ACC 225 Week 6 CheckPoint Computing Inventory Balances and Lower of Cost or Market

ACC 225 CheckPoint Computing Inventory Balances and Lower of
Cost or Market
QS 6-1
Assigning costs to inventory perpetual systems
Tevin Trader starts a merchandising business on December 1 and enters into three inventory
purchases:
December 7
10 units @ $ 6 cost
December 14 20 units @ $12 cost
December 21 15 units @ $14 cost
Trader sells 15 units for $25 each on December 15. Eight of the sold units are from the
December 7 purchase and seven are from the December 14 purchase. Trader uses a perpetual
inventory system.
Determine the costs assigned to the December 31 ending inventory when costs are assigned
based on
(a) FIFO, (b) LIFO, (c) weighted average, and (d) specific identification.
(a) FIFO Perpetual Method
Date
Dec 7
Dec 14
Goods Purchased
10 @ $ 6 - $60
20 @ $12 - $240
Dec 15
Dec 21
Dec 31
Cost of goods sold
10@ $6 - $ 60
5@ $12 - $ 60
15 @ $14 - $210
Inventory Balance
10 @ $ 6 - $60
10 @ $ 6 - $60 -- $ 300
20 @ $12 -$240 -15 @ $ 12$180
15 @ $ 12- $180 -- $390
15 @ $14 - $210 -15 @ $ 12- $180 -- $390
15 @ $14 - $210 --
(b) LIFO Perpetual Method

Date
Dec 7
Dec 14
Goods Purchased
10 @ $ 6 - $60
20 @ $12 - $240
Dec 15
Dec 21
Cost of goods sold
15 @ $12 - $ 84
15 @ $14 - $210
Dec 31
Inventory Balance
10 @ $ 6 - $60
10 @ $ 6 - $60 -- $ 300
20 @ $12 -$240 -10 @ $ 6 - $60 -- $ 120
5 @ $ 12-$60 -10 @ $ 6 - $60 -- $ 330
5 @ $ 12-$60
15 @ $14 - $210 -10 @ $ 6 - $60 -- $ 330
5 @ $ 12-$60
15 @ $14 - $210 --
(c) Weighted Average Method

Date
Dec 7
Dec 14
Dec 15
Dec 21
Goods Purchased
10 @ $ 6 - $60
20 @ $12 - $240
Cost of goods sold
15 @ $10 - $150
15 @ $14 - $210
Dec 31
Inventory Balance
10 @ $ 6 - $60
10 @ $ 6 - $60 -- $ 300
20 @ $12- $240
(Avg Cost= $10)
15 @ $10 - $150
15 @ $10 - $150 --$360
15 @ $14 - $210
(Avg Cost =$ 12)
15 @ $10 - $150 --$360
15 @ $14 - $210
(Avg Cost =$ 12)
(d) Specific Identification

Date
Dec 7
Dec 14
Goods Purchased
10 @ $ 6 - $60
20 @ $12 - $240
Dec 15
Dec 21
Dec 31
Cost of goods sold
8 @ $6 - $48
7 @ $12- $84
15 @ $14 - $210
Inventory Balance
10 @ $ 6 - $60
10 @ $ 6 - $60 -- $ 300
20 @ $12- $240
2 @ $6 - $12 -- $168
13@ $12-$156-2 @ $6 - $12 -- $378
13@ $12-$156 -15 @ $14 - $210-2 @ $6 - $12 -- $378
13@ $12-$156 -15 @ $14 - $210--
Exercise 6-5
Lower of cost or market
Tanzy Company's ending inventory includes the following items. Compute the lower
of cost or market for ending inventory (a) as a whole and (b) applied separately to
each product.
&nbs p;
__Per Unit__
Product
Units
Cost
Market
Helmets . . . . . . . . 22
$50
$54
Bats . . . . . . . . . . . 15
78
72
Shoes . . . . . . . . . . 36
95
91
Uniforms . . . . . . . 40
36
36
Inventory Items
Helmets
Bats..............
Shoes...........
Uniforms.......
Unit
Per Unit
Cost Market
Total
Cost
Total
Market
LCM applied to:

Products
Whole
22
$50
$54
$1,100
$1,188
$1,100
15
36
40
78
95
36
72
91
36
1,170
3,420
1,440
$7,130
1,080
3,276
1,440
$6,984
1,080
3,276
1,440
$6,896
a.
Lower of cost or market of inventory as a whole = $6,984
b.
Lower of cost or market of inventory by product = $6,896
$6,984
Exercise 6-1
a. Specific identification
Ending inventory: 400 units from July 28 plus 100 units from
December 19.
Ending
Inventory
Computations:
(400 x $5.00) + (100 x $4.10)........................................
Cost of
Goods Sold
$2,410
$6,380 - $2,410 ..............................................................
$3,970
b. Weighted average perpetual

Date
Goods Purchased
Cost of Goods Sold
1/1
1/10
3/7
70 @ $ 6.00 = $ 420
200 @ $5.50
3/15
Inventory Balance
120 @ $6.00
= $ 720
50 @ $6.00
= $ 300
50 @ $6.00
200 @ $5.50
(avg. cost is $5.60)
125 @ $5.60 = $ 700
125 @ $5.60
7/28
500 @ $5.00
125 @ $5.60
500 @ $5.00
10/3
375 @ $4.40
125 @ $5.60
500 @ $5.00
375 @ $4.40
10/5
12/19
600 @ $4.85 = $2,910

100 @ $4.10
_____
$4,030
400 @ $4.85
400 @ $4.85
100 @ $4.10
= $1,400
= $ 700
= $3,200
= $4,850
= $1,940
= $2,350
c. FIFO Perpetual
Date
1/1
Goods Purchased
Cost of Goods Sold
Inventory Balance
120 @ $6.00
= $ 720
1/10
3/7
70 @ $6.00
= $ 420
200 @ $5.50
3/15
50 @ $6.00
75 @ $5.50
50 @ $6.00
= $ 300
50 @ $6.00
200 @ $5.50
= $1,400
125 @ $5.50
= $ 688*
= $ 712*
7/28
500 @ $5.00
125 @ $5.50
500 @ $5.00
= $3,188
10/3
375 @ $4.40
125 @ $5.50
500 @ $5.00
375 @ $4.40
= $4,838
10/5
125 @ $5.50
475 @ $5.00
12/19
= $3,063*
100 @ $4.10
_____
$4.195
25 @
$5.00
375 @ $4.40
25 @ $5.00
375 @
$4.40
100 @ $4.10
= $1,775
= $2,185
d. LIFO Perpetual
Date
Goods Purchased
Cost of Goods Sold
1/1
1/10
3/7
70 @ $6.00
10/3
420
200 @ $5.50
3/15
7/28
=$
125 @ $5.50
=$
687*
500 @ $5.00
375 @ $4.40
10/5
375 @ $4.40 = $ 2,775

225 @ $5.00
Inventory Balance
120 @ $6.00
= $ 720
50 @ $6.00
= $ 300
50 @ $6.00
200 @ $5.50
= $1,400
50 @ $6.00
75 @ $5.50
= $ 713*
50 @ $6.00
75 @ $5.50
500 @ $5.00
= $3,213*
50 @ $6.00
75 @ $5.50
500 @ $5.00
375 @ $4.40
= $4,863*
50 @ $6.00
75 @ $5.50
=
$2,088*
275 @ $5.00
12/19
100 @ $4.10
______
$ 3,882
50 @ $6.00
75 @ $5.50
275 @ $5.00
100 @ $4.10
= $2,498

ACC 225 Week 6 CheckPoint Computing Inventory Balances and Lower of Cost or Market

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ACC 225 CheckPoint Computing Inventory Balances and Lower of

Cost of goods sold

(b) LIFO Perpetual Method

Cost of goods sold

(c) Weighted Average Method

Cost of goods sold

(d) Specific Identification

Cost of goods sold

LCM applied to:

Lower of cost or market of inventory as a whole = $6,984

Lower of cost or market of inventory by product = $6,896

$6,380 - $2,410 ..............................................................

b. Weighted average perpetual

Cost of Goods Sold

600 @ $4.85 = $2,910

Cost of Goods Sold

Cost of Goods Sold

375 @ $4.40 = $ 2,775

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