Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Financial Reporting and Analysis (7th Ed.)
Chapter 9 Solutions
Inventories
Exercises
Exercises
E9-1. Computing inventory amount from income statement data
(LO 1)
(AICPA adapted)
To find merchandise inventory, we first need to find cost of goods
sold. This figure can be computed by using the gross margin
percentage given. If profit is 20% of sales, then cost of goods sold
must be (1-20%) or 80% of sales. So 80% of $2,000,000 is
$1,600,000—cost of goods sold. Now we can look at the T-account
for the answer.
Inventory
Solving for X:
E9-2. Distinguishing between product and period costs (LO 3)
Now
we
Cost
Nature of incurred cost Classification
a. Comprehensive liability insurance premiums
PPossible cost allocation approaches for costs that are both product
and period costs:
c. Electricity consumption is metered. Electric bills relating to usage at
production facilities would be considered product costs. Electricity
d. Property and casualty insurance premiums may be allocated
between product and period costs based on the value of the insured
k. Workers compensation insurance pays expenses related to on the
job injuries. This coverage applies to all employees, not just factory
E9-3. Computing ending inventory and cost of goods sold under
different cost flow assumptions (LO 2, 4)
(AICPA adapted)
For all the cost flow assumptions, we first compute Goods available
for sale first. Second, we then compute Ending inventory based on
the appropriate cost flow assumption. Third, we compute Cost of
Goods available for sale:
A physical count yields 200 units, and we also get 200 by
subtracting 350 units sales from the 550 units available.
Requirement 1: FIFO
Under FIFO, the most recent purchases are in ending inventory.
Remaining in ending inventory:
FIFO
By subtracting the ending inventory amount of $3,500 from the
goods available for sale, we compute cost of goods sold as follows:
Requirement 2: LIFO
Under LIFO the earliest purchases are assumed to be in ending
inventory. In this case, all the units come from beginning inventory
Under LIFO, ending inventory is $300 less than it is under FIFO.
We compute cost of goods sold the same way we computed it
under FIFO. However, now we subtract LIFO ending inventory.
Note that LIFO cost of goods sold exceeds FIFO cost of goods sold
Requirement 3: Average cost
For average cost, we divide goods available for sale by the units
available for sale. These totals come from the first table in our
solution. Specifically,
To compute ending inventory we multiply this average unit cost by
the number units in inventory. Specifically,
To compute cost of goods sold, we can multiply the units sold by
this average unit cost as follows:
Alternatively, we can compute it by subtracting ending inventory
from the cost of goods available for sale, as we did for LIFO and
FIFO.
E9-4. Computing cost of goods sold (LO 1)
(AICPA adapted)
We can find cost of goods sold for 2017 by analyzing the inventory
account.
Inventory
Purchases can be found by adding together the disbursements for
We know that the ending balance in inventory is $10,000 less than
E9-5. Computing sales from inventory information (LO 3, 12)
(AICPA adapted)
To find Dumas’ sales for 2017, we need to first look at the inventory
T-account.
Finished Goods Inventory
Since we already know cost of goods manufactured, we do not
need to analyze work in process inventory.
We solve for cost of goods sold as follows:
Now that we know cost of goods sold, we can solve for sales using
this figure and the gross profit amount given. Gross profit is the
E9-6. Estimating missing inventory (LO 1)
(AICPA adapted)
In this problem, we need to determine the accuracy of the inventory
account. We know that cost of goods sold is 70% of sales [70% of
Inventory
The amount we solved for is $100,000 more than cost of goods sold
E9-7. Computing work-in-process inventory from balance sheet and
income statement information (LO 1, 12)
(AICPA adapted)
To solve for ending work in process inventory (WIP), we need to
Raw Materials
We can now solve for X (direct materials).
Now we have direct materials of $104,000 to plug into WIP. But we
also need to know cost of goods manufactured, so we must analyze
finished goods (FG).
Finished Goods
Now that we have direct materials and cost of goods manufactured,
we can solve for the ending balance of WIP inventory.
Work In Process
Finally, we can now solve for ending Work in Process.
E9-8. Computing inventory under three flow assumptions (LO 4)
(AICPA adapted)
Units and prices for 2017 beginning inventory and purchases are:
Units Price Extended
The table shows that goods available for sale in units is 5,000 and
goods available for sale in dollars is $51,750. The exercise states
that there are 1,600 units in ending inventory. We price these units
Requirement 1: FIFO
Under FIFO, the most recent purchases are in ending inventory.
Remaining in ending inventory:
600 @ $11.00 6,600
Requirement 2: LIFO
Under LIFO the earliest purchases are assumed to be in ending
inventory. In this case, 800 units come from beginning inventory
and the remaining 800 come from the first purchase.
Under LIFO, ending inventory is $2,800 less than it is under FIFO.
We compute cost of goods sold the same way we computed it
under FIFO. However, now we subtract LIFO ending inventory.
Requirement 3: Weighted average
For average cost, we divide goods available for sale by the units
available for sale. These totals come from the first table in our
solution. Specifically,
To compute cost of goods sold, we can multiply the units sold of
Alternatively, we can compute it by subtracting ending inventory
from the cost of goods available for sale, as we did for LIFO and
FIFO.
