Problem 6-2A
1. Cost of goods available for sale and number of units available for sale
Total purchase
Date Activities Unit acquired Cost cost
1-Jan Beginning inventory 770 50 38,500
10-Feb Purchase 420 41 17,220
13-Mar Purchase 260 25 6,500
15-Mar Sales
21-Aug Purchase 180 49 8,820
5-Sep Purchase 585 42 24,570
10-Sep Sales
Cost of goods available for sale: 95,610
Number of units available for sale: 2,215
2. Compute number of unit in ending inventory
Number of units in ending inventory: 795 25
3. Compute cost assigned to ending inventory
a. FIFO
Way 1:
Inventory
Date Goods purchased COGS balance
1-Jan 38,500
10-Feb 17,220 55,720
13-Mar 6,500 62,220
15-Mar 38,500 23,720
21-Aug 8,820 32,540
5-Sep 24,570 57,110
10-Sep 22,970 34,140
61,470
Way 2:
Total cost available for sales 95,610
Less : COGS 770 @ $50 38,500
420 @ $41 17,220
230 @ $25 5,750
61,470
Inventory balance 34,140
b. LIFO
Way 1:
Inventory
Date Goods purchased COGS balance
1-Jan 38,500
10-Feb 17,220 55,720
13-Mar 6,500 62,220
15-Mar 28,220 34,000
21-Aug 8,820 42,820
5-Sep 24,570 67,390
10-Sep 27,755 39,635
55,975
Way 2:
Total cost available for sales 95,610
Less : COGS 585 @ $42 24,570
65 @ 49 3,185
260 @ 25 6,500
420 @ 41 17,220
90 @ 50 4,500
55,975
Inventory balance 39,635
c. Specific identification
Ending inventory included: 95 units from beginning inventory
175 units from the Feb 10 purchase
70 units from the Mar 13 purchase
455 units from the Sep 5 purchase
Inventory balance 32,785
COGS 62,825
d. Weighted average
Way 1:
Inventory Units available for
Date Goods purchased COGS balance sale
1-Jan 38,500 770
10-Feb 17,220 55,720 1,190
13-Mar 6,500 62,220 1,450
15-Mar 33,041 29,179 680
21-Aug 8,820 37,999 860
5-Sep 24,570 62,569 1,445
10-Sep 28,145 34,424
61,186
4. Compute gross profit
Specific
FIFO LIFO identification
Sales 106,500 106,500 106,500
COGS 61,470 55,975 62,825
Gross profit 45,030 50,525 43,675
Problem 6-4A
Errors: Inventory on Dec 31, 2008 is understated by:
Inventory on Dec 31, 2009 is overstated by:
1. Adjustments to correct the reported amount
a. COGS
COGS 2008 2009 2010
Reported amount 623,000 955,000 780,000
Adjustments for error:
31-Dec-08 (56,000) 56,000
31-Dec-09 25,000 (25,000)
Corrected amount 567,000 1,036,000 755,000
b. Net income
Net income 2008 2009 2010
Reported amount 230,000 275,000 250,000
Adjustments for error:
31-Dec-08 56,000 (56,000)
31-Dec-09 (25,000) 25,000
Corrected amount 286,000 194,000 275,000
c. Total current assets
Total current assets 2008 2009 2010
Reported amount 1,247,000 1,360,000 1,230,000
Adjustments for error:
31-Dec-08 56,000
31-Dec-09 (25,000)
Corrected amount 1,303,000 1,335,000 1,230,000
d. Equity
Total equity 2008 2009 2010
Reported amount 1,387,000 1,580,000 1,245,000
Adjustments for error:
31-Dec-08 56,000
31-Dec-09 (25,000)
Corrected amount 1,443,000 1,555,000 1,245,000
Exercise 6-8
a. LIFO number
Year 2009
Current ratio current assets/current liabilities
Inventory turnover COGS/avg. inventory
DSI (Inventory/COGS)*365
Inventory balance
b. FIFO number
Year 2009
Current ratio current assets/current liabilities
Inventory turnover COGS/avg. inventory
DSI (Inventory/COGS)*365
Inventory balance
* Formula to change between LIFO and FIFO approaches
FIFO inventory = LIFO inventory + LIFO reserve
FIFO current assets = LIFO current assets + LIFO reserve
Unit sold Price Total sale price
770 75 57,750
650 75 48,750
Average cost
per unit
42.91
43.30
Weighted
average
106,500
61,186
45,314
56,000
25,000
1.11
5.30
52.83 days
110
1.82
1.87
144.93 days
270
410
