Chapter 11: Inventory Cost Flow

Problem 11-3: BLAND COMPANY

First In, First Out (FIFO) Method

Ending Inventory (In Units) 30,000.00

Units Unit Cost Total Cost

December 17 10,000.00 45.00 450,000.00
22 20,000.00 43.00 860,000.00
Total 30,000.00 1,310,000.00

Sales (1,800,000 + 6,300,000) 8,100,000.00

Cost of Sales
Good Available for Sale 5,580,000.00
(520,000 + 1,500,000 + 2,700,000 + 860,000)
Ending Inventory 1,310,000.00 4,270,000.00
Gross Profit 3,830,000.00

Weighted Average Method

Ending Inventory (In Units) 30,000.00

Units Unit Cost Total Cost

December 1 10,000.00 52.00 520,000.00
7 30,000.00 50.00 1,500,000.00
17 60,000.00 45.00 2,700,000.00
22 20,000.00 43.00 860,000.00
Total 120,000.00 5,580,000.00

Weighted Average Cost per Unit (5,580,000 / 120,000) 30,000.00 46.50 1,395,000.00

Sales (1,800,000 + 6,300,000) 8,100,000.00

Cost of Sales
Good Available for Sale 5,580,000.00
(520,000 + 1,500,000 + 2,700,000 + 860,000)
Ending Inventory 1,395,000.00 4,185,000.00
Gross Profit 3,915,000.00

Problem 11-6: CELINE COMPANY

Ending Inventory (In Units) 15,000.00

Units Unit Cost Total Cost

January 1 5,000.00 200.00 1,000,000.00
10 5,000.00 250.00 1,250,000.00
Balance 10,000.00 225.00 2,250,000.00
15 (7,000.00) 225.00 (1,575,000.00)
Balance 3,000.00 225.00 675,000.00
16 1,000.00 225.00 225,000.00
Balance 4,000.00 225.00 900,000.00
30 16,000.00 150.00 2,400,000.00
Balance 20,000.00 165.00 3,300,000.00
31 (5,000.00) 150.00 (750,000.00)
Balance 15,000.00 170.00 2,550,000.00

Cost of Sales
January 15 (Sales) 1,575,000.00
Janaury 16 (Sales Return) (225,000.00)
Total 1,350,000.00
Problem 11-9: HAREM COMPANY

2023 2024 2025

Cost of Goods Sold - Average 1,500,000.00 2,000,000.00 2,400,000.00
Under(Overstatement) of Ending Inventory
2023 (420,000 - 270,000) (150,000.00) 150,000.00
2024 (500,000 - 300,000) (200,000.00) 200,000.00
2025 (650,000 - 380,000) (270,000.00)
Cost of Goods Sold - FIFO 1,350,000.00 1,950,000.00 2,330,000.00

Sales 3,000,000.00 4,000,000.00 4,800,000.00

Cost of Goods Sold 1,350,000.00 1,950,000.00 2,330,000.00
Gross Income 1,650,000.00 2,050,000.00 2,470,000.00
Expenses 800,000.00 900,000.00 1,000,000.00
Net Income 850,000.00 1,150,000.00 1,470,000.00

Proof:
Net Income - Average 700,000.00 1,100,000.00 1,400,000.00
Under(Overstatement) of Ending Inventory
2023 (420,000 - 270,000) 150,000.00 (150,000.00)
2024 (500,000 - 300,000) 200,000.00 (200,000.00)
2025 (650,000 - 380,000) 270,000.00
Net Income - FIFO 850,000.00 1,150,000.00 1,470,000.00

Problem 11-10: NARRA COMPANY

Requirements 1 and 2:

Inventory, 12/31/2023 1,518,000.00

[(14,000 + 4,800 + 7,200) - 15,000] * 138

Units Ave. Unit Cost Total Cost

Inventory, 12/31/2022 14,000.00 1,480,000.00
Purchases - 2023 12,000.00 138.00 1,656,000.00
Materials Available for Use 26,000.00 3,136,000.00
Less: Inventory, 12/31/2023 (11,000.00) (1,518,000.00)
Raw Materials Used - 2023 15,000.00 1,618,000.00

Requirements 3 and 4:

Inventory, 12/31/2024 2,295,000.00

[(11,000 + 7,500 + 5,500 + 7,000) - 16,000] * 153

Units Ave. Unit Cost Total Cost

Inventory, 12/31/2023 11,000.00 1,618,000.00
Purchases - 2024 20,000.00 153.00 3,060,000.00
Materials Available for Use 31,000.00 4,678,000.00
Less: Inventory, 12/31/2024 (15,000.00) (2,295,000.00)
Raw Materials Used - 2024 16,000.00 2,383,000.00
Problem 11-11: LANDMARK COMPANY

Purchase Cost 26,850,000.00

Cost of Improving and Subdividing 43,500,000.00
Total Cost 70,350,000.00

Sales Price Percentage Cost

Class 1 (20 * 3,000,000) 60,000,000.00 57.14% 40,200,000.00
Class 2 (10 * 2,500,000) 25,000,000.00 23.81% 16,750,000.00
Class 3 (10 * 2,000,000) 20,000,000.00 19.05% 13,400,000.00
Total 105,000,000.00 70,350,000.00

Cost per Lot Unsold Total Cost

Class 1 (40,200,000 / 20) 2,010,000.00 5.00 10,050,000.00
Class 2 (16,750,000 / 10) 1,675,000.00 4.00 6,700,000.00
Class 3 (13,400,000 / 10) 1,340,000.00 3.00 4,020,000.00
Total 20,770,000.00

Chapter 12: Lower of Cost and Net Realizable Value

Problem 12-3: WINTER COMPANY
Requirement 1: Direct Method
Merchandise Inventory, End 4,800,000
Income Summary 4,800,000
Requirement 2: Allowance Method
Merchandise Inventory, End 5,000,000
Income Summary 5,000,000
#
Loss on Inventory Writedown 200,000
Allowance for Inventory Writedown 200,000
Supporting Computations:

Cost NRV LCNRV

Skis 2,200,000.00 2,500,000.00 2,200,000.00
Boots 1,700,000.00 1,500,000.00 1,500,000.00
Ski Equipment 700,000.00 800,000.00 700,000.00
Ski Apparel 400,000.00 500,000.00 400,000.00
Total 5,000,000.00 5,300,000.00 4,800,000.00

Problem 12-6: SAVIOR COMPANY

a. No adjustment is necessary because the market price is higher than the agreed
price. Any gain on purchase commitment is not recognized initially.
#
b. No adjustment is necessary because the market price has not declined as of
December 31, 2023. The market decline is only a possible loss.
#
c. Loss on Purchase Commitment [10,000 * (200 – 170)] 300,000
Estimated Liability for Purchase Commitment 300,000
#
d. 12/31/2023 Loss on Purchase Commitment 300,000
Estimated Liability for PC 300,000
#
01/31/2024 Purchases (10,000 * 150) 1,500,000
Loss on PC [10,000 * (170 – 150)] 200,000
Estimated Liability for PC 300,000
Accounts Payable 2,000,000
#
e. 12/31/2023 Loss on Purchase Commitment 300,000
Estimated Liability for PC 300,000
#
01/31/2024 Purchases (10,000 * 200 > LCNRV) 2,000,000
Estimated Liability for PC 300,000
Accounts Payable 2,000,000
Gain on PC 300,000
[10,000 * (200 – 170)]
Problem 12-4: WHITE COMPANY
Requirements 1 to 3:

Units Total Costs Total NRV LCNRV

Category 1:
A Cost - 105; NRV - (130 - 15) = 115 25,000.00 2,625,000.00 2,875,000.00 2,625,000.00
B Cost - 85; NRV - (90 - 10) = 80 20,000.00 1,700,000.00 1,600,000.00 1,600,000.00
Subtotal 4,325,000.00 4,475,000.00

Category 2:
C Cost - 50; NRV - (45 - 5) = 40 40,000.00 2,000,000.00 1,600,000.00 1,600,000.00
D Cost - 65; NRV - (75 - 15) = 60 30,000.00 1,950,000.00 1,800,000.00 1,800,000.00
Subtotal 3,950,000.00 3,400,000.00

Total 8,275,000.00 7,875,000.00 7,625,000.00

LCNRV - Individual Inventory Item 7,625,000.00

LCNRV - Inventory Category (4,325,000 + 3,400,000) 7,725,000.00

LCNRV - Inventory as a Whole 7,875,000.00

Chapter 13: GROSS PROFIT METHOD

Problem 13-12: ULTIMATE COMPANY
Supporting Computations:

Inventory, 05/31/23 Purchases up to 05/31/23 Purchases up to 06/30/23

Unadjusted Balances 950,000.00 6,750,000.00 8,000,000.00
A 75,000.00
B (10,000.00) (15,000.00)
C (20,000.00) (20,000.00)
D (55,000.00) (55,000.00)
Adjusted Balances 895,000.00 6,740,000.00 7,965,000.00
Requirement 1:

Inventory, 07/01/2022 875,000.00

Purchases up to 05/31/2023 6,740,000.00
Goods Available for Sale 7,615,000.00
Less: Inventory, 05/31/2023 895,000.00
Cost of Goods Sold up to 05/31/2023 6,720,000.00

Sales up to 05/31/2023 8,400,000.00

Cost of Goods Sold up to 05/31/2023 6,720,000.00
Gross Profit up to 05/31/2023 1,680,000.00

Gross Profit Rate (1,680,000 / 8,400,000) 20.00%

Requirement 2:

Sales up to 06/30/2023 9,600,000.00

Sales up to 05/31/2023 8,400,000.00
Sales - June 2023 1,200,000.00

Requirement 3:

Cost of Goods Sold with Profit [(1,200,000 - 100,000) * 80%] 880,000.00

Cost of Goods Sold without Profit (E) 100,000.00
Cost of Goods Sold - June 2023 980,000.00

Requirement 4:

Inventory, 07/01/2022 875,000.00

Purchases up to 06/30/2023 7,965,000.00
Goods Available for Sale 8,840,000.00
Less: Cost of Goods Sold
Sales with Profit [(9,600,000 - 100,000) * 80%] 7,600,000.00
Sales without Profit 100,000.00 7,700,000.00
Inventory, 06/30/2023 1,140,000.00

Chapter 14: RETAIL INVENTORY METHOD

Problem 14-1: EMPRESS COMPANY
Requirements 1 and 2:
Cost Retail
Beginning Inventory 650,000.00 1,200,000.00
Purchases 9,000,000.00 14,700,000.00
Freight In 200,000.00
Purchase Returns (300,000.00) (500,000.00)
Purchase Allowances (150,000.00)
Department Trnasfer In 200,000.00 300,000.00
Net Markup 300,000.00
Good Available for Sale - Conventional 9,600,000.00 16,000,000.00
Net Markdown (1,000,000.00)
Good Available for Sale - Average 9,600,000.00 15,000,000.00
Sales (9,500,000.00)
Employee Discounts (500,000.00)
Normal Shoplifting Loss (600,000.00)
Normal Shrinkage (400,000.00)
Ending Inventory at Retail 4,000,000.00

Conventional Cost Ratio (9,600,000 / 16,000,000) 60.00%

Conservative Cost - Ending Inventory (4,000,000 * 60%) 2,400,000.00

Average Cost Ratio (9,600,000 / 15,000,000) 64.00%

Conservative Cost - Ending Inventory (4,000,000 * 64%) 2,560,000.00

Requirements 3 and 4:

Conventional Average
Goods Available for Sale (At Cost) 9,600,000.00 9,600,000.00
Ending Inventory (2,400,000.00) (2,560,000.00)
Cost of Goods Sold 7,200,000.00 7,040,000.00

Problem 14-13: FLAME COMPANY

Cost Retail
2023
Beginning Inventory, 2023 (556,800 / 928,000) = 60% 556,800.00 928,000.00
Purchases 4,576,000.00 7,028,000.00
Net Markup 42,000.00
Net Markdown (30,000.00)
Net Purchases (4,576,000 / 7,040,000) = 65% 4,576,000.00 7,040,000.00
Good Available for Sale 5,132,800.00 7,968,000.00
Sales (6,840,000.00)
Ending Inventory at Retail, 2023 1,128,000.00

FIFO Cost - Ending Inventory, 2023 (1,128,000 * 65%) 733,200.00

2024
Beginning Inventory, 2024 (733,200 / 1,128,000) = 65% 733,200.00 1,128,000.00
Purchases 4,760,000.00 6,812,000.00
Net Markup 56,000.00
Net Markdown (68,000.00)
Net Purchases (4,760,000 / 6,800,000) = 70% 4,760,000.00 6,800,000.00
Good Available for Sale 5,493,200.00 7,928,000.00
Sales (6,928,000.00)
Ending Inventory at Retail, 2024 1,000,000.00

FIFO Cost - Ending Inventory, 2024 (1,000,000 * 70%) 700,000.00

Problem 14-14: GRAY COMPANY

Cost Retail
2023
Beginning Inventory, 2023 (420,000 / 600,000) = 70% 420,000.00 600,000.00
Purchases 5,011,200.00 6,890,000.00
Net Markup 160,000.00
Net Markdown (90,000.00)
Net Purchases (5,011,200 / 6,960,000) = 72% 5,011,200.00 6,960,000.00
Good Available for Sale 5,431,200.00 7,560,000.00
Sales (6,839,000.00)
Ending Inventory at Retail, 2023 721,000.00

LIFO Cost - Ending Inventory, 2023 [420,000 + (121,000 * 72%)] 507,120.00

2024
Beginning Inventory, 2024 (507,120 / 721,000) = 70.34% 507,120.00 721,000.00
Purchases 4,970,000.00 7,110,000.00
Net Markup 100,000.00
Net Markdown (110,000.00)
Net Purchases (4,970,000 / 7,100,000) = 70% 4,970,000.00 7,100,000.00
Good Available for Sale 5,477,120.00 7,821,000.00
Sales (7,033,000.00)
Ending Inventory at Retail, 2024 788,000.00

LIFO Cost - Ending Inventory, 2024 [507,120 + (67,000 * 70%) 554,020.00