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how to compute answers to these Exercises Problem A First-in, first-out method: $68,680 ($11,000+ $57,680) B. Last-in, first-out method: $61,536 ($50,000+ $11.536) C. Weighted average cost method: $66,600 (1,200 units x 555.50) The subsidiary ledgers shown below and on the next page support the preceding perpetual inventory amounts. 2. A. First-in, first-out method: 1,000 units at $57.68 200 units at $55.00 $57,680 1,200 units 11,000 $68,680 B. Last-in, first-out method: 1,000 units at $50.00 $50,000 200 units at $52.00 10,400 1,200 units $60,400 C. Weighted average cost method: Weighted average cost per unit: $406,680 = 7,600 units = $53.51 (Rounded) Inventory, December 31, 2012: 1,200 units x $53.51 = $64,212 1. A. First-in, first-out method: $68,680 ($11,000 + $57,680) Cost of Purchases Goods Sold Inventory Quantity Unit Cost Total Cost Quantity Unit Cost Total Cost Quantity Unit Cost Total Cost Jan. 1 1.000 50.00 50.000 1.000 Mar. 10 52.00 3.000 50.00 156,000 50,000 3.000 52.00 156.000 1,000 50.00 50,000 2.400 52.00 124,800 June 25 600 52.00 31.200 2.400 52.00 124,800 Aug. 30 2,600 55.00 143,000 2.600 55.00 143.000 124.800 1.000 55.00 55.000 2,400 Oct. 5 55.00 88.000 1,000 55.00 55,000 57.68 57,680 1.000 57.68 Nov. 26 57.680 55.00 11.000 44,000 55.00 1.000 57.68 57,680 Dec. 31 68.680 2012 52.00 1.600 1,000 200 800 338.000 31 Balances (Continued) Chapter 6 Inventories B. Last-in, first-out method: $61,536 ($50,000 + $11,536) Inventory Cost of Goods Sold Quantity Unit Cost Total Cost Quantity Unit Cose Unit Cost Purchases Unit Cost Total Cost Total Con Date Quantity 50.000 50.000 Mar. 10 3,000 52.00 156,000 156.000 1.600 52.00 83,200 50,000 June 25 1,000 1,000 3.000 1.000 1,400 1,000 1,400 2.600 1,000 50.00 50.00 52.00 50.00 52.00 50.00 52.00 55.00 50.00 72.800 50.000 Aug. 30 2600 55.00 143,000 72,800 143.000 50,000 Oct. 5 2,600 1,400 55.00 52.00 143,000 72.800 Nov. 26 1,000 57.68 57,680 1,000 1.000 1,000 200 50.00 57.68 50.00 57.68 50.000 57 580 50,000 Dec. 31 800 57.68 46,144 31 Balances 345,144 61,536 C. Weighted average cost method: $66,600 (1,200 units X $55.50) Cost of Purchases Goods Sold Unit Cost Total Cost Quantity Unit Cost Total Cost Quantity Date Quantity Inventory Unit Cost Total Cost 1.600 51.50 Jan 1 Mar. 10 3.000 52.00 156.000 June 25 Aug 30 2.600 55.00 143.000 Oct. 5 Nov. 261.000576857680 Dec. 31 31 Balances 4.000 53.32 1,000 50.00 4,000 50 82.400 2.400 2.400 ISO 5,000 2 213,2801.0005332 2.000 0 44,400 400 1.200 55.50 340.080 1.200 CSO 50.000 206.000 123.500 266600 53320 111.000 66.600 66.600 800 55.50 3. Appendix) Inventory, January 1, 2012 Purchases inet) Merchandise available for sale Sales ... Estimated gross profit (5530,000 X 36%).. Estimated cost of goods sold .... Estimated Inventory, December 31, 20Y2. Cost $ 50,000 356,680 $406,680 $530,000 190,800 ssion Question 339,200 $ 67,480 356,680 $406,680 Purchases (net) ............ Merchandise available for sale. Sales ... Estimated gross profit ($530,000 X 36%).. Estimated cost of goods sold Estimated inventory, December 31, 20Y2... $530,000 190,800 339,200 $ 67.480 Discussion Questions 1. Before inventory purchases are recorded, the receiv. ing report should be reconciled to what documents? 2. Why is it important to periodically take a physical inventory when using a perpetual inventory system? 3. Do the terms FIFO, LIFO, and weighted average refer to techniques used in determining quantities of the various classes of inventory on hand? Explain. 4. If inventory is being valued at cost and the price level is decreasing, which of the three meth ods of costing-FIFO, LIFO, or weighted average cost-will yield (A) the highest inventory cost, (B) the lowest inventory cost, (C) the highest gross profit, and (D) the lowest gross profit? 5. Which of the three methods of inventory costing- 5. FIFO, LIFO, or weighted average cost-will in general Chapter 6 Inventories 317 yield an inventory cost most nearly approximating current replacement cost? 6. If inventory is being valued at cost and the price level is steadily rising, which of the three methods of costing- FIFO, LIFO, or weighted average cost-will yield the lowest annual income tax expense? Explain. 7. Using the following data, how should the inventory be valued under lower of cost or market? Original cost Estimated selling price 1,475 Selling expenses 180 or an understatement of the gross profit for the year? (B) Which items on the balance sheet at the end of the year were overstated or understated as a result of the error? 9. Hutch Co. sold merchandise to Bibbins Company on May 31, FOB shipping point. If the merchandise is in transit on May 31, the end of the fiscal year, which company would report it in its financial statements? Explain 10. A manufacturer shipped merchandise to a retailer on a consignment basis. If the merchandise is unsold at the end of the period, in whose inventory should the merchandise be included? $1,350 8. The inventory at the end of the year was understated by $14,750. (A) Did the error cause an overstatement Basic Exercises Obj. 2 how to compute answers to these Exercises Problem A First-in, first-out method: $68,680 ($11,000+ $57,680) B. Last-in, first-out method: $61,536 ($50,000+ $11.536) C. Weighted average cost method: $66,600 (1,200 units x 555.50) The subsidiary ledgers shown below and on the next page support the preceding perpetual inventory amounts. 2. A. First-in, first-out method: 1,000 units at $57.68 200 units at $55.00 $57,680 1,200 units 11,000 $68,680 B. Last-in, first-out method: 1,000 units at $50.00 $50,000 200 units at $52.00 10,400 1,200 units $60,400 C. Weighted average cost method: Weighted average cost per unit: $406,680 = 7,600 units = $53.51 (Rounded) Inventory, December 31, 2012: 1,200 units x $53.51 = $64,212 1. A. First-in, first-out method: $68,680 ($11,000 + $57,680) Cost of Purchases Goods Sold Inventory Quantity Unit Cost Total Cost Quantity Unit Cost Total Cost Quantity Unit Cost Total Cost Jan. 1 1.000 50.00 50.000 1.000 Mar. 10 52.00 3.000 50.00 156,000 50,000 3.000 52.00 156.000 1,000 50.00 50,000 2.400 52.00 124,800 June 25 600 52.00 31.200 2.400 52.00 124,800 Aug. 30 2,600 55.00 143,000 2.600 55.00 143.000 124.800 1.000 55.00 55.000 2,400 Oct. 5 55.00 88.000 1,000 55.00 55,000 57.68 57,680 1.000 57.68 Nov. 26 57.680 55.00 11.000 44,000 55.00 1.000 57.68 57,680 Dec. 31 68.680 2012 52.00 1.600 1,000 200 800 338.000 31 Balances (Continued) Chapter 6 Inventories B. Last-in, first-out method: $61,536 ($50,000 + $11,536) Inventory Cost of Goods Sold Quantity Unit Cost Total Cost Quantity Unit Cose Unit Cost Purchases Unit Cost Total Cost Total Con Date Quantity 50.000 50.000 Mar. 10 3,000 52.00 156,000 156.000 1.600 52.00 83,200 50,000 June 25 1,000 1,000 3.000 1.000 1,400 1,000 1,400 2.600 1,000 50.00 50.00 52.00 50.00 52.00 50.00 52.00 55.00 50.00 72.800 50.000 Aug. 30 2600 55.00 143,000 72,800 143.000 50,000 Oct. 5 2,600 1,400 55.00 52.00 143,000 72.800 Nov. 26 1,000 57.68 57,680 1,000 1.000 1,000 200 50.00 57.68 50.00 57.68 50.000 57 580 50,000 Dec. 31 800 57.68 46,144 31 Balances 345,144 61,536 C. Weighted average cost method: $66,600 (1,200 units X $55.50) Cost of Purchases Goods Sold Unit Cost Total Cost Quantity Unit Cost Total Cost Quantity Date Quantity Inventory Unit Cost Total Cost 1.600 51.50 Jan 1 Mar. 10 3.000 52.00 156.000 June 25 Aug 30 2.600 55.00 143.000 Oct. 5 Nov. 261.000576857680 Dec. 31 31 Balances 4.000 53.32 1,000 50.00 4,000 50 82.400 2.400 2.400 ISO 5,000 2 213,2801.0005332 2.000 0 44,400 400 1.200 55.50 340.080 1.200 CSO 50.000 206.000 123.500 266600 53320 111.000 66.600 66.600 800 55.50 3. Appendix) Inventory, January 1, 2012 Purchases inet) Merchandise available for sale Sales ... Estimated gross profit (5530,000 X 36%).. Estimated cost of goods sold .... Estimated Inventory, December 31, 20Y2. Cost $ 50,000 356,680 $406,680 $530,000 190,800 ssion Question 339,200 $ 67,480 356,680 $406,680 Purchases (net) ............ Merchandise available for sale. Sales ... Estimated gross profit ($530,000 X 36%).. Estimated cost of goods sold Estimated inventory, December 31, 20Y2... $530,000 190,800 339,200 $ 67.480 Discussion Questions 1. Before inventory purchases are recorded, the receiv. ing report should be reconciled to what documents? 2. Why is it important to periodically take a physical inventory when using a perpetual inventory system? 3. Do the terms FIFO, LIFO, and weighted average refer to techniques used in determining quantities of the various classes of inventory on hand? Explain. 4. If inventory is being valued at cost and the price level is decreasing, which of the three meth ods of costing-FIFO, LIFO, or weighted average cost-will yield (A) the highest inventory cost, (B) the lowest inventory cost, (C) the highest gross profit, and (D) the lowest gross profit? 5. Which of the three methods of inventory costing- 5. FIFO, LIFO, or weighted average cost-will in general Chapter 6 Inventories 317 yield an inventory cost most nearly approximating current replacement cost? 6. If inventory is being valued at cost and the price level is steadily rising, which of the three methods of costing- FIFO, LIFO, or weighted average cost-will yield the lowest annual income tax expense? Explain. 7. Using the following data, how should the inventory be valued under lower of cost or market? Original cost Estimated selling price 1,475 Selling expenses 180 or an understatement of the gross profit for the year? (B) Which items on the balance sheet at the end of the year were overstated or understated as a result of the error? 9. Hutch Co. sold merchandise to Bibbins Company on May 31, FOB shipping point. If the merchandise is in transit on May 31, the end of the fiscal year, which company would report it in its financial statements? Explain 10. A manufacturer shipped merchandise to a retailer on a consignment basis. If the merchandise is unsold at the end of the period, in whose inventory should the merchandise be included? $1,350 8. The inventory at the end of the year was understated by $14,750. (A) Did the error cause an overstatement Basic Exercises Obj. 2