Using weighted-average, cost of goods sold is $24,655, ending merchandise inventory is $5,695, and gross profit is $8,065.
Perpetual Inventory Record: Weighted-Average
Purchases
Cost of Goods Sold
Inventory on Hand
Date
Quantity
Unit
Cost
Total Cost
Quantity
Unit
Cost
Total Cost
Quantity
Unit
Cost
Total Cost
Jan. 1
90 units
× $ 65.00 (d)
= $ 5,850
140 units
× $71.50
= $10,010
80 units
× $ 71.50
= $ 5,720
170 units
× $ 86
= $14,620
250 units
× $ 81.36 (f)
= $20,340
180 units
× $81.36
= $14,645
70 units
× $ 81.36
= $ 5,695
300 units
320 units
$24,655
70 units
$ 5,695
=
Cost of goods available for sale / Number of units available
=
=
$15,730 / 220 units
=
$71.50 per unit
=
=
$20,340 / 250 units
=
$81.36 per unit
P6-33B, cont.
Requirement 3, cont.
Requirement 4
P6-34B Accounting for inventory using the perpetual inventory system—FIFO, LIFO, and
weighted-average, and comparing FIFO, LIFO, and weighted-average
Learning Objectives 2, 3
5. FIFO GP $5,640
Decorative Steel began January with 70 units of iron inventory that cost $25 each. During January, the
company completed the following inventory transactions:
Requirements
1. Prepare a perpetual inventory record for the merchandise inventory using the FIFO inventory costing
method.
2. Prepare a perpetual inventory record for the merchandise inventory using the LIFO inventory costing
method.
SOLUTION
Requirement 1
Perpetual Inventory Record: FIFO
Purchases
Cost of Goods Sold
Inventory on Hand
Date
Quantity
Unit
Cost
Total Cost
Quantity
Unit
Cost
Total Cost
Quantity
Unit
Cost
Total Cost
Jan. 1
70 units
× $ 25
= $ 1,750
$ 1,750
× $ 25
= $ 1,500
× $ 25
= $ 250
× $ 43
= $ 3,440
× $ 25
= $ 250
= $ 3,440
× $ 25
= $ 250
× $ 43
= $ 860
= $ 980
$ 1,840
P6-36B, cont.
Requirement 2
Perpetual Inventory Record: LIFO
Purchases
Cost of Goods Sold
Inventory on Hand
Date
Quantity
Unit
Cost
Total Cost
Quantity
Unit
Cost
Total Cost
Quantity
Unit
Cost
Total Cost
Jan. 1
70 units
× $ 25
= $ 1,750
$ 1,750
× $ 25
= $ 1,500
× $ 25
= $ 250
× $ 43
= $ 3,440
× $ 25
= $ 250
= $ 3,440
× $ 43
= $ 3,010
× $ 25
= $ 250
= $ 430
= $ 980
$ 1,660
P6-34B, cont.
Requirement 3
Perpetual Inventory Record: Weighted-Average
Purchases
Cost of Goods Sold
Inventory on Hand
Date
Quantity
Unit
Cost
Total Cost
Quantity
Unit
Cost
Total Cost
Quantity
Unit
Cost
Total Cost
Jan. 1
70 units
× $ 25
= $ 1,750
× $ 25
= $ 1,500
× $ 25
= $ 250
× $ 43
= $ 3,440
90 units
= $ 3,690
× $ 41
= $ 2,870
20 units
× $ 41
= $ 820
× $ 49
= $ 980
40 units
= $ 1,800
100 units
$ 4,420
130 units
$ 4,370
40 units
$ 1,800
=
Cost of goods available for sale / Number of units available
=
($250 + $3,440) / (10 units + 80 units)
=
$3,690 / 90 units
=
$41 per unit
=
=
$1,800 / 40 units
=
$45 per unit
P6-34B, cont.
Requirement 4
Requirement 5
Gross profit is $5,640 using FIFO, $5,460 using LIFO, and $5,600 using weighted-average.
Requirement 6
If the business wanted to maximize gross profit they would select FIFO.
6-88
P6-35B Accounting principles for inventory and applying the lower-of-cost-or– market rule
Learning Objectives 1, 4
3. CoGS $425,000
Some of G and A Electronics’s merchandise is gathering dust. It is now December 31, 2016, and the
current replacement cost of the ending merchandise inventory is $25,000 below the business’s cost of
the goods, which was $100,000. Before any adjustments at the end of the period, the company’s Cost of
Goods Sold account has a balance of $400,000.
Requirements
1. Journalize any required entries.
SOLUTION
Requirement 1
Date
Accounts and Explanation
Debit
Credit
Dec. 31
Cost of Goods Sold
25,000
Requirement 2
Merchandise inventory should be reported at $75,000 on the balance sheet.
Requirement 3
Cost of goods sold should be reported at $425,000 on the income statement.
Requirement 4
6-90
P6-36B Correcting inventory errors over a three-year period and computing inventory turnover
and days’ sales in inventory
Learning Objectives 5, 6
2. 2017, overstated $7,000
Evergreen Carpets’s books show the following data. In early 2018, auditors found that the ending
merchandise inventory for 2015 was understated by $6,000 and that the ending merchandise inventory
for 2017 was overstated by $7,000. The ending merchandise inventory at December 31, 2016, was
correct.
Requirements
1. Prepare corrected income statements for the three years.
SOLUTION
Requirement 1
Corrected income statements:
EVERGREEN CARPETS
Income Statements
Years Ended December 31, 2017, 2016, and 2015
2017
2016
2015
Net Sales Revenue
$ 218,000
$ 161,000
$ 176,000
Cost of Goods Sold:
$ 21,000
$ 41,000
130,000
98,000
83,000
151,000
129,000
124,000
21,000
Gross Profit
Operating Expenses
75,000
29,000
43,000
Net Income
$ 18,000
$ 24,000
$ 40,000
2017
Incorrect Merchandise Inventory
$ 33,000
Understatement (Overstatement)
(7,000)
Correct Merchandise Inventory
6-92
P6-36B, cont.
Requirement 2
Before correction, net income is overstated by $7,000 in 2017, overstated by $6,000 in 2016, and
understated by $6,000 in 2015.
Requirement 3
Inventory turnover is 5.32 times in 2017, 4.15 times in 2016, and 2.58 in 2015. Days’ sales in inventory
is 68.61 days in 2017, 87.95 days in 2016, and 141.47 days in 2015.
Calculations:
P6-36B, cont.
Requirement 3, cont.
Inventory turnover
=
Cost of goods sold
/ Average merchandise inventory
Year Ended Dec. 31, 2017:
=
$125,000 / $23,500
=
5.32 times for the year
Year Ended Dec. 31, 2016:
=
$108,000 / $26,000
=
4.15 times for the year
=
$93,000 / $36,000
2.58 times for the year
365 days / Inventory turnover
365 days / 5.32 times
68.61 days
365 days / 4.15 times
365 days / 2.58 times
141.47 days
6-94
P6A-37B Accounting for inventory using the periodic inventory system— FIFO, LIFO, and
weighted-average, and comparing FIFO, LIFO, and weighted-average
Learning Objectives 3, 7
Appendix 6A
1. LIFO Ending Merch. Inv., $10,200
Requirements
1. Determine the ending merchandise inventory and cost of goods sold amounts for the October
financial statements using the FIFO, LIFO, and weighted-average inventory costing methods.
SOLUTION
Requirement 1
Using FIFO, ending merchandise inventory is $11,080 and cost of goods sold is $8,600.