Exercises
For all exercises, assume the perpetual inventory system is used unless stated otherwise.
E6-14 Using accounting vocabulary
Learning Objectives 1, 2
Match the accounting terms with the corresponding definitions.
1. Specific identification
2. Materiality concept
3. Last-in, first-out (LIFO)
4. Conservatism
5. Consistency principle
6. Weighted-average
7. Disclosure principle
8. First-in, first-out (FIFO)
a. Treats the oldest inventory purchases as the first units sold.
b. Requires that a company report enough information for outsiders to
make knowledgeable decisions.
c. Identifies exactly which inventory item was sold. Usually used for
higher cost inventory.
d. Calculates a weighted-average cost based on the cost of goods
available for sale and the number of units available.
e. Principle whose foundation is to exercise caution in reporting
financial statement items.
f. Treats the most recent/newest purchases as the first units sold.
g. Businesses should use the same accounting methods from period to
period.
h. Principle that states significant items must conform to GAAP.
SOLUTION
E6-15 Comparing inventory methods
Learning Objective 2
1. Ending Merch. Inv. $16.30
Super Mart, a regional convenience store chain, maintains milk inventory by the gallon. The first month’s milk purchases and sales at its
Freeport, Florida, location follow:
Nov. 2 Purchased 11 gallons @ $2.15 each
6 Purchased 2 gallons @ $2.80 each
8 Sold 6 gallons of milk to a customer
13 Purchased 3 gallons @ $2.85 each
14 Sold 4 gallons of milk to a customer
Requirements
1. Determine the amount that would be reported in ending merchandise inventory on November 15 using the FIFO inventory costing
method.
2. Determine the amount that would be reported in ending merchandise inventory on November 15 using the LIFO inventory costing
method.
3. Determine the amount that would be reported in ending merchandise inventory on November 15 using the weighted-average inventory
costing method. Round all amounts to the nearest cent.
SOLUTION
Requirement 1
E6-15, cont.
Requirement 2
E6-15, cont.
Requirement 3
Use the following information to answer Exercises E6-16 through E6-18.
Golf Unlimited carries an inventory of putters and other golf clubs. The sales price of each putter is $119. Company records indicate the
following for a particular line of Golf Unlimited’s putters:
Date Item Quantity Unit Cost
Nov. 1 Balance 24 $ 53
6 Sale 20
8 Purchase 30 70
17 Sale 30
30 Sale 2
E6-16 Measuring and journalizing merchandise inventory and cost of goods sold—FIFO
Learning Objective 2
1. COGS $3,232
Requirements
1. Prepare a perpetual inventory record for the putters assuming Golf Unlimited uses the FIFO inventory costing method. Then identify the
cost of ending inventory and cost of goods sold for the month.
2. Journalize Golf Unlimited’s inventory transactions using the FIFO inventory costing method. (Assume purchases and sales are made on
account.)
SOLUTION
Requirement 1
E6-16, cont.
Requirement 2
E6-16, cont.
Requirement 2, cont.
E6-17 Measuring ending inventory and cost of goods sold in a perpetual inventory system
—LIFO
Learning Objective 2
1. Ending Merch. Inv. $106
Requirements
1. Prepare Golf Unlimited’s perpetual inventory record for the putters assuming Golf Unlimited
uses the LIFO inventory costing method. Then identify the cost of ending inventory and cost
of goods sold for the month.
2. Journalize Golf Unlimiteds inventory transactions using the LIFO inventory costing method.
(Assume purchases and sales are made on account.)
SOLUTION
Requirement 1
E6-17, cont.
Requirement 2
E6-17, cont.
Requirement 2, cont.
Calculations:
