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b. Inventory subsidiary ledger records:
(1) Specific identification method:
Date Units Unit Cost Total Units Unit Cost
Cost of
Goods Sold
Units Unit Cost Balance
(2) Average-cost method:
Date Units Cost Total Units Cost
Cost of
Goods Sold
Units Cost Balance
Dec 12 600 29$ 17,400$ 600 29.00$ 17,400$
Jan 09 900 32 28,800 1,500 30.80 46,200
Jan 15 1,000 30.80$ 30,800$ 500 30.80 15,400
* $46,200 total cost ÷ 1,500 units = $30.80 average unit cost.
(3) First-in, first-out (FIFO) method:
Cost of
PROBLEM 8.1A
PURCHASED
SOLD
BALANCE
SPORTS WORLD (continued)
PURCHASED
SOLD
BALANCE
PURCHASED
SOLD
BALANCE
c.
PROBLEM 8.1A
SPORTS WORLD (concluded)
No. As shown in part a, the LIFO method resulted in the highest cost of goods sold figure, whereas
30 Minutes, Strong
(1) Average-cost method:
(a) Cost of goods sold on July 28:
4,980$
19,920$
9,900$
10,000
19,900$
(b) Ending inventory (4 units) at September 30:
5,000$
15,300
20,300$
Cost of goods sold (4 units)
PROBLEM 8.2A
a. Cost of goods sold and ending inventory
SPEED WORLD CYCLES: PERPETUAL SYSTEM
Average cost (as of July 22; $24,900 ÷ 5 units)
Cost of goods sold (4 units @ $4,980)
2 units from July 22 purchase @ $5,000
1 unit from July 22 purchase @$5,000
Ending inventory, September 30
3 units from August 3 purchase @ $5,100
b. (1)
(2)
(3)
In this situation, the LIFO method will minimize income taxes, as it assigns the most recent
No. Speed World may not use FIFO in its financial statements and LIFO in its income tax
PROBLEM 8.2A
SPEED WORLD CYCLES: PERPETUAL SYSTEM (concluded)
The FIFO method will result in the highest net income, as it assigns the oldest (lowest) costs to
20 Minutes, Medium
(1) Average-cost method:
Ending inventory at September 30:
5,025$
20,100$
(3) Last-in, first-out (LIFO) method:
Ending inventory at September 30:
9,900$
10,000
19,900$
b.
Yes. Income tax regulations influence the inventory method used in financial reports only when the
2 units from purchase on July 22 (@ $5,000)
Ending inventory
Note to instructor: Students may point out that ending inventory computed under LIFO is the same figure
as the cost of goods sold computed under FIFO. Likewise, the cost of goods sold figure computed under
LIFO is the same as the ending inventory figure computed under FIFO. The fact that these numbers are
the same is merely a coincidence.
PROBLEM 8.3A
a. Cost of goods sold and ending inventory
SPEED WORLD CYCLES: PERIODIC SYSTEM
Average cost ($40,200 ÷ 8 units)
Ending inventory (4 units @ $5,025)
2 units from purchase on July 1 (@ $4,950)
20 Minutes, Medium
a. Shrinkage loss - 40 trees
1,000
Inventory 1,000
c.
(1) Average-cost method:
PROBLEM 8.4A
MARY'S NURSERY
b. Shrinkage loss and LCM adjustment
(1) Shrinkage loss, first-in, first-out (FIFO) method:
Cost of Goods Sold
The only unethical act in this situation was committed by the employee against his employer. There
25 Minutes, Easy
Units Unit Cost Total Cost
a. Inventory and cost of goods sold:
(1) FIFO:
(2) LIFO:
Beginning inventory 12 299$ 3,588$
First purchase (May 12) 10 306 3,060
Ending inventory, LIFO 22 6,648$
b.
PROBLEM 8.5A
CLEAR SOUND AUDIO
Inventory:
The FIFO method, by assigning the costs of the most recent purchases to inventory, provides the most
realistic balance sheet amount for inventory in terms of replacement costs. A weakness in the FIFO
20 Minutes, Medium
a.
2018 2017 2016
Net sales 875,000$ 840,000$ 820,000$
Cost of goods sold 563,000 527,200 440,000$
b.
The current owners of this business have no basis for being enthusiastic about the trend of gross profit
PROBLEM 8.6A
HEALTH FOODS
25 Minutes, Medium
a.
b.
84,480$
55%
46,464$
c.
CDs and recorded music in other formats can easily fit into someone’s pocket and “walk out of the
warehouse.” Thus, it is important that effective controls be in place to reduce inventory shrinkage.
(1) Restating physical inventory from retail prices to cost:
Physical inventory stated in retail prices
Cost ratio (per part a, above)
Ending inventory at cost ($84,480 x 55%)
(1) Estimated cost of goods sold:
PROBLEM 8.7A
BETWEEN THE EARS
20 Minutes, Strong
a. Computations based on LIFO valuation of inventory:
(1) Inventory turnover rate:
Cost of Goods Sold = 365,086$ 8.11 times
c. You would expect the ratios to be different under FIFO as follows:
the year.
PROBLEM 8.8A
WAL-MART
35 Minutes, Medium
Jan 22 14,800
Inventory 14,800
Jan 22 14,600
Inventory 14,600
SOLUTIONS TO PROBLEMS SET B
PROBLEM 8.1B
DOBBINS SUPPLY, INC.
Cost of Goods Sold
a.
2018
General Journal
(1) Specific identification method:
(3) First-in, First-out (FIFO) method:
Cost of Goods Sold
To record cost of 700 cartridges sold to Foster
b. Inventory subsidiary ledger records:
(1) Specific identification method:
DOBBINS SUPPLY INC. (cont.)
Date Units Unit Cost Total Units Unit Cost
Cost of
Goods Sold
Units Unit Cost Balance
Dec 12 400 20$ 8,000$ 400 20$ 8,000$
400 22 14,800$ 800 22 19,600
(2) Average-cost method:
Date Units Cost Total Units Unit Cost
Cost of
Goods Sold
Units Cost Balance
Dec 12 400 20$ 8,000$ 400 20.00$ 8,000$
Jan 16 1,200 22 26,400 1,600 21.50 34,400
Jan 22 700 21.50$ 15,050$ 900 21.50 19,350
* $34,400 total cost ÷ 1,600 units = $21.50 average unit cost.
(3) First-in, first-out (FIFO) method:
Cost of
PROBLEM 8.1B
PURCHASED
SOLD
BALANCE
PURCHASED
SOLD
BALANCE
PURCHASED
SOLD
BALANCE
c.
PROBLEM 8.1B
DOBBINS SUPPLY, INC. (concluded)
Yes. As shown in part a, the LIFO method resulted in the highest cost of goods sold figure, whereas
