Fin Acct Assign 8

NAME
Pruthviraj Vaghela
SUBJECT
FINANCIAL ACCOUNTING (ACC 500)
ASSIGNMENT NO
08
SUBMITTED TO
DATE
Prof. Qiu Zhao

10JUNE 2016
Contents
BRIEF EXERCISE 8.1.................................................................................................... 2
BRIEF EXERCISE 8.2.................................................................................................... 2
BRIEF EXERCISE 8.3.................................................................................................... 2
BRIEF EXERCISE 8.4.................................................................................................... 3
BRIEF EXERCISE 8.5.................................................................................................... 3
BRIEF EXERCISE 8.6.................................................................................................... 4
BRIEF EXERCISE 8.7.................................................................................................... 4
BRIEF EXERCISE 8.8.................................................................................................... 4
BRIEF EXERCISE 8.9.................................................................................................... 5
BRIEF EXERCISE 8.10.................................................................................................. 5
BRIEF EXERCISE 8.1

FIFO Inventory
Smalley, Inc., purchased items of inventory as follows:
Jan. 4
100 units @ 2.10
Jan. 23
120 units @ 2.25
Smalley sold 50 units on January 28. Compute the cost of goods sold for the month under
the FIFO inventory method.
FIFO Method > 50 units X 2.10 = 105
BRIEF EXERCISE 8.2

LIFO Inventory
Mason Company purchased items of inventory as follows:
Dec. 2
50 units @ 20
Dec. 12
12 units @ 21
Mason sold 15 units on December 20. Determine the cost of goods sold for the month under
the LIFO inventory method.
LIFO Method
12 units X 21 = 252
3 units X 20 = 60
Total 15 units = 312
BRIEF EXERCISE 8.3

Average-Cost Inventory
Fox Company purchased items of inventory as follows:
3-May
100 units @ 3.05
10-May
150 units @ 3.10
15-May
120 units @ 3.15
By the end of the month of May, Fox had sold 125 units. If the company uses the averagecost method of accounting for inventory, what is the amount of the ending inventory?
Average cost Method
100 X 3.05 = 305
150 X 3.10 = 465
120 X 3.15 = 378
---------Total
1148
---------1148 / 370 = 3.10 Average cost
245 units X 3.10 = 760
BRIEF EXERCISE 8.4

FIFO and LIFO Inventory
Murphy, Inc., purchased a new inventory item two times during the month of April, as
follows:
Apr. 5
100 units @ 5
Apr. 15
100 units @ 5.05
a. What is the amount of the ending inventory of this item on April 30 if the company has
sold 75 units and uses the LIFO inventory method?
Sold
378.75 = 75 units X 5.05
Inventory LIFO method
25 units X 5.05 = 126.25
100 units X 5 = 500
TOTAL
626.25
b. How would this amount differ if the company used the FIFO inventory method?
Sold
375 = 75 units X 5
Inventory LIFO method
100 units X 5.05 = 505
25 units X 5 = 125
TOTAL
630
Difference will be 626.25 630 = 3.75
BRIEF EXERCISE 8.5

FIFO and Average-Cost Inventory
Franklin Co. had 10 units of an inventory item on hand at the beginning of the current year,
each of which had a per-unit cost of 10. During the year, 20 additional units were purchased
at 11, and 25 units were sold. What is the amount of the ending inventory under the LIFO
and the average-cost methods of accounting for inventory?
Op. inv = 10 x 10 = 100
Bought = 20 x 11 = 220
LIFO
Sold = 20 x 11 = 220
= 5 x 10 = 50
Closing inventory
5 units x 10 = 50
Avg Cost method:
Sales
25 units X 10.67 = 266.75
Closing inventory
5 units X 10.67 = 53.35
BRIEF EXERCISE 8.6

Inventory Shrinkage
Bruing Companys inventory is subject to shrinkage via evaporation. At the end of the
current financial reporting period, the companys inventory had a cost of 100,000.
Management estimates that evaporation has resulted in a 6 percent inventory loss.
Assuming that loss is recorded in a separate inventory loss account, prepare the general
journal entry to record the inventory shrinkage for the year.
Inventory shrinkage loss
Inventory
Loss of shrinkage recorded
6000
6000
BRIEF EXERCISE 8.7

Inventory Error
Pixy, Inc., overlooked 125,000 of inventory at the end of the current year because it was
stored temporarily in a warehouse owned by another company. Before discovering this error,
the companys income statement showed the following:
Sales
990,000
Cost of goods sold
-560,000
Gross profit
430,000
Restate these figures to reflect the inclusion of the overlooked inventory.

Sales
990,000
Cost of goods sold
(560,000)
Gross profit
430,000
Inventory end of year
125,000 (overlooked)
Revised Gross Profit 305,000
Cost of goods sold - Inventory end of year = Cost of Good sold actual
560000-125000 = 435000
Sales - Cost of Good sold actual = Gross profit revised.
990000 435000 = 555000
BRIEF EXERCISE 8.8

Inventory Error
Due to ineffective controls while counting its inventory, Walker & Comer, Inc., doublecounted 50,000 of inventory at the end of the current year. Before discovering this error, the
companys ending inventory was 670,000. How will correction of this error affect the
companys inventory and cost of goods sold figures?
Cost of good sold = inventory ending increased inventory
670000-50000 = 620000
BRIEF EXERCISE 8.9

Inventory Error
Alamo Company has sales, cost of goods sold, and average ending inventory for the current
year in the following amounts: 650,000, 500,000, and 128,000, respectively. Calculate the
amount of the companys inventory turnover for the year. What is the companys average
number of days to sell inventory?
Inventory Turnover = Cost of Good Sold / AVG. Inventory
= 500000 / 128000 = 3.91
Average number of days to sell = Inventory / Cost of good sold X 365
= 365/3.91
= 93.35 days.
BRIEF EXERCISE 8.10

Inventory Error
Rouse Incorporated reported sales, cost of sales, and inventory figures for 2014 and 2015 as
follows (all dollars in thousands):
What is the amount of inventory turnover for each year, and in which year did Rouse
manage its inventory most efficiently?
2014
------85/27
2015
------90/35
3.15
2.58
365/3.15
365/2.58
115.87
141.47
Cost of goods sold

Inventory Turnover: ------------------------------ =
Avg inventory
During 2014 the company handled the inventory effectively, because in 2014 the average
inventory hold is less than year 2015.

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NAME

FINANCIAL ACCOUNTING (ACC 500)

Prof. Qiu Zhao

BRIEF EXERCISE 8.1

100 units @ 2.10

120 units @ 2.25

BRIEF EXERCISE 8.2

BRIEF EXERCISE 8.3

100 units @ 3.05

150 units @ 3.10

120 units @ 3.15

BRIEF EXERCISE 8.4

100 units @ 5.05

Difference will be 626.25 630 = 3.75

BRIEF EXERCISE 8.5

BRIEF EXERCISE 8.6

BRIEF EXERCISE 8.7

Cost of goods sold

Restate these figures to reflect the inclusion of the overlooked inventory.

BRIEF EXERCISE 8.8

Cost of good sold = inventory ending increased inventory

BRIEF EXERCISE 8.9

BRIEF EXERCISE 8.10

Cost of goods sold

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