Exercises Se the perpetual interessed as some ter started 14 Using accounting vocabulary ch che accounting terms with the corresponding definitions a. Treats the oldest inventory purchases as the first units sold, Specific identification 2. Materiality concept Latin, first-out (LIFO) Conservatism Consistency principle Weighted average Disclosure principle First-in, first-out (FIFO) b. Requires that a company report enough information for outsiders to make knowledgeable decisions. c. Identifies exactly which inventory item was sold. Usually used for higher cost inventory. d. Calculates a weighted average cost based on the cost of goods available for sale and the number of units available. e. Principle whose foundation is to exercise caution in reporting financial statement items. f. Treats the most recentewest purchases as the first units sold. g. Businesses should use the same accounting methods from period to period. h. Principle that states significant items must conform to GAAP. E6-15 Comparing inventory methods Super Mart, a regional convenience store chain, maintains milk inventory by the gallon The first month's milk purchases and sales at its Freeport, Florida, location follow Nov. 2 Purchased 11 gallons @ $2.15 each 6 Purchased 2 gallons @ $2.80 each 8 Sold 6 gallons of milk to a customer 13 Purchased 3 gallons @ $2.85 each 14 Sold 4 gallons of milk to a customer Requirements 1. Determine the amount that would be reported in ending merchandise inventory on November 15 using the FIFO inventory costing method. 2. Determine the amount that would be reported in ending merchandise inventory on November 15 using the LIFO inventory costing method. 3. Determine the amount that would be reported in ending merchandise inventory on November 15 using the weighted-average inventory costing method. Round all amounts to the nearest cent. bas 96-19 Ce Use the following f o r E E6-16 og ES Golf Unlimited earris an inventory of putters and other golf clubs. The of cach purter is $119. Company records indicate the following for a partie Unit Cost Golf Unlimited's putters: Quantity Item 553 Date Nov. 1 Balance 20 70 Sale 30 30 Purchase Sale Sale 30 y and cost of goods Unlimited COTS he FIFO inventory con 66-16 Measuring and journalizing merchandise inventory and cost of po sold-FIFO Requirements 1. Prepare a perpetual inventory record for the putters assuming Golf Unlimi the FIFO inventory costing method. Then identify the cost of ending inves and cost of goods sold for the month. 2. Journalize Golf Unlimited's inventory transactions using the FIFO invento ing method. (Assume purchases and sales are made on account.) E6-17 Measuring ending inventory and cost of goods sold in a perpetual inventory system-LIFO Requirements 1. Prepare Golf Unlimited's perpetual inventory record for the putters assuming Golf Unlimited uses the LIFO inventory costing method. Then identify the col of ending inventory and cost of goods sold for the month. 2. Journalize Golf Unlimiteds inventory transactions using the LIFO inventory cos ing method. (Assume purchases and sales are made on account.) E6-18 Measuring ending inventory and cost of goods sold in a perpetual inventory system-Weighted average Requirements 1. Prepare Golf Unlimited's perpetual inventory record for the putters assuming Golf Unlimited uses the weighted average inventory costing method. Round weighted- average cost per unit to the nearest cent and all other amounts to the nearest dollar Then identify the cost of ending inventory and cost of goods sold for the month 2. Journalize Golf Unlimited's inventory transactions using the weighted average inventory costing method. (Assume purchases and sales are made on account. 19 Comparing a Comparing amounts for profit FIFO and L o foods sold, ending sume that Toys Galore store bed follows Dec.1 Beginning merchandise inventory e B Sale 14 Purchase 21 Sale 8 units 5 22 euch Requirements 14 units 22 h , 1. Compute the cost of goods sold cost of wine m chandise profit using the FIFO inventory costing method Compute the cost of goods sold of merchandise profit using the LIFO inventory method 3. Which method results in a higher cost of goods sold 4. Which method results in a higher cost of ending merchandise 5. Which method results in a higher gross profit , 6-20 Comparing cost of goods sold and gross profit-FIFO, LIFO, and weighted-average methods Assume that AB Tire Store completed the following perpetual inventory transaction Lear for a line of tires: May 1 Beginning merchandise inventory 11 Purchase 23 Sale 26 Purchase 29 Sale 16 tires @ 565 each 10 tires $ 78 each 12 tires @ $ 88 each 14 tires @ $ 80 each 18 tires @ $88 each Requirements 1. Compute cost of goods sold and gross profit using the FIFO inventory costing method. 2. Compute cost of goods sold and gross profit using the LIFO inventory costing method. 3. Compute cost of goods sold and gross profit using the weighted average inver costing method. (Round weighted average cost per unit to the nearest cent an other amounts to the nearest dollar) 4. Which method results in the largest gross profit, and why