1. The receiving report should be reconciled to the initial purchase order and the vendor’s invoice
b
efore recording or paying for inventory purchases. This procedure will verify that the inventory
3. No, they are not techniques for determining physical quantities. The terms refer to cost flow
9. Bibbins Company. Since the merchandise was shipped FOB shipping point, title passed to
10. Manufacturer’s. The manufacturer retains title until the goods are sold. Thus, any unsold
CHAPTER 6
INVENTORIES
DISCUSSION QUESTIONS
6-1
p
CHAPTER 6 Inventories
PE 6–1A
PE 6–1B
a. First-in, first-out (FIFO)
PE 6–2A
a. Cost of merchandise sold (May 28):
PE 6–2B
a. Cost of merchandise sold (July 24):
PRACTICE EXERCISES
Gross Profit
February
Ending Inventory
February 28
June June 30
Gross Profit Ending Inventory
$60 ($110 – $50) $130 ($60 + $70)
6-2
CHAPTER 6 Inventories
PE 6–3A
a. Cost of merchandise sold (June 26):
PE 6–3B
a. Cost of merchandise sold (March 27):
PE 6–4A
a. Weighted average unit cost: $71.25
Inventory total cost after purchase on July 15:
PE 6–4B
a. Weighted average unit cost: $9.50
Inventory total cost after purchase on October 22:
PE 6–5A
a. First-in, first-out (FIFO) method: $3,726 = 23 units × $162
PE 6–5B
a. First-in, first-out (FIFO) method: $20,094 = (40 units × $357) + (17 units × $342)
PE 6–6A
Unit Unit
Inventory Cost Market Lower of
Commodity Quantity Price Price Cost Market C or M
PE 6–6B
Unit Unit
Inventory Cost Market Lower of
Commodity Quantity Price Price Cost Market C or M
JFW1 6,330 $10 $11 $ 63,300 $ 69,630 $ 63,300
Total
Total
6-4
CHAPTER 6 Inventories
PE 6–7A
Balance Sheet:
Merchandise inventory understated*…………………
PE 6–7B
Balance Sheet:
Merchandise inventory overstated*…………………
…
Current assets overstated……………………………
…
8,780
Overstatement (Understatement)
Amount of Misstatement
Amount of Misstatement
Overstatement (Understatement)
$ 8,780
$(4,450)
6-5
PE 6–8A
a.
Cost of merchandise sold
Inventories:
b.
Cost of merchandise sold
Average daily cost of
2014 2013
$1,452,500 $1,120,000
Inventory Turnover
Number of Days’ Sales
in Inventory 2014 2013
$1,452,500 $1,120,000
($1,452,500 ÷ $415,000) ($1,120,000 ÷ $350,000)
6-6
CHAPTER 6 Inventories
PE 6–8B
a.
Cost of merchandise sold
Inventories:
b.
Cost of merchandise sold
Average daily cost of
$4,001,500
$3,864,000
Inventory Turnover
Number of Days’ Sales
in Inventory 2014 2013
2014 2013
$3,864,000 $4,001,500
6-7
CHAPTER 6 Inventories
Ex. 6–1
Switching to a perpetual inventory system will strengthen Triple Creek Hardware’s
internal controls over inventory, since the store managers will be able to keep
Ex. 6–2
EXERCISES
6-8
CHAPTER 6 Inventories
Ex. 6–3
a.
Unit Total Unit Total Unit Total
Quantity Cost Cost Quantity Cost Cost Quantity Cost Cost
Apr. 1 120 39 4,680
Ex. 6–4
Unit Total Unit Total Unit Total
Quantity Cost Cost Quantity Cost Cost Quantity Cost Cost
Apr. 1 120 39 4,680
6 90 39 3,510 30 39 1,170
Date
Portable DVD Players
Purchases Cost of Merchandise Sold Inventory
Date
Portable DVD Players
Purchases Cost of Merchandise Sold Inventory
6-9
CHAPTER 6 Inventories
Ex. 6–5
a.
Unit Total Unit Total Unit Total
Quantity Cost Cost Quantity Cost Cost Quantity Cost Cost
Aug. 1 775 44 34,100
10 360 45 16,200 775 44 34,100
b. Since the prices rose from $44 for the August 1 inventory to $48 for the purchase on
Ex. 6–6
Unit Total Unit Total Unit Total
Quantity Cost Cost Quantity Cost Cost Quantity Cost Cost
Aug. 1 775 44 34,100
14 175 44 7,700
240 45 10,800 120 45 5,400
20 600 48 28,800 120 45 5,400
Date
Prepaid Cell Phones
Purchases Cost of Merchandise Sold Inventory
Date
Prepaid Cell Phones
Purchases Cost of Merchandise Sold Inventory
6-10
CHAPTER 6 Inventories
Ex. 6–7
a. $22,880 ($440 × 52 units)
Ex. 6–8
Cost of Merchandise Sold
Unit Total Unit Total Unit Total
Quantity Cost Cost Quantity Cost Cost Quantity Cost Cost
Jan. 1 1,000 150.00 150,000
Ex. 6–9
Cost of Merchandise Sold
Unit Total Unit Total Unit Total
Quantity Cost Cost Quantity Cost Cost Quantity Cost Cost
Jan. 1 8,000 40.00 320,000
Date
Inventory
Inventory
Date
Purchases
Purchases
6-11
CHAPTER 6 Inventories
Ex. 6–10
Cost of Merchandise Sold
Unit Total Unit Total Unit Total
Quantity Cost Cost Quantity Cost Cost Quantity Cost Cost
Jan. 1 8,000 40.00 320,000
Ex. 6–11
Inventory
Unit Total Unit Total Unit Total
Quantity Cost Cost Quantity Cost Cost Quantity Cost Cost
Jan. 1 8,000 40.00 320,000
Apr. 19 5,000 40.00 200,000 3,000 40.00 120,000
Ex. 6–12
Cost of merchandise available for sale:
units @ $1,440…………………………………
…
…
…
…
…
Date
InventoryPurchases
Date
Cost of Merchandise SoldPurchases
$ 25,920
18
6-12
CHAPTER 6 Inventories
Ex. 6–13
Merchandise Merchandise
Inventory Method Inventory Sold
a. FIFO $39,888 $77,112
a. First-in, first-out:
Merchandise inventory:
…
b. Last-in, first-out:
Merchandise inventory:
42 units at $720…………………………………………………………………
…
$30,240
c. Weighted average cost:
Cost
6-13
…
…
CHAPTER 6 Inventories
Ex. 6–14
a. 1. FIFO inventory > (greater than) LIFO inventory
b. In periods of rising prices, the income shown on the company’s tax return
Ex. 6–15
Unit Unit
Inventory Cost Market Lower of
Quantity Price Price Cost Market C or M
77 $40 $39 $ 3,080 $ 3,003 $ 3,003
Ex. 6–16
The merchandise inventory would appear in the Current Assets section, as
follows:
Commodity
C300
Total
6-14
CHAPTER 6 Inventories
Ex. 6–17
a.
Merchandise inventory*………………………………………
…
$13,850 understated
Current assets…………………………………………………
…
$13,850 understated
Ex. 6–18
a.
Merchandise inventory*………………………………………
…
$21,600 overstated
…
b.
Cost of merchandise sold……………………………………
…
$21,600 understated
…
d. The December 31, 2015, balance sheet would be correct, since the 2014
Balance Sheet
Balance Sheet
Income Statement
6-15
…
…
CHAPTER 6 Inventories
Ex. 6–19
When an error is discovered affecting the prior period, it should be corrected. In
this case, the merchandise inventory account should be debited and the retained
Ex. 6–20
6-16
CHAPTER 6 Inventories
Ex. 6–21
c. If Winn-Dixie matched Kroger’s days’ sales in inventory, then its hypothetical
ending inventory would be determined as follows,
Thus, the additional cash flow that would have been generated is the difference
between the actual average inventory and the hypothetical average inventory,
as follows:
Actual average inventory……………………………………
…
$661.5 million
12.9
=
($4,966 + $4,935) ÷ 2
Inventory Turnover = Cost of Goods Sold
Average Inventory
Number of Days’ Sales in Inventory
Kroger: $63,927 =
a.
Cost of Goods Sold ÷ 365
Average Inventory
Number of Days’ Sales in Inventory = Average Inventory
Cost of Goods Sold ÷ 365
6-17
CHAPTER 6 Inventories
Appendix Ex. 6–22
Appendix Ex. 6–25
Cost Retail
Merchandise inventory, June 1 $ 165,000 $ 275,000
Appendix Ex. 6–26
a. Merchandise inventory, January 1 $ 350,000
b. The gross profit method is useful for estimating inventories for monthly or
6-18
CHAPTER 6 Inventories
Appendix Ex. 6–27
Merchandise available for sale………………………………………………………… $6,125,000
6-19
CHAPTER 6 Inventories
Prob. 6–1A
1.
Unit Total Unit Total Unit Total
Quantity Cost Cost Quantity Cost Cost Quantity Cost Cost
June 1 500 30.00 15,000
250 34.00 8,500 1,250 34.00 42,500
30 250 34.00 8,500 1,000 34.00 34,000
900 35.00 31,500 2,700 35.00 94,500
28 1,700 35.00 59,500 1,000 35.00 35,000
500 36.00 18,000
30 1,750 35.80 62,650 250 35.80 8,950
PROBLEMS
2014
Date
Purchases Cost of Merchandise Sold Inventory
6-20