Inventory Costing Methods Facts
Units
25
50
65
40
180
-130
50
Beginning Inventory, December 31
Purchase - January 5
Purchase - January 15
Purchase - January 25
Goods available for sale
Goods sold
Ending inventory, January 31
Cost
$100.00 $
$90.00 $
$95.00 $
$105.00 $
Cost
2,500.00
4,500.00
6,175.00
4,200.00
$
17,375.00
FIFO -- Solution
Beginning Inventory, December 31
Purchase - January 5
Partial purchase - January 15
Cost of Goods sold:
25
50
55
130
$100.00
$90.00
$95.00
Partial purchase - January 15
Purchase - January 25
Ending inventory:
10
40
50
$95.00
$105.00
$2,500.00
$4,500.00
$5,225.00
$12,225.00
$950.00
$4,200.00
$5,150.00
Goods sold
Cost of ending inventory
Cost of goods available for sale
FIFO IS FIRST IN FIRST OUT
COGS
ENDING INV
$12,225.00
$5,150.00
$17,375.00
Inventory Costing Methods Facts
Units
25
50
65
40
180
-130
50
Beginning Inventory, December 31
Purchase - January 5
Purchase - January 15
Purchase - January 25
Goods available for sale
Goods sold
Ending inventory, January 31
Cost
$100.00 $
$90.00 $
$95.00 $
$105.00 $
Cost
2,500.00
4,500.00
6,175.00
4,200.00
$
17,375.00
LIFO--solution
Purchase - January 25
Purchase - January 15
Partial purchase - January 5
Cost of Goods sold:
Units
40
65
25
130
Cost
$105.00
$95.00
$90.00
Partial purchase - January 5
Beginning Inventory, December 31
Ending inventory:
25
25
50
$90.00
$100.00
Cost of goods sold
Cost of ending inventory
Cost of goods available for sale
Cost
$4,200.00
$6,175.00
$2,250.00
$12,625.00
$2,250.00
$2,500.00
$4,750.00
$12,625.00
$4,750.00
$17,375.00
LAST IN FIRST OUT
COGS
End Inv
Inventory Costing Methods Facts
Units
25
50
65
40
180
-130
50
Beginning Inventory, December 31
Purchase - January 5
Purchase - January 15
Purchase - January 25
Goods available for sale
Goods sold
Ending inventory, January 31
Cost
$100.00 $
$90.00 $
$95.00 $
$105.00 $
$
Cost
2,500.00
4,500.00
6,175.00
4,200.00
17,375.00
Weighted average cost method--solution
Weighted average cost per unit = $17,375.00/180=
96.53
Goods available for sale
180
$96.53
$17,375.40
Cost of Goods sold
Ending inventory
Goods available for sale
130
50
180
$96.53
$96.53
$96.53
$12,548.90
$4,826.50
$17,375.40
Katie's Sporting Goods Store values their ending inventory using the
lower of cost or market value. The following are the facts of
inventory items.
Unit
Market
Unit
Total
Total
(NRV)
Market
Item
Quantity Cost
Price
Cost
(NRV)
Sporting
goods:
Tennis
25
$40.00
$50.00
$1,000
$1,250
Rackets
Tennis balls
450
$2.00
$1.00
Subtotal
Women's
Accessorie
s:
Hand
Cream
$900
$450
$1,900
$1,700
Major
Item
Category
Total
$1,000
$450
$1,700
350
$3.00
$4.00
$1,050
$1,400
$1,050
Liquid Soap
550
$2.00
$1.00
$1,100
$550
$550
Bath puff
650
$0.50
$0.60
$325
$390
$325
Subtotal
$2,475
$2,340
Total
$4,375
$4,040
$2,340
$3,375
$4,040
$4,040
Complete the T-account and journal entry below using the LCM for Major Category Basis
based on your above analysis to value ending inventory.
MAJOR CATEGORY BASIS
INVENTORY
Journal Entry
4375
335
4040
Description
Loss on the write down of inventory
Inventory
Debit
Credit
335
335
335
Complete the T-account and journal entry below using the LCM for Item Basis
based on your above analysis to value ending inventory.
ITEM BASIS
INVENTORY
Journal Entry
4375
1000
3375
Description
Loss on the write down of inventory
Inventory
Debit
Credit
1,000
1,000
TOTAL BASIS
INVENTORY
Journal Entry
4375
335
4040
No Entry Needed
Description
Loss on the write down of inventory
Inventory
Debit
Credit
335
335
Bank Reconciliation
The cash account for Pala Medical Co. at June 30, 20Y1, indicated a balance of $166,436.
The bank statement indicated a balance of $195,688 on June 30, 20Y1.
Comparing the bank statement and the accompanying canceled checks and
memos with the records revealed the following reconciling items:
a. Checks outstanding totaled $19,427.
b. A deposit of $12,300, representing receipts of June 30, had been made too late to appear on the bank statement.
c. The bank collected $26,500 on a $25,000 note, including interest of $1,500.
d. A check for $4,000 returned with the statement had been incorrectly recorded by Pala Medical Co. as $400.
The check was for the payment of an obligation to Skyline Supply Co. for a purchase on account.
e. A check drawn for $195 had been erroneously charged by the bank as $915.
f. Bank service charges for June amounted to $55.
CashCash
Balance
according
to bank statement
Balance
according
to the bank statement
Add:
Deposits in Transit
Bank error in charging check as $915 instead of $195
$195,688
$
$
12,300
720
$13,020 (total additions to bank balance)
Total additions
Deduct:
Outstanding Checks
($19,427) (total deductions from bank balance)
$189,281
Adjusted Balance per Bank
CashCash
Balance
according
to company's
records records
Balance
according
to the company's
Add:
Note collected by bank (including interest)
Deduct:
Error in recording check
Bank Service Charge
Total Deductions
Adjusted Balance per Books
$166,436
$26,500 (total additions to book balance)
$
$
(3,600)
(55)
($3,655) (total deductions from book balance)
$189,281
Direct Write-off vs. Allowance Method
Partial Chart of Accounts: Cash; Accounts Receivable-each person; Bad Debt Expense;
Allowance for Doubtful Accounts
The following selected transactions were taken from the records of CLB Corporation for the first ye
March 15: Wrote off Account of Pam Smith, $5,300.
June 18:
Aug 2:
Received $300 Partial Payment on $5,300 account of Trudy Patton. Wrote
Off the remaining balance as uncollectible.
Received $5,300 from Pam Smith, whose account had been written off on
March 15. Reinstated the account and recorded the cash receipt.
Dec 31: Wrote off the following accounts as uncollectible (one journal entry):
Sam Green
$ 2,000
Paul Ritchey $ 3,500
Gail Diamond $ 1,500
A. Journalize the transactions under the direct write-off method.
B. Journalize the transactions under the allowance method CLB Corporation uses the perc
Based on it’s history and industry averages, ½% of credit sales are expected to be uncolle
Direct Write Off Method – Answer to Part A
General Journal
Date
Description
Mar-15-21 Bad Debt Expense
Accounts Receivable—Pam Smith
Jun-18-21 Cash
Bad Debt Expense
Accounts Receivable—Trudy Patton
Page
Debit
5,300
5,300
300
5,000
5,300
Aug-02-21 Accounts Receivable—Pam Smith
A
Bad Debt Expense
5,300
B
5,300
Cash
Accounts Receivable—Pam Smith
Dec-31-21 Bad Debt Expense
Accounts Receivable—Sam Green
Accounts Receivable—Paul Ritchey
Accounts Receivable—Gail Diamond
Dec-31-21 No entry
Credit
5,300
5,300
7,000
2,000
3,500
1,500
Debit
Credit
8450
6600
Allowance Method – Answer to Part B
General Journal
Date
Description
Mar-15-21 Allowance for Doubtful Accounts
Accounts Receivable—Pam Smith
Jun-18-21 Cash
Allowance for Doubtful Accounts
Accounts Receivable—Trudy Patton
Page
Debit
5,300
5,300
300
5,000
0
Aug-02-21 Accounts Receivable—Pam Smith
A
Allowance for Doubtful Accounts
5,300
B
Cash
Accounts Receivable—Pam Smith
5,300
Dec-31-21 Allowance for Doubtful Accounts
Accounts Receivable—Sam Green
Accounts Receivable—Paul Ritchey
Accounts Receivable—Gail Diamond
7,000
Dec-31-21 Bad Debt Expense
Allowance for Doubtful Accounts
Uncollectible accounts estimate
($2,000,000 × 0.5% = $10,000).
10,000
Percent of Sales Method
Credit
5,300
5,300
5,300
2,000
3,500
1,500
10,000
3778000
10000 3/4 of a percent
37780000000
3778000
0.005
18890
Smith Builders purchased heavy equipment on January 8 for $380,000.
The equipment was expected to have a useful life of four years, or 30,000 operating hours, and a residual value of $20,000.
The equipment was used for 9,200 hours during Year 1; 8,400 hours in Year 2; 6,400 hours in Year 3; and 6,000 hours in Year 4.
Calculations:
Straight-line method:
($380,000 – $20,000) ÷ 4 = $90,000 each year
Units-of-activity method:
($380,000 – $20,000) ÷ 30,000 hours = $12.00 per hour
Year 1:
Year 2:
Year 3:
Year 4:
9,200 hours × $12.00 = $ 110,400
8,400 hours × $12.00 = $100,800
6,400 hours × $12.00 = $76,800
6,000 hours × $12.00 = $72,000
30000 hours total
Double-declining-balance method:
DDB Rate = 100%/4=25%X2 = 50%
DDB Rate = 100%/5=20%X2=40%
Year 1:
$380,000 × [50%] =
$190,000
50%
Year 2:
($380,000 – $190,000) × 50%] =
$ 95,000
50%
Year 3:
($380,000 – $190,000 – $95,000) × 50%] =
$47,500
50%
Year 4:
($380,000 – $190,000 – $95,000 – $47,500 – $20,000) =
$
27,500