EXERCISES
PE PRACTICE 61A Gross Profit a. First-in, first-out (FIFO) $35 ($150 $115) $29 ($150 $121) $32 ($150 $118) Ending Inventory $239 ($118 + $121) $233 ($115 + $118) $236 ($118 2)
b. Last-in, first-out (LIFO) c. Average cost
PE 61B
a. First-in, first-out (FIFO) Gross Profit $12 ($100 $88) $18 ($100 $82) $15 ($100 $85) Ending Inventory $167 ($85 + $82) $173 ($88 + $85) $170 ($85 2)
b. Last-in, first-out (LIFO) c. Average cost
PE 62A
a. Cost of merchandise sold (August 30): 13 units @ $34 7 units @ $38 20 b. Inventory, August 31: $570 = (15 units $38) $442 266 $708
PE 62B
a. Cost of merchandise sold (March 29): 5 units @ $10 35 units @ $14 40 b. Inventory, March 31: $308 = (22 units $ 14) $ 50 490 $540
PE 63A
a. Cost of merchandise sold (August 30): $760 = (20 units $38) b. Inventory, August 31: 13 units @ $34 2 units @ $38 15 $442 76 $518
PE 63B
a. Cost of merchandise sold (March 29): $560 = (40 units $14) b. Inventory, March 31: 5 units @ $10 17 units @ $14 22 $ 50 238 $288
PE 64A
a. First-in, first-out (FIFO) method: $720 = (20 units $36)
b. Last-in, first-out (LIFO) method: $540 = (12 units $25) + (8 units $30) c. Average cost method: $645 (20 units $32.25), where average cost = $32.25 = $2,580/80 units
PE 64B
a. First-in, first-out (FIFO) method: $9,550 = (36 units $250) + (2 units $275)
b. Last-in, first-out (LIFO) method: $10,900 = (18 units $300) + (20 units $275) c. Average cost method: $10,279 (38 units $270.50), where average cost = $270.50 = $27,050/100 units
PE 65A
A B Inventory Quantity C Unit Cost Price D Unit Market Price E F Total Market G Lower of C or M
Commodity
1 2 3
Cost
TRP4 V555 Total
96 200
$29 13
18 14
$2,784 2,600 $5,384
$1,728 2,800 $4,528
$1,728 2,600 $4,328
1 2 3
PE 65B
A B Inventory Quantity C Unit Cost Price D Unit Market Price E F Total Market G Lower of C or M
Commodity
1 2 3
Cost
E662 C11R Total
215 741
$30 22
$28 26
$ 6,450 16,302 $ 22,752
$ 6,020 19,266 $ 25,286
$ 6,020 16,302 $ 22,322
1 2 3
PE 66A
Amount of Misstatement Overstatement (Understatement) Balance Sheet: Merchandise inventory understated ............. Current assets understated........................... Total assets understated ............................... Stockholders' equity understated ................ Income Statement: Cost of merchandise sold overstated .......... Gross profit understated ............................... Net income understated ................................ $(9,000) (9,000) (9,000) (9,000) $ 9,000 (9,000) (9,000)
PE 66B Amount of Misstatement Overstatement (Understatement) Balance Sheet: Merchandise inventory overstated ............... Current assets overstated ............................. Total assets overstated ................................. Stockholders' equity overstated ................... Income Statement: Cost of merchandise sold understated ........ Gross profit overstated.................................. Net income overstated ................................... $ 29,000 29,000 29,000 29,000 $(29,000) 29,000 29,000
PE 67A
$540,000 ($675,000 80%)
PE 67B
$182,000 ($280,000 65%)
PE 68A
Merchandise available for sale........................................................... Less cost of merchandise sold [$1,500,000 (100% 35%)] .......... Estimated ending merchandise inventory ........................................ $1,380,000 975,000 $ 405,000
PE 68B
Merchandise available for sale........................................................... Less cost of merchandise sold [$800,000 (100% 36%)] ............. Estimated ending merchandise inventory ........................................ $700,000 512,000 $188,000
Ex. 66
Purchases Unit Quantity Cost Cell Phones Cost of Merchandise Sold Unit Total Quantity Cost Cost Inventory Unit Cost
Date
Total Cost
Quantity
Total Cost
July
1 3 7 13 21 31 31
80
32
2,560 72 28 52 30 30 32 2,160 840 1,664
100 100 80 28 80 28 28 60 56
30 30 32 30 32 32 32 33 33
3,000 3,000 2,560 840 2,560 896 896 1,980 1,848 1,848
60
33
1,980 28 4 32 33 896 132 5,692
Balances
Ex. 67
a. $5,040 ($72 70 units)
b. $4,600 [($60 25 units) + ($65 20 units) + ($72 25 units)] = $1,500 + $1,300 + $1,800
Ex. 68
a. $1,788 (24 units at $55 plus 9 units at $52) = $1,320 + $468 b. $1,410 (18 units at $40 plus 15 units at $46) = $720 + $690 c. $1,617 (33 units at $49; $5,880/120 units = $49) Cost of merchandise available for sale: 18 units at $40 .......................................................... $ 720 36 units at $46 .......................................................... 1,656 42 units at $52 .......................................................... 2,184 24 units at $55 .......................................................... 1,320 120 units (at average cost of $49) ............................ $5,880
Ex. 69
Cost Inventory Method a. FIFO ..................... b. LIFO ..................... c. Average cost ....... Merchandise Inventory $9,760 8,400 9,100 Merchandise Sold $29,240 30,600 29,900 $10,080 15,080 5,440 8,400 $39,000
Cost of merchandise available for sale: 168 units at $60 .......................................................... 232 units at $65 .......................................................... 80 units at $68 .......................................................... 120 units at $70 .......................................................... 600 units (at average cost of $65) ............................ a. First-in, first-out: Merchandise inventory: 120 units at $70 .......................................................... units 20 at $68 .......................................................... 140 units ..................................................................... Merchandise sold: $39,000 $9,760 .......................................................
$8,400 1,360 $9,760 $29,240
b. Last-in, first-out: Merchandise inventory: 140 units at $60 .......................................................... Merchandise sold: $39,000 $8,400 ....................................................... c. Average cost: Merchandise inventory: 140 units at $65 ($39,000/600 units) ......................... Merchandise sold: $39,000 $9,100 .......................................................
$8,400 $30,600
$9,100 $29,900
Ex. 610
1. a. b. c. d. FIFO inventory FIFO cost of goods sold FIFO net income FIFO income tax > (greater than) < (less than) > (greater than) > (greater than) LIFO inventory LIFO cost of goods sold LIFO net income LIFO income tax
2.
In periods of rising prices, the income shown on the company's tax return would be lower than if FIFO were used; thus, there is a tax advantage of using LIFO.
Ex. 620
a. Number of Days' Sales in Inventory =
Average Inventory Cost of Goods Sold/365
40 days
Albertson's,
$3,162 $3,104 / 2 $3,133
$28,711/36 5 78.7
$42,140/36 5 115 .5
Kroger,
$4,356 $4,169 / 2 $4,262 .5
$25,228/36 5 69.1
37 days
Safeway,
$2,741 $2,642 / 2 $2,691 .5
Cost of Goods Sold Average Inventory
39 days
Inventory Turnover =
Albertson's,
$28,711 9.2 ($3,162 $3,104)/2
Kroger,
$42,140 9.9 ($4,356 $4,169)/2 $25,228 9.4 ($2,741 $2,642)/2
Safeway,
b. The number of days' sales in inventory and inventory turnover ratios are consistent. Albertson's has slightly more inventory than does Safeway. Kroger has relatively less inventory (23 days) than does Albertson's and Safeway.
Ex. 620
c.
Concluded
If Albertson's matched Kroger's days' sales in inventory, then its hypothetical ending inventory would be determined as follows: Number of Days' Sales in Inventory =
Average Inventory Cost of Goods Sold/365
37 days =
X $28,711/36 5
X = 37 ($28,711/365) = 37 $78.7 per day X = $2,912 Thus, the additional cash flow that would have been generated is the difference between the actual average inventory and the hypothetical average inventory, as follows: Actual average inventory ......................... Hypothetical average inventory .............. Positive cash flow potential..................... $ 3,133 million 2,912 $ 221 million
That is, a lower average inventory amount would have required less cash than actually was required.
Prob. 63A
1. First-In, First-Out Method Model T742 Quantity Unit Cost Total Cost $ 280 405 2,331 540 390 256 552 170 1,260 175 404 100 $6,863
2 $140 3 135 PM18 9 259 K21G 6 90 H60W 3 130 2 128 B153Z 6 92 2 85 J600T 7 180 1 175 C273W 4 101 1 100 Total ............................................................... 2. Last-In, First-Out Method Model T742 Quantity Unit Cost
Total Cost $ 250 260 135 1,694 500 480 216 220 128 704 800 510 300 100 $6,297
2 $125 2 130 1 135 PM18 7 242 2 250 K21G 6 80 H60W 2 108 2 110 1 128 B153Z 8 88 J600T 5 160 3 170 C273W 4 75 1 100 Total ...............................................................
Prob. 63A
3.
Concluded
Average Cost Method Model Quantity Unit Cost* Total Cost $ 665 2,277 516 605 696 1,376 460 $6,595
T742 5 $133 PM18 9 253 K21G 6 86 H60W 5 121 B153Z 8 87 J600T 8 172 C273W 5 92 Total ............................................................... *Computations of unit costs:
T742: $133 = [(2 $125) + (2 $130) + (4 $135) + (2 $140)]/(2 + 2 + 4 + 2) PM18: $253 = [(7 $242) + (6 $250) + (5 $260) + (10 $259)]/(7 + 6 + 5 + 10) K21G: $86 = [(6 $80) + (5 $82) + (8 $89) + (8 $90)]/(6 + 5 + 8 + 8) H60W: $121 = [(2 $108) + (2 $110) + (3 $128) + (3 $130)]/(2 + 2 + 3 + 3) B153Z: $87 = [(8 $88) + (4 $79) + (3 $85) + (6 $92)]/(8 + 4 + 3 + 6) J600T: $172 = [(5 $160) + (4 $170) + (4 $175) + (7 $180)]/(5 + 4 + 4 + 7) C273W: $92 = [(4 $75) + (4 $100) + (4 $101)]/(4 + 4 + 4) 4. a. During periods of rising prices, the LIFO method will result in a lesser amount of inventory, a greater amount of cost of merchandise sold, and a lesser amount of net income than the other two methods. For Del Mar Appliances, the LIFO method would be preferred for the current year, since it would result in a lesser amount of income tax. During periods of declining prices, the FIFO method will result in a lesser amount of net income and would be preferred for income tax purposes.
b.
Prob. 64A
A B C D E F G
Inventory Sheet December 31, 2008 Inventory Quantity 38 25 13 18 30 Unit Cost Price $ 60 58 175 130 128 25 565 560 15 385 6 22 21 250 260 20 19 750 740 Unit Market Price $ 56 Total Cost $ 1,500 754 2,254 3,150 2,340 1,536 3,876 3,125 5,650 4,480 10,130 900 1,925 2,250 1,760 210 1,970 1,250 260 1,510 2,000 760 2,760 6,750 4,440 11,190 $ 45,040 Market $ 1,400 728 2,128 3,240 2,160 1,440 3,600 3,250 5,500 4,400 9,900 900 1,950 2,250 1,440 180 1,620 1,175 235 1,410 1,800 720 2,520 6,705 4,470 11,175 $ 43,943 Lower of C or M
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27
Description AC172
$
BE43 CJ9
18 12
180 120
2,128 3,150
E34 F17
125 18
10 8
26 550
3,600 3,125
G68 K41 Q79 RZ13
60 5 375 90
80 10 5 1 100 40 9 6
15 390 6 18
9,900 900 1,925 2,250
1,620
S60
6
235
1,410
W21
140
18
2,520
XR90
15
745
Total
11,175 $ 43,703