P6-34B Accounting for inventory using the perpetual inventory system—FIFO, LIFO, and weighted-average, and comparing FIFO,
LIFO, and weighted-average
Learning Objectives 2, 3
5. FIFO GP $4,640
Accounting for inventory using the perpetual inventory system—FIFO, LIFO, and weighted-average, and comparing FIFO, LIFO,
and weighted-average
Steel It began January with 55 units of iron inventory that cost $35 each. During January, the company completed the following inventory
transactions:
Units Unit Cost Unit Sales
Price
Jan. 3 Sale 45 $ 83
8 Purchase 75 $ 52
21 Sale 70 85
30 Purchase 10 55
Requirements
1. Prepare a perpetual inventory record for the merchandise inventory using the FIFO inventory costing method.
2. Prepare a perpetual inventory record for the merchandise inventory using the LIFO inventory costing method.
3. Prepare a perpetual inventory record for the merchandise inventory using the weighted-average inventory costing method.
4. Determine the company’s cost of goods sold for January using FIFO, LIFO, and weighted-average inventory costing methods.
5. Compute gross profit for January using FIFO, LIFO, and weighted-average inventory costing methods.
6. If the business wanted to maximize gross profit, which method would it select?
SOLUTION
Requirement 1
P6-34B, cont.
Requirement 2
P6-34B, cont.
Requirement 3
P6-34B, cont.
Requirement 4
Requirement 5
Requirement 6
P6-35B Accounting principles for inventory and applying the lower-of-cost-or-market rule
Learning Objectives 1, 4
Some of L and K Electronics’s merchandise is gathering dust. It is now December 31, 2018, and the
current replacement cost of the ending merchandise inventory is $32,000 below the business’s cost of
the goods, which was $98,000. Before any adjustments at the end of the period, the company’s Cost of
Goods Sold account has a balance of $410,000.
Requirements
1. Journalize any required entries.
2. At what amount should the company report merchandise inventory on the balance sheet?
3. At what amount should the company report cost of goods sold on the income statement?
4. Which accounting principle or concept is most relevant to this situation?
SOLUTION
P6-36B Correcting inventory errors over a three-year period and computing inventory turnover and days’ sales in inventory
Learning Objectives 5, 6
2. 2019, overstated $9,000
Antique Carpets’s books show the following data. In early 2020, auditors found that the ending merchandise inventory for 2017 was
understated by $8,000 and that the ending merchandise inventory for 2019 was overstated by $9,000. The ending merchandise inventory at
December 31, 2018, was correct.
Requirements
1. Prepare corrected income statements for the three years.
2. State whether each year’s net income—before your corrections—is understated or overstated, and indicate the amount of the
understatement or overstatement.
3. Compute the inventory turnover and days’ sales in inventory using the corrected income statements for the three years. (Round all
numbers to two decimals.)
SOLUTION
P6-36B, cont.
Requirement 2
