Page 323 - Accounting Principles (A Business Perspective)

7. Measuring and reporting inventories

Problem G The following data relate to the beginning inventory, purchases, and sales of Braxton Company for
the year 2010:
Unit
Units Cost
Merchandise Inventory, January 1 1,400 @ $5.04
Purchases:
February 2 1,000 @ 4.80
April 5 2,000 @ 3.60
June 15 1,200 @ 3.00
September 30 1,400 @ 2.88
November 28 1,800 @ 4.20
Sales:
March 10 900
May 15 1,800
July 6 800
August 23 600
December 22 2,500
a. Assuming use of perpetual inventory procedure, compute the ending inventory and cost of goods sold under

each of the following methods: (1) FIFO, (2) LIFO, and (3) weighted-average (carry unit cost to four decimal places
and round total cost to nearest dollar).
b. Repeat (a) assuming use of periodic inventory procedure.
Problem H Welch Company accounts for a product it sells using LIFO periodic inventory procedure. Product
data for the year ended 2009 December 31, are shown below. Merchandise inventory on January 1 was 3,000 units
at USD 14.40 each.
Purchases Sales
Unit Unit
Units Cost Units Co st
January 5 6,000 @ $18.00 January 10 4,000 @ $28.80
March 31 18,000 @ 21.60 April 2 15,000 @ 32.40
August 12 12,000 @ 27.00 August 22 16,000 @ 36.00
December 26 6,000 @ 28.80 December 24 3,000 @ 39.60
a. Compute the gross margin earned on sales of this product for 2009.

b. Repeat part (a) assuming that the December 26 purchase was made in January 2010.
c. Recompute the gross margin assuming that 10,000 rather than 6,000 units were purchased on December 26
at the same cost per unit.
d. Solve parts (a), (b), and (c) using the FIFO method.
Problem I The accountant for Gentry Company prepared the following schedule of the company's inventory at
2009 December 31, and used the LCM method applied to total inventory in determining cost of goods sold:
Unit Unit
Item Quantity Cost Market
Q 4,200 $7.20 $7.20
R 2,400 6.00 5.76
S 5,400 4.80 4.56
T 4,800 4.20 4.32
a. State whether this approach is an acceptable method of inventory measurement and show the calculations
used to determine the amounts.
b. Compute the amount of the ending inventory using the LCM method on an item-by-item basis.

c. State the effect on net income in 2009 if the method in (b) was used rather than the method referred to in (a).
Problem J As part of a loan agreement with a local bank, Brazos Company must present quarterly and
cumulative income statements for the year 2009. The company uses periodic inventory procedure and marks its

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