Intermediate Accounting 4

E8-13

Altira Corporation uses a periodic inventory system. The following information related to its merchandise inventory during the month of August 2011 is available:

Aug 1 Inventory on hand - 2,000 units; cost $6.10 each.

Aug 8 Purchased 10,000 units for $5.50 each.

Aug 14 Sold 8,000 units for $12.00 each.

Aug 18 Purchased 60,000 units for $5.00 each.

Aug 25 Sold 7,000 units for $11.00 each.

Aug 31 Inventory on hand – 3,000 units.

Required:

Determine the inventory balance Altira would report in its August 31, 2011, balance sheet and the cost of goods sold it would report in its August 2011 income statement using each of the following cost flow methods:

1. First-in, First-out (FIFO)

2. Last-in, First-out (LIFO)

3. Average Cost

E8-14

[This is a variation of Exercise 8-13 modified to focus on the perpetual inventory system and alternative cost flow methods.]

Altira Corporation uses a perpetual inventory system. The following transactions affected its merchandise inventory during the month of August 2011:

Aug 1 Inventory on hand – 2,000 units; cost $6.10 each.

Aug 8 Purchased 10,000 units for $5.50 each

Aug 14 Sold 8,000 units for $12.00 each

Aug 18 Purchased 6,000 units for $5.00 each

Aug 25 Sold 7,000 units for $11.00 each.

Aug 31 Inventory on hand – 3,000 units.

Required:

Determine the inventory balance Altira would report in its August 31, 2011 balance sheet and the cost of goods sold it would report in its August 2011 income statement using each of the following cost flow methods:

1. First-in, First-out (FIFO)

2. Last-in, First-out (LIFO)

3. Average Cost

E8-18

Steelcase, Inc. is the global leader in providing furniture for office environments. The company uses the LIFO inventory method for external reporting and for income tax purposes but maintains its internal records using FIFO. The following disclosure note was included in a recent annual report:

5. Inventories ($ in millions)

	February 27, 2009		February 29, 2008
Raw Materials	$61.3		$67.5
Work-in-Process	15.9		20.9
Finished Goods	79.9		87.9
	157.1		176.3
LIFO reserve	(27.2)		(29.6)
	$129.9		$146.7

The company’s income statement reported cost of goods sold of $2,236.7 million for the fiscal year ended February 27, 2009.

Required:

1. Steelcase adjusts the LIFO reserve at the end of its fiscal year. Prepare the February 27, 2009 adjusting entry to make the cost of goods sold adjustment.

2. If Steelcase had used FIFO to value its inventories, what would cost of goods sold have been for the 2009 fiscal year?

P 8-5

Ferris Company began 2011 with 6,00o units of its principal product. The cost of each unit is $8. Merchandise transactions for the month of January 2011 are as follows:

Purchases

Date of Purchase		Units		Unit Cost*		Total Cost
Jan. 10		5,000		$9		$45,000
Jan. 18		6,000		10		60,000
Totals		11,000				$105,000

*Includes purchase price and cost of freight.

Sales

Date of Sale		Units
Jan. 5		3,000
Jan. 12		2,000
Jan. 20		4,000
Total		9,000

8,000 units were on hand at the end of the month.

Required:

Calculate January’s ending inventory and cost of goods sold for the month using each of the following alternatives:

1. FIFO, periodic system

2. LIFO, periodic system

3. LIFO, perpetual system

4. Average cost, periodic system

5. Average cost, perpetual system

E9-19

On January 1, 2011, the Brunswick Hat Company adopted the dollar-value LIFO retail method. The following data are available for 2011:

	Cost	Retail
Beginning inventory	$71,280	$132,000
Net purchases	112,500	255,000
Net markups		6,000
Net markdowns		11,000
Net sales		232,000
Retail Price Index, 12/31/11		1.04

Required:

Calculate the estimated ending inventory and cost of goods sold for 2011.

E9-21

Lance-Heffner Specialty Shoppes decided to use the dollar-value LIFO retail method to value its inventory. Accounting records provide the following information:

		Cost		Retail
Merchandise Inventory, January 1, 2011		$160,000		$250,000
Net Purchases		350,200		510,000
Net Markups		60,000		7,000
Net Markdowns				2,000
Net Sales				380,000

Pertinent retail price indexes are as follows:

January 1, 2011 1.00

December 31, 2011 1.10

Required:

Determine ending inventory and cost of goods sold.

P9-1

Decker Company has five products in its inventory. Information about the December 31, 2011 inventory follows:

Product	Quantity	Unit Cost	Unit Replacement Cost	Unit Selling Price
A	1,000	$10	$12	$16
B	800	15	11	18
C	600	3	2	8
D	200	7	4	6
E	600	14	12	13

The cost for each product consists of a 15 percent sales commission. The normal profit percentage for each product is 40 percent of the selling price.

Required:

1. Determine the balance sheet inventory carrying value at December 31, 2011, assuming the LCM rule is applied to individual products.

2. Determine the balance sheet inventory carrying value at December 31, 2011 assuming the LCM rule is applied to the entire inventory. Also, assuming that Decker recognizes an inventory write-down as a separate income statement item, determine the amount of the loss.