CHAPTER 6
SOLUTIONS TO EXERCISES—SET B
EXERCISE 6-1B
Ending inventory⎯physical count ………………………………………… $375,000
2. No effect−title does not transfer to Fallen until
goods are received ………………………………………………….. 0
4. Add to inventory: Title remains with Fallen until
purchaser receives goods ……………………………………….. 41,000
5. The goods did not arrive prior to year-end. The goods,
EXERCISE 6-2B
Ending inventory-as reported ………………………………………………..
$740,000
1.
holding them as a consignee. ……………………………………………
Subtract from inventory: The goods belong
2.
40,000
Add to inventory: The goods belong to
3.
Subtract from inventory: Office supplies should
4.
Add to inventory: The goods belong to Doobie
until they are shipped (Jan. 1). ………………………………………….
29,000
5.
indicates that Doobie knows this over-shipment is
an attempt to improve Doobie’s reported income by
Add to inventory: Siebring Sales ordered goods with
a cost of $6,000. Doobie should record the
corresponding sales revenue of $10,000.
Doobie’s decision to ship extra “unordered”
6.
Correct inventory …………………………………………………………………
Subtract from inventory: GAAP requires that
EXERCISE 6-3B
(a) Do not include—Nyguen does not own items held on consignment.
(b) Include in inventory—Nyguen still owns the items as they were only
shipped on consignment.
EXERCISE 6-4B
(a) FIFO
Beginning inventory (20 X $100) ……………………………. $ 2,000
Purchases
Sept. 12 (45 X $103) ………………………………………… $4,635
PROOF
Date Units Unit Cost Total Cost
9/1 20 $100 $ 2,000
9/12 45 103 4,635
PROOF
Date Units Unit Cost Total Cost
9/26 50 $105 $ 5,250
9/19 20 104 2,080
(b)
Cost of
goods
EXERCISE 6-5B
(a) FIFO
Beginning inventory (21 X $9) …………………………………… $189
Purchases
May 15 (25 X $10) ……………………………………………….. $250
PROOF
Date Units Unit Cost Total Cost
5/1 21 $ 9 $189
(b) AVERAGE-COST
$857 ÷ 84 = $10.202 weighted-average unit cost
PROOF
Units Unit Cost Total Cost
EXERCISE 6-5B (Continued)
(c) LIFO
Cost of goods available for sale ………………………………………….. $857
PROOF
Date Units Unit Cost Total Cost
5/24 38 $11 $418
EXERCISE 6-6B
(a) FIFO Cost of Goods Sold
(b) It could choose to sell specific units purchased at specific costs if it
wished to impact earnings selectively. If it wished to minimize earnings
(c) The FIFO method provides a more appropriate balance sheet valuation
EXERCISE 6-7B
(a) (1) FIFO
Beginning inventory (120 X $5) ……………………………. $ 600
Purchases
June 12 (370 X $6) ………………………………………… $2,220
(2) LIFO
Cost of goods available for sale ………………………….. $6,320
(3) AVERAGE-COST
Cost of Goods Total Units Weighted-Average
(b) The FIFO method will produce the highest ending inventory because costs
have been rising. Under this method, the earliest costs are assigned to
(c) The average-cost ending inventory ($1,021.44) is higher than LIFO
EXERCISE 6-8B
LIFO FIFO
(a) Sales ……………………………………………………….…… $96,000 $96,000
Cost of goods sold ……………………………………….. 38,000 29,000
LIFO FIFO
(b) Sales ……………………………………………………….…… $96,000 $96,000
Less: Cash paid for inventory purchases ……… 32,000 32,000
LIFO FIFO
(c) Net cash provided by operating activities ……… $37,700 $35,000
EXERCISE 6-9B
Cost/Unit
Lower-of-Cost-
or-Market
Units
Inventory at
Lower-of-Cost-
or-Market
Cameras:
Minolta
$160
$156
5
$ 780
Canon
7
Light Meters:
Vivitar
Kodak
Total
EXERCISE 6-10B
2013
2014
Inventory
turnover
$15,762
($1,693 +$1,926) ÷ 2
$18,038
($1,926 +$2,290) ÷ 2
Days in
inventory
365
8.7 =42.0 days
365
8.6 =42.4 days
EXERCISE 6-11B
(a)
Inventory
turnover
$16,253
($1,957+ $2,337) ÷ 2 =$16,253
$2,147 = 7.6
(b) Based on data presented:
Current ratio $29,546 ÷ $15,738 = 1.88 : 1
(c) After adjusting for the LIFO reserve, Deere’s current ratio increases
*EXERCISE 6-12B
(a)
FIFO
Date
Purchases
Cost of goods sold
Balance
June 1
(120 @ $5)
$ 600
June 12
(370 @ $6) $2,220
(120 @ $5)
$2,820
(370 @ $6)
June 15
(120 @ $5)
$ 600
(290 @ $6)
$1,740
June 23
(500 @ $7) $3,500
(500 @ $7)
June 27
$ 480
*EXERCISE 6-12B (Continued)
LIFO
Date
Purchases
Cost of Goods Sold
Balance
June 1
(120 @ $5)
$ 600
June 12
(370 @ $6) $2,220
(120 @ $5)
June 15
(370 @ $6)
$ 400
June 23
(500 @ $7) $3,500
(500 @ $7)
June 27
Ending inventory: $960. Cost of goods sold: $5,360.
MOVING-AVERAGE
Date
Purchases
Cost of Goods Sold
Balance
June 1
(120 @ $5)
$ 600
June 12
(370 @ $6) $2,220
(490 @ $5.755)
$2,820
June 15
(80 @ $5.755)
$ 460*
June 23
(500 @ $7) $3,500
(580 @ $6.828*)
(b) FIFO gives the same ending inventory and cost of goods sold values
under both the periodic and perpetual inventory system. LIFO and
(c) The simple average would be [($5 + $6 + $7) ÷ 3] or $6. However, the
*EXERCISE 6-13B
(a)
FIFO
Date Purchases Cost of Goods Sold Balance
9/1 (20 @ $100) $2,000
9/5 (8 @ $100) $ 800 (12 @ $100) $1,200
LIFO
Date Purchases Cost of Goods Sold Balance
9/1 (20 @ $100) $2,000
9/5 (8 @ $100) $ 800 (12 @ $100) $1,200
9/19 (20 @ $104) $2,080 (9 @ $100)
(20 @ $104) $2,980
9/29 (50 @ $105)
(14 @ $104) $ 6,706 (9 @ $100)
$12,441 (6 @ $104) $1,524
*EXERCISE 6-13B (Continued)
MOVING-AVERAGE
Date Purchases Cost of Goods Sold Balance
9/1 (20 @ $100) $2,000
9/5 (8 @ $100) $ 800 (12 @ $100) $1,200
9/12 (45 @ $103) $4,635 (57 @ $102.368)a $5,835
*Rounded
a($1,200 + $4,635) ÷ 57 = $102.368
*EXERCISE 6-14B
2013 2014
Beginning inventory …………………………………………… $ 20,000 $ 26,000
Cost of goods purchased ……………………………………. 164,000 175,000
*EXERCISE 6-15B
(a)
2013 2014
Sales revenue ………………………………………………. $210,000 $250,000
Cost of goods sold
Beginning inventory ………………………………. 32,000 32,000
(b) The cumulative effect on total gross profit for the two years is zero as
shown below:
(c) Dear Mr./Ms. President:
Because your ending inventory of December 31, 2013 was overstated
by $8,000, your net income for 2013 was overstated and net income for
2014 was understated by $8,000.
In a periodic system, the cost of goods sold is calculated by deducting
the cost of ending inventory from the total cost of goods you have
available for sale in the period. Therefore, if this ending inventory
figure is overstated, as it was in December 2013, the cost of goods