HOMEWORK PA 6

E6-4:
Units remaining in ending inventory = Units available for sale – Units sold= 141-121=20

FIFO
Goods purchased Cost of Goods Sold

Date Units Unit Cost Units sold Unit Cost  COGS

Beginning Inventory 26 $97.00 26 $97.00 $2,522

Purchase – Sep.12 45 $102.00 45 $102.00 4,590

Purchase – Sep.19 20 $104.00 20 $104.00 2,080

Purchase – Sep.26 50 $105.00 30 $105.00 3,150

Totals 141 121  $12,342

 Required cost of ending inventory= 20 x $105.00= $2,100

LIFO
Goods purchased Cost of Goods Sold

Date Units Unit Cost Units sold Unit Cost  COGS

Beginning Inventory 26 $97.00 6 $97.00 $582

Purchase – Sep.12 45 $102.00 45 $102.00 4,590

Purchase – Sep.19 20 $104.00 20 $104.00 2,080

Purchase – Sep.26 50 $105.00 50 $105.00 5,250

Totals 141 121  $12,502

=> Required cost of ending inventory = 20 x $97.00= $1,940

b) FIFO Method:
The sum of ending inventory and cost of goods sold = $12,342 + $2,100 = $14,442

LIFO Method:
The sum of ending inventory and cost of goods sold= $12,502 + $1,940 = $14,442
I notice that sum of ending inventory and cost of goods sold is same for both methods

E6-7

Shawn Company
FIFO Method
Description Amount
Beginning Inventory $10,000
Add: Purchases 26,000
Cost of goods sold available for sale 36,000
Less: Ending inventory ( ($26,000/200 units) x 75 units) 9,750
Cost of goods sold 26,250

Cost of ending inventory = $9,750 and cost of goods sold=$26,250

Shawn Company
LIFO Method
Description Amount
Beginning Inventory $10,000
Add: Purchases 26,000
Cost of goods sold available for sale 36,000
Less: Ending inventory ( ($10,000/100 units) x 75 units) 7,500
Cost of goods sold 28,500

Cost of ending inventory = $7,500 and cost of goods sold=$28,500

Shawn Company
Average- cost Mehthod
 Description Amount
Beginning Inventory $10,000
Add: Purchases 26,000
Cost of goods sold available for sale 36,000
Average- cost ( $36,000/(100+200))=$120)
Less: Ending inventory ( $120 x 75 units) 9,000
Cost of goods sold $27,000

Cost of ending inventory = $9,750 and cost of goods sold=$26,250

b) Cost flow method would result in the highest net income : FIFO Method
c) Cost flow method would result in inventories approximating current cost in the balance
sheet: FIFO Method
d) Cost flow method would result in Shawn paying the least taxes in the first year: LIFO Method

E6-11

Items Cost Market LCM

Cameras:
Minolta $850 $780 $780
Canon $900 $912 $900
Light meters
Vivitar $1,250 $1,150 $1,150
Kodak $1,680 $1,890 $1,680

Total amount of the ending inventory by applying the lower-of -cost $4,510

E6-14
Sooner company
Compute inventory turnover and days in inventory:

Average inventory = (Beginning inventory + Ending inventory)/2

= ($45,000 + $55,000)/2 = $100,000/2 = $50.000

Inventory turnover = Cost of goods sold/ Average inventory

= $190.000/$50.000 = 3.8

Days in Inventory = 365 / Inventory turnover

= 365/3.8 = 96 days

 Inventory turnover = 3.8 and days in inventory = 96 days

Later company
Compute inventory turnover and days in inventory

Average inventory = (Beginning inventory + Ending inventory)/2

= ($71,000 + $69,000)/2 = $140,000/2 = $70.000

Inventory turnover = Cost of goods sold / Average inventory

= $292.000/$70.000 = 4.1

Days in Inventory = 365 / inventory turnover

= 365/4.1= 89 days

 Inventory turnover = 4.1 and days in inventory = 89 days (Answer)