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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

Colin Davis Machine Company maintains a general ledger account for each class of inventory, debiting such accounts for increases during the period and crediting them for decreases. The transactions below relate to the Raw Materials inventory account, which is debited for materials purchased and credited for materials requisitioned for use.

1. An invoice for \(8,100, terms f.o.b. destination, was received and entered January 2, 2017. The receiving report shows that the materials were received December 28, 2016.

2. Materials costing \)28,000, shipped f.o.b. destination, were not entered by December 31, 2016, 鈥渂ecause they were in a railroad car on the company鈥檚 siding on that date and had not been unloaded.鈥�

3. Materials costing \(7,300 were returned to the supplier on December 29, 2016, and were shipped f.o.b. shipping point. The return was entered on that date, even though the materials are not expected to reach the supplier鈥檚 place of business until January 6, 2017.

4. An invoice for \)7,500, terms f.o.b. shipping point, was received and entered December 30, 2016. The receiving report shows that the materials were received January 4, 2017, and the bill of lading shows that they were shipped January 2, 2017.

5. Materials costing $19,800 were received December 30, 2016, but no entry was made for them because 鈥渢hey were ordered with a specified delivery of no earlier than January 10, 2017.鈥�

Instructions -

Prepare correcting general journal entries required at December 31, 2016, assuming that the books have not been closed.

In what ways are the inventory accounts of a retailing company different from those of a manufacturing company?

FIFO, average-cost, and LIFO methods are often used instead of specific identification for inventory valuation purposes. Compare these methods with the specific identification method, discussing the theoretical propriety of each method in the determination of income and asset valuation.

Question:Johnny Football Shop began operations on January 2, 2017. The following stock record card for footballs was taken from the records at the end of the year.

Units Unit Invoice Gross Invoice

Date Voucher Terms Received Cost Amount

1/15 10624 Net 30 50 \(20 \)1,000

3/15 11437 1/5, net 30 65 16 1,040

6/20 21332 1/10, net 30 90 15 1,350

9/12 27644 1/10, net 30 84 12 1,008

11/24 31269 1/10, net 30 76 11 836

Totals 365 $5,234

A physical inventory on December 31, 2017, reveals that 100 footballs were in stock. The bookkeeper informs you that all thediscounts were taken. Assume that Johnny Football Shop uses the invoice price less discount for recording purchases.

Instructions

(a) Compute the December 31, 2017, inventory using the FIFO method.

(b) Compute the 2017 cost of goods sold using the LIFO method.

(c) What method would you recommend to the owner to minimize income taxes in 2017, using the inventory informationfor footballs as a guide?

Question:Matlock Company uses a perpetual inventory system. Its beginning inventory consists of 50 units that cost \(34 each. During June, the company purchased 150 units at \)34 each, returned 6 units for credit, and sold 125 units at $50 each.

Journalize the June transactions.
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