Computing Inventory Balances and Lower of Cost or Market

CheckPoint: Computing Inventory Balances and Lower of Cost or Market

·         Resource: Fundamental Accounting Principles, pp. 247–249

·         Complete Quick Study question 6-1 on p. 247 and Exercises 6-1 & 6-5 on pp. 248 & 249.

Quick Study

QS 6-1

Tevin Trader starts a merchandising business on December 1 and enters into three inventory purchases.

December 7     10 units @ 6 cost

December 14   20 units @ 12 cost

December 21   15 units @ 14 cost

Trader sells 15 units for $25 each on December 15.  Eight of the sold units are from the December 7 purchase and seven are from the December 14 purchase.  Trader uses a perpetual inventory system.  Determine the costs assigned in the December 31 ending inventory when costs are assigned based on (a) FIFO, (b) LIFO, (c) weighted average, and (d) specific identification. 

A.        390

B.         330

C.        360

D.        378

Exercises

Exercise 6-1

Lakia Corporation reported the following current year purchases and sales data for its only product.

Jan 1    Beginning Inventory                  120 units @ 6 = 720

Jan 10  Sales                                                                                        70 units @ 15

Mar 7   Purchase                                  200 units @ 5.5 = 1,100

Mar 15 Sales                                                                                        125 units @ 15

Jul 28   Purchase                                  500 units @ 5 = 2500

Oct 3   Purchase                                  375 units @ 4.4 = 1650

Oct 5   Sales                                                                                        600 units @ 15

Dec 19 Purchase                                  100 units @ 4.1 = 410

                                                            ----------------------------      -----------------

            Totals                                       1,295 units            6,380          795 units

Lakia uses a perpetual inventory system.  Ending inventory consists of 500 units, 400 from the July 28 purchase and 100 from the December 19 purchase.  Determine the cost assigned to ending inventory and to cost of good sold using (a) specific identification, (b) weighted average, (c) FIFO, and (d) LIFO.

A.        Cost of Goods sold = 3970      Cost of ending inventory = 2410

B.         Cost of Goods sold = 4030      Cost of ending inventory = 2350

C.        Cost of Goods sold = 4195      Cost of ending inventory = 2185

D.        Cost of Goods sold = 3882.5   Cost of ending inventory = 2497.5

Exercise 6-5

Lower of cost or market

Tanzy Company’s ending inventory includes the following items.  Computer the lower of cost or market for ending inventory (a) as a whole and (b) applied separately to each product

Product	Units	Cost	Market	Total cost	Total Market	Items	Whole
Helmets	22	50	54	1100	1188	1100
Bass	15	78	72	1170	1080	1080
Shoes	36	95	91	3420	3276	3276
Uniforms	40	36	36	1440	1440	1440
				7130	6984	6896	6984