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Chapter 8: Question 14E (page 426)

The following is a record of Pervis Ellison Company’s transactions for Boston Teapots for the month of May 2017.

May 1 Balance 400 units @ \(20 May 10 Sale 300 units @ \)38

12 Purchase 600 units @ \(25 20 Sale 540 units @ \)38

28 Purchase 400 units @ $30

Instructions

(a) Assuming that perpetual inventories are not maintained and that a physical count at the end of the month shows 560units on hand, what is the cost of the ending inventory using (1) FIFO and (2) LIFO?

(b) Assuming that perpetual records are maintained and they tie into the general ledger, calculate the ending inventory using (1) FIFO and (2) LIFO.

Short Answer

Expert verified

Answer

The value of periodic ending inventory under FIFO and LIFO are $16,000 and $12,000, respectively. Under perpetual inventory, these figures are $16,000 and $15,500, respectively.

Step by step solution

01

Value of ending inventory under periodic method

Endinginventory(Units)=Totalunitsavailableforsale-Totalunitssold=1,400-840=560

1) Using FIFO

Date

Units

Cost per unit

Amount

May 28

400

$30

$12000

May 12

160

$25

$4000

Total

560

$16,000

The value of ending inventory by FIFO is $16,000.

2) Using LIFO

Date

Units

Cost per unit

Amount

Beginning

400

$20

$8000

May 12

160

$25

$4000

Total

560

$12,000

The value of ending inventory by FIFO is $12,000.

3) Using Weighted Average

Averagecost=TotalvalueofavailableunitsTotalavailableunits=$35,0001,400=$25

Valueofendinginventory=Averagecost×Endinginventory=$25×560=$14,000


02

Value of ending inventory under perpetual method

1) Using FIFO

Date

Purchase

Cost of goods sold

Balance

May 1

Beginning 400 units @ $20

$8,000

May 10

300 units @ $20

-$6,000

$2,000

May 12

600 units @ $25

$15,000

$17,000

May 20

100 units @ $20

-$2000

440 units @ 25

-$11,000

$4,000

May 28

400 units @ $30

$12,000

$16,000

The value of ending inventory amounts to $16,000.

2) Using LIFO

Date

Purchase

Cost of goods sold

Balance

May 1

Beginning 400 units @ $20

$8,000

May 10

300 units @ $20

-$6,000

$2,000

May 12

600 units @ $25

$15,000

$17,000

May 20

540 units @ $25

-$13,500

$3,500

May 28

400 units @ $30

$12,000

$15,500

The value of ending inventory amounts to $15,500.

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Most popular questions from this chapter

Explain the following terms.

(a) LIFO layer.

(b) LIFO reserve.

(c) LIFO effect.

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.

Question:In your audit of Jose Oliva Company, you find that a physical inventory on December 31, 2017, showed merchandise with a cost of \(441,000 was on hand at that date. You also discover the followingitems were all excluded from the \)441,000.

1. Merchandise of \(61,000 which is held by Oliva on consignment. The consignor is the Max Suzuki Company.

2. Merchandise costing \)38,000 which was shipped by Oliva f.o.b. destination to a customer on December 31, 2017. The customerwas expected to receive the merchandise on January 6, 2018.

3. Merchandise costing \(46,000 which was shipped by Oliva f.o.b. shipping point to a customer on December 29, 2017. Thecustomer was scheduled to receive the merchandise on January 2, 2018.

4. Merchandise costing \)83,000 shipped by a vendor f.o.b. destination on December 30, 2017, and received by Oliva on January4, 2018.

5. Merchandise costing $51,000 shipped by a vendor f.o.b. shipping point on December 31, 2017, and received by Oliva onJanuary 5, 2018.

Instructions

Based on the above information, calculate the amount that should appear on Oliva’s balance sheet at December 31, 2017, for inventory.

Dimitri Company, a manufacturer of small tools, provided the following information from its accounting records for the year ended December 31, 2017.

Inventory at December 31, 2017 (based on physical count of goods in Dimitri’s plant, at cost, on December 31, 2017) \(1,520,000

Accounts payable at December 31, 2017 1,200,000

Net sales (sales less sales returns) 8,150,000

Additional information is as follows.

1. Included in the physical count were tools billed to a customer f.o.b. shipping point on December 31, 2017. These tools had a cost of \)31,000 and were billed at \(40,000. The shipment was on Dimitri’s loading dock waiting to be picked up by the common carrier.

2. Goods were in transit from a vendor to Dimitri on December 31, 2017. The invoice cost was \)76,000, and the goods were shipped f.o.b. shipping point on December 29, 2017.

3. Work in process inventory costing \(30,000 was sent to an outside processor for plating on December 30, 2017.

4. Tools returned by customers and held pending inspection in the returned goods area on December 31, 2017, were not included in the physical count. On January 8, 2018, the tools costing \)32,000 were inspected and returned to inventory. Credit memos totaling \(47,000 were issued to the customers on the same date.

5. Tools shipped to a customer f.o.b. destination on December 26, 2017, were in transit at December 31, 2017, and had a cost of \)26,000. Upon notification of receipt by the customer on January 2, 2018, Dimitri issued a sales invoice for \(42,000.

6. Goods, with an invoice cost of \)27,000, received from a vendor at 5:00 p.m. on December 31, 2017, were recorded on a receiving report dated January 2, 2018. The goods were not included in the physical count, but the invoice was included in accounts payable at December 31, 2017.

7. Goods received from a vendor on December 26, 2017, were included in the physical count. However, the related \(56,000 vendor invoice was not included in accounts payable at December 31, 2017, because the accounts payable copy of the receiving report was lost.

8. On January 3, 2018, a monthly freight bill in the amount of \)8,000 was received. The bill specifically related to merchandise purchased in December 2017, one-half of which was still in the inventory at December 31, 2017. The freight charges were not included in either the inventory or in accounts payable at December 31, 2017.

Instructions

Using the format shown below, prepare a schedule of adjustments as of December 31, 2017, to the initial amounts per Dimitri’s accounting records. Show separately the effect, if any, of each of the eight transactions on the December 31, 2017, amounts. If the transactions would have no effect on the initial amount shown, enter NONE.

Accounts Net

Inventory Payable Sales

Initial amounts \(1,520,000 \)1,200,000 \(8,150,000

Adjustments—increase

(decrease)

1

2

3

4

5

6

7

8

Total adjustments

Adjusted amounts \) \( \)

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).
See all solutions

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