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.