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Method of Inventory: Inventory refers to the current assets that a company expects to sell during the normal course of business operations, the goods that are under process to be completed for future sale, or currently used for producing goods to be sold in the market. Inventory is valued under three methods:
FIFO: Under this inventory method, the units that are purchased first, are sold first. Thus, it starts from the selling of the beginning inventory, followed by the units purchased in a chronological order of their purchases took place during a particular period.
LIFO: Under this inventory method, the units that are purchased last, are sold first. Thus, it starts from the selling of the units recently purchased and ending with the beginning inventory.
Average cost method: Under this method, the cost of the goods available for sale is divided by the number of units available for sale during a particular period.
To prepare: the 2018
2.
the amount of cost of goods sold that would be higher or lower in the 2017 revised income statement.
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Chapter 9 Solutions
INTERMEDIATE ACCOUNTING(LL)-W/2 ACCESS
- ( Appendix 6B) Inventory Costing Methods Grencia Company uses a periodic inventory system. For 2018 and 2019, Grencia has the following data (assume all purchases and sales are for cash): Required: 1. Compute cost of goods sold, the cost of ending inventory, and gross margin for each year using FIFO. 2. Compute cost of goods sold, the cost of ending inventory, and gross margin for each year using LIFO. 3. Compute cost of goods sold, the cost of ending inventory, and gross margin for each year using the average cost method. ( Note: Use four decimal places for per unit calculations and round all other numbers to the nearest dollar.) 4. CONCEPTUAL CONNECTION Which method would result in the lowest amount paid for taxes? 5. CONCEPTUAL CONNECTION Which method produces the most realistic amount for income? For inventory? Explain your answer. 6. CONCEPTUAL CONNECTION What is the effect of purchases made later in the year on the gross margin when LIFO is employed? When FIFO is employed? Be sure to explain why any differences occur. 7. CONCEPTUAL CONNECTION If you worked Problem 6-68B, compare your answers. What are the differences? Be sure to explain why any differences occurred.arrow_forwardLIFO and Inventory Pools On January 1, 2016, Grover Company changed its inventory cost flow method to the LIFO cost method from the FIFO cost method for its raw materials inventory. It made the change for both financial statement and income tax reporting purposes. Grover uses the multiple-pools approach under which it groups substantially identical raw materials into LIFO inventory pools. It uses weighted average costs in valuing annual incremental layers. The composition of the December 31, 2018, inventory for the Class F inventory pool is as follows: Inventory transactions for the Class F inventory pool during 2019 were as follows: On March 2, 2019, 4,800 units were purchased at a unit cost of 13.50 for 64,800. On September 1, 2019, 7,200 units were purchased at a unit cost of 14.00 for 100,800. A total of 15,000 units were used for production during 2019. The following transactions for the Class F inventory pool took place during 2020: On January 11, 2020, 7,500 units were purchased at a unit cost of 14.50 for 108,750. On May 14, 2020, 5,500 units were purchased at a unit cost of 15.50 for 85,250. On December 29, 2020, 7,000 units were purchased at a unit cost of 16.00 for 112,000. A total of 16,000 units were used for production during 2020. Required: 1. Prepare a schedule to compute the inventory (units and dollar amounts) of the Class F inventory pool at December 31, 2019. Show supporting computations in good form. 2. Prepare a schedule to compute the cost of Class F raw materials used in production for the year ended December 31, 2019. 3. Prepare a schedule to compute the inventory (units and dollar amounts) of the Class F inventory pool at December 31, 2020. Show supporting computations in good form.arrow_forwardReview Exercises 7-41 M7-8 Assuming no beginning inventory, what can be said about the trend of inventory prices if cost of goods sold computed when inventory is valucd using the FIFO method exceeds cost of goods sold when inventory is valued using the LIFO method? Under the dollar-value LIFO inventory method, Kern's inventory method, Kern's inventory on December 31, 2016, would be: LO 7.5 a. $650,000 b. $655,000 c. $660,000 d. $720,000 a. Prices decreased. When the double-extension approach to the dollar-value LIFO inventory cost flow method is used, the inventory layer added in the current year is multiplied by an index number. How would the following be used in the calculation of this index number? M7-10 b. Prices remained unchanged. c. Prices increased. d. Price trend cannot be determined from information given. LO 7.7 On December 31, 2015, Kern Company adopted the dollar-value LIFO inventory method. All of Kern's inventories constitute a single pool. The inventory on Dccember 31,…arrow_forward
- Chapter 8 Perform (ASAC LO 5 and BSAC LO 2) Kingbird Company began operations late in 2024 and adopted the conventional retail inventory method. Because there was no beginning inventory for 2024 and no markdowns during 2024, the ending inventory for 2024 was $13,708 under both the conventional retail method and the LIFO retail method. At the end of 2025, management wants to compare the results of applying the conventional and LIFO retail methods. There was no change in the price level during 2025. The following data are available for computations. Cost Inventory, January 1, 2025 Sales revenue Net markups mu Net markdowns mo Purchases Freight-in Estimated theft (b) The LIFO retail method. Ending inventory at cost Ending inventory at retail Cost $ $13,708 $ 63,900 5,888 Retail Compute the cost of the 2025 ending inventory under both: (a) The conventional retail method. $20,200 77,000 mu 9,900 mD 1,800 ex Beg Ending inventory using the conventional retail method $ 87,500 2,200 27336 40800…arrow_forward7-52 Chapter 7 Inventories: Cost Measurement and Flow Assumptions P7-13 Dollar-Value LIFO Kwestel Company adopted the dollar-value LIFO method for inventory valuation at the be- ginning of 2015. The following information about the inventory at the end of cach year is available from Kwestel's records: LO 7.7 Year Current Cost Index $ 8,000 10,800 11,500 14,000 10,500 2014 100 120 2015 2016 130 145 2017 2018 125 Required: Calculate the dollar-value LIFO inventory at the end of each year. Round to the nearest dollar.arrow_forwardPROBLEM 2: (CHANGE IN ACCOUNTING POLICY) Shilo Co. has been using the weighted average method of inventory costing since it began operations in 2018. Shilo Co. has reported the following net income: Net income Under Weighted Average Method P 400,000 2018 2019 285,000 320,000 2020 Beginning 2021 the company decided to change the inventory cost formula to FIFO method. The following are the December 31 inventory balances under each method: 2018 2019 2020 MI, end Per Books (Weighted Average) P 180,000 250,000 330,000 MI, End (FIFO) P 200,000 310,000 440,000 MI, End Per Books Understated By P 20,000 60,000 110,000 Compute for the following: a. Restated net income for 2019 and 2020 as a result of the change in policy b. Adjustment to the accumulated profits beginning balance of 2021 as a result of the changearrow_forward
- A D F G H Problem #3 Robin Rotelle Corp. began operations late in 2020 and adopted the conventional retail method. Because there was no beginning inventory for 2020 and no markdowns during 2020, the ending inventory as of Dec. 31, 2020 was $525,000 using either the conventional retail or LIFO retail methods. At the end of 2021 Robin wants to compare the results of applying the conventional and LIFO retail methods. The following data is available for computations: Cost Retail Inventory Dec. 31, 2020 525,000 1,312,500 2021 Purchases 1,917,825 4,100,000 2021 Net markups 16,000 2021 Net markdowns 202,071 2021 Net Sales 3,690,000 2021 Price Index 108 Required: Compute the cost of the 2021 ending inventory under the a conventional retail method b LIFO retail method Dollar-value Lifo Retail Method (2020 is "Base-year") 11 02 D3arrow_forwardP 8-14 Dollar-value LIFO LO8-8 Kingston Company uses the dollar-value LIFO method of computing inventory. An external price index is used to convert ending inventory to base year. The company began operations on January 1, 2018, with an inventory of $150,000. Year-end inventories at year-end costs and cost indexes for its one inventory pool were as follows: Year Ended December 31 2018 2019 2020 2021 Ending Inventory at Year-End Costs $200,000 245,700 235,980 228,800 Cost Index (Relative to Base Year) 1.08 1.17 1.14 1.10 Required: Calculate inventory amounts at the end of each year.arrow_forwardMultiple Choice Question 100 Coronado Industries had the following inventory transactions occur during 2014: Units Cost/unit 2/1/16 Purchase 55 $45 06 68 3/14/16 Purchase $45 5/1/16 Purchase $47 The company sold 150 units at $60 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, what is the company's after-tax income using FIFO? (rounded to whole dollars) $2114 $2240 $1404 $1568arrow_forward
- Question 2 Grouper Company began operations on January 1, 2018, and uses the average-cost method of pricing inventory. Management is contemplating a change in inventory methods for 2021. The following information is available for the years 2018-2020. 2018 2019 2020 Net Income Computed Using Average-Cost Method FIFO Method $15,910 $19.060 21,170 25,200 2018 (a) Prepare the journal entry necessary to record a change from the average cost method to the FIFO method in 2021. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Account Titles and Explanation 2019 18,170 $ 19,880 $ (b) Determine net income to be reported for 2018, 2019, and 2020, after giving effect to the change in accounting principle. 2020 $ LIFO Method $12,010 14,110 17,040 Net Income Debit Account Titles and Explanation Credit (c) Assume Grouper Company used the LIFO method instead…arrow_forwardС23 Jx А B C. D E F G H. K I also need your assistance in claulating the following economic order quantity (Qe) given new data for 2017. Our inventory generally follows Pareto's Law; therefore, I have emphasized controlling those items representing the majority of our inventory activity. One of those items in IV (intravenous) setups. Our current situation is as follows: 2016 Price $50 for each IV setup 50,000 $25 2017 Demand 2017 Operating Cost 2017 Interest 6.25% 2017 Holding Cost $0.50 The IV distributor would like to distribute a new model setup in 2017 at the same price, but he tells us that he is willing to reduce our carrying costs by making monthly deliveries. After discussing this proposal with Ms. Care, I discovered that training will be required for the new setup. Ms. Care believes, and the distributor agrees, that each registered nurse (RN) will be required to attend a 2 hour seminar. I'm not sure where we put this training cost in the total cost formula. Ms. Care tells me…arrow_forwardDollar-Value LIFO On January 1, 2015, Sato Company adopted the dollar-value LIFO method of inventory costing. Sato's ending inventory records appear as follows: Year Current Cost Index 2015 100 120 2016 2017 2018 Year 2015 $ 2016 $ 2017 $ $34,900 48,780 51,090 2018 63,420 Required: Compute the ending inventory for the years 2015, 2016, 2017, and 2018, using the dollar-value LIFO method. Do not round your intermediate calculations. If required, round your answers to the nearest dollar. 130 140 Ending inventory 34,900arrow_forward
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningIntermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
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