Measuring and Reporting Inventories Practice Problems
Complete the practice problems. Check your answers after you finish.
Demonstration problem
Solution to demonstration problems
Solution to demonstration problem A
a. The ending inventory is 5,000 units, calculated as follows:
|
|
Units |
|
Beginning inventory |
6,250 |
|
Purchases |
23,750 |
|
Goods available |
30,000 |
|
Sales |
25,000 |
|
Ending inventory |
5,000 |
Ending inventory under specific identification:
|
Purchased |
Units |
Unit Cost |
Total Cost |
|
November 20 |
2,500 |
$3.72 |
$9,300 |
|
August 12 |
2,500 |
3.48 |
8,700 $18,000 |
- Ending inventory under FIFO:
- Perpetual:
|
|
Purchased |
Sold |
Balance
|
|||||
|
Date |
Units |
Unit Total Cost |
Units |
Unit Cost |
Total Cost |
Units |
Unit |
|
|
Beg. inv. |
|
|
|
|
|
6,250 |
$3.00 |
$18,750 |
|
Feb. 3 |
|
|
5,250 |
$3.00 |
$15,750 |
1,000 |
3.00 |
3,000 |
|
Mar. 15 |
5,000 |
$3.12 |
$15,600 |
|
|
1,000 |
3.00 |
3,000 |
|
|
|
|
|
|
|
5,000 |
3.12 |
15,600 |
|
May 4 |
|
|
1,000 |
3.00 |
3,000 |
1,500 |
3.12 |
4,680 |
|
|
|
|
3,500 |
3.12 |
10,920 |
|
|
|
|
May 10 |
8,750 |
3.30 28,875 |
|
|
|
1,500 |
3.12 |
4,680 |
|
|
|
|
|
|
|
8,750 |
3.3 |
28,875 |
|
Aug. 12 |
6,250 |
3.48 21,750 |
|
|
|
1,500 |
3.12 |
4,680 |
|
|
|
|
|
|
|
8,750 |
3.30 |
28,875 |
|
|
|
|
|
|
|
6,250 |
3.48 |
21,750 |
|
Sept. 16 |
|
|
1,500 |
3.12 |
4,680 |
2,250 |
3.30 |
7,425 |
|
|
|
|
6,500 |
3.30 |
21,450 |
6,250 |
3.48 |
21,750 |
|
Oct. 9 |
|
|
2,250 |
3.30 |
7,425 |
1,250 |
3.48 |
4,350 |
|
|
|
|
5,000 |
3.48 |
17,400 |
|
|
|
|
Nov. 20 |
3,750 |
3.72 |
13,950 |
|
|
1,250 |
3.48 |
4,350 |
|
|
3,750 |
3.72 |
|
|
|
|
|
13,950 |
|
Ending inventory = (1,250 X $3.48) + (3,750 X $3.72) = $18,300 |
||||||||
(b) Periodic:
|
Purchased |
Units |
Unit Cost |
Total Cost |
|
November 20 |
3750 |
$3.72 |
$13,950 |
|
August 12 |
1250 |
3.48 |
4350 |
|
|
5000 |
|
$18,300 * |
*Note that the cost of ending inventory is the same as under perpetual.
- Ending inventory under LIFO:
(a) Perpetual:
|
|
Purchased |
Sold |
Balance |
||||||
|
Date |
Units |
Unit Cost |
Total Cost |
Units |
Unit Cost |
Total Cost |
Units |
Unit Cost |
Total Cost |
|
Beg. inv. |
|
|
|
|
|
6,250 |
|
$3.00 |
$18,750 |
|
Feb. 3 |
|
|
|
5,250 |
$3.00 |
$15,750 |
1,000 |
3.00 |
3,000 |
|
Mar. 15 |
5,000 |
$3.12 |
$15,600 |
|
|
|
1,000 |
3.00 |
3,000 |
|
|
|
|
|
|
|
|
5,000 |
3.12 |
15,600 |
|
May 04 |
|
|
|
4,500 |
3.12 |
14,040 |
1,000 |
3.00 |
3,000 |
|
|
|
|
|
|
|
|
500 |
3.12 |
1,560 |
|
|
8,750 |
3.3 |
28,875 |
|
|
|
1,000 |
3.00 |
3,000 |
|
May 10 |
|
|
|
|
|
|
500 |
3.12 |
1,560 |
|
|
|
|
|
|
|
|
8,750 |
3.30 |
28,875 |
|
Aug. 12 |
6,250 |
3.48 |
21,750 |
|
|
|
1,000 |
3.00 |
3,000 |
|
|
|
|
|
|
|
|
500 |
3.12 |
1,560 |
|
|
|
|
|
|
|
|
8,750 |
3.30 |
28,875 |
|
|
|
|
|
|
|
|
6,250 |
3.48 |
21,750 |
|
Sept. 16 |
|
|
|
6,250 |
3.48 |
21,750 |
1,000 |
3.00 |
3,000 |
|
|
|
|
|
1,750 |
3.3 |
5,775 |
500 |
3.12 |
1,560 |
|
|
|
|
|
|
|
|
7,000 |
3.30 |
23,100 |
|
Oct. 9 |
|
|
|
7,000 |
3.3 |
23,100 |
1,000 |
3.00 |
3,000 |
|
|
|
|
|
250 |
3.12 |
780 |
250 |
3.12 |
780 |
|
Nov. 20 |
3,750 |
3.72 |
13,950 |
|
|
|
1,000 |
3.00 |
3,000 |
|
|
|
|
|
|
|
|
250 |
3.12 |
780 |
|
|
|
|
|
|
|
|
3,750 |
3.72 |
13,950 |
Ending inventory = (1,000 X $3.00) + (250 X $3.12) + (3,750 X $3.72) = $17,730
(b) Periodic:
|
Units |
Unit Cost |
Cost Cost |
|
|
Merchandise Inventory, January 1 |
5,000 |
$3.00 |
$15,000 |
- Ending inventory under weighted-average:
(a) Perpetual:
|
|
Purchased |
Sold |
Balance |
||||||
|
Date |
Units |
Unit Cost |
Total Cost |
Units |
Unit Cost |
Total Cost |
Units |
Unit |
Total Cost |
|
Beg. inv. |
|
|
|
|
|
|
6,250 |
$3.0000 |
$ 18,750 |
|
Feb. 3 |
|
|
|
5,250 |
$3.00 |
$15,750 |
1,000 |
3.0000 |
3,000 |
|
Mar. 15 |
5,000 |
$3.12 |
$15,600 |
|
|
|
6,000 |
3.1000 |
18,600 |
|
38108 |
|
|
|
4,500 |
3.10 |
13950 |
1,500 |
3.1000 |
4,650 |
|
40299 |
8,750 |
3.30 |
28,875 |
|
|
|
10,250 |
3.2707 |
33,525 |
|
Aug.12 |
6,250 |
3.48 |
21,750 |
|
|
|
16,500 |
3.3500 |
55,275 |
|
Sept. 16 |
|
|
|
8,000 |
3.35 |
26,800 |
8,500 |
3.3500 |
28,475 * |
|
Oct. 9 |
|
|
|
7,250 |
3.35 |
24,288 |
1,250 |
3.3500 |
4,187 * |
|
Nov. 20 |
3,750 |
3.72 |
13,950 |
|
|
|
5.000 |
3.6274 |
18,137 |
Ending inventory = (5,000 X $3.6274) = $18,137
a $18,600 = $3.100 b $33,525 = $3.2707 c $55,275 = $3.3500 d $18,137 = $3.6274
6,000 10,250 16,500 5,000
* Rounding difference.
|
Purchased |
Units |
Unit Cost |
Total Cost |
|
Merchandise Inventory, January 1 |
6,250 |
$3.00 |
$18,750 |
|
March 15 |
5,000 |
3.12 |
15,600 |
|
May 10 |
8,750 |
3.3 |
28,875 |
|
August 12 |
6,250 |
3.48 |
21,750 |
|
November 20 |
3,750 |
3.72 |
13,950 |
|
|
30,000 |
|
98,926 |
Weighted-average unit cost = $98,925/30,000 = $3.2975
Ending inventory cost = $3.2975 x 5,000 = $16,488*
*Rounding difference
- Journal entries under LIFO perpetual:
|
Feb. |
3 Cost of Goods Sold (-SE) |
15,750 |
15,750 |
|
|
Merchandise Inventory (-A) |
|
|
|
|
To record cost of $3 on 5,200 units sold |
|
|
|
Mar. |
15 Merchandise Inventory (+A) |
15,600 |
15,600 |
|
|
Accounts Payable (+L) |
|
|
|
|
To record purchase of 5,000 units at $3.12 on Account. |
|
|
|
May |
4 Cost of Goods Sold (-SE) |
14,040 |
14,040 |
|
|
Merchandise Inventory (-A) |
|
|
|
|
To record cost of $3.12 on 4,500 units sold. |
|
|
|
|
10 Merchandise Inventory (+A) |
28,875 |
28,875 |
|
|
Accounts Payable (+L) |
|
|
|
|
To record purchase of 8,750 units at $3.30 on account. |
|
|
|
Aug. |
12 Merchandise Inventory (+A) |
21,750 |
21,750 |
|
|
Accounts Payable (+L) |
|
|
|
|
To record purchase of 6,250 units at $3.48 on account |
|
|
|
Sept. |
16 Cost of Goods Sold (-SE) |
27,525 |
27,525 |
|
|
Merchandise Inventory (-A) |
|
|
|
|
To record costs of $3.48 and $3.30 on 6,250 units at 1,750 units sold, respectively. |
|
|
|
Oct. |
9 Cost of Goods Sold (-SE) |
23,880 |
23,880 |
|
|
Merchandise Inventory (-A) |
|
|
|
|
To record costs of $3.30 and $3.12 on 7,000 units and 250 units sold, respectively. |
|
|
|
Nov. |
20 Merchandise Inventory (+A) |
13,950 |
13,950 |
|
|
Accounts Payable (+L) |
|
|
|
|
To record purchase of 3,750 units at $3.72 on account. |
|
|
Solution to demonstration problem B
a. Corrected net income:
|
|
2007 |
2008 |
2009 |
Total |
|
Net income as reported |
$ 27,200 |
28,400 |
24000 |
$ 79,600 |
|
Adjustments |
|
|
|
|
|
(1) |
880 |
|
|
|
|
(2) |
|
(880) |
|
|
|
(3) |
|
(920) |
920 |
|
|
Corrected net income |
$ 28,080 |
26600 |
24,920 |
$ 79,600 |
(1) Ending inventory understated ($5,680 - $4,800 = $880)
(2) Beginning inventory understated (5,680 – 4,800 = 880)
Ending inventory overstated (5,600 – 4,680 = 920)
(3) Beginning inventory overstated (5,600 – 4,680 = 920)
(b) Computation of inventory:
|
Merchandise Inventory, January 1 |
|
$40,000 |
|
Net cost of purchases |
|
200,000 |
|
Cost of goods available for sale |
|
$ |
|
Less estimated cost of goods sold: |
|
240,000 |
|
Net Sales |
$300,000 |
|
|
Gross margin ($300,000 X 0.30) |
90,000 |
|
|
Estimated cost of goods sold |
|
210,000 |
|
Inventory at cost, estimated by gross margin method. |
|
$30,000 |
|
|
Cost |
Retail |
|
Merchandise Inventory, January 1 |
$17,600 |
$25,000 |
|
Purchases |
68,000 |
100,000 |
|
Transportation-in |
1,900 |
- |
|
Goods available for sale |
$87,500 |
$125,000 |
|
Cost/retail price ratio: |
||
|
$87,500/$125,000 = 70% |
||
|
Sales |
|
101,000 |
|
Ending inventory at retail price |
|
$24,000 |
|
Times cost/retail price ratio |
|
X 70% |
|
Ending inventory at cost, December 31. |
$16,800 |
|