Intermediate Accounting, 10 Ed
10th Edition
ISBN: 9781260310177
Author: Mark W. Nelson, Wayne B. Thomas J. David Spiceland
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 8, Problem 8.9BE
LIFO method
• LO8–4
AAA Hardware uses the LIFO method to value its inventory. Inventory at the beginning of the year consisted of 10,000 units of the company’s one product. These units cost $15 each. During the year, 60,000 units were purchased at a cost of $18 each and 64,000 units were sold. Near the end of the fiscal year, management is considering the purchase of an additional 5,000 units at $18. What would be the effect of this purchase on income before income taxes? Would your answer be the same if the company used FIFO instead of LIFO?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Activities/Assessments:
Activity 9
Solve the following EOQ model problems:
1. Each year, Y Company purchases 20,000 units of an item that costs P 640 per unit.
The cost of placing an order is P 480, and the cost to hold the item in inventory for
one year is P 150.
a. Determine the EOQ.
b. What is the average inventory level, assuming that the minimum inventory level
is zero?
c. Determine the total annual ordering cost and the total annual holding cost for
the item if the EOQ is used.
2. A toy manufacturer uses approximately 32,000 silicon chips annually. The chips are
used at a steady rate during the 240 days the plant operates. Annual holding cost is
P27 per chip and ordering cost is P1,080. Lead time = 1 week.
a. Find the EOQ.
b. Find the reorder point.
c. What would be your ordering policy for this item?
d. Find the total annual cost of ordering and carrying silicon chips.
3. A large bakery buys sugar in 50-kg bags. The bakery uses an average of 1,344 bags
a year. Preparing an order…
PROBLEM 10
The inventory of Juan Company on December 31, 2020, consists of the following items:
Inventory No.
Quantity
Cost per Unit
NRV
A1001*
1,000
4,100
P56
P6
A1005
61
59
A1010
500
98
85
A1014
1,200
15
16
A1021
37
3,250
750
35
A1022
20
26
A1030
1,350
39
35
*Inventory A1001 is slow-moving and was acquired four years ago. It will be sold as scrap with a
realizable value of P6.00
Requirement:
1. Determine the valuation of the inventory as of December 31, 2020.
Exercise 8-15 (Algo) LIFO; perpetual system [LO8-1, 8-4]
Altira Corporation provides the following information related to its inventory during the month of August 2024:
August 1 Inventory on hand-3,600 units; cost $7.70 each.
August 8
Purchased 18,000 units for $7.10 each.
August 14
Sold 14,400 units for $13.60 each.
August 18 Purchased 10,800 units for $6.60 each.
August 25 Sold 13,400 units for $12.60 each.
August 28 Purchased 5,600 units for $5.80 each.
August 31 Inventory on hand-10, 200 units.
Using calculations based on a perpetual inventory system, determine the inventory balance Altira would report in its August 31, 2024,
balance sheet and the cost of goods sold it would report in its August 2024 income statement using last-in, first-out (LIFO).
Perpetual LIFO:
Beginning Inventory
Purchases:
August 8
August 18
August 28
Total
Cost of Goods Available for Sale
Cost
per
unit
3,600 $7.70 $
Number
of units
18,000 7.10
10,800
6.60
5,600
5.80
38,000
Cost of Goods
Available for Sale
$…
Chapter 8 Solutions
Intermediate Accounting, 10 Ed
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 - LIFO method LO84 AAA Hardware uses the LIFO...Ch. 8 - LIFO liquidation LO86 Refer to the situation...Ch. 8 - Prob. 8.11BECh. 8 - Perpetual inventory system; journal entries LO81...Ch. 8 - Prob. 8.2ECh. 8 - Perpetual and periodic inventory systems compared ...Ch. 8 - Prob. 8.5ECh. 8 - Physical quantities and costs included in...Ch. 8 - FASB codification research LO82, LO83 Access the...Ch. 8 - Prob. 8.13ECh. 8 - Prob. 8.14ECh. 8 - Prob. 8.15ECh. 8 - Prob. 8.16ECh. 8 - Prob. 8.19ECh. 8 - Prob. 8.20ECh. 8 - Prob. 8.21ECh. 8 - Prob. 8.23ECh. 8 - Prob. 8.25ECh. 8 - Prob. 8.30ECh. 8 - Prob. 8.31ECh. 8 - Various inventory transactions; journal entries ...Ch. 8 - Prob. 8.3PCh. 8 - Prob. 8.4PCh. 8 - Various inventory costing methods LO81, LO84...Ch. 8 - Prob. 8.6PCh. 8 - Prob. 8.9PCh. 8 - Prob. 8.16PCh. 8 - Prob. 8.1DMPCh. 8 - Real World Case 82 Physical quantities and costs...Ch. 8 - Prob. 8.4DMPCh. 8 - Prob. 8.5DMPCh. 8 - Prob. 8.8DMPCh. 8 - Real World Case 89 Effects of inventory valuation...Ch. 8 - Communication Case 810 Dollar-value LIFO method ...Ch. 8 - Prob. 1CCTCCh. 8 - Prob. 2CCTC
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- QUESTION 10 Niles Inc. took a physical inventory at the end of the year and determined that $414,000 of goods were on hand. Niles determined that $17,000 of goods held and included in the court were being held on consignment from XYZ outlet. Additionally, because of high rates of return on some products, Niles has established an estimate of items that will be returned of $12,000. What amount should Niles report in their year-end balance sheet for the inventory account? O $443,000 $414,000 $409,000 $385,000arrow_forwardProblem 4 VisludsoVallpara reenten & Toy dohr 3 otal anafacturing Company Sold 12 HYZEL Manufacturing Company sold 12,000 units of Product RR in 2020. It expects to increase its sales volume by 10% next year. The inventory data of Product RR is as follows: b Beginning inventory (actual) Ending inventory (estimates) 3,000 units antaybod 4,500 units alq orgue S Required: Determine the number of units that must be produced by HYZEL Manufacturing pala smeruibom Company. nalq must-noris OUTCOMES Jounos ymaisghod #sgbud boxi d narrow_forwardPROBLEM 2 Buenaflor Bed and Bath uses a continuous review inventory system for a particular brand and size of organic material. A bag of this organic material costs P110.00. It operates 365 days a year and uses 5,000 bags per year on a continuous basis. The cost of ordering is P50.00 per order and the cost of carrying per bag is P3. It takes 14 days to receive a shipment after an order is placed. Required: 1. What is the EOQ? Round your answer to whole number. Example 100. 2. If EOQ is used, how many orders should be placed per year? Round your answer to two decimal places. Example 100.05 3. What is the reorder point? Round your answer to whole number. Example 100. 4. If the firm wishes to hold 10 days' usage in inventory as safety stock, compute the reorder point. Round your answer to whole number. Example 100.arrow_forward
- Dollar-Value LIFO A company adopted the LIFO method when its inventory was 1,800. One year later its ending inventory was 2,100, and costs had increased 5% during the year. Required: What is the ending inventory using dollar-value LIFO? Round to the nearest dollar.arrow_forwardProblem 5 The Lychee Company is on a calendar year basis. The following data are available ➢Goods in transit shipped FOB destination by a supplier, in the amount of P100,000, had been excluded from the inventory, and further testing revealed that the purchase had been recorded ➢Goods costing P50,000 had been received, included in inventory, and recorded as a purchase. However, upon your inspection the goods were foundto be defective and would be immediately returned. ➢Materials costing P250,000 and billed on December 30 at a selling price of P320,000, had been segregated in the warehouse for shipment to a customer. The materials had been excluded from inventory as a signed purchase order had been received from the customer. Terms, FOB destination. ➢Goods costing P70,000 was out on consignment with Hermie Company. Since the monthly statement from Hermie Company listed those materials as on hand, the items had been excluded from the final inventory and invoiced on December 31 at…arrow_forwardPROBLEM 6.8A: CPI sells computer peripherals. At December 31, 2011, CPI's inventory amounted to $500,000. During the first week in January 2012, the company made only one purchase and one sale. These transactions were as follows: Jan. 2 Purchased 20 modems and 80 printers from Sharp. The total cost of these machines was $25,000, terms 3/10, n/60. Jan. 6 Sold 30 different types of products on account to Pace Corporation. The total sales price was $10,000, terms 5/10, n/90. The total cost of these 30 units to CPI was $6,100 (net of the purchase discount). CPI has a full-time accountant and a computer-based accounting system. It records sales at the gross sales price and purchases at net cost and maintains subsidiary ledgers for accounts receivable, inventory, and accounts payable. Instructions a. Briefly describe the operating cycle of a merchandising company b. Prepare journal entries to record these transactions, assuming that CPI uses a perpetual inventory system. c. Compute the gross…arrow_forward
- 10 Vargas Company uses the perpetual inventory method. Vargas purchased 2,200 units of inventory that cost $23.00 each. At a later date the company purchased an additional 2,600 units of inventory that cost $24.00 each. Vargas sold 2,300 units of inventory for $27.00. If Vargas uses a FIFO cost flow method, the amount of cost of goods sold appearing on the income statement will be: 1 nts 01:10:09 Multiple Choice $50,600. $53,000 $9,100 $6,900.arrow_forwardPro Yake Problem 11-16 (IAA) many cost Massive Company provided the following information for The e order current year: Units Unit cost Total cost 1,500 1,750 2,000 300,000 525,000 1,000,000 By ex gather 200 January 1 Inventory on hand April October 1 Purchase 300 3 Purchase 500 The entity sold 400 units on June 25 and 400 on December 10. What is the weighted average cost of the inventory at year-end? Ending Total co Cost of Cost of Gross p a. 350,000 b. 400,000 c. 730,000 d. 365,000 July 1 Problem 11-17 (IAA) 10 Total pur Jailbird Company provided the following data about inventory for the month of January: 1. What a. 10 b. 14 C. Units Total cost Unit cost 2,240,000 600,000 Jan. 1 Beginning 5 Purchase 10 Sale 15 Purchase 16 Purchase return 25 Sale 26 Sale return 31 Purchaon 16,000 4,000 15,000 20,000 1,000 8,000 4,000 140 150 3,200,000 160,000 d. 2. How m 160 160 a. 242 b. 140 C. 500,000 30arrow_forwardQuestion 5 In 2019, SixthZ had 75 treehouses in its ending inventory. Variable product costs per treehouse were $450, and fixed manufacturing overhead costs were applied at $75 per treehouse (which was the same as last year). The company's net operating income was $1.250 higher under absorption costing than it was under variable costing. What was the number of units of product in beginning inventory? 72 treehouses O92 treehouses O 58 treehouses 00 treehousesarrow_forward
- 8 apply Almaden Hardware Store sells two product categories, tools and paint products. Information pertaining to its 2021 year-end inventory is as follows: Inventory,by Product Category Quantity Per UnitCost Net Realizable Value Tools: Hammers 100 $ 5.90 $ 6.40 Saws 290 10.90 9.90 Screwdrivers 390 2.90 3.50 Paint products: 1-gallon cans 590 6.90 5.90 Paint brushes 100 4.90 5.40 Required:1. Determine the carrying value of inventory at year-end, assuming the lower of cost or net realizable value (LCNRV) rule is applied to (a) individual products, (b) product categories, and (c) total inventory.2. Assuming inventory write-downs are common for Almaden, record any necessary year-end adjustment amount for each of the LCNRV applications in requirement 1.arrow_forwardhelp mearrow_forwardExercise 8-14 (Algo) Inventory cost flow methods; perpetual system [LO8-1, 8-4] [The following information applies to the questions displayed below.] Altira Corporation provides the following information related to its inventory during the month of August 2024: August 1 Inventory on hand-2,900 units; cost $7.00 each. August 8 Purchased 14,500 units for $6.40 each. Sold 11,600 units for Purchased 8,700 units August 14 $12.90 each. August 18 for $6.00 each. August 25 Sold 10,600 units for $11.90 each. August 28 Purchased 4,900 units for $5.80 each. August 31 Inventory on hand-8,800 units. Exercise 8-14 (Algo) Part 1 Required: 1. Using calculations based on a perpetual inventory system, determine the inventory balance Altira would report in its August 31, 2024, balance sheet and the cost of goods sold it would report in its August 2024 income statement using the FIFO method. Perpetual FIFO: Beginning Inventory Purchases: August 8 August 18 August 28 Total Cost of Goods Available for Sale…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
The ACCOUNTING EQUATION For BEGINNERS; Author: Accounting Stuff;https://www.youtube.com/watch?v=56xscQ4viWE;License: Standard Youtube License