchases discounts ……….
(15,000)
Purchase returns ……………..
(10,600)
Net purchases ………………………………………………..
385,200
Cost of goods available for sale ………………………
452,400
Less: Ending inventory …………………………………..
(76,750)
Cost of goods sold …………………………………………
$375,650