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Chapter 8: Question 2Q (page 421)
Why should inventories be included in (a) a statement of financial position and (b) the computation of net income?
Inventories are the main trading commodity. So it must be accounted for both making sales and keeping in hand.
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Richardson Company cans a variety of vegetable-type soups. Recently, the company decided to value its inventories using dollar-value LIFO pools. The clerk who accounts for inventories does not understand how to valuethe inventory pools using this new method, so, as a private consultant, you have been asked to teach him how this new method works.
He has provided you with the following information about purchases made over a 6-year period.
Ending Inventory
Date (End-of-Year Prices) Price Index
Dec. 31, 2013 $ 80,000 100
Dec. 31, 2014 111,300 105
Dec. 31, 2015 108,000 120
Dec. 31, 2016 128,700 130
Dec. 31, 2017 147,000 140
Dec. 31, 2018 174,000 145
You have already explained to him how this inventory method is maintained, but he would feel better about it if you were to leavehim detailed instructions explaining how these calculations are done and why he needs to put all inventories at a base-year value.
Instructions
(a) Compute the ending inventory for Richardson Company for 2013 through 2018 using dollar-value LIFO.
(b) Using your computation schedules as your illustration, write a step-by-step set of instructions explaining how the calculationsare done. Begin your explanation by briefly explaining the theory behind this inventory method, includingthe purpose of putting all amounts into base-year price levels.
What is a repurchase agreement (product financing) arrangement? How should a product repurchase agreement be reported in the financial statements?
Question: 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 closing entry 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.
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).
Question:Stallman Company took a physical inventory on December 31 and determined that goods costing \(200,000 were on hand. Not included in the physical count were \)25,000 of goods purchased from Pelzer Corporation, f.o.b. shipping point, and \(22,000 of goods sold to Alvarez Company for \)30,000, f.o.b. destination. Both the Pelzer purchase and the Alvarez sale werein transit at year-end. What amount should Stallman report as its December 31 inventory?
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