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Chapter 8: Q4P. (page 432)

Hull Company’s record of transactions concerning part X for the month of April was as follows.

Purchases Sales

April 1 (balance on hand) 100 @ $5.00 April 5 300

4 400 @ 5.10 12 200

11 300 @ 5.30 27 800

18 200 @ 5.35 28 150

26 600 @ 5.60

30 200 @ 5.80

Instructions

(a) Compute the inventory at April 30 on each of the following bases. Assume that perpetual inventory records are kept inunits only. Carry unit costs to the nearest cent.

(1) First-in, first-out (FIFO).

(2) Last-in, first-out (LIFO).

(3) Average cost.

(b) If the perpetual inventory record is kept in dollars, and costs are computed at the time of each withdrawal, what amountwould be shown as ending inventory in (1), (2), and (3) above? (Carry average unit costs to four decimal places.)

Short Answer

Expert verified

Ending inventory under the periodic system:

FIFO $2000

LIFO $1175

Average cost $1890

Ending inventory under the perpetual system:

FIFO $2000

LIFO $1915

Average cost $1977.3

Step by step solution

01

Valuation of ending inventory

As the inventory records are kept in units only, the FIFO, LIFO, and Average cost would be computed based on the periodic system.

Endinginventory(Units)=Openingstock+TotalPurchases-TotalSales=100+(400+300+200+600+200)-(300+200+800+150)=100+1700-1450=350

1) Inventory valuation under FIFO

Date

Units

Units Cost

Total Cost

April 30

200

$5.80

$1160

April 26

150

$5.60

$840

350

$2000

2) Inventory valuation under LIFO

Date

Units

Units Cost

Total Cost

April 1

100

$5

$500

April 4

250

$5.10

$1275

350

$1775

3) Inventory valuation under Weighted Average method

Averagecostofinventory=ValueofOpeningstock+ValueofallpurchasesTotalavailablegoods=(100×$5)+(400×$5.10+300×$5.30+200×$5.35+600×$5.60+200×$5.80)(100+400+300+200+600+200)=$500+$92201800=$5.4

Costofendinginventory=Averagecostofinventory×No.ofendinginventory=$5.4×350=$1,890

02

Valuation of ending inventory by the perpetual method

1) Inventory valuation under FIFO

Date

Purchase

Cost of goods sold

Balance

Units

Cost

Balance

Units

Cost

Balance

Units

Cost

Balance

April 1

100

$5

$500

100

$5

$500

April 4

400

$5.10

$2040

100

$5

$500

400

$5.10

$2040

April 5

100

$5

$500

200

$5.10

$1020

200

$5.10

$1020

April 11

300

$5.30

$1590

200

$5.10

$1020

300

$5.30

$1590

April 12

200

$5.10

$1020

300

$5.30

$1590

April 18

200

$5.35

$1070

300

$5.30

$1590

200

$5.35

$1070

April 26

600

$5.60

$3360

300

$5.30

$1590

200

$5.35

$1070

600

$5.60

$3360

April 27

300

$5.30

$1590

200

$5.35

$1070

300

$5.60

$1680

300

$5.60

$1680

April 28

150

$5.60

$840

150

$5.60

$840

April 30

200

$5.80

$1160

150

$5.60

$840

200

$5.80

$1160

Total

1450

$7720

350

$2000

Ending Inventory under FIFO is $2000.

2) Inventory valuation under LIFO

Date

Purchase

Cost of goods sold

Balance

Units

Cost

Balance

Units

Cost

Balance

Units

Cost

Balance

April 1

100

$5

$500

100

$5

$500

April 4

400

$5.10

$2040

100

$5

$500

400

$5.10

$2040

April 5

300

$5.10

$1530

100

5

$500

100

$5.10

$510

April 11

300

$5.30

$1590

100

$5

$500

100

$5.10

$510

300

$5.30

$1590

April 12

200

$5.30

$1060

100

$5

$500

100

$5.10

$510

100

$5.30

$530

April 18

200

$5.35

$1070

100

$5

$500

100

$5.10

$510

100

$5.30

$530

200

$5.35

$1070

April 26

600

$5.60

$3360

100

$5

$500

100

$5.10

$510

100

$5.30

$530

200

$5.35

$1070

600

$5.60

$3360

April 27

600

$5.60

$3360

100

$5

$500

200

$5.35

$1070

100

$5.10

$510

100

$5.30

$530

April 28

100

$5.30

$530

100

$5

$500

50

$5.10

$255

50

$5.10

$255

April 30

200

$5.80

$1160

100

$5

$500

50

$5.10

$255

200

$5.80

$1160

Total

1450

$7805

350

$1915

Ending inventory under FIFO is $1915

3) Inventory valuation under weighted average method.

Date

Purchase

Cost of goods sold

Balance

Units

Cost

Balance

Units

Cost

Balance

Units

Cost

Balance

April 1

100

$5

$500

100

$5

$500

April 4

400

$5.10

$2040

100

$5

$500

400

$5.10

$2040

Total

500

$5.08

$2540

April 5

300

$5.08

$1524

200

$5.08

$1016

April 11

300

$5.30

$1590

200

$5.08

$1016

300

$5.30

$1590

Total

500

$5.212

$2606

April 12

200

$5.212

$1042.4

300

$5.212

$1563.6

April 18

200

$5.35

$1070

300

$5.212

$1563.6

200

$5.35

$1070

Total

500

$5.2672

$2633.6

April 26

600

$5.60

$3360

500

$5.2672

$2633.6

600

$5.60

$3360

Total

1100

$5.4487

$5993.6

April 27

800

$5.4487

$4358.96

300

$5.4487

$1634.61

April 28

150

$5.4487

$817.305

150

$5.4487

$817.305

April 30

200

$5.80

$1160

150

$5.4487

$817.30

200

$5.80

$1160

Total

1450

$7742.665

350

$5.6494

$1977.3

Ending inventory under the average method is $1977.3.

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Most popular questions from this chapter

Question: Shania Twain Company was formed on December 1, 2016. The following information is available from Twain’s inventory records for Product BAP.

Units Unit Cost

January 1, 2017 (beginning inventory) 600 $ 8.00

Purchases:

January 5, 2017 1,200 9.00

January 25, 2017 1,300 10.00

February 16, 2017 800 11.00

March 26, 2017 600 12.00

A physical inventory on March 31, 2017, shows 1,600 units on hand.

Instructions

Prepare schedules to compute the ending inventory at March 31, 2017, under each of the following inventory methods.

(a) FIFO (b) LIFO. (c) Weighted-average (round unit costs to two decimal places).

Question:Matlock Company uses a perpetual inventory system. Its beginning inventory consists of 50 units that cost \(34 each. During June, the company purchased 150 units at \)34 each, returned 6 units for credit, and sold 125 units at $50 each.

Journalize the June transactions.

Oasis Company has used the dollar-value LIFO method for inventory cost determination for many years. The following data were extracted from Oasis’ records.

Price Ending Inventory Ending Inventory

Date Index at Base Prices at Dollar-Value LIFO

December 31, 2017 105 \(92,000 \)92,600

December 31, 2018 ? 97,000 98,350

Instructions

Calculate the index used for 2018 that yielded the above results.

The management of Tritt Company has asked its accounting department to describe the effect upon the company’s financial position and its income statements of accounting for inventorieson the LIFO rather than the FIFO basis during 2017 and 2018. The accounting department is to assume that the change to LIFO wouldhave been effective on January 1, 2017, and that the initial LIFO base would have been the inventory value on December 31, 2016. Thefollowing are the company’s financial statements and other data for the years 2017 and 2018 when the FIFO method was employed.

Financial Position as of

12/31/16 12/31/17 12/31/18

Cash \( 90,000 \)130,000 \(154,000

Accounts receivable 80,000 100,000 120,000

Inventory 120,000 140,000 176,000

Other assets 160,000 170,000 200,000

Total assets \)450,000 \(540,000 \)650,000

Accounts payable \( 40,000 \) 60,000 \( 80,000

Other liabilities 70,000 80,000 110,000

Common stock 200,000 200,000 200,000

Retained earnings 140,000 200,000 260,000

Total liabilities and equity \)450,000 \(540,000 \)650,000

Income for Years Ended

12/31/17 12/31/18

Sales revenue \(900,000 \)1,350,000

Less: Cost of goods sold 505,000 756,000

Other expenses 205,000 304,000

710,000 1,060,000

Income before income taxes 190,000 290,000

Income taxes (40%) 76,000 116,000

Net income \(114,000 \) 174,000

Other data:

1. Inventory on hand at December 31, 2016, consisted of 40,000 units valued at \(3.00 each.

2. Sales (all units sold at the same price in a given year):

2017—150,000 units @ \)6.00 each 2018—180,000 units @ \(7.50 each

3. Purchases (all units purchased at the same price in given year):

2017—150,000 units @ \)3.50 each 2018—180,000 units @ $4.40 each

4. Income taxes at the effective rate of 40% are paid on December 31 each year.

Instructions

Name the account(s) presented in the financial statements that would have different amounts for 2018 if LIFO rather than FIFOhad been used, and state the new amount for each account that is named. Show computations.

Ehlo Company is a multiproduct firm. Presented below is information concerning one of its products, the Hawkeye.

Date Transaction Quantity Price/Cost

1/1 Beginning inventory 1,000 $12

2/4 Purchase 2,000 18

2/20 Sale 2,500 30

4/2 Purchase 3,000 23

11/4 Sale 2,200 33

Instructions

Compute cost of goods sold, assuming Ehlo uses:

(a) Periodic system, FIFO cost flow. (d) Perpetual system, LIFO cost flow.

(b) Perpetual system, FIFO cost flow. (e) Periodic system, weighted-average

cost flow.

(c) Periodic system, LIFO cost flow. (f) Perpetual system, moving-average

cost flow.
See all solutions

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