Questions 1-4
[The following information applies to the questions displayed below.]
| Laker Company reported the following January purchases and sales data for its only product. |
| Date | Activities | Units Acquired at Cost | Units sold at Retail |
| Jan. | 1 | Beginning inventory | 140 | units | @ | $ | 6.00 | = | $ | 840 | | | | | | | |
| Jan. | 10 | Sales | | | | | | | | | | 100 | units | @ | $ | 15 | |
| Jan. | 20 | Purchase | 60 | units | @ | $ | 5.00 | = | | 300 | | | | | | | |
| Jan. | 25 | Sales | | | | | | | | | | 80 | units | @ | $ | 15 | |
| Jan. | 30 | Purchase | 180 | units | @ | $ | 4.50 | = | | 810 | | | | | | | |
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| | Totals | 380 | units | | | | | $ | 1,950 | | 180 | units | | | | |
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Required:
The Company uses a perpetual inventory system. For specific identification, ending inventory consists of 200 units, where 180 are from the January 30 purchase, 5 are from the January 20 purchase, and 15 are from beginning inventory.
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1.
| 1. |
Complete the table to determine the cost assigned to ending inventory and cost of goods sold using specific identification. (Round cost per unit to 2 decimal places.)
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| Specific Identification |
| Available for Sale | Cost of Goods Sold | Ending Inventory |
| Purchase Date | Activity | Units | Unit Cost | Units Sold | Unit Cost | COGS | Ending Inventory- Units | Cost Per Unit | Ending Inventory- Cost |
| Jan. 1 | Beginning inventory | 140 | $6.00 | 125 | $6.00 | $750 | 15 | $6.00 | $90 |
| Jan. 20 | Purchase | 60 | $5.00 | 55 | $5.00 | $275 | 5 | $5.00 | $25 |
| Jan. 30 | Purchase | 180 | $4.50 | | | | 180 | $4.50 | $810 |
| | 380 | | 180 | | $1,025 | 200 | | $925 |
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2.
| 2. |
Determine the cost assigned to ending inventory and to cost of goods sold using weighted average.(Round cost per unit to 2 decimal places.)
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| Weighted Average - Perpetual: |
| Goods Purchased | Cost of Goods Sold | Inventory Balance |
| Date | # of units | | Cost per unit | # of units sold | Cost per unit | Cost of Goods Sold | # of units | Cost per unit | Inventory Balance |
| January 1 | | | | | | | | | 140 | @ | $6.00 | = | $840.00 |
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| January 10 | | | | 100 | @ | $6.00 | = | $600.00 | 40 | @ | $6.00 | = | $240.00 |
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| January 20 | 60 | @ | $5.00 | | | | | | 40 | @ | $6.00 | = | $240.00 |
| | | | | | | | | 60 | @ | $5.00 | = | 300.00 |
| Average cost | | | | | | 100 | @ | $5.40 | | $540.00 |
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| January 25 | | | | 80 | @ | $5.40 | = | $432.00 | 20 | @ | $5.40 | = | $108.00 |
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| January 30 | 180 | @ | $4.50 | | | | | | 20 | @ | $5.40 | = | $108.00 |
| | | | | | | | | 180 | @ | $4.50 | = | 810.00 |
| Totals | | | | | | | | $1,032.00 | 200 | @ | $4.59 | | $918.00 |
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3.
| 3. | Determine the cost assigned to ending inventory and to cost of goods sold using FIFO. (Round cost per unit to 2 decimal places.) |
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| Perpetual FIFO: |
| Goods Purchased | Cost of Goods Sold | Inventory Balance |
| Date | # of units | | Cost per unit | # of units sold | Cost per unit | Cost of Goods Sold | # of units | Cost per unit | Inventory Balance |
| January 1 | | | | | | | | | 140 | @ | $6.00 | = | $840.00 |
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| January 10 | | | | 100 | @ | $6.00 | = | $600.00 | 40 | @ | $6.00 | = | $240.00 |
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| January 20 | 60 | @ | $5.00 | | | | | | 40 | @ | $6.00 | = | $240.00 |
| | | | | | | | | 60 | @ | $5.00 | = | 300.00 |
| | | | | | | | | | | | | $540.00 |
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| January 25 | | | | 40 | @ | $6.00 | = | $240.00 | | @ | $6.00 | = | |
| | | | 40 | @ | $5.00 | = | 200.00 | 20 | @ | $5.00 | = | $100.00 |
| | | | | | | | $440.00 | | | | | $100.00 |
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| January 30 | 180 | @ | $4.50 | | | | | | | @ | $6.00 | | |
| | | | | | | | | 20 | @ | $5.00 | = | 100.00 |
| | | | | | | | | 180 | @ | $4.50 | = | 810.00 |
| Totals | | | | | | | | $1,040.00 | | | | | $910.00 |
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4.
| 4. | Determine the cost assigned to ending inventory and to cost of goods sold using LIFO. (Round cost per unit to 2 decimal places.) |
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| Perpetual LIFO: |
| Goods Purchased | Cost of Goods Sold | Inventory Balance |
| Date | # of units | | Cost per unit | # of units sold | Cost per unit | Cost of Goods Sold | # of units | Cost per unit | Inventory Balance |
| January 1 | | | | | | | | | 140 | @ | $6.00 | = | $840.00 |
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| January 10 | | | | 100 | @ | $6.00 | = | $600.00 | 40 | @ | $6.00 | = | $240.00 |
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| January 20 | 60 | @ | $5.00 | | | | | | 40 | @ | $6.00 | = | $240.00 |
| | | | | | | | | 60 | @ | $5.00 | = | 300.00 |
| | | | | | | | | | | | | $540.00 |
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| January 25 | | | | 20 | @ | $6.00 | = | $120.00 | 20 | @ | $6.00 | = | $120.00 |
| | | | 60 | @ | $5.00 | = | 300.00 | 0 | @ | $5.00 | = | |
| | | | | | | | $420.00 | | | | | $120.00 |
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| January 30 | 180 | @ | $4.50 | | | | | | 20 | @ | $6.00 | = | $120.00 |
| | | | | | | | | 0 | @ | $5.00 | | |
| | | | | | | | | 180 | @ | $4.50 | = | 810.00 |
| Totals | | | | | | | | $1,020.00 | | | | | $930.00 |
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5.
Laker Company reported the following January purchases and sales data for its only product.
| Date | Activities | Units Acquired at Cost | Units Sold at Retail |
| Jan. | 1 | | Beginning inventory | | 140 | units | @ $6.00 | = | $ | 840 | | | | | |
| Jan. | 10 | | Sales | | | | | | | | | 100 | units | @$15 | |
| Jan. | 20 | | Purchase | | 60 | units | @ $5.00 | = | | 300 | | | | | |
| Jan. | 25 | | Sales | | | | | | | | | 80 | units | @$15 | |
| Jan. | 30 | | Purchase | | 180 | units | @ $4.50 | = | | 810 | | | | | |
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| | | | Totals | | 380 | units | | | $ | 1,950 | | 180 | units | | |
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The Company uses a perpetual inventory system. For specific identification, ending inventory consists of 200 units, where 180 are from the January 30 purchase, 5 are from the January 20 purchase, and 15 are from beginning inventory.
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Required:
| 1. |
Complete comparative income statements for the month of January for Laker Company for the four inventory methods. Assume expenses are $1,250, and that the applicable income tax rate is 40%.(Round your Intermediate calculations to 2 decimal places.)
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| LAKER COMPANY |
| Income Statements |
| For Month Ended January 31 |
| Specific | Weighted | | |
| Identification | Average | FIFO | LIFO |
| Sales | $2,700 | $2,700 | $2,700 | $2,700 |
| Cost of goods sold | 1,025 | 1,032 | 1,040 | 1,020 |
| Gross profit | 1,675 | 1,668 | 1,660 | 1,680 |
| Expenses | 1,250 | 1,250 | 1,250 | 1,250 |
| Income before taxes | 425 | 418 | 410 | 430 |
| Income tax expense | 170 | 167 | 164 | 172 |
| Net income | $255 | $251 | $246 | $258 |
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| 2. |
Which method yields the highest net income?
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| LIFO  |
| 3. |
Does net income using weighted average fall between that using FIFO and LIFO?
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| Yes |
| 4. |
If costs were rising instead of falling, which method would yield the highest net income?
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| FIFO |
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Questions 6-8
[The following information applies to the questions displayed below.]
| Hemming Co. reported the following current-year purchases and sales for its only product. |
| Date | Activities | Units Acquired at Cost | Units Sold at Retail |
| Jan. | 1 | | Beginning inventory | | 200 | units | @ $10 | = | $ | 2,000 | | | | | |
| Jan. | 10 | | Sales | | | | | | | | | 150 | units | @$40 | |
| Mar. | 14 | | Purchase | | 350 | units | @ $15 | = | | 5,250 | | | | | |
| Mar. | 15 | | Sales | | | | | | | | | 300 | units | @$40 | |
| July | 30 | | Purchase | | 450 | units | @ $20 | = | | 9,000 | | | | | |
| Oct. | 5 | | Sales | | | | | | | | | 430 | units | @$40 | |
| Oct. | 26 | | Purchase | | 100 | units | @ $25 | = | | 2,500 | | | | | |
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| | | | Totals | | 1,100 | units | | | $ | 18,750 | | 880 | units |
Required:
| Hemming uses a perpetual inventory system. |
6.
Determine the costs assigned to ending inventory and to cost of goods sold using FIFO.
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| Perpetual FIFO: |
| Goods Purchased | Cost of Goods Sold | Inventory Balance |
| Date | # of units | | Cost per unit | # of units sold | Cost per unit | Cost of Goods Sold | # of units | Cost per unit | Inventory Balance |
| January 1 | | | | | | | | | 200 | @ | $10.00 | = | $2,000.00 |
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| January 10 | | | | 150 | @ | $10.00 | = | $1,500.00 | 50 | @ | $10.00 | = | $500.00 |
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| March 14 | 350 | @ | $15.00 | | | | | | 50 | @ | $10.00 | = | $500.00 |
| | | | | | | | | 350 | @ | $15.00 | = | 5,250.00 |
| | | | | | | | | | | | | $5,750.00 |
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| March 15 | | | | 50 | @ | $10.00 | = | $500.00 | | @ | $10.00 | = | |
| | | | 250 | @ | $15.00 | = | 3,750.00 | 100 | @ | $15.00 | = | $1,500.00 |
| | | | | | | | $4,250.00 | | | | | $1,500.00 |
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| July 30 | 450 | @ | $20.00 | | | | | | | @ | $10.00 | | |
| | | | | | | | | 100 | @ | $15.00 | = | 1,500.00 |
| | | | | | | | | 450 | @ | $20.00 | = | 9,000.00 |
| | | | | | | | | | | | | $10,500.00 |
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| October 5 | | | | | @ | $10.00 | = | $0.00 | | @ | $10.00 | | |
| | | | 100 | @ | $15.00 | = | 1,500.00 | | @ | $15.00 | | |
| | | | 330 | @ | $20.00 | = | 6,600.00 | 120 | @ | $20.00 | = | 2,400.00 |
| | | | | | | | $8,100.00 | | | | | $2,400.00 |
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| October 26 | 100 | @ | $25.00 | | | | | | | @ | $10.00 | | |
| | | | | | | | | | @ | $15.00 | | |
| | | | | | | | | 120 | @ | $20.00 | = | 2,400.00 |
| | | | | | | | | 100 | @ | $25.00 | | 2,500.00 |
| Totals | | | | | | | | $13,850.00 | | | | | $4,900.00 |
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7.
Determine the costs assigned to ending inventory and to cost of goods sold using LIFO.
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| Perpetual LIFO: |
| Goods Purchased | Cost of Goods Sold | Inventory Balance |
| Date | # of units | | Cost per unit | # of units sold | Cost per unit | Cost of Goods Sold | # of units | Cost per unit | Inventory Balance |
| January 1 | | | | | | | | | 200 | @ | $10.00 | = | $2,000.00 |
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| January 10 | | | | 150 | @ | $10.00 | = | $1,500.00 | 50 | @ | $10.00 | = | $500.00 |
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| March 14 | 350 | @ | $15.00 | | | | | | 50 | @ | $10.00 | = | $500.00 |
| | | | | | | | | 350 | @ | $15.00 | = | 5,250.00 |
| | | | | | | | | | | | | $5,750.00 |
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| March 15 | | | | | @ | $10.00 | = | $0.00 | 50 | @ | $10.00 | = | $500.00 |
| | | | 300 | @ | $15.00 | = | 4,500.00 | 50 | @ | $15.00 | = | $750.00 |
| | | | | | | | $4,500.00 | | | | | $1,250.00 |
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| July 30 | 450 | @ | $20.00 | | | | | | 50 | @ | $10.00 | = | $500.00 |
| | | | | | | | | 50 | @ | $15.00 | = | 750.00 |
| | | | | | | | | 450 | @ | $20.00 | = | 9,000.00 |
| | | | | | | | | | | | | $10,250.00 |
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| October 5 | | | | | @ | $10.00 | = | $0.00 | 50 | @ | $10.00 | = | $500.00 |
| | | | | @ | $15.00 | = | 0.00 | 50 | @ | $15.00 | = | 750.00 |
| | | | 430 | @ | $20.00 | = | 8,600.00 | 20 | @ | $20.00 | = | 400.00 |
| | | | | | | | $8,600.00 | | | | | $1,650.00 |
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| October 26 | 100 | @ | $25.00 | | | | | | 50 | @ | $10.00 | = | $500.00 |
| | | | | | | | | 50 | @ | $15.00 | = | 750.00 |
| | | | | | | | | 20 | @ | $20.00 | = | 400.00 |
| | | | | | | | | 100 | @ | $25.00 | | 2,500.00 |
| Totals | | | | | | | | $14,600.00 | | | | | $4,150.00 |
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8.
Compute the gross margin for FIFO method.
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| FIFO: | |
| Sales revenue | $35,200 |
| Less: Cost of goods sold | 13,850 |
| Gross margin | $21,350 |
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Compute the gross margin for LIFO method.
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| LIFO: | |
| Sales revenue | $35,200 |
| Less : Cost of goods sold | 14,600 |
| Gross margin | $20,600 |
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Explanation:
| FIFO Gross margin |
| Sales revenue (880 units sold × $40 selling price) = $35,200 |
| LIFO Gross margin |
| Sales revenue (880 units sold × $40 selling price) = $35,200 |
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9.
Hemming Co. reported the following current-year purchases and sales for its only product.
| Date | Activities | Units Acquired at Cost | Units Sold at Retail |
| Jan. | 1 | | Beginning inventory | | 200 | units | @ $10 | = | $ | 2,000 | | | | | |
| Jan. | 10 | | Sales | | | | | | | | | 150 | units | @ $40 | |
| Mar. | 14 | | Purchase | | 350 | units | @ $15 | = | | 5,250 | | | | | |
| Mar. | 15 | | Sales | | | | | | | | | 300 | units | @ $40 | |
| July | 30 | | Purchase | | 450 | units | @ $20 | = | | 9,000 | | | | | |
| Oct. | 5 | | Sales | | | | | | | | | 430 | units | @ $40 | |
| Oct. | 26 | | Purchase | | 100 | units | @ $25 | = | | 2,500 | | | | | |
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| | | | Totals | | 1,100 | units | | | $ | 18,750 | | 880 | units |
Required:
Hemming uses a perpetual inventory system. Assume that ending inventory is made up of 45 units from the March 14 purchase, 75 units from the July 30 purchase, and all 100 units from the October 26 purchase. Using the specific identification method, calculate the following.
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| a) Cost of Goods Sold using Specific Identification |
| Available for Sale | Cost of Goods Sold | Ending Inventory |
| Date | Activity | Units | Unit Cost | Units Sold | Unit Cost | COGS | Ending Inventory Units | Unit Cost | Ending Inventory Cost |
| Jan. 1 | Beginning Inventory | 200 | $10.00 | 200 | $10.00 | $2,000 | | $10.00 | $0 |
| Mar. 14 | Purchase | 350 | $15.00 | 305 | $15.00 | 4,575 | 45 | $15.00 | 675 |
| July 30 | Purchase | 450 | $20.00 | 375 | $20.00 | 7,500 | 75 | $20.00 | 1,500 |
| Oct. 26 | Purchase | 100 | $25.00 | | $25.00 | 0 | 100 | $25.00 | 2,500 |
| | 1,100 | | 880 | | $14,075 | 220 | | $4,675 |
| | | | | | | | | |
| b) Gross Margin using Specific Identification |
| Sales | $35,200 | |
| Less: | Cost of goods sold | (14,075) |
| Equals: | Gross margin | $21,125 |
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10.
Cruz Company uses LIFO for inventory costing and reports the following financial data. It also recomputed inventory and cost of goods sold using FIFO for comparison purposes.
| 2015 | | 2014 |
| LIFO inventory | $ | 160 | | $ | 110 |
| LIFO cost of goods sold | | 740 | | | 680 |
| FIFO inventory | | 240 | | | 110 |
| FIFO cost of goods sold | | 660 | | | 645 |
| Current assets (using LIFO) | | 220 | | | 180 |
| Current liabilities | | 200 | | | 170 |
Required:
| 1. |
Compute its current ratio, inventory turnover, and days' sales in inventory for 2015 using (a) LIFO numbers and (b) FIFO numbers.
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| (a) Compute its current ratio, inventory turnover, and days' sales in inventory for 2015 using LIFO numbers. |
| Numerator | / | Denominator | = | Ratio | |
| Current ratio | $220.0 | / | $200.0 | = | 1.1 | to 1 |
| Inventory turnover | $740.0 | / | $135.0 | = | 5.5 | times |
| Days' sales in inventory | $160.0 | / | $740.0 | x 365 = | 78.9 | days |
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| (b) Compute its current ratio, inventory turnover, and days' sales in inventory for 2015 using FIFO numbers. |
| Numerator | / | Denominator | = | Ratio | |
| Current ratio | $300.0 | / | $200.0 | = | 1.5 | to 1 |
| Inventory turnover | $660.0 | / | $175.0 | = | 3.8 | times |
| Days' sales in inventory | $240.0 | / | $660.0 | x 365 = | 132.7 | days |
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