Question 1

Brake Company utilizes the perpetual inventory method. Inventory information for Part # AB124 revealed the following for the month of May:

May 1

Balance245 units @ $8

May 10

Sold 210 @ $23.50

May 11

Purchased800 units @ $9.50

May 16

Sold 300 @ $23

May 20

Purchased770 units @ $11

May 26

Sold 350 @ $24.50

Required:Determine the value of ending inventory, cost of goods sold and gross profit under each of the following methods:

(a)LIFO

(b)FIFO

(c)Average Cost

Question 2

Grande Incorporated, a window installation company, is preparing its annual financial statements for the year ended December 31, 2009 and the following information in dollars is available:

Raw Material Type

FIFO Cost

Replacement Cost

Sales Price

Aluminum

70,000

50,000

79,000

Cedar shake siding

84,000

90,000

81,000

Lowered glass doors

116,000

120,000

150,000

Thermal windows

110,000

150,000

145,000

Total

380,000

410,000

455,000

• Selling Expenses are 15% of Sales.
• Normal Profit Margin is 20% of Sales.
• At December 31, 2009, the balance in Grandes Raw Material inventory account was $380,000 and the Allowance to Reduce Inventory to Market had a credit balance of $50,000.

Required:

(a)Prepare a table with the headings below (and a row for each type of raw material) and determine the proper balance in the Allowance to Reduce Inventory to Market account at December 31, 2009.

Raw Material Type

FIFOCost

Replacement Cost

Ceiling

Floor

Deemed Market Value

Lower of Cost or Market

(b)Determine the amount of gain or loss that would be recorded due to the change in the Allowance to Reduce Inventory to Market account.

Attached are some helpful audio notes:(You may ignore references to chapter 8 & 9 in the recordings as there were based on a prior text book)

8 - Perpetual Periodic FIFO LIFO

9 - Lower of Cost or Market (LCM)