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Wal-Mart Company uses LIFO to account for its inventories. Recent financial statements were used to compile the
following information (dollar figures are in millions):
Average inventory
(throughout...Wal-Mart Company uses LIFO to account for its inventories. Recent financial statements were used to compile the
following information (dollar figures are in millions):
Average inventory
(throughout the
year)
Current assets (at
year-end)
Current liabilities (at
year-end)
Net sales
Cost of goods sold
Gross profit
Average time
required to collect
outstanding
receivables

$

33,835
48,949
55,390
401,244
306,158
95,086
10days

Instructions
a. Using the information provided, compute the following measures based upon the LIFO method:
a-1 Compute the inventory turnover rate. (Round your answer to 2 decimal places.)
Inventory turnover rate

times

a-2 Compute the current ratio. (Round your answer to 2 decimal places.)
Current ratio

:1

a-3 Compute the gross profit rate. (Round your answer to 1 decimal place. Omit the "%" sign in your
response.)
Gross profit rate

%

Speed World Cycles sells high-performance motorcycles and motocross racers. One of Speed World's most popular
models is the Kazomma 900 dirt bike. During the current year, Speed World purchased eight of these cycles at the
following costs:
Purch Units
ase Purch Unit
Date ased Cost
Total Cost
July 1
2
$ 4,950
$ 9,900
July
15,00
3
5,000
22
0

Aug.
3

3

15,30
0

5,100

8

$

40,20
0

On July 28, Speed World sold four Kazomma 900 dirt bikes to the Vince Wilson racing team. The remaining four
bikes remained in inventory at September 30, the end of Speed World's fiscal year.
Assume that Speed World uses a periodic inventory system.
a. Compute the cost of goods sold relating to the sale on July 28 and the ending inventory of Kazomma 900 dirt
bikes at September 30, using the following cost flow assumptions:
1.
Average cost
2.
FIFO
3.
LIFO
Show the number of units and unit costs in each cost layer of the ending inventory. You may determine the cost
of goods sold by deducting ending inventory from the cost of goods available for sale. (Omit the "$" sign in
your response.)
Cost of goods sold
and ending inventory
Average-cost
method:
Ending inventory at
September 30:
Average cost
Ending inventory

a.
1.

Cost of goods sold
through September
30:
Cost of goods
available for sale
Less: Ending
inventory at
September 30
(above)
Cost of goods sold

2.

First-in, first-out
(FIFO) method:
Ending inventory at
September 30:
From purchase on
August 3
From purchase on
July 22

$
$

$

$

$

$
Cost of goods sold
through September
30:
Cost of goods
available for sale
Less: Ending
inventory at
September 30
(above)
Cost of goods sold

3.

Last-in, first-out
(LIFO) method:
Ending inventory at
September 30:
From purchase on
July 1
From purchase on
July 22
Ending inventory
Cost of goods sold:
Cost of goods
available for sale
Less: Ending
inventory at
September 30
(above)
Cost of goods sold

$

$

$

$

$

$

Problem 8.2A Alternative Cost Flow Assumptions in a Perpetual System L.O. 1
Speed World Cycles sells high-performance motorcycles and motocross racers. One of Speed World's most popular
models is the Kazomma 900 dirt bike. During the current year, Speed World purchased eight of these cycles at the
following costs:
Purch Units
ase Purch Unit
Date ased Cost
Total Cost
July 1
2
$ 4,950
$ 9,900
July
15,00
3
5,000
22
0
Aug.
15,30
3
5,100
3
0
8

$

40,20
0

On July 28, Speed World sold four Kazomma 900 dirt bikes to the Vince Wilson racing team. The remaining four
bikes remained in inventory at September 30, the end of Speed World's fiscal year.
Assume that Speed World uses a perpetual inventory system.
a(1) Compute the cost of goods sold relating to the sale on July 28 and the ending inventory of Kazomma 900 dirt
bikes at September 30, using average cost method. (Omit the "$" sign in your response.)
Cost of goods sold
Ending inventory

$
$

a(2) Compute the cost of goods sold relating to the sale on July 28 and the ending inventory of Kazomma 900 dirt
bikes at September 30, using FIFO method. (Omit the "$" sign in your response.)
Cost of goods sold
Ending inventory

$
$

a(3) Compute the cost of goods sold relating to the sale on July 28 and the ending inventory of Kazomma 900 dirt
bikes at September 30, using LIFO method. (Omit the "$" sign in your response.)

Cost of goods sold
Ending inventory

$
$

b(1) Which of the three cost flow assumptions will result in Speed World Cycles reporting the highest net income
for the current year?
LIFO
FIFO
Average cost
b(2) Which of the three cost flow assumptions will minimize the income taxes owed by Speed World Cycles for
the year?
Average cost
FIFO
LIFO
b(3) May Speed World Cycles use the cost flow assumption that results in the highest net income for the current
year in its financial statements, but use the cost flow assumption that minimizes taxable income for the
current year in its income tax return?
No
Yes

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