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EXERCISE 6-
Ending inventoryphysical count ................................................ $275,
- No effecttitle passes to purchaser upon shipment when terms are FOB shipping point ............................... 0
- No effecttitle does not transfer to Madsen until goods are received........................................................... 0
- Add to inventory: Title passed to Madsen when goods were shipped ......................................................... 25,
- Add to inventory: Title remains with Madsen until purchaser receives goods ............................................... 51,
- The goods did not arrive prior to year-end. The goods, therefore, cannot be included in the inventory .............. (42,000) Correct inventory ............................................................................ $309,
EXERCISE 6-
(a) Do not include — Trinh does not own items held on consignment.
(b) Include in inventory — Trinh still owns the items as they were only shipped on consignment.
(c) Include in inventory — Shipping terms FOB destination means that Trinh owns the items until they reach the customer.
(d) Do not include in inventory — Because the shipping terms are FOB shipping point, ownership has transferred to the customer. Trinh should record this amount as a sale on the income statement.
(e) Do not include in inventory — Because the shipping terms are FOB destination, Trinh does not own the goods until they arrive at Trinh’s premises.
(f) Include in inventory — Shipping terms FOB shipping point means that ownership transferred at the time of shipping and therefore, Trinh owns the goods in transit.
(g) Do not include in inventory. Record as Office Supplies on the balance sheet.
EXERCISE 6-
(a) FIFO Beginning inventory (12 X $100) .................................. $ 1, Purchases Sept. 12 (45 X $103) ............................................... $4, Sept. 19 (20 X $104) ............................................... 2, Sept. 26 (50 X $105) ............................................... 5,250 11, Cost of goods available for sale .................................. 13, Less: Ending inventory (11 X $105) ........................... 1, Cost of goods sold ....................................................... $12,
PROOF Date Units Unit Cost Total Cost 9/1 12 $100 $ 1, 9/12 45 103 4, 9/19 20 104 2, 9/26 39 105 4,
116 $12,
LIFO Cost of goods available for sale .......................................... $13, Less: Ending inventory (11 X $100) .................................. 1, Cost of goods sold ............................................................... $12,
PROOF Date Units Unit Cost Total Cost 9/26 50 $105 $ 5, 9/19 20 104 2, 9/12 45 103 4, 9/1 1 100 100
116 $12,
(b)
FIFO $1,155 (ending inventory) + $12,010 (COGS) = $13, LIFO $1,100 (ending inventory) + $12,065 (COGS) = $13,
Under both methods, the sum of the ending inventory and cost of goods sold equals the same amount, $13,165, which is the cost of goods available for sale.
Cost of goods available
for sale
EXERCISE 6-5 (Continued)
(c) LIFO
Cost of goods available for sale ................................................. $ Less: Ending inventory (19 X $9) ............................................... 171 Cost of goods sold ...................................................................... $
PROOF
Date Units Unit Cost Total Cost 5/24 38 $11 $ 5/15 25 10 250 5/1 11 9 99 74 $
EXERCISE 6-
(a) (1) FIFO
Beginning inventory (120 X $5)................................. $ 600 Purchases June 12 (370 X $6) .............................................. $2, June 23 (500 X $7) .............................................. 3,500 5, Cost of goods available for sale ............................... 6, Less: Ending inventory (240 X $7) .......................... 1, Cost of goods sold .................................................... $4,
(2) LIFO
Cost of goods available for sale ............................... $6, Less: Ending inventory (120 X $5) + (120 X $6) ..... 1, Cost of goods sold .................................................... $5,
(3) AVERAGE-COST
Cost of Goods Total Units Weighted-Average Available for Sale ÷ Available for Sale = Unit Cost $6,320 990 $6.
Ending inventory (240 X $6.384) $1, Cost of goods sold (750 X $6.384) $4, or $6,320 – $1,532 = $4,
(b) The FIFO method will produce the highest ending inventory because costs have been rising. Under this method, the earliest costs are assigned to cost of goods sold, and the latest costs remain in ending inventory. The LIFO method will produce the highest cost of goods sold for Kuchin Company. Under LIFO the most recent costs are charged to cost of goods sold and the earliest costs are included in the ending inventory.
(c) The average-cost ending inventory ($1,532) is higher than LIFO ($1,320) but lower than FIFO ($1,680). For cost of goods sold, average cost ($4,788) is higher than FIFO ($4,640) but lower than LIFO ($5,000).
(d) The simple average would be (($5 + $6 + $7)/3) = $6. However, the average cost method uses a weighted average unit cost, not a simple average of unit costs.
