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CHAPTER 6
Inventories
ASSIGNMENT CLASSIFICATION TABLE
Learning Objectives
Questions
Brief
Exercises
Do It!
Exercises
A
Problems
B
Problems
1. Determine how to
classify inventory and
inventory quantities.
1, 2, 3,
4, 5, 6
1
1
1, 2
1A
1B
2. Explain the accounting
for inventories and
apply the inventory
cost flow methods.
7, 8, 9,
10, 19
2, 3, 4
2
3, 4, 5,
6, 7, 8
2A, 3A, 4A,
5A, 6A, 7A
2B, 3B, 4B,
5B, 6B, 7B
3. Explain the financial
effects of the inventory
cost flow assumptions.
11, 12
5, 6
3, 6, 7, 8
2A, 3A, 4A,
5A, 6A, 7A
2B, 3B, 4B,
5B, 6B, 7B
4. Explain the lower-of-
cost-or-market basis of
accounting for
inventories.
13, 14, 15
7
3
9, 10
5. Indicate the effects of
inventory errors on the
financial statements.
16
8
11, 12
6. Discuss the
presentation and
analysis of inventory.
17, 18
9
4
13, 14
*7. Apply the inventory
cost flow methods to
perpetual inventory
records.
20, 21
10
15, 16, 17
8A, 9A
8B, 9B
*8. Describe the two
methods of estimating
inventories.
22, 23,
24, 25
11, 12
18, 19, 20
10A, 11A
10B, 11B
*Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendices to the
chapter.
ASSIGNMENT CHARACTERISTICS TABLE
Problem
Number
Description
Difficulty
Level
Time Allotted
(min.)
1A
Determine items and amounts to be recorded in inventory.
Moderate
15–20
2A
Determine cost of goods sold and ending inventory using
FIFO, LIFO, and average-cost with analysis.
Simple
30–40
3A
Determine cost of goods sold and ending inventory using
FIFO, LIFO, and average-cost with analysis.
Simple
30–40
4A
Compute ending inventory, prepare income statements, and
answer questions using FIFO and LIFO.
Moderate
30–40
5A
Calculate ending inventory, cost of goods sold, gross profit,
and gross profit rate under periodic method; compare
results.
Moderate
30–40
6A
Compare specific identification, FIFO, and LIFO under
periodic method; use cost flow assumption to justify price
increase.
Moderate
20–30
7A
Compute ending inventory, prepare income statements, and
answer questions using FIFO and LIFO.
Moderate
30–40
*8A
Calculate cost of goods sold and ending inventory under
LIFO, FIFO, and moving-average cost under the perpetual
system; compare gross profit under each assumption.
Moderate
30–40
*9A
Determine ending inventory under a perpetual inventory
system.
Moderate
40–50
*10A
Compute gross profit rate and inventory loss using gross
profit method.
Moderate
30–40
*11A
Compute ending inventory using retail method.
Moderate
20–30
1B
Determine items and amounts to be recorded in inventory.
Moderate
15–20
2B
Determine cost of goods sold and ending inventory using
FIFO, LIFO, and average-cost with analysis.
Simple
30–40
3B
Determine cost of goods sold and ending inventory using
FIFO, LIFO, and average-cost with analysis.
Simple
30–40
4B
Compute ending inventory, prepare income statements, and
answer questions using FIFO and LIFO.
Moderate
30–40
5B
Calculate ending inventory, cost of goods sold, gross profit,
and gross profit rate under periodic method; compare
results.
Moderate
30–40
6B
Compare specific identification, FIFO, and LIFO under
periodic method; use cost flow assumption to influence
earnings.
Moderate
20–30
ASSIGNMENT CHARACTERISTICS TABLE (Continued)
Problem
Number
Description
Difficulty
Level
Time Allotted
(min.)
7B
Compute ending inventory, prepare income statements, and
answer questions using FIFO and LIFO.
Moderate
30–40
*8B
Calculate cost of goods sold and ending inventory for FIFO,
moving-average cost and LIFO under the perpetual system;
compare gross profit under each assumption.
Moderate
30–40
*9B
Determine ending inventory under a perpetual inventory
system.
Moderate
40–50
*10B
Estimate inventory loss using gross profit method.
Moderate
30–40
*11B
Compute ending inventory using retail method.
Moderate
20–30
WEYGANDT FINANCIAL ACCOUNTING 9E
CHAPTER 6
INVENTORIES
Number
LO
BT
Difficulty
Time (min.)
BE1
1
C
Simple
4–6
BE2
2
K
Simple
2–4
BE3
2
AP
Simple
4–6
BE4
2
AP
Simple
2–4
BE5
3
AP
Simple
2–4
BE6
3
AP
Moderate
6–8
BE7
4
AP
Simple
4–6
BE8
5
AN
Simple
4–6
BE9
6
AP
Simple
4–6
BE10
7
AP
Simple
8–10
BE11
8
AP
Simple
4–6
BE12
8
AP
Simple
4–6
DI1
1
AN
Simple
4–6
DI2
2
AP
Simple
6–8
DI3
4
AP
Simple
6–8
DI4
6
AP
Simple
4–6
EX1
1
AN
Simple
4–6
EX2
1
AN
Simple
6–8
EX3
2, 3
AN, E
Moderate
6–8
EX4
2
AN, E
Simple
8–10
EX5
2
AP
Simple
6–8
EX6
2, 3
AP
Simple
8–10
EX7
2, 3
AP
Simple
8–10
EX8
2, 3
AP
Simple
6–8
EX9
4
AP
Simple
6–8
EX10
4
AP
Simple
4–6
EX11
5
AN
Simple
6–8
EX12
5
AN
Simple
10–12
EX13
6
AP
Simple
10–12
EX14
6
AP
Simple
8–10
EX15
7
AP
Simple
8–10
EX16
7
AP, E
Moderate
12–15
INVENTORIES (Continued)
Number
LO
BT
Difficulty
Time (min.)
EX17
7
AP, E
Moderate
12–15
EX18
8
AP
Simple
8–10
EX19
8
AP
Simple
10–12
EX20
8
AP
Moderate
10–12
P1A
1
AN
Moderate
15–20
P2A
2, 3
AP
Simple
30–40
P3A
2, 3
AP
Simple
30–40
P4A
2, 3
AN
Moderate
30–40
P5A
2, 3
AP, E
Moderate
30–40
P6A
2, 3
AP, E
Moderate
20–30
P7A
2, 3
AN
Moderate
30–40
P8A
7
AP, E
Moderate
30–40
P9A
7
AP
Moderate
40–50
P10A
8
AP
Moderate
30–40
P11A
8
AP
Moderate
20–30
P1B
1
AN
Moderate
15–20
P2B
2, 3
AP
Simple
30–40
P3B
2, 3
AP
Simple
30–40
P4B
2, 3
AN
Moderate
30–40
P5B
2, 3
AP, E
Moderate
30–40
P6B
2, 3
AP, E
Moderate
20–30
P7B
2, 3
AN
Moderate
30–40
P8B
7
AP, E
Moderate
30–40
P9B
7
AP
Moderate
40–50
P10B
8
AP
Moderate
30–40
P11B
8
AP
Moderate
20–30
BYP1
2, 6
AP
Simple
10–15
BYP2
6
E
Simple
10–15
BYP3
6
E
Simple
10–15
BYP4
2, 6
AN
Simple
10–15
BYP5
8
AP
Moderate
20–25
BYP6
5
AN
Simple
10–15
BYP7
3
E
Simple
10–15
BYP8
5
E
Simple
10–15
BYP9
3, 4
AP
Simple
10–15
BLOOM’S TAXONOMY TABLE
Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End-of-Chapter Exercises and Problems
Learning Objective
Knowledge
Comprehension
Application
Analysis
Synthesis
Evaluation
1. Determine how to classify inventory
Q6-2
Q6-1
Q6-4
Q6-5
DI6-1
E6-2
P6-1A
2. Explain the accounting for
inventories and apply the
inventory cost flow methods.
Q6-8
Q6-10
Q6-19
BE6-2
BE6-5
Q6-7
Q6-9
BE6-3
BE6-4
DI6-2
E6-5
E6-6
E6-7
E6-8
P6-2A
P6-2B
P6-3A
P6-3B
P6-5A
P6-5B
P6-6A
P6-6B
E6-3
E6-4
P6-4A
P6-4B
P6-7A
P6-7B
E6-3
E6-4
P6-5A
P6-5B
3. Explain the financial effects of the
inventory cost flow assumptions.
Q6-11
Q6-12
BE6-5
BE6-6
E6-6
E6-7
E6-8
P6-2A
P6-2B
P6-3A
P6-3B
P6-5A
P6-5B
P6-6A
P6-6B
E6-3
P6-4A
P6-4B
P6-7A
P6-7B
E6-3
P6-5A
P6-5B
P6-6A
P6-6B
4. Explain the lower-of-cost-or-market
basis of accounting for inventories.
Q6-13
BE6-7
DI6-3
E6-9
E6-10
Q6-14
Q6-15
5. Indicate the effects of inventory
errors on the financial statements.
Q6-16
BE6-8
E6-11
E6-12
6. Discuss the presentation and analysis
of inventory.
Q6-17
BE6-9
DI6-4
E6-13
E6-14
Q6-18
BE6-9
*7. Apply the inventory cost flow methods
to perpetual inventory records.
Q6-20
Q6-21
BE6-10
E6-15
E6-16
E6-17
P6-8A
P6-8B
P6-9A
P6-9B
E6-16
E6-17
P6-8A
P6-8B
*8. Describe the two methods of
estimating inventories.
Q6-22
Q6-23
Q6-24
Q6-25
BE6-11
BE6-12
E6-18
E6-19
E6-20
P6-10A
P6-11A
P6-10B
P6-11B
Broadening Your Perspective
FASB
Codification
Financial Reporting
Decision Making
Across the
Organization
FASB Codification
Real-World
Focus
Communication
Comp. Analysis
All About You
Ethics Case
6-6 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
ANSWERS TO QUESTIONS
1. Agree. Effective inventory management is frequently the key to successful business operations.
of anticipated sales.
2. Inventory items for a merchandising company have two common characteristics: (1) they are
business.
3. Taking a physical inventory involves actually counting, weighing or measuring each kind of
4. (a) (1) The goods will be included in Rochelle Company’s inventory if the terms of sale are
FOB destination.
point.
(b) Rochelle Company should include goods shipped to another company on consignment in its
inventory.
5. Inventoriable costs are $3,020 (invoice cost $3,000 + freight charges $50 – purchase discounts $30).
the year incurred.
6. FOB shipping point means that ownership of the goods in transit passes to the buyer when the
7. Actual physical flow may be impractical because many items are indistinguishable from one
8. The major advantage of the specific identification method is that it tracks the actual physical flow
net income.
9. No. Selection of an inventory costing method is a management decision. However, once a method
10. (a) FIFO.
(b) Average-cost.
(c) LIFO.
11. Gumby Company is using the FIFO method of inventory costing, and Pokey Company is using
the LIFO method. Under FIFO, the latest goods purchased remain in inventory. Thus, the
Questions Chapter 6 (Continued)
12. Davey Company may experience severe cash shortages if this policy continues. All of its net
current, higher costs. Because of this factor, net income under FIFO is sometimes referred to as
“phantom profits.”
13. Josh should know the following:
in which the price decline occurs.
(b) Market means current replacement cost, not selling price. For a merchandising company,
14. Taylor Music Center should report the CD players at $380 each for a total of $1,900. $380
at LCM is conservative.
15. Bonnie Stores should report the toasters at $27 each for a total of $540. The $27 is the lower of cost
16. (a) Kuzu Company’s 2014 net income will be understated $7,000; (b) 2015 net income will be
17. Ryder Company should disclose: (1) the major inventory classifications, (2) the basis of
18. An inventory turnover that is too high may indicate that the company is losing sales opportunities
lost future sales.
19. Apple uses the first-in, first-out method for its inventories.
*20. Disagree. The results under the FIFO method are the same but the results under the LIFO
method are different. The reason is that the pool of inventoriable costs (cost of goods available for
sale) is not the same. Under a periodic system, the pool of costs is the goods available for sale for
the entire period, whereas under a perpetual system, the pool is the goods available for sale up to
the date of sale.
*21. In a periodic system, the average is a weighted average based on total goods available for sale for the
period. In a perpetual system, the average is a moving average of goods available for sale after
each purchase.
*22. Inventories must be estimated when: (1) management wants monthly or quarterly financial
statements but a physical inventory is only taken annually and (2) a fire or other type of casualty
makes it impossible to take a physical inventory.
Questions Chapter 6 (Continued)
*23. In the gross profit method, the average is the gross profit rate, which is gross profit divided by net
sales. The rate is often based on last year’s actual rate. The gross profit rate is applied to net sales
in using the gross profit method.
*24. The estimated cost of the ending inventory is $40,000:
Net sales ................................................................................................................. $400,000
Less: Gross profit ($400,000 X 35%) ...................................................................... 140,000
Estimated cost of goods sold ................................................................................... $260,000
Cost of goods available for sale ............................................................................... $300,000
Less: Cost of goods sold ........................................................................................ 260,000
Estimated cost of ending inventory .......................................................................... $ 40,000
Ending inventory at retail: $40,000 = ($120,000 – $80,000)
Cost-to-retail ratio: 70% =
$84,000
$120,000
Ending inventory at cost: $28,000 = ($40,000 X 70%)
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 6-1
be included in Farley’s inventory.
(b) The goods in transit should not be included in the inventory count
because ownership by Farley does not occur until the goods reach
the buyer.
included in Farley’s inventory.
(d) Ownership of these goods rests with the other company. Thus, these
goods should not be included in the physical inventory.
BRIEF EXERCISE 6-2
BRIEF EXERCISE 6-3
(b) The ending inventory under LIFO consists of 300 units at $6 + 60 units
