FINANCIAL ACCOUNTING FUNDAMENTALS W/CO
FINANCIAL ACCOUNTING FUNDAMENTALS W/CO
5th Edition
ISBN: 9781259695759
Author: Wild
Publisher: McGraw-Hill Publishing Co.
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Chapter 5, Problem 1BP

1.

To determine

Compute cost of goods available for sale and number of units available for sale.

1.

Expert Solution
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Explanation of Solution

Cost of goods available for sale: Cost of goods available for sale represents the sum of beginning merchandise and purchased merchandise. Cost of goods available for sale is not reported on any of the financial statements because the cost of goods available for sale is either sold, or remained as ending inventory, at the end of the year.

Compute cost of goods available for sale and number of units available for sale:

ParticularsUnitsCost of goods
Beginning inventory20 units @ $3,000$60,000
April 630 units @ $3,500105,000
April 175 units @ $4,50022,500
April 2520 units @ $4,800   48,000
Units available65 units 
Cost of goods available for sale $235,500

Table (1)

Therefore, units available are 65units and cost of goods available for sale is $235,500.

2.

To determine

Compute the number of units in ending inventory.

2.

Expert Solution
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Explanation of Solution

Compute the number of units in ending inventory:

Units available (refer requirement 1)65 units
Less: Units sold (35+25)(60 units)
Ending Inventory (units)5 units 

Table (2)

Hence, the ending inventory is 5 units.

3.

To determine

Compute the cost assigned to ending inventory using (a) FIFO, (b) LIFO, (c) weighted average, and (d) specific identification.

3.

Expert Solution
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Explanation of Solution

First-in-First-Out (FIFO): In this method, items purchased initially are sold first. Therefore, the value of the ending inventory contains the recent cost for the remaining unsold items.

a) Compute the cost assigned to ending inventory using FIFO:

DateGoods PurchasedCost of Goods SoldInventory Balance
April 1  20 @ $3,000= $60,000
April 630 @ $3,500 = $105,000 20 @ $3,000
30@$3,500 = $165,000
April 9 20 @ $3,000 = $60,00015 @ $3,500 = $52,500
15 @ $3,500 = $52,500
April 175 @ $4,500 = $22,500 15 @ $3,500
5 @ $4,500 = $75,000
April 2510 @  4,800 = $48,000 15 @ $3,500
5 @ $4,500
10 @  4,800= $123,000
April 30 15 @ $3,500 = $52,5005 @  4,800 = $24,000
5 @ $4,500 = $22,500
5 @ $4,800= $24,000
  $ 211,500 

Table (3)

Therefore, the cost assigned to ending inventory using FIFO is $24,000.

Last-in-First-Out (LIFO): In this method, items purchased recently are sold first. So, the value of the ending inventory contains the initial cost for the remaining unsold items.

b) Compute the cost assigned to ending inventory using LIFO:

DateGoods PurchasedCost of Goods SoldInventory Balance
April 1  20 @ $3,000  = $60,000
April 630@$3,500 = $105,000 20 @ $3,000  = $60,000
30@$3,500 = $105,000
March 9 30@$3,500 = $105,000  15 @ $3,000 = $45,000
5 @ $3,000 = $15,000
April 175 @ $4,500 = $22,500   15 @ $3,000 = $45,000
5 @ $4,500 = $22,500
April 2510@$4,800 = $48,000 15 @ $3,000 = $45,000
5 @ $4,500 = $22,500
10 @ 4,800= $48,000
April 30 10 @ $4,800 = $48,0005 @  3,000= $15,000
5 @ $4,500   = $22,500
10@$3,000   = $30,000
  = $220,500 

Table (4)

Therefore, the cost assigned to ending inventory using LIFO is $15,000.

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

c) Compute the cost assigned to ending inventory using weighted average cost:

DateGoods PurchasedCost of Goods SoldInventory Balance
April 1  20 @ $3,000  = $60,000
April 630@ $3,500 = $105,000 20 @ $3,000  = $60,000
30@$3,500=$105,000
  Average cost is $3,300 ($165,000÷50units)
April 9 35@ $3,300= $115,50015 @ $3,300 = $49,500
  Average cost is $3,300 ($49,500÷15units)
April 175 @ $4,500 = $22,500 15 @ $3,300 = $49,500
5 @ $4,500= $22,500
  Average cost is $3,600 ($72,000÷20units)
April 2510@ 4,800 = $48,000 15@ $3,300= $49,500
5 @ $4,500= $22,500
10 @ 4,800= $48,000
  Average cost is $4,000 ($120,000÷30units)
April 30 25@$4,000= 100,000 5 @ $4,000= $20,000
  $ 215,500 
  Average cost is $4,000 ($20,000÷5units)

Table (5)

Therefore, the cost assigned to ending inventory using weighted average cost is $20,000.

Specific identification inventory system: It is one of the inventory valuation methods where the purchase cost of each item in the inventory is identified and used to calculate the ending inventory and cost of goods sold.

d) Compute the cost assigned to ending inventory using weighted average cost:

ParticularsAmount ($)
Total goods available for sale (requirement 1)$235,500
Less: Cost of goods sold (1)($213,000)
Ending inventory$22,500

Table (6)

Therefore, the cost assigned to ending inventory using specific identification method is $22,500.

Working note:

Calculate the cost of goods sold:

ParticularsUnits @ cost per unitAmount ($)
Beginning inventory20 units @ $3,000$60,000
Purchase on April 630 units @ $3,500$105,500
Purchase on April 2510 units @ $4,800$48,000
Cost of goods sold213,000

(1)

Table (7)

4.

To determine

Compute the gross profit earned by the Company W for each of the four costing methods in requirement 3.

4.

Expert Solution
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Explanation of Solution

Gross margin (gross profit): Gross margin is the amount of revenue earned from goods sold over the costs incurred for the goods sold.

Compute the gross profit earned by the Company W for each of the four costing methods in requirement 3:

 

FIFO

LIFO

Weighted

Average

Specific

Identification

Sales (2)$770,000$770,000$770,000$770,000
Less: Cost of goods sold  211,500  220,500  215,500  213,000
Gross profit$558,500$549,500$554,500$557,000

Table (8)

Gross profit under FIFO method is higher ($558,500) and under LIFO method is lower ($549,500)

Working note:

Calculate the sales amount:

Sales on April 9 (35units @ $12,000)$420,000
Sales on April 30 (25units @ $14,000)$350,000
Total sales amount$770,000

(2)

Table (9)

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Chapter 5 Solutions

FINANCIAL ACCOUNTING FUNDAMENTALS W/CO

Ch. 5 - Prob. 5DQCh. 5 - Prob. 6DQCh. 5 - Prob. 7DQCh. 5 - Prob. 8DQCh. 5 - Prob. 9DQCh. 5 - Prob. 10DQCh. 5 - Prob. 11DQCh. 5 - Prob. 12DQCh. 5 - 13. B When preparing interim financial statements,...Ch. 5 - Prob. 14DQCh. 5 - Prob. 15DQCh. 5 - Prob. 16DQCh. 5 - Prob. 17DQCh. 5 - Prob. 1QSCh. 5 - Prob. 2QSCh. 5 - Prob. 3QSCh. 5 - Prob. 4QSCh. 5 - Prob. 5QSCh. 5 - Prob. 6QSCh. 5 - Prob. 7QSCh. 5 - Prob. 8QSCh. 5 - Prob. 9QSCh. 5 - Prob. 10QSCh. 5 - Prob. 11QSCh. 5 - Prob. 12QSCh. 5 - Prob. 13QSCh. 5 - Prob. 14QSCh. 5 - Prob. 15QSCh. 5 - Prob. 16QSCh. 5 - Prob. 17QSCh. 5 - Prob. 18QSCh. 5 - Prob. 19QSCh. 5 - Prob. 20QSCh. 5 - Prob. 21QSCh. 5 - Prob. 22QSCh. 5 - Prob. 23QSCh. 5 - Prob. 1ECh. 5 - Prob. 2ECh. 5 - Prob. 3ECh. 5 - Prob. 4ECh. 5 - Prob. 5ECh. 5 - Prob. 6ECh. 5 - Prob. 7ECh. 5 - Prob. 8ECh. 5 - Prob. 9ECh. 5 - Exercise 5-10 Lower of cost or market Martinez...Ch. 5 - Prob. 11ECh. 5 - Prob. 12ECh. 5 - Prob. 13ECh. 5 - Prob. 14ECh. 5 - Prob. 15ECh. 5 - Prob. 16ECh. 5 - Prob. 17ECh. 5 - Prob. 18ECh. 5 - Prob. 1APCh. 5 - Problem 5-1A Perpetual: Alternative cost...Ch. 5 - Prob. 3APCh. 5 - Prob. 4APCh. 5 - Prob. 5APCh. 5 - Prob. 6APCh. 5 - Prob. 7APCh. 5 - Prob. 8APCh. 5 - Prob. 9APCh. 5 - Prob. 10APCh. 5 - Prob. 1BPCh. 5 - Prob. 2BPCh. 5 - Prob. 3BPCh. 5 - Prob. 4BPCh. 5 - Prob. 5BPCh. 5 - Prob. 6BPCh. 5 - Prob. 7BPCh. 5 - Prob. 8BPCh. 5 - Prob. 9BPCh. 5 - Prob. 10BPCh. 5 - Prob. 5SPCh. 5 - Prob. 1BTNCh. 5 - Prob. 2BTNCh. 5 - Prob. 3BTNCh. 5 - Prob. 4BTNCh. 5 - Prob. 5BTNCh. 5 - BTN 5-7 Review the chapter’s opening feature...Ch. 5 - Prob. 9BTN
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