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# ACC305 Wk 4 E8-13, E8-14, E8-18, P8-5, E9-19, E9-21, and P9-1. fin571

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ACC305 Wk 4 E8-13, E8-14, E8-18, P8-5, E9-19, E9-21, and P9-1.
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Date Created: 11/09/15
E8-13, E8-14, E8-18, P8-5, E9-19, E9-21, and P9-1. E 8–13 - Altira Corporation - Inventory cost flow methods; periodic system ● LO1 LO4 Altira Corporation uses a periodic inventory system. The following information related to its merchandise inventory during the month of August 2011 is available: Required: Determine the inventory balance Altira would report in its August 31, 2011, balance sheet and the cost of goods sold it would report in its August 2011 income statement using each of the following cost flow methods: 1. First-in, first-out (FIFO) 2. Last-in, first-out (LIFO) 3. Average cost Exercise 8­13 Cost of goods available for sale: Beginning inventory (2,000 x \$6.10) \$12,200 Purchases: 10,000 x \$5.50 \$55,000 6,000 x \$5.00 30,000 85,000 Cost of goods available (18,000 units) \$97,200 First-in, first-out (FIFO) Cost of goods available for sale (18,000 units) \$97,200 Less: Ending inventory (determined below) (15,000) Cost of goods sold \$82,200 Cost of ending inventory: Date of purchase Units Unit cost Total cost August 18 3,000 \$5.00 \$15,000 Last-in, first-out (LIFO) Cost of goods available for sal(18,000 units) \$97,200 Less: Ending inventory(determined below) (17,700) Cost of goods sold \$79,500 Cost of ending inventory: Date of purchase Units Unit cost Total cost Beg. Inv. 2,000 \$6.10 \$12,200 August 8 1,000 5.50 5,500 Total \$17,700 Average cost Cost of goods available for sal(18,000 units) \$97,200 Less: Ending inventory(determined below) (16,200) Cost of goods sold \$81,000 * Cost of ending inventory: \$97,200 Weighted-average unit cost = = \$5.40 18,000 units 3,000 units x \$5.40 = \$16,200 * Alternatively, could be determined by multiplying the units sold by the average cost: 15,000 units x \$5.40 = \$81,000 E 8–14 - Altira Corporation - Inventory cost flow methods; perpetual system ● LO1 LO4 [This is a variation of Exercise 8–13 modified to focus on the perpetual inventory system and alternative cost flow methods.] Altira Corporation uses a perpetual inventory system. The following transactions affected its merchandise inventory during the month of August 2011: Required: Determine the inventory balance Altira would report in its August 31, 2011, balance sheet and the cost of goods sold it would report in its August 2011 income statement using each of the following cost flow methods: 1. First-in ,first-out (FIFO) 2. Last-in, first-out (LIFO) 3. Average cost Exercise 8­14 First-in, first-out (FIFO) Cost of goods sold: Date of Cost of sale Units sold Units Sold Total Cost Aug. 14 2,000 (from Beg. Inv.) \$6.10 \$12,200 6,000 (from 8/8 purchase) 5.50 33,000 Aug. 25 4,000 (from 8/8 purchase) 5.50 22,000 3,000 (from 8/18 purchase) 5.00 15,000 Total 15,000 \$82,200 Ending inventory = 3,000 units x \$5.00 = \$15,000 Last-in, first-out (LIFO) Date Purchased Sold Balance 2,000 @ \$6.10 = 2,000 @ \$6.10 Beginning inventory \$12,200 \$12,200 August 8 10,000 @ \$5.50 = 2,000 @ \$6.10 \$55,000 10,000 @ \$5.50 \$67,200 August 14 8,000 @ \$ 5.50 = 2,000 @ \$6.10 \$44,000 2,000 @ \$5.50 \$23,200 6,000 @ \$5.00 = 2,000 @ \$6.10 August 18 \$30,000 2,000 @ \$5.50 \$53,200 6,000 @ \$5.00 August 25 6,000 @ \$5.00 = 2,000 @ \$6.10 \$30,000 1,000 @ \$5.50 1,000 @ \$5.50 = \$ \$17,700 5,500 Ending inventory Total cost of goods sold = \$79,500 (Note: the perpetual inventory LIFO results in this exercise are the same as periodic LIFO results, due to the timing of sales and purchases.  The same LIFO layers are on hand at the end of the period under each method.  This is unusual. LIFO perpetual and LIFO periodic normally produce different results for ending inventory and cost of goods sold.) Average cost Date Purchased Sold Balance Beginning 2,000 @ \$6.10 = 2,000 @ \$6.10 inventory \$12,200 \$12,200 10,000 @ \$5.50 = August 8 \$55,000 Available \$67,200 = \$5.60/unit 12,000 units 8,000 @ \$5.60 = 4,000 @ \$5.60 August 14 \$44,800 \$22,400 August 18 6,000 @ \$5.00 = \$30,000 Available \$52,400 = \$5.24/unit 10,000 units August 25 7,000 @ \$5.24 = 3,000 @ \$5.24 \$36,680 \$15,720 Ending inventory Total cost of goods sold = \$81,480 E 8–18 Supplemental LIFO disclosures; LIFO reserve; Steelcase ● LO6 Steelcase Inc. is the global leader in providing furniture for office environments. The company uses the LIFO inventory method for external reporting and for income tax purposes but maintains its internal records using FIFO. The following disclosure note was included in a recent annual report: Required: 1. Steelcase adjusts the LIFO reserve at the end of its fiscal year. Prepare the February 27, 2009, adjusting entry to make the cost of goods sold adjustment. 2. If Steelcase had used FIFO to value its inventories, what would cost of goods sold have been for the 2009 fiscal year? Exercise 8­18 Requirement 1 February 27, 2009                                               (\$ in                     millions) LIFO reserve  (\$29.6­27........................................2.4....... Cost of goods sold...................................................2.4 Requirement 2 \$2,236.7 + 2.4 = \$2,239.1 million P 8–5 - Ferris Company - Various inventory costing methods ● LO1 LO4 (see attached excel file) Ferris Company began 2011 with 6,000 units of its principal product. The cost of each unit is \$8. Merchandise transactions for the month of January 2011 are as follows: Required: Calculate January’s ending inventory and cost of goods sold for the month using each of the following alternatives: 1. FIFO, periodic system 2. LIFO, periodic system 3. LIFO, perpetual system 4. Average cost, periodic system 5. Average cost, perpetual system Problem 8­5 Cost of goods available for sale for periodic system: Beginning inventory (6,000 x \$8.00) \$ 48,000 Purchases: 5,000 x \$ 9.00 \$45,000 6,000 x \$10.00 60,000 105,000 Cost of goods available (17,000 units) \$153,000 1. FIFO, periodic system Cost of goods available for sale(17,000 units) \$153,000 Less: Ending inventory (determined below) (78,000) Cost of goods sold \$ 75,000 Cost of ending inventory: Date of purchase Units Unit cost Total cost Jan. 10 2,000 \$ 9.00 \$18,000 Jan. 18 6,000 10.00 60,000 Totals 8,000 \$78,000 Alternatively, cost of goods sold can be determined by adding the cost of the  6,000 units in beginning inventory (\$48,000) and the 3,000 units from the January  10 purchase (\$27,000) = \$75,000. 2. LIFO, periodic system Cost of goods available for sale(17,000 units) \$153,000 Less: Ending inventory (determined below) (66,000) Cost of goods sold \$ 87,000 Cost of ending inventory: Date of purchase Units Unit cost Total cost Beg. Inv. 6,000 \$8.00 \$48,000 Jan. 10 2,000 9.00 18,000 Totals 8,000 \$66,000 Alternatively, cost of goods sold can be determined by adding the cost of the 6,000 units from the January 18 purchase (\$60,000) and the 3,000 units from the January 10 purchase (\$27,000) = \$87,000. 3. LIFO, perpetual system Date Purchased Sold Balance 6,000 @ \$8.00 = 6,000 @ \$8.00 Beginning inventory \$48,000 \$48,000 January 5 3,000 @ \$8.00 = 3,000 @ \$8.00 \$24,000 \$24,000 January 10 5,000 @ \$9.00 = 3,000 @ \$8.00 \$45,000 5,000 @ \$9.00 \$69,000 January 12 2,000 @ \$9.00 = 3,000 @ \$8.00 \$18,000 3,000 @ \$9.00 \$51,000 January 18 6,000 @ \$10.00 = 3,000 @ \$8.00 \$60,000 3,000 @ \$9.00 \$111,000 6,000 @ \$10.00 4,000 @ \$10.00 = 3,000 @ \$8.00 January 20 \$40,0003,000 @ \$9.00 2,000 @ \$10.00 \$71,000 Ending inventory Total cost of goods sold = \$82,000 4. Average cost, periodic system Cost of goods available for sale (17,000 units) \$153,000 Less: Ending inventory (below) (72,000) Cost of goods sold \$ 81,000 Cost of ending inventory: \$153,000 Weighted-average unit cost = = \$9.00 17,000 units 8,000 units x \$9.00 = \$72,000 Alternatively, cost of goods sold could be determined by multiplying the units sold by the average cost: 9,000 units x \$9.00 = \$81,000. 5. Average cost, perpetual system Date Purchased Sold Balance Beginning 6,000 @ \$8.00 = 6,000 @ \$8.00 inventory \$48,000 \$48,000 January 5 3,000 @ \$8.00 = 3,000 @ \$8.00 \$24,000 \$24,000 5,000 @ \$9.00 = January 10 \$45,000 Available \$69,000 = \$8.625/unit 8,000 units January 12 2,000 @ \$8.625 = 6,000 @ \$8.625 \$17,250 \$51,750 January 18 6,000 @ \$10.00 = \$60,000 Available \$111,750 = \$9.3125/unit 12,000 units January 20 4,000 @ \$9.3125 = 8,000 @ \$9.3125 \$37,250 \$74,500 Ending inventory Total cost of goods sold = \$78,500 E 9–19 - Brunswick Hat Company - Dollar-value LIFO retail ● LO5 On January 1, 2011, the Brunswick Hat Company adopted the dollar-value LIFO retail method. The following data are available for 2011: Required: Calculate the estimated ending inventory and cost of goods sold for 2011. Exercise 9­19 Cost   Retail Beginning inventory  \$  71,280 \$132,000 Plus: Net purchases  112,500 255,000 Net markups  6,000 Less: Net markdowns  _______    (11,000) Goods available for sale (excluding beginning inventory)  112,500 250,000 Goods available for sale (including beginning inventory)  183,780 382,000 \$71,280 Base year cost­to­retail percentage:                  = 54%  \$132,000                                                     \$112,500 2011 cost­to­retail percentage:                 = 45%                                                      \$250,000 Less: Net sales  (232,000) Estimated ending inventory at current year retail prices \$150,000 Estimated ending inventory at cost (below)     (77,004) Estimated cost of goods sold  \$106,776 ___________________________________________________________________________                                  Step 1                                Step 2                     Step 3    Ending                Ending                            Inventory               Inventory  Inventory            Inventory                            Layers                    Layers at Year­end       at Base Year                     at Base Year         Converted to Retail Prices      Retail Prices                     Retail Prices                 Cost                           \$150,000 \$150,000                   = \$144,231      \$132,000 (base) x   1.00 x 54%  =     \$71,280 (above)               1.04                                12,231x   1.04 x 45%  =               ,724            Total ending inventory at dollar­value LIFO retail cost ......................\$77,004 E 9–21 - Lance-Hefner Specialty Shoppes - Dollar-value LIFO retail ● LO5 Lance-Hefner Specialty Shoppes decided to use the dollar-value LIFO retail method to value its inventory. Accounting records provide the following information: Required: Determine ending inventory and cost of goods sold Exercise 9­21     Cost    Retail Beginning inventory  \$160,000 \$250,000 Plus: Net purchases 350,200 510,000 Net markups 7,000 Less: Net markdowns  _______   (2,000) Goods available for sale  (excluding beginning inventory)  350,200 515,000 Goods available for sale  (including beginning inventory)  510,200 765,000                                                       \$160,000                  Base layer cost­to­retail percentage:  = 64%                                                       \$250,000                                                       \$350,200 2011 layer cost­to­retail percentage:             = 68%                                                       \$515,000 Less: Net sales   (380,000) Estimated ending inventory at current year retail prices \$385,000 Estimated ending inventory at cost  (calculated below)  (234,800) Estimated cost of goods sold  \$275,400 ___________________________________________________________________________                                 Step 1                                Step 2                     Step 3    Ending               Ending                            Inventory               Inventory  Inventory           Inventory                            Layers                    Layers at Year­end       at Base Year                    at Base Year         Converted to Retail Prices      Retail Prices                    Retail Prices                  Cost                           \$385,000                  \$385,000          = \$350,000    \$250,000 (base) x  1.00 x 64%  =     \$160,000 (above)               1.10             100,000 (2011) x  1.10 x 68%  =             74,800            Total ending inventory at dollar­value LIFO retail cost ................\$234,800 P 9–1 - Decker Company - Lower of cost or market ● LO1 (see attached excel file) Decker Company has five products in its inventory. Information about the December 31, 2011, inventory follows. Required: 1. Determine the balance sheet inventory carrying value at December 31, 2011, assuming the LCM rule is applied to individual products. 2. Determine the balance sheet inventory carrying value at December 31, 2011, assuming the LCM rule is applied to the entire inventory. Also, assuming that Decker recognizes an inventory write-down as a separate income statement item, determine the amount of the loss. Problem 9­1 Requirement 1 Product NRV per unit NRV­NP per unit A \$16 ­ (15% x \$16) = \$13.60 \$13.60 ­ (40% x \$16) = \$7.20 B \$18 ­ (15% x \$18) = \$15.30 \$15.30 ­ (40% x \$18) = \$8.10 C \$  8 ­ (15% x  \$8)  = \$  6.80 \$  6.80 ­ (40% x \$ 8)  = \$3.60 D \$  6 ­ (15% x  \$6)  = \$  5.10 \$  5.10 ­ (40% x \$ 6)  = \$2.70 E \$13 ­ (15% x \$13) = \$11.05 \$11.05 ­ (40% x \$13) = \$5.85 (1) (2) (3) (4) (5) Ceiling Floor Designated Inventory Market Value Value Product [Middle value [Lower of (units)   RC  NRV NRV­NP of (1), (2&  (3)]    Cost (4) and (5)] A (1,000) \$12,000 \$13,600 \$7,200 \$12,000 \$10,000 \$10,000 B (800) 8,800 12,240 6,480     8,800   12,000     8,800 C (600) 1,200 4,080 2,160     2,160    1,800     1,800 D (200) 800 1,020 540        800    1,400        800 E (600) 7,200 6,630 3,510       6,630      8,400      6,630 Totals \$30,390 \$33,600 \$28,030 Inventory carrying value would be \$28,030. Requirement 2 Inventory carrying value would be \$30,390, the lower of aggregate inventory cost (\$33,600) and aggregate inventory market (\$30,390).  The amount of the loss from inventory write­down is \$3,210 (\$33,600 ­ 30,390).

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