Professional Documents
Culture Documents
Inventories
ASSIGNMENTCLASSIFICATIONTABLE
Brief
Exercises
Do It!
Exercises
A
Problems
B
Problems
1, 2, 3,
4, 5, 6
1, 2
1A
1B
7, 8, 9,
10, 18
2, 3
3, 4, 5,
6, 7
3, 6, 7
14, 15, 16
8A, 9A
8B, 9B
9, 10
17, 18, 19
10A, 11A
10B, 11B
11
20, 21
12A
12B
StudyObjectives
Questions
1.
2.
3.
4.
12, 13, 14
8, 9
5.
15
10, 11
6.
16, 17
12, 13
*7.
19, 20
18
*8.
21, 22,
23, 24
*9.
11, 25
*Note:All asterisked Questions, Exercises, and Problems relate to material contained in the appendices to the
chapter.
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
6-1
ASSIGNMENTCHARACTERISTICSTABLE
Problem
Number
Description
Difficulty
Level
TimeAllotted
(min.)
1A
Moderate
1520
2A
Simple
3040
3A
Simple
3040
4A
Moderate
3040
5A
Moderate
3040
6A
Moderate
2030
7A
Moderate
3040
*8A
Moderate
3040
*9A
Moderate
4050
*10A
Moderate
3040
*11A
Moderate
2030
*12A
Moderate
1520
1B
Moderate
1520
2B
Simple
3040
3B
Simple
3040
4B
Moderate
3040
5B
Moderate
3040
6-2
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
ASSIGNMENTCHARACTERISTICSTABLE(Continued)
Problem
Number
Description
Difficulty
Level
TimeAllotted
(min.)
6B
Moderate
2030
7B
Moderate
3040
*8B
Moderate
3040
*9B
Moderate
4050
*10B
Moderate
3040
*11B
Moderate
2030
*12B
Moderate
1520
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
6-3
WEYGANDTIFRS1E
CHAPTER6
INVENTORIES
Number
SO
BT
Difficulty
Time(min.)
BE1
Simple
46
BE2
Simple
24
BE3
AP
Simple
46
BE4
Simple
24
BE5
AP
Simple
46
BE6
AN
Simple
46
BE7
AP
Simple
46
BE8
AP
Simple
810
BE9
AP
Simple
46
BE10
AP
Simple
46
BE11
AP
Simple
46
DI1
AN
Simple
46
DI2
AP
Simple
68
DI3
4, 5
AP
Simple
68
DI4
AP
Simple
46
EX1
AN
Simple
46
EX2
AN
Simple
68
EX3
2, 3
AN, E
Moderate
68
EX4
AN, E
Simple
810
EX5
AP
Simple
68
EX6
2, 3
AP, E
Simple
810
EX7
2, 3
AP, E
Simple
810
EX8
AP
Simple
68
EX9
AP
Simple
46
EX10
AN
Simple
68
EX11
AN
Simple
1012
EX12
AP
Simple
1012
EX13
AP
Simple
810
EX14
AP
Simple
810
EX15
AP, E
Moderate
1215
EX16
AP, E
Moderate
1215
EX17
AP
Simple
810
EX18
AP
Simple
1012
6-4
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
INVENTORIES(Continued)
Number
SO
BT
Difficulty
Time(min.)
EX19
AP
Moderate
1012
EX20
AP
Moderate
68
EX21
AP, E
Moderate
1215
P1A
AN
Moderate
1520
P2A
2, 3
AP
Simple
3040
P3A
2, 3
AP
Simple
3040
P4A
2, 3
AN
Moderate
3040
P5A
2, 3
AP, E
Moderate
3040
P6A
2, 3
AP, E
Moderate
2030
P7A
2, 3
AN
Moderate
3040
*P8A
AP, E
Moderate
3040
*P9A
AP
Moderate
4050
*P10A
AP
Moderate
3040
*P11A
AP
Moderate
2030
*P12A
AP
Moderate
1520
P1B
AN
Moderate
1520
P2B
2, 3
AP
Simple
3040
P3B
2, 3
AP
Simple
3040
P4B
2, 3
AN
Moderate
3040
P5B
2, 3
AP, E
Moderate
3040
P6B
2, 3
AP, E
Moderate
2030
P7B
2, 3
AN
Moderate
3040
*P8B
AP, E
Moderate
3040
*P9B
AP
Moderate
4050
*P10B
AP
Moderate
3040
*P11B
AP
Moderate
2030
*P12B
AP
Moderate
1520
BYP1
2, 6
AP
Simple
1015
BYP2
Simple
1015
BYP3
2, 6
AN
Simple
1015
BYP4
AP
Moderate
2025
BYP5
AN
Simple
1015
BYP6
Simple
1015
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
6-5
StudyObjective
Knowledge
Comprehension
Application
Analysis
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
1.
Q6-2
Q6-6
Q6-1
Q6-3
2.
Explainthe accountingfor
inventoriesand applythe
inventorycost flowmethods.
Q6-8
Q6-10
Q6-18
BE6-2
BE6-4
Q6-7
Q6-9
3.
4.
5.
6.
Computeandinterpretthe inventory
turnoverratio.
Q6-16
BE6-7
DI6-4
E6-12 Q6-17
E6-13
*7.
Q6-19
Q6-20
BE6-8
E6-14
E6-15
E6-16
P6-8A
P6-8B
P6-9A
P6-9B
*8.
Describethe twomethodsof
estimatinginventories.
Q6-21
Q6-22
Q6-23
Q6-24
BE6-9
BE6-10
*9.
Applythe LIFOinventorycostingmethod.
Q6-11
Q6-25
BE6-11
E6-20
E6-21
BroadeningYourPerspective
Q6-12
Q6-4 Q6-5
BE6-1 E6-1
DI6-1
E6-1
E6-2
Synthesis
Evaluation
P6-1A
P6-1B
BE6-3
DI6-2
E6-5
E6-6
E6-7
P6-2A
P6-2B
P6-3A
P6-3B
P6-5A
P6-5B E6-3
P6-6A E6-4
P6-6B P6-4A
P6-4B
P6-7A
P6-7B
E6-3
E6-4
P6-5A
P6-5B
P6-6A
P6-6B
E6-6
E6-7
BE6-4
E6-6
E6-7
P6-2A
P6-2B
P6-3A
P6-3B
P6-5A
P6-5B E6-3
P6-6A P6-4A
P6-6B P6-4B
P6-7A
P6-7B
E6-3
P6-5A
P6-5B
P6-6A
P6-6B
E6-6
E6-7
Q6-13
Q6-14
BE6-5
DI6-3
E6-8
E6-9
DI6-3
Q6-15
BE6-6
E6-17
E6-18
E6-19
P6-10A
FinancialReporting
DecisionMaking
Acrossthe
Organization
E6-10
E6-11
E6-16
E6-17
P6-8A
P6-8B
P6-11A
P6-10B
P6-11B
P6-12A
P6-12B
Exploringthe
Web
Communication
Comp.Analysis
EthicsCase
6-6
ANSWERSTO QUESTIONS
1.
Agree. Effective inventory management is frequently the key to successful business operations.
Management attempts to maintain sufficient quantities and types of goods to meet expected
customer demand. It also seeks to avoid the cost of carrying inventories that are clearly in excess
of anticipated sales.
2.
Inventory items have two common characteristics: (1) they are owned by the company and (2) they
are in a form ready for sale in the ordinary course of business.
3.
Taking a physical inventory involves actually counting, weighing or measuring each kind of
inventory on hand. Retailers, such as a hardware store, generally have thousands of different
items to count. This is normally done when the store is closed.
4.
(a) (1) The goods will be included in Reeves Companys inventory if the terms of sale are FOB
destination.
(2) They will be included in Cox Companys inventory if the terms of sale are FOB shipping
point.
(b) Reeves Company should include goods shipped to another company on consignment in its
inventory. Goods held by Reeves Company on consignment should not be included in
inventory.
5.
Inventoriable costs are $3,020 (invoice cost $3,000 + freight charges $50 cash discount $30). The
amount paid to negotiate the purchase is a buying cost that normally is not included in the cost of
inventory because of the difficulty of allocating these costs. Buying costs are expensed in the
year incurred.
6.
FOB shipping point means that ownership of goods in transit passes to the buyer when the public
carrier accepts the goods from the seller. FOB destination means that ownership of goods in
transit remains with the seller until the goods reach the buyer.
7.
Actual physical flow may be impractical because many items are indistinguishable from one
another. Actual physical flow may be inappropriate because management may be able to
manipulate net income through specific identification of items sold.
8.
The major advantage of the specific identification method is that it tracks the actual physical flow
of the goods available for sale. The major disadvantage is that management could manipulate
net income.
9.
No. Selection of an inventory costing method is a management decision. However, once a method
has been chosen, it should be used consistently from one accounting period to another.
10.
(a) FIFO.
(b) Average-cost.
(c) FIFO.
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
6-7
QuestionsChapter6 (Continued)
11. Plato Company is using the FIFO method of inventory costing, and Cecil Company is using the
LIFO method. Under FIFO, the latest goods purchased remain in inventory. Thus, the inventory
on the statement of financial position should be close to current costs. The reverse is true of the
LIFO method. Plato Company will have the higher gross profit because cost of goods sold will
include a higher proportion of goods purchased at earlier (lower) costs.
12. Peter should know the following:
(a) A departure from the cost basis of accounting for inventories is justified when the value of
the goods is lower than its cost. The writedown to net realizable value should be recognized
in the period in which the price decline occurs.
(b) Net realizable value (NRV) means the net amount that a company expects to realize from
the sale, not the selling price. NRV is estimated selling price less estimated costs to complete
and to make a sale.
13. Garitson Music Center should report the CD players at $180 each for a total of $900. $180
is the net realizable value under the lower-of-cost-or-net realizable value basis of accounting for
inventories. A decline in net realizable value usually leads to a decline in the selling price of the
item. Valuation at LCNRV is an example of the accounting concept of prudence.
14. Ruthie Stores should report the toasters at $27 each for a total of $540. The $27 is the lower of cost
or net realizable value. It is used because it is the lower of the inventorys cost and net realizable
value.
15. (a) Mintz Companys 2010 net income will be understated 7,000; (b) 2011 net income will be
overstated 7,000; and (c) the combined net income for the two years will be correct.
16. Willingham Company should disclose: (1) the major inventory classifications, (2) the basis of
accounting (cost or lower-of-cost-or-net realizable value), and (3) the costing method (FIFO or
average cost).
17. An inventory turnover that is too high may indicate that the company is losing sales opportunities
because of inventory shortages. Inventory outages may also cause customer ill will and result in
lost future sales.
18. Cadbury uses the average-cost method for its inventories.
*19. Disagree. The results under the FIFO method are the same but the results under the averagecost method are different. The reason is that the pool of inventoriable costs (cost of goods available
for sale) is not the same. Under a periodic system, the pool of costs is the goods available for sale
for the entire period, whereas under a perpetual system, the pool is the goods available for sale
up to the date of sale.
*20. In a periodic system, the average is a weighted average based on total goods available for sale for the
period. In a perpetual system, the average is a moving average of goods available for sale after
each purchase.
*21. Inventories must be estimated when: (1) management wants monthly or quarterly financial
statements but a physical inventory is only taken annually and (2) a fire or other type of casualty
makes it impossible to take a physical inventory.
6-8
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
QuestionsChapter6 (Continued)
*22. In the gross profit method, the average is the gross profit rate, which is gross profit divided by net
sales. The rate is often based on last years actual rate. The gross profit rate is applied to net sales
in using the gross profit method.
In the retail inventory method, the average is the cost-to-retail ratio, which is the goods available
for sale at cost divided by the goods available for sale at retail. The ratio is based on current year
data and is applied to the ending inventory at retail.
*23. The estimated cost of the ending inventory is $40,000:
Net sales....................................................................................................................
Less: Gross profit ($400,000 X 35%)........................................................................
Estimated cost of goods sold.....................................................................................
$400,000
140,000
$260,000
$300,000
260,000
$ 40,000
Cost-to-retail ratio:
84,000
70% =
120,000
*25. During times of rising prices, using the LIFO method for costing inventories rather than FIFO or
average-cost will result in lower income taxes. Since LIFO uses the most recent, higher, costs to
calculate cost of goods sold, taxable income is lower, and income taxes are also lower.
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
6-9
SOLUTIONSTO BRIEFEXERCISES
BRIEFEXERCISE6-1
(a)
Ownership of the goods belongs to Smart. Thus, these goods should be included in
Smartsinventory.
(d) Ownershipof thesegoodsrests with the other company. Thus, these goodsshould not
be includedin the physicalinventory.
BRIEFEXERCISE6-2
The itemsthat shouldbe includedin inventoriablecostsare:
(a)
(b)
(c)
(e)
Freight-in
PurchaseReturnsand Allowances
Purchases
PurchaseDiscounts
BRIEFEXERCISE6-3
(a)
(b) The ending inventory under average-cost consists of 360 units at $6.89* for a total
allocationof $2,480.
*Averageunit cost is $6.89computedas follows:
300 X $6 =
400 X $7 =
200 X $8 =
900
$1,800
2,800
1,600
$6,200
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
BRIEFEXERCISE6-4
(a)
(b)
(c)
(d)
BRIEFEXERCISE6-5
InventoryCategories
Cameras
Camcorders
DVDplayers
Total valuation
Cost
12,000
9,500
14,000
Net Realizable
Value
12,100
9,700
12,800
LCNRV
12,000
9,500
12,800
34,300
BRIEFEXERCISE6-6
The understatement of ending inventory caused cost of goods sold to be overstated
$10,000 and net income to be understated $10,000. The correct net income for 2011 is
$100,000or ($90,000+ $10,000).
Total assets in the statement of financial position will be understated by the amount that
endinginventoryis understated,$10,000.
BRIEFEXERCISE6-7
Inventoryturnover:
Daysin inventory:
$270,000
$270,000
=
= 5.4
($60,000 + $40,000) 2
$50,000
365
= 67.6 days
5.4
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
6-11
*BRIEFEXERCISE6-8
(1)
FIFOMethod
Date
Purchases
May
7 (50 @ $10)
$500
June 1
July 28 (30 @ $13)
$390
Aug. 27
(2)
ProductE2-D2
Cost of
GoodsSold
(30 @ $10)
$300
(20 @ $10)
(20 @ $13)
} $460
Balance
(50 @ $10)
$500
(20 @ $10)
$200
(20 @ $10)
(30 @ $13) } $590
(10 @ $13)
$130
Balance
(50 @ $10)
(20 @ $10)
(50 @ $11.80)*
(10 @ $11.80)
$500
$200
$590
$118
Moving-AverageCost
Date
May 7
June 1
July 28
Aug. 27
Purchases
(50 @ $10)
$500
(30 @ $13)
ProductE2-D2
Cost of
GoodsSold
(30 @ $10)
$300
(40 @ $11.80)
$472
$390
*($200+ $390) 50
*BRIEFEXERCISE6-9
(1)
Net sales..................................................................................
Less: Estimatedgrossprofit (35%X 330,000).............................
Estimatedcost of goodssold......................................................
330,000
115,500
214,500
(2)
230,000
214,500
15,500
6-12
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
*BRIEFEXERCISE6-10
Goodsavailablefor sale
Net sales
Endinginventoryat retail
At Cost
$35,000
At Retail
$50,000
40,000
$10,000
*BRIEFEXERCISE6-11
The ending inventory under LIFO consists of 300 units at $6 + 60 units at $7 for a total
allocationof $2,220or ($1,800+ $420).
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
6-13
R$300,000
26,000
0
17,000
R$343,000
DO IT! 6-2
Cost of goodsavailablefor sale = (3,000X $5) + (8,000X $7) = $71,000
Endinginventory= 3,000+ 8,000 9,200= 1,800units
(a) FIFO:$71,000 (1,800X $7) = $58,400
(b) Average-cost: $71,000/11,000= $6.455per unit
9,200X $6.455= $59,386
DO IT! 6-3
(a)
The lowest value for each inventory type is: Small $64,000, Medium $260,000, and
Large$152,000.The total inventoryvalueis the sumof thesefigures,$476,000.
(b)
Endinginventory
Cost of goodssold
Equity
6-14
2011
$31,000understated
$31,000overstated
$31,000understated
2012
No effect
$31,000understated
No effect
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
DOIT! 6-4
2010
Inventoryturnoverratio
Daysin inventory
CHF1,200,000
(CHF180,000+ CHF220,000)/2
365 6 = 60.8 days
2011
= 6
CHF1,425,000
(CHF220,000+ CHF80,000)/2
= 9.5
The company experienced a very significant decline in its ending inventory as a result of
the just-in-time inventory. This declineimprovedits inventoryturnoverratio and its days in
inventory.It is possiblethat this increaseis the result of a morefocusedinventorypolicy. It
appearsthat this changeis a win-win situationfor AragonCompany.
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
6-15
SOLUTIONSTO EXERCISES
EXERCISE6-1
Endinginventoryphysicalcount.............................................................
1. No effecttitlepassesto purchaseruponshipment
whentermsare FOBshippingpoint...............................................
2. No effecttitledoesnot transferto Limauntil
goodsare received......................................................................
3. Addto inventory: Title passedto Limawhengoods
wereshipped...............................................................................
4. Addto inventory: Title remainswith Limauntil
purchaserreceivesgoods.............................................................
5. Thegoodsdid not arriveprior to year-end. Thegoods,
therefore,cannotbe includedin the inventory.................................
Correctinventory....................................................................................
$297,000
0
0
22,000
35,000
(44,000)
$310,000
EXERCISE6-2
Endinginventoryasreported.................................................................
1. Subtractfrominventory:Thegoodsbelongto
SuperiorCorporation.Strawseris merelyholding
themas a consignee....................................................................
2. No effecttitledoesnot passto Strawseruntil
goodsare received(Jan. 3)...........................................................
3. Subtractfrominventory:Officesuppliesshould
be carriedin a separateaccount.Theyare not
consideredinventoryheld for resale..............................................
4. Addto inventory:Thegoodsbelongto Strawser
until theyare shipped(Jan. 1).......................................................
5. Addto inventory:District Salesorderedgoods
with a cost of 8,000.Strawsershouldrecordthe
correspondingsalesrevenueof 10,000.Strawsers
decisionto ship extraunorderedgoodsdoesnot
constitutea sale. The managersstatementthat District
couldship the goodsbackindicatesthat Strawserknows
this over-shipmentis not a legitimatesale. The manager
actedunethicallyin an attemptto improveStrawsers
reportedincomeby over-shipping.................................................
6-16
740,000
(250,000)
0
(17,000)
30,000
52,000
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
EXERCISE6-2 (Continued)
6.
Subtractfrominventory:IFRSrequirethat inventory
be valuedat the lowerof cost or net realizablevalue.
Obsoletepartsshouldbe adjustedfromcost to zero
if theyhaveno otheruse...............................................................
Correctinventory.....................................................................................
(40,000)
515,000
EXERCISE6-3
(a)
FIFOCost of GoodsSold
(#1012)$100+ (#1045)$90 = $190
(b)
(c)
I recommend they use the FIFO method because it produces a more appropriate
statement of financial position valuation and reduces the opportunity to manipulate
earnings.
(Theanswermayvarydependingon themethodthestudentchooses.)
EXERCISE6-4
(a)
FIFO
Beginninginventory(26 X $97)..............................................
Purchases
Sept. 12 (45 X $102).......................................................
Sept. 19 (20 X $104).......................................................
Sept. 26 (50 X $105).......................................................
Cost of goodsavailablefor sale.............................................
Less: Endinginventory(20 X $105)........................................
Cost of goodssold...............................................................
$ 2,522
$4,590
2,080
5,250
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
11,920
14,442
2,100
$12,342
6-17
EXERCISE6-4 (Continued)
Date
9/1
9/12
9/19
9/26
Units
26
45
20
30
121
Proof
Unit Cost
$ 97
102
104
105
Total Cost
$ 2,522
4,590
2,080
3,150
$12,342
Average-Cost
Cost of goodsavailablefor sale................................................................
Less: Endinginventory(20 X $102.43*).....................................................
Cost of goodssold..................................................................................
$14,442
2,049
$12,393
= $102.43(rounded)
Proof
121 unitsX $102.43= $12,394($1 differencedue to rounding)
(b)
FIFO$2,100(endinginventory)+ $12,342(COGS)= $14,442
Average-cost $2,049(endinginventory)+ $12,393(COGS)= $14,442
Cost of
goods
available
for sale
$240
$275
420
695
935
300
$635
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
EXERCISE6-5 (Continued)
Date
5/1
5/15
5/24
Units
30
25
10
Proof
Unit Cost
$8
11
12
Total Cost
$240
275
120
$635
AVERAGE-COST
Cost of goodsavailablefor sale.....................................................................
Less: Endinginventory(25 X $10.39).............................................................
Cost of goodssold.......................................................................................
$935
260
$675
= $10.39(rounded)
Proof
65 units X $10.39= $675
EXERCISE6-6
(a)
FIFO
Beginninginventory(200 X $5)...................................
Purchases
June12 (300X $6).............................................
June23 (500X $7).............................................
Cost of goodsavailablefor sale..................................
Less: Endinginventory(120 X $7)..............................
Cost of goodssold....................................................
$1,000
$1,800
3,500
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
5,300
6,300
840
$5,460
6-19
EXERCISE6-6 (Continued)
AVERAGE-COST
Cost of goodsavailablefor sale........................................
Less: Endinginventory(120 X $6.30).................................
Cost of goodssold..........................................................
$6,300
756
$5,544
= $6.30
(b) The FIFO method will produce the higher ending inventory because costs have been
rising. Under this method, the earliest costs are assigned to cost of goods sold and the
latestcostsremainin endinginventory.For YountCompany,the endinginventoryunder
FIFOis $840or (120 X $7) comparedto $756or (120 X $6.30)underaverage-cost.
(c) The average-cost method will produce the higher cost of goods sold for Yount
Company. The cost of goods sold is $5,544 or [$6,300 $756] compared to $5,460 or
($6,300 $840)underFIFO.
EXERCISE6-7
(a)
(1)
(2)
FIFO
Beginninginventory..................................................
Purchases................................................................
Cost of goodsavailablefor sale..................................
Less: endinginventory(80 X $130).............................
Cost of goodssold....................................................
$10,000
26,000
36,000
10,400
$25,600
AVERAGE-COST
Beginninginventory..................................................
Purchases................................................................
Cost of goodsavailablefor sale..................................
Less: endinginventory(80 X $120*)............................
Cost of goodssold....................................................
$10,000
26,000
36,000
9,600
$26,400
6-20
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
EXERCISE6-7 (Continued)
(b) The use of FIFOwouldresult in the highestnet incomesincethe earlier lowercosts are
matchedwithrevenues.
(c)
(d) The use of average-cost would result in Jones paying the least taxes in the first year
sinceincomewill be lower.
EXERCISE6-8
Net Realizable
Value
Cost
Lowerof Cost
or NRV
Cameras
Minolta
Canon
Total
W 850,000
900,000
1,750,000
W 780,000
912,000
1,692,000
W 780,000
900,000
Lightmeters
Vivitar
Kodak
Total
Total inventory
1,500,000
1,680,000
3,180,000
W4,930,000
1,380,000
1,890,000
3,270,000
W4,962,000
1,380,000
1,680,000
W4,740,000
EXERCISE6-9
Cameras
DVDplayers
iPods
Total inventory
Cost
$ 6,500
11,250
10,000
$27,750
Net
Realizable
Value
$ 7,100
10,350
9,750
$27,200
Lowerof
Cost or
NRV
$ 6,500
10,350
9,750
$26,600
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
6-21
EXERCISE6-10
Beginninginventory...................................................
Cost of goodspurchased............................................
Cost of goodsavailablefor sale...................................
Correctedendinginventory.........................................
Cost of goodssold.....................................................
a
2011
20,000
150,000
170,000
27,000a
143,000
2012
27,000
175,000
202,000
41,000b
161,000
EXERCISE6-11
(a)
Sales.....................................................................
Cost of goodssold
Beginninginventory........................................
Cost of goodspurchased.................................
Cost of goodsavailablefor sale........................
Endinginventory($44,000 $5,000)...................
Cost of goodssold..........................................
Grossprofit............................................................
2011
$210,000
2012
$250,000
32,000
173,000
205,000
39,000
166,000
$ 44,000
39,000
202,000
241,000
52,000
189,000
$ 61,000
(b) Thecumulativeeffect on total grossprofit for the two yearsis zero as shownbelow:
Incorrectgrossprofits:
Correctgrossprofits:
Difference
6-22
$49,000+ $56,000=
$44,000+ $61,000=
$105,000
105,000
$
0
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
EXERCISE6-11 (Continued)
(c)
DearMr./Ms.President:
Becauseyour ending inventory of December31, 2011 was overstated by $5,000, your
net incomefor 2011wasoverstatedby $5,000.For 2012net incomewasunderstatedby
$5,000.
In a periodic system, the cost of goods sold is calculated by deducting the cost of
endinginventoryfromthe total cost of goodsyou have availablefor sale in the period.
Therefore, if this ending inventory figure is overstated, as it was in December 2011,
thenthe cost of goodssold is understatedand thereforenet incomewill be overstated
by that amount. Consequently, this overstated ending inventory figure goes on to
becomethe next periodsbeginninginventoryamountand is a part of the total cost of
goodsavailablefor sale. Therefore,the mistakerepeatsitself in the reverse.
The error also affects the statement of financial position at the end of 2011. The
inventoryreportedin the statementof financial position is overstated; therefore, total
assets are overstated.The overstatementof the 2011 net incomeresults in the retained
earnings account balance being overstated. The statement of financial position at the
end of 2012 is correct because the overstatement of the retained earnings account at
the end of 2011 is offset by the understatement of the 2012 net income and the
inventoryat the end of 2012is correct.
Thank you for allowing me to bring this to your attention. If you have any questions,
pleasecontactme at yourconvenience.
Sincerely,
EXERCISE6-12
Inventory
turnover
2010
2011
$900,000
($100,000+ $300,000) 2
$1,120,000
($300,000+ $400,000) 2
$900,000
$200,000
Daysin
inventory
Gross
profit rate
365
4.5
$1,120,000
$350,000
= 4.5
= 81.1 days
$1,200,000 $900,000
$1,200,000
= .25
365
3.2
2012
$1,300,000
$440,000
= 3.2
365
2.95
= 114.1days
$1,600,000 $1,120,000
$1,600,000
$1,300,000
($400,000+ $480,000) 2
= .30
= 2.95
= 123.7days
$1,900,000 $1,300,000
$1,900,000
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
= .32
6-23
EXERCISE6-12 (Continued)
The inventory turnover ratio decreasedby approximately 34% from 2010 to 2012 while the
days in inventory increased by almost 53% over the same time period. Both of these
changeswould be considered negative since its better to have a higher inventoryturnover
with a correspondingly lower days in inventory. However, Santos Photo gross profit rate
increasedby 28%from2010to 2012, whichis a positivesign.
EXERCISE6-13
(a)
InventoryTurnover
Daysin Inventory
(b)
OBrienCompany
WeinbergCompany
190,000
(45,000+ 55,000)/2
= 3.80
292,000
(71,000+ 69,000)/2
= 4.17
365/3.80= 96 days
365/4.17= 88 days
*EXERCISE6-14
(1)
FIFO
Cost of GoodsSold
Date
Purchases
Jan. 1
8
(2 @ $600)
10 (6 @ $660)
$3,960
15
6-24
(1 @ $600)
(3 @ $660)
$1,200
Balance
(3 @ $600)
$1,800
(1 @ $600)
600
(1 @ $600)
(6 @ $660)
4,560
$2,580
(3 @ $660)
1,980
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
*EXERCISE6-14 (Continued)
(2)
MOVING-AVERAGECOST
Date
Purchases
Cost of GoodsSold
Jan. 1
8
(2 @ $600)
$1,200
10 (6 @ $660)
$3,960
15
(4 @ $651.43)
$2,606
Balance
(3 @ $600)
$1,800
(1 @ $600)
600
(7 @ $651.43)*
4,560
(3 @ $651.43)
1,954
*EXERCISE6-15
(a) The cost of goodsavailablefor sale is:
June 1 Inventory
200 @ $5
June12 Purchase
300 @ $6
June23 Purchase
500 @ $7
Total cost of goodsavailablefor sale
(1)
Date
June 1
June12
FIFO
Cost of GoodsSold
Purchases
(300@ $6)
$1,800
June15
June23
June27
Balance
(200 @ $5)
$1,000
(200 @ $5)
$2,800
(300 @ $6)
(200 @ $5)
(200 @ $6)
(500@ $7)
$1,000
1,800
3,500
$6,300
$1,000
1,200
$3,500
(100 @ $6)
(380 @ $7)
600
2,660
$5,460
(100 @ $6)
(100 @ $6)
(500 @ $7)
$ 600
(120 @ $7)
$4,100
$ 840
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
6-25
*EXERCISE6-15 (Continued)
(2)
Date
June 1
June12
June15
June23
June27
Purchases
(300@ $6)
Moving-AverageCost
Costof GoodsSold
$1,800
(400@ $5.60)
(500@ $7)
$3,500
(480@ $6.767)
Balance
(200 @ $5)
(500 @ $5.60)
$2,240 (100 @ $5.60)
(600 @ $6.767)
$3,248 (120 @ $6.767)
$5,488
$1,000
$2,800
$ 560
$4,060
$ 812
FIFO gives the same ending inventory and cost of goods sold values under both the
periodicandperpetualinventorysystem.Moving-averagegivesdifferentendinginventory
andcostof goodssoldvaluesunderthe periodicandperpetualinventorysystems,dueto
theaveragecalculationbeingbasedon differentpoolsof costs.
(c)
*EXERCISE6-16
(a)
Date
9/1
9/5
9/12
FIFO
Cost of
GoodsSold
Purchases
(45 @ $102)
9/16
9/19
9/26
9/29
6-26
(20 @ $104)
(50 @ $105)
(12 @ $ 97)
$1,164
(14 @ $ 97)
(36 @ $102)
$5,030
$4,590
$2,080
$5,250
( 9 @ $102)
(20 @ $104)
(30 @ $105)
$6,148
Balance
(26 @ $ 97) $2,522
(14 @ $ 97) $1,358
(14 @ $ 97)
(45 @ $102) $5,948
( 9 @ $102)
( 9 @ $102)
(20 @ $104)
( 9 @ $102)
(20 @ $104)
(50 @ $105)
$ 918
(20 @ $105)
$2,100
$2,998
$8,248
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
*EXERCISE6-16 (Continued)
Date
9/1
9/5
9/12
9/16
9/19
9/26
9/29
Moving-AverageCost
Cost of
GoodsSold
Purchases
(26 @ $97)
$1,164 (14 @ $97)
(59 @ $100.81)a
$5,041* ( 9 @ $100.81)
(29 @ $103.00)b
(79 @ $104.27)c
$6,152* (20 @ $104.27)
(12 @ $97)
(45 @ $102)
$4,590
(50 @ $100.81)
(20 @ $104)
(50 @ $105)
Balance
$2,080
$5,250
(59 @ $104.27)
$2,522
$1,358
$5,948
$ 907
$2,987
$8,237
$2,085
*Rounded
a
$5,948 59 = $100.81
b
$2,987 29 = $103.00
c
$8,237 79 = $104.27
(b)
EndingInventoryFIFO
EndingInventoryAverage
(c)
Periodic
$2,100
$2,049
Perpetual
$2,100
$2,085
FIFO yields the same ending inventory value under both the periodic and perpetual
inventorysystem.
Average-cost yields different ending inventory values when using the periodic versus
perpetualinventorysystem.
*EXERCISE6-17
(a)
Sales .......................................................
Cost of goodssold
Inventory,November1..........................
Cost of goodspurchased......................
Cost of goodsavailablefor sale.............
Inventory,December31........................
Cost of goodssold.......................
Grossprofit ..............................................
Rs800,000,000
Rs100,000,000
500,000,000
600,000,000
120,000,000
480,000,000
Rs320,000,000
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
6-27
*EXERCISE6-17 (Continued)
(b) Sales....................................................................................
Less: Estimatedgrossprofit (40%X Rs10,000,000)...................
Estimatedcost of goodssold..................................................
Rs10,000,000
4,000,000
Rs 6,000,000
Beginninginventory..............................................................
Cost of goodspurchased.......................................................
Cost of goodsavailablefor sale..............................................
Less: Estimatedcost of goodssold........................................
Estimatedcost of endinginventory..........................................
Rs 1,200,000
6,100,000
7,300,000
6,000,000
Rs 1,300,000
*EXERCISE6-18
(a)
$50,000
20,000
$30,000
Beginninginventory......................................................................
Cost of goodspurchased($31,200 $1,400+ $1,200).........................
Cost of goodsavailablefor sale......................................................
Less: Estimatedcost of goodssold................................................
Estimatedcost of merchandiselost.................................................
$20,000
31,000
51,000
30,000
$21,000
$50,000
15,000
$35,000
Beginninginventory......................................................................
Cost of goodspurchased...............................................................
Cost of goodsavailablefor sale......................................................
Less: Estimatedcost of goodssold................................................
Estimatedcost of merchandiselost.................................................
$30,000
31,000
61,000
35,000
$26,000
6-28
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
*EXERCISE6-19
Womens
Department
Cost
Retail
Beginninginventory
Goodspurchased
Goodsavailablefor sale
Net sales
Endinginventoryat retail
Cost-to-retail ratio
Estimatedcost of ending
inventory
$ 32,000
148,000
$180,000
$ 46,000
179,000
225,000
178,000
$ 47,000
Mens
Department
Cost
Retail
$ 45,000
136,300
$181,300
$ 60,000
185,000
245,000
185,000
$ 60,000
$180,000
= 80%
$225,000
$181,300
= 74%
$245,000
*EXERCISE6-20
Beginninginventory(200 X $5)...........................................
Purchases
June12 (300X $6).......................................................
June23 (500X $7).......................................................
Cost of goodsavailablefor sale..........................................
Less:Endinginventory(120 X $5).......................................
Cost of goodssold............................................................
$1,000
$1,800
3,500
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
5,300
6,300
600
$5,700
6-29
*EXERCISE6-21
(a)
1.
2.
FIFO
Beginninginventory..................................................
Purchases................................................................
Cost of goodsavailablefor sale..................................
Less: endinginventory(80 X $130).............................
Cost of goodssold....................................................
$10,000
26,000
36,000
10,400
$25,600
AVERAGE-COST
Beginninginventory..................................................
Purchases................................................................
Cost of goodsavailablefor sale..................................
Less: endinginventory(80 X $120*)............................
Cost of goodssold....................................................
$10,000
26,000
36,000
9,600
$26,400
LIFO
Beginninginventory..................................................
Purchases................................................................
Cost of goodsavailablefor sale..................................
Less: endinginventory(80 X $100).............................
Cost of goodssold....................................................
$10,000
26,000
36,000
8,000
$28,000
6-30
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
SOLUTIONSTO PROBLEMS
PROBLEM6-1A
(a)
The goods should not be included in inventory as they were shipped FOB shipping
point and shippedFebruary26. Title to the goodstransfersto the customerFebruary
26. Heath should have recorded the transaction in the Sales and Accounts
Receivableaccounts.
(b)
The amount should not be included in inventory as they were shipped FOB
destination and not received until March 2. The seller still owns the inventory. No
entryis recorded.
(c)
IncludeTL500in inventory.
(d)
IncludeTL400in inventory.
(e)
TL750 should be included in inventory as the goods were shipped FOB shipping
point.
(f)
The sale will be recordedon March 2. The goods should be includedin inventory at
the end of Februaryat their cost of TL250.
(g)
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
6-31
PROBLEM6-2A
(a)
Date
March 1
5
13
21
26
COSTOF GOODSAVAILABLEFORSALE
Explanation
Units
Unit Cost
BeginningInventory
1,500
$7
Purchase
3,000
8
Purchase
5,500
9
Purchase
4,000
10
Purchase
2,000
11
Total
16,000
(b)
Total Cost
$ 10,500
24,000
49,500
40,000
22,000
$146,000
FIFO
(1)
EndingInventory
Unit
Date
Units
Cost
March 26
2,000
$11
21
1,500
10
3,500*
(2)
Cost of GoodsSold
Total Cost Cost of goodsavailable
for sale
$146,000
$22,000 Less: Ending
15,000
inventory
37,000
$37,000 Cost of goodssold
$109,000
6-32
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
PROBLEM6-2A (Continued)
AVERAGE-COST
(1)
EndingInventory
(2)
Cost of GoodsSold
$146,000 16,000= $9.125
Cost of goodsavailable
for sale
$146,000
Unit
Less: Ending
Units
Cost
Total Cost
inventory
31,938
3,500
$9.125
$31,938*
Cost of goodssold
$114,062
*roundedto nearestdollar
Proofof Costof GoodsSold
12,500units X $9.125= $114,062
(c) 1.
2.
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
6-33
PROBLEM6-3A
(a)
Date
1/1
2/20
5/5
8/12
12/8
COSTOF GOODSAVAILABLEFORSALE
Explanation
Units
Unit Cost
BeginningInventory
400
8
Purchase
600
9
Purchase
500
10
Purchase
300
11
Purchase
200
12
Total
2,000
(b)
FIFO
(1)
Date
12/8
8/12
Date
1/1
2/20
5/5
6-34
Total Cost
3,200
5,400
5,000
3,300
2,400
19,300
EndingInventory
Unit
Units
Cost
200
12
300
11
500
Total Cost
2,400
3,300
5,700
(2)
Cost of GoodsSold
Cost of goods
availablefor sale
19,300
Less: Ending
inventory
5,700
Cost of goodssold
13,600
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
PROBLEM6-3A (Continued)
(1)
Units
500
AVERAGE-COST
EndingInventory
(2)
Cost of GoodsSold
19,300 2,000= 9.65
Cost of goods
availablefor sale
19,300
Unit Cost
Less: Ending
Total
inventory
4,825
Cost
9.65
4,825
Cost of goodssold
14,475
2.
Average-cost results in the lowest inventory amount for the statement of financial
position,4,825.
FIFOresultsin the lowestcost of goodssold, 13,600.
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
6-35
PROBLEM6-4A
(a)
MORALESCO.
CondensedIncomeStatement
For the Year EndedDecember31, 2011
Sales...............................................................
Cost of goodssold
Beginninginventory..................................
Cost of goodspurchased...........................
Cost of goodsavailablefor sale..................
Endinginventory......................................
Cost of goodssold....................................
Grossprofit.....................................................
Operatingexpenses..........................................
Incomebeforeincometaxes..............................
Incometaxes(34%)...........................................
Net income......................................................
a
FIFO
$865,000
Average-Cost
$865,000
32,000
595,000
627,000
84,000a
543,000
322,000
147,000
175,000
59,500
$115,500
32,000
595,000
627,000
76,770b
550,230
314,770
147,000
167,770
57,042
$110,728
(b) 1.
The FIFO method produces the most meaningful inventory amount for the
statement of financial position because the units are costed at the most recent
purchaseprices.
2.
The FIFO method is most likely to approximate actual physical flow because the
oldestgoodsareusuallysoldfirst to minimizespoilageand obsolescence.
3.
There will be $2,458 additional cash available under averagecost because income taxes are $57,042 under average-cost and $59,500 under
FIFO.
6-36
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
PROBLEM6-5A
Units
60
120
70
80
330
330
270
60
Date
October11
22
29
Unit Cost
25
26
27
28
SalesRevenue
Unit
Units Price
100
35
60
40
110
40
270
Total Cost
1,500
3,120
1,890
2,240
8,750
Total Sales
3,500
2,400
4,400
10,300
(a)
(1) FIFO
(i)
EndingInventory
October25
60 @ 28 = 1,680
(iii) GrossProfit
Salesrevenue
Cost of goodssold
Grossprofit
10,300
7,070
3,230
8,750
1,680
7,070
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6-37
PROBLEM6-5A (Continued)
(2)
Average-Cost
Weighted-averagecost per unit:
(i)
EndingInventory
60 @ 26.515= 1,591*
*roundedto nearesteuro
(iii) GrossProfit
Salesrevenue
Cost of goodssold
Grossprofit
(b)
6-38
10,300
7,159
3,141
8,750
1,591
7,159
= 30.5%
Average-cost producesa lower ending inventory value, gross profit, and gross profit
rate becauseits cost of goodssold is higherthanFIFO.
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
PROBLEM6-6A
Cost of GoodsSold
150 @ $300
$ 45,000
30 @ $350
10,500
170 @ $350
59,500
230 @ $375
86,250
580
$201,250
SalesRevenue
180 @ $600
$108,000
400 @ $650
260,000
580
$368,000
Cost of GoodsSold
180 @ $350
$ 63,000
350 @ $375
131,250
20 @ $350
7,000
30 @ $300
9,000
580
$210,250
SalesRevenue
180 @ $600
$108,000
400 @ $650
260,000
580
$368,000
(b) FIFO
Cost of goodsavailablefor sale
March1 Beginninginventory
3 Purchase
10 Purchase
Goodsavailablefor sale
Unitssold
Endinginventory
150 @ $300
200 @ $350
350 @ $375
700
$ 45,000
70,000
131,250
$246,250
700
580
120 @ $375
$ 45,000
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
6-39
PROBLEM6-6A (Continued)
Goodsavailablefor sale
Endinginventory
Cost of goodssold
$246,250
45,000
$201,250
(c) Average-Cost
Cost of goodsavailablefor sale
(frompart b)
Endinginventory 120 @ $351.786*
Cost of goodssold
$246,250
42,214
$204,036
(d) The choice of inventory method depends on the companys objectives. Since the
diamondsaremarkedandcoded,thecompanycouldusespecificidentification.This could,
however, result in earnings management by the companybecause, as shown,it could
carefully choosewhichdiamondsto sell to result in the maximumor minimumincome.
Employing a cost flow assumption, such as average-cost or FIFO, would reduce
record-keeping costs. FIFO would result in higher income, but average-cost would
reduceincometaxes.
6-40
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
PROBLEM6-7A
(a)
UTLEYLTD.
CondensedIncomeStatement
For the Year EndedDecember31, 2011
FIFO
Sales..............................................................
Cost of goodssold
Beginninginventory..................................
Cost of goodspurchased...........................
Cost of goodsavailablefor sale..................
Endinginventory.......................................
Cost of goodssold....................................
Grossprofit.....................................................
Operatingexpenses.........................................
Incomebeforeincometaxes..............................
Incometax expense(28%).................................
Net income......................................................
AverageCost
665,000
665,000
35,000
504,500
539,500
133,500a
406,000
259,000
130,000
129,000
36,120
92,880
35,000
504,500
539,500
124,500b
415,000
250,000
130,000
120,000
33,600
86,400
The FIFO method produces the most meaningful inventory amount for the
statement of financial position because the units are costed at the most recent
purchaseprices.
2.
3.
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
6-41
PROBLEM6-7A (Continued)
Answerin businessletter form:
DearUtleyLtd.
After preparing the comparative condensed income statements for 2011 under
FIFOand average-cost methods,we havefoundthe following:
The FIFO method produces the most meaningful inventory amount for the
statement of financial position because the units are costed at the most recent
purchaseprices. This methodis most likely to approximateactual physical flow
because the oldest goods are usually sold first to minimize spoilage and
obsolescence.
There will be 2,520 additional cash available under average-cost because
incometaxesare33,600underaverage-costand36,120underFIFO.
Sincerely,
6-42
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
*PROBLEM6-8A
(a)
Sales:
Date
January 6
January 9 (return)
January10
January30
Total sales
(1) FIFO
Date
Purchases
$ 6,000
(400)
2,250
5,500
$13,350
Costof GoodsSold
January 1
January
January
January
January
2
6
9
9
(100 @ $21)
(150 @ $17)
(10 @ $17)
( 75 @ $24)
January10
January10
(15 @ $24)
January23
(100 @ $28)
January30
$2,100
$2,550
($ 170)
$1,800
($ 360)
( 10 @ $17)
( 40 @ $21)
$1,010
$2,800
( 60 @ $21)
( 50 @ $24)
$2,460
Balance
(150 @ $17)
(150 @ $17)
(100 @ $21)
(100 @ $21)
( 10 @ $17)
(100 @ $21)
( 75 @ $24)
( 10 @ $17)
(100 @ $21)
( 60 @ $24)
( 60 @ $21)
( 60 @ $24)
( 60 @ $21)
( 60 @ $24)
(100 @ $28)
( 10 @ $24)
(100 @ $28)
$2,550
$4,650
$2,100
}
}
$4,070
$3,710
$2,700
$5,500
$3,040
$5,850
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
6-43
*PROBLEM6-8A (Continued)
(2) Moving-Average
Date
Purchases
January 1
January 2
January 6
January 9
January 9
January10
January10
January23
January30
(100 @ $21)
( 75 @ $24)
(15 @ $24)
(100 @ $28)
Cost of goodssold
$2,100
(150 @ $18.60)
(10 @ $18.60)
$2,790
($ 186)
( 50 @ $20.506)
$1,025
(110 @ $23.914)
$2,631
$6,260
$1,800
($ 360)
$2,800
Balance
(150 @ $17)
(250 @ $18.60)a
(100 @ $18.60)
(110 @ $18.60)
(185 @ $20.789)b
(170 @ $20.506)c
(120 @ $20.506)
(220 @ $23.914)d
(110 @ $23.914)
$2,550
$4,650
$1,860
$2,046
$3,846
$3,486
$2,461
$5,261
$2,630
FIFO
$13,350
5,850
$ 7,500
$ 3,040
Moving-Average
$13,350
6,260
$ 7,090
$ 2,630
In a period of rising costs, the moving-average cost flow assumption results in the
highest cost of goods sold and lowest gross profit. FIFO gives the lowest cost of
goodssold andhighestgrossprofit.
On the statement of financial position, FIFO gives the highest ending inventory
(representing the most current costs); and average-cost gives the lowest ending
inventory.
6-44
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
*PROBLEM6-9A
(a) (1)
FIFO
Date
May 1
4
8
Costof
GoodsSold
Purchases
(7 @ $150)
$1,050
(4 @ $150)
(8 @ $170)
$600
$1,360
(3 @ $150)
(2 @ $170)
12
15
Balance
(6 @ $185)
$790
$1,110
20
(3 @ $170)
25
(3 @ $170)
(1 @ $185)
(2)
$510
$695
(7 @ $150)
(3 @ $150)
(3 @ $150)
(8 @ $170)
(6 @ $170)
(6 @ $170)
(6 @ $185)
(3 @ $170)
(6 @ $185)
$1,050
$ 450
$1,810
$1,020
}
}
(5 @ $185)
$2,130
$1,620
$ 925
MOVING-AVERAGECOST
Date
May1
4
8
12
15
20
25
Cost of
GoodsSold
Purchases
(7 @ $150)
(8 @ $170)
(6 @ $185)
Balance
$1,050
(4 @ $150)
$600
(5 @ $164.55)
$823
(3 @ $174.75)
(4 @ $174.75)
$524
$699
$1,360
$1,110
( 7 @ $150)
( 3 @ $150)
(11 @ $164.55)*
( 6 @ $164.55)
(12 @ $174.75)**
( 9 @ $174.75)
( 5 @ $174.75)
$1,050
$ 450
$1,810
$ 987
$2,097
$1,573
$ 874
(b) 1.
2.
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
6-45
*PROBLEM6-10A
(a)
Net sales...........................................
Cost of goodssold
Beginninginventory..................
Net purchases...........................
Add: Freight-in.........................
Cost of goodspurchased...........
Costof goodsavailable
for sale..................................
Endinginventory.......................
Cost of goodssold.............
Grossprofit.......................................
Grossprofit rate
February
300,000
4,500
197,800
2,900
200,700
205,200
13,200
192,000
108,000
108,000
= 36%
300,000
250,000
Beginninginventory............................................
Net purchases.....................................................
Add: Freight-in...................................................
Cost of goodspurchased.....................................
Cost of goodsavailablefor sale............................
Less: Estimatedcost of goodssold......................
Estimatedtotal cost of ending
inventory........................................................
Less: Inventorynot lost
(30%X 48,200).......................................
Estimatedinventorylost in fire
(70%X 48,200)...............................................
13,200
6-46
90,000
160,000
191,000
4,000
195,000
208,200
160,000
48,200
14,460
33,740
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
*PROBLEM6-11A
(a)
Sporting
Goods
Cost
Beginninginventory
Purchases
Purchasereturns
Purchasediscounts
Freight-in
Goodsavailablefor sale
Net sales
Endinginventoryat retail
$ 47,360
675,000
(26,000)
(12,360)
9,000
$693,000
Retail
$ 74,000
1,066,000
(40,000)
1,100,000
(1,000,000)
$ 100,000
Jewelry
and Cosmetics
Cost
$ 39,440
741,000
(12,000)
(2,440)
14,000
$780,000
Retail
$ 62,000
1,158,000
(20,000)
1,200,000
(1,160,000)
$ 40,000
Cost-to-retail ratio:
SportingGoods$693,000 $1,100,000= 63%.
Jewelryand Cosmetics$780,000 $1,200,000= 65%.
Estimatedendinginventoryat cost:
$100,000X 63%= $63,000SportingGoods.
$ 40,000X 65%= $26,000Jewelryand Cosmetics.
(b) SportingGoods$95,000X 60%= $57,000.
Jewelryand Cosmetics$44,000X 64%= $28,160.
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
6-47
*PROBLEM6-12A
Units
60
120
70
80
330
Unit Cost
25
26
27
28
Total Cost
1,500
3,120
1,890
2,240
8,750
330
270
60
EndingInventory
October1
60 @ 25 = 1,500
6-48
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
PROBLEM6-1B
(a)
The sale will be recordedon February 26. The goods (cost, $800) should be excluded
fromElmsFebruary28 inventory.
(b)
Elms owns the goods once they are shipped on February 26. Include inventory of
$480.
(c)
Include$650in inventory.
(d)
(e)
Title of the goodsdoes not transfer to Elms until March2. Excludethis amountfrom
the February28 inventory.
(f)
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
6-49
PROBLEM6-2B
(a)
Date
Oct. 1
3
9
19
25
COSTOF GOODSAVAILABLEFORSALE
Explanation
Units
Unit Cost
BeginningInventory
2,000
7
Purchase
3,000
8
Purchase
3,500
9
Purchase
3,000
10
Purchase
3,500
11
Total
15,000
(b)
Total Cost
14,000
24,000
31,500
30,000
38,500
138,000
FIFO
(1)
Date
Oct. 25
19
EndingInventory
Unit
Units
Cost
3,500
11
100
10
3,600*
Total Cost
38,500
1,000
39,500
(2)
Cost of GoodsSold
Cost of goods
availablefor sale
138,000
Less: Ending
inventory
39,500
Cost of goodssold
98,500
Date
Oct.
6-50
1
3
9
19
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
PROBLEM6-2B (Continued)
AVERAGECOST
(1)
EndingInventory
(2)
Cost of GoodsSold
Cost of goodsavailable
138,000 15,000= 9.20
for sale
138,000
Units
Unit Cost
33,120
Total Cost Less: Endinginventory
3,600
9.20
33,120
Cost of goodssold
104,880
Proofof Costof GoodsSold
11,400units X 9.20= 104,880
(c) 1.
2.
FIFO results in the highest inventory amount for the statement of financial
position,39,500.
Average-cost resultsin the highestcost of goodssold, 104,880.
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
6-51
PROBLEM6-3B
(a)
Date
1/1
3/15
7/20
9/4
12/2
COSTOF GOODSAVAILABLEFORSALE
Explanation
Units
Unit Cost
BeginningInventory
150
$20
Purchase
400
23
Purchase
250
24
Purchase
350
26
Purchase
100
29
Total
1,250
(b)
FIFO
(1)
Date
12/2
9/4
Date
1/1
3/15
7/20
9/4
6-52
Total Cost
$ 3,000
9,200
6,000
9,100
2,900
$30,200
EndingInventory
Unit
Units
Cost
100
$29
150
26
250
Total
Cost
$2,900
3,900
$6,800
(2)
Cost of GoodsSold
Cost of goods
availablefor sale
$30,200
Less: Ending
inventory
6,800
Cost of goodssold
$23,400
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
PROBLEM6-3B (Continued)
AVERAGECOST
(1)
EndingInventory
(2)
Cost of GoodsSold
Cost of goodsavailable
$30,200 1,250= $24.16
for sale
$30,200
Units
Unit Cost
6,040
Total Cost Less: Endinginventory
250
$24.16
$6,040
Cost of goodssold
$24,160
Proofof Costof GoodsSold
1,000units X $24.16= $24,160
(c) 1.
2.
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
6-53
PROBLEM6-4B
(a)
MONERINC.
CondensedIncomeStatements
For the Year EndedDecember31, 2011
FIFO
Sales............................................................
Cost of goodssold
Beginninginventory................................
Cost of goodspurchased.........................
Cost of goodsavailablefor sale................
Endinginventory.....................................
Cost of goodssold..................................
Grossprofit...................................................
Operatingexpenses.......................................
Incomebeforeincometaxes............................
Incometaxes(40%)........................................
Net income....................................................
AverageCost
747,000
747,000
16,000
468,000
484,000
48,600a
435,400
311,600
130,000
181,600
72,640
108,960
16,000
468,000
484,000
43,992b
440,008
306,992
130,000
176,992
70,797
106,195
(b) 1.
The FIFO method produces the most meaningful inventory amount for the
statement of financial position because the units are costed at the most recent
purchaseprices.
2.
3.
6-54
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
PROBLEM6-5B
Units
40
135
55
(10)
30
250
250
160
90
Date
June10
11
25
Unit Cost
$40
44
46
46
50
SalesRevenue
Unit
Units
Price
110
$70
(15)
70
65
75
160
Total Cost
$ 1,600
5,940
2,530
(460)
1,500
$11,110
Total Sales
$ 7,700
(1,050)
4,875
$11,525
(1) FIFO
(i) EndingInventory
June28 30 @ $50
18 45 @ $46
4 15 @ $44
90
(iii) GrossProfit
Salesrevenue
Cost of goodssold
Grossprofit
$1,500
2,070
660
$4,230
$11,525
6,880
$ 4,645
$11,110
4,230
$ 6,880
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
6-55
PROBLEM6-5B (Continued)
(2) Average-Cost
Cost of goodsavailablefor sale
Unitsavailablefor sale
$11,110
= $44.44
250
(i)
EndingInventory
90 units @$44.44
(iii) GrossProfit
Salesrevenue
Cost of goodssold
Grossprofit
$4,000
$11,525
7,110
$ 4,415
$11,110
4,000
$ 7,110
= 38.3%
(b) In this period of rising prices, average-cost gives the highest cost of goods sold and
the lowest gross profit. FIFO gives the lowest cost of goods sold and the highest
grossprofit.
6-56
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
PROBLEM6-6B
(a)
MONDELLOINC.
IncomeStatement(partial)
For the MonthEndedMarch31, 2011
(1)
Salesrevenuea
Beginninginventory
Purchasesb
Cost of goodsavailablefor
sale
Endinginventoryc
Cost of goodssold
Grossprofit
(2)
(3) AverageCost
$8,560
1,200
6,505
SpecificIdentification
$8,560
1,200
6,505
FIFO
$8,560
1,200
6,505
7,705
2,735
4,970
$3,590
7,705
2,936
4,769
$3,791
7,705
2,660
5,045
$3,515
450 @ $.60
850 @ $.65
1,100@ $.72
1,400@ $.80
3,800liters
$ 270.00
552.50
792.00
1,120.00
$2,734.50
(a)
2,500@ $.80
1,300@ $.72
3,800liters
$2,000
936
$2,936
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
6-57
PROBLEM6-6B (Continued)
(b) Companiescan choosea cost flow methodthat producesthe highest possiblecost of
goodssold and lowest grossprofit to justify price increases.In this example,averagecost producesthe lowestgrossprofit and best supportto increasesellingprices.
6-58
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
PROBLEM6-7B
(a)
WINTERTHURCO.
CondensedIncomeStatement
For the Year EndedDecember31, 2011
Average-Cost
Sales..........................................................
Cost of goodssold
Beginninginventory.............................
Cost of goodspurchased......................
Cost of goodsavailablefor sale.............
Endinginventory..................................
Cost of goodssold...............................
Grossprofit................................................
Operatingexpenses.....................................
Incomebeforeincometaxes.........................
Incometax expense(30%)............................
Net income.................................................
FIFO
CHF700,000
CHF700,000
45,000
532,000
577,000
168,000a
409,000
291,000
140,000
151,000
45,300
CHF105,700
45,000
532,000
577,000
157,350b
419,650
280,350
140,000
140,350
42,105
CHF 98,245
The FIFO method produces the most meaningful inventory amount for the
statement of financial position because the units are costed at the most recent
purchaseprices.
2.
The FIFO method is most likely to approximate actual physical flow becausethe
oldestgoodsareusuallysoldfirstto minimizespoilageandobsolescence.
3.
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
6-59
*PROBLEM6-8B
(a)
Sales:
January 8
January10 (return)
January20
(1) FIFO
Date
Purchases
$3,080
(280)
2,560
$5,360
Costof GoodsSold
January 1
January 5
(150 @ $18)
(100 @ $15)
( 10@$18)
(10 @ $18)
January10
January15
( 55 @ $20)
$1,100
January16
( 5 @ $20)
($ 100)
January20
January25
(100 @ $15)
(100 @ $15)
(150 @ $18)
$2,700
January 8
(80 @ $18)
( 30 @ $22)
Balance
$1,500
$4,200
$1,680
(140 @ $18)
$2,520
($ 180)
(150 @ $18)
(150 @ $18)
( 55 @ $20)
(150 @ $18)
( 50 @ $20)
( 70 @ $18)
( 50 @ $20)
( 70 @ $18)
( 50 @ $20)
( 30 @ $22)
$2,700
$1,440
$ 660
}
}
}
$3,800
$3,700
$2,260
$2,920
$2,940
(i) Cost of goodssold = $2,940. (ii) Ending inventory = $2,920. (iii) Gross profit = $5,360
$2,940= $2,420.
6-60
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
*PROBLEM6-8B (Continued)
(2) Moving-AverageCost
Date
January 1
January 5
January 8
January10
January15
January16
January20
January25
Purchases
(150 @ $18)
( 55 @ $20)
( 5 @ $20)
( 30 @ $22)
Cost of GoodsSold
$2,700
(110 @ $16.80)
(10 @ $16.80)
$1,848
($ 168)
( 80 @ $17.60)
$1,408
$1,100
($ 100)
$ 660
Balance
(100 @ $15)
(250 @ $16.80)a
(140 @ $16.80)
(150 @ $16.80)
(205 @ $17.658)b
(200 @ $17.60)c
(120 @ $17.60)
(150 @ $18.48)d
$1,500
$4,200
$2,352
$2,520
$3,620
$3,520
$2,112
$2,772
$3,088
*rounded
a
$4,200 250 = $16.80
b
$3,620 205 = $17.659
(i) Cost of goodssold = $3,088. (ii) Endinginventory= $2,772. (iii) Gross profit = $5,360
$3,088= $2,272.
(b)
Grossprofit:
Sales
Cost of goodssold
Grossprofit
Endinginventory
FIFO
$5,360
2,940
$2,420
$2,920
Moving-Average-Cost
$5,360
3,088
$2,272
$2,772
In a period of rising costs, the moving-average cost flow assumption results in the
highestcost of goodssold and lowestgrossprofit. FIFOgivesthe lowestcost of goods
sold andhighestgrossprofit.
On the statement of financial position, FIFO gives the highest ending inventory
(representing the most current costs); and moving-average cost results in the lowest
endinginventory.
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
6-61
*PROBLEM6-9B
(a)
(1)
FIFO
Date
Purchases
July
1
6
11
Costof GoodsSold
(5 @ HK$120)
HK$ 600
(7 @ HK$136)
HK$ 952
(4 @ HK$120)
(1 @ HK$120)
(2 @ HK$136)
14
21
(8 @ HK$147)
HK$480
HK$392
HK$1,176
27
(5 @ HK$136)
(1 @ HK$147)
(2)
HK$827
Balance
(5 @ HK$120)
(1 @ HK$120)
(1 @ HK$120)
(7 @ HK$136)
(5 @ HK$136)
(5 @ HK$136)
(8 @ HK$147)
HK$ 600
HK$ 120
HK$1,072
HK$ 680
(7 @ HK$147)
HK$1,856
HK$1,029
MOVING-AVERAGECOST
Date
July
1
6
11
14
21
27
Purchases
(5 @ HK$120)
(7 @ HK$136)
(8 @ HK$147)
Cost of GoodsSold
HK$ 600
(4 @ HK$120)
HK$480
(3 @ HK$134)
HK$402
(6 @ HK$142)
HK$852
HK$ 952
HK$1,176
Balance
( 5 @ HK$120)
( 1 @ HK$120)
( 8 @ HK$134)*
( 5 @ HK$134)
(13 @ HK$142)**
( 7 @ HK$142)
HK$ 600
HK$ 120
HK$1,072
HK$ 670
HK$1,846
HK$ 994
*HK$1,072 8 = HK$134
**HK$1,846 13 = HK$142
6-62
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
*PROBLEM6-10B
(a)
Net sales ........................................................
Cost of goodssold
Beginninginventory...................................
Purchases.................................................
Less: Purchasereturnsand
allowances.....................................
Purchasediscounts........................
Add: Freight-in.........................................
Cost of goodspurchased............................
Cost of goodsavailablefor sale...................
Endinginventory........................................
Cost of goodssold.............................
Grossprofit.......................................................
Grossprofit rate
(b)
$240,000
$600,000
November
$600,000
$ 32,000
$377,000
13,300
8,500
8,800
364,000
396,000
36,000
360,000
$240,000
= 40%
Net sales.....................................................
Less: Estimatedgrossprofit
(40%X $700,000)..............................
Estimatedcost of goodssold.........................
$700,000
Beginninginventory.....................................
Purchases...................................................
Less: Purchasereturnsand
allowances.......................................
Purchasediscounts..........................
Net purchases..............................................
Freight-in....................................................
Cost of goodspurchased..............................
Cost of goodsavailablefor sale.....................
Less: Estimatedcost of goods
sold................................................
Estimatedinventorylost in fire.......................
$ 36,000
280,000
$420,000
$424,000
$14,900
9,500
24,400
399,600
9,900
409,500
445,500
420,000
$ 25,500
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
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*PROBLEM6-11B
(a)
Hardcovers
Cost
Beginninginventory
Purchases
Freight-in
Purchasediscounts
Goodsavailablefor sale
Net sales
Endinginventoryat retail
420,000
2,135,000
24,000
(44,000)
2,535,000
Retail
700,000
3,200,000
3,900,000
3,100,000
800,000
Paperbacks
Cost
280,000
1,155,000
12,000
(22,000)
1,425,000
Retail
360,000
1,540,000
1,900,000
1,570,000
330,000
Cost-to-retail ratio:
Hardcovers2,535,000 3,900,000= 65%.
Paperbacks1,425,000 1,900,000= 75%.
Estimatedendinginventoryat cost:
800,000X 65%= 520,000Hardcovers.
330,000X 75%= 247,500Paperbacks.
(b) Hardcovers790,000X 65%= 513,500.
Paperbacks335,000X 75%= 251,250.
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Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
*PROBLEM6-12B
Units
40
135
55
(10)
30
250
EndingInventoryin Units:
Unitsavailablefor sale
Sales(110 15 + 65)
Unitsremainingin endinginventory
250
160
90
EndingInventory
June1 40 @ $40
4 50 @ 44
90
Unit Cost
$40
44
46
46
50
Total Cost
$ 1,600
5,940
2,530
(460)
1,500
$11,110
$1,600
2,200
$3,800
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
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BYP6-1
(a)
FINANCIALREPORTINGPROBLEM
InventoryAmounts
December31, 2008
December31, 2007
767million
821million
(821million 767million)
821million
(d) In Cadburys Note 3 Trading costs, it indicates that cost of sales is 2,870 million.
Revenueis 5,384 and therefore the ratio of cost to sales is 53.31%(2,870 million
5,384).
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Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
BYP6-2
(a)
COMPARATIVEANALYSISPROBLEM
1.
InventoryTurnover
Cadbury
3.6 times
Nestl
5.1 times
2.
Daysin Inventory
Cadbury
Nestl
101 days
72 days
Computation
2,870million
(821million+ 767)
2
CHF47,339million
(CHF9,272million+ CHF9,342
2
Computation
365 days
3.6 times
365 days
5.1 times
(b) Nestl has a faster inventory turnover and as a result a lower number of days in
inventory. As a result, it appears that Nestle is managing its inventory more effectively
than Cadbury. It should be noted that Cadbury may be attempting to increase its
inventoryturnoveras it decreasedits inventorymorethan6% from2007to 2008.
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
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BYP6-3
EXPLORINGTHEWEB
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Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
BYP6-4
(a)
DECISIONMAKINGACROSSTHEORGANIZATION
1.
SalesJanuary1March31.............................
Cashsales4/14/10($18,500X 40%)...............
Acknowledgedcredit sales4/14/10...............
Salesmadebut unacknowledged...................
Salesas of April 10.......................................
$180,000
7,400
37,000
5,600
$230,000
2.
PurchasesJanuary1March31......................
Cashpurchases4/14/10...............................
Credit purchases4/14/10.............................
Less: Itemsin transit...................................
Purchasesas of April 10...............................
$ 94,000
4,200
*(b)
Net sales............................................................
Cost of goodssold
Inventory,January1.....................................
Cost of goodspurchased..............................
Cost of goodsavailablefor sale.....................
Inventory,December31................................
Cost of goodssold.......................................
Grossprofit.........................................................
Grossprofit rate..................................................
Averagegrossprofit rate..............................
$12,400
1,600
10,800
$109,000
2010
$600,000
2009
$480,000
60,000
404,000
464,000
80,000
384,000
$216,000
40,000
356,000
396,000
60,000
336,000
$144,000
36%
30%
33%
*(c) Sales.........................................................................................
Less: Grossprofit ($230,000X 33%)..............................................
Cost of goodssold......................................................................
$230,000
75,900
$154,100
Inventory,January1....................................................................
Purchases..................................................................................
Cost of goodsavailablefor sale....................................................
Cost of goodssold......................................................................
Estimatedinventoryat timeof fire.................................................
Less: Inventorysalvaged............................................................
Estimatedinventoryloss..............................................................
$ 80,000
109,000
189,000
154,100
34,900
17,000
$ 17,900
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
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BYP6-5
COMMUNICATIONACTIVITY
MEMO
To:
From:
JaniceLemay,President
Student
Re:
2010endinginventoryerror
As you know, 2010 ending inventory was overstated by $1 million. Of course, this error will
cause2010 net incometo be incorrectbecausethe endinginventoryis usedto compute2010
costof goodssold.Sincetheendinginventoryis subtractedin thecomputationof costof goods
sold, an overstatement of ending inventory results in an understatement of cost of goods
sold andthereforean overstatementof net income.
Unfortunately, unless corrected, this error will also affect 2011 net income. The 2010 ending
inventory is also the 2011 beginning inventory. Therefore, 2011 beginning inventory is also
overstated,whichcausesan overstatementof cost of goodssold and an understatementof
2011net income.
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Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
BYP6-6
(a)
ETHICSCASE
The higher cost of the items ordered, received, and on hand at year-end will be
included in cost of goods sold, thereby lowering current years income and income
taxes. If the purchaseat year-end had beenmadein the next year, the next years cost
of goods sold would have absorbed the higher cost. Next years income will be
increased if unit purchases (next year) are less than unit sales (next year). This is
because the lower costs carried from the earlier year as inventory will be charged to
next yearscost of goodssold. Therefore,next yearsincometaxeswill increase.
Copyright 2011 John Wiley & Sons, Inc.Weygandt, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
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