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Chapter 8: Question 14E (page 426)

The following is a record of Pervis Ellison Company鈥檚 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脳Endinginventory=$25脳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

Inventory information for Part 311 of Monique Aaron Corp. discloses the following information for the month of June.

June 1 Balance 300 units @ \(10 June 10 Sold 200 units @ \)24

11 Purchased 800 units @ \(12 15 Sold 500 units @ \)25

20 Purchased 500 units @ \(13 27 Sold 300 units @ \)27

Instructions

(a) Assuming that the periodic inventory method is used, compute the cost of goods sold and ending inventory under(1) LIFO and (2) FIFO.

(b) Assuming that the perpetual inventory method is used and costs are computed at the time of each withdrawal, what is the value of the ending inventory at LIFO?

(c) Assuming that the perpetual inventory method is used and costs are computed at the time of each withdrawal, what is the gross profit if the inventory is valued at FIFO?

(d) Why is it stated that LIFO usually produces a lower gross profit than FIFO?

Shania Twain Company was formed on December 1, 2016. The following information is available from Twain鈥檚 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:Presented below is a list of items that may or may not be reported as inventory in a company鈥檚 December 31 balance sheet.

1. Goods out on consignment at another company鈥檚 store.

2. Goods sold on an installment basis (bad debts can be reasonably estimated).

3. Goods purchased f.o.b. shipping point that are in transit at December 31.

4. Goods purchased f.o.b. destination that are in transit at December 31.

5. Goods sold to another company, for which our company has signed an agreement to repurchase at a set price that coversall costs related to the inventory.

6. Goods sold where large returns are predictable.

7. Goods sold f.o.b. shipping point that are in transit at December 31.

8. Freight charges on goods purchased.

9. Interest costs incurred for inventories that are routinely manufactured.

10. Costs incurred to advertise goods held for resale.

11. Materials on hand not yet placed into production by a manufacturing firm.

12. Office supplies.

13. Raw materials on which a manufacturing firm has started production but which are not completely processed.

14. Factory supplies.

15. Goods held on consignment from another company.

16. Costs identified with units completed by a manufacturing firm but not yet sold.

17. Goods sold f.o.b. destination that are in transit at December 31.

18. Short-term investments in stocks and bonds that will be resold in the near future.

Instructions

Indicate which of these items would typically be reported as inventory in the financial statements. If an item should not bereported as inventory, indicate how it should be reported in the financial statements.

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.

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.
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