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Chapter 8: Q8P. (page 434)

Norman鈥檚 Televisions produces television sets in three categories: portable, midsize, and flat-screen. On January 1, 2017, Norman adopted dollar-value LIFO and decided to use a single inventory pool. The company鈥檚January 1 inventory consists of:

Category Quantity Cost per Unit Total Cost

Portable 6,000 \(100 \) 600,000

Midsize 8,000 250 2,000,000

Flat-screen 3,000 400 1,200,000

17,000 \(3,800,000

During 2017, the company had the following purchases and sales.

QuantitySelling Price

Category Purchased Cost per Unit Sold per Unit

Portable 15,000 \)110 14,000 $150

Midsize 20,000 300 24,000 405

Flat-screen 10,000 500 6,000 600

45,000 44,000

Instructions

(Round to four decimals.)

(a) Compute ending inventory, cost of goods sold, and gross profit.

(b) Assume the company uses three inventory pools instead of one. Repeat instruction (a).

Short Answer

Expert verified

Under Single pool

Ending Inventory $4,654,000

COGS $11,796,000

Gross Profit $3,624,000

Under Multiple Pool

Ending Inventory

Portable Size $720,000

Mid-Size $3,200,000

Flat-screen $3,200,000

COGS

Portable Size $1,540,000

Mid-Size $4,800,000

Flat-screen $3,000,000

Gross Profit

Portable Size $560,000

Mid-Size $4,920,000

Flat-screen $600,000

Step by step solution

01

Ending inventory, COGS, and gross profit under the single pool

Computation of ending inventory

Category

Opening Quantity

+ Purchases

  • Quantity sold

Ending inventory

Portable

6000

+15000

-14000

7000

Midsize

8000

+20000

-24000

4000

Flat-screen

3000

+10000

-6000

7000

Ending inventories in values

Category

Ending Inventory

Base year cost

Inventory at base year

Current year cost

Inventory at the current year

Portable

7000

$100

$700000

110

$770000

Midsize

4000

$250

$1000000

300

$1200000

Flat-screen

7000

$400

$2800000

500

$3500000

Total

$4500000

$5470000

PriceIndex=EndinginventoryatcurrentyearcostEndinginventoryatbaseyearcost=54700004500000=1.22or122%

Ending Inventory at dollar value LIFO

Date

Inventory at base year cost

Layer

X

Price Index

=

Dollar Value LIFO

1 Jan 2017

$3800000

$3800000

X

100

=

$3800000

31 Dec 2017

$4500000

$700000

X

122

=

$854000

Total

$4500000

=

$4654000

Ending inventory at dollar value LIFO comes out to be $4,654,000.

Costofgoodssold=TotalCostofavailablegoods-EndinginventoryatdollarvalueLIFO=$3800000+(15000脳$110+20000脳$300+10000脳$500)-$4654000=$3800000+$12650000-$4654000=$11,796,000

GrossProfit=Totalsalevalue-Costofgoodssold=(14000脳$150+24000脳$405+6000脳$600)-$11796000=$15420000-$11796000=$3,624,000

02

Ending inventory, COGS, and Gross Profit under three pools

Computation of ending inventory

Category

Ending Inventory

Base year cost

Inventory at base year

Current year cost

Inventory at the current year

Price Index

Portable

7000

$100

$700000

110

$770000

1.1 or 110%

Midsize

4000

$250

$1000000

300

$1200000

1.2 or 120%

Flat-screen

7000

$400

$2800000

500

$3500000

1.25 or 125%

Ending Inventory at dollar value LIFO

Date

Inventory at base year cost

Layer

X

Price Index

=

Dollar Value LIFO

Portable Size

1 Jan 2017

$600000

$600000

X

100

=

$600000

31 Dec 2017

$700000

$100000

X

110

=

$110000

Total

$700000

=

$710000

MidSize

1 Jan 2017

$2000000

$2000000

X

100

=

$2000000

31 Dec 2017

$1000000

$1000000

X

120

=

$1200000

Total

$3000000

=

$3200000

Flat Screen

1 Jan 2017

$1200000

$1200000

X

100

=

$1200000

31 Dec 2017

$2800000

$1600000

X

125

=

$2000000

Total

$2800000

=

$3200000

Computation of cost of goods sold

Category

Total cost of goods available for sale

-

Ending Inventory at dollar value LIFO

=

COGS

Portable Size

$2250000

-

$710000

=

$1540000

Midsize

$8000000

-

$3200000

=

$4800000

Flat Screen

$6200000

-

$3200000

=

$3000000

Computation of gross profit

Category

Total Sales Revenue

-

COGS

=

Gross Profit

Portable Size

$2100000

-

$1540000

=

$560000

Midsize

$9720000

-

$4800000

=

$4920000

Flat Screen

$3600000

-

$3000000

=

$600000

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Most popular questions from this chapter

The following information relates to the Jimmy Johnson Company.

Ending Inventory Price

Date (End-of-Year Prices) Index

December 31, 2013 $ 70,000 100

December 31, 2014 90,300 105

December 31, 2015 95,120 116

December 31, 2016 105,600 120

December 31, 2017 100,000 125

Instructions

Use the dollar-value LIFO method to compute the ending inventory for Johnson Company for 2013 through 2017.

Describe the LIFO double-extension method. Using the following information, compute the index at December 31, 2017, applying the double-extension method to a LIFO pool consisting of 25,500 units of product A and 10,350 units of product B. The base-year cost of product A is \(10.20 and of product B is \)37.00. The price at December 31, 2017, for product A is \(21.00 and for product B is \)45.60. (Round to two decimal places.)

You are the vice president of finance of Sandy Alomar Corporation, a retail company that prepared two different schedules of gross margin for the first quarter ended March 31, 2017. These schedulesappear below.

Sales Cost of Gross

(\(5 per unit) Goods Sold Margin

Schedule 1 \)150,000 \(124,900 \)25,100

Schedule 2 150,000 129,400 20,600

The computation of cost of goods sold in each schedule is based on the following data.

Cost Total

Units per Unit Cost

Beginning inventory, January 1 10,000 \(4.00 \)40,000

Purchase, January 10 8,000 4.20 33,600

Purchase, January 30 6,000 4.25 25,500

Purchase, February 11 9,000 4.30 38,700

Purchase, March 17 11,000 4.40 48,400

Jane Torville, the president of the corporation, cannot understand how two different gross margins can be computed from thesame set of data. As the vice president of finance, you have explained to Ms. Torville that the two schedules are based on differentassumptions concerning the flow of inventory costs, i.e., FIFO and LIFO. Schedules 1 and 2 were not necessarily prepared inthis sequence of cost flow assumptions.

Instructions

Prepare two separate schedules computing cost of goods sold and supporting schedules showing the composition of the endinginventory under both cost flow assumptions.

What is the dollar-value method of LIFO inventory valuation? What advantage does the dollar-value method have over the specific goods approach of LIFO inventory valuation? Why will the traditional LIFO inventory costing method and the dollar-value LIFO inventory costing method produce different inventory valuations if the composition of the inventory base changes?

Presented below are transactions related to Tom Brokaw, Inc.

May 10 Purchased goods billed at \(15,000 subject to cash discount terms of 2/10, n/60.

11 Purchased goods billed at \)13,200 subject to terms of 1/15, n/30.

19 Paid invoice of May 10.

24 Purchased goods billed at $11,500 subject to cash discount terms of 2/10, n/30.

Instructions

(a) Prepare general journal entries for the transactions above under the assumption that purchases are to be recorded at net amounts after cash discounts and that discounts lost are to be treated as financial expense.

(b) Assuming no purchase or payment transactions other than those given above, prepare the adjusting entry required on May 31 if financial statements are to be prepared as of that date.
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