E6.

21 -Determine ending inventory at cost using retail method

Kicks Shoe Store uses the retail inventory method for its two departments, Women's Shoes and Men's Sho
The following information for each department is obtained.

Item omen's Shoes Men's Shoes

Beginning inventory at cost $25,000 $45,000
Cost of goods purchased at cost 110,000 136,300
Net sales 178,000 185,000
Beginning inventory at retail 46,000 60,000
Cost of goods purchased at retail 179,000 185,000

Instructions
Compute the estimated cost of the ending inventory for each department under the retail inventory method
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a

Women's Shoes
Cost Retail
Beginning inventory $ 25,000 $ 46,000
Goods purchased 110,000 179,000
Goods available for sale $ 135,000 225,000
Net sales 178,000
Ending inventory at retail $ 47,000

Cost-to-retail ratio:
Goods available for sale at cost 135,000
Goods available for sale at retail 225,000
Cost-to-retail ratio 60%

Estimated cost of ending inventory:

Cost-to-retail ratio 60%
Ending inventory at retail $ 47,000
Estimated cost of ending inventory $ 28,200

After you have completed the requirements of E6.21, consider these additional questions.
Answers are on the other tab in this file.
1 Assume Women's Shoes ending inventory at retail changed to $56,000 . What is the estimated c
2 Assume Men's Shoes cost of goods purchased at retail changed to $195,000. What is the estima

1 Women's Shoes
Cost Retail
Beginning inventory $ 25,000 $ 46,000
 Goods purchased 110,000 179,000
Goods available for sale $ 135,000 225,000
Net sales 178,000
Ending inventory at retail $ 56,000

Cost-to-retail ratio:
Goods available for sale at cost 135,000
Goods available for sale at retail 225,000
Cost-to-retail ratio 60%

Estimated cost of ending inventory:

Cost-to-retail ratio 60%
Ending inventory at retail $ 56,000
Estimated cost of ending inventory $ 33,600

2 Women's Shoes
Cost Retail
Beginning inventory $ 25,000 $ 46,000
Goods purchased 110,000 179,000
Goods available for sale $ 135,000 225,000
Net sales 178,000
Ending inventory at retail $ 47,000

Cost-to-retail ratio:
Goods available for sale at cost 135,000
Goods available for sale at retail 225,000
Cost-to-retail ratio 60%

Estimated cost of ending inventory:

Cost-to-retail ratio 60%
Ending inventory at retail $ 47,000
Estimated cost of ending inventory $ 28,200
n's Shoes and Men's Shoes.

e retail inventory method.

a formula in cells with a "?" .

Men's Shoes
Cost Retail
$ 45,000 $ 60,000
136,300 185,000
$ 181,300 245,000
185,000
$ 60,000

181,300
245,000
74%

74%
$ 60,000
$ 44,400

What is the estimated cost of ending inventory?

,000. What is the estimated cost of ending inventory?

Men's Shoes
Cost Retail
$ 45,000 $ 60,000
 136,300 185,000
$ 181,300 245,000
185,000
$ 60,000

181,300
245,000
74%

74%
$ 60,000
$ 44,400

Men's Shoes
Cost Retail
$ 45,000 $ 60,000
136,300 195,000
$ 181,300 255,000
185,000
$ 70,000

181,300
$ 255,000
71%

71%
$ 70,000
$ 49,769
P6.2A Determine cost of goods sold and ending inventory using FIFO, LIFO, and average-cost with analys
Glee Distribution markets CDs of the performing artist Unique. At the beginning of October, Glee had in be
inventory 2,000 of Unique's CDs with a unit cost of $7. During October, Glee made the following purchase
Oct. 3 2,500 @ $8 Oct. 19 3,000 @ $10
Oct. 9 3,500 @$9 Oct. 25 4,000 @ $11

During October, 10,900 units were sold. Glee uses a periodic inventory system.

Instructions
(a) Determine the cost of goods available for sale.
(b) Determine (1) the ending inventory and (2) the cost of goods sold under each of the
assumed cost flow methods (FIFO, LIFO and average cost). Prove the accuracy of the
cost of goods sold under the FIFO and LIFO methods.
(c ) Which cost flow method results in (1) the highest inventory amount for the balance sheet and
(2) the highest cost of goods sold for the income statement?
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a

(a) Determine the cost of goods available for sale.

COST OF GOODS AVAILABLE FOR SALE

Date Explanation Units Unit Cost
Oct. 1 Beginning inventory 2,000 $ 7
3 Purchase 2,500 8
9 Purchase 3,500 9
19 Purchase 3,000 10
25 Purchase 4,000 11
Total 15,000

(b) Determine (1) the ending inventory and (2) the cost of goods sold under each of the
assumed cost flow methods (FIFO, LIFO and average cost). Prove the accuracy of the
cost of goods sold under the FIFO and LIFO methods.

(1) Ending Inventory - FIFO

Date Units Unit Cost Total Cost
25-Oct 4,000 $ 11 $ 44,000
19-Oct 100 10 1,000
$ 4,100 $ 45,000

(2) Cost of Goods Sold - FIFO

Cost of goods available for sale $ 139,500
Less: Ending inventory $ 45,000
Cost of goods sold $ 94,500

Proof of Cost of Goods Sold - FIFO

Date Units Unit Cost Total Cost
1-Oct 2,000 $ 7 $ 14,000
3-Oct 2,500 8 20,000
9-Oct 3,500 9 31,500
19-Oct 2,900 10 29,000
10,900 $ 94,500

(1) Ending Inventory - LIFO

Date Units Unit Cost Total Cost
1-Oct 2,000 $ 7 $ 14,000
3-Oct 2,100 8 16,800
4,100 $ 30,800

(2) - Cost of Goods Sold -LIFO

Cost of goods available for sale $ 139,500
Less: Ending inventory $ 30,800
Cost of goods sold $ 108,700

Proof of Cost of Goods Sold - LIFO

Date Units Unit Cost Total Cost
25-Oct 4,000 $ 11 $ 44,000
19-Oct 3,000 10 30,000
9-Oct 3,500 9 31,500
3-Oct 400 8 3,200
10,900 $ 108,700

AVERAGE COST
Total goods available for sale $ 139,500
Total units available 15,000
Average cost* $ 9.30
*Round to two decimal points

(1) Ending Inventory - Average Cost

Units Unit Cost Total Cost
 4,100 $ 9.30 $ 38,130

(2) Cost of Goods Sold - Average Cost

Cost of goods available for sale $ 139,500
Less: Ending inventory $ 38,130
Cost of goods sold $ 101,370

After you have completed the requirements of P6.2A, consider these additional questions.
Answers are on the other tab in this file.
1 Assume that the number of units sold increased to 12,000. What is the impact on ending invento
FIFO method is used?
2 Assume that the number of units sold increased to 12,000. What is the impact on ending invento
LIFO method is used?
3 Assume that the number of units sold increased to 12,000. What is the impact on ending invento
average cost method is used?

(a) Determine the cost of goods available for sale.

COST OF GOODS AVAILABLE FOR SALE

Date Explanation Units Unit Cost
Oct. 1 Beginning inventory 2,000 $ 7
3 Purchase 2,500 8
9 Purchase 3,500 9
19 Purchase 3,000 10
25 Purchase 4,000 11
Total 15,000

(b) Determine (1) the ending inventory and (2) the cost of goods sold under each of the
assumed cost flow methods (FIFO, LIFO and average cost). Prove the accuracy of the
cost of goods sold under the FIFO and LIFO methods.

(1) Ending Inventory - FIFO

Date Units Unit Cost Total Cost
25-Oct 3,000 $ 11 $ 33,000
$ 3,000 $ 33,000

(2) Cost of Goods Sold - FIFO

Cost of goods available for sale $ 139,500
Less: Ending inventory $ 33,000
Cost of goods sold $ 106,500

Proof of Cost of Goods Sold - FIFO

Date Units Unit Cost Total Cost
1-Oct 2,000 $ 7 $ 14,000
3-Oct 2,500 8 20,000
9-Oct 3,500 9 31,500
19-Oct 3,000 10 30,000
25-Oct 1,000 11 11,000
12,000 $ 106,500

(1) Ending Inventory - LIFO

Date Units Unit Cost Total Cost
1-Oct 2,000 $ 7 $ 14,000
3-Oct 1,000 8 8,000
3,000 $ 22,000

(2) - Cost of Goods Sold -LIFO

Cost of goods available for sale $ 139,500
Less: Ending inventory $ 22,000
Cost of goods sold $ 117,500

Proof of Cost of Goods Sold - LIFO

Date Units Unit Cost Total Cost
25-Oct 4,000 $ 11 $ 44,000
19-Oct 3,000 10 30,000
9-Oct 3,500 9 31,500
3-Oct 1,500 8 12,000
12,000 $ 117,500

AVERAGE COST
Total goods available for sale $ 139,500
Total units available 15,000
Average cost* $ 9.30
*Round to two decimal points
(1) Ending Inventory - Average Cost
Units Unit Cost Total Cost
3,000 $ 9.30 $ 27,900

(2) Cost of Goods Sold - Average Cost

Cost of goods available for sale $ 139,500
Less: Ending inventory $ 27,900
Cost of goods sold $ 111,600
nd average-cost with analysis
g of October, Glee had in beginning
made the following purchases of Unique's CDs.

er each of the
e accuracy of the

the balance sheet and

or a formula in cells with a "?" .

Total Cost
$ 14,000
20,000
31,500
30,000
44,000
$ 139,500

er each of the
e accuracy of the
questions.

e impact on ending inventory and cost of goods sold if the

e impact on ending inventory and cost of goods sold if the

e impact on ending inventory and cost of goods sold if the

Total Cost
$ 14,000
20,000
31,500
30,000
44,000
$ 139,500

er each of the
e accuracy of the
P6.10A Compute gross profit rate and inventory loss using gross profit method
Bao Company lost all of its inventory in a fire on December 26, 2020. The accounting records showed the
following gross profit data for November and December.
December
November (to 12/26)
Net sales $600,000 $700,000
Beginning inventory 32,000 36,000
Purchases 389,000 420,000
Purchase returns and allowances 13,300 14,900
Purchase discounts 8,500 9,500
Freight-in 8,800 9,900
Ending inventory 36,000 ?

Bao is fully insured for fire losses but must prepare a report for the insurance company.

Instructions
(a) Compute the gross profit rate for November.
(b) Using the gross profit rate for November; determine the estimated cost of the inventory
lost in the fire.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a

(a) November
Net Sales $ 600,000
Cost of goods sold
Beginning inventory $ 32,000
Purchases $ 389,000
Less: Purchase returns and allowance 13,300
Purchase discounts 8,500
Add: Freight-in 8,800
Cost of goods purchased 376,000
Cost of goods available for sale 408,000
Ending inventory 36,000
Cost of goods sold 372,000
Gross profit $ 228,000

Gross profit rate

Gross profit $ 228,000
Net Sales $ 600,000
Gross profit rate* 38.0%
*Round to 1 decimal point
(b) Net Sales $ 700,000
Less: Estimated gross profit 86,640
Estimated cost of goods sold $ 613,360

Beginning inventory $ 36,000

Purchases $ 420,000
Less: Purchase returns and allowances $ 14,900
Purchase discounts 9,500 24,400
Net purchases 395,600
Freight-in 9,900
Cost of goods purchased 405,500
Cost of goods available for sale 441,500
Less: Estimated cost of goods sold 613,360
Estimated inventory lost in fire $ (171,860)

After you have completed the requirements of P6.10A, consider this additional question.
Answers are on the other tab in this file.
1 Assume that ending inventory in November changed to $45,000. What is the impact on the gross
rate and the estimated inventory lost in fire in December?

(a) November
Net Sales $ 600,000
Cost of goods sold
Beginning inventory $ 32,000
Purchases $ 389,000
Less: Purchase returns and allowance 13,300
Purchase discounts 8,500
Add: Freight-in 8,800
Cost of goods purchased 376,000
Cost of goods available for sale 408,000
Ending inventory 45,000
Cost of goods sold 363,000
Gross profit $ 237,000

Gross profit rate

Gross profit $ 237,000
Net Sales $ 600,000
Gross profit rate* 39.5%
*Round to 1 decimal point
(b) Net Sales $ 700,000
Less: Estimated gross profit 93,615
Estimated cost of goods sold $ 606,385

Beginning inventory $ 45,000

Purchases $ 420,000
Less: Purchase returns and allowances $ 14,900
Purchase discounts 9,500 24,400
Net purchases 395,600
Freight-in 9,900
Cost of goods purchased 405,500
Cost of goods available for sale 450,000
Less: Estimated cost of goods sold 606,385
Estimated inventory lost in fire $ (155,885)
ng records showed the

he inventory

ormula in cells with a "?" .

he impact on the gross profit
 Challenge exercise 1
121 Unit Sold , Unit Cost :$170
Date Explanation Units Unit Cost Total Cost
1-Sep Inventory 25 100 2,500
12-Sep Purchases 45 106 4,770
19-Sep Purchases 24 110 2,640
26-Sep Purchases 50 112 5,600
Totals 144 15,510

a) Ending Inventory - FIFO

Date Units Unit Cost

26-Sep 23 112

Cost of Goods Sold - FIFO

Cost of goods available for sale
Less: Ending inventory
Cost of goods sold

Proof of Cost of Goods Sold - FIFO

Date Units Unit Cost
1-Sep 25 $ 100
12-Sep 45 106
19-Sep 24 110
26-Sep 27 112
121

Ending Inventory - LIFO

Date Units Unit Cost
1-Sep 23 $ 100

Cost of Goods Sold - LIFO

Cost of goods available for sale
Less : Ending inventory
Cost of Goods Sold - LIFO

Proof of Cost of Goods Sold - LIFO

Date Units Unit Cost
 26-Sep 50 $ 112
19-Sep 24 110
12-Sep 45 106
1-Sep 2 100
121

b) FIFO LIFO
Ending inventory = 2,576 Ending Inventory = $ 2,300
COGS = $ 12,934 COGS = $ 13,210

c) FIFO
Unit Sold = 121 Unit Cost = IDR 170
Net Sales= IDR 20,570 (from Unit sold* Unid Cost)

Gross Profit = Net Sales - COGS

Gross Profit = IDR 7,636

d) Which method results in larger amount reported for assets on balance sheet ?
Which method results in larger amount reported for owner's wquity on balance sheet ?
1.FIFO Gross Profit is larger than LIFO's Gross Profit . If gross profit is larger , the net income will be
2. the Assets is larger than LIFO's Assets & Assets are part of Owner's Equity
O
Total Cost

2,576 23=50-27

O
15,510
2,576
$ 12,934 From Cost of goods avail for sale- ending inventory

- FIFO
Total Cost
$ 2,500
$ 4,770
$ 2,640
$ 3,024 27=50 (inventory 26-sep) - 23 (ending inventory )
$ 12,934

O
Total Cost
$ 2,300

O
15,510
$ 2,300
$ 13,210 From Cost of goods avail for sale - ending inventory

- LIFO
Total Cost
 $ 5,600
$ 2,640
$ 4,770
$ 200 2= 25 (inventory 1 sep) - 23 (ending inventory )
$ 13,210

LIFO
Unit Sold = 121 Unit Cost = IDR 170
Net Sales = IDR 20,570 (from Unit sold* Unid Cost)

Gross Profit = Net Sales - COGS

Gross Profit = IDR 7,360

FIFO , because the ending inventory ( assets ) is larger than LIFO's ending inventory (assets)
ance sheet ?
ofit is larger , the net income will be larger.
Owner's Equity
(assets)
Challenge exercise 2

2019 2020
Beginning Inventory 30,000 40,000
Cost of goods purchased 170,000 195,000
Cost of goods available for sale 200,000 235,000
Ending inventory 40,000 45,000
Cost of goods sold 160,000 190,000

Errors : 2019 Ending inventory overstated $ 4,000 & 2020 Ending Inventory understated $ 7,000

a) 2019's COGS = 164,000 (COGS Understated $ 4,000, so 160,000 + 4,000 )

2020's COGS = 183,000 (COGS Overstated $ 7,000 , so 190,000 - 7,000 )

b) 2020
Beginning Inventory 40,000
Cost of goodds purchased 195,000
Cost of goods available for sale 235,000
Ending Inventory 52,000
Cost of goods sold 183,000