Week Three Exercise Assignment

Week Three Exercise Assignment

Specific identification method

Boston Galleries uses the specific identification method for inventory valuation. Inventory information for several oil paintings follows.

Date

Particulars

Painting

Cost

Jan 2nd

Beginning inventory

Woods

$11,000

Apr 19th

Purchase

Sunset

$21,800

June 7th

Purchase

Earth

$31,200

Dec 16th

Purchase

Moon

$4,000

Woods and Moon were sold during the year for a total of $35,000. Determine the firm's

Cost of goods sold

Particulars

Amount ($)

Woods

11,000

Moon

4,000

Cost of goods sold

15,000

Gross profit

Particulars

Amount ($)

Sales

35,000

COGS

(15000)

Gross Profit

20,000

Ending inventory

Particulars

Amount ($)

Beginning Inventory

11,000

Purchases

(21,800 + 31,200 + 4,000)

57,000

Goods Available For Sales

68,000

COGS

(35,000)

Ending Inventory

33,000

Inventory valuation methods

Basic computations. The January beginning inventory of the White Company consisted of 300 units costing $40 each.

During the first quarter, purchases were:

Date

Quantity

Cost

15-Jan

700

$45

31-Jan

1200

$48

12-Feb

800

$46

27-Feb

650

$51

Sales during the first quarter were.

Date

Sold

19-Jan

500

2-Feb

600

13-Feb

500

28-Feb

100

The White Company uses a perpetual inventory system.

Using the White Company data, fill in the following chart to compare the results obtained under the FIFO, LIFO, and weighted-average inventory methods.

Date

Purchases

Sales

Balance (FIFO)

Units

$ per unit

Amount

Units

Units

$ per unit

Amount

Op. Inv

300

40

12000

15-Jan

700

45

31500

700

45

31500

19-Jan

500

300

40

12000

200

45

9000

500

45

22500

31-Jan

1200

48

57600

1200

48

57600

500

45

22500

100

48

4800

2-Feb

600

1100

48

52800

12-Feb

800

46

36800

800

46

36800

500

48

24000

600

48

28800

13-Feb

500

800

46

36800

800

46

36800

27-Feb

650

51

33150

650

51

33150

700

46

32200

650

51

33150

100

46

4600

600

46

27600

28-Feb

100

650

51

33150

Ending Inventory

60750

(Axsa¨ter, 2006)

Date

Purchases

Sales

Balance (LIFO)

Units

$ per unit

Units

$ Per unit

Amount

Op. Inv

300

40

12000

15-Jan

700

45

700

45

31500

19-Jan

500

45

22500

300

40

12000

200

45

9000

31-Jan

1200

48

1200

48

57600

600

48

28800

300

40

12000

2-Feb

200

45

9000

600

48

28800

12-Feb

800

46

300

40

12000

200

45

9000

600

48

28800

800

46

36800

13-Feb

500

46

23000

300

40

12000

200

45

9000

600

48

28800

300

46

13800

27-Feb

650

51

300

40

12000

200

45

9000

600

48

28800

300

46

13800

650

51

33150

28-Feb

100

51

5100

Ending Inventory

300

40

12000

200

45

9000

600

48

28800

300

46

13800

550

51

28050

91650

(Eisen, 2007)

Particulars

FIFO

LIFO

Weighted Average

$

$

$

Goods available for sale 171,050 171,050

171,050

Ending inventory, March 31 60,750

91650

79,667

Cost of goods sold 110,300 79,400 91,383

Perpetual Inventory System

Perpetual inventory system: journal entries. At the beginning of 20X3, Beehler Company implemented a computerized perpetual inventory system. The following transactions occurred:

Purchases on account: 500 units @ $4 = $2,000

Sales on account: 300 units @ $5 = $1,500

Purchases on account: 600 units @ $5 = $3,000

Sales on account: 300 units @ $5 = $1,500

a. Prepare journal entries for the above purchases and sales.

b. Calculate the balance in the firm's Inventory account.

Journal Entries

Dr.

Cr.

Dr.

Purchases

2000

Cr.

Creditors

2000

Dr.

Debtors

1500

Cr.

Sales

1500

Dr.

Purchases

3000

Cr.

Creditors

3000

Dr.

Debtors

1500

Cr.

Sales

1500

Purchase

Sales

Balance

Units

$ Per Unit

Amount

Units

$ Per Unit

Amount

Units

500

4

2000

500

300

5

1500

300

600

5

3000

900

300

5

1500

600

Firm's Inventory account

Units

Total Purchases

1100

Total Sales

-600

Ending Inventory

500

4.) Inventory Valuation Methods

Inventory valuation methods: computations and concepts. Wave Riders Surfboard Company began business on January 1 of the current year. Below are the transactions for the year

Date

Particulars

Units

Per Unit

T. Amount

3-Jan

Purchases

100

125 12,500

17-Mar

Sales

50

250 12,500

3-Apr

Purchases

200

135 27,000

17-May

Sales

75

250 18,750

3-Jun

Purchases

100

145 14,500

3-Jan

Purchases

100

155 15,500

17-Mar

Sales

300

250 75,000

Wave Riders uses a perpetual inventory system.

Instructions

a. Calculate cost of goods sold, ending inventory, and gross profit under each of the following inventory valuation methods:

•First-in, first-out

•Last-in, first-out

•Weighted average

Particulars

FIFO

LIFO

AVCO

$

$

$

Goods available for sale 69,500 69,500 69,500

Ending inventory

11,625 9,625 10,655

Cost of goods sold 57,875 59,875 58,845

(Eisen, 2007)

b. Which of the three methods would be chosen if management's goal is to

(1) produce an up-to-date inventory valuation on the balance sheet?

FIFO method can help the company to get an up to date inventory valuation on the balance sheet.

FIFO

Date

Purchases

Sales

Balance

Units

Per Unit Price

T. Amount

Units

Per Unit Price

T. Amount

Units

Per Unit Price

T. Amount

3-Jan

100

125

12,500 -

100

125

12,500

17-Mar

-

50

250

12,500

-50

125

(6,250)

3-Apr

200

135

27,000 -

50

125

6,250

200

135

27,000

17-May

-

75

250

18,750

-50

125

(6,250)

- -

-25

135

(3,375)

- -

175

135

23,625

3-Jun

100

145

14,500 -

100

145

14,500

3-Jan

100

155

15,500 -

100

155

15,500

17-Mar

-

300

250

75,000

-175

135

(23,625)

- -

-100

145

(14,500)

- -

-25

155

(3,875)

Closing Inventory

- -

75

155

11,625

LIFO

Date

Purchases

Sales

Balance

Units

Per Unit Price

T. Amount

Units

Per Unit Price

T. Amount

Units

Per Unit Price

T. Amount

3-Jan

100

125

12,500 -

100

125

12,500

17-Mar

-

50

250

12,500

50

125

6,250

3-Apr

200

135

27,000

-

50

125

6,250

200

135

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