Accounting 25th Edition Solution
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CHAPTER 7
INVENTORIES
7-1
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, DISCUSSION QUESTIONS
1. The receiving report should be reconciled to the initial purchase order and the vendor’s invoice before
recording or paying for inventory purchases. This procedure will verify that the inventory received
matches the type and quantity of inventory ordered. It also verifies that the vendor’s invoice is
charging the company for the actual quantity of inventory received at the agreed-upon price.
2. A physical inventory should be taken periodically to test the accuracy of the perpetual records. In
addition, a physical inventory will identify inventory shortages or shrinkage.
3. No, they are not techniques for determining physical quantities. The terms refer to cost flow
assumptions, which affect the determination of the cost prices assigned to items in the inventory.
4. a. LIFO c. LIFO
b. FIFO d. FIFO
5. FIFO
6. LIFO. In periods of rising prices, the use of LIFO will result in the lowest net income and thus the
lowest income tax expense.
7. Net realizable value (estimated selling price less any direct cost of disposition, such as sales
commissions).
8. a. Gross profit for the year was understated by $14,750.
b. Merchandise inventory and owner’s equity were understated by $14,750.
9. Bibbins Company. Since the merchandise was shipped FOB shipping point, title passed to
Bibbins Company when it was shipped and should be reported in Bibbins Company’s financial
statements at May 31, the end of the fiscal year.
10. Manufacturer’s. The manufacturer retains title until the goods are sold. Thus, any unsold merchandise
at the end of the year is part of the manufacturer’s (consignor’s) inventory, even though the
merchandise is in the hands of the retailer (consignee).
7-2
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 7 Inventories
PRACTICE EXERCISES
PE 7–1A
Gross Profit Ending Inventory
February February 28
a. First-in, first-out (FIFO) $35 ($75 – $40) $86 ($42 + $44)
b. Last-in, first-out (LIFO) $31 ($75 – $44) $82 ($40 + $42)
c. Weighted average cost $33 ($75 – $42) $84 ($42 × 2)
PE 7–1B
Gross Profit Ending Inventory
June June 30
a. First-in, first-out (FIFO) $60 ($110 – $50) $130 ($60 + $70)
b. Last-in, first-out (LIFO) $40 ($110 – $70) $110 ($50 + $60)
c. Weighted average cost $50 ($110 – $60) $120 ($60 × 2)
PE 7–2A
a. Cost of merchandise sold (May 28):
15 units @ $120 $1,800
3 units @ $130 390
18 $2,190
b. Inventory, May 31: $7,410 = 57 units × $130
PE 7–2B
a. Cost of merchandise sold (July 24):
6 units @ $15 $ 90
34 units @ $18 612
40 $702
b. Inventory, July 31: $1,008 = 56 units × $18
7-3
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 7 Inventories
PE 7–3A
a. Cost of merchandise sold (June 26):
$5,400 = (90 units × $60)
b. Inventory, June 30:
20 units @ $50 $1,000
35 units @ $60 2,100
55 $3,100
PE 7–3B
a. Cost of merchandise sold (March 27):
$4,800 = (240 units × $20)
b. Inventory, March 31:
45 units @ $18 $ 810
135 units @ $20 2,700
180 $3,510
PE 7–4A
a. Weighted average unit cost: $71.25
Inventory total cost after purchase on July 15:
40 units @ $60 $ 2,400
120 units @ $75 9,000
160 $11,400
Weighted average unit cost = $71.25 ($11,400 ÷ 160 units)
b. Cost of merchandise sold (July 27): $5,985 (84 units × $71.25)
c. Inventory, July 31: $5,415 (76 units × $71.25)
PE 7–4B
a. Weighted average unit cost: $9.50
Inventory total cost after purchase on October 22:
125 units @ $8 $1,000
375 units @ $10 3,750
500 $4,750
Weighted average unit cost = $9.50 ($4,750 ÷ 500 units)
b. Cost of merchandise sold (October 29): $2,660 (280 units × $9.50)
c. Inventory, October 31: $2,090 (220 units × $9.50)
7-4
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
(Download complete and 100% accurate work written as per requirements)
Topic: _________________
Student Name: __________
Course Title: ____________
Instructor: ______________
Date of submission: _______
For any problem feel free to message me on “Stuvia”
Complete Answer (Next Page)
CHAPTER 7
INVENTORIES
7-1
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, DISCUSSION QUESTIONS
1. The receiving report should be reconciled to the initial purchase order and the vendor’s invoice before
recording or paying for inventory purchases. This procedure will verify that the inventory received
matches the type and quantity of inventory ordered. It also verifies that the vendor’s invoice is
charging the company for the actual quantity of inventory received at the agreed-upon price.
2. A physical inventory should be taken periodically to test the accuracy of the perpetual records. In
addition, a physical inventory will identify inventory shortages or shrinkage.
3. No, they are not techniques for determining physical quantities. The terms refer to cost flow
assumptions, which affect the determination of the cost prices assigned to items in the inventory.
4. a. LIFO c. LIFO
b. FIFO d. FIFO
5. FIFO
6. LIFO. In periods of rising prices, the use of LIFO will result in the lowest net income and thus the
lowest income tax expense.
7. Net realizable value (estimated selling price less any direct cost of disposition, such as sales
commissions).
8. a. Gross profit for the year was understated by $14,750.
b. Merchandise inventory and owner’s equity were understated by $14,750.
9. Bibbins Company. Since the merchandise was shipped FOB shipping point, title passed to
Bibbins Company when it was shipped and should be reported in Bibbins Company’s financial
statements at May 31, the end of the fiscal year.
10. Manufacturer’s. The manufacturer retains title until the goods are sold. Thus, any unsold merchandise
at the end of the year is part of the manufacturer’s (consignor’s) inventory, even though the
merchandise is in the hands of the retailer (consignee).
7-2
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 7 Inventories
PRACTICE EXERCISES
PE 7–1A
Gross Profit Ending Inventory
February February 28
a. First-in, first-out (FIFO) $35 ($75 – $40) $86 ($42 + $44)
b. Last-in, first-out (LIFO) $31 ($75 – $44) $82 ($40 + $42)
c. Weighted average cost $33 ($75 – $42) $84 ($42 × 2)
PE 7–1B
Gross Profit Ending Inventory
June June 30
a. First-in, first-out (FIFO) $60 ($110 – $50) $130 ($60 + $70)
b. Last-in, first-out (LIFO) $40 ($110 – $70) $110 ($50 + $60)
c. Weighted average cost $50 ($110 – $60) $120 ($60 × 2)
PE 7–2A
a. Cost of merchandise sold (May 28):
15 units @ $120 $1,800
3 units @ $130 390
18 $2,190
b. Inventory, May 31: $7,410 = 57 units × $130
PE 7–2B
a. Cost of merchandise sold (July 24):
6 units @ $15 $ 90
34 units @ $18 612
40 $702
b. Inventory, July 31: $1,008 = 56 units × $18
7-3
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 7 Inventories
PE 7–3A
a. Cost of merchandise sold (June 26):
$5,400 = (90 units × $60)
b. Inventory, June 30:
20 units @ $50 $1,000
35 units @ $60 2,100
55 $3,100
PE 7–3B
a. Cost of merchandise sold (March 27):
$4,800 = (240 units × $20)
b. Inventory, March 31:
45 units @ $18 $ 810
135 units @ $20 2,700
180 $3,510
PE 7–4A
a. Weighted average unit cost: $71.25
Inventory total cost after purchase on July 15:
40 units @ $60 $ 2,400
120 units @ $75 9,000
160 $11,400
Weighted average unit cost = $71.25 ($11,400 ÷ 160 units)
b. Cost of merchandise sold (July 27): $5,985 (84 units × $71.25)
c. Inventory, July 31: $5,415 (76 units × $71.25)
PE 7–4B
a. Weighted average unit cost: $9.50
Inventory total cost after purchase on October 22:
125 units @ $8 $1,000
375 units @ $10 3,750
500 $4,750
Weighted average unit cost = $9.50 ($4,750 ÷ 500 units)
b. Cost of merchandise sold (October 29): $2,660 (280 units × $9.50)
c. Inventory, October 31: $2,090 (220 units × $9.50)
7-4
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
