Intermediate Accounting
9th Edition
ISBN: 9781259722660
Author: J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher: McGraw-Hill Education
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Chapter 8, Problem 8.8BE
LIFO method
• LO8–4
Esquire Inc. uses the LIFO method to value its inventory. Inventory at January 1, 2018, was $500,000 (20,000 units at $25 each). During 2018, 80,000 units were purchased, all at the same price of $30 per unit. 85,000 units were sold during 2018. Esquire uses a periodic inventory system. Calculate the December 31, 2018, ending inventory and cost of goods sold for 2018.
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P6.11 (LO 6), AP Rayre Books uses the retail inventory method to estimate its monthly ending invento-
ries. The following information is available for two of its departments at October 31, 2022.
Hardcovers Paperbacks
Cost Retail Cost Retail
Beginning inventory $ 420,000 $ 640,000 $ 280,000 $ 360,000
Purchases 2,135,000 3,200,000 1,155,000 1,540,000
Freight-in 24,000 12,000
Purchase discounts 44,000 22,000
Net sales 3,100,000 1,570,000
At December 31, Rayre Books takes a physical inventory at retail. The actual retail values of the inven-
tories in each department are Hardcovers $744,000 and Paperbacks $335,000.
Instructions
a. Determine the estimated cost ofthe ending inventory for each department at October 31, 2022,
using the retail inventory method.
b. Compute the ending inventory at cost for each department atDecember 31, assuming the cost-to-
retail ratios for the year are 65% for Hardcovers and 75% for Paperbacks.
8–6
Various inventory costing methods; gross profit ratio
● LO8–1, LO8–4, LO8–7
Topanga Group began operations early in 2024. Inventory purchase information for the quarter ended March 31, 2024, for Topanga’s only product is provided below. The unit costs include the cost of freight. The company uses a periodic inventory system to report inventory and cost of goods sold.
Date of Purchase
Units
Unit Cost
Total Cost
Jan. 7
5,000
$4.00
$20,000
Feb. 16
12,000
4.50
54,000
March 22
17,000
5.00
85,000
Total purchases
34,000
$159,000
Sales for the quarter, all at $7.00 per unit, totaled 20,000 units leaving 14,000 units on hand at the end of the quarter.
Required:
Calculate Topanga’s gross profit ratio for the first quarter using:
FIFO
LIFO
Average cost
Comment on the relative effect of each of the three inventory methods on the gross profit ratio.
E18.17 (LO 3) (Sales with Returns) Refer to the revenue arrangement in E18.16. Assume that instead of selling the tool sets on credit, Steele sold them for cash.
Below is the E18.16
On March 10, 2022, Steele Company sold to Barr Hardware 200 tool sets at a price of $50 each (cost $30 per set) with terms of n/60, f.o.b. shipping point. Steele allows Barr to return any unused tool sets within 60 days of purchase. Steele estimates that: (1) 10 sets will be returned, (2) the cost of recovering the products will be immaterial, and (3) the returned tools sets can be resold at a profit. On March 25, 2022, Barr returned six tool sets and received a credit to its account.
Instructions
1. Prepare journal entries for Steele to record (1) the sale on March 10, 2022, (2) the return on March 25, 2022, and (3) any adjusting entries required on March 31, 2022 (when Steele prepares financial statements). Steele believes the original estimate of returns is correct.2. Indicate the income statement and…
Chapter 8 Solutions
Intermediate Accounting
Ch. 8 - Describe the three types of inventory of a...Ch. 8 - What is the main difference between a perpetual...Ch. 8 - The Cloud Company employs a perpetual inventory...Ch. 8 - The Bockner Company shipped merchandise to Laetner...Ch. 8 - What is a consignment arrangement? Explain the...Ch. 8 - Prob. 8.6QCh. 8 - The Esquire Company employs a periodic inventory...Ch. 8 - Prob. 8.8QCh. 8 - Its common in the electronics industry for unit...Ch. 8 - Explain why proponents of LIFO argue that it...
Ch. 8 - Prob. 8.11QCh. 8 - Describe the ratios used by financial analysts to...Ch. 8 - Prob. 8.13QCh. 8 - Prob. 8.14QCh. 8 - The Austin Company uses the dollar-value LIFO...Ch. 8 - Identify any differences between U.S. GAAP and...Ch. 8 - Determining ending inventory; periodic system ...Ch. 8 - Prob. 8.2BECh. 8 - Prob. 8.3BECh. 8 - Purchas e discounts; gross method LO83 On...Ch. 8 - Prob. 8.5BECh. 8 - Prob. 8.6BECh. 8 - Inventor y cost flow methods; perpetual system ...Ch. 8 - LIFO method LO84 Esquire Inc. uses the LIFO...Ch. 8 - LIFO method LO84 AAA Hardware uses the LIFO...Ch. 8 - LIFO liquidation LO86 Refer to the situation...Ch. 8 - Prob. 8.11BECh. 8 - Ratio analysis LO87 Selected financial statement...Ch. 8 - Dollar-value LIFO LO88 At the beginning of 2018,...Ch. 8 - Perpetual inventory system; journal entries LO81...Ch. 8 - Prob. 8.2ECh. 8 - Determining cost of goods sold; periodic inventory...Ch. 8 - Perpetual and periodic inventory systems compared ...Ch. 8 - Prob. 8.6ECh. 8 - Goods in transit; consignment LO82 The December...Ch. 8 - Physical quantities and costs included in...Ch. 8 - Prob. 8.9ECh. 8 - Prob. 8.10ECh. 8 - Prob. 8.11ECh. 8 - FASB codification research LO82, LO83 Access the...Ch. 8 - Inventory cost flow methods; periodic system ...Ch. 8 - Inventory cost flow methods; perpetual system ...Ch. 8 - Comparison of FIFO and LIFO; periodic system ...Ch. 8 - Average cost method; periodic and perpetual...Ch. 8 - FIFO, LIFO, and average cost methods LO81, LO84...Ch. 8 - Supplemental LIFO disclosures; LIFO reserve; AEP...Ch. 8 - LIFO liquidation LO81, LO84, LO86 The Reuschel...Ch. 8 - Dollar-value LIFO LO88 On January 1, 2018, the...Ch. 8 - Dollar-value LIFO LO88 Mercury Company has only...Ch. 8 - Dollar-value LIFO LO88 Carswell Electronics...Ch. 8 - Concepts; terminology LO81 through LO85 Listed...Ch. 8 - Various inventory transactions; journal entries ...Ch. 8 - Prob. 8.2PCh. 8 - Prob. 8.4PCh. 8 - Various inventory costing methods LO81, LO84...Ch. 8 - Various inventory costing methods LO81, LO84...Ch. 8 - Supple mental LIFO disclosures; Caterpillar LO84,...Ch. 8 - LIFO liquidation LO84, LO86 Taylor Corporation...Ch. 8 - LIFO liquidation LO84, LO86 Cansela Corporation...Ch. 8 - Prob. 8.11PCh. 8 - Integrating problem; inventories and accounts...Ch. 8 - Dollar-value LIFO LO88 On January 1, 2018, the...Ch. 8 - Dollar-value LIFO LO88 Kingston Company uses the...Ch. 8 - Dollar-value LIFO LO88 On January 1, 2018,...Ch. 8 - Prob. 8.1BYPCh. 8 - Real World Case 82 Physical quantities and costs...Ch. 8 - Judgment Case 83 The specific identification...Ch. 8 - Prob. 8.4BYPCh. 8 - Prob. 8.5BYPCh. 8 - Judgment Case 86 Goods in transit LO82 At the end...Ch. 8 - Ethics Case 87 Profit manipulation LO84 In 2017...Ch. 8 - Real World Case 88 Effects of inventory valuation...Ch. 8 - Real World Case 89 Effects of inventory valuation...Ch. 8 - Communication Case 810 Dollar-value LIFO method ...Ch. 8 - Prob. 8.11BYPCh. 8 - Prob. 8.CCTCCh. 8 - Prob. CCIFRS
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- Exhibit7.5 Sullivan Produce Co. switched from FIFO to LIFO on January1,2018, for external reporting and income tax purposes, while retaining FIFO for internal reports. On that date, the FIFO inventory equaled $360,000. The ensuing three-year period resulted in the following: December31,2018 Year-End Costs $438,000 Cost Index 1.05 December 31,2019 Year-End Costs $460,000 Cost Index 1.15 December 31, 2020 Year-End Costs $520,000 Cost Index 1.25 Refer to Exhibit 7-5, The ending inventory at December 31,2020, using the dollar-value LIFO method would be a. $422,000 b. $402,000 c $426,000 d. $420,400 Refer to Exhibit7-5, the ending inventory at December 31,2019, at base-year price is: a.$400,000 b. $402,000 c.$406,000 d.$424,000arrow_forwardE9.23 (LO 6 ) (Analysis of Inventories) The financial statements of ConAgra Foods, Inc.'s 2017 annual report disclose the following information. (in millions) 2017 2016 2015 Year-end inventories $934.2 $1,044.1 $1,642.6 Fiscal Year 2017 2016 Net sales $7,826.9 $8,664.1 Cost of goods sold 5,484.8 6,234.9 Net income 648.0 (665.9) Instructions Compute ConAgra's (a) inventory turnover and (b) the average days to sell inventory for 2017 and 2016.arrow_forwardEA5. EA5. LO 10.2Akira Company had the following transactions for the month.Chart showing Beginning Inventory of 150 units at $10 per unit, Purchase of March 31 of 160 units at $12 each, Purchase of October 15 of 130 units at $15 each, and ending inventory of 50 units at a cost of ? each.Calculate the ending inventory dollar value for the period for each of the following cost allocation methods, using periodic inventory updating. Provide your calculations. first-in, first-out (FIFO)last-in, first-out (LIFO)weighted average (AVG)arrow_forward
- E8.2 (LO 2) (Inventoriable Goods and Costs) In your audit of Jose Oliva Company, you find that a physical inventory on December 31, 2020, showed merchandise with a cost of $441,000 was on hand at that date. You also discover the following items were all excluded from the $441,000. 1. Merchandise of $61,000 which is held by Oliva on consignment. The consignor is the Max Suzuki Company. 2. Merchandise costing $38,000 which was shipped by Oliva f.o.b. destination to a customer on December 31, 2020. The customer was expected to receive the merchandise on January 6, 2021. 3. Merchandise costing $46,000 which was shipped by Oliva f.o.b. shipping point to a customer on December 29, 2020. The customer was scheduled to receive the merchandise on January 2, 2021. 4. Merchandise costing $83,000 shipped by a vendor f.o.b. destination on December 30, 2020, and received by Oliva on January 4, 2021. 5. Merchandise costing $51,000 shipped by a vendor f.o.b. shipping point on December 31,…arrow_forwardMa4. Question 42. The cost of inventory that has been sold to customers is called: A. cost of goods sold, and it appears on the income statement. B.inventory, a current asset that appears on the balance sheet. C.inventory, a current asset that appears on the income statement. D.cost of goods sold, and it appears on the balance sheet. Question 43. ABC Company sold $120,000 of goods and accepted the customer's $120,000 10%, 1- year note in exchange. Assuming 10% approximates the market rate of return, how much interest would be recorded for the year ending December 31 if the sale was made on June 30? A.12,000 B. 3,000 C.0 D. 6,000 Question 44 Under the allowance method of recognizing uncollectible accounts, the entry to write off an uncollectible account A.increases the allowance for uncollectible accounts. B.has no effect on the allowance for uncollectible accounts. C.decreases net income. D. has no effect on net income.arrow_forwardE9.3B (L0 1) (LCNRV) Sunshine Company follows the practice of pricing its inventory at LCNRV, on an individual-item basis. Item No. Quantity Cost per Unit Cost to Replace Estimated Selling Price Cost of Completion and Disposal Normal Profi t A 1,200 $8.10 $8.00 $9.00 $0.35 $0.90 B 600 6.00 5.60 6.00 0.45 0.50 C 200 5.50 5.00 7.00 0.40 1.00 D 700 7.25 7.50 8.00 0.50 0.90 E 1,000 2.10 2.00 2.80 0.65 0.20 F 500 4.05 4.00 5.00 0.40 0.75 G 2,000 8.75 8.15 9.00 0.60 0.50 H 300 9.95 9.00 10.50 0.30 1.00 Instructions From the information above, determine the amount of Sunshine Company inventory using the LCNRV method. determine the amount of Sunshine Company inventory using the LCM method.arrow_forward
- 55.XXX Company uses the average cost retail method to estimate its inventory. Data relating to the inventory at December 31, 2020 are: Cost Retail Inventory, January 1 P 2,000,000 P3,000,000 Purchases 10,600,000 14,000,000 Net markups 1,600,000 Net markdowns 600,000 Sales 12,000,000 Estimated normal shoplifting losses 400,000 Estimated normal shrinkage is 5% of sales Trinidad’s cost of goods sold for the year ended December 31, 2019 isarrow_forwardE8.8 (LO 2) (Purchases Recorded, Gross Method) Cruise Industries purchased $10,800 of merchandise on February 1, 2020, subject to a trade discount of 10% and with credit terms of 3/15, n/60. It returned $2,500 (gross price before trade or cash discount) on February 4. The invoice was paid on February 13. Instructions a. Assuming that Cruise uses the perpetual method for recording merchandise transactions, record the purchase, return, and payment using the gross method. b. Assuming that Cruise uses the periodic method for recording merchandise transactions, record the purchase, return, and payment using the gross method. c. At what amount would the purchase on February 1 be recorded if the net method were used?arrow_forwardE9.14B (L0 4) (Gross Profit Method) Wineview Company lost most of its inventory in a fire in December just before the yearend physical inventory was taken. The corporation’s books disclosed the following. Beginning inventory $210,000 Sales $970,000 Purchases for the year 805,000 Sales returns 71,000 Purchase returns 15,000 Rate of gross margin on net sales 20% Merchandise with a selling price of $51,000 remained undamaged after the fire. Damaged merchandise with an original selling price of $25,000 had a net realizable value of $2,500. Instructions Compute the amount of the loss as a result of the fire, assuming that the company had no insurance coverage.arrow_forward
- E8.12 (LO 3) (FIFO, LIFO, Average-Cost Inventory) Shania Twain Company was formed onDecember 1, 2019. The following information is available from Twain’s inventory records for Product BAP. Units Unit CostJanuary 1, 2020 (beginning inventory) 600 $ 8.00Purchases:January 5, 2020 1,200 9.00January 25, 2020 1,300 10.00February 16, 2020 800 11.00March 26, 2020 600 12.00 A physical inventory on March 31, 2020, shows 1,600 units on hand.InstructionsPrepare schedules to compute the ending inventory at March 31, 2020, under each of the following inventory methods.a. FIFO b. LIFO. c. Weighted-average (round unit costs to two decimal places)arrow_forwardCA8.1 (LO 2) (Inventoriable Goods and Costs) You are asked to travel to Milwaukee to observe and verify the inventory of the Milwaukee branch of one of your clients. You arrive on Thursday, December 30, and find that the inventory procedures have just been started. You spot a railway car on the sidetrack at the unloading door and ask the warehouse superintendent, Buck Rogers, how he plans to inventory the contents of the car. He responds, “We are not going to include the contents in the inventory.” Later in the day, you ask the bookkeeper for the invoice on the carload and the related freight bill. The invoice lists the various items, prices, and extensions of the goods in the car. You note that the carload was shipped December 24 from Albuquerque, f.o.b. Albuquerque, and that the total invoice price of the goods in the car was $35,300. The freight bill called for a payment of $1,500. Terms were net 30 days. The bookkeeper affirms the fact that this invoice is to be held for recording…arrow_forwardEA6. LO 10.2 Akira Company had the following transactions for the month. Number of Units cost per unit Beginning inventory 150 $1,500 Purchased Mar. 31 160 1,920 Purchased Oct. 15 130 1,950 Total goods available for sale 440 5,370 Ending inventory 50 ? Calculate the gross margin for the period for each of the following cost allocation methods, using periodic inventory updating. Assume that all units were sold for $25 each. Provide your calculations. A first-in, first-out (FIFO). B. last-in, first-out (LIFO) C. weighted average (AVG)arrow_forward
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