Ex. 191
The following information is available for Yancey Company:
Beginning inventory 600 units at $4
First purchase 900 units at $6
Second purchase 500 units at $7.20
Assume that Waldrip uses a periodic inventory system and that there are 700 units left at the end of the month.
Instructions
Compute each of the following under the average-cost method:
(a) Cost of ending inventory.
(b) Cost of goods sold.
Ans: N/A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 7, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Ex. 192
Shanrock Company uses the periodic inventory method and had the following inventory information available:
Units Unit Cost Total Cost
1/1 Beginning Inventory 100 $4 $ 400
1/20 Purchase 400 $6 2,400
7/25 Purchase 200 $7 1,400
10/20 Purchase 300 $8 2,400
1,000 $6,600
A physical count of inventory on December 31 revealed that there were 400 units on hand.
Instructions
Answer the following independent questions and show computations supporting your answers.
1. Assume that the company uses the FIFO method. The value of the ending inventory at December 31 is $__________.
2. Assume that the company uses the Average-Cost method. The value of the ending inventory on December 31 is $__________.
3. Assume that the company uses the LIFO method. The value of the ending inventory on December 31 is $__________.
4. Determine the difference in the amount of income that the company would have reported if it had used the FIFO method instead of the LIFO method. Would income have been greater or less?
Ans: N/A, LO: 2, Bloom: AN, Difficulty: Hard, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Ex. 193
Lester Company sells many products. Hackenberry is one of its popular items. Below is an analysis of the inventory purchases and sales of Hackenberry for the month of March. Lester Company uses the periodic inventory system.
Purchases Sales
Units Unit Cost Units Selling Price/Unit
3/1 Beginning inventory 100 $40
3/3 Purchase 60 $50
3/4 Sales 70 $80
3/10 Purchase 200 $55
3/16 Sales 80 $90
3/19 Sales 60 $90
3/25 Sales 40 $90
3/30 Purchase 40 $65
Instructions
(a) Using the FIFO assumption, calculate the amount charged to cost of goods sold for March. (Show computations)
(b) Using the weighted average method, calculate the amount assigned to the inventory on hand on March 31. (Show computations)
(c) Using the LIFO assumption, calculate the amount assigned to the inventory on hand on March 31. (Show computations)
Ans: N/A, LO: 2, Bloom: AP, Difficulty: Hard, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Ex. 194
Gray Company uses the periodic inventory system to account for inventories. Information related to Gray Company’s inventory at October 31 is given below:
October 1 Beginning inventory 400 units @ $9.80 = $ 3,920
8 Purchase 800 units @ $10.40 = 8,320
16 Purchase 600 units @ $10.80 = 6,480
24 Purchase 200 units @ $11.80 = 2,360
Total units and cost 2,000 units $21,080
Instructions
1. Show computations to value the ending inventory using the FIFO cost assumption if 550 units remain on hand at October 31.
2. Show computations to value the ending inventory using the weighted-average cost method if 550 units remain on hand at October 31.
3. Show computations to value the ending inventory using the LIFO cost assumption if 550 units remain on hand at October 31.
Ans: N/A, LO: 2, Bloom: AP, Difficulty: Hard, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Ex. 195
Ford Co. uses a periodic inventory system. Its records show the following for the month of May, in which 75 units were sold.
Units Unit Cost Total Cost
May 1 Inventory 35 $ 8 $ 280
15 Purchases 30 12 360
24 Purchases 40 13 520
Totals 105 $1,160
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.
Ans: N/A, LO: 2, Bloom: AP, Difficulty: Hard, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Ex. 196
Washington Bottom Company reports the following for the month of June.
Units Unit Cost Total Cost
June 1 Inventory 300 $5 $1,500
12 Purchase 450 6 2,700
23 Purchase 750 8 6,000
30 Inventory 180
Instructions
(a) Compute the cost of the ending inventory and the cost of goods sold under (1) FIFO and (2) LIFO.
(b) Compute the cost of the ending inventory and the cost of goods sold using the average-cost method.
Ans: N/A, LO: 2, Bloom: AP, Difficulty: Hard, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Ex. 197
Queen Company is in the electronics industry and the price it pays for inventory is decreasing.
Instructions
Indicate which inventory method will:
a. provide the highest ending inventory.
b. provide the highest cost of goods sold.
c. result in the highest net income.
d. result in the lowest income tax expense.
e. produce the most stable earnings over several years.
Ans: N/A, LO: 3, Bloom: C, Difficulty: Easy, Min: 4, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Quantitative Methods
Ex. 198
Vance Company reported the following summarized annual data at the end of 2014:
Sales revenue $1,000,000
Cost of goods sold* 600,000
Gross margin 400,000
Operating expenses 250,000
Income before income taxes $ 150,000
*Based on an ending FIFO inventory of $250,000.
The income tax rate is 40%. The controller of the company is considering a switch from FIFO to LIFO. He has determined that on a LIFO basis, the ending inventory would have been $180,000.
Instructions
(a) Restate the summary information on a LIFO basis.
(b) What effect, if any, would the proposed change have on Vance’s income tax expense, net income, and cash flows?
(c) If you were an owner of this business, what would your reaction be to this proposed change?
Ans: N/A, LO: 3, Bloom: E, Difficulty: Medium, Min: 25, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Ex. 199
Compute the lower-of-cost-or-market valuation for Gantner Company’s total inventory based on the following:
Inventory Categories Cost Data Market Data
A $18,000 $16,900
B 13,900 14,600
C 21,000 20,500
Ans: N/A, LO: 4, Bloom: AN, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods
Ex. 200
The controller of Alt Company is applying the lower-of-cost-or-market basis of valuing its ending inventory. The following information is available:
Cost Market
Lawnmowers:
Self-propelled $14,800 $17,000
Push type 19,000 18,000
Total 33,800 35,000
Snowblowers:
Manual 29,800 31,000
Self-start 19,000 21,000
Total 48,800 52,000
Total inventory $82,600 $87,000
Instructions
Compute the value of the ending inventory by applying the lower-of-cost-or-market basis.
Ans: N/A, LO: 4, Bloom: AP, Difficulty: Medium, Min: 15, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods
Ex. 201
Nolen Company is preparing the annual financial statements dated December 31, 2014. Information about inventory stocked for regular sale follows:
Quantity Unit Cost Replacement Cost
Item on Hand When Acquired (market) at year end
A 50 $20 $19
B 100 45 45
C 20 59 62
D 40 40 36
Instructions
Compute the valuation for the December 31, 2014, inventory using the lower-of-cost-or-market basis.
Ans: N/A, LO: 4, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Ex. 202
Foley Company applied FIFO to its inventory and got the following results for its ending inventory.
DVRs 140 units at a cost per unit of $59
DVD players 210 units at a cost per unit of $75
iPods 175 units at a cost per unit of $80
The cost of purchasing units at year-end was DVRs $71, DVD players $68, and iPods $78.
Instructions
Determine the amount of ending inventory at lower-of-cost-or-market.
Ans: N/A, LO: 4, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Ex. 203
Morton Watch Company reported the following income statement data for a 2-year period.
2014 2015
Sales revenue $260,000 $320,000
Cost of goods sold
Beginning inventory 32,000 44,000
Cost of goods purchased 193,000 225,000
Cost of goods available for sale 225,000 269,000
Ending inventory 44,000 57,000
Cost of goods sold 181,000 212,000
Gross profit $ 79,000 $108,000
Mortan uses a periodic inventory system. The inventories at January 1, 2014, and December 31, 2015, are correct. However, the ending inventory at December 31, 2014, was overstated $5,000.
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?
Ans: N/A, LO: 5, Bloom: AN, Difficulty: Hard, Min: 15, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Ex. 204
Wellington Company reported net income of $60,000 in 2014 and $80,000 in 2015. However, ending inventory was overstated by $7,000 in 2014.
Instructions
Compute the correct net income for Wellington Company for 2014 and 2015.
Ans: N/A, LO: 5, Bloom: AP, Difficulty: Medium, Min: 6, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Ex. 205
For each of the independent events listed below, analyze the impact on the indicated items at the end of the current year by placing the appropriate code letter in the box under each item.
Code: O = item is overstated
U = item is understated
NA = item is not affected
| Events |
Items |
| Assets |
Owner’s Equity |
Cost of Goods Sold |
Net Income |
| 1. A physical count of goods on hand at the end of the current year resulted in some goods being counted twice. |
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| 2. The ending inventory in the previous period was overstated. |
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| 3. Goods purchased on account in December of the current year and shipped FOB shipping point were recorded as purchases, but were not included in the count of goods on hand on December 31 because they had not arrived by December 31. |
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| 4. Goods purchased on account in December of the current year and shipped FOB destination were recorded as purchases, but were not included in the count of goods on hand on December 31 because they had not arrived by December 31. |
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| 5. The internal auditors discovered that theendinginventory in the previous period wasunderstated $17,000 and that the ending inventory in the current period was overstated $27,000. |
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Ans: N/A, LO: 5, Bloom: AN, Difficulty: Medium, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Ex. 206
Baden’s Hardware Store prepared the following analysis of cost of goods sold for the previous three years:
2013 2014 2015
Beginning inventory 1/1 $40,000 $18,000 $25,000
Cost of goods purchased 50,000 55,000 70,000
Cost of goods available for sale 90,000 73,000 95,000
Ending inventory 12/31 18,000 25,000 40,000
Cost of goods sold $72,000 $48,000 $55,000
Net income for the years 2013, 2014, and 2015 was $70,000, $60,000, and $55,000, respectively. Since net income was consistently declining, Mr.Baden hired a new accountant to investigate the cause(s) for the declines.
The accountant determined the following:
1. Purchases of $25,000 were not recorded in 2013.
2. The 2013 December 31 inventory should have been $24,000.
3. The 2014 ending inventory included inventory costing $5,000 that was purchased FOB destination and in transit at year end.
4. The 2015 ending inventory did not include goods costing $4,000 that were shipped on December 29 to Sampson Plumbing Company, FOB shipping point. The goods were still in transit at the end of the year.
Instructions
Determine the correct net income for each year. (Show all computations.)
Ans: N/A, LO: 5, Bloom: AN, Difficulty: Hard, Min: 25, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Ex. 207
Galena Pharmacy reported cost of goods sold as follows:
2014 2015
Beginning inventory $ 54,000 $ 64,000
Cost of goods purchased 847,000 891,000
Cost of goods available for sale 901,000 955,000
Ending inventory 64,000 55,000
Cost of goods sold $837,000 $900,000
Jim Holt, the bookkeeper, made two errors:
(1) 2014 ending inventory was overstated by $7,000.
(2) 2015 ending inventory was understated by $16,000.
Instructions
Assuming the errors had not been corrected, indicate the dollar effect that the errors had on the items appearing on the financial statements listed below. Also indicate if the amounts are overstated (O) or understated (U).
2014 2015
Overstated/ Overstated/
Amount Understated Amount Understated
Total assets $_________ _______ $_________ _______
Owner’s equity $_________ _______ $_________ _______
Cost of goods sold $_________ _______ $_________ _______
Net income $_________ _______ $_________ _______
Ans: N/A, LO: 5, Bloom: AN, Difficulty: Hard, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Ex. 208
This information is available for Eaton’s Photo Corporation for 2014 and 2015.
2014 2015
Beginning inventory $ 200,000 $ 300,000
Ending inventory 300,000 380,000
Cost of goods sold 1,150,000 1,330,000
Sales revenue 1,600,000 1,900,000
Instructions
Calculate inventory turnover, days in inventory, and gross profit rate for Eaton’s Photo Corporation for 2014 and 2015. Comment on any trends.
Ans: N/A, LO: 6, Bloom: AP, Difficulty: Hard, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Ex. 209
The following information is available for Heller Company:
Beginning inventory $ 60,000
Cost of goods sold 640,000
Ending inventory 100,000
Sales revenue 1,000,000
Instructions
Compute each of the following:
(a) Inventory turnover.
(b) Days in inventory.
Ans: N/A, LO: 6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting
aEx. 210
Winsor Company uses the perpetual inventory system and the LIFO method. The following information is available for the month of May:
May 1 Beginning inventory 20 units @ $5
10 Purchase 20 units @ $8
15 Sales 15 units
18 Purchase 10 units @ $9
21 Sales 15 units
30 Purchase 10 units @ $10
Instructions
Prepare a schedule to show cost of goods sold and the value of the ending inventory for the month of May.
Ans: N/A, LO: 7, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting
