Chapter 8

Inventories: Measurement

EXERCISES
Exercise 8-1

PERPETUAL SYSTEM

PERIODIC SYSTEM
($ in 000s)
Purchases
Inventory
Accounts payable

265

Freight
Inventory
Accounts payable

16

Returns
Accounts payable
Inventory
Sales
Accounts receivable
Sales revenue
Cost of goods sold
Inventory

265

265

Purchases
Accounts payable
Freight-in
Accounts payable

16

16

Accounts payable
Purchase returns

350

350

Accounts receivable
Sales revenue

350
264

265

16

350

No entry
264

End of period
No entry

Cost of goods sold (below)

Inventory (ending)
Purchase returns
Inventory (beginning)
Purchases
Freight-in
Cost of goods sold:
Beginning inventory
Purchases
Less: Returns
Plus: Freight-in
Net purchases
Cost of goods available
Less: Ending inventory
Cost of goods sold

264
123
6
112
265
16
$112
$265
(6)
16
275
387
(123)
$264

Exercise 8-2Requirement 1

Purchase price = 50 units x $800 = $40,000 x .75 = $30,000

Alternate Exercise and Problem Solutions

The McGraw-Hill Companies, Inc., 2011

8-1

January 14, 2011

Purchases....................................................................
........................................................Accounts payable
.........................................................................30,000

30,000

January 23, 2011

Accounts payable ....................................................... 30,000
..................................................Purchase discounts (2% x $30,000)
....................................................................................
600
......................................................................Cash (98% x $30,000)
.................................................................................... 29,400

Requirement 2
January 14, 2011
Purchases....................................................................
........................................................Accounts payable
.........................................................................30,000

February 13, 2011

Accounts payable........................................................
............................................................................Cash
.........................................................................30,000

The McGraw-Hill Companies, Inc., 2011

8-2

30,000

30,000

Intermediate Accounting, 6/e

Exercise 8-2 (concluded)

Requirement 3
Requirement 1:
January 14, 2011
Purchases (98% x $30,000)............................................
........................................................Accounts payable
.........................................................................29,400

January 23, 2011

Accounts payable........................................................
............................................................................Cash
.........................................................................29,400

29,400

29,400

Requirement 2:
January 14, 2011
Purchases (98% x $30,000)............................................
........................................................Accounts payable
.........................................................................29,400

February 13, 2011

Accounts payable........................................................
Interest expense (2% x $30,000)....................................
............................................................................Cash
.........................................................................30,000

Alternate Exercise and Problem Solutions

29,400

29,400
600

The McGraw-Hill Companies, Inc., 2011

8-3

Inventory balance before additional transactions

Exercise 8-3
$317,000
Add:
Materials purchased f.o.b. shipping point on 12/28
32,000
Deduct:
Merchandise held on consignment from the Harvey Company
(12,000)
Correct inventory balance
$337,000

Exercise 8-4
Date of
sale

First-in, first-out (FIFO)

Cost of goods sold:
Units sold

March 14

3,000 (from BI)

1,000 (from 3/8 purchase)
March 25 4,000 (from 3/8 purchase)
3,000 (from 3/18 purchase)
Total
11,000

Cost of
Units Sold
$8.00
8.40
8.40
8.20

Total Cost
$24,000
8,400
33,600
24,600
$90,600

Ending inventory = 3,000 units x $8.20 = $24,600

The McGraw-Hill Companies, Inc., 2011

8-4

Intermediate Accounting, 6/e

Exercise 8-4 (continued)

Last-in, first-out (LIFO)
Date

Purchased

Sold

Balance

Beginning
inventory

3,000 @ $8.00 =

$24,000

3,000 @ $8.00

$24,000

March 8

5,000 @ $8.40 =

$42,000

3,000 @ $8.00
5,000 @ $8.40

$66,000

3,000 @ $8.00
1,000 @ $8.40

$32,400

4,000 @ $ 8.40 =

March 14
March 18

6,000 @ $8.20 =

$49,200

March 25
Total cost of goods sold

Alternate Exercise and Problem Solutions

$33,600

3,000 @ $8.00
1,000 @ $8.40
6,000 @ $8.20
6,000 @ $8.20 =
1,000 @ $8.40 =

$49,200
$ 8,400

$91,200

3,000 @ $8.00

$81,600
$24,000
Ending
inventory

The McGraw-Hill Companies, Inc., 2011

8-5

Exercise 8-4 (concluded)

Average cost
Date

Purchased

Beginning
inventory

3,000 @ $8.00 =

$24,000

March 8

5,000 @ $8.40 =

$42,000

$66,000

Sold

Balance
3,000 @ $8.00

$24,000

4,000 @ $8.25 =

$33,000 4,000 @ $8.25

$33,000

7,000 @ $8.22 =

$57,540 3,000 @ $8.22

$24,660
Ending
inventory

= $8.25/unit

8,000 units

March 14
March 18

6,000 @ $8.20 =

$49,200

$82,200
10,000 units

= $8.22/unit

March 25
Total cost of goods sold

$90,540

Exercise 8-5Requirement 1

Cost of goods available for sale:

Beginning inventory (7,000 x $22.00)
Purchases:
6,000 x $22.65
$135,900
9,000 x $24.00
216,000
Cost of goods available (22,000 units)

Cost of goods available for sale (22,000 units)

Less: Ending inventory (below)
Cost of goods sold

$154,000
351,900
$505,900
$505,900
(207,000)
$298,900

Cost of ending inventory:

The McGraw-Hill Companies, Inc., 2011
8-6

Intermediate Accounting, 6/e

$505,900
Weighted-average unit cost =

= $23 (rounded)
22,000 units

9,000 units x $23 (rounded) = $207,000

Alternate Exercise and Problem Solutions

The McGraw-Hill Companies, Inc., 2011

8-7

Exercise 8-5 (concluded)

Requirement 2
Date

Purchased

Sold

Beginning
inventory

7,000 @ $22.00 = $154,000

April 5

6,000 @ $22.65 = $135,900

$289,900

Balance
7,000 @ $22.00

$154,000

= $22.30/unit

13,000 units

April 11
April 26

5,000 @ $22.30 = $111,500

8,000 @ $22.20

$178,400

8,000 @ $23.20 = $185,600

9,000 @ $23.20

$208,800
Ending
inventory

9,000 @ $24.00 = $216,000

$394,400

= $23.20/unit

17,000 units

April 28
Total cost of goods sold

Exercise 8-6Layers
Date

at Base Year Cost

1/1/11

$832,000
= $832,000
1.00

12/31/11

12/31/12

Ending Inventory
Inventory
at Base Year Cost

$297,100

Inventory Layers

Ending
Inventory

Converted to Cost

DVL Cost

$832,000 (base)

$832,000 x 1.00 = $832,000

$832,000

$954,000
= $935,294
1.02

$832,000 (base)
103,294 (2011)

$832,000 x 1.00 = $832,000

103,294 x 1.02 = 105,360

937,360

$975,000
= $928,571
1.05

$832,000 (base)
96,571 (2011)

$832,000 x 1.00 = $832,000

96,571 x 1.02 =
98,502

930,502

The McGraw-Hill Companies, Inc., 2011

8-8

Intermediate Accounting, 6/e

PROBLEMS
Problem 8-1Requirement 1

Beginning inventory (8,000 x $10.00)

$ 80,000
Net purchases:
Purchases (45,000* units x $12.00)
Less: Purchase discounts

$540,000
(7,040)

($11 x 40,000 units x 80% x 2%)

Cost of goods available (53,000 units)
Less: Ending inventory (below)

Cost of goods sold

532,960
612,960
( 70,000)
$542,960

* The 5,000 units purchased on December 28 are included. The units were
shipped f.o.b. shipping point before year-end. The $12 unit cost includes freight
charges.
Cost of ending inventory:
Date of
purchase
BI

Problem 8-2

Units
7,000

Unit cost
$ 10.00

Total cost
$ 70,000

Cost of goods available for sale for periodic system:

Beginning inventory (10,000 x $25.00)

Purchases:
8,000 x $24.00
$192,000
7,000 x $27.00
189,000
Cost of goods available (25,000 units)

$250,000
381,000
$631,000

1. FIFO, periodic system

Cost of goods available for sale (25,000 units)
Less: Ending inventory (determined below)
Cost of goods sold

$631,000
(309,000)
$322,000

Cost of ending inventory:

Date of
purchase

Units

Alternate Exercise and Problem Solutions

Unit cost

Total cost
The McGraw-Hill Companies, Inc., 2011
8-9

Jan. 4
Jan. 22
Totals

5,000
7,000
12,000

$24.00
27.00

$120,000
189,000
$309,000

2. LIFO, periodic system

Cost of goods available for sale (25,000 units)
Less: Ending inventory (determined below)
Cost of goods sold

$631,000
(298,000)
$333,000

Cost of ending inventory:

Date of
purchase
BI
Jan. 4
Totals

Units
10,000
2,000
12,000

The McGraw-Hill Companies, Inc., 2011

8-10

Unit cost
$25.00
24.00

Total cost
$250,000
48,000
$298,000

Intermediate Accounting, 6/e

Problem 8-2 (concluded)

3. Average cost, periodic system
Cost of goods available for sale (25,000 units)
Less: Ending inventory (below)
Cost of goods sold

$631,000
(302,880)
$328,120*

Cost of ending inventory:

Weighted-average unit cost =

$631,000
= $25.24
25,000 units

12,000 units x $25.24 = $302,880

* Alternatively, could be determined by multiplying the units sold by the average
cost: 13,000 units x $25.24 = $328,120

Alternate Exercise and Problem Solutions

The McGraw-Hill Companies, Inc., 2011

8-11