Page 327 - Accounting Principles (A Business Perspective)

7. Measuring and reporting inventories

b. Assuming use of periodic 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).

Alternate problem H Star Company accounts for its inventory using the LIFO method under periodic
inventory procedure. Data on purchases, sales, and inventory for the year ended 2009 December 31, are:
Units Unit
Cost
Merchandise inventory,
January 1 2,000 @ $20
Purchases:
January / 5,000 @ 24
July 7 10,000 @ 28
December 21 6,000 @ 32
During 2009, 16,000 units were sold for USD 1,280,000, leaving an inventory on 2009 December 31, of 7,000
units.

a. Compute the gross margin earned on sales during 2009.
b. Compute the change in gross margin that would have resulted if the purchase of December 21 had been
delayed until 2010 January 6.
c. Recompute the gross margin assuming that 9,000 units rather than 6,000 units were purchased on December
21 at the same cost per unit.
d. Solve parts (a), (b), and (c) using the FIFO method.
Alternate problem I Data on the ending inventory of Jannis Company on 2009 December 31, are:
Unit Unit
Item Quantity Cost Market
1 8,400 $3.20 $3.12
2 16,800 2.88 3.04
3 5,600 2.80 2.88
4 14,000 3.84 3.60
5 11,200 3.60 3.68
6 2,800 3.04 2.88
a. Compute the ending inventory applying the LCM method to the total inventory.
b. Determine the ending inventory by applying the LCM method on an item-by-item basis.
Alternate problem J The sales and cost of goods sold for Lively Company for the past five years were as
follows:
Sales Cost of
Year (net) Goods Sold
2004 $ 9,984,960 $ 6,240,600
2005 10,794,240 6,746,400
2006 12,346,560 7,716,600
2007 11,926,080 7,272,000
2008 12,747,840 7,920,000
The following information is for the seven months ended 2009 July 31:
Sales $7,748,000
Purchases 4,588,800
Purchase returns 28,800
Sales returns 173,760
Merchandise inventory,
2009 January 1 948,000
To secure a loan, Lively Company has been asked to present current financial statements. However, the

company does not wish to take a complete physical inventory as of 2009 July 31.
a. Indicate how financial statements can be prepared without taking a complete physical inventory.

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