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QUICK STUDIES

Quick Study 5-1 (10 minutes)


FIFOPerpetual
Date
1/1
1/9
1/25

Goods Purchased

Cost of Goods Sold

80 @ $3.20

100 @ $3.34

1/26

Inventory Balance
320 @ $3.00
= $ 960.00
320 @ $3.00
80 @ $3.20
= $1,216.00

320 @ $3.00 =$ 960.00


30 @ $3.20 =
96.00
$1,056.00

Alternate solution format


FIFO:
100 @ $3.34 =
50 @ $3.20 =
150

$ 334.00
160.00
$ 494.00

320 @ $3.00
80 @ $3.20
100 @ $3.34

50 @ $3.20
100 @ $3.34

= $1,550.00

= $ 494.00

Ending inventory cost

Quick Study 5-2 (10 minutes)


LIFOPerpetual
Date
1/1
1/9
1/25

Goods Purchased

Cost of Goods Sold

80 @ $3.20
100 @ $3.34

1/26

Alternate solution format


LIFO:
150 @ $3.00 =

100 @ $3.34 =$ 334.00


80 @ $3.20 = 256.00
170 @ $3.00 = 510.00
$1,100.00

$ 450.00

Inventory Balance
320 @ $3.00
= $ 960.00
320 @ $3.00
80 @ $3.20

320 @ $3.00
80 @ $3.20
100 @ $3.34

150 @ $3.00

Ending inventory cost

= $1,216.00
= $1,550.00

= $ 450.00

Quick Study 5-3 (10 minutes)


Weighted AveragePerpetual
Date
1/1
1/9

Goods Purchased

Cost of Goods Sold

80 @ $3.20

1/25

100 @ $3.34

1/26

Inventory Balance
320 @ $3.00
= $ 960.00
320 @ $3.00
80 @ $3.20
= $1,216.00
(avg. cost is $3.04)
320 @ $3.00
80 @ $3.20
= $1,550.00
100 @ $3.34
(avg. cost is $3.10)

350 @ $3.10 = $1,085.00

150 @ $3.10

= $ 465.00

Alternate solution format


Weighted average:

320 @ $3.00 =
80 @ $3.20 =
100 @ $3.34 =
500

$ 960.00
256.00
334.00
$1,550.00 Cost of goods available for sale

$1,550.00/500 = $3.10 weighted average cost per unit


150 units @ $3.10 = $ 465.00 Ending inventory cost

Quick Study 5-4A (10 minutes)


Ending
Inventory

Cost of
Goods Sold

FIFO
(100 x $3.34) + (50 x $3.20) ................................. $494.00
(320 x $3.00) + (30 x $3.20) .................................

$1,056.00

FIFOPeriodic

Quick Study 5-5A (10 minutes)


LIFOPeriodic

Ending
Inventory

LIFO
(150 x $3.00) ......................................................... $450.00
(100 x $3.34) + (80 x $3.20) + (170 x $3.00) .......

Cost of
Goods Sold

$1,100.00

Quick Study 5-6A (10 minutes)


Ending
Inventory

Weighted AveragePeriodic

Weighted Average ($1,550/ 500 = $3.10 cost per unit)


(150 x $3.10) ........................................................ $465.00
(350 x $3.10) ........................................................

Cost of
Goods Sold

$1,085.00

Quick Study 5-7 (10 minutes)


Beginning inventory .....................................
Plus
1st week purchase .......................................
2nd week purchase ......................................
3rd week purchase .......................................
4th week purchase .......................................
Units Available for sale ................................
Cost of Goods Available for Sale................

10 units @ $60

$ 600

10 units @ $61
10 units @ $62
10 units @ $65
10 units @ $70
50 units

610
620
650
700
$3,180

Quick Study 5-8 (25 minutes)


FIFOPerpetual
Date

Goods Purchased

12/ 7

10 @ $ 6 = $ 60

10 @ $ 6

= $ 60.00

12/14

20 @ $12 = $240

10 @ $ 6
20 @ $12

= $300.00

15 @ $12

= $180.00

15 @ $12
15 @ $14

= $390.00

12/15

12/21

Cost of Goods Sold

10 @ $ 6
5 @ $12 = $120.00
15 @ $14 = $210
______
$120.00

Inventory Balance

Quick Study 5-9


LIFOPerpetual
Date

Goods Purchased

Cost of Goods Sold

Inventory Balance

12/7

10 @ $ 6 = $ 60

10 @ $ 6

= $ 60

12/14

20 @ $12 = $240

10 @ $ 6
20 @ $12

= $300

10 @ $ 6
5 @ $12

= $120

10 @ $ 6
5 @ $12
15 @ $14

= $330

12/15
12/21

15 @ $12 = $180
15 @ $14 = $210
____
$180

Quick Study 5-10


Weighted AveragePerpetual
Date

Goods Purchased

Cost of Goods Sold

Inventory Balance

12/7
12/14

10 @ $6 = $60

10 @ $6

= $ 60

20 @ $12 = $240

10 @ $6
20 @ $12

= $300

(avg cost is $10)

12/15
12/21

15 @ $10 =$150
15 @ $14 = $210
____
$150

15 @ $10

= $150

15 @ $10
15 @ $14

= $360

}
(avg cost is $12)

Quick Study 5-11


Specific IdentificationPerpetual
Ending inventory under specific identification:
(2 units x $6) + (13 units x $12) + (15 units x $14) = $378.
Quick Study 5-12A (10 minutes)
FIFOPeriodic
FIFO
(15 x $12) + (15 X $14) ....................................
(10 x $6) + (5 x $12) ........................................

Ending
Inventory

Cost of
Goods Sold

$390
$120

Quick Study 5-13A (10 minutes)

LIFOPeriodic
LIFO
(10 x $6) + (20 x $12) ......................................
(15 x $14) ........................................................

Ending
Inventory

Cost of
Goods Sold

$300
$210

Quick Study 5-14A (10 minutes)


Weighted AveragePeriodic
Weighted Average ($510/ 45 = $11.33 cost per unit)*
(30 x $11.33 [rounded to dollars and cents]) ..............
(15 x $11.33 [rounded to dollars and cents]) ..............

Ending
Inventory

Cost of
Goods Sold

$339.90
$169.95

*If unit cost is not rounded, then ending inventory is $340 and goods sold is $170.

Quick Study 5-15A (10 minutes)


Specific IdentificationPeriodic
Specific Identification
(2 x $6) + (13 x $12) + (15 x $14) ....................
(8 x $6) + (7 x $12) ..........................................

Quick Study 5-16 (10 minutes)


1.

LIFO

2.

FIFO

3.

LIFO

4.

LIFO

5.

Specific identification

Ending
Inventory

Cost of
Goods Sold

$378
$132

Quick Study 5-17 (10 minutes)


Units in ending inventory
Units stored in basement .................................... 1,300 units
Less damaged (unsalable) units .........................
(20)
Plus units in transit .............................................. 350
Plus units on consignment .................................
80
Total units in ending inventory ........................... 1,710 units

Quick Study 5-18 (10 minutes)


Cost ......................................................................
$14,000
Plus
Transportation-in .............................................. 250
Import duties ..................................................... 900
Insurance ........................................................... 300
Inventory Cost ..................................................
$15,450
The $150 advertising cost and the $1,250 cost for sales staff salaries are
included in operating expensesnot part of inventory costs. Those two
costs are not necessary to get the vehicle in a place and condition for sale.

Quick Study 5-19 (20 minutes)


Total
Per Unit
Inventory Items Units Cost Market
Cost
Mountain bikes 11 $600 $550 $ 6,600
Skateboards
13
350
425
4,550
Gliders
26
800
700 20,800
$31,950

Total
Market
$ 6,050
5,525
18,200
$29,775

LCM Items
$ 6,050
4,550
18,200
$28,800

LCM applied to each product ......................................................

$28,800

Quick Study 5-20 (15 minutes)


a.
b.
c.
d.
e.

Overstates 2013 cost of goods sold.


Understates 2013 gross profit.
Understates 2013 net income.
Overstates 2014 net income.
The understated 2013 net income and the overstated 2014 net income
combine to yield a correct total income for the two-year period.
f. The 2013 error will not affect years after 2014.

Quick Study 5-21 (10 minutes)


Inventory turnover

= Cost of goods sold/Average merchandise inventory


= $1,200,000 / [($150,000 + $180,000)/2 ] = 7.27 times

Days sales in inventory = Ending Inventory/Costs of goods sold x 365


= ($180,000 / $1,200,000) x 365 = 54.75 days

Quick Study 5-22B (15 minutes)


Goods available for sale
Inventory, January 1 ......................................................................
$190,000
Cost of goods purchased (net) .....................................................
352,000
Goods available for sale (at cost) .................................................
542,000
Net sales at retail ..............................................................................
Estimated cost of goods sold [$685,000 x (1 - 44%)]..........................
(383,600)
Estimated September 5 inventory destroyed ................................
$158,400

$685,000

Quick Study 5-23 (10 minutes)


a. Both IFRS and U.S. GAAP provide broad and similar guidance on the
accounting for items and costs making up merchandise inventory.
Specifically, merchandise inventory includes all items that a company
owns and holds for sale. Further, merchandise inventory includes
costs of expenditures necessary, directly or indirectly, to bring those
items to a salable condition and location.
b. Yes, companies reporting under IFRS can apply cost flow assumptions
in assigning costs to inventory. FIFO and weighted average are two
popular cost flow assumptions applied by companies reporting under
IFRS. (LIFO is not presently acceptable under IFRS.)
c.

U.S. GAAP prohibits any later increase in the recorded value of


inventory that had been written down even if that decline in value is
reversed through value increases in later periods. However, IFRS
allows reversals of those write-downs up to the original acquisition
cost.