Financial & Managerial Accounting
Financial & Managerial Accounting
13th Edition
ISBN: 9781285866307
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Question
Chapter 6, Problem 6.4BPR

(1)

To determine

Periodic Inventory System:

Periodic inventory system is a system, in which the inventory is updated in the accounting records on a periodic basis such as at the end of each month, quarter or year. In other words, it is an accounting method which is used to determine the amount of inventory at the end of each accounting period.

First-in-First-Out:

In First-in-First-Out method, the costs of the initially purchased items are considered as cost of goods sold, for the items which are sold first. The value of the ending inventory consists of the recent purchased items.

Last-in-Last-Out:

In Last-in-First-Out method, the costs of last purchased items are considered as the cost of goods sold, for the items which are sold first. The value of the closing stock consists of the initial purchased items.

Weighted-average cost method:

Under Weighted average cost method, the company calculates a new average cost after every purchase is made. It is determined by dividing the cost of goods available for sale by the units on hand.

To determine: The inventory on June 30, 2016 and cost of merchandise sold using first in first out method under periodic inventory system.

(1)

Expert Solution
Check Mark

Explanation of Solution

The value of ending inventory on June 30, 2016 is calculated as follows:

Ending Inventory(FIFO) =(26 units×$1,264)=$32,864

Calculate the cost of merchandise sold is as follows:

  Amount ($)
Beginning inventory, April 1, 2016 30,000
Add: Purchases                               Table (3) 313,640
Merchandise available for sale 343,640
Less: Ending inventory, June 30, 2016 32,864
Cost of merchandise sold 310,776

Table (1)

Working notes:

Calculate the units in ending inventory as follows:

  Units
Units  in beginning inventory and purchased 275
Less: Units sold 249
Units in ending inventory 26

Table (2)

Calculate the merchandise purchases as follows:

Purchases
Date Quantity Unit cost Total
08-Apr 75 $1,240 $93,000
08-May 60 $1,260 $75,600
28-May 80 $1,260 $100,800
21-Jun 35 $1,264 $44,240
      $313,640

Table (3)

Conclusion

Hence, the ending inventory on June 30, 2016 under First in First out Method is $32,864 and cost of merchandise sold is $310,776.

(2)

To determine

To determine: The value of inventory on June 30, 2016 and cost of merchandise sold using last in first out method under periodic inventory system.

(2)

Expert Solution
Check Mark

Explanation of Solution

The value of ending inventory on June 30, 2016 is calculated as follows:

Ending Inventory(LIFO) =(25 units×$1,200)+(1 unit×$1,240)=$30,000+$1,240=$31,240

Calculate the cost of merchandise sold is as follows:

  Amount ($)
Beginning inventory, April 1, 2016 30,000
Add: Purchases                               Table (3) 313,640
Merchandise available for sale 343,640
Less: Ending inventory, June 30, 2016 31,240
Cost of merchandise sold 312,400

Table (4)

Conclusion

Hence, the ending inventory on June 30, 2016 under Last in First out Method is $31,240 and cost of merchandise sold is $312,400.

(3)

To determine

The value of inventory on June 30, 2016 and cost of merchandise sold using weighted average method under periodic inventory system.

(3)

Expert Solution
Check Mark

Explanation of Solution

The value of ending inventory is calculated by multiplying ending inventory with weighted average cost per unit.

Ending Inventory(Weighted average) =[26 units×$1,250(1)]=$32,500

Calculate the cost of merchandise sold is as follows:

  Amount ($)
Beginning inventory, April 1, 2016 30,000
Add: Purchases                               Table (3) 313,640
Merchandise available for sale 343,640
Less: Ending inventory, June 30, 2016 32,500
Cost of merchandise sold 311,140

Table (5)

Working note:

The weighted average unit cost is calculated as follows:

Weighted average unit cost = Total cost of inventory available for saleTotal units available for sale=$343,640275=$1,250 (1)

Conclusion

Hence, the ending inventory on June 30, 2016 under weighted average cost Method is $32,500 and cost of merchandise sold is $311,140.

(4)

To determine

To compare: The gross profit and ending inventories on June 30, 2016 of all the three methods.

(4)

Expert Solution
Check Mark

Explanation of Solution

The table showing all the three methods of inventory is as follows:

  FIFO
($)
LIFO
($)
Weighted average ($)
Sales $ 525,250 $ 525,250 $ 525,250
Less: Cost of merchandise sold $ 310,776 $ 312,400 $ 311,140
Gross Profit $ 214,474 $ 212,850 $ 214,110
       
Ending Inventory, June 30, 2016 $ 32,864 $ 31,240 $ 32,500

Table (6)

Working notes:

Calculate the total sales for the three-month period:

Sales
Date Quantity Unit cost Total
11-Apr 40 $2,000 $80,000
30-Apr 30 $2,000 $60,000
10-May 50 $2,000 $100,000
19-May 20 $2,000 $40,000
5-Jun 40 $2,250 $90,000
16-Jun 25 $2,250 $56,250
28-Jun 44 $2,250 $99,000
Total   $525,250

Table (7)

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Chapter 6 Solutions

Financial & Managerial Accounting

Ch. 6 - Prob. 6.1APECh. 6 - Prob. 6.1BPECh. 6 - Perpetual inventory using FIFO Beginning...Ch. 6 - Perpetual inventory using FIFO Beginning...Ch. 6 - Perpetual inventory using UFO Beginning inventory,...Ch. 6 - Perpetual inventory using LIFO Beginning...Ch. 6 - Perpetual inventory using weighted average...Ch. 6 - Perpetual inventory using weighted average...Ch. 6 - Periodic inventory using FIFO, LIFO, and weighted...Ch. 6 - Periodic inventory using FIFO, UFO, and weighted...Ch. 6 - Prob. 6.6APECh. 6 - Lower-of-cost-or-market method On the basis of the...Ch. 6 - Prob. 6.7APECh. 6 - Prob. 6.7BPECh. 6 - Inventory turnover and number of days' sales in...Ch. 6 - Inventory turnover and number of days' sales in...Ch. 6 - Control of inventories Triple Creek Hardware Store...Ch. 6 - Prob. 6.2EXCh. 6 - Perpetual inventory using FIFO Beginning...Ch. 6 - Perpetual inventory using LIFO Assume that the...Ch. 6 - Perpetual inventory using LIFO Beginning...Ch. 6 - Perpetual inventory using FIFO Assume that the...Ch. 6 - FIFO and LIFO costs under perpetual Inventory...Ch. 6 - Prob. 6.8EXCh. 6 - Prob. 6.9EXCh. 6 - Prob. 6.10EXCh. 6 - Prob. 6.11EXCh. 6 - Prob. 6.12EXCh. 6 - Periodic inventory by three methods; cost of...Ch. 6 - Comparing inventory methods Assume that a firm...Ch. 6 - Lower of cost or market inventory On the basis of...Ch. 6 - Merchandise inventory on the balance sheet Based...Ch. 6 - Effect of errors in physical inventory Missouri...Ch. 6 - Effect of errors in physical inventory Fonda...Ch. 6 - Prob. 6.19EXCh. 6 - Prob. 6.20EXCh. 6 - Prob. 6.21EXCh. 6 - Prob. 6.22EXCh. 6 - Retail method A business using the retail method...Ch. 6 - Retail method A business using the retail method...Ch. 6 - Retail method On the basis of the following data,...Ch. 6 - Gross profit method The inventory was destroyed by...Ch. 6 - Prob. 6.27EXCh. 6 - Gross profit method Based on the following data,...Ch. 6 - FIFO perpetual inventory The beginning inventory...Ch. 6 - Prob. 6.2APRCh. 6 - Prob. 6.3APRCh. 6 - Prob. 6.4APRCh. 6 - Prob. 6.5APRCh. 6 - Prob. 6.6APRCh. 6 - Prob. 6.7APRCh. 6 - FIFO perpetual inventory The beginning inventory...Ch. 6 - Prob. 6.2BPRCh. 6 - Weighted average cost method with perpetual...Ch. 6 - Prob. 6.4BPRCh. 6 - Prob. 6.5BPRCh. 6 - Prob. 6.6BPRCh. 6 - Retail method; gross project method Selected data...Ch. 6 - Prob. 6.1CPCh. 6 - Prob. 6.2CPCh. 6 - Costing inventory Golden Eagle Company begun...Ch. 6 - Inventory ratios for Dell and HP Dell Inc. and...Ch. 6 - Prob. 6.5CPCh. 6 - Prob. 6.6CP
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  • LIFO perpetual inventory The beginning inventory for Dunne Co. and data on purchases and sales for a three-month period are shown in Problem 6-1B. Instructions 1. Record the inventory, purchases, and cost of goods sold data in a perpetual inventory record similar to the one illustrated in Exhibit 4, using the last-in, first-out method. 2. Determine the total sales, the total cost of goods sold, and the gross profit from sales for the period. 3. Determine the ending inventory cost on June 30.
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