ACCOUNTING-W/CENGAGENOWV2 ACCESS
ACCOUNTING-W/CENGAGENOWV2 ACCESS
26th Edition
ISBN: 9781305716780
Author: WARREN
Publisher: CENGAGE L
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Chapter 7, Problem 7.5APR

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.

The value of inventory on October 31, 2016 using first in first out method under periodic inventory system.

1.

Expert Solution
Check Mark

Explanation of Solution

The tabular column showing inventory cost is presented as follows:

Model Quantity ($) Unit cost ($) Total cost ($)
A10 4 76 304
2 70 140
B15 6 184 1,104
2 170 340
E60 5 70 350
G83 9 259 2,331
J34 15 270 4,050
M90 3 130 390
2 128 256
Q70 7 180 1,260
1 175 175
Total 10,700

Table (1)

Conclusion

Hence, the ending inventory on October 31, 2016 under First in First out Method is $10,700.

2.

To determine

The value of inventory on October 31, 2016 using last in first out method under periodic inventory system.

2.

Expert Solution
Check Mark

Explanation of Solution

The tabular column showing inventory cost is presented as follows:

Model Quantity ($) Unit cost ($) Total cost ($)
A10 4 64 256
2 70 140
B15 8 176 1,408
E60 3 75 225
2 65 130
G83 7 242 1,694
2 250 500
J34 12 240 2,880
3 246 738
M90 2 108 216
2 110 220
1 128 128
Q70 5 160 800
3 170 510
Total 9,845

Table (2)

Conclusion

Hence, the ending inventory on October 31, 2016 under Last in First out Method is $9,845.

3.

To determine

The value of inventory on October 31, 2016 using weighted average method under periodic inventory system.

3.

Expert Solution
Check Mark

Explanation of Solution

The tabular column showing inventory cost is presented as follows:

Model Quantity ($) Unit cost ($) Total cost ($)
A10 6 70 (1) 256
B15 8 174 (2) 1,392
E60 5 69 (3) 345
G83 9 253 (4) 2,277
J34 15 258 (5) 3,870
M90 5 121 (6) 605
Q70 8 172 (7) 1,376
Total 10,285

Table (3)

Working notes:

Computation of unit cost for Model A10:

A10=[(4×$64)+(4×$70)+(4×$76)](4+4+4)=$84012=$70 (1)

Computation of unit cost for Model B15:

B15=[(8×$176)+(4×$158)+(3×$170)+(6×$184)](8+4+3+6)=$3,65421=$174 (2)

Computation of unit cost for Model E60:

E60=[(3×$75)+(3×$65)+(15×$68)+(9×$70)](3+3+15+9)=$2,07030=$69 (3)

Computation of unit cost for Model G83:

G83=[(7×$242)+(6×$250)+(5×$260)+(10×$259)](7+6+5+10)=$7,08428=$253 (4)

Computation of unit cost for Model J34:

J34=[(3×$75)+(3×$65)+(15×$68)+(9×$70)](12+10+16+16)=$13,93254=$258 (5)

Computation of unit cost for Model M90:

M90=[(2×$108)+(2×$110)+(3×$128)+(3×$130)](2+2+3+3)=$1,21010=$121 (6)

Computation of unit cost for Model Q70:

Q70=[(5×$160)+(4×$170)+(4×$175)+(7×$180)](5+4+4+7)=$3,44020=$69 (7)

Conclusion

Hence, the ending inventory on October 31, 2016 under weighted average cost Method is $10,285.

4. (a)

To determine

To discuss: the method that would be preferred for income tax purposes in the period of rising prices.

4. (a)

Expert Solution
Check Mark

Explanation of Solution

During the period of rising prices, the last in first out method will result in lower cost of inventory, the cost of merchandise sold will be higher, and net income would be lower than other two methods. Therefore, the LIFO method would be preferred for the current year because it would effect in lower income tax.

(b)

To determine

To discuss: the method that would be preferred for income tax purposes in the period of declining prices.

(b)

Expert Solution
Check Mark

Explanation of Solution

During the period of declining prices, the first in first out method (FIFO) will result in lower cost of inventory, the cost of merchandise sold will be higher, and net income would be lower than other two methods. Therefore, the FIFO method would be preferred for the current year because it would effect in lower income tax.

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Chapter 7 Solutions

ACCOUNTING-W/CENGAGENOWV2 ACCESS

Ch. 7 - Cost flow methods The following three identical...Ch. 7 - Cost flow methods The following three identical...Ch. 7 - Perpetual inventory using FIFO Beginning...Ch. 7 - Perpetual inventory using FIFO Beginning...Ch. 7 - Perpetual inventory using LIFO Beginning...Ch. 7 - Perpetual inventory using LIFO Beginning...Ch. 7 - Perpetual inventory using weighted average...Ch. 7 - Perpetual inventory using weighted average...Ch. 7 - Periodic inventory using FIFO, LIFO, and weighted...Ch. 7 - Periodic inventory using FIFO, LIFO, and weighted...Ch. 7 - Lower-of-cost-or-market method On the basis of the...Ch. 7 - Prob. 7.6BPECh. 7 - Prob. 7.7APECh. 7 - Prob. 7.7BPECh. 7 - Prob. 7.8APECh. 7 - Prob. 7.8BPECh. 7 - Control of inventories Triple Creek Hardware Store...Ch. 7 - Control of inventories Hardcase Luggage Shop is a...Ch. 7 - Perpetual inventory using FIFO Beginning...Ch. 7 - Perpetual inventory using LIFO Assume that the...Ch. 7 - Perpetual inventory using LIFO Beginning...Ch. 7 - Perpetual inventory using FIFO Assume that the...Ch. 7 - FIFO and LIFO costs under perpetual inventory...Ch. 7 - Weighted average cost flow method under perpetual...Ch. 7 - Weighted average cost flow method under perpetual...Ch. 7 - Perpetual inventory using FIFO Assume that the...Ch. 7 - Perpetual inventory using LIFO Assume that the...Ch. 7 - Prob. 7.12EXCh. 7 - Periodic inventory by three methods; cost of...Ch. 7 - Comparing inventory methods Assume that a firm...Ch. 7 - Lower-of-cost-or-market inventory On the basis of...Ch. 7 - Merchandise inventory on the balance sheet Based...Ch. 7 - Prob. 7.17EXCh. 7 - Prob. 7.18EXCh. 7 - Error in inventory During 2016, the accountant...Ch. 7 - Inventory turnover The following data (in...Ch. 7 - Inventory turnover and number of days' sales in...Ch. 7 - Retail method A business using the retail method...Ch. 7 - Retail method A business using the retail method...Ch. 7 - Retail method A business using the retail method...Ch. 7 - Retail method On the basis of the following data,...Ch. 7 - Gross profit method The merchandise inventory was...Ch. 7 - Gross profit method Based on the following data,...Ch. 7 - Gross profit method Based on the following data,...Ch. 7 - FIFO perpetual inventory The beginning inventory...Ch. 7 - LIFO perpetual inventory The beginning inventory...Ch. 7 - Weighted average cost method with perpetual...Ch. 7 - Prob. 7.4APRCh. 7 - Prob. 7.5APRCh. 7 - Lower-of-cost-or-market inventory Data on the...Ch. 7 - Retail method; gross profit method Selected data...Ch. 7 - FIFO perpetual inventory The beginning inventory...Ch. 7 - LIFO perpetual inventory The beginning inventory...Ch. 7 - Weighted average cost method with perpetual...Ch. 7 - Periodic inventory by three methods The beginning...Ch. 7 - Periodic inventory by three methods Pappas...Ch. 7 - Lower-of-cost-or-market inventory Data on the...Ch. 7 - Retail method; gross profit method Selected data...Ch. 7 - Prob. 7.1CPCh. 7 - LIFO and inventory flows The following is an...Ch. 7 - Costing inventory Golden Eagle Company began...Ch. 7 - Inventory ratios for Dell and HP Dell Inc. and...Ch. 7 - Comparing inventory ratios for two companies...Ch. 7 - Prob. 7.6CP
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