POA11e08

POA11e08 - CHAPTER 8Solutions INVENTORIES Chapter 8 SE 1 1...

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Ch8 SE1 to SE2 CHAPTER 8—Solutions INVENTORIES Chapter 8, SE 1. 1. c 3. d 5. a 2. c 4. b Chapter 8, SE 2. Inventory Turnover = Cost of Goods Sold Average Inventory = \$4,400,000 ( \$1,120,000 + \$960,000 ) ¸ 2 = \$4,400,000 = 4.2times \$1,040,000 = Number of Days in a Year Inventory Turnover = 365 days = 86.9 days 4.2 times Days' Inventory on Hand

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Ch8 SE3 to SE6 Chapter 8, SE 3. Specific identification method: Cost of goods available for sale \$1,370 Less ending inventory From August 8 purchase ( 30 units × \$11 ) \$330 From August 22 purchase ( 25 units × \$12 ) 300 630 Cost of goods sold \$ 740 Chapter 8, SE 4. Average-cost method—periodic inventory system: Cost of goods available for sale \$1,370 Less ending inventory Average cost times units on hand 55 units x \$10.96 = \$603 603 Cost of goods sold \$ 767 * \$1,370 ÷ 125 units = \$10.96 ** Rounded. Chapter 8, SE 5. FIFO method--periodic inventory system: Cost of goods available for sale \$1,370 Less ending inventory From August 22 purchase ( 35 units × \$12 ) \$420 From August 8 purchase ( 20 units × \$11 ) 220 640 Cost of goods sold \$ 730 Chapter 8, SE 6. LIFO method--periodic inventory system: Cost of goods available for sale \$1,370 Less ending inventory From beginning inventory ( 40 units × \$10 ) \$400 From August 8 purchase ( 15 units × \$11 ) 165 565 Cost of goods sold \$ 805 * **
Ch8 SE7 to SE8 Chapter 8, SE 7. Periodic Inventory System Specific Average- Identification Cost FIFO LIFO Method Method Method Method Ending inventory \$630 \$603 \$640 \$565 Cost of goods sold 740 767 730 805 The cost of goods sold figures range from \$730 to \$805, a difference of \$75, or 10.3 percent. All the results are different. Because this is a period of rising prices, LIFO produces the highest cost of goods sold and will therefore produce the lowest net income and the lowest income taxes. LIFO also produces the lowest ending inven- tory valuation. The average-cost method produces results between LIFO and FIFO. Chapter 8, SE 8. Average-cost method—perpetual inventory system: Cost Units per Unit* Amount* Aug. 1 Inventory 40 \$10.00 \$400 8 Purchase 50 11.00 550 8 Balance 90 10.56 \$950 15 Sale (45) 10.56 (475) 15 Balance 45 10.56 \$475 22 Purchase 35 12.00 420 22 Balance 80 11.19 \$895 28 Sale (25) 11.19 (280) 31 Inventory 55 11.18 \$615 Cost of goods sold ( \$475 + \$280 ) \$755 *Rounded.

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Ch8 SE9 Chapter 8, SE 9. FIFO method—perpetual inventory system: Cost Units per Unit Aug. 1 Inventory 40 \$10 \$400 8 Purchase 50 11 550 8 Balance 40 10 \$400 50 11 550 \$950 15 Sale (40) 10 (\$400) (5) 11 (55) (455) 15 Balance 45 11 \$495 22 Purchase 35 12 420 22 Balance 45 11 \$495 35 12 420 \$915 28 Sale (25) 11 (275) 31 Inventory 20 11 \$220 35 12 420 55 \$640 Cost of goods sold ( \$455 + \$275 ) \$730
Ch8 SE10 Chapter 8, SE 10. LIFO method—perpetual inventory system: Cost Units per Unit Aug. 1 Inventory 40 \$10 \$400 8 Purchase 50 11 550 8 Balance 40 10 \$400 50 11 550 \$950 15 Sale (45) 11 (495) 15 Balance 40 10 \$400 5 11 55 \$455 22 Purchase 35 12 420 22 Balance 40 10 \$400 5 11 55 35 12 420 \$875 28 Sale (25) 12 (300) 31 Inventory 40 10 \$400 5 11 55 10 12 120 55 \$575 Cost of goods sold ( \$495 + \$300 ) \$795

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Ch8 E1 to E2 Chapter 8, E 1. 1. It is both good and bad for a retail store to have a large inventory. It is good from the standpoint that customers want a large selection and they want the items to be available. It is bad from the standpoint that it is more costly to have a large inventory than a small inventory. In addition to storage and insurance costs, there is the cost of interest on money borrowed to finance the inventory.
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