Accounting
Principles
11th Edition - US GAAP
Questions & Solutions
Chapter 6
Inventories
Jerry J. Weygandt
Paul D. Kimmel
Donald E. Kieso
BRIEF EXERCISES
BE6-1 Farley Company identifies the following items for possible inclusion in the taking
of a physical inventory. Indicate whether each item should be included or excluded from
the inventory taking.
(a) Goods shipped on consignment by Farley to another company.
(b) Goods in transit from a supplier shipped FOB destination.
Identify items to be included
in taking a physical inventory.
(LO 1)
306
6 Inventories
(c) Goods sold but being held for customer pickup.
(d) Goods held on consignment from another company.
Identify the components of
goods available for sale.
(LO 2)
Compute ending inventory
using FIFO and LIFO.
(LO 2)
BE6-2 Wilbur Company has the following items: (a) Freight-In, (b) Purchase Returns and
Allowances, (c) Purchases, (d) Sales Discounts, and (e) Purchase Discounts. Identify which
items are included in goods available for sale.
BE6-3 In its first month of operations, Bethke Company made three purchases of merchandise in the following sequence: (1) 300 units at $6, (2) 400 units at $7, and (3) 200 units
at $8. Assuming there are 360 units on hand, compute the cost of the ending inventory
under the (a) FIFO method and (b) LIFO method. Bethke uses a periodic inventory system.
Compute the ending inventory
using average-cost.
BE6-4 Data for Bethke Company are presented in BE6-3. Compute the cost of the ending
inventory under the average-cost method, assuming there are 360 units on hand.
(LO 2)
BE6-5 The management of Svetlana Corp. is considering the effects of inventory-costing
methods on its financial statements and its income tax expense. Assuming that the price
the company pays for inventory is increasing, which method will:
Explain the financial statement
effect of inventory cost flow
assumptions.
(LO 3)
Explain the financial
statement effect of inventory
cost flow assumptions.
(LO 3)
Determine the LCM valuation
using inventory categories.
(LO 4)
(a)
(b)
(c)
(d)
Provide the highest net income?
Provide the highest ending inventory?
Result in the lowest income tax expense?
Result in the most stable earnings over a number of years?
BE6-6 In its first month of operation, Franklin Company purchased 120 units of inventory
for $6, then 200 units for $7, and finally 140 units for $8. At the end of the month, 180 units
remained. Compute the amount of phantom profit that would result if the company used
FIFO rather than LIFO. Explain why this amount is referred to as phantom profit. The
company uses the periodic method.
BE6-7 Central Appliance Center accumulates the following cost and market data at
December 31.
Inventory
Categories
Cost
Data
Market
Data
Cameras
Camcorders
DVD players
$12,000
9,500
14,000
$12,100
9,700
12,800
Compute the lower-of-cost-or-market valuation for the company’s total inventory.
Determine correct income
statement amounts.
(LO 5)
Compute inventory turnover
and days in inventory.
(LO 6)
Apply cost flow methods to
perpetual inventory records.
BE6-8 Pettit Company reports net income of $90,000 in 2014. However, ending inventory
was understated $7,000. What is the correct net income for 2014? What effect, if any, will
this error have on total assets as reported in the balance sheet at December 31, 2014?
BE6-9 At December 31, 2014, the following information was available for A. Kamble
Company: ending inventory $40,000, beginning inventory $60,000, cost of goods sold
$270,000, and sales revenue $380,000. Calculate inventory turnover and days in inventory
for A. Kamble Company.
*BE6-10 Gregory Department Store uses a perpetual inventory system. Data for product
E2-D2 include the following purchases.
(LO 7)
Date
Number of
Units
Unit Price
May 7
July 28
50
30
$10
13
On June 1, Gregory sold 26 units, and on August 27, 40 more units. Prepare the perpetual
inventory schedule for the above transactions using (a) FIFO, (b) LIFO, and (c) movingaverage cost.
Apply the gross profit method. *BE6-11 At May 31, Suarez Company has net sales of $330,000 and cost of goods available
(LO 8)
Apply the retail inventory
method.
(LO 8)
for sale of $230,000. Compute the estimated cost of the ending inventory, assuming the
gross profit rate is 35%.
*BE6-12 On June 30, Calico Fabrics has the following data pertaining to the retail inventory method. Goods available for sale: at cost $38,000; at retail $50,000; net sales $40,000;
and ending inventory at retail $10,000. Compute the estimated cost of the ending inventory using the retail inventory method.
Exercises
>
307
DO IT! Review
DO IT! 6-1 Gomez Company just took its physical inventory. The count of inventory items
on hand at the company’s business locations resulted in a total inventory cost of $300,000.
In reviewing the details of the count and related inventory transactions, you have discovered the following.
Apply rules of ownership to
determine inventory cost.
(LO 1)
1. Gomez has sent inventory costing $26,000 on consignment to Kako Company. All of
this inventory was at Kako’s showrooms on December 31.
2. The company did not include in the count inventory (cost, $20,000) that was sold on
December 28, terms FOB shipping point. The goods were in transit on December 31.
3. The company did not include in the count inventory (cost, $17,000) that was purchased
with terms of FOB shipping point. The goods were in transit on December 31.
Compute the correct December 31 inventory.
DO IT! 6-2 The accounting records of Old Towne Electronics show the following data.
Beginning inventory
Purchases
Sales
3,000 units at $5
8,000 units at $7
9,400 units at $10
Compute cost of goods sold
under different cost flow
methods.
(LO 2)
Determine cost of goods sold during the period under a periodic inventory system using
(a) the FIFO method, (b) the LIFO method, and (c) the average-cost method. (Round unit
cost to nearest tenth of a cent.)
DO IT! 6-3 (a) Moberg Company sells three different categories of tools (small, medium,
and large). The cost and market value of its inventory of tools are as follows.
Small
Medium
Large
Cost
Market Value
$ 64,000
290,000
152,000
$ 73,000
260,000
171,000
Compute inventory value
under LCM.
(LO 4)
Determine the value of the company’s inventory under the lower-of-cost-or-market approach.
(b) Janus Company understated its 2013 ending inventory by $31,000. Determine the
impact this error has on ending inventory, cost of goods sold, and owner’s equity in 2013
and 2014.
DO IT! 6-4 Early in 2014, Chien Company switched to a just-in-time inventory system. Its
sales, cost of goods sold, and inventory amounts for 2013 and 2014 are shown below.
Sales
Cost of goods sold
Beginning inventory
Ending inventory
2013
2014
$3,120,000
1,200,000
180,000
220,000
$3,713,000
1,425,000
220,000
100,000
Compute inventory turnover
and assess inventory level.
(LO 6)
Determine the inventory turnover and days in inventory for 2013 and 2014. Discuss the
changes in the amount of inventory, the inventory turnover and days in inventory, and the
amount of sales across the two years.
EXERCISES
E6-1 Tri-State Bank and Trust is considering giving Josef Company a loan. Before doing
so, management decides that further discussions with Josef’s accountant may be desirable.
One area of particular concern is the inventory account, which has a year-end balance of
$297,000. Discussions with the accountant reveal the following.
1. Josef sold goods costing $38,000 to Sorci Company, FOB shipping point, on December 28.
The goods are not expected to arrive at Sorci until January 12. The goods were not
included in the physical inventory because they were not in the warehouse.
Determine the correct
inventory amount.
(LO 1)
308
6 Inventories
2. The physical count of the inventory did not include goods costing $95,000 that were
shipped to Josef FOB destination on December 27 and were still in transit at year-end.
3. Josef received goods costing $22,000 on January 2. The goods were shipped FOB shipping point on December 26 by Solita Co. The goods were not included in the physical
count.
4. Josef sold goods costing $35,000 to Natali Co., FOB destination, on December 30. The
goods were received at Natali on January 8. They were not included in Josef’s physical
inventory.
5. Josef received goods costing $44,000 on January 2 that were shipped FOB destination on
December 29. The shipment was a rush order that was supposed to arrive December 31.
This purchase was included in the ending inventory of $297,000.
Instructions
Determine the correct inventory amount on December 31.
Determine the correct
inventory amount.
(LO 1)
E6-2 Rachel Warren, an auditor with Laplante CPAs, is performing a review of Schuda
Company’s inventory account. Schuda did not have a good year, and top management is
under pressure to boost reported income. According to its records, the inventory balance
at year-end was $740,000. However, the following information was not considered when
determining that amount.
1. Included in the company’s count were goods with a cost of $250,000 that the company
is holding on consignment. The goods belong to Harmon Corporation.
2. The physical count did not include goods purchased by Schuda with a cost of $40,000
that were shipped FOB destination on December 28 and did not arrive at Schuda warehouse until January 3.
3. Included in the inventory account was $14,000 of office supplies that were stored in the
warehouse and were to be used by the company’s supervisors and managers during the
coming year.
4. The company received an order on December 29 that was boxed and sitting on the loading
dock awaiting pick-up on December 31. The shipper picked up the goods on January 1 and
delivered them on January 6. The shipping terms were FOB shipping point. The goods
had a selling price of $40,000 and a cost of $28,000. The goods were not included in the
count because they were sitting on the dock.
5. On December 29, Schuda shipped goods with a selling price of $80,000 and a cost of
$60,000 to Reza Sales Corporation FOB shipping point. The goods arrived on January
3. Reza Sales had only ordered goods with a selling price of $10,000 and a cost of
$8,000. However, a sales manager at Schuda had authorized the shipment and said that
if Reza wanted to ship the goods back next week, it could.
6. Included in the count was $40,000 of goods that were parts for a machine that the company no longer made. Given the high-tech nature of Schuda’s products, it was unlikely
that these obsolete parts had any other use. However, management would prefer to
keep them on the books at cost, “since that is what we paid for them, after all.”
Instructions
Prepare a schedule to determine the correct inventory amount. Provide explanations for
each item above, saying why you did or did not make an adjustment for each item.
Calculate cost of goods sold
using specific identification
and FIFO.
(LO 2, 3)
E6-3 On December 1, Marzion Electronics Ltd. has three DVD players left in stock. All
are identical, all are priced to sell at $150. One of the three DVD players left in stock,
with serial #1012, was purchased on June 1 at a cost of $100. Another, with serial #1045,
was purchased on November 1 for $90. The last player, serial #1056, was purchased on
November 30 for $80.
Instructions
(a) Calculate the cost of goods sold using the FIFO periodic inventory method assuming
that two of the three players were sold by the end of December, Marzion Electronics’
year-end.
(b) If Marzion Electronics used the specific identification method instead of the FIFO
method, how might it alter its earnings by “selectively choosing” which particular
players to sell to the two customers? What would Marzion’s cost of goods sold be if the
company wished to minimize earnings? Maximize earnings?
(c) Which of the two inventory methods do you recommend that Marzion use? Explain
why.
Exercises
E6-4 Linda’s Boards sells a snowboard, Xpert, that is popular with snowboard enthusiasts. Information relating to Linda’s purchases of Xpert snowboards during September is
shown below. During the same month, 121 Xpert snowboards were sold. Linda’s uses a
periodic inventory system.
Date
Explanation
Units
Unit Cost
Total Cost
Sept. 1
Sept. 12
Sept. 19
Sept. 26
Inventory
Purchases
Purchases
Purchases
26
45
20
50
$ 97
102
104
105
$ 2,522
4,590
2,080
5,250
Totals
141
309
Compute inventory and cost
of goods sold using FIFO
and LIFO.
(LO 2)
$14,442
Instructions
(a) Compute the ending inventory at September 30 and cost of goods sold using the FIFO
and LIFO methods. Prove the amount allocated to cost of goods sold under each
method.
(b) For both FIFO and LIFO, calculate the sum of ending inventory and cost of goods
sold. What do you notice about the answers you found for each method?
E6-5 Xiong Co. uses a periodic inventory system. Its records show the following for the
month of May, in which 65 units were sold.
May 1
15
24
Inventory
Purchases
Purchases
Units
Unit Cost
Total Cost
30
25
35
$ 8
11
12
$240
275
420
Compute inventory and cost
of goods sold using FIFO
and LIFO.
(LO 2)
Totals
90
$935
Instructions
Compute the ending inventory at May 31 and cost of goods sold using the FIFO and LIFO
methods. Prove the amount allocated to cost of goods sold under each method.
E6-6 Kaleta Company reports the following for the month of June.
June 1
12
23
30
Inventory
Purchase
Purchase
Inventory
Units
Unit Cost
Total Cost
200
400
300
100
$5
6
7
$1,000
2,400
2,100
Compute inventory and cost
of goods sold using FIFO
and LIFO.
(LO 2, 3)
Instructions
(a) Compute the cost of the ending inventory and the cost of goods sold under (1) FIFO
and (2) LIFO.
(b) Which costing method gives the higher ending inventory? Why?
(c) Which method results in the higher cost of goods sold? Why?
E6-7 Lisa Company had 100 units in beginning inventory at a total cost of $10,000. The
company purchased 200 units at a total cost of $26,000. At the end of the year, Lisa had
80 units in ending inventory.
Instructions
(a) Compute the cost of the ending inventory and the cost of goods sold under (1) FIFO,
(2) LIFO, and (3) average-cost.
(b) Which cost flow method would result in the highest net income?
(c) Which cost flow method would result in inventories approximating current cost in the
balance sheet?
(d) Which cost flow method would result in Lisa paying the least taxes in the first year?
E6-8 Inventory data for Kaleta Company are presented in E6-6.
Instructions
(a) Compute the cost of the ending inventory and the cost of goods sold using the averagecost method.
(b) Will the results in (a) be higher or lower than the results under (1) FIFO and (2) LIFO?
(c) Why is the average unit cost not $6?
Compute inventory
under FIFO, LIFO, and
average-cost.
(LO 2, 3)
Compute inventory and
cost of goods sold using
average-cost.
(LO 2, 3)
310
6 Inventories
Determine ending inventory
under LCM.
(LO 4)
E6-9 Optix Camera Shop uses the lower-of-cost-or-market basis for its inventory. The
following data are available at December 31.
Item
Units
Unit Cost
Market
5
6
$170
150
$156
152
12
14
125
120
115
135
Cameras:
Minolta
Canon
Light meters:
Vivitar
Kodak
Instructions
Determine the amount of the ending inventory by applying the lower-of-cost-or-market
basis.
Compute lower-of-costor-market.
(LO 4)
E6-10 Serebin Company applied FIFO to its inventory and got the following results for its
ending inventory.
Cameras
DVD players
iPods
100 units at a cost per unit of $65
150 units at a cost per unit of $75
125 units at a cost per unit of $80
The cost of purchasing units at year-end was cameras $71, DVD players $67, and iPods $78.
Instructions
Determine the amount of ending inventory at lower-of-cost-or-market.
Determine effects of inventory
errors.
(LO 5)
E6-11 Hamid’s Hardware reported cost of goods sold as follows.
Beginning inventory
Cost of goods purchased
Cost of goods available for sale
Ending inventory
Cost of goods sold
2013
2014
$ 20,000
150,000
$ 30,000
175,000
170,000
30,000
205,000
35,000
$140,000
$170,000
Hamid’s made two errors: (1) 2013 ending inventory was overstated $3,000, and (2) 2014
ending inventory was understated $6,000.
Instructions
Compute the correct cost of goods sold for each year.
Prepare correct income
statements.
(LO 5)
E6-12 Rulix Watch Company reported the following income statement data for a 2-year
period.
2013
2014
Sales revenue
Cost of goods sold
Beginning inventory
Cost of goods purchased
Cost of goods available for sale
Ending inventory
Cost of goods sold
Gross profit
$220,000
$250,000
32,000
173,000
44,000
202,000
205,000
44,000
246,000
52,000
161,000
194,000
$ 59,000
$ 56,000
Rulix uses a periodic inventory system. The inventories at January 1, 2013, and December
31, 2014, are correct. However, the ending inventory at December 31, 2013, was overstated
$6,000.
Instructions
(a) Prepare correct income statement data for the 2 years.
(b) What is the cumulative effect of the inventory error on total gross profit for the 2 years?
(c)
Explain in a letter to the president of Rulix Watch Company what has happened, i.e., the nature of the error and its effect on the financial statements.
Exercises
E6-13 This information is available for Quick’s Photo Corporation for 2012, 2013, and 2014.
Beginning inventory
Ending inventory
Cost of goods sold
Sales revenue
2012
2013
2014
$ 100,000
300,000
900,000
1,200,000
$ 300,000
400,000
1,120,000
1,600,000
$ 400,000
480,000
1,300,000
1,900,000
311
Compute inventory turnover,
days in inventory, and gross
profit rate.
(LO 6)
Instructions
Calculate inventory turnover, days in inventory, and gross profit rate (from Chapter 5) for
Quick’s Photo Corporation for 2012, 2013, and 2014. Comment on any trends.
E6-14 The cost of goods sold computations for Alpha Company and Omega Company are
shown below.
Alpha Company
Omega Company
Beginning inventory
Cost of goods purchased
$ 45,000
200,000
$ 71,000
290,000
245,000
55,000
361,000
69,000
$190,000
$292,000
Cost of goods available for sale
Ending inventory
Cost of goods sold
Compute inventory turnover
and days in inventory.
(LO 6)
Instructions
(a) Compute inventory turnover and days in inventory for each company.
(b) Which company moves its inventory more quickly?
*E6-15 Bufford Appliance uses a perpetual inventory system. For its flat-screen television
sets, the January 1 inventory was 3 sets at $600 each. On January 10, Bufford purchased
6 units at $660 each. The company sold 2 units on January 8 and 4 units on January 15.
Apply cost flow methods to
perpetual records.
(LO 7)
Instructions
Compute the ending inventory under (1) FIFO, (2) LIFO, and (3) moving-average cost.
*E6-16 Kaleta Company reports the following for the month of June.
Date
Explanation
Units
Unit Cost
Total Cost
June 1
12
23
30
Inventory
Purchase
Purchase
Inventory
200
400
300
100
$5
6
7
$1,000
2,400
2,100
Calculate inventory and cost
of goods sold using three cost
flow methods in a perpetual
inventory system.
(LO 7)
Instructions
(a) Calculate the cost of the ending inventory and the cost of goods sold for each cost flow
assumption, using a perpetual inventory system. Assume a sale of 440 units occurred
on June 15 for a selling price of $8 and a sale of 360 units on June 27 for $9.
(b) How do the results differ from E6-6 and E6-8?
(c) Why is the average unit cost not $6 [($5 1 $6 1 $7) 4 3 5 $6]?
*E6-17 Information about Linda’s Boards is presented in E6-4. Additional data regarding
Linda’s sales of Xpert snowboards are provided below. Assume that Linda’s uses a perpetual
inventory system.
Date
Sept. 5
Sept. 16
Sept. 29
Sale
Sale
Sale
Totals
Units
Unit Price
Total Revenue
12
50
59
$199
199
209
$ 2,388
9,950
12,331
121
$24,669
Instructions
(a) Compute ending inventory at September 30 using FIFO, LIFO, and moving-average cost.
(b) Compare ending inventory using a perpetual inventory system to ending inventory
using a periodic inventory system (from E6-4).
(c) Which inventory cost flow method (FIFO, LIFO) gives the same ending inventory
value under both periodic and perpetual? Which method gives different ending inventory values?
Apply cost flow methods to
perpetual records.
(LO 7)
312
6 Inventories
Use the gross profit method to *E6-18 Brenda Company reported the following information for November and December
estimate inventory.
2014.
(LO 8)
Cost of goods purchased
Inventory, beginning-of-month
Inventory, end-of-month
Sales revenue
November
December
$536,000
130,000
120,000
840,000
$ 610,000
120,000
?
1,000,000
Brenda’s ending inventory at December 31 was destroyed in a fire.
Instructions
(a) Compute the gross profit rate for November.
(b) Using the gross profit rate for November, determine the estimated cost of inventory
lost in the fire.
Determine merchandise lost
using the gross profit method
of estimating inventory.
(LO 8)
*E6-19 The inventory of Hauser Company was destroyed by fire on March 1. From an
examination of the accounting records, the following data for the first 2 months of the year
are obtained: Sales Revenue $51,000, Sales Returns and Allowances $1,000, Purchases
$31,200, Freight-In $1,200, and Purchase Returns and Allowances $1,400.
Instructions
Determine the merchandise lost by fire, assuming:
(a) A beginning inventory of $20,000 and a gross profit rate of 40% on net sales.
(b) A beginning inventory of $30,000 and a gross profit rate of 30% on net sales.
Determine ending inventory
at cost using retail method.
(LO 8)
*E6-20 Gepetto Shoe Store uses the retail inventory method for its two departments,
Women’s Shoes and Men’s Shoes. The following information for each department is
obtained.
Item
Women’s
Shoes
Men’s
Shoes
Beginning inventory at cost
Cost of goods purchased at cost
Net sales
Beginning inventory at retail
Cost of goods purchased at retail
$ 25,000
110,000
178,000
46,000
179,000
$ 45,000
136,300
185,000
60,000
185,000
Instructions
Compute the estimated cost of the ending inventory for each department under the retail
inventory method.
EXERCISES: SET B AND
CHALLENGE EXERCISES
Visit the book’s companion website, at www.wiley.com/college/weygandt, and choose
the Student Companion site to access Exercise Set B and Challenge Exercises.
PROBLEMS: SET A
Determine items and
amounts to be recorded in
inventory.
P6-1A Austin Limited is trying to determine the value of its ending inventory as of February
28, 2014, the company’s year-end. The following transactions occurred, and the accountant
asked your help in determining whether they should be recorded or not.
(LO 1)
(a) On February 26, Austin shipped goods costing $800 to a customer and charged the
customer $1,000. The goods were shipped with terms FOB shipping point and the
receiving report indicates that the customer received the goods on March 2.
(b) On February 26, Louis Inc. shipped goods to Austin under terms FOB shipping point.
The invoice price was $450 plus $30 for freight. The receiving report indicates that the
goods were received by Austin on March 2.
(c) Austin had $650 of inventory isolated in the warehouse. The inventory is designated
for a customer who has requested that the goods be shipped on March 10.
Problems: Set A
313
(d) Also included in Austin’s warehouse is $700 of inventory that Ryhn Producers shipped
to Austin on consignment.
(e) On February 26, Austin issued a purchase order to acquire goods costing $900. The
goods were shipped with terms FOB destination on February 27. Austin received the
goods on March 2.
(f) On February 26, Austin shipped goods to a customer under terms FOB destination.
The invoice price was $350; the cost of the items was $200. The receiving report indicates that the goods were received by the customer on March 2.
Instructions
For each of the above transactions, specify whether the item in question should be included
in ending inventory, and if so, at what amount.
P6-2A Express Distribution markets CDs of the performing artist Fishe. At the beginning
of October, Express had in beginning inventory 2,000 of Fishe’s CDs with a unit cost of $7.
During October, Express made the following purchases of Fishe’s CDs.
Oct. 3 2,500 @ $8
Oct. 9 3,500 @ $9
Oct. 19 3,000 @ $10
Oct. 25 4,000 @ $11
Determine cost of goods sold
and ending inventory using
FIFO, LIFO, and average-cost
with analysis.
(LO 2, 3)
During October, 10,900 units were sold. Express uses a periodic inventory system.
Instructions
(a) Determine the cost of goods available for sale.
(b) Determine (1) the ending inventory and (2) the cost of goods sold under each of the
assumed cost flow methods (FIFO, LIFO, and average-cost). Prove the accuracy of the
cost of goods sold under the FIFO and LIFO methods.
(c) Which cost flow method results in (1) the highest inventory amount for the balance
sheet and (2) the highest cost of goods sold for the income statement?
P6-3A Ziad Company had a beginning inventory on January 1 of 150 units of Product
4-18-15 at a cost of $20 per unit. During the year, the following purchases were made.
Mar. 15 400 units at $23
July 20 250 units at $24
Sept. 4 350 units at $26
Dec. 2 100 units at $29
(b)(2) Cost of goods sold:
FIFO
$ 94,500
LIFO
$108,700
Average $101,370
Determine cost of goods sold
and ending inventory, using
FIFO, LIFO, and average-cost
with analysis.
(LO 2, 3)
1,000 units were sold. Ziad Company uses a periodic inventory system.
Instructions
(a) Determine the cost of goods available for sale.
(b) Determine (1) the ending inventory, and (2) the cost of goods sold under each of the
assumed cost flow methods (FIFO, LIFO, and average-cost). Prove the accuracy of the
cost of goods sold under the FIFO and LIFO methods.
(c) Which cost flow method results in (1) the highest inventory amount for the balance
sheet, and (2) the highest cost of goods sold for the income statement?
(b)(2) Cost of goods sold:
FIFO
$23,400
LIFO
$24,900
Average $24,160
P6-4A The management of Felipe Inc. is reevaluating the appropriateness of using its
present inventory cost flow method, which is average-cost. The company requests your
help in determining the results of operations for 2014 if either the FIFO or the LIFO
method had been used. For 2014, the accounting records show these data:
Compute ending inventory,
prepare income statements,
and answer questions using
FIFO and LIFO.
Inventories
Beginning (7,000 units)
Ending (17,000 units)
(LO 2, 3)
Purchases and Sales
$14,000
Total net sales (180,000 units)
Total cost of goods purchased
(190,000 units)
$747,000
466,000
Purchases were made quarterly as follows.
Quarter
Units
Unit Cost
Total Cost
1
2
3
4
50,000
40,000
40,000
60,000
$2.20
2.35
2.50
2.70
$110,000
94,000
100,000
162,000
190,000
$466,000
Operating expenses were $130,000, and the company’s income tax rate is 40%.
Instructions
(a) Prepare comparative condensed income statements for 2014 under FIFO and LIFO.
(Show computations of ending inventory.)
(a) Gross profit:
FIFO $312,900
LIFO $303,000
314
6 Inventories
(b)
Calculate ending inventory,
cost of goods sold, gross
profit, and gross profit rate
under periodic method;
compare results.
(LO 2, 3)
(a) (iii) Gross profit:
LIFO
$4,215
FIFO
$4,645
Average $4,414.60
Compare specific identification, FIFO, and LIFO under
periodic method; use cost
flow assumption to justify
price increase.
(LO 2, 3)
(a) Gross profit:
(1) Specific identification
$3,715
(2) FIFO
(3) LIFO
$3,930
$3,385
Compute ending inventory,
prepare income statements,
and answer questions using
FIFO and LIFO.
(LO 2, 3)
Answer the following questions for management.
(1) Which cost flow method (FIFO or LIFO) produces the more meaningful inventory
amount for the balance sheet? Why?
(2) Which cost flow method (FIFO or LIFO) produces the more meaningful net
income? Why?
(3) Which cost flow method (FIFO or LIFO) is more likely to approximate the actual
physical flow of goods? Why?
(4) How much more cash will be available for management under LIFO than under
FIFO? Why?
(5) Will gross profit under the average-cost method be higher or lower than FIFO?
Than LIFO? (Note: It is not necessary to quantify your answer.)
P6-5A You are provided with the following information for Najera Inc. for the month
ended June 30, 2014. Najera uses the periodic method for inventory.
Date
Description
Quantity
Unit Cost or
Selling Price
June 1
June 4
June 10
June 11
June 18
June 18
June 25
June 28
Beginning inventory
Purchase
Sale
Sale return
Purchase
Purchase return
Sale
Purchase
40
135
110
15
55
10
65
30
$40
44
70
70
46
46
75
50
Instructions
(a) Calculate (i) ending inventory, (ii) cost of goods sold, (iii) gross profit, and (iv) gross
profit rate under each of the following methods.
(1) LIFO.
(2) FIFO.
(3) Average-cost.
(b) Compare results for the three cost flow assumptions.
P6-6A You are provided with the following information for Barton Inc. Barton Inc. uses
the periodic method of accounting for its inventory transactions.
March 1
March 3
March 5
March 10
March 20
March 30
Beginning inventory 2,000 liters at a cost of 60¢ per liter.
Purchased 2,500 liters at a cost of 65¢ per liter.
Sold 2,300 liters for $1.05 per liter.
Purchased 4,000 liters at a cost of 72¢ per liter.
Purchased 2,500 liters at a cost of 80¢ per liter.
Sold 5,200 liters for $1.25 per liter.
Instructions
(a) Prepare partial income statements through gross profit, and calculate the value of
ending inventory that would be reported on the balance sheet, under each of the following cost flow assumptions. (Round ending inventory and cost of goods sold to the
nearest dollar.)
(1) Specific identification method assuming:
(i) The March 5 sale consisted of 1,000 liters from the March 1 beginning inventory and 1,300 liters from the March 3 purchase; and
(ii) The March 30 sale consisted of the following number of units sold from
beginning inventory and each purchase: 450 liters from March 1; 550
liters from March 3; 2,900 liters from March 10; 1,300 liters from
March 20.
(2) FIFO.
(3) LIFO.
(b) How can companies use a cost flow method to justify price increases? Which cost flow
method would best support an argument to increase prices?
P6-7A The management of Sherlynn Co. asks your help in determining the comparative
effects of the FIFO and LIFO inventory cost flow methods. For 2014, the accounting
records provide the following data.
Problems: Set A
Inventory, January 1 (10,000 units)
Cost of 100,000 units purchased
Selling price of 80,000 units sold
Operating expenses
315
$ 45,000
532,000
700,000
140,000
Units purchased consisted of 35,000 units at $5.10 on May 10; 35,000 units at $5.30 on
August 15; and 30,000 units at $5.60 on November 20. Income taxes are 30%.
Instructions
(a) Prepare comparative condensed income statements for 2014 under FIFO and LIFO.
(Show computations of ending inventory.)
(b)
Answer the following questions for management.
(1) Which inventory cost flow method produces the most meaningful inventory
amount for the balance sheet? Why?
(2) Which inventory cost flow method produces the most meaningful net income?
Why?
(3) Which inventory cost flow method is most likely to approximate actual physical
flow of the goods? Why?
(4) How much additional cash will be available for management under LIFO than
under FIFO? Why?
(5) How much of the gross profit under FIFO is illusory in comparison with the gross
profit under LIFO?
*P6-8A Mercer Inc. is a retailer operating in British Columbia. Mercer uses the perpetual
inventory method. All sales returns from customers result in the goods being returned to
inventory; the inventory is not damaged. Assume that there are no credit transactions; all
amounts are settled in cash. You are provided with the following information for Mercer
Inc. for the month of January 2014.
Date
Description
Quantity
Unit Cost or
Selling Price
January 1
January 5
January 8
January 10
January 15
January 16
January 20
January 25
Beginning inventory
Purchase
Sale
Sale return
Purchase
Purchase return
Sale
Purchase
100
140
110
10
55
5
90
20
$15
18
28
28
20
20
32
22
Instructions
(a) For each of the following cost flow assumptions, calculate (i) cost of goods sold,
(ii) ending inventory, and (iii) gross profit.
(1) LIFO.
(2) FIFO.
(3) Moving-average cost.
(b) Compare results for the three cost flow assumptions.
*P6-9A Terando Co. began operations on July 1. It uses a perpetual inventory system.
During July, the company had the following purchases and sales.
Purchases
Date
July
July
July
July
July
July
1
6
11
14
21
27
Units
Unit Cost
5
$120
7
$136
8
$147
(a) Net income
FIFO $105,700
LIFO $91,000
Calculate cost of goods sold
and ending inventory under
LIFO, FIFO, and movingaverage cost under the
perpetual system; compare
gross profit under each
assumption.
(LO 7)
(a)(iii) Gross profit:
LIFO
$2,160
FIFO
$2,560
Average
$2,421
Determine ending inventory
under a perpetual inventory
system.
(LO 7)
Sales Units
4
3
6
Instructions
(a) Determine the ending inventory under a perpetual inventory system using (1) FIFO,
(2) moving-average cost, and (3) LIFO.
(b) Which costing method produces the highest ending inventory valuation?
(a) Ending inventory
FIFO $1,029
Avg. $994
LIFO $958
316
6 Inventories
Compute gross profit rate and
inventory loss using gross
profit method.
*P6-10A Suzuki Company lost all of its inventory in a fire on December 26, 2014. The
accounting records showed the following gross profit data for November and December.
(LO 8)
Net sales
Beginning inventory
Purchases
Purchase returns and allowances
Purchase discounts
Freight-in
Ending inventory
November
December
(to 12/26)
$600,000
32,000
389,000
13,300
8,500
8,800
36,000
$700,000
36,000
420,000
14,900
9,500
9,900
?
Suzuki is fully insured for fire losses but must prepare a report for the insurance company.
(a) Gross profit rate 38%
Compute ending inventory
using retail method.
(LO 8)
Instructions
(a) Compute the gross profit rate for November.
(b) Using the gross profit rate for November, determine the estimated cost of the inventory
lost in the fire.
*P6-11A Dixon Books uses the retail inventory method to estimate its monthly ending
inventories. The following information is available for two of its departments at October 31,
2014.
Hardcovers
Beginning inventory
Purchases
Freight-in
Purchase discounts
Net sales
Paperbacks
Cost
Retail
Cost
Retail
$ 420,000
2,135,000
24,000
44,000
$ 700,000
3,200,000
$ 280,000
1,155,000
12,000
22,000
$ 360,000
1,540,000
3,100,000
1,570,000
At December 31, Dixon Books takes a physical inventory at retail. The actual retail values
of the inventories in each department are Hardcovers $790,000 and Paperbacks $335,000.
(a) Hardcovers: End. Inv.
$520,000
Instructions
(a) Determine the estimated cost of the ending inventory for each department at October 31,
2014, using the retail inventory method.
(b) Compute the ending inventory at cost for each department at December 31, assuming
the cost-to-retail ratios for the year are 65% for Hardcovers and 75% for Paperbacks.
PROBLEMS: SET B
Determine items and
amounts to be recorded in
inventory.
(LO 1)
P6-1B Weber Limited is trying to determine the value of its ending inventory at February 28,
2014, the company’s year-end. The accountant counted everything that was in the warehouse as of February 28, which resulted in an ending inventory valuation of $48,000.
However, she didn’t know how to treat the following transactions so she didn’t record
them.
(a) On February 26, Weber shipped to a customer goods costing $800. The goods were
shipped FOB shipping point, and the receiving report indicates that the customer
received the goods on March 2.
(b) On February 26, Gretel Inc. shipped goods to Weber FOB destination. The invoice
price was $350. The receiving report indicates that the goods were received by Weber
on March 2.
(c) Weber had $500 of inventory at a customer’s warehouse “on approval.” The customer
was going to let Weber know whether it wanted the merchandise by the end of the
week, March 4.
(d) Weber also had $400 of inventory on consignment at a Roslyn craft shop.
(e) On February 26, Weber ordered goods costing $750. The goods were shipped FOB
shipping point on February 27. Weber received the goods on March 1.
Problems: Set B
317
(f) On February 28, Weber packaged goods and had them ready for shipping to a customer
FOB destination. The invoice price was $350; the cost of the items was $250. The
receiving report indicates that the goods were received by the customer on March 2.
(g) Weber had damaged goods set aside in the warehouse because they are no longer
saleable. These goods cost $400 and Weber originally expected to sell these items for
$600.
Instructions
For each of the above transactions, specify whether the item in question should be included
in ending inventory and, if so, at what amount. For each item that is not included in
ending inventory, indicate who owns it and in what account, if any, it should have been
recorded.
P6-2B Xinxin Distribution markets CDs of the performing artist Carly. At the beginning of
March, Xinxin had in beginning inventory 1,500 Carly CDs with a unit cost of $7. During
March Xinxin made the following purchases of Carly CDs.
March 5
March 13
3,000 @ $8
4,500 @ $9
March 21
March 26
4,000 @ $10
2,500 @ $11
Determine cost of goods sold
and ending inventory using
FIFO, LIFO, and average-cost
with analysis.
(LO 2, 3)
During March, 12,000 units were sold. Xinxin uses a periodic inventory system.
Instructions
(a) Determine the cost of goods available for sale.
(b) Determine (1) the ending inventory and (2) the cost of goods sold under each of the
assumed cost flow methods (FIFO, LIFO, and average-cost). Prove the accuracy of the
cost of goods sold under the FIFO and LIFO methods.
(c) Which cost flow method results in (1) the highest inventory amount for the balance
sheet and (2) the highest cost of goods sold for the income statement?
P6-3B Walz Company had a beginning inventory of 400 units of Product Ribo at a cost of
$8 per unit. During the year, purchases were:
Feb. 20
May 5
600 units at $9
500 units at $10
Aug. 12
Dec. 8
300 units at $11
200 units at $12
(b)(2) Cost of goods sold:
FIFO
$105,000
LIFO
$116,000
Average $110,321
Determine cost of goods sold
and ending inventory using
FIFO, LIFO, and average-cost
with analysis.
(LO 2, 3)
Walz Company uses a periodic inventory system. Sales totaled 1,500 units.
Instructions
(a) Determine the cost of goods available for sale.
(b) Determine (1) the ending inventory and (2) the cost of goods sold under each of the
assumed cost flow methods (FIFO, LIFO, and average-cost). Prove the accuracy of the
cost of goods sold under the FIFO and LIFO methods.
(c) Which cost flow method results in (1) the lowest inventory amount for the balance
sheet, and (2) the lowest cost of goods sold for the income statement?
(b) Cost of goods sold:
FIFO
$13,600
LIFO
$15,200
Average
$14,475
P6-4B The management of Patel Co. is reevaluating the appropriateness of using its present inventory cost flow method, which is average-cost. They request your help in determining the results of operations for 2014 if either the FIFO method or the LIFO method
had been used. For 2014, the accounting records show the following data.
Compute ending inventory,
prepare income statements,
and answer questions using
FIFO and LIFO.
Inventories
Beginning (15,000 units)
Ending (28,000 units)
(LO 2, 3)
Purchases and Sales
$32,000
Total net sales (217,000 units)
Total cost of goods purchased
(230,000 units)
$865,000
Purchases were made quarterly as follows.
Quarter
Units
Unit Cost
Total Cost
1
2
3
4
60,000
50,000
50,000
70,000
$2.40
2.50
2.70
2.80
$144,000
125,000
135,000
196,000
230,000
$600,000
Operating expenses were $147,000, and the company’s income tax rate is 34%.
600,000
318
6 Inventories
(a) Net income
FIFO $108,504
LIFO $98,472
(b)(4) $5,168
Calculate ending inventory,
cost of goods sold, gross
profit, and gross profit rate
under periodic method;
compare results.
(LO 2, 3)
(a)(iii) Gross profit:
LIFO
$3,050
FIFO
$3,230
Average $3,141
Compare specific identification, FIFO and LIFO under
periodic method; use cost
flow assumption to influence
earnings.
(LO 2, 3)
(a) Gross profit:
(1) Maximum $163,600
(2) Minimum $154,000
Compute ending inventory,
prepare income statements,
and answer questions using
FIFO and LIFO.
(LO 2, 3)
Instructions
(a) Prepare comparative condensed income statements for 2014 under FIFO and LIFO.
(Show computations of ending inventory.)
(b)
Answer the following questions for management.
(1) Which cost flow method (FIFO or LIFO) produces the more meaningful inventory
amount for the balance sheet? Why?
(2) Which cost flow method (FIFO or LIFO) produces the more meaningful net
income? Why?
(3) Which cost flow method (FIFO or LIFO) is more likely to approximate actual
physical flow of the goods? Why?
(4) How much additional cash will be available for management under LIFO than
under FIFO? Why?
(5) Will gross profit under the average-cost method be higher or lower than (i) FIFO
and (ii) LIFO? (Note: It is not necessary to quantify your answer.)
P6-5B You are provided with the following information for Perkins Inc. for the month
ended October 31, 2014. Perkins uses a periodic method for inventory.
Date
Description
Units
Unit Cost or
Selling Price
October 1
October 9
October 11
October 17
October 22
October 25
October 29
Beginning inventory
Purchase
Sale
Purchase
Sale
Purchase
Sale
60
120
100
70
60
80
110
$25
26
35
27
40
28
40
Instructions
(a) Calculate (i) ending inventory, (ii) cost of goods sold, (iii) gross profit, and (iv) gross
profit rate under each of the following methods.
(1) LIFO.
(2) FIFO.
(3) Average-cost.
(b) Compare results for the three cost flow assumptions.
P6-6B You have the following information for Princess Diamonds. Princess Diamonds
uses the periodic method of accounting for its inventory transactions. Princess only carries
one brand and size of diamonds—all are identical. Each batch of diamonds purchased is
carefully coded and marked with its purchase cost.
March 1
March 3
March 5
March 10
March 25
Beginning inventory 150 diamonds at a cost of $300 per diamond.
Purchased 200 diamonds at a cost of $360 each.
Sold 180 diamonds for $600 each.
Purchased 350 diamonds at a cost of $380 each.
Sold 400 diamonds for $650 each.
Instructions
(a) Assume that Princess Diamonds uses the specific identification cost flow method.
(1) Demonstrate how Princess Diamonds could maximize its gross profit for the
month by specifically selecting which diamonds to sell on March 5 and March 25.
(2) Demonstrate how Princess Diamonds could minimize its gross profit for the
month by selecting which diamonds to sell on March 5 and March 25.
(b) Assume that Princess Diamonds uses the FIFO cost flow assumption. Calculate cost of
goods sold. How much gross profit would Princess Diamonds report under this cost
flow assumption?
(c) Assume that Princess Diamonds uses the LIFO cost flow assumption. Calculate cost of
goods sold. How much gross profit would the company report under this cost flow
assumption?
(d) Which cost flow method should Princess Diamonds select? Explain.
P6-7B The management of Chelsea Inc. asks your help in determining the comparative
effects of the FIFO and LIFO inventory cost flow methods. For 2014, the accounting
records provide the following data.
Problems: Set B
Inventory, January 1 (10,000 units)
Cost of 120,000 units purchased
Selling price of 100,000 units sold
Operating expenses
319
$ 35,000
504,500
665,000
130,000
Units purchased consisted of 35,000 units at $4.00 on May 10; 60,000 units at $4.20 on
August 15; and 25,000 units at $4.50 on November 20. Income taxes are 28%.
Instructions
(a) Prepare comparative condensed income statements for 2014 under FIFO and LIFO.
(Show computations of ending inventory.)
(b)
Answer the following questions for management in the form of a business letter.
(1) Which inventory cost flow method produces the most meaningful inventory
amount for the balance sheet? Why?
(2) Which inventory cost flow method produces the most meaningful net income? Why?
(3) Which inventory cost flow method is most likely to approximate the actual physical
flow of the goods? Why?
(4) How much more cash will be available for management under LIFO than under
FIFO? Why?
(5) How much of the gross profit under FIFO is illusionary in comparison with the
gross profit under LIFO?
*P6-8B Minsoo Ltd. is a retailer operating in Edmonton, Alberta. Minsoo uses the perpetual inventory method. All sales returns from customers result in the goods being returned
to inventory; the inventory is not damaged. Assume that there are no credit transactions;
all amounts are settled in cash. You are provided with the following information for Minsoo
Ltd. for the month of January 2014.
Date
Description
Quantity
Unit Cost or
Selling Price
December 31
January 2
January 6
January 9
January 9
January 10
January 10
January 23
January 30
Ending inventory
Purchase
Sale
Sale return
Purchase
Purchase return
Sale
Purchase
Sale
160
100
150
10
80
10
60
100
110
$17
21
40
40
24
24
45
28
50
Instructions
(a) For each of the following cost flow assumptions, calculate (i) cost of goods sold, (ii)
ending inventory, and (iii) gross profit.
(1) LIFO.
(2) FIFO.
(3) Moving-average cost.
(b) Compare results for the three cost flow assumptions.
*P6-9B Buffet Appliance Mart began operations on May 1. It uses a perpetual inventory
system. During May, the company had the following purchases and sales for its Model 25
Sureshot camera.
Units
Unit Cost
May 1
4
8
12
15
20
25
7
$150
8
$170
6
$185
Calculate cost of goods sold
and ending inventory for
FIFO, moving-average cost,
and LIFO under the perpetual
system; compare gross profit
under each assumption.
(LO 7)
(a)(iii) Gross profit:
LIFO
$6,540
FIFO
$7,780
Average $7,354
Determine ending inventory
under a perpetual inventory
system.
(LO 7)
Purchases
Date
(a) Gross profit:
FIFO $259,000
LIFO $240,500
Sales Units
4
5
3
4
Instructions
(a) Determine the ending inventory under a perpetual inventory system using (1) FIFO,
(2) moving-average cost, and (3) LIFO.
(b) Which costing method produces (1) the highest ending inventory valuation and (2) the
lowest ending inventory valuation?
$925
(a) FIFO
Average $874
LIFO
$790
320
6 Inventories
Estimate inventory loss using
gross profit method.
*P6-10B Liis Company lost 70% of its inventory in a fire on March 25, 2014. The accounting records showed the following gross profit data for February and March.
(LO 8)
Net sales
Net purchases
Freight-in
Beginning inventory
Ending inventory
February
March
(to 3/25)
$300,000
176,800
3,900
4,500
20,200
$250,000
139,000
3,000
20,200
?
Liis Company is fully insured for fire losses but must prepare a report for the insurance
company.
(a) Gross profit rate 45%
Compute ending inventory
using retail method.
(LO 8)
Instructions
(a) Compute the gross profit rate for the month of February.
(b) Using the gross profit rate for February, determine both the estimated total inventory
and inventory lost in the fire in March.
*P6-11B Belden Department Store uses the retail inventory method to estimate its monthly
ending inventories. The following information is available for two of its departments at
August 31, 2014.
Sporting Goods
Net sales
Purchases
Purchase returns
Purchase discounts
Freight-in
Beginning inventory
Jewelry and Cosmetics
Cost
Retail
Cost
Retail
$675,000
(26,000)
(12,360)
9,000
47,360
$1,000,000
1,066,000
(40,000)
—
—
74,000
$741,000
(12,000)
(2,440)
14,000
39,440
$1,160,000
1,158,000
(20,000)
—
—
62,000
At December 31, Belden Department Store takes a physical inventory at retail. The actual
retail values of the inventories in each department are Sporting Goods $95,000 and Jewelry
and Cosmetics $44,000.
(b) Sporting Goods: End. Inv.
$63,000
Instructions
(a) Determine the estimated cost of the ending inventory for each department on August 31,
2014, using the retail inventory method.
(b) Compute the ending inventory at cost for each department at December 31, assuming the cost-to-retail ratios are 60% for Sporting Goods and 64% for Jewelry and
Cosmetics.
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 6-1
(a) Ownership of the goods belongs to Farley. Thus, these goods should
be included in Farley’s inventory.
(b) The goods in transit should not be included in the inventory count
because ownership by Farley does not occur until the goods reach
the buyer.
(c) The goods being held belong to the customer. They should not be
included in Farley’s inventory.
(d) Ownership of these goods rests with the other company. Thus, these
goods should not be included in the physical inventory.
BRIEF EXERCISE 6-2
The items that should be included in goods available for sale are:
(a)
(b)
(c)
(e)
Freight-In
Purchase Returns and Allowances
Purchases
Purchase Discounts
BRIEF EXERCISE 6-3
(a) The ending inventory under FIFO consists of 200 units at $8 + 160 units
at $7 for a total allocation of $2,720 or ($1,600 + $1,120).
(b) The ending inventory under LIFO consists of 300 units at $6 + 60 units
at $7 for a total allocation of $2,220 or ($1,800 + $420).
6-10
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
BRIEF EXERCISE 6-4
Average unit cost is $6.89 computed as follows:
300 X $6 = $1,800
400 X $7 = 2,800
200 X $8 = 1,600
900
$6,200
$6,200 ÷ 900 = $6.89 (rounded).
The cost of the ending inventory is $2,480 or (360 X $6.89).
BRIEF EXERCISE 6-5
(a)
(b)
(c)
(d)
FIFO would result in the highest net income.
FIFO would result in the highest ending inventory.
LIFO would result in the lowest income tax expense (because it would
result in the lowest net income).
Average-cost would result in the most stable income over a number of
years because it averages out any big changes in the cost of inventory.
BRIEF EXERCISE 6-6
Cost of good sold under:
Purchases
Cost of goods available for sale
Less: Ending inventory
Cost of goods sold
LIFO
$6 X 120
$7 X 200
$8 X 140
$ 3,240
1,140
$ 2,100
FIFO
$6 X 120
$7 X 200
$8 X 140
$ 3,240
1,400
$ 1,840
Since the cost of goods sold is $260 less under FIFO ($2,100 – $1,840) that
is the amount of the phantom profit. It is referred to as “phantom profit”
because FIFO matches current selling prices with old inventory costs. To
replace the units sold, the company will have to pay the current price of
$8 per unit, rather than the $6 per unit which some of the units were priced
at under FIFO. Therefore, profit under LIFO is more representative of what
the company can expect to earn in future periods.
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
6-11
BRIEF EXERCISE 6-7
Inventory Categories
Cameras
Camcorders
DVD players
Total valuation
Cost
$12,000
9,500
14,000
Market
$12,100
9,700
12,800
LCM
$12,000
9,500
12,800
$34,300
BRIEF EXERCISE 6-8
The understatement of ending inventory caused cost of goods sold to be
overstated $7,000 and net income to be understated $7,000. The correct net
income for 2014 is $97,000 or ($90,000 + $7,000).
Total assets in the balance sheet will be understated by the amount that
ending inventory is understated, $7,000.
BRIEF EXERCISE 6-9
Inventory turnover:
Days in inventory:
$270,000
$270,000
=
= 5.4
($60,000 + $40,000 ) ÷ 2 $50,000
365
= 67.6 days
5.4
*BRIEF EXERCISE 6-10
(a) FIFO Method
Date
May 7
June 1
July 28
Purchases
(50 @ $10) $500
(26 @ $10)
$260
(24 @ $10)
(16 @ $13)
} $448
(30 @ $13) $390
Aug. 27
6-12
Product E2-D2
Cost of
Goods Sold
Copyright © 2013 John Wiley & Sons, Inc.
Balance
(50 @ $10) $500
(24 @ $10) $240
(24 @ $10)
(30 @ $13) } $630
(14 @ $13)
Weygandt, Accounting Principles, 11/e, Solutions Manual
$182
(For Instructor Use Only)
*BRIEF EXERCISE 6-10 (Continued)
(b) LIFO Method
Date
May 7
June 1
July 28
Purchases
(50 @ $10) $500
Product E2-D2
Cost of
Goods Sold
(26 @ $10)
$260
(30 @ $13)
(10 @ $10)
} $490
(30 @ $13) $390
Aug. 27
Balance
(50 @ $10)
$500
(24 @ $10)
$240
(24 @ $10)
(30 @ $13) } $630
(14 @ $10)
$140
(c) Average-Cost
Date
May 7
June 1
July 28
Aug. 27
Purchases
(50 @ $10) $500
Product E2-D2
Cost of
Goods Sold
(26 @ $10)
$260
(30 @ $13) $390
(40 @ $11.67) $467
Balance
(50 @ $10)
$500
(24 @ $10)
$240
(54 @ $11.67)*$630
(14 @ $11.67) $163
*($240 + $390) ÷ 54
*BRIEF EXERCISE 6-11
(1) Net sales ..............................................................................
Less: Estimated gross profit (35% X $330,000) ..............
Estimated cost of goods sold ............................................
$330,000
115,500
$214,500
(2) Cost of goods available for sale ........................................
Less: Estimated cost of goods sold ................................
Estimated cost of ending inventory ..................................
$230,000
214,500
$ 15,500
*BRIEF EXERCISE 6-12
Goods available for sale
Net sales
Ending inventory at retail
At Cost
$38,000
At Retail
$50,000
40,000
$10,000
Cost-to-retail ratio = ($38,000 ÷ $50,000) = 76%
Estimated cost of ending inventory = ($10,000 X 76%) = $7,600
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
6-13
SOLUTIONS FOR DO IT! REVIEW EXERCISES
DO IT! 6-1
Inventory per physical count ....................................................
Inventory out on consignment .................................................
Inventory sold, in transit at year-end .......................................
Inventory purchased, in transit at year-end ............................
Correct December 31 inventory................................................
$300,000
26,000
–0–
17,000
$343,000
DO IT! 6-2
Cost of goods available for sale = (3,000 X $5) + (8,000 X $7) = $71,000
Ending inventory = 3,000 + 8,000 – 9,400 = 1,600 units
(a) FIFO: $71,000 – (1,600 X $7) = $59,800
(b) LIFO: $71,000 – (1,600 X $5) = $63,000
(c) Average-cost: $71,000/11,000 = $6.455 per unit
9,400 X $6.455 = $60,677
DO IT! 6-3
(a) The lowest value for each inventory type is: Small $64,000, Medium
$260,000, and Large $152,000. The total inventory value is the sum of
these figures, $476,000.
(b)
Ending inventory
Cost of goods sold
Owner’s equity
6-14
2013
$31,000 understated
$31,000 overstated
$31,000 understated
Copyright © 2013 John Wiley & Sons, Inc.
2014
No effect
$31,000 understated
No effect
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
DO IT! 6-4
2013
Inventory turnover
$1,200,000
= 6
($180,000 + $220,000)/2
Days in inventory
365 ÷ 6 = 60.8 days
2014
$1,425,000
($220,000 + $100,000)/2
= 8.9
365 ÷ 8.9 = 41 days
The company experienced a very significant decline in its ending inventory
as a result of the just-in-time inventory. This decline improved its inventory
turnover and its days in inventory. It is possible that this increase is the
result of a more focused inventory policy. It appears that this change is a
win-win situation for Chien Company.
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
6-15
SOLUTIONS TO EXERCISES
EXERCISE 6-1
Ending inventory—physical count .................................................
1. No effect—title passes to purchaser upon shipment
when terms are FOB shipping point ...................................
2. No effect—title does not transfer to Josef until
goods are received ...............................................................
3. Add to inventory: Title passed to Josef when goods
were shipped .........................................................................
4. Add to inventory: Title remains with Josef until
purchaser receives goods ...................................................
5. The goods did not arrive prior to year-end. The goods,
therefore, cannot be included in the inventory ..................
Correct inventory .............................................................................
$297,000
0
0
22,000
35,000
(44,000)
$310,000
EXERCISE 6-2
Ending inventory—as reported ......................................................
1. Subtract from inventory: The goods belong to
Harmon Corporation. Schuda is merely holding
them as a consignee ............................................................
2. No effect—title does not pass to Schuda until
goods are received (Jan. 3) .................................................
3. Subtract from inventory: Office supplies should
be carried in a separate account. They are not
considered inventory held for resale..................................
4. Add to inventory: The goods belong to Schuda
until they are shipped (Jan. 1) .............................................
5. Add to inventory: Reza Sales ordered goods
with a cost of $8,000. Schuda should record the
corresponding sales revenue of $10,000. Schuda’s
decision to ship extra “unordered” goods does not
constitute a sale. The manager’s statement that Reza
could ship the goods back indicates that Schuda knows
this over-shipment is not a legitimate sale. The manager
acted unethically in an attempt to improve Schuda’s
reported income by over-shipping .....................................
6-16
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
$740,000
(250,000)
0
(14,000)
28,000
52,000
(For Instructor Use Only)
EXERCISE 6-2 (Continued)
6.
Subtract from inventory: GAAP require that inventory
be valued at the lower of cost or market. Obsolete parts
should be adjusted from cost to zero if they have no
other use. ...............................................................................
Correct inventory..............................................................................
(40,000)
$516,000
EXERCISE 6-3
(a)
FIFO Cost of Goods Sold
(#1012) $100 + (#1045) $90 = $190
(b)
It could choose to sell specific units purchased at specific costs if it
wished to impact earnings selectively. If it wished to minimize earnings
it would choose to sell the units purchased at higher costs—in which
case the Cost of Goods Sold would be $190. If it wished to maximize
earnings it would choose to sell the units purchased at lower costs—in
which case the cost of goods sold would be $170.
(c)
I recommend they use the FIFO method because it produces a more
appropriate balance sheet valuation and reduces the opportunity to
manipulate earnings.
(The answer may vary depending on the method the student chooses.)
EXERCISE 6-4
(a)
FIFO
Beginning inventory (26 X $97) ....................................
$ 2,522
Purchases
Sept. 12 (45 X $102) ................................................ $4,590
Sept. 19 (20 X $104) ................................................ 2,080
Sept. 26 (50 X $105) ................................................ 5,250 11,920
Cost of goods available for sale ..................................
14,442
Less: Ending inventory (20 X $105) ............................
2,100
Cost of goods sold ........................................................
$12,342
Copyright © 2013 John Wiley & Sons, Inc.
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(For Instructor Use Only)
6-17
EXERCISE 6-4 (Continued)
Date
9/1
9/12
9/19
9/26
Units
26
45
20
30
121
Proof
Unit Cost
$ 97
102
104
105
Total Cost
$ 2,522
4,590
2,080
3,150
$12,342
LIFO
Cost of goods available for sale .......................................................... $14,442
Less: Ending inventory (20 X $97) .....................................................
1,940
Cost of goods sold ............................................................................... $12,502
Date
9/26
9/19
9/12
9/1
Units
50
20
45
6
121
Proof
Unit Cost
$105
104
102
97
Total Cost
$ 5,250
2,080
4,590
582
$12,502
(b)
FIFO $2,100 (ending inventory) + $12,342 (COGS) = $14,442
LIFO $1,940 (ending inventory) + $12,502 (COGS) = $14,442
}
Cost of
goods
available
for sale
Under both methods, the sum of the ending inventory and cost of goods sold
equals the same amount, $14,442, which is the cost of goods available for sale.
EXERCISE 6-5
FIFO
Beginning inventory (30 X $8) ...............................................
Purchases
May 15 (25 X $11) ............................................................
May 24 (35 X $12) ............................................................
Cost of goods available for sale ............................................
Less: Ending inventory (25 X $12) .......................................
Cost of goods sold .................................................................
6-18
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
$240
$275
420
695
935
300
$635
(For Instructor Use Only)
EXERCISE 6-5 (Continued)
Date
5/1
5/15
5/24
Units
30
25
10
65
Proof
Unit Cost
$ 8
11
12
Total Cost
$240
275
120
$635
LIFO
Cost of goods available for sale ..........................................................
Less: Ending inventory (25 X $8) ........................................................
Cost of goods sold ................................................................................
Date
5/24
5/15
5/1
Units
35
25
5
65
Proof
Unit Cost
$12
11
8
$935
200
$735
Total Cost
$420
275
40
$735
EXERCISE 6-6
(a)
FIFO
Beginning inventory (200 X $5) ...............................
Purchases
June 12 (400 X $6) .............................................
June 23 (300 X $7) .............................................
Cost of goods available for sale ..............................
Less: Ending inventory (100 X $7) .........................
Cost of goods sold ...................................................
LIFO
Cost of goods available for sale ..............................
Less: Ending inventory (100 X $5) .........................
Cost of goods sold ...................................................
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
$1,000
$2,400
2,100
4,500
5,500
700
$4,800
$5,500
500
$5,000
(For Instructor Use Only)
6-19
EXERCISE 6-6 (Continued)
(b) The FIFO method will produce the higher ending inventory because
costs have been rising. Under this method, the earliest costs are
assigned to cost of goods sold and the latest costs remain in ending
inventory. For Kaleta Company, the ending inventory under FIFO is
$700 or (100 X $7) compared to $500 or (100 X $5) under LIFO.
(c) The LIFO method will produce the higher cost of goods sold for Kaleta
Company. Under LIFO the most recent costs are charged to cost of
goods sold and the earliest costs are included in the ending inventory.
The cost of goods sold is $5,000 or [$5,500 – (100 X $5)] compared to
$4,800 or ($5,500 – $700) under FIFO.
EXERCISE 6-7
(a) (1)
(2)
(3)
FIFO
Beginning inventory ..........................................
Purchases ...........................................................
Cost of goods available for sale .......................
Less: ending inventory (80 X $130) .................
Cost of goods sold.............................................
$10,000
26,000
36,000
10,400
$25,600
LIFO
Beginning inventory ..........................................
Purchases ...........................................................
Cost of goods available for sale .......................
Less: ending inventory (80 X $100) .................
Cost of goods sold.............................................
$10,000
26,000
36,000
8,000
$28,000
AVERAGE-COST
Beginning inventory ..........................................
Purchases ...........................................................
Cost of goods available for sale .......................
Less: ending inventory (80 X $120) .................
Cost of goods sold.............................................
$10,000
26,000
36,000
9,600
$26,400
(b) The use of FIFO would result in the highest net income since the earlier
lower costs are matched with revenues.
(c) The use of FIFO would result in inventories approximating current cost in
the balance sheet, since the more recent units are assumed to be on hand.
(d) The use of LIFO would result in Lisa paying the least taxes in the first
year since income will be lower.
6-20
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
EXERCISE 6-8
(a)
Total Units
Cost of Goods
Available for Sale ÷ Available for Sale
900
$5,500
Ending inventory (100 X $6.11)
Cost of goods sold (800 X $6.11)
=
Weighted Average
Unit Cost
$6.11
$ 611
4,889
(b) Ending inventory is lower than FIFO ($700) and higher than LIFO ($500).
In contrast, cost of goods sold is higher than FIFO ($4,800) and
lower than LIFO ($5,000).
(c) The average-cost method uses a weighted-average unit cost, not a simple
average of unit costs.
EXERCISE 6-9
Lower
-of-Cost
-or-Market:
Cost
Market
Cameras
Minolta
Canon
Total
$ 850
900
1,750
$ 780
912
1,692
$ 780
900
Light meters
Vivitar
Kodak
Total
Total inventory
1,500
1,680
3,180
$4,930
1,380
1,890
3,270
$4,962
1,380
1,680
$4,740
Market
$ 7,100
10,050
9,750
$26,900
Lower
-of-Costor-Market:
$ 6,500
10,050
9,750
$26,300
EXERCISE 6-10
Cameras
DVD players
Ipods
Total inventory
Cost
$ 6,500
11,250
10,000
$27,750
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
6-21
EXERCISE 6-11
Beginning inventory ............................................
Cost of goods purchased ...................................
Cost of goods available for sale .........................
Corrected ending inventory ................................
Cost of goods sold ..............................................
a
$30,000 – $3,000 = $27,000.
b
2013
$ 20,000
150,000
170,000
a
27,000
$143,000
2014
$ 27,000
175,000
202,000
b
41,000
$161,000
$35,000 + $6,000 = $41,000.
EXERCISE 6-12
(a)
Sales .................................................................
Cost of goods sold
Beginning inventory .................................
Cost of goods purchased ........................
Cost of goods available for sale .............
Ending inventory ($44,000 – $6,000) .......
Cost of goods sold ...................................
Gross profit ......................................................
2013
$220,000
2014
$250,000
32,000
173,000
205,000
38,000
167,000
$ 53,000
38,000
202,000
240,000
52,000
188,000
$ 62,000
(b) The cumulative effect on total gross profit for the two years is zero as
shown below:
Incorrect gross profits:
Correct gross profits:
Difference
$59,000 + $56,000 = $115,000
$53,000 + $62,000 = 115,000
$
0
(c) Dear Mr./Ms. President:
Because your ending inventory of December 31, 2013 was overstated
by $6,000, your net income for 2013 was overstated by $6,000. For 2014
net income was understated by $6,000.
In a periodic system, the cost of goods sold is calculated by deducting
the cost of ending inventory from the total cost of goods you have
available for sale in the period. Therefore, if this ending inventory figure
is overstated, as it was in December 2013, then the cost of goods sold
is understated and therefore net income will be overstated by that
amount. Consequently, this overstated ending inventory figure goes on
to become the next period’s beginning inventory amount and is a part
of the total cost of goods available for sale. Therefore, the mistake
repeats itself in the reverse.
6-22
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
EXERCISE 6-12 (Continued)
The error also affects the balance sheet at the end of 2013. The inventory reported in the balance sheet is overstated; therefore, total assets
are overstated. The overstatement of the 2013 net income results in the
capital account balance being overstated. The balance sheet at the end
of 2014 is correct because the overstatement of the capital account at
the end of 2013 is offset by the understatement of the 2014 net income
and the inventory at the end of 2014 is correct.
Thank you for allowing me to bring this to your attention. If you have
any questions, please contact me at your convenience.
Sincerely,
EXERCISE 6-13
Inventory
turnover
2012
2013
$900,000
($100,000 + $300,000) ÷ 2
$1,120,000
($300,000 + $400,000) ÷ 2
$900,000
$200,000
Days in
inventory
Gross
profit rate
365
4.5
$1,120,000
$350,000
= 4.5
= 81.1 days
$1,200,000 – $900,000
= 25%
$1,200,000
365
3.2
2014
$1,300,000
($400,000 + $480,000) ÷ 2
$1,300,000
$440,000
= 3.2
365
2.95
= 114.1 days
$1,600,000 – $1,120,000
= 30%
$1,600,000
= 2.95
= 123.7 days
$1,900,000 – $1,300,000
= 32%
$1,900,000
The inventory turnover decreased by approximately 34% from 2012 to 2014
while the days in inventory increased by almost 53% over the same time
period. Both of these changes would be considered negative since it’s
better to have a higher inventory turnover with a correspondingly lower days
in inventory. However, Quick’s Photo gross profit rate increased by 28%
from 2012 to 2014, which is a positive sign.
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
6-23
EXERCISE 6-14
(a)
Inventory Turnover
Alpha Company
Omega Company
$190,000
($45,000 + $55,000)/2
= 3.80
$292,000
($71,000 + $69,000)/2
= 4.17
365/3.80 = 96 days
365/4.17 = 88 days
Days in Inventory
(b)
Omega Company is moving its inventory more quickly, since its inventory turnover is higher, and its days in inventory is lower.
*EXERCISE 6-15
(1)
Date
Purchases
Jan. 1
8
10 (6 @ $660) $3,960
15
Purchases
Jan. 1
8
10 (6 @ $660) $3,960
15
6-24
(2 @ $600) $1,200
(1 @ $600)
(3 @ $660) $2,580
(2)
Date
FIFO
Cost of Goods Sold
Copyright © 2013 John Wiley & Sons, Inc.
LIFO
Cost of Goods Sold
(2 @ $600) $1,200
(4 @ $660) $2,640
Balance
(3 @ $600) $1,800
(1 @ $600)
600
(1 @ $600)
4,560
(6 @ $660)
(3 @ $660)
1,980
Balance
(3 @ $600)
(1 @ $600)
(1 @ $600)
(6 @ $660)
(1 @ $600)
(2 @ $660)
Weygandt, Accounting Principles, 11/e, Solutions Manual
$1,800
600
4,560
1,920
(For Instructor Use Only)
*EXERCISE 6-15 (Continued)
MOVING-AVERAGE COST
(3)
Date
Purchases
Cost of Goods Sold
Jan. 1
8
(2 @ $600)
$1,200
10 (6 @ $660) $3,960
15
(4 @ $651.43) $2,606
Balance
(3 @ $600)
$1,800
(1 @ $600)
600
(7 @ $651.43)* 4,560
(3 @ $651.43) 1,954
*Average-cost = ($600 + $3,960) ÷ 7 = $651.43 (rounded)
*EXERCISE 6-16
(a)
The cost of goods available for sale is:
June 1 Inventory
200 @ $5
June 12 Purchase
400 @ $6
June 23 Purchase
300 @ $7
Total cost of goods available for sale
Date
June 1
June 12
FIFO
Cost of Goods Sold
Purchases
(400 @ $6) $2,400
June 15
June 23
Balance
(200 @ $5)
$1,000
(200 @ $5)
$3,400
(400 @ $6)
}
(200 @ $5)
(240 @ $6)
$1,000
1,440
(300 @ $7) $2,100
June 27
$1,000
2,400
2,100
$5,500
(160 @ $6)
(200 @ $7)
960
1,400
$4,800
(160 @ $6)
(160 @ $6)
(300 @ $7)
(100 @ $7)
$ 960
}
$3,060
$ 700
Ending inventory: $700. Cost of goods sold: $5,500 – $700 = $4,800.
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
6-25
*EXERCISE 6-16 (Continued)
LIFO
Cost of Goods Sold
Purchases
Date
June 1
June 12 (400 @ $6) $2,400
Balance
(200 @ $5)
$1,000
(200 @ $5)
$3,400
(400 @ $6)
}
June 15
(400 @ $6)
(40 @ $5)
$2,400
$ 200
June 23 (300 @ $7) $2,100
June 27
(300 @ $7)
60 @ $5
(160 @ $5)
(160 @ $5)
(300 @ $7)
$ 800
}
$2,900
$2,100
300 (100 @ $5)
$5,000
$ 500
Ending inventory: $500. Cost of goods sold: $5,500 – $500 = $5,000.
Date
June 1
June 12
June 15
June 23
June 27
Purchases
Moving-Average Cost
Cost of Goods Sold
(400 @ $6) $2,400
(440 @ $5.666)
(300 @ $7) $2,100
(360 @ $6.537)
Balance
(200 @ $5)
(600 @ $5.666)
$2,493 (160 @ $5.666)
(460 @ $6.537)
$2,353 (100 @ $6.537)
$4,846
$1,000
$3,400
$ 907
$3,007
$ 654
Ending inventory: $654. Cost of goods sold: $5,500 – $654 = $4,846.
(b)
FIFO gives the same ending inventory and cost of goods sold values
under both the periodic and perpetual inventory system. LIFO and
average-cost normally give different ending inventory and cost of
goods sold values under the periodic and perpetual inventory systems,
but in this case LIFO gives the same results.
(c)
The simple average would be [($5 + $6 + $7) ÷ 3)] or $6. However, the
moving-average cost method uses a weighted-average unit cost that
changes each time a purchase is made rather than a simple average.
6-26
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
*EXERCISE 6-17
(a)
Date
9/1
9/5
9/12
FIFO
Cost of
Goods Sold
Purchases
(12 @ $ 97) $1,164
(45 @ $102)
$4,590
9/16
(14 @ $ 97)
(36 @ $102) $5,030
9/19
(20 @ $104)
$2,080
9/26
(50 @ $105)
$5,250
9/29
Date
9/1
9/5
9/12
( 9 @ $102)
(20 @ $104)
(30 @ $105) $6,148
LIFO
Cost of
Goods Sold
Purchases
(12 @ $ 97) $1,164
(45 @ $102)
$4,590
9/16
(45 @ $102)
( 5 @ $ 97) $5,075
9/19
(20 @ $104)
$2,080
9/26
(50 @ $105)
$5,250
9/29
Copyright © 2013 John Wiley & Sons, Inc.
(50 @ $105)
( 9 @ $104) $6,186
Weygandt, Accounting Principles, 11/e, Solutions Manual
Balance
(26 @ $ 97) $2,522
(14 @ $ 97) $1,358
(14 @ $ 97)
$5,948
(45 @ $102)
( 9 @ $102) $ 918
( 9 @ $102)
(20 @ $104) $2,998
( 9 @ $102)
(20 @ $104) $8,248
(50 @ $105)
(20 @ $105) $2,100
Balance
(26 @ $ 97) $2,522
(14 @ $ 97) $1,358
(14 @ $ 97)
$5,948
(45 @ $102)
( 9 @ $ 97)
( 9 @ $ 97)
(20 @ $104)
( 9 @ $ 97)
(20 @ $104)
(50 @ $105)
( 9 @ $ 97)
(11 @ $104)
$ 873
$2,953
$8,203
$2,017
(For Instructor Use Only)
6-27
*EXERCISE 6-17 (Continued)
Date
9/1
9/5
9/12
9/16
9/19
9/26
9/29
Purchases
Moving-Average Cost
Cost of
Goods Sold
(12 @ $97)
$1,164
(50 @ $100.81)
$5,041*
(59 @ $104.27)
$6,152*
(45 @ $102) $4,590
(20 @ $104) $2,080
(50 @ $105) $5,250
Balance
(26 @ $97)
(14 @ $97)
(59 @ $100.81)a
( 9 @ $100.81)
(29 @ $103.00)b
(79 @ $104.27)c
(20 @ $104.27)
$2,522
$1,358
$5,948
$ 907
$2,987
$8,237
$2,085
*Rounded
a
$5,948 ÷ 59 = $100.81
b
$2,987 ÷ 29 = $103.00
c
$8,237 ÷ 79 = $104.27
(b)
Ending Inventory FIFO
Ending Inventory LIFO
(c)
Periodic
$2,100
$1,940
Perpetual
$2,100
$2,017
FIFO yields the same ending inventory value under both the periodic
and perpetual inventory system.
LIFO usually yields different ending inventory values when using the
periodic versus perpetual inventory system.
*EXERCISE 6-18
(a)
Sales ......................................................................
Cost of goods sold
Inventory, November 1 ................................
Cost of goods purchased ...........................
Cost of goods available for sale ................
Inventory, December 31 ..............................
Cost of goods sold .............................
Gross profit ...........................................................
$840,000
$130,000
536,000
666,000
120,000
546,000
$294,000
Gross profit rate $294,000/$840,000 = 35%
6-28
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
*EXERCISE 6-18 (Continued)
(b) Sales ........................................................................................ $1,000,000
Less: Estimated gross profit (35% X $1,000,000) ...............
350,000
Estimated cost of goods sold ................................................ $ 650,000
Beginning inventory ...............................................................
Cost of goods purchased ......................................................
Cost of goods available for sale ............................................
Less: Estimated cost of goods sold ....................................
Estimated cost of ending inventory ......................................
$120,000
610,000
730,000
650,000
$ 80,000
*EXERCISE 6-19
(a) Net sales ($51,000 – $1,000) ...................................................
Less: Estimated gross profit (40% X $50,000) ....................
Estimated cost of goods sold ................................................
$50,000
20,000
$30,000
Beginning inventory ...............................................................
Cost of goods purchased ($31,200 – $1,400 + $1,200) ........
Cost of goods available for sale ............................................
Less: Estimated cost of goods sold ....................................
Estimated cost of merchandise lost .....................................
$20,000
31,000
51,000
30,000
$21,000
(b) Net sales ..................................................................................
Less: Estimated gross profit (30% X $50,000) ....................
Estimated cost of goods sold ................................................
$50,000
15,000
$35,000
Beginning inventory ...............................................................
Cost of goods purchased ......................................................
Cost of goods available for sale ............................................
Less: Estimated cost of goods sold ....................................
Estimated cost of merchandise lost .....................................
$30,000
31,000
61,000
35,000
$26,000
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
6-29
*EXERCISE 6-20
Women’s Shoes
Cost
Retail
Beginning inventory
Goods purchased
Goods available for sale
Net sales
Ending inventory at retail
Cost-to-retail ratio
$ 25,000
110,000
$135,000
$ 46,000
179,000
225,000
178,000
$ 47,000
$135,000
= 60%
$225,000
Estimated cost of ending
inventory
$47,000 X 60% = $28,200
6-30
Copyright © 2013 John Wiley & Sons, Inc.
Men’s Shoes
Cost
Retail
$ 45,000
136,300
$181,300
$ 60,000
185,000
245,000
185,000
$ 60,000
$181,300
= 74%
$245,000
$60,000 X 74% = $44,400
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
PROBLEM 6-1A
(a)
The sale will be recorded on February 26. The goods (cost, $800) should
be excluded from Austin’s February 28 inventory.
(b)
Austin owns the goods once they are shipped on February 26. Include
inventory of $480.
(c)
Include $650 in inventory.
(d)
Exclude the items from Austin’s inventory. Title remains with the
consignor.
(e)
Title of the goods does not transfer to Austin until March 2. Exclude
this amount from the February 28 inventory.
(f)
Title to the goods does not transfer to the customer until March 2. The
$200 cost should be included in ending inventory.
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
6-31
PROBLEM 6-2A
(a)
Date
Oct. 1
3
9
19
25
COST OF GOODS AVAILABLE FOR SALE
Explanation
Units
Unit Cost
Beginning Inventory
2,000
$7
Purchase
2,500
8
Purchase
3,500
9
Purchase
3,000
10
11
Purchase
4,000
Total
15,000
(b)
Total Cost
$ 14,000
20,000
31,500
30,000
44,000
$139,500
FIFO
Ending Inventory
Unit
Date
Units
Cost
Oct. 25
4,000
$11
19
100
10
4,100*
(1)
Total
Cost
$44,000
1,000
$45,000
(2)
Cost of Goods Sold
Cost of goods
available for sale
$139,500
Less: Ending
inventory
45,000
Cost of goods sold $ 94,500
*15,000 – 10,900 = 4,100
Date
Oct. 1
3
9
19
Proof of Cost of Goods Sold
Units
Unit Cost
Total Cost
2,000
$7
$14,000
2,500
8
20,000
3,500
9
31,500
10
29,000
2,900
10,900
$94,500
LIFO
(1)
Ending Inventory
Unit
Date
Units
Cost
Oct. 1
2,000
$7
3
2,100
8
4,100
6-32
Copyright © 2013 John Wiley & Sons, Inc.
Total
Cost
$14,000
16,800
$30,800
(2)
Cost of Goods Sold
Cost of goods
available for sale
$139,500
Less: Ending
inventory
30,800
Cost of goods sold $108,700
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
PROBLEM 6-2A (Continued)
Proof of Cost of Goods Sold
Unit
Total
Date
Units
Cost
Cost
Oct. 25
4,000
$11
$ 44,000
19
3,000
10
30,000
9
3,500
9
31,500
3
400
8
3,200
10,900
$108,700
AVERAGE COST
(1)
Ending Inventory
(2)
Cost of Goods Sold
$139,500 ÷ 15,000 = $9.30
Cost of goods available
for sale
$139,500
Units
Unit Cost Total Cost Less: Ending inventory
38,130
4,100
$9.30
$38,130
Cost of goods sold
$101,370
(c) (1) FIFO results in the highest inventory amount for the balance sheet,
$45,000.
(2) LIFO results in the highest cost of goods sold, $108,700.
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
6-33
PROBLEM 6-3A
(a)
Date
1/1
3/15
7/20
9/4
12/2
COST OF GOODS AVAILABLE FOR SALE
Explanation
Units
Unit Cost
Beginning Inventory
150
$20
Purchase
400
23
Purchase
250
24
Purchase
350
26
29
Purchase
100
Total
1,250
(b)
Total Cost
$ 3,000
9,200
6,000
9,100
2,900
$30,200
FIFO
(1)
Date
12/2
9/4
Ending Inventory
Unit
Units
Cost
100
$29
150
26
250
Total
Cost
$2,900
3,900
$6,800
(2)
Cost of Goods Sold
Cost of goods
available for sale
$30,200
Less: Ending
inventory
6,800
Cost of goods sold $23,400
Proof of Cost of Goods Sold
Unit
Total
Date
Units
Cost
Cost
1/1
150
$20
$ 3,000
3/15
400
23
9,200
7/20
250
24
6,000
26
5,200
9/4
200
1,000
$23,400
LIFO
(1)
Date
1/1
3/15
6-34
Ending Inventory
Unit
Units
Cost
150
$20
100
23
250
Copyright © 2013 John Wiley & Sons, Inc.
Total
Cost
$3,000
2,300
$5,300
(2)
Cost of Goods Sold
Cost of goods
available for sale
$30,200
Less: Ending
inventory
5,300
Cost of goods sold $24,900
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
PROBLEM 6-3A (Continued)
Proof of Cost of Goods Sold
Unit
Total
Date
Units
Cost
Cost
12/2
100
$29
$ 2,900
9/4
350
26
9,100
7/20
250
24
6,000
3/15
300
23
6,900
1,000
$24,900
AVERAGE COST
Ending Inventory
(2)
Cost of Goods Sold
(1)
$30,200 ÷ 1,250 = $24.16
Cost of goods available
for sale
$30,200
Units
Unit Cost
6,040
Total Cost Less: Ending inventory
250
$24.16
$6,040
Cost of goods sold
$24,160
Proof of Cost of Goods Sold
1,000 units X $24.16 = $24,160
(c) (1) FIFO results in the highest inventory amount, $6,800, as shown in
(b) above.
(2) LIFO produces the highest cost of goods sold, $24,900 as shown in
(b) above.
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
6-35
PROBLEM 6-4A
(a)
Felipe INC.
Condensed Income Statements
For the Year Ended December 31, 2014
Sales revenue ...........................................
Cost of goods sold
Beginning inventory ..........................
Cost of goods purchased .................
Cost of goods available for sale ......
Ending inventory ...............................
Cost of goods sold ............................
Gross profit...............................................
Operating expenses .................................
Income before income taxes ...................
Income tax expense (40%) ......................
Net income ................................................
FIFO
LIFO
$747,000
$747,000
14,000
466,000
480,000
a
45,900
434,100
312,900
130,000
182,900
73,160
$109,740
14,000
466,000
480,000
b
36,000
444,000
303,000
130,000
173,000
69,200
$103,800
a
17,000 X $2.70 = $45,900.
$14,000 + (10,000 X $2.20) = $36,000.
b
(b) (1) The FIFO method produces the most meaningful inventory amount
for the balance sheet because the units are costed at the most
recent purchase prices.
(2) The LIFO method produces the most meaningful net income because
the cost of the most recent purchases are matched against sales.
(3) The FIFO method is most likely to approximate actual physical
flow because the oldest goods are usually sold first to minimize
spoilage and obsolescence.
(4) There will be $3,960 additional cash available under LIFO because
income taxes are $69,200 under LIFO and $73,160 under FIFO.
(5) Gross profit under the average cost method will be: (a) lower than
FIFO and (b) higher than LIFO.
6-36
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
PROBLEM 6-5A
(a) Cost of Goods Available for Sale
Date
Explanation
June 1 Beginning Inventory
June 4 Purchase
June 18 Purchase
June 18 Purchase return
June 28 Purchase
Total
Ending Inventory in Units:
Units available for sale
Sales (110 – 15 + 65)
Units remaining in ending inventory
250
160
90
Units
40
135
55
(10)
30
250
Date
June 10
11
25
Unit Cost
$40
44
46
46
50
Total Cost
$ 1,600
5,940
2,530
(460)
1,500
$11,110
Sales Revenue
Unit
Units
Price
Total Sales
110
$70
$ 7,700
(15)
70
(1,050)
65
75
4,875
160
$11,525
(1) LIFO
(i) Ending Inventory
June 1 40 @ $40
4 50 @ 44
90
(iii) Gross Profit
Sales revenue
Cost of goods sold
Gross profit
Copyright © 2013 John Wiley & Sons, Inc.
$1,600
2,200
$3,800
$11,525
7,310
$ 4,215
(ii) Cost of Goods Sold
Cost of goods available
for sale
Less: Ending inventory
Cost of goods sold
$11,110
3,800
$ 7,310
(iv) Gross Profit Rate
Gross profit
$ 4,215
= 36.6%
Net sales
$11,525
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
6-37
PROBLEM 6-5A (Continued)
(2) FIFO
(i) Ending Inventory
June 28 30 @ $50
18 45 @ $46
4 15 @ $44
90
(iii) Gross Profit
Sales revenue
Cost of goods sold
Gross profit
$1,500
2,070
660
$4,230
$11,525
6,880
$ 4,645
(ii) Cost of Goods Sold
Cost of goods available
for sale
Less: Ending inventory
Cost of goods sold
$11,110
4,230
$ 6,880
(iv) Gross Profit Rate
Gross profit $ 4,645
= 40.3%
Net sales
$11,525
(3) Average-Cost
Weighted-average cost per unit:
Cost of goods available for sale
Units available for sale
$11,110
= $44.44
250
(i)
Ending Inventory
90 units @$44.44
(iii) Gross Profit
Sales revenue
Cost of goods sold
Gross profit
3,999.60
$11,525.00
7,110.40
$ 4,414.60
(ii) Cost of Goods Sold
Cost of goods available
for sale
Less: Ending inventory
Cost of goods sold
$11,110.00
3,999.60
$ 7,110.40
(iv) Gross Profit Rate
Gross profit $ 4,414.60
= 38.3%
Net sales
$11,525.00
(b) In this period of rising prices, LIFO gives the highest cost of goods
sold and the lowest gross profit. FIFO gives the lowest cost of goods
sold and the highest gross profit.
6-38
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
PROBLEM 6-6A
(a)
BARTON INC.
Income Statement (partial)
For the Year Ended December 31, 2014
a
Sales revenue
Beginning inventory
Purchasesb
Cost of goods available
for sale
Ending inventoryc
Cost of goods sold
Gross profit
Specific Identification
$8,915
1,200
6,505
7,705
2,505
5,200
$3,715
FIFO
$8,915
1,200
6,505
LIFO
$8,915
1,200
6,505
7,705
2,720
4,985
$3,930
7,705
2,175
5,530
$3,385
(a)
(2,300 @ $1.05) + (5,200 @ $1.25)
(2,500 @ $ .65) + (4,000 @ $.72) + (2,500 @ $.80)
(c)
Specific identification ending inventory consists of:
(b)
550 @ $.60
Beginning inventory (2,000 liters – 1,000 – 450)
March 3 purchase (2,500 liters – 1,300 – 550)
650 @ $.65
March 10 purchase (4,000 liters – 2,900)
1,100 @ $.72
March 20 purchase (2,500 liters – 1,300)
1,200 @ $.80
3,500 liters
$ 330.00
422.50
792.00
960.00
$2,504.50
FIFO ending inventory consists of:
March 20 purchase
March 10 purchase
2,500 @ $.80
1,000 @ $.72
3,500 liters
$2,000
720
$2,720
2,000 @ $.60
1,500 @ $.65
3,500 liters
$1,200
975
$2,175
LIFO ending inventory consists of:
Beginning inventory
March 3 purchase
(b) Companies can choose a cost flow method that produces the highest
possible cost of goods sold and lowest gross profit to justify price
increases. In this example, LIFO produces the lowest gross profit and
best support to increase selling prices.
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
6-39
PROBLEM 6-7A
(a)
Sherlynn CO.
Condensed Income Statement
For the Year Ended December 31, 2014
Sales revenue .............................................
Cost of goods sold
Beginning inventory ...........................
Cost of goods purchased ..................
Cost of goods available for sale .......
Ending inventory ................................
Cost of goods sold .............................
Gross profit.................................................
Operating expenses ...................................
Income before income taxes .....................
Income tax expense (30%) ........................
Net income ..................................................
FIFO
$700,000
LIFO
$700,000
45,000
532,000
577,000
a
168,000
409,000
291,000
140,000
151,000
45,300
$105,700
45,000
532,000
577,000
b
147,000
430,000
270,000
140,000
130,000
39,000
$ 91,000
a
(30,000 @ $5.60) = $168,000.
(10,000 @ $4.50) + (20,000 @ $5.10) = $147,000.
b
(b) Answers to questions:
(1) The FIFO method produces the most meaningful inventory amount
for the balance sheet because the units are costed at the most
recent purchase prices.
(2) The LIFO method produces the most meaningful net income
because the costs of the most recent purchases are matched
against sales.
(3) The FIFO method is most likely to approximate actual physical flow
because the oldest goods are usually sold first to minimize spoilage
and obsolescence.
(4) There will be $6,300 additional cash available under LIFO because
income taxes are $39,000 under LIFO and $45,300 under FIFO.
(5) The illusionary gross profit is $21,000 or ($291,000 – $270,000).
Under LIFO, Sherlynn Co. has recovered the current replacement
cost of the units ($430,000), whereas under FIFO, it has only
recovered the earlier costs ($409,000). This means that, under
FIFO, the company must reinvest at least $21,000 of the gross profit
to replace the units used.
6-40
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
*PROBLEM 6-8A
(a)
Sales:
January 8
January 10 (return)
January 20
(1) LIFO
Date
January 1
January 5
110
(10
90
190
units @ $28
units @ $28)
units @ $32
units
Purchases
$3,080
(280)
2,880
$5,680
Cost of Goods Sold
(140 @ $18) $2,520
January 8
(110 @ $18)
$1,980
January 10
(–10 @ $18)
($ 180)
January 15
January 16
( 55 @ $20) $1,100
( –5 @ $20) ($ 100)
( 50 @ $20)
( 40 @ $18)
January 20
January 25
} $1,720
( 20 @ $22) $ 440
$3,520
Balance
(100 @ $15)
(100 @ $15)
(140 @ $18)
(100 @ $15)
( 30 @ $18)
(100 @ $15)
( 40 @ $18)
(100 @ $15)
( 40 @ $18)
( 55 @ $20)
(100 @ $15)
( 40 @ $18)
( 50 @ $20)
(100 @ $15)
$1,500
} $4,020
} $2,040
} $2,220
}
}
$3,320
$3,220
$1,500
}
(100 @ $15)
} $1,940
( 20 @ $22)
(i) Cost of goods sold = $3,520. (ii) Ending inventory = $1,940. (iii) Gross
profit = $5,680 – $3,520 = $2,160.
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
6-41
*PROBLEM 6-8A (Continued)
(2) FIFO
Date
Purchases
Cost of Goods Sold
January 1
January 5
(100 @ $15)
(100 @ $15)
(140 @ $18)
(140 @ $18) $2,520
(100 @ $15)
( 10@ $18)
(–10 @ $18)
January 8
January 10
January 15
( 55 @ $20) $1,100
January 16
( –5 @ $20)($ 100)
January 20
January 25
Balance
(90 @ $18)
}
$1,500
}
$4,020
$1,680
(130 @ $18)
$2,340
($ 180)
(140 @ $18)
(140 @ $18)
( 55 @ $20)
(140 @ $18)
( 50 @ $20)
( 50 @ $18)
( 50 @ $20)
( 50 @ $18)
( 50 @ $20)
( 20 @ $22)
$2,520
$1,620
( 20 @ $22) $ 440
}
}
}
}
$3,620
$3,520
$1,900
$2,340
$3,120
(i) Cost of goods sold = $3,120. (ii) Ending inventory = $2,340. (iii) Gross
profit = $5,680 – $3,120 = $2,560.
(3) Moving-Average Cost
Date
January 1
January 5
January 8
January 10
January 15
January 16
January 20
January 25
Purchases
Cost of Goods Sold
(140 @ $18) $2,520
(110 @ $16.75)
(–10 @ $16.75)
$1,843
($ 168)
(90 @ $17.605)
$1,584
( 55 @ $20) $1,100
( –5 @ $20) ($ 100)
( 20 @ $22) $ 440
Balance
(100 @ $15)
(240 @ $16.75)a
(130 @ $16.75)
(140 @ $16.75)
(195 @ $17.667)b
(190 @ $17.605)c
(100 @ $17.605)
(120 @ $18.342)d
$1,500
$4,020
$2,177
$2,345
$3,445
$3,345
$1,761
$2,201
$3,259
*rounded
$4,020 ÷ 240 = $16.75
b
$3,445 ÷ 195 = $17.667
a
c
$3,345 ÷ 190 = $17.61
$2,201 ÷ 120 = $18.342
d
(i) Cost of goods sold = $3,259. (ii) Ending inventory = $2,201. (iii) Gross
profit = $5,680 – $3,259 = $2,421.
6-42
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
*PROBLEM 6-8A (Continued)
(b)
Gross profit:
Sales
Cost of goods sold
Gross profit
Ending inventory
LIFO
$5,680
3,520
$2,160
$1,940
FIFO
$5,680
3,120
$2,560
$2,340
Moving-Average Cost
$5,680
3,259
$2,421
$2,201
In a period of rising costs, the LIFO cost flow assumption results in the
highest cost of goods sold and lowest gross profit. FIFO gives the lowest
cost of goods sold and highest gross profit. The moving-average cost flow
assumption results in amounts between the other two.
On the balance sheet, FIFO gives the highest ending inventory (representing the most current costs); LIFO gives the lowest ending inventory (representing the oldest costs); and moving-average cost results in an ending
inventory falling between the other two.
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
6-43
*PROBLEM 6-9A
(a)
(1)
FIFO
Date
July 1
6
11
Purchases
(5 @ $120)
Cost of Goods Sold
$ 600
(4 @ $120)
(7 @ $136)
$480
$ 952
(1 @ $120)
(2 @ $136)
14
21
Balance
(8 @ $147)
}
$392
$1,176
27
(5 @ $136)
(1 @ $147)
(2)
}
$827
(5 @ $120)
(1 @ $120)
(1 @ $120)
(7 @ $136)
$ 600
$ 120
}
(5 @ $136)
(5 @ $136)
(8 @ $147)
$1,072
$ 680
}
(7 @ $147)
$1,856
$1,029
MOVING-AVERAGE COST
Date
July 1
6
11
14
21
27
Purchases
(5 @ $120)
$ 600
(7 @ $136)
$ 952
(8 @ $147)
$1,176
Cost of Goods Sold
(4 @ $120)
$480
(3 @ $134)
$402
(6 @ $142)
$852
Balance
( 5 @ $120)
( 1 @ $120)
( 8 @ $134)*
( 5 @ $134)
(13 @ $142)**
( 7 @ $142)
$ 600
$ 120
$1,072
$ 670
$1,846
$ 994
*$1,072 ÷ 8 = $134
**$1,846 ÷ 13 = $142
(3)
LIFO
Date
Purchases
July 1
6
11
(5 @ $120)
$ 600
(4 @ $120)
(7 @ $136)
(3 @ $136)
(8 @ $147)
$480
$ 952
14
21
Cost of Goods Sold
$408
$1,176
27
(6 @ $147)
$882
Balance
(5 @ $120)
(1 @ $120)
(1 @ $120)
(7 @ $136)
(1 @ $120)
(4 @ $136)
(1 @ $120)
(4 @ $136)
(8 @ $147)
(1 @ $120)
(4 @ $136)
(2 @ $147)
$ 600
$ 120
}
}
}
}
$1,072
$ 664
$1,840
$ 958
(b) The highest ending inventory is $1,029 under the FIFO method.
6-44
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
*PROBLEM 6-10A
(a)
Net sales .......................................................
Cost of goods sold
Beginning inventory ............................
Purchases............................................. $389,000
Less: Purchase returns and
allowances ................................
13,300
Purchase discounts .................
8,500
Add: Freight-in ...................................
8,800
Cost of goods purchased ...................
Cost of goods available for sale .........
Ending inventory .................................
Cost of goods sold.......................
Gross profit ..................................................
Gross profit rate =
$228,000
$600,000
November
$600,000
$ 32,000
376,000
408,000
36,000
372,000
$228,000
= 38%
(b) Net sales.................................................
Less: Estimated gross profit
(38% X $700,000) ........................
Estimated cost of goods sold ...............
Beginning inventory ..............................
Purchases...............................................
Less: Purchase returns and
allowances .................................. $14,900
Purchase discounts ...................
9,500
Net purchases ........................................
Freight-in ................................................
Cost of goods purchased .....................
Cost of goods available for sale ...........
Less: Estimated cost of goods
sold ..............................................
Estimated inventory lost in fire ............
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
$700,000
266,000
$434,000
$ 36,000
$420,000
24,400
395,600
9,900
405,500
441,500
434,000
$ 7,500
(For Instructor Use Only)
6-45
*PROBLEM 6-11A
(a)
Hardcovers
Cost
Beginning inventory
Purchases
Freight-in
Purchase discounts
Goods available for sale
Net sales
Ending inventory at retail
$ 420,000
2,135,000
24,000
(44,000)
$2,535,000
Retail
Paperbacks
Cost
Retail
$ 700,000 $ 280,000 $ 360,000
3,200,000 1,155,000
1,540,000
12,000
(22,000)
3,900,000 $1,425,000
1,900,000
3,100,000
1,570,000
$ 800,000
$ 330,000
Cost-to-retail ratio:
Hardcovers—$2,535,000 ÷ $3,900,000 = 65%.
Paperbacks—$1,425,000 ÷ $1,900,000 = 75%.
Estimated ending inventory at cost:
$800,000 X 65% = $520,000—Hardcovers.
$330,000 X 75% = $247,500—Paperbacks.
(b) Hardcovers—$790,000 X 65% = $513,500.
Paperbacks—$335,000 X 75% = $251,250.
6-46
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
SOLUTIONS TO PROBLEMS
PROBLEM 6-1B
(a)
The goods should not be included in inventory as they were shipped
FOB shipping point and shipped February 26. Title to the goods
transfers to the customer February 26. Weber should have recorded
the transaction in the Sales and Accounts Receivable accounts.
(b)
The amount should not be included in inventory as they were shipped
FOB destination and not received until March 2. The seller still owns
the inventory. No entry is recorded.
(c)
Include $500 in inventory.
(d)
Include $400 in inventory.
(e)
$750 should be included in inventory as the goods were shipped FOB
shipping point.
(f)
The sale will be recorded on March 2. The goods should be included
in inventory at the end of February at their cost of $250.
(g)
The damaged goods should not be included in inventory. They should
be recorded in a loss account since they are not saleable.
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
6-47
PROBLEM 6-2B
(a)
Date
March 1
5
13
21
26
COST OF GOODS AVAILABLE FOR SALE
Explanation
Units
Unit Cost
Beginning Inventory
1,500
$ 7
Purchase
3,000
8
Purchase
4,500
9
Purchase
4,000
10
11
Purchase
2,500
Total
15,500
(b)
Total Cost
$ 10,500
24,000
40,500
40,000
27,500
$142,500
FIFO
Ending Inventory
Unit
Date
Units
Cost
March 26
2,500
$11
21
1,000
10
3,500*
(1)
Total
Cost
$27,500
10,000
$37,500
(2)
Cost of Goods Sold
Cost of goods
available for sale
$142,500
Less: Ending
inventory
37,500
Cost of goods sold $105,000
*15,500 – 12,000 = 3,500
Proof of Cost of Goods Sold
Unit
Total
Date
Units
Cost
Cost
March 1
1,500
$ 7
$ 10,500
5
3,000
8
24,000
13
4,500
9
40,500
21
3,000
10
30,000
12,000
$105,000
6-48
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
PROBLEM 6-2B (Continued)
LIFO
Ending Inventory
Unit
Date
Units
Cost
March 1 1,500
$7
5 2,000
8
3,500
(1)
Total
Cost
$10,500
16,000
$26,500
(2)
Cost of Goods Sold
Cost of goods
available for sale
$142,500
Less: Ending
inventory
26,500
Cost of goods sold
$116,000
Proof of Cost of Goods Sold
Unit
Total
Date
Units
Cost
Cost
March 26
2,500
$11
$27,500
21
4,000
10
40,000
13
4,500
9
40,500
5
1,000
8
8,000
12,000
$116,000
AVERAGE-COST
Ending Inventory
(2)
Cost of Goods Sold
(1)
Cost of goods
$142,500 ÷ 15,500 = $9.194
available for sale
$142,500
Unit
Less: Ending
Units
Cost
Total Cost
inventory
32,179
3,500
$9.194
$32,179*
Cost of goods sold $110,321
*rounded to nearest dollar
(c) (1) As shown in (b) above, FIFO produces the highest inventory amount,
$37,500.
(2) As shown in (b) above, LIFO produces the highest cost of goods
sold, $116,000.
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
6-49
PROBLEM 6-3B
(a)
Date
1/1
2/20
5/5
8/12
12/8
COST OF GOODS AVAILABLE FOR SALE
Explanation
Units
Unit Cost
Beginning Inventory
400
$ 8
Purchase
600
9
Purchase
500
10
Purchase
300
11
12
Purchase
200
Total
2,000
(b)
Total Cost
$ 3,200
5,400
5,000
3,300
2,400
$19,300
FIFO
(1)
Date
12/8
8/12
Ending Inventory
Unit
Units
Cost
200
$12
300
11
500
Total
Cost
$2,400
3,300
$5,700
(2)
Cost of Goods Sold
Cost of goods
available for sale
$19,300
Less: Ending
inventory
5,700
Cost of goods sold $13,600
Proof of Cost of Goods Sold
Unit
Total
Date
Units
Cost
Cost
1/1
400
$ 8
$ 3,200
2/20
600
9
5,400
10
5,000
5/5
500
1,500
$13,600
6-50
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
PROBLEM 6-3B (Continued)
(b)
LIFO
(1)
Date
1/1
2/20
Ending Inventory
Unit
Units
Cost
400
$8
100
9
500
Total
Cost
$3,200
900
$4,100
(2)
Cost of Goods Sold
Cost of goods
available for sale
$19,300
Less: Ending
inventory
4,100
Cost of goods sold $15,200
Proof of Cost of Goods Sold
Unit
Total
Date
Units
Cost
Cost
12/8
200
$12
$ 2,400
8/12
300
11
3,300
5/5
500
10
5,000
9
4,500
2/20
500
1,500
$15,200
AVERAGE-COST
Ending Inventory
(2)
Cost of Goods Sold
(1)
Cost of goods
$19,300 ÷ 2,000 = $9.65
available for sale
$19,300
Unit
Less: Ending
Total
Units
Cost
inventory
4,825
Cost
500
$9.65
$4,825
Cost of goods sold $14,475
Proof of Cost of Goods Sold
1,500 units X 9.65 = $14,475
(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, $13,600.
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
6-51
PROBLEM 6-4B
(a)
Patel CO.
Condensed Income Statement
For the Year Ended December 31, 2014
Sales revenue .............................................
Cost of goods sold
Beginning inventory ...........................
Cost of goods purchased ..................
Cost of goods available for sale .......
Ending inventory ................................
Cost of goods sold .............................
Gross profit .................................................
Operating expenses ...................................
Income before income taxes .....................
Income tax expense (34%) ........................
Net income ..................................................
a
28,000 X $2.80 = $78,400.
b
FIFO
$865,000
32,000
600,000
632,000
a
78,400
553,600
311,400
147,000
164,400
55,896
$108,504
LIFO
$865,000
32,000
600,000
632,000
b
63,200
568,800
296,200
147,000
149,200
50,728
$98,472
$32,000 + (13,000 X $2.40) = $63,200.
(b) (1) The FIFO method produces the most meaningful inventory amount
for the balance sheet because the units are costed at the most
recent purchase prices.
(2) The LIFO method produces the most meaningful net income because
the costs of the most recent purchases are matched against sales.
(3) The FIFO method is most likely to approximate actual physical flow
because the oldest goods are usually sold first to minimize spoilage
and obsolescence.
(4) There will be $5,168 additional cash available under LIFO because
income taxes are $50,728 under LIFO and $55,896 under FIFO.
(5) Gross profit under the average cost method will be: (a) lower than
FIFO and (b) higher than LIFO.
6-52
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
PROBLEM 6-5B
Cost of Goods Available for Sale
Date
Explanation
October 1 Beginning Inventory
9 Purchase
17 Purchase
25 Purchase
Total
Ending Inventory in Units:
Units available for sale
Sales (100 + 60 + 110)
Units remaining in ending inventory
Units
60
120
70
80
330
330
270
60
Unit Cost
$25
26
27
28
Total Cost
$1,500
3,120
1,890
2,240
$8,750
Sales Revenue
Unit
Date
Units Price Total Sales
October 11
100
$35
$ 3,500
22
60
40
2,400
29
110
40
4,400
270
$10,300
(a)
(1) LIFO
(i) Ending Inventory
October 1 60 @ $25 = $1,500
(iii) Gross Profit
Sales revenue
Cost of goods sold
Gross profit
Copyright © 2013 John Wiley & Sons, Inc.
$10,300
7,250
$ 3,050
(ii) Cost of Goods Sold
Cost of goods available
for sale
Less: Ending inventory
Cost of goods sold
$8,750
1,500
$7,250
(iv) Gross Profit Rate
Gross profit
$ 3,050
= 29.6%
Net sales
$10,300
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
6-53
PROBLEM 6-5B (Continued)
(2) FIFO
(ii) Cost of Goods Sold
Cost of goods available
for sale
Less: Ending inventory
Cost of goods sold
(i) Ending Inventory
October 25 60 @ $28 = $1,680
(iii) Gross Profit
Sales revenue
Cost of goods sold
Gross profit
$10,300
7,070
$ 3,230
$ 8,750
1,680
$ 7,070
(iv) Gross Profit Rate
Gross profit
$ 3,230
= 31.4%
Net sales
$10,300
(3) Average-Cost
Weighted-average cost per unit:
cost of goods available for sale
units available for sale
$8,750
330
(i)
Ending Inventory
60 @ $26.515 = $1,591*
*rounded to nearest dollar
(iii) Gross Profit
Sales revenue
Cost of goods sold
Gross profit
$10,300
7,159
$ 3,141
= $26.515
(ii) Cost of Goods Sold
Cost of goods available
for sale
Less: Ending inventory
Cost of goods sold
$8,750
1,591
$7,159
(iv) Gross Profit Rate
Gross profit $ 3,141
= 30.5%
Net sales
$10,300
(b) LIFO produces the lowest ending inventory value, gross profit, and
gross profit rate because its cost of goods sold is higher than FIFO or
average-cost.
6-54
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
PROBLEM 6-6B
(a) (1) To maximize gross profit, Princess Diamonds should sell the
diamonds with the lowest cost.
Sale Date
March 5
March 25
Cost of Goods Sold
150 @ $300
$ 45,000
30 @ $360
10,800
170 @ $360
61,200
230 @ $380
87,400
580
$204,400
Sales Revenue
180 @ $600
$108,000
400 @ $650
260,000
580
$368,000
Gross profit $368,000 – $204,400 = $163,600.
(2) To minimize gross profit, Princess Diamonds should sell the diamonds
with the highest cost.
Sale Date
March 5
March 25
Cost of Goods Sold
180 @ $360
$ 64,800
350 @ $380
133,000
20 @ $360
7,200
30 @ $300
9,000
580
$214,000
Sales Revenue
180 @ $600
$108,000
400 @ $650
260,000
580
$368,000
Gross profit $368,000 – $214,000 = $154,000.
(b) FIFO
Cost of goods available for sale
March 1 Beginning inventory
3 Purchase
10 Purchase
Goods available for sale
Units sold
Ending inventory
Copyright © 2013 John Wiley & Sons, Inc.
150 @ $300
200 @ $360
350 @ $380
700
$ 45,000
72,000
133,000
$250,000
700
580
120 @ $380
$45,600
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
6-55
PROBLEM 6-6B (Continued)
Goods available for sale
– Ending inventory
Cost of goods sold
$250,000
45,600
$204,400
Gross profit: $368,000 – $204,400 = $163,600.
(c) LIFO
Cost of goods available for sale
(from part b)
– Ending inventory
120 @ $300
Cost of goods sold
$250,000
36,000
$214,000
Gross profit: $368,000 – $214,000 = $154,000.
(d) The choice of inventory method depends on the company’s objectives.
Since the diamonds are marked and coded, the company could use specific
identification. This could, however, result in “earnings management” by
the company because, as shown, it could carefully choose which diamonds
to sell to result in the maximum or minimum income. Employing a cost
flow assumption, such as LIFO or FIFO, would reduce record-keeping
costs. FIFO would result in higher income, but LIFO would reduce
income taxes and provide better matching of current sales revenue
with current costs.
6-56
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
PROBLEM 6-7B
(a)
Chelsea INC.
Condensed Income Statement
For the Year Ended December 31, 2014
FIFO
Sales revenue.............................................
Cost of goods sold
Beginning inventory ...........................
Cost of goods purchased ...................
Cost of goods available for sale ........
Ending inventory .................................
Cost of goods sold ..............................
Gross profit ................................................
Operating expenses ..................................
Income before income taxes ....................
Income tax expense (28%) ........................
Net income .................................................
LIFO
$665,000
$665,000
35,000
504,500
539,500
a
133,500
406,000
259,000
130,000
129,000
36,120
$ 92,880
35,000
504,500
539,500
b
115,000
424,500
240,500
130,000
110,500
30,940
$ 79,560
a
(25,000 @ $4.50) + ( 5,000 @ $4.20) = $133,500.
(10,000 @ $3.50) + (20,000 @ $4.00) = $115,000.
b
(b) Answers to questions:
(1) The FIFO method produces the most meaningful inventory amount
for the balance sheet because the units are costed at the most
recent purchase prices.
(2) The LIFO method produces the most meaningful net income because
the costs of the most recent purchases are matched against
sales.
(3) The FIFO method is most likely to approximate actual physical
flow because the oldest goods are usually sold first to minimize
spoilage and obsolescence.
(4) There will be $5,180 additional cash available under LIFO because
income taxes are $30,940 under LIFO and $36,120 under FIFO.
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
6-57
PROBLEM 6-7B (Continued)
(5) The illusionary gross profit is $18,500 or ($259,000 – $240,500). Under
LIFO, Chelsea Inc. has recovered the current replacement cost of
the units ($424,500), whereas under FIFO, it has only recovered
the earlier costs ($406,000). This means that under FIFO the
company must reinvest $18,500 of the gross profit to replace the
units used.
Answer in business letter form:
Dear Chelsea Inc.
After preparing the comparative condensed income statements for
2014 under FIFO and LIFO methods, we have found the following:
The FIFO method produces the most meaningful inventory amount
for the balance sheet because the units are costed at the most
recent purchase prices. This method is most likely to approximate
actual physical flow because the oldest goods are usually sold
first to minimize spoilage and obsolescence.
The LIFO method produces the most meaningful net income because
the costs of the most recent purchases are matched against sales.
There will be $5,180 additional cash available under LIFO because
income taxes are $30,940 under LIFO and $36,120 under FIFO.
There exists an illusionary gross profit of $18,500 ($259,000 –
$240,500) under FIFO. Under LIFO, you have recovered the current
replacement cost of the units ($424,500) whereas under FIFO you
have only recovered the earlier costs ($406,000). This means that
under FIFO, the company must reinvest $18,500 of the gross profit
to replace the units sold.
Sincerely,
6-58
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
*PROBLEM 6-8B
(a)
Sales:
Date
January 6
January 9 (return)
January 10
January 30
Total sales
(1) LIFO
Date
150
(10
60
110
units @ $40
units @ $40)
units @ $45
units @ $50
Purchases
$ 6,000
(400)
2,700
5,500
$13,800
Cost of Goods Sold
January 1
January 2
January 6
(100 @ $21) $2,100
(100 @ $21)
( 50 @ $17)
}
$2,950
January 9 ( 80 @ $24) $1,920
January 9
January 10 (–10 @ $24) ($ 240)
(–10 @ $17)
($ 170)
January 10
( 60 @ $24)
$1,440
January 23
(100 @ $28) $2,800
January 30
(100 @ $28)
( 10 @ $24)
}
$3,040
Balance
(160 @ $17)
(160 @ $17)
(100 @ $21)
(110 @ $17)
(120 @ $17)
( 80 @ $24)
(120 @ $17)
( 70 @ $24)
(120 @ $17)
( 10 @ $24)
(120 @ $17)
( 10 @ $24)
(100 @ $28)
(120 @ $17)
$2,720
} $4,820
$1,870
} $3,960
} $3,720
} $2,280
}
$5,080
$2,040
$7,260
(i) Cost of goods sold: = $7,260. (ii) Ending inventory = $2,040. (iii) Gross
profit = $13,800 – $7,260 = $6,540
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
6-59
*PROBLEM 6-8B (Continued)
(2) FIFO
Date
Purchases
Cost of Goods Sold
January 1
January 2
January 6
January 9
January 9
(100 @ $21) $2,100
(150 @ $17)
$2,550
(–10 @ $17)
($ 170)
( 80 @ $24) $1,920
January 10
January 10
(–10 @ $24) ($ 240)
January 23
(100 @ $28) $2,800
( 20 @ $17)
( 40 @ $21)
January 30
( 60 @ $21)
( 50 @ $24)
} $1,180
} $2,460
Balance
(160 @ $17)
(160 @ $17)
(100 @ $21)
( 10 @ $17)
(100 @ $21)
( 20 @ $17)
(100 @ $21)
( 80 @ $24)
( 20 @ $17)
(100 @ $21)
( 70 @ $24)
( 60 @ $21)
( 70 @ $24)
( 60 @ $21)
( 70 @ $24)
(100 @ $28)
( 20 @ $24)
(100 @ $28)
$2,720
}
}
}
}
$4,820
$2,270
$4,360
$4,120
}
$2,940
}
$5,740
}
$3,280
$6,020
(i) Cost of goods sold = $6,020. (ii) Ending inventory = $3,280. (iii) Gross
profit = $13,800 – $6,020 = $7,780.
(3) Moving-Average
Date
January 1
January 2
January 6
January 9
January 9
January 10
January 10
January 23
January 30
Purchases
Cost of goods sold
(100 @ $21) $2,100
(150 @ $18.538) $2,781
(–10 @ $18.538) ($ 185)
( 80 @ $24) $1,920
(–10 @ $24) ($ 240)
( 60 @ $20.547) $1,233
(100 @ $28) $2,800
(110 @ $23.787) $2,617
$6,446
a
c
b
d
$4,820 ÷ 260 = $18.538
$4,144 ÷ 200 = $20.72
Balance
(160 @ $17)
(260 @ $18.538)a
(110 @ $18.538)
(120 @ $18.538)
(200 @ $20.72) b
(190 @ $20.547) c
(130 @ $20.547)
(230 @ $23.787) d
(120 @ $23.787)
$2,720
$4,820
$2,039
$2,224
$4,144
$3,904
$2,671
$5,471
$2,854
$3,904 ÷ 190 = $20.547
$5,471 ÷ 230 = $23.787
(i) Cost of goods sold = $6,446. (ii) Ending inventory = $2,854. (iii) Gross
profit = $13,800 – $6,446 = $7,354.
6-60
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
*PROBLEM 6-8B (Continued)
(b)
Gross profit:
Sales
Cost of goods sold
Gross profit
Ending inventory
LIFO
$13,800
7,260
$ 6,540
$ 2,040
FIFO
$13,800
6,020
$ 7,780
$ 3,280
Moving-Average
$13,800
6,446
$ 7,354
$ 2,854
In a period of rising costs, the LIFO cost flow assumption results in the
highest cost of goods sold and lowest gross profit. FIFO gives the
lowest cost of goods sold and highest gross profit. The moving
average cost flow assumption results in amounts between the other two.
On the balance sheet, FIFO gives the highest ending inventory (representing the most current costs); LIFO gives the lowest ending inventory
(representing the oldest costs); and the moving average-cost results in
an ending inventory falling between the other two.
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
6-61
*PROBLEM 6-9B
(a) (1)
FIFO
Date
May 1
4
8
Cost of
Goods Sold
Purchases
(7 @ $150)
$1,050
(4 @ $150)
(8 @ $170)
(3 @ $150)
(2 @ $170)
(6 @ $185)
$600
$1,360
12
15
Balance
}
$790
$1,110
20
(3 @ $170)
$510
25
(3 @ $170)
(1 @ $185)
} $695
(2)
(7 @ $150)
(3 @ $150)
(3 @ $150)
(8 @ $170)
$1,050
$ 450
} $1,810
(6 @ $170)
(6 @ $170)
(6 @ $185)
(3 @ $170)
(6 @ $185)
$1,020
} $2,130
} $1,620
(5 @ $185)
$ 925
MOVING-AVERAGE COST
Date
May 1
4
8
12
15
20
25
Purchases
(7 @ $150)
(8 @ $170)
(6 @ $185)
Cost of
Goods Sold
Balance
$1,050
(4 @ $150)
$600
(5 @ $164.55)
$823
(3 @ $174.75)
(4 @ $174.75)
$524
$699
$1,360
$1,110
( 7 @ $150)
( 3 @ $150)
(11 @ $164.55)*
( 6 @ $164.55)
(12 @ $174.75)**
( 9 @ $174.75)
( 5 @ $174.75)
$1,050
$ 450
$1,810
$ 987
$2,097
$1,573
$ 874
*Average-cost = $1,810 ÷ 11 (rounded)
**$2,097 ÷ 12
6-62
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
*PROBLEM 6-9B (Continued)
(3)
LIFO
Date
May 1
4
8
Purchases
(7 @ $150)
$1,050
(4 @ $150)
(8 @ $170)
(5 @ $170)
(6 @ $185)
$600
$1,360
12
15
Cost of
Goods Sold
$850
$1,110
20
(3 @ $185)
$555
25
(3 @ $185)
(1 @ $170)
} $725
Balance
(7 @ $150)
(3 @ $150)
(3 @ $150)
(8 @ $170)
(3 @ $150)
(3 @ $170)
(3 @ $150)
(3 @ $170)
(6 @ $185)
(3 @ $150)
(3 @ $170)
(3 @ $185)
(3 @ $150)
(2 @ $170)
$1,050
$ 450
}
}
}
}
}
$1,810
$ 960
$2,070
$1,515
$ 790
(b) (1) The highest ending inventory is $925 under the FIFO method.
(2) The lowest ending inventory is $790 under the LIFO method.
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
6-63
*PROBLEM 6-10B
(a)
February
$300,000
Net sales ..................................................
Cost of goods sold
Beginning inventory .......................
$ 4,500
Net purchases ................................. $176,800
Add: Freight-in ...............................
3,900
Cost of goods purchased ..............
180,700
Cost of goods available for sale ....
185,200
Ending inventory ............................
20,200
Cost of goods sold ..................
165,000
Gross profit ..............................................
$135,000
Gross profit rate =
$135,000
= 45%
$300,000
(b) Net sales ..............................................................
Less: Estimated gross profit
(45% X $250,000) ......................................
Estimated cost of goods sold ............................
Beginning inventory............................................
Net purchases .....................................................
Add: Freight-in ...................................................
Cost of goods purchased ...................................
Cost of goods available for sale ........................
Less: Estimated cost of goods sold .................
Estimated total cost of ending
inventory ..........................................................
Less: Inventory not lost
(30% X $24,700) ...............................................
Estimated inventory lost in fire
(70% X $24,700) ..............................................
6-64
Copyright © 2013 John Wiley & Sons, Inc.
$250,000
112,500
$137,500
$ 20,200
$139,000
3,000
Weygandt, Accounting Principles, 11/e, Solutions Manual
142,000
162,200
137,500
24,700
7,410
$ 17,290
(For Instructor Use Only)
*PROBLEM 6-11B
(a)
Sporting
Goods
Cost
Beginning inventory
Purchases
Purchase returns
Purchase discounts
Freight-in
Goods available for sale
Net sales
Ending inventory at retail
Jewelry
and Cosmetics
Retail
$ 47,360 $ 74,000
675,000
1,066,000
(26,000)
(40,000)
(12,360)
9,000
$693,000
1,100,000
(1,000,000)
$ 100,000
Cost
Retail
$ 39,440 $ 62,000
741,000
1,158,000
(12,000)
(20,000)
(2,440)
14,000
$780,000
1,200,000
(1,160,000)
$ 40,000
Cost-to-retail ratio:
Sporting Goods—$693,000 ÷ $1,100,000 = 63%.
Jewelry and Cosmetics—$780,000 ÷ $1,200,000 = 65%.
Estimated ending inventory at cost:
$100,000 X 63% = $63,000—Sporting Goods.
$ 40,000 X 65% = $26,000—Jewelry and Cosmetics.
(b) Sporting Goods—$95,000 X 60% = $57,000.
Jewelry and Cosmetics—$44,000 X 64% = $28,160.
Copyright © 2013 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 11/e, Solutions Manual
(For Instructor Use Only)
6-65