PROBLEM 6-1B
(a) 1. The goods should not be included in inventory as they were
shipped FOB shipping point on February 26. Title to the goods
transfers to the customer on February 26, the date of shipping.
Since these items were not on the premises, they were not
counted in inventory. No correction is required.
2. The amount should not be included in inventory as they were
shipped FOB destination and not received until March 4. The
seller still owns the inventory. Since these items were not on the
premises, they were not counted in the ending inventory
valuation. No correction Is required.
3. Include $500 in inventory.
4. Include $400 in inventory.
5. $750 should be included in inventory as the goods were shipped
FOB shipping point on February 27. Title passes to Banff on
February 27, the date of shipping.
6. The sale will be recorded on March 2. The goods should be
included in inventory at the end of February at their cost of $280.
7. The damaged goods should not be included in inventory. They
were on the premises and counted during the inventory count,
therefore they must be deducted from the original ending
inventory valuation.
(b)
$48,000
+500
+400
+750
+280
-400
$49,530
Original Feb. 28 inventory valuation
3.
4.
5.
6.
7.
Revised Feb. 28 inventory valuation
PROBLEM 6-2B
(a)
GENERAL JOURNAL
Account Titles and Explanation
Date
Apr.
4
6
8
10
11
13
14
15
17
18
20
Debit
Purchases ..........................................................
Accounts Payable ......................................
640
Freight In............................................................
Cash ............................................................
40
Accounts Receivable ........................................
Sales ...........................................................
900
Accounts Payable .............................................
Purchase Returns and Allowances...........
40
Purchases ..........................................................
Cash ............................................................
300
Accounts Payable ($640  $40) ........................
Cash ............................................................
600
Purchases ..........................................................
Accounts Payable ......................................
700
Cash ...................................................................
Purchase Returns and Allowances...........
50
Freight In............................................................
Cash ............................................................
30
Accounts Receivable ........................................
Sales ...........................................................
800
Cash ...................................................................
Accounts Receivable .................................
500
J1
Credit
640
40
900
40
300
600
700
50
30
800
500
PROBLEM 6-2B (Continued)
(a) (Continued)
Date
Apr.
Account Titles and Explanation
21
27
30
30
Debit
Accounts Payable .............................................
Cash ............................................................
700
Sales Returns and Allowances ........................
Accounts Receivable .................................
30
Accounts Receivable ........................................
Sales ...........................................................
900
Cash ...................................................................
Accounts Receivable .................................
500
J2
Credit
700
30
900
500
PROBLEM 6-4B
(a)
COST OF GOODS AVAILABLE FOR SALE
Date
Cost
Jan. 1
Feb.20
May 5
Aug.12
Dec. 8
Explanation
Units
Unit Cost
Beginning inventory
Purchase
Purchase
Purchase
Purchase
Total
400
700
500
300
100
2,000
$8
9
10
11
12
(b)
FIFO
(1)
Cost of Goods Sold
Unit
Total
Date
Units Cost
Cost
Feb. 1
400
$ 8 $ 3,200
Total
$ 3,200
6,300
5,000
3,300
1,200
$19,000
Feb.20
May 5
700
400
1,500
9
10
6,300
4,000
$13,500
(2)
Ending Inventory
Unit
Total
Date
Units Cost
Cost
Dec. 8
100 $ 12
$1,200
Aug.12
300
11
3,300
May 5
100
10
1,000
500*
$5,500
*2,000 – 1,500 = 500
Check: CGS + EI
= GAS
$13,500 + $5,500 = $19,000
PROBLEM 6-4B (Continued)
(b) (Continued)
Weighted average unit cost: $19,000  2,000 = $9.50
WEIGHTED AVERAGE COST
(1)
Cost of Goods Sold
Unit
Total
Units
Cost
Cost
1,500
$9.50
$14,250
(2)
Units
500
Ending Inventory
Unit
Total
Cost
Cost
$9.50
$4,750
Check: CGS
+ EI
= GAS
$14,250 + $4,750 = $19,000
LIFO
(1)
Cost of Goods Sold
Unit
Total
Date
Units Cost
Cost
Dec. 8
100
$12 $ 1,200
Aug.12
300
11
3,300
May 5
500
10
5,000
Feb.20
600
9
5,400
1,500
$14,900
(2)
Ending Inventory
Unit
Total
Date
Units Cost
Cost
Feb. 1
400
$ 8 $3,200
Feb.20
100
9
900
500
$4,100
Check: CGS
+ EI
= GAS
$14,900 + $4,100 = $19,000
PROBLEM 6-4B (Continued)
(c) (1)
LIFO results in the lowest inventory amount for the balance
sheet, $4,100.
(2)
FIFO results in the lowest cost of goods sold for the income
statement, $13,500.
PROBLEM 6-4A
(a)
COST OF GOODS AVAILABLE FOR SALE
Date
Cost
Jan. 1
Mar. 15
July 20
Sept. 4
Dec. 2
Explanation
Units
Beginning inventory
Purchase
Purchase
Purchase
Purchase
Total
100
300
200
300
100
1,000
(b)
FIFO
(1)
Date
Sept.
Dec.
Ending Inventory
Unit
Total
Units Cost
Cost
4
150
$ 28 $4,200
2
100
30
3,000
250*
$7,200
*1,000 – 750 = 250
(2)
Date
Cost of Goods Sold
Unit
Total
Units Cost
Cost
Unit Cost
$20
24
25
28
30
Total
$ 2,000
7,200
5,000
8,400
3,000
$25,600
Jan.
1
Mar. 15
July 20
Sept. 4
100
300
200
150
750
$ 20 $ 2,000
24
7,200
25
5,000
28
4,200
$18,400
Check: EI
+ CGS
= GAS
$7,200 + $18,400 = $25,600
PROBLEM 6-4A (Continued)
(b) (Continued)
WEIGHTED AVERAGE COST
Weighted average unit cost: $25,600  1,000 = $25.60
(1)
Units
250
Ending Inventory
Unit
Total
Cost
Cost
$25.60
$6,400
(2)
Cost of Goods Sold
Unit
Total
Units
Cost
Cost
750
$25.60
$19,200
Check: EI
+ CGS
= GAS
$6,400 + $19,200 = $25,600
LIFO
(1)
Date
Jan.
Mar.
Ending Inventory
Unit
Total
Units Cost
Cost
1
100
$ 20 $2,000
15
150
24
3,600
250
$5,600
(2)
Date
Mar.
July
Sept.
Dec.
Cost of Goods Sold
Unit
Total
Units Cost
Cost
15
150
$ 24 $ 3,600
20
200
25
5,000
4
300
28
8,400
2
100
30
3,000
750
$20,000
Check: EI
+ CGS
= GAS
$5,600 + $20,000 = $25,600
PROBLEM 6-4A (Continued)
(c) FIFO produces the highest inventory cost for the balance sheet,
$7,200. LIFO produces the highest cost of goods sold for the
income statement, $20,000.
(d) The choice of inventory cost method does not affect cash flow. It
is an allocation of costs between inventory and cost of goods
sold.