E6-20 -Determine ending inventory at cost using retail method
Kicks Shoe Store uses the retail inventory method for its two departments, Women’s Shoes and Men’s Shoes.
The following information for each department is obtained.
Item
Women’s
Shoes
Men’s
Shoes
Beginning inventory at cost $25,000 $45,000
Cost of goods purchased at cost 110,000 136,300
Net sales 178,000 185,000
Beginning inventory at retail 46,000 60,000
Cost of goods purchased at retail 179,000 185,000
Instructions
Compute the estimated cost of the ending inventory for each department under the retail inventory method.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a “?” .
Cost Retail Cost Retail
Beginning inventory Value Value Value Value
Goods purchased Value Value Value Value
Goods available for sale ? ? ? ?
Net sales Value Value
Ending inventory at retail ? ?
Cost-to-retail ratio:
Goods available for sale at cost Value Value
Goods available for sale at retail Value Value
Cost-to-retail ratio ? ?
Estimated cost of ending inventory:
Cost-to-retail ratio Value Value
Ending inventory at retail Value Value
Estimated cost of ending inventory
? ?
After you have completed the requirements of E-20, consider these additional questions.
Answers are on the other tab in this file.
1. Assume Women’s Shoes ending inventory at retail changed to $56,000 . What is the estimated cost of ending inventory?
2. Assume Men’s Shoes cost of goods purchased at retail changed to 195,000. What is the estimated cost of ending inventory?
Women’s Shoes
Men’s Shoes
Women’s Shoes
Men’s Shoes
E6-20 Solution to additional question
1. Assume Women’s Shoes ending inventory at retail changed to $56,000 . What is the estimated cost of ending inventory?
Cost Retail Cost Retail
Beginning inventory $25,000 $46,000 $45,000 $60,000
Goods purchased 110,000 179,000 136,300 185,000
Cost-to-retail ratio:
Goods available for sale at cost $135,000 $181,300
Goods available for sale at retail $225,000 $245,000
Estimated cost of ending inventory:
Cost-to-retail ratio 60% 74%
2. Suppose Men’s Shoes cost of goods purchased at retail changed to 195,000. What is the estimated cost of ending inventory?
Cost Retail Cost Retail
Beginning inventory $25,000 $46,000 $45,000 $60,000
Goods purchased 110,000 179,000 136,300 195,000
Cost-to-retail ratio:
Goods available for sale at cost $135,000 $181,300
Estimated cost of ending inventory:
Cost-to-retail ratio 60% 71%
Women’s Shoes
Men’s Shoes
Women’s Shoes
Men’s Shoes
P6-2A Determine cost of goods sold and ending inventory using FIFO, LIFO, and average-cost with analysis
Glee Distribution markets CDs of the performing artist Unique. At the beginning of October, Glee had in beginning
inventory 2,000 of Unique’s CDs with a unit cost of $7. During October, Glee made the following purchases of Unique’s CDs.
Oct. 3 2,500 @ $8 Oct. 19 3,000 @ $10
Oct. 9 3,500 @$9 Oct. 25 4,000 @ $11
During October, 10,900 units were sold. Glee uses a periodic inventory system.
Instructions
(a)
(b) Determine (1) the ending inventory and (2) the cost of goods sold under each of the
assumed cost flow methods (FIFO, LIFO and average cost). Prove the accuracy of the
(c ) Which cost flow method results in (1) the highest inventory amount for the balance sheet and
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a “?” .
(a)
Date Explanation Units Unit Cost Total Cost
Oct. 1 Beginning inventory Value Value ?
3 Purchase Value Value ?
9 Purchase Value Value ?
19 Purchase Value Value ?
25 Purchase Value Value ?
Total ? ?
(b) Determine (1) the ending inventory and (2) the cost of goods sold under each of the
assumed cost flow methods (FIFO, LIFO and average cost). Prove the accuracy of the
Date Units Unit Cost Total Cost
Date Value Value ?
Date Value Value ?
? ?
Value
Value
?
Date Units Unit Cost Total Cost
Date Value Value ?
Date Value Value ?
Date Value Value ?
Date Value Value ?
? ?
Date Units Unit Cost Total Cost
Date Value Value ?
Date Value Value ?
? ?
Determine the cost of goods available for sale.
cost of goods sold under the FIFO and LIFO methods.
(2) the highest cost of goods sold for the income statement?
(1) Ending Inventory – FIFO
(2) Cost of Goods Sold – FIFO
Determine the cost of goods available for sale.
cost of goods sold under the FIFO and LIFO methods.
COST OF GOODS AVAILABLE FOR SALE
Cost of goods available for sale
Cost of goods sold
Less: Ending inventory
(1) Ending Inventory – LIFO
(2) – Cost of Goods Sold -LIFO
Proof of Cost of Goods Sold – FIFO
Value
Value
?
Date Units Unit Cost Total Cost
Date Value Value ?
Date Value Value ?
Date Value Value ?
Date Value Value ?
? ?
Total goods available for sale Value
Total units available Value
Average cost* ?
*Round to two decimal points
Units Unit Cost Total Cost
Value Value Value
Value
Value
?
After you have completed the requirements of P6-2A, consider these additional questions.
Answers are on the other tab in this file.
1. Assume that the number of units sold increased to 12,000. What is the impact on ending inventory and cost of goods sold if the
FIFO method is used?
2. Assume that the number of units sold increased to 12,000. What is the impact on ending inventory and cost of goods sold if the
LIFO method is used?
3. Assume that the number of units sold increased to 12,000. What is the impact on ending inventory and cost of goods sold if the
average cost method is used?
Cost of goods available for sale
Less: Ending inventory
Cost of goods sold
Proof of Cost of Goods Sold – LIFO
AVERAGE COST
(1) Ending Inventory – Average Cost
(2) Cost of Goods Sold – Average Cost
Cost of goods available for sale
Less: Ending inventory
Cost of goods sold
P6-2A Solution
(a)
Date Explanation Units Unit Cost Total Cost
Cost of goods sold
Oct.1 Beginning inventory 2,000 $7 $14,000
3 Purchase 2,500 8 20,000
(b) Determine (1) the ending inventory and (2) the cost of goods sold under each of the
assumed cost flow methods (FIFO, LIFO and average cost). Prove the accuracy of the
Date Units Unit Cost Total Cost
Oct 25 4,000 $11 $44,000
19 100 10 1,000
$139,500
45,000
Date Units Unit Cost Total Cost
Oct 1 2,000 $7 $14,000
3 2,500 8 20,000
Date Units Unit Cost Total Cost
Oct 1 2,000 $7 $14,000
Proof of Cost of Goods Sold – FIFO
(1) Ending Inventory – LIFO
Determine the cost of goods available for sale.
cost of goods sold under the FIFO and LIFO methods.
COST OF GOODS AVAILABLE FOR SALE
(1) Ending Inventory – FIFO
(2) Cost of Goods Sold – FIFO
Cost of goods available for sale
Less: Ending inventory
Cost of goods sold
$139,500
30,800
Date Units Unit Cost Total Cost
Oct. 25 4,000 $11 $44,000
Cost of goods available for sale $139,500
Total units available 15,000
Units Unit Cost Total Cost
Cost of goods available for sale $139,500
(c ) (1) FIFO results in the highest inventory amount for the balance sheet, $45,000.
(2) Cost of Goods Sold – Average Cost
Proof of Cost of Goods Sold – LIFO
(1) Ending Inventory – Average Cost
(2) Cost of Goods Sold -LIFO
Cost of goods available for sale
AVERAGE COST
Less: Ending inventory
Cost of goods sold
P6-2 Solution to additional question
1. Assume that the number of units sold increased to 12,000. What is the impact on ending inventory and cost of goods sold if the
FIFO method is used?
Date Units Unit Cost Total Cost
Cost of goods available for sale $139,500
2. Assume that the number of units sold increased to 12,000. What is the impact on ending inventory and cost of goods sold if the
LIFO method is used?
Date Units Unit Cost Total Cost
Cost of goods available for sale $139,500
3. Assume that the number of units sold increased to 12,000. What is the impact on ending inventory and cost of goods sold if the
average cost method is used?
AVERAGE COST
Cost of goods available for sale $139,500
Total units available 15,000
Units Unit Cost Total Cost
Cost of goods available for sale $139,500
(1) Ending Inventory – FIFO
(1) Ending Inventory – Average Cost
Cost of Goods Sold
(2) Cost of Goods Sold – FIFO
(1) Ending Inventory- LIFO
(2) Cost of Goods Sold -LIFO
P6-10A Compute gross profit rate and inventory loss using gross profit method
Bao Company lost all of its inventory in a fire on December 26, 2017. The accounting records showed the
following gross profit data for November and December.
November
December
(to 12/26)
Net sales $600,000 $700,000
Beginning inventory 32,000 36,000
Purchases 389,000 420,000
Purchase returns and allowances 13,300 14,900
Purchase discounts 8,500 9,500
Freight-in 8,800 9,900
Ending inventory 36,000 ?
Bao is fully insured for fire losses but must prepare a report for the insurance company.
Instructions
(a) Compute the gross profit rate for November.
(b) Using the gross profit rate for November; determine the estimated cost of the inventory
lost in the fire.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a “?” .
(a) Net Sales Value
Cost of goods sold
Beginning inventory Value
Purchases Value
Less: Purchase returns and allowances VAlue
Purchase discounts Value
Add: Freight-in Value
Cost of goods purchased ?
Cost of goods available for sale Value
Ending inventory Value
Cost of goods sold ?
Gross profit ?
Gross profit rate
Gross profit Value
Net Sales Value
Gross profit rate* ?
*Round to 1 decimal point
(b) Net Sales Value
Less: Estimated gross profit Value
Estimated cost of goods sold ?
Beginning inventory Value
Purchases Value
Less: Purchase returns and allowances Value
Purchase discounts Value ?
Net purchases ?
November
Freight-in Value
Cost of goods purchased ?
Cost of goods available for sale ?
Less: Estimated cost of goods sold Value
Estimated inventory lost in fire ?
After you have completed the requirements of P6-10A, consider this additional question.
Answers are on the other tab in this file.
1. Assume that ending inventory in November changed to $45,000. What is the impact on the gross profit
rate and the estimated inventory lost in fire in December?
P6-10A Solution
(a)
Net Sales $600,000
Cost of goods sold
Beginning inventory $32,000
(b) Net Sales $700,000
Less: Estimated gross profit ($700,000 x 38%) 266,000
Estimated cost of goods sold $434,000
Beginning inventory $36,000
November
P6-10A Solution to additional question
1. Assume that ending inventory in November changed to $45,000. What is the impact on the gross profit
rate and the estimated inventory lost in fire in December?
(a) Net Sales $600,000
Cost of goods sold
Beginning inventory $32,000
Purchases $389,000
(b) Net Sales $700,000
Less: Estimated gross profit ($700,000 x 39.5%) 276,500
Estimated cost of goods sold $423,500
November