MASTERINGINVENTORY

TESTBANKSOLUTIONS

Section1INTRODUCTIONTOACCOUNTINGFORINVENTORY

1. b. Sales $150,000
Less:Costofgoodssold
Beginninginventory $0
Plus:Purchases 125,000
Less:Endinginventory (25,000) (100,000)
Grossprofit $50,000
2. c. Beginninginventory $120,000
Plus:Netpurchases 70,000
Less:Endinginventory (110,000)
Costofgoodssold $80,000
3. a. Sales $320,000
Less:Costofgoodssold (70,000)
Grossprofit $250,000
4. d. Beginninginventory $0
Plus:Purchases 125,000
Less:Endinginventory (25,000)
Costofgoodssold $100,000
5. a. Sales $305,000
Less:Costofgoodssold
Beginninginventory $30,000
Plus:Purchases 100,000
Less:Endinginventory (75,000) (55,000)
Grossprofit $250,000

Section2INVENTORYRECORDKEEPINGUSINGTHEPERPETUAL
METHOD
1. d.
2. d. $6,000($6,0001%discount)=$5,940.Inventoryisrecordedat
net.Whentheinventoryisnotpaidforwithinthediscountperiod,
PurchaseDiscountsLostisdebitedforthedifference.
3. a. Whenthediscountisnottaken,PurchaseDiscountsLostisdebited
forthedifference.
4. a. Underthenetmethodwhenmerchandiseispaidforwithinthe
discountperiod,theentrydebitsAccountsPayableandcreditsCash
forthenetamount:$9,800.
5. d. Theentrytorecordthesaleandcostofgoodssoldis:
AccountsReceivable 15,000
SalesRevenue 15,000
CostofGoodsSold 9,000

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MasteringInventory

Inventory 9,000
6. a. TheAugust24entrytorecordthepurchaseofinventoryis:
Inventory 500
Cash 500
7. b.
8. c. $50,00020%=$10,000;$25,00020%=$5,000.
9. b. Thejournalentryinvolvesonlybalancesheetaccounts:adebitto
InventoryandacredittoCashorAccountsPayable.
10. b. Thefirstlotwaspaidforwithin10days,butthesecondlotwas
paidafterthediscountperiod.Thus,theentrytorecordpayment
fortheinventoryonMarch16this:
AccountsPayable 3,960
Cash 3,960
TheentrytorecordthepaymentfortheinventoryonJuly9this:
AccountsPayable 1,980
PurchaseDiscountsLost 20
Cash 2,000
11. c. TheentrywillincludeadebittoInventoryShrinkageExpense,an
incomestatementaccount,andacredittoInventory,abalance
sheetaccount.

Section3INVENTORYRECORDKEEPINGUSINGTHEPERIODIC
METHOD

1. c.
2. c.
3. b. Beginninginventory $65,000
Plus:Netpurchases 254,500
Less:Endinginventory (45,000)
Costofgoodssold $274,500
4. a.
5. d.
6. a. Undertheperiodicmethod,saleofinventoryrequiresadebitto
AccountsReceivableorCashandacredittoSales.
7. b. Theentrytorecordthepaymentis:
AccountsPayable 9,800
PurchaseDiscountsLost 200
Cash 10,000
8. d. The$8,000offreightcostsisrecordedtotheFreightInaccount.
9. d.
10. b.
11. c. TheentryisadebittoAccountsReceivableorCash,bothbalance
sheetaccounts,andacredittoSalesRevenue,anincomestatement
account.

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MasteringInventory

12 b. AccountsPayable 10,000
PurchaseDiscounts 200
Cash 9,800
13. c. AccountsPayable 10,000
Inventory 200
Cash 9,800

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MasteringInventory

Section4INVENTORYCOSTING:THEWEIGHTEDAVERAGEAND
MOVINGAVERAGEMETHOD

1. b. In20X1,1,100unitswereavailableforsaleatanaveragecostof
$3.30[((450$3)+(650$3.50))/1,100].Beginninginventoryfor
20X1hadacostof$1,155(350$3.30).For20X2,theaveragecost
perunitis$4.00[($1,155+(550$4)+(250$5))/(350+550+
250)].Thus,thecostofgoodssoldfor20X2is$3,200(800$4).
2. a. In20X1,forthe1,100unitsavailableforsale,theaveragecostof
eachunitwas$3.30[((450$3)+(650$3.50))/1,100].For20X2,
beginninginventoryhadacostof$1,155(350$3.30).For20X2,
theaveragecostperunitis$4.00[($1,155+(550$4)+(250$5))/
(350+550+250)].Thus,endinginventoryfor20X2is$1,400(350
$4).
3. a. 2,400$4.50 $10,800
2,600$5.00 13,000
1,600$5.50 8,800
1,200$6.00 7,200
7,800unitsavailableforsale $39,800
$39,800/7,800=$5.10;$5.102,600=$13,260endinginventory.
4. d.
5. b. 80$15 $1,200
150$17 2,550
230unitsavailable $3,750
$3,750/230=$16.30;$16.30120=$1,956leftininventory.
120$16.30 $1,956
55$20 1,100
175unitsavailable $3,056
$3,056/175=$17.46;$17.4680unitssold=$1,397COGS.
6. d. 80$15 $1,200
150$17 2,550
230unitsavailable $3,750
$3,750/230=$16.30;$16.30120=$1,956leftininventory.
120$16.30 $1,956
55$20 1,100
175unitsavailable $3,056
$3,056/175=$17.46;$17.4695unitsleft=$1,659
95$17.46 $1,659
70$22 1,540
165unitsavailable $3,199
$3,199/165=$19.39unitcost.

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MasteringInventory

7. d. 40$14beginninginventory $560
60$15 900
100unitsavailable $1,460
$1,460/100=$14.60;$14.6030=$438leftininventory.
30$14.60 $438
90$16 1,440
120unitsavailable $1,878
$1,878/120=$15.65;$15.6565unitsleft=$1,017.
65$15.65 $1,017
75$18.00 1,350
140unitsavailable $2,367
$2,367/140=$16.91;$16.9180units=$1,353endinginventory.

Section5INVENTORYCOSTINGUSINGTHEFIFOMETHOD

1. a.
2. d. UndertheFIFOmethod,endinginventoryconsistsofthemost
recentlypurchasedinventory.Thus,endinginventoryis$1,850
((250$5)+(150$4)).
3. c. UndertheFIFOmethod,endinginventoryconsistsofthemost
recentlypurchaseditems.Thus,endinginventoryis$3,400((200
$9)+(200$8)).
4. a. UndertheFIFOmethod,thecostofgoodssoldcomesfromthe
earliestpurchases.SlickCosells900unitsinboth20X1and20X2,
sothe900unitssoldin20X1arethe450unitspurchasedinMarch
20X1and450unitspurchasedinAugust20X1.Thecostofgoods
soldfor20X2is$3,650.Thisincludestheremaining200unitsfrom
theAugust20X9purchase(200$3.50=$700),the550unitsfrom
theFebruary20X2purchase(550$4.00=$2,200),andthe150
unitsfromtheOctober20X2purchase(150$5.00=$750).
5. b.

Section6INVENTORYCOSTINGUSINGTHELIFOMETHOD

1. b.
2. b. UndertheLIFOmethod,endinginventoryconsistsoftheearliest
purchases.Atyearend20X1,350unitsremainfromtheMarch
purchase.Atyearend20X2,the500unitsininventoryconsistof
350unitsfrom20X1(350$3.50=$1,050)plus150unitsfromthe
February20X2purchase(150$4=$600).$1,050+$600=$1,650.
3. d. UnderLIFO,whichusestheperiodicmethod,endinginventory
consistsoftheearliestpurchaseditemsduringtheyear.Thus,the
250unitsofendinginventorywouldbethe150unitspurchasedin

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MasteringInventory

February(150$2=$300)and100unitspurchasedinJune(100
$2.50=$250).
4. d. UnderLIFO,whichusestheperiodicmethod,endinginventory
consistsoftheearliestpurchaseditemsduringtheyear.Thus,the
100unitsofendinginventoryattheendof20X0wouldbefromthe
Februarypurchase.Attheendof20X1,the250unitsofending
inventorywouldbethe100unitspurchasedinFebruary20X0(100
$2=$200)and150unitspurchasedinFebruary20X1(150$4=
$600).$200+$600=$800.
5. b. UnderLIFO,whichusestheperiodicmethod,endinginventory
consistsoftheearliestpurchaseditemsduringtheyear.Thus,the
150unitsofendinginventoryattheendof20X0wouldbefromthe
Februarypurchase.Attheendof20X1,the100unitsofending
inventorywouldbethe100unitspurchasedinFebruary20X0.At
theendof20X2,the350unitswouldbethe100unitspurchasedin
February20X0(100$2=$200)and250unitspurchasedin
February20X2(250$5.50=$1,375).$200+$1,375=$1,575.
6. b.
7. a. UnderLIFO,whichusestheperiodicmethod,endinginventory
consistsoftheearliestpurchaseditemsduringtheyear.Thus,the
100unitsofendinginventoryattheendof20X1wouldbefromthe
Marchpurchase(100$3=$300).
8. c. UnderLIFO,whichusestheperiodicmethod,endinginventory
consistsoftheearliestpurchaseditemsduringtheyear.Thus,the
endinginventoryfor20X1arethe250unitspurchasedinMarch,
20X1.In20X2,the850unitssoldarethe250purchasedinOctober
20X2(250$5.00=$1,250);the550unitspurchasedinFebruary
20X2(550$4=$2,200);and50oftheunitspurchasedinMarch
20X1(50$3=$150).$1,250+$2,200+$150=$3,600.

Section7INVENTORYCOSTINGUSINGTHELOWEROFCOSTOR
MARKETRULE

1. b. Theceilingisthenetrealizablevalue(NRV),whichisthesales
price($21)lessdisposalcosts($2),or$19.
2. d. TheflooristheNRVlessthenormalprofitmargin.NRVisthe
salesprice($21)lessdisposalcosts($2),or$19.Theflooris$15($19
NRV$4normalprofitmargin).
3. d. Themarketisthereplacementcostof$15,because$15doesnotfall
belowthe$11floor($19NRV[$21salesprice$2disposalcost]
$4profitmargin)orexceedthe$19ceilingorNRV($21salesprice
$2disposalcost)
4. d. TheLCMis$15,whichisthelesserof$16(cost)or$15(market).
5. a.
6. c.

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MasteringInventory

7. a.
8. d. YoumustdebitEstimatedLossonPurchaseCommitmentforthe
estimated$5,000lossandcreditEstimatedLiabilityonPurchase
Commitmentforthesameamount
9. a.
10. a.
11. c.
12. b.
13. c. Cost Market LCM
SnailBait $2,800 $2,625 $2,625
Isotox 240 276 240
Shovels 2,000 1,980 1,980
Screws 1,600 1,920 1,600
Brackets 70 62 62
Nails 96 96 96
Enamel 2,640 2,596 2,596
Spraycans 675 810 675
Brushes 120 152 120
LCMbyitem $9,994
14. d. Cost Market LCM
SnailBait $2,800 $2,625
Isotox 240 276
Shovels 2,000 1,980
$5,040 $4,881 $4,881
Screws 1,600 1,920
Brackets 70 62
Nails 96 96
$1,766 $2,078 1,766
Enamel 2,640 2,596
Spraycans 675 810
Brushes 120 152
$3,435 $3,558 3,435
LCMbygroup $10,082
15. b. Cost Market LCM
SnailBait $2,800 $2,625
Isotox 240 276
Shovels 2,000 1,980
Screws 1,600 1,920
Brackets 70 62
Nails 96 96
Enamel 2,640 2,596
Spraycans 675 810
Brushes 120 152
LCMbytotalinventory $10,241 $10,517 $10,241

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