HOMEWORK 6

ACCOUNTING 101
PROFESSOR HELTZER

Name_________________________________

Question 1: 4 Different Inventory Valuation Methods.

The same facts are presented at the top of each page for your convenience.
Assume the company uses the PERIODIC method for inventory.
Method 1: SPECIFIC IDENTIFICATION
FACTS
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Description
Units Price/Unit Total
Price
June 1
Beginning Inventory
10
$3
$30
June 2
Purchase
30
$4
$120
June 10
Purchase
40
$6
$240
June 12
Sale
60
$20
$1,200
June 17
Purchase
70
$7
$490
June 21
Purchase
50
$10
$500
June 29
Sale
80
$22
$1,760
The company uses the PERIODIC method to account for inventory
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The ending inventory consists of 15 units purchased on 6/2, 25 units purchased on 6/10, and 20
units purchased on 6/21.

**Find Ending Inventory and Cost of Good Sold Under the Specific Identification Method**
Ending Inventory $410
Ending Inventory:
Units from 6/2
Units from 6/10
Units from 6/21

(15 x $4)
(25 x $6)
(20 x $10)

Total Ending Inventory

Cost of Goods Sold $970

= $60
= $150
= $200
= $410

Cost of goods sold:

Total available for sale inventory ($30 + $120 + $240 + $490 + $500)
Less: Ending Inventory

= $1,380
= ($410)

Cost of goods sold

= $970

Method 2: AVERAGE COST WEIGHTED-AVERAGE

FACTS
************************************************************************
Description
Units Price/Unit Total
Price
June 1
Beginning Inventory
10
$3
$30
June 2
Purchase
30
$4
$120
June 10
Purchase
40
$6
$240
June 12
Sale
60
$20
$1,200
June 17
Purchase
70
$7
$490
June 21
Purchase
50
$10
$500
June 29
Sale
80
$22
$1,760
The company uses the PERIODIC method to account for inventory
************************************************************************
**Find Ending Inventory and Cost of Good Sold Under the Average Cost Method**
Round the weighted-average cost/unit to nearest penny.
Ending Inventory $414

Cost of Goods Sold $966

Weighted average cost per unit = ($30 + $120 + $240 + $490 + $500) / (10 + 30 + 40 + 70 + 50) =
$6.90 per unit
Cost of goods sold:
Cost of goods sold (60 + 80) x $6.90

= $966

Ending inventory:
Total available for sale inventory ($30 + $120 + $240 + $490 + $500)
Less: Cost of goods sold

= $1,380
= ($966)

Ending Inventory

= $414

Method 3: FIFO
FACTS
************************************************************************
Description
Units Price/Unit Total
Price
June 1
Beginning Inventory
10
$3
$30
June 2
Purchase
30
$4
$120
June 10
Purchase
40
$6
$240
June 12
Sale
60
$20
$1,200
June 17
Purchase
70
$7
$490
June 21
Purchase
50
$10
$500
June 29
Sale
80
$22
$1,760
The company uses the PERIODIC method to account for inventory
************************************************************************
**Find Ending Inventory and Cost of Good Sold Under the FIFO Method**
Ending Inventory $570

Cost of Goods Sold $810

Cost of goods sold:

For sale on June 12 (10 x $3) + (30 x $4) + (20 x $6)
For sale of June 29 (20 x $6) + (60 x $7)

= $270
= $540

Total Cost of goods sold

= $810

Ending Inventory:
Total available for sale inventory ($30 + $120 + $240 + $490 + $500)
Less: Cost of goods sold

= $1,380
= ($810)

Ending Inventory

= $570

Method 4: LIFO
FACTS
************************************************************************
Description
Units Price/Unit Total
Price
June 1
Beginning Inventory
10
$3
$30
June 2
Purchase
30
$4
$120
June 10
Purchase
40
$6
$240
June 12
Sale
60
$20
$1,200
June 17
Purchase
70
$7
$490
June 21
Purchase
50
$10
$500
June 29
Sale
80
$22
$1,760
The company uses the PERIODIC method to account for inventory
************************************************************************
**Find Ending Inventory and Cost of Good Sold Under the LIFO Method**
Ending Inventory $270

Cost of Goods Sold $1,110

Cost of goods sold:

For sale on June 12 (50 x $10) + (10 x $7)
For sale of June 29 (60 x $7) + (20 x $6)

= $570
= $540

Total Cost of goods sold

= $1,110

Ending Inventory:
Total available for sale inventory ($30 + $120 + $240 + $490 + $500)
Less: Cost of goods sold

= $1,380
= ($1,110)

Ending Inventory

= $270

Question 2: Impact of Inventory Misstatements. Circle the correct answer.

(1) If Year 1s beginning inventory is overstated, what is the impact on Year 1s Cost of Goods Sold?
(a) Overstated
(b) Understated
(c) No Impact
(2) If Year 1s beginning inventory is understated, what is the impact on Year 1s Gross Margin?
(a) Overstated
(b) Understated
(c) No Impact
(3) If Year 1s beginning inventory is understated, what is the impact on Year 2s Cost of Goods Sold?
(a) Overstated
(b) Understated
(c) No Impact
(4) If Year 1s ending inventory is understated, what is the impact on Year 1s Cost of Goods Sold?
(a) Overstated
(b) Understated
(c) No Impact
(5) If Year 1s ending inventory is overstated, what is the impact on Year 1s Gross Margin?
(a) Overstated
(b) Understated
(c) No Impact
(6) If Year 1s ending inventory is understated, what is the impact on Year 2s Cost of Goods Sold?
(a) Overstated
(b) Understated
(c) No Impact