EXERCISE 8.11 (15–20 minutes)
(a)
1.
2,100 units available for sale – 1,400 units sold = 700 units in the
ending inventory.
500 @ $4.58 =
$2,290
920
2.
sale = $4.44 weighted-average unit cost.
cost.
$9,324 cost of goods available for sale ÷ 2,100 units available for
(b)
1.
FIFO will yield the highest gross profit because this method will
yield the lowest cost of goods sold figure in the situation
presented. The company has experienced rising purchase prices
2.
FIFO will yield the highest ending inventory because FIFO uses the
most recent purchase prices to cost the ending inventory units.
EXERCISE 8.12 (15–20 minutes)
First-in, first-out
Average cost
Sales ……………………………………….
€1,000,000
€1,000,000
Cost of goods sold:
Inventory, Jan. 1 …………………
€120,000
€120,000
Purchases ………………………….
Cost of goods available ………
Inventory, Dec. 31 ……………….
Cost of goods sold ………..
Gross profit ……………………………..
Operating expenses …………………
*Purchases
6,000 @ €22 =
€132,000
10,000 @ €25 =
7,000 @ €30 =
**Computation of inventory, Dec. 31:
First-in, first-out:
7,000 units @ €30 =
€210,000
2,000 units @ €25 =
***Average cost:
6,000 @ €20 =
€120,000
6,000 @ €22 =
7,000 @ €30 =
Average cost/unit = €712,000 ÷ 29,000 = €24.55 (rounded)
EXERCISE 8.13 (15–20 minutes)
(a)
Inventory December 31, 2019 (unadjusted) ………………
$234,890
Transaction 2 …………………………………………………………
10,420
Transaction 3 …………………………………………………………
–0–
Transaction 4 …………………………………………………………
–0–
Transaction 5 …………………………………………………………
Transaction 6 …………………………………………………………
Transaction 7 …………………………………………………………
Transaction 8 …………………………………………………………
1,500
(b)
Transaction 3
Sales ……………………………………………………..
12,800
Accounts Receivable …………………………..
12,800
(To reverse sale entry in 2019)
Transaction 4
Purchases (Inventory) …………………………….
15,630
Accounts Payable …………………………..
15,630
merchandise in 2019)
Transaction 8
Sales Returns and Allowances ………………..
Accounts Receivable ………………………
EXERCISE 8.14 (10–15 minutes)
Current Year
Subsequent Year
1.
Working capital
No effect
No effect
Current ratio
No effect
Retained earnings
No effect
No effect
Net income
No effect
No effect
2.
Working capital
Overstated
No effect
Current ratio
Overstated
No effect
Retained earnings
Overstated
No effect
Net income
Overstated
3.
Working capital
Overstated
No effect
Current ratio
Overstated
No effect
Retained earnings
Overstated
No effect
Net income
Overstated
EXERCISE 8.15 (10–15 minutes)
(c)
Event
Effect of Error
Adjust Income
Increase (Decrease)
1.
Understatement of ending
inventory
Decreases net income
€22,000
3.
Overstatement of ending
Increases net income
EXERCISE 8.16 (15–20 minutes)
Errors in Inventories
Year
Net
Income
Per Books
Add
Overstate-
ment Jan. 1
Deduct
Understate-
ment Jan. 1
Deduct
Overstate-
ment Dec. 31
Add
Understate-
ment Dec. 31
Corrected
Net Income
2015
HK$ 50,000
HK$5,000
HK$ 45,000
2016
52,000
HK$5,000
9,000
48,000
2017
54,000
9,000
74,000
2018
56,000
45,000
2019
58,000
60,000
2020
60,000
10,000
*EXERCISE 8.17 (15–20 minutes)
(a)
Cost of Goods Sold
Ending Inventory
1.
LIFO
500 @ $13 =
$ 6,500
300 @ $10 =
$3,000
450 @ $11 =
4,950
350 @ $11 =
3,850
$11,450
$6,850
2.
FIFO
300 @ $10 =
$ 3,000
500 @ $13 =
$6,500
650 @ $11 =
7,150
150 @ $11 =
1,650
(b)
LIFO
$ 1,000
300 @ $11 =
EXERCISE 8.17 (Continued)
(c)
Sales
$24,050
= ($24 X 200) + ($25 X 500) + ($27 X 250)
Cost of Goods Sold
Gross Profit (FIFO)
(d)
LIFO matches more current costs with revenue. When prices are rising
*EXERCISE 8.18 (20–25 minutes)
(a)
1.
LIFO
600 @ $6.00 =
$3,600
200 @ $6.08 =
1,216
$4,816
Total units
EXERCISE 8.18 (Continued)
*Units
Price
Total Cost
600
@
$6.00
=
$ 3,600
@
$6.08
=
800
@
$6.40
=
@
$6.50
=
700
@
$6.60
=
@
$6.79
=
3,395
(b)
1.
FIFO
500 @ $6.79 =
$3,395
300 @ $6.60 =
1,980
$5,375
2.
LIFO
100 @ $6.00 =
$ 600
200 @ $6.08 =
500 @ $6.79 =
3,395
(c)
Total merchandise available for sale
$33,655
Less inventory (FIFO)
5,375
*EXERCISE 8.19 (15–20 minutes)
(a) MILLS COMPANY
Computation of Inventory for Product Zone
Under FIFO Inventory Method
March 31, 2019
Units
Unit Cost
Total Cost
March 26, 2019 ………………………….
600
$12.00
$ 7,200
February 16, 2019 ……………………..
January 25, 2019 (portion) …………
1,000
(b) MILLS COMPANY
Computation of Inventory for Product Zone
Under LIFO Inventory Method
March 31, 2019
Units
Unit Cost
Total Cost
January 5, 2019 (portion) …………..
8,100
*EXERCISE 8.19 (Continued)
(c) MILLS COMPANY
Computation of Inventory for Product Zone
Under Weighted Average Inventory Method
March 31, 2019
Units
Unit Cost
Total Cost
Beginning inventory ………………….
600
$ 8.00
$ 4,800
January 5, 2019 ………………………..
1,100
9.00
9,900
January 25, 2019 ………………………
February 16, 2019 ……………………..
8,800
March 26, 2019 ………………………….
$43,700
Weighted-average cost
($43,700 ÷ 4,400) …………………….
$ 9.93*
March 31, 2019, inventory ………….
1,500
$ 9.93
*EXERCISE 8.20 (10–15 minutes)
(a)
(1)
400 @ $30 =
$12,000
110 @ $25 =
2,750
$14,750
(2)
400 @ $20 =
$ 8,000
110 @ $25 =
2,750
$10,750
(b)
(1)
FIFO
$14,750 [same as (a)]
(2)
LIFO
100 @ $20 =
400 @ $30 =
*EXERCISE 8.21 (15–20 minutes)
First-in, first-out
Last-in, first-out
Sales ……………………………………….
$1,000,000
$1,000,000
Cost of goods sold:
Inventory, Jan. 1 …………………
$120,000
$120,000
Purchases ………………………….
Cost of goods available ………
Inventory, Dec. 31 ……………….
Cost of goods sold ………..
Gross profit ……………………………..
Operating expenses …………………
*Purchases
6,000 @ $22 =
$132,000
10,000 @ $25 =
7,000 @ $30 =
**Computation of inventory, Dec. 31:
First-in, first-out:
$210,000
2,000 units @ $25 =
50,000
***Last-in, first-out:
6,000 units @ $20 =
$120,000
3,000 units @ $22 =
66,000
*EXERCISE 8.22 (20–25 minutes)
MICKIEWICZ CORPORATION
Schedules of Cost of Goods Sold
For the First Quarter Ended March 31, 2019
Schedule 1
First-in, First-out
Schedule 2 Last-in,
First-out
Beginning inventory ……………………
$ 40,000
$ 40,000
Plus purchases …………………………..
Cost of goods available for sale …..
Less ending inventory ………………..
65,700
61,000
Schedules Computing Ending Inventory
Units
Beginning inventory ……………………………………………………………..
10,000
Plus purchases …………………………………………………………………….
35,000
Units available for sale …………………………………………………………
45,000
Less sales ($150,000 ÷ 5) …………………………..………………………….
30,000
The unit computation is the same for both assumptions, but the cost as–
signed to the units of ending inventory are different.
First-in, First-out (Schedule 1)
Last-in, First-out (Schedule 2)
at $4.40 =
at $4.00 =
at $4.30 =
at $4.20 =
*EXERCISE 8.23 (10–15 minutes)
(a)
FIFO Ending Inventory 12/31/15
76 @ $10.89* =
$ 827.64
34 @ $11.88** =
403.92
(b)
LIFO Cost of Goods Sold—2015
76 @ $10.89 =
$ 827.64
90 @ $14.85* =
5 @ $15.84** =
79.20
(c) FIFO matches older costs with revenue. When prices are declining, as
in this case, this results in a higher amount for cost of goods sold.
TIME AND PURPOSE OF PROBLEMS
Problem 8.1 (Time 25–35 minutes)
Purpose—to provide a multipurpose problem with trade discounts, goods in transit, comparative FIFO
and average cost computations, and inventoriable cost identification.
Problem 8.2 (Time 25–35 minutes)
Problem 8.3 (Time 20–25 minutes)
Problem 8.4 (Time 30–40 minutes)
Purpose—to provide a problem where the student must compute the inventory using a FIFO, specific
Problem 8.5 (Time 25–35 minutes)
Purpose—to provide a problem where the student must compute the inventory using a FIFO and
Problem 8.6 (Time 20–25 minutes)
Purpose—to provide a problem where the student must compute cost of goods sold using FIFO and
average cost, under both a periodic and perpetual system.
*Problem 8.7 (Time 40–55 minutes)
Purpose—to provide a problem where the student must compute the inventory using a FIFO, LIFO, and
*Problem 8.8 (Time 40–55 minutes)
Purpose—to provide a problem where the student must compute the inventory using a FIFO, LIFO, and
be explained.
*Problem 8.9 (Time 25–35 minutes)
Purpose—to provide a problem where the student must compute cost of goods sold using FIFO, LIFO,
and weighted average, under both a periodic and perpetual system.
*Problem 8.10 (Time 30–40 minutes)
SOLUTIONS TO PROBLEMS
PROBLEM 8.1
1. €175,000 – (€175,000 X .20) = €140,000;
2. €1,100,000 + €69,000 = €1,169,000. The €69,000 of goods in transit on
3. Because no date was associated with the units issued or sold, the
periodic (rather than perpetual) inventory method must be assumed.
FIFO inventory cost:
1,000 units at €24
€ 24,000
1,000 units at 23
23,000
Average cost:
1,500 at €21
€ 31,500
2,000 at 22
3,500 at 23
1,000 at 24
24,000
PROBLEM 8.1 (Continued)
4. The inventoriable costs for 2019 are:
Merchandise purchased …………………………...
€909,400
Add: Freight-in ………………………………………..
Purchase discounts …………………….
PROBLEM 8.2
DIMITRI COMPANY
Schedule of Adjustments
December 31, 2019
Inventory
Accounts
Payable
Net Sales
Initial amounts
$1,520,000
$1,200,000
$8,150,000
Adjustments:
1.
NONE
NONE
(40,000)
2.
76,000
76,000
NONE
3.
30,000
NONE
NONE
4.
32,000
NONE
(47,000)
5.
26,000
NONE
NONE
6.
27,000
NONE
NONE
7.
NONE
56,000
NONE
8.
4,000
8,000
Total adjustments
195,000
140,000
(87,000)
1. The $31,000 of tools on the loading dock were properly included in the
2. The $76,000 of goods in transit from a vendor to Dimitri were shipped
f.o.b. shipping point on 12/29/19. Title passes to the buyer as soon as
3. The work-in-process inventory sent to an outside processor is Dimitri’s
PROBLEM 8.2 (Continued)
4. The tools costing $32,000 were recorded as sales ($47,000) in 2019.
However, these items were returned by customers on December 31, so
5. The $26,000 of Dimitri’s tools shipped to a customer f.o.b. destination
are still owned by Dimitri while in transit because title does not pass on
6. The goods received from a vendor at 5:00 p.m. on 12/31/19 should be
included in the ending inventory, but were not included in the physical
7. The $56,000 of goods received on 12/26/19 were properly included in
8. Since one-half of the freight-in cost ($8,000) pertains to merchandise
properly included in inventory as of 12/31/19, $4,000 should be added
PROBLEM 8.3
(a)
1.
8/10
Purchases ………………………………………………………
12,000
Accounts Payable……………………………………
12,000
8/13
Accounts Payable …………………………………………..
Purchase Returns and Allowances …………..
Purchases ………………………………………………………
16,000
Accounts Payable……………………………………
16,000
8/25
Purchases ………………………………………………………
20,000
Accounts Payable……………………………………
20,000
8/28
Accounts Payable …………………………………………..
16,000
2. Purchases—addition in cost of goods sold section of income
statement.
(b)
1.
8/10
Purchases ………………………………………………………
11,760
Accounts Payable (£12,000 X .98) …………….
11,760
8/13
Accounts Payable …………………………………………..
PROBLEM 8.3 (Continued)
8/15
Purchases ………………………………………………………
15,840
Accounts Payable (£16,000 X .99) …………….
15,840
8/25
Purchases ………………………………………………………
19,600
Accounts Payable (£20,000 X .98) …………….
19,600
Accounts Payable …………………………………………..
15,840
Purchase Discounts Lost ………………………………..
Cash ………………………………………………………
16,000
2.
8/31
Purchase Discounts Lost ………………………………..
216
Accounts Payable
(.02 X [£12,000 – £1,200]) ………………………
216
3.
Same as part (a) (2) except:
(c)
The second method is better theoretically because it results in the
inventory being carried net of purchase discounts, and purchase
PROBLEM 8.4
(a)
Purchases
Total Units
Sales
Total Units
April 1 (balance on hand)
100
April 5
300
April 4
400
April 12
200
April 11
300
April 27
800
April 18
200
April 28
April 30
Total units
Total units sold
(1,450)
350
Assuming costs are not computed for each withdrawal:
1. Specific identification.
No. Units
Unit Cost
Total Cost
2. First-in, first-out.
Date of Invoice
No. Units
Unit Cost
Total Cost