Financial Accounting (Connect NOT Included)
Financial Accounting (Connect NOT Included)
4th Edition
ISBN: 9781259930492
Author: SPICELAND
Publisher: MCG
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Chapter 6, Problem 2PA

1.

To determine

Compute the ending inventory and cost of goods sold using the specific identification method.

1.

Expert Solution
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Explanation of Solution

Specific identification method:

Specific identification method is a method in which the company records each item of the inventory at its original cost. Under this method, when the goods are sold, the company can easily identify the original costs at which they were purchased for. This method helps in arriving at the accurate cost of goods sold, and ending inventory.

Calculate the units of ending inventory.

Calculation of Ending Inventory
DetailsNumber of UnitsRate Per Unit ($)Total Cost ($)
Beginning balance20
Less: Sales - March 5(15)
Balance5
Less: Sales - March 27(4)
Balance1250250
Purchases:
March 910
Less: Sales - March 17(8)
Balance2270540
March 2210
Less: Sales - March 27(8)
Balance2280 560
March 3093002,700
Ending Inventory144,050

Table (1)

Therefore, the cost of Ending Inventory in specific identification method is $4,050.

Calculate the cost of goods sold:

Calculation of Cost of Goods Sold
DetailsNumber of UnitsRate Per Unit ($)Total Cost ($)
March 5: Beginning balance152503,750
March 17: March 9 Purchase82702,160
March 27:
Beginning Inventory42501,000
March 22 Purchase82802,240
Cost of Goods Sold359,150

Table (2)

Therefore, the Cost of Goods Sold in specific identification method is $9,150.

2.

To determine

Compute the ending inventory and cost of goods sold using the FIFO method.

2.

Expert Solution
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Explanation of Solution

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.

Calculate the total Cost and units of Goods Available for Sales.

Calculation of Goods Available for Sales
DetailsNumber of UnitsRate per unit ($)Total Cost ($)
Beginning balance202505,000
Add: Purchases
March 9102702,700
March 22102802,800
March 3093002,700
Total Goods available for Sale4913,200

Table (3)

Calculate the units of ending inventory.

Calculation of Ending Inventory (Units)
DetailsNumber of UnitsNumber of Units
Beginning balance20
Add: Purchases
March 910
March 2210
March 309
Total Goods available for Sale49
Less: Sales
March 515
March 178
March 2712
Total Sales(35)
Ending Inventory14

Table (4)

Calculate the cost of ending inventory.

The ending inventory is 14 units.

Calculation of Cost of Ending Inventory
DetailsNumber of UnitsRate per Unit ($)Total Cost ($)
March 3093002,700
March 2252801,400
Ending Inventory144,100

Table (5)

In FIFO method the ending inventory comprises of the inventory purchased last, because the inventory purchased first were sold first.

Therefore, the cost of Ending Inventory in the FIFO is $4,100.

Cost of Goods Sold.

35 units are sold.

Calculation of Cost of Goods Sold
DetailsNumber of UnitsRate per Unit ($)Total Cost ($)
Beginning Inventory202505,000
March 9 Purchase102702,700
March 22 Purchase52801,400
Cost of Goods Sold359,100

Table (6)

As it is FIFO method the earlier purchased items will sell first.

Therefore, the Cost of Goods Sold in the FIFO Method is $9,100

3.

To determine

Compute the ending inventory and cost of goods sold using the LIFO method.

3.

Expert Solution
Check Mark

Explanation of Solution

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.

Ending Inventory:

Calculate the cost of ending inventory.

Calculation of Cost of Ending Inventory
DetailsNumber of UnitsRate per Unit ($)Total Cost ($)
Beginning Inventory142503,500
Ending Inventory142503,500

Table (7)

  • The ending inventory is 14 units (Refer to Table 4).
  • In LIFO method, the ending inventory comprises of the inventory purchased first, because the inventory purchased last were sold first.
  • Therefore, the ending inventory of 14 units is from the beginning inventory.

Therefore, the cost of Ending Inventory in the LIFO method is $3,500.

Cost of Goods Sold:

DetailsNumber of UnitsRate per unit ($)Total Cost ($)
March 30Purchase93002,700
March 22 Purchase102802,800
March 9 Purchase102702,700
Beginning Inventory62501,500
Cost of Goods Sold359,700

Table (8)

  • 35 units are sold (Refer to Table 4).
  • As it is LIFO method the recent purchased items will sell first.
  • Hence, the cost of goods sold will be the recent purchased items.

Therefore, the Cost of Goods Sold in the LIFO Method is $9,700.

4.

To determine

Compute the ending inventory and cost of goods sold using the Weighted-average method.

4.

Expert Solution
Check Mark

Explanation of Solution

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.

Calculate the Weighted-average cost.

Total cost of goods available for sale = $13,200 (Refer to table - 3)

Total units of goods available for sale = 49 units (Refer to table - 3)

Weighted-averageCost}=Total Cost of Goods Available For SaleTotal number of units Available for Sale=$13,20049 Units=$269.3878 (1)

Calculate the amount of Ending Inventory.

Weighted- average cost per unit = $269.3878 (1)

Number of units in ending inventory = 14 units (Refer to table - 4)

Cost of Ending inventory=((Number of units inEnding inventory) ×Weighted-average cost per unit)=14 units × $269.3878=$3,771.43 (2)

Therefore, the cost of Ending Inventory in the Weighted-average-cost Method is $3,771.43.

Calculate the Cost of Goods Sold.

Weighted- average cost per unit= $269.3878 (1)

Units sold = 35 units

Cost of Goods Sold=(Number of units Sold ×Weighted-average cost per unit)=35 units×$269.3878=$9,428.57 (3)

Therefore, the Cost of goods sold in the Weighted-average-cost Method is $9,428.57.

5.

To determine

Compute the sales revenue and gross profit each of the four methods.

5.

Expert Solution
Check Mark

Explanation of Solution

Compute the sales revenue and gross profit each of the four methods:

Financial Accounting (Connect NOT Included), Chapter 6, Problem 2PA

Figure (1)

6.

To determine

Explain whether FIFO or LIFO provides the more meaningful measure of ending inventory by comparing the both.

6.

Expert Solution
Check Mark

Explanation of Solution

Comparison of the ending inventory in FIFO and LIFO:

  • The ending inventory computed using the FIFO method is $4,100.
  • The ending inventory computed using the LIFO method is $3,500.
  • The current cost of the ending inventory is $4,200(14 Units × $300).
  • Hence, as the ending inventory computed in FIFO method shows approximately the current cost of the inventory, FIFO method provides more meaningful measure of ending inventory.

7.

To determine

Record the LIFO adjustment, if G Bicycle Shop chooses to report inventory using LIFO instead of FIFO.

7.

Expert Solution
Check Mark

Explanation of Solution

Record the LIFO adjustment:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

Cost of Goods Sold (E–)600
Inventory (A–)600
(To record the LIFO adjustment)

Table (8)

Working Note:

Ending inventory valued in FIFO$4,100
Less: Ending inventory valued in LIFO$3,500
LIFO Adjustment$600

Table (9)

  • Cost of Goods Sold is expense and increased which will decrease the equity. Therefore, debit the cost of goods sold account with $600.
  • Merchandised inventory is an asset and decreased. Therefore, credit the merchandised inventory account with $600.

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Chapter 6 Solutions

Financial Accounting (Connect NOT Included)

Ch. 6 - 11. Maxwell Corporation has the following...Ch. 6 - Prob. 12SSQCh. 6 - Prob. 13SSQCh. 6 - Prob. 14SSQCh. 6 - Prob. 15SSQCh. 6 - Prob. 1AECh. 6 - Prob. 2AECh. 6 - Prob. 1RQCh. 6 - Prob. 2RQCh. 6 - Prob. 3RQCh. 6 - Prob. 4RQCh. 6 - Prob. 5RQCh. 6 - 6. What is a multiple-step income statement? What...Ch. 6 - Prob. 7RQCh. 6 - Prob. 8RQCh. 6 - Prob. 9RQCh. 6 - Prob. 10RQCh. 6 - Prob. 11RQCh. 6 - 12. Explain how LIFO generally results in lower...Ch. 6 - Prob. 13RQCh. 6 - Prob. 14RQCh. 6 - Prob. 15RQCh. 6 - Prob. 16RQCh. 6 - Prob. 17RQCh. 6 - Prob. 18RQCh. 6 - Prob. 19RQCh. 6 - Prob. 20RQCh. 6 - Prob. 21RQCh. 6 - Prob. 22RQCh. 6 - Prob. 23RQCh. 6 - Prob. 24RQCh. 6 - Prob. 1BECh. 6 - Prob. 2BECh. 6 - Prob. 3BECh. 6 - Prob. 4BECh. 6 - Prob. 5BECh. 6 - Prob. 6BECh. 6 - Prob. 7BECh. 6 - Prob. 8BECh. 6 - Prob. 9BECh. 6 - Prob. 10BECh. 6 - Prob. 11BECh. 6 - Prob. 12BECh. 6 - Prob. 13BECh. 6 - Prob. 14BECh. 6 - Prob. 15BECh. 6 - Prob. 16BECh. 6 - BE6-17 Refer to the information in BE6-10, but now...Ch. 6 - Prob. 18BECh. 6 - Prob. 19BECh. 6 - BE6–20 Refer to the information in BE6–13, but now...Ch. 6 - Prob. 21BECh. 6 - Prob. 22BECh. 6 - Prob. 1ECh. 6 - Prob. 2ECh. 6 - Prepare a multiple-step income statement and...Ch. 6 - Prob. 4ECh. 6 - Prob. 5ECh. 6 - E6-6 Bingerton Industries began the year with...Ch. 6 - Prob. 7ECh. 6 - Prob. 8ECh. 6 - Prob. 9ECh. 6 - Prob. 10ECh. 6 - Prob. 11ECh. 6 - Prob. 12ECh. 6 - Calculate inventory using lower of cost and net...Ch. 6 - Calculate inventory using lower of cost and net...Ch. 6 - Prob. 15ECh. 6 - Prob. 16ECh. 6 - Prob. 17ECh. 6 - Prob. 18ECh. 6 - Prob. 19ECh. 6 - Prob. 20ECh. 6 - Prob. 21ECh. 6 - Prob. 1PACh. 6 - Prob. 2PACh. 6 - Prob. 3PACh. 6 - Prob. 4PACh. 6 - Prob. 5PACh. 6 - Prob. 6PACh. 6 - Prepare a multiple-step Income statement and...Ch. 6 - P6-8A Wawa Food Markets is a convenience store...Ch. 6 - Prob. 9PACh. 6 - Correct inventory Understatement and calculate...Ch. 6 - Prob. 1PBCh. 6 - Prob. 2PBCh. 6 - Prob. 3PBCh. 6 - Prob. 4PBCh. 6 - Prob. 5PBCh. 6 - Prob. 6PBCh. 6 - Prob. 7PBCh. 6 - Prob. 8PBCh. 6 - Prob. 9PBCh. 6 - Prob. 10PBCh. 6 - Prob. 1APCh. 6 - American Eagle Outfitters, Inc. AP6-2 Financial...Ch. 6 - Prob. 3APCh. 6 - Prob. 4APCh. 6 - Ethics AP6-5 Horizon Corporation manufactures...Ch. 6 - Prob. 6APCh. 6 - Prob. 7APCh. 6 - Prob. 8AP
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