Page 319 - Accounting Principles (A Business Perspective)

7. Measuring and reporting inventories

The ending inventory that year consisted of 2,400 units. Kettle uses periodic inventory procedure.
a. Compute the cost of the ending inventory using each of the following methods: (1) FIFO, (2) LIFO, and (3)
weighted-average.

b. Which method would yield the highest amount of gross margin? Explain why it does.
Exercise G The following are selected transactions and other data of the Custer Company:
Purchased 20 units at USD 360 per unit on account on 2010 September 18.
Sold 6 units on account for USD 576 per unit on 2010 September 20.
Discovered a shortage of USD 2,640 at year-end after a physical inventory.
Prepare journal entries for these transactions using FIFO perpetual inventory procedure. Assume the beginning
inventory consists of 20 units at USD 336 per unit.

Exercise H Following are selected transactions of Gamble Company:
Purchased 100 units of merchandise at USD 240 each; terms 2/10, n/30.
Paid the invoice in transaction 1 within the discount period.
Sold 80 units at USD 384 each for cash.
Purchased 100 units at USD 360; terms 2/10, n/30.
Paid the invoice in transaction 4 within the discount period.
Sold 60 units at USD 552 each for cash.
Prepare journal entries for the six preceding items. Assume Gamble uses FIFO perpetual inventory procedure.
Exercise I Wells Company had the following transactions during February:

Purchased 135 units at USD 65 on account.
Sold 108 units at USD 90 on account.
Purchased 170 units at USD 75 on account.
Sold 122 units at USD 95 on account.
Sold 67 units at USD 100 on account.
The beginning inventory consisted of 67 units purchased at a cost of USD 55.
Prepare the journal entries relating to inventory for these five transactions, assuming Wells accounts for

inventory using perpetual inventory procedure and the LIFO inventory method. Do not record the entries for sales.
Exercise J Following are inventory data for Kintech Company:
January 1 inventory on hand, 400 units at USD 28.80.
January sales were 80 units.
February sales totaled 120 units.
March 1, purchased 200 units at USD 30.24.
Sales for March through August were 160 units.
September 1, purchased 40 units at USD 33.12.
September through December sales were 180 units.

Exercise K A company purchased 1,000 units of a product at USD 12.00 and 2,000 units at USD 13.20. It sold
all of these units at USD 18.00 each at a time when the current cost to replace the units sold was USD 13.80.
Compute the amount of gross margin under FIFO that LIFO supporters would call inventory, or paper, profits.
Exercise L Clayton Company's inventory was 12,000 units with a cost of USD 160 each on 2010 January 1.
During 2010, numerous units were purchased and sold. Also during 2010, the purchase price of this product fell

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