Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 6
Chapter 6
Inventories and Cost of Sales
QUESTIONS
1. (a) FIFO: The cost of the first (earliest) items purchased in inventory flow to cost of
2. Merchandise inventory is disclosed on the balance sheet as a current asset. It is
3. Incidental costs sometimes are ignored in computing the cost of inventory because
the expense of tracking such costs on a precise basis can outweigh the benefits
4. LIFO will result in the lower cost of goods sold when costs are declining because it
assigns the most recent, lower cost purchases to cost of goods sold.
5. The full-disclosure principle requires that the nature of the accounting change, the
7. No; the consistency concept does not preclude changes in accounting methods
8. Many people make important business decisions based on period-to-period
fluctuations in a company’s financial numbers, including gross profit and net
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9. An inventory error that causes an understatement (or overstatement) for net income
in one accounting period, if not corrected, will cause an overstatement (or
11. The accounting constraint of conservatism guides preparers of accounting reports
to select the less optimistic estimate in uncertain situations where two estimates of
15. Cost of goods available for sale equals ending inventory plus cost of sales. As of
16. Cost of goods available for sale equals ending inventory plus cost of sales. As of
17. Inventory (in KRW millions) comprises 15.1% (computed as ₩18,811,794 / ₩
2014.
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 6
QUICK STUDIES
Quick Study 6-1 (10 minutes)
Units in ending inventory
Units stored in basement …………………………..
1,300
units
Less damaged (unsalable) units …………………….
Quick Study 6-2 (10 minutes)
Cost ……………………………………………………….
$14,000
Plus
Quick Study 6-3 (10 minutes)
Beginning inventory ……………………………….
10 units @ $60
$ 600
Plus
1st week purchase …………………………………
10 units @ $61
2nd week purchase ………………………………..
10 units @ $62
3rd week purchase …………………………………
10 units @ $65
4th week purchase …………………………………
10 units @ $70
50 units
1/9
320 @ $3.00
= $1,216.00
1/25
320 @ $3.00
= $1,550.00
100 @ $3.34
1/26
150 @ $3.00
Quick Study 6-4 (10 minutes)
FIFO—Perpetual
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
1/1
320 @ $3.00
= $ 960.00
1/9
320 @ $3.00
= $1,216.00
1/25
320 @ $3.00
= $1,550.00
100 @ $3.34
1/26
100 @ $3.34
Quick Study 6-5 (10 minutes)
LIFO—Perpetual
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
1/1
320 @ $3.00
= $ 960.00
371
Quick Study 6-6 (10 minutes)
Weighted Average—Perpetual
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
1/1
320 @ $3.00
= $ 960.00
1/9
80 @ $3.20
320 @ $3.00
(avg. cost is $3.04)
1/25
320 @ $3.00
100 @ $3.34
(avg. cost is $3.10)
Quick Study 6-7A (10 minutes)
Ending Cost of
FIFO—Periodic Inventory Goods Sold
FIFO
Quick Study 6-8A (10 minutes)
Ending Cost of
LIFO—Periodic Inventory Goods Sold
LIFO
20 @ $12
Quick Study 6-9A (10 minutes)
Ending Cost of
Weighted Average—Periodic Inventory Goods Sold
Quick Study 6-10 (25 minutes)
FIFO—Perpetual
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
12/ 7
10 @ $ 6 = $ 60
10 @ $ 6
= $ 60.00
Quick Study 6-11
LIFO—Perpetual
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
12/7
10 @ $ 6 = $ 60
10 @ $ 6
= $ 60
373
Quick Study 6-12
Weighted Average—Perpetual
Quick Study 6-13
Specific Identification—Perpetual
Quick Study 6-14A (10 minutes)
Ending Cost of
FIFO—Periodic Inventory Goods Sold
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
12/7
10 @ $6 = $60
10 @ $6
= $ 60
12/15
15 @ $10
374
Quick Study 6-15A (10 minutes)
Ending Cost of
LIFO—Periodic Inventory Goods Sold
LIFO
Quick Study 6-16A (10 minutes)
Ending Cost of
Weighted Average—Periodic Inventory Goods Sold
Quick Study 6-17A (10 minutes)
Ending Cost of
Specific Identification—Periodic Inventory Goods Sold
Specific Identification
Quick Study 6-18 (10 minutes)
Quick Study 6-19 (20 minutes)
Per Unit
Total
Total
LCM –
Items
Inventory Items
Units
Cost
Market
Cost
Market
Mountain bikes
11
$600
$550
$ 6,600
$ 6,050
$ 6,050
Skateboards
Gliders
Quick Study 6-20 (15 minutes)
a. Overstates 2017 cost of goods sold.
Quick Study 6-21 (10 minutes)
Inventory turnover = Cost of goods sold/Average merchandise inventory
376
Quick Study 6-22B (15 minutes)
Goods available for sale
Inventory, January 1 ……………………………………………………….
$190,000
Cost of goods purchased (net) ……………………………………………..
Goods available for sale (at cost) …………………………..
Net sales at retail ……………………………………………………….
Estimated cost of goods sold [$685,000 x (1 – 44%)] ……………………..
Quick Study 6-23 (10 minutes)
a. Both IFRS and U.S. GAAP provide broad and similar guidance on the
accounting for items and costs making up merchandise inventory.
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 6
377
EXERCISES
Exercise 6-1 (10 minutes)
Exercise 6-2 (10 minutes)
Cost of inventory (estate’s contents)
Exercise 6-3 (45 minutes)
a. Specific identification
Ending inventory—180 units from January 30, 5 units from January 20, and 15
units from beginning inventory
Ending Cost of
Specific Identification Inventory Goods Sold
378
Exercise 6-3 (continued)
b. Weighted Average—Perpetual
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
1/1
140 @ $6.00
= $ 840.00
1/10
= $ 240.00
1/20
(avg. cost is $5.40)
1/25
80 @ $5.40 = $ 432.00
= $ 108.00
1/30
(avg. cost is $4.59)
c. FIFO—Perpetual
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
1/1
140 @ $6.00
= $ 840.00
1/10
= $ 240.00
1/20
1/25
40 @ $6.00
1/30
180 @ $4.50
d. LIFO—Perpetual
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
1/1
140 @ $6.00
= $ 840.00
1/20
1/25
60 @ $5.00
1/30
180 @ $4.50
379
Exercise 6-3 (Concluded)
Alternate Solution Format for FIFO and LIFO Perpetual
Ending Cost of
Computations Inventory Goods Sold
c. FIFO
(180 x $4.50) + (20 x $5.00) ……………………………………….. $ 910.00
Exercise 6-4 (20 minutes)
LAKER COMPANY
Income Statements
For Month Ended January 31
Specific
Identification
Weighted
Average
FIFO
LIFO
Sales ………………………………..
$2,700.00
$2,700.00
$2,700.00
$2,700.00
(180 units x $15 price)
1,680.00
380
Exercise 6-5A (35 minutes)
Ending Cost of
Periodic Inventory Computations Inventory Goods Sold
a. Specific Identification—Periodic
b. Weighted Average—Periodic
381
Exercise 6-6 (20 minutes)
LAKER COMPANY
Income Statements
For Month Ended January 31
Specific
Identification
Weighted
Average
FIFO
LIFO
Sales ………………………………..
$2,700.00
$2,700.00
$2,700.00
$2,700.00
382
Exercise 6-7 (20 minutes)
a. FIFO—Perpetual
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
1/1
200 @ $10
= $ 2,000
1/10
= $ 500
3/14
350 @ $15 = $5,250
3/15
7/30
450 @ $20 = $9,000
450 @ $20
10/5
10/26
100 @ $25 = $2,500
b. LIFO—Perpetual
Date
Goods Purchased
Cost of Goods Sold
Inventory Balance
1/1
200 @ $10
= $ 2,000
1/10
150 @ $10 = $ 1,500
50 @ $10
= $ 500
3/14
350 @ $15 = $ 5,250
350 @ $15
3/15
7/30
450 @ $20 = $ 9,000
10/5
10/26
100 @ $25 = $ 2,500
383
Exercise 6-7 (Concluded)
Alternate Solution Format
Ending Cost of
Inventory Goods Sold
a. FIFO
(100 x $25) + (120 x $20) ………………………………………………… $4,900
FIFO Gross Margin
Sales revenue (880 units sold x $40 selling price) …………………….
$35,200
Gross profit …………………………………………………………………………….
$21,350
Sales revenue (880 units sold x $40 selling price) …………………….
$35,200
Exercise 6-8 (15 minutes)
a. Specific Identification method—Cost of goods sold
Cost of goods available for sale …………………………..………….
$18,750
Ending inventory under specific identification
Sales revenue (880 units sold x $40 selling price) …………….
$35,200
384
Exercise 6-9A (20 minutes)
Cost of goods available for sale = $18,750 (given in Exercise 6-7)
Ending Cost of
Periodic Inventory System Inventory Goods Sold
a. FIFO—Periodic
(100 x $25) + (120 x $20) …………………………..………… $4,900
Exercise 6-10 (15 minutes)
Per Unit
Total
Total
LCM Applied
to Items
Inventory Items
Units
Cost
Market
Cost
Market
385
Exercise 6-11 (20 minutes)
1. a. LIFO ratio computations
LIFO current ratio (2017) = $220/$200 = 1.1
b. FIFO ratio computations
2. The use of LIFO versus FIFO for Cruz markedly impacts the ratios computed.
Specifically, LIFO makes Cruz appear worse in comparison to FIFO numbers
on the current ratio (1.1 vs. 1.5) but better on inventory turnover (5.5 vs. 3.8)
Exercise 6-12 (25 minutes)
2. Reported income figures
Year 2016
Year 2017
Year 2018
Sales …………………………….
$850,000
$850,000
$850,000
Cost of goods sold
150 x $2.57 [rounded to cents] ………………………………….
(150 x $2.90)…………………………………………………..
Exercise 6-13 (20 minutes)
2016 Inventory turnover 2016 Days’ Sales in Inventory
2017 Inventory turnover 2017 Days’ Sales in Inventory
Exercise 6-14A (20 minutes)
Ending
Inventory
Cost of
Goods Sold
a. Specific identification
(50 x $2.90) + (50 x $2.80) + (50 x $2.50) ………….
$410.00