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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

Why should inventories be included in (a) a statement of financial position and (b) the computation of net income?

On January 1, 2017, Bonanza Wholesalers Inc. adopted the dollar-value LIFO inventory method for income tax and external financial reporting purposes. However, Bonanza continuedto use the FIFO inventory method for internal accounting and management purposes. In applying the LIFO method, Bonanzauses internal conversion price indexes and the multiple pools approach under which substantially identical inventory items aregrouped into LIFO inventory pools. The following data were available for inventory pool no. 1, which comprises products A andB, for the 2 years following the adoption of LIFO.

FIFO Basis per Records

Unit Total

Units Cost Cost

Inventory, 1/1/17

Product A 10,000 \(30 \)300,000

Product B 9,000 25 225,000

\(525,000

Inventory, 12/31/17

Product A 17,000 36 \)612,000

Product B 9,000 26 234,000

\(846,000

Inventory, 12/31/18

Product A 13,000 40 \)520,000

Product B 10,000 32 320,000

$840,000

Instructions

(a) Prepare a schedule to compute the internal conversion price indexes for 2017 and 2018. Round indexes to two decimal places.

(b) Prepare a schedule to compute the inventory amounts at December 31, 2017 and 2018, using the dollar-value LIFO inventory method.

Fong Sai-Yuk Company sells one product. Presented below is information for January for Fong Sai-Yuk Company.

Jan. 1 Inventory 100 units at \(5 each

4 Sale 80 units at \)8 each

11 Purchase 150 units at \(6 each

13 Sale 120 units at \)8.75 each

20 Purchase 160 units at \(7 each

27 Sale 100 units at \)9 each

Fong Sai-Yuk uses the FIFO cost flow assumption. All purchases and sales are on account.

Instructions

(a) Assume Fong Sai-Yuk uses a periodic system. Prepare all necessary journal entries, including the end-of-month closingentry to record cost of goods sold. A physical count indicates that the ending inventory for January is 110 units.

(b) Compute gross profit using the periodic system.

(c) Assume Fong Sai-Yuk uses a perpetual system. Prepare all necessary journal entries.

(d) Compute gross profit using the perpetual system.

George Solti, the controller for Garrison Lumber Company, has recently hired you as assistant controller. He wishes to determine your expertise in the area of inventory accounting and therefore asks you to answer thefollowing unrelated questions.

(a) A company is involved in the wholesaling and retailing of automobile tires for foreign cars. Most of the inventory is imported,and it is valued on the company’s records at the actual inventory cost plus freight-in. At year-end, the warehousing costs areprorated over cost of goods sold and ending inventory. Are warehousing costs considered a product cost or a period cost?

(b) A certain portion of a company’s “inventory” is composed of obsolete items. Should obsolete items that are not currentlyconsumed in the production of “goods or services to be available for sale” be classified as part of inventory?

(c) A company purchases airplanes for sale to others. However, until they are sold, the company charters and services theplanes. What is the proper way to report these airplanes in the company’s financial statements?

(d) A company wants to buy coal deposits but does not want the financing for the purchase to be reported on its financialstatements. The company therefore establishes a trust to acquire the coal deposits. The company agrees to buy the coalover a certain period of time at specified prices. The trust is able to finance the coal purchase and pay off the loan as itis paid by the company for the minerals. How should this transaction be reported?

Presented below is information related to Kaisson Corporation for the last 3 years.

Quantities Base-Year Cost Current-Year Cost

in Ending

Item Inventories Unit Cost Amount Unit Cost Amount

December 31, 2016

A 9,000 \(2.00 \)18,000 \(2.20 \)19,800

B 6,000 3.00 18,000 3.55 21,300

C 4,000 5.00 20,000 5.40 21,600

Totals \(56,000 \)62,700

December 31, 2017

A 9,000 \(2.00 \)18,000 \(2.60 \)23,400

B 6,800 3.00 20,400 3.75 25,500

C 6,000 5.00 30,000 6.40 38,400

Totals \(68,400 \)87,300

December 31, 2018

A 8,000 \(2.00 \)16,000 \(2.70 \)21,600

B 8,000 3.00 24,000 4.00 32,000

C 6,000 5.00 30,000 6.20 37,200

Totals \(70,000 \)90,800

Instructions

Compute the ending inventories under the dollar-value LIFO method for 2016, 2017, and 2018. The base period is January 1, 2016,and the beginning inventory cost at that date was $45,000. Compute indexes to two decimal places.
See all solutions

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