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Chapter 8: Q5BE (page 422)
Question:Data for Amsterdam Company are presented in BE8-4. Compute the April 30 inventory and the April cost of
goods sold using the FIFO method.
The ending inventory on April 30 was $5,150 and the cost of goods sold amounts to$6,700.
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Arna, Inc. uses the dollar-value LIFO method of computing its inventory. Data for the past 3 years follow.
Year Ended December 31 Inventory at Current-Year Cost Price Index
2016 $19,750 100
2017 22,140 108
2018 25,935 114
Compute the value of the 2017 and 2018 inventories using the dollar-value LIFO method.
Wilkens Company uses the LIFO method for inventory costing. In an effort to lower net income, company president Mike Wilkens tells the plant accountant to take the unusual step of recommending to the purchasing department a large purchase of inventory at year-end. The price of the item to be purchased has nearly doubled during the year,and the item represents a major portion of inventory value.
Instructions
Answer the following questions.
(a) Identify the major stakeholders. If the plant accountant recommends the purchase, what are the consequences?
(b) If Wilkens Company were using the FIFO method of inventory costing, would Mike Wilkens give the same order? Whyor why not?
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.
The board of directors of Ichiro Corporation is considering whether or not it should instruct the accounting department to shift from a first-in, first out (FIFO) basis of pricing inventories to a last-in, first-out (LIFO) basis. The following information is available.
Sales 21,000 units @ \(50
Inventory, January 1 6,000 units @ 20
Purchases 6,000 units @ 22
10,000 units @ 25
7,000 units @ 30
Inventory, December 31 8,000 units @ ?
Operating expenses \)200,000
Instructions
Prepare a condensed income statement for the year on both bases for comparative purposes.
Presented below is information related to Blowfish radios for the Hootie Company for the month of July.
Units Unit Total Units Selling Total
InCostSoldPrice
Date Transaction
July 1 Balance 100 \(4.10 \) 410
6 Purchase 800 4.20 3,360
7 Sale 300\(7.00 \) 2,100
10 Sale 300 7.30 2,190
12 Purchase 400 4.50 1,800
15 Sale 200 7.40 1,480
18 Purchase 300 4.60 1,380
22 Sale 400 7.40 2,960
25 Purchase 500 4.58 2,290
30 Sale 200 7.50 1,500
Totals 2,100\(9,240 1,400\)10,230
Instructions
(a) Assuming that the periodic inventory method is used, compute the inventory cost at July 31 under each of the following cost flow assumptions.
(1) FIFO.
(2) LIFO.
(3) Weighted-average.
(b) Answer the following questions.
(1) Which of the methods used above will yield the lowest figure for gross profit for the income statement? Explain why.
(2) Which of the methods used above will yield the lowest figure for ending inventory for the balance sheet? Explain why.
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