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Question 8–1
Question 8–2
Question 8–3
Perpetual System Periodic System
(1) Purchase of merchandise debit inventory debit purchases
Chapter 8 Inventories: Measurement
QUESTIONS FOR REVIEW OF KEY TOPICS
Inventory for a manufacturing company consists of (1) raw materials, (2) work in
process, and (3) finished goods. Raw materials represent the cost, primarily purchase
Beginning inventory plus net purchases for the period equals cost of goods
8–2 Intermediate Accounting, 8/e
Answers to Questions (continued)
Question 8–4
Question 8–5
Question 8–6
Question 8–7
Inventory shipped f.o.b. shipping point is included in the inventory of the
purchaser when the merchandise reaches the common carrier. Laetner Corporation
A consignment is an arrangement under which goods are physically transferred to
By the gross method, purchase discounts not taken are viewed as part of
1. Beginning inventory — increase
Answers to Questions (continued)
Question 8–8
Question 8–9
Question 8–10
Four methods of assigning cost to ending inventory and cost of goods sold are (1)
specific identification, (2) first-in, first-out (FIFO), (3) last-in, first-out (LIFO), and
(4) average cost. The specific identification method requires each unit sold during the
When costs are declining, LIFO will result in a lower cost of goods sold and
Proponents of LIFO argue that it provides a better match of revenues and
expenses because cost of goods sold includes the costs of the most recent purchases.
8–4 Intermediate Accounting, 8/e
Question 8–11
Question 8–12
Question 8–13
Question 8–14
Many companies choose the LIFO inventory method to reduce income taxes in
periods when prices are rising. In periods of rising prices, LIFO results in a higher
The gross profit, inventory turnover, and average days in inventory ratios are
A LIFO inventory pool groups inventory units into pools based on physical
The dollar-value LIFO method has important advantages. First, it simplifies the
Answers to Questions (concluded)
Question 8–15
After determining ending inventory at year-end cost, the following steps remain:
1. Convert ending inventory valued at year-end cost to base year cost.
3. Convert each layer’s base year cost measurement to layer year cost
measurement using the layer year’s cost index and then sum the layers.
Question 8–16
The primary difference between U.S. GAAP and IFRS in the methods
8–6 Intermediate Accounting, 8/e
Brief Exercise 8–1
Brief Exercise 8–2
To record the purchase of inventory on account.
To record sales on account and cost of goods sold.
BRIEF EXERCISES
Brief Exercise 8–3
Both shipments should be included in inventory. The goods shipped to a
Brief Exercise 8–4
8–8 Intermediate Accounting, 8/e
Brief Exercise 8–5
December 28, 2016
Brief Exercise 8–6
Cost of goods available for sale:
First-in, first-out (FIFO)
Cost of goods available for sale (500 units) $13,800
Less: Ending inventory (determined below) (8,100)
Cost of goods sold $5,700
Cost of ending inventory:
Date of
purchase Units Unit cost Total cost
Average cost
Cost of ending inventory:
Brief Exercise 8–7
8–10 Intermediate Accounting, 8/e
First-in, first-out (FIFO)
Cost of goods sold:
Date of Cost of
Sale Units Sold Units Sold Total Cost
Ending inventory:
Date of
Purchase Units Unit Cost Total Cost
Brief Exercise 8–7 (concluded)
Average cost
Date
Purchased
Sold
Balance
Beginning
inventory
200 @ $25 = $5,000
200 @ $25 $5,000
January 10
125 @ $26 = $3,250
175 @ $26 $4,550
8–12 Intermediate Accounting, 8/e
Brief Exercise 8–8
Cost of goods available for sale:
Brief Exercise 8–9
64,000 units were sold.
Cost of goods sold without year-end purchase:
If FIFO were used instead of LIFO, the year-end purchase would have no effect
on income before income taxes. FIFO cost of goods sold with or without the purchase
would consist of the 10,000 units from beginning inventory and 54,000 units
purchased during the year at $18:
Brief Exercise 8–10
Brief Exercise 8–11
Cost of goods sold for the six months ended February 28, 2014, would have been
$100 million lower had Walgreen used FIFO for its LIFO inventory. While
beginning inventory would have been $2,100 million higher, ending inventory also
8–14 Intermediate Accounting, 8/e
Brief Exercise 8–12
Average inventory = ($60,000 + 48,000) 2 = $54,000
Brief Exercise 8–13
Ending Inventory Inventory Layers Inventory Layers Inventory
Date at Base Year Cost at Base Year Cost Converted to Cost DVL Cost
Exercise 8–1
1. To record the purchase of inventory on account and the payment of freight
charges.
2. To record purchase returns.
3. To record cash sales and cost of goods sold.
EXERCISES
Exercise 8–2
1. To record the purchase of inventory on account and the payment of freight
charges.
2. To record purchase returns.
3. To record cash sales.
Exercise 8–3
Requirement 1
Beginning inventory $ 32,000
Requirement 2
Cost of goods sold (above) .............................................. 233,000
8–18 Intermediate Accounting, 8/e
Exercise 8–4
PERPETUAL SYSTEM PERIODIC SYSTEM
($ in 000s)
Purchases
Inventory 155 Purchases 155
Accounts payable 155 Accounts payable 155
Freight
Sales
Accounts receivable 250 Accounts receivable 250
Sales revenue 250 Sales revenue 250
Cost of goods sold 148 No entry
Inventory 148
End of period
Exercise 8–5
2016 2017 2018
Beginning inventory 275 (1) 249 (3) 225
Cost of goods sold 627 621 584 (6)
2016:
(1) Cost of goods available for sale – Net purchases = Beginning inventory
2017:
(3) 2017 beginning inventory = 2016 ending inventory = 249
2018:
(6) Cost of goods available for sale – Ending inventory = Cost of goods sold
8–20 Intermediate Accounting, 8/e
Exercise 8–5 (concluded)
(7) Cost of goods available for sale – Beginning inventory = Net purchases
