Assignment: Chap7_HW_CNOW 1. Blueprint Problem: Perpetual Average Cost Inventory Valuation Basics Income measurement and asset valuation are two concepts at the core of accounting. Recall that the matching principle requires that costs incurred to generate revenue should be recognized in the same period that the revenue is earned. For most merchandising companies, the cost and control of inventory is the focal point of the operation. Inventory valuation applies to many companies. Thinking about this lesson, choose which companies below might benefit from inventory valuation. Company Type 1. a law firm   _________________   2. an electronics company   _________________   3. a car dealership   _________________   4. a textbook company   _________________   Inventory Systems and Costing Methods Inventory systems and inventory costing methods must be understood for proper inventory valuation and measurement. The two basic systems of accounting for merchandise inventory are the perpetual inventory system and the periodic inventory system. Under the perpetual inventory system, continuous records are kept of the quantity and, usually, the cost of individual items as they are bought and sold. Under the periodic inventory system, the inventory not yet sold, or on hand, is counted periodically. This physical count is usually taken at the end of the accounting period. What type of inventory tracking system is in use when changes in inventory are immediately displayed on the balance sheet?   _________________   "Goods Flow" versus "Cost Flow" The term "goods flow" refers to the PHYSICAL MOVEMENT of inventory through the operations of the business. In most business, we try to sell our oldest merchandise first. The term "cost flow" refers to the COST associated with the assumed flow of merchandise (i.e. how much of the cost is allocated to to the items sold and how much is allocated to the unsold ending inventory). An accounting issue arises when identical units of merchandise are acquired at different unit costs during a period. In such cases, when an item is sold, it is necessary to determine its cost using a cost flow assumption and related inventory costing method. Does the "cost flow" method need to be the same as as the physical "goods flow"?   _________________   Different valuation methods produce significantly different values for cost of merchandise sold and subsequent inventory levels. This means that the choice of inventory valuation method can have a significant effect on a company's financial position. Although the implications are far reaching, the two items most directly and immediately affected by the choice of inventory valuation method are cost of merchandise sold on the   _________________   and inventory on the   _________________   . The following formula illustrates the relationship between the cost of merchandise sold and the ending inventory. The part of the cost of merchandise available for sale is allocated to the co.

1. Assignment:
Chap7_HW_CNOW
1.
Blueprint Problem: Perpetual Average Cost
Inventory Valuation Basics
Income measurement and asset valuation are two concepts at the
core of accounting. Recall that the matching principle requires
that costs incurred to generate revenue should be recognized in
the same period that the revenue is earned. For most
merchandising companies,
the cost and control of
inventory
is the focal point of the operation. Inventory valuation applies
to many companies. Thinking about this lesson, choose which
companies below might benefit from
inventory valuation.
Company Type
1. a law firm
_________________
2. an electronics company
_________________
3. a car dealership
_________________
4. a textbook company
_________________
Inventory Systems and Costing Methods
Inventory systems
and
inventory costing methods
must be understood for proper inventory valuation and
measurement. The two basic systems of accounting for
merchandise inventory are the perpetual inventory system and
the periodic inventory system. Under the perpetual inventory
system, continuous records are kept of the quantity and, usually,

2. the cost of individual items as they are bought and sold. Under
the periodic inventory system, the inventory not yet sold, or on
hand, is counted periodically. This physical count is usually
taken at the end of the accounting period.
What type of inventory tracking system is in use when changes
in inventory are immediately displayed on the balance sheet?
_________________
"Goods Flow" versus "Cost Flow"
The term "goods flow" refers to the PHYSICAL MOVEMENT
of inventory through the operations of the business. In most
business, we try to sell our oldest merchandise first. The term
"cost flow" refers to the COST associated with the assumed
flow of merchandise (i.e. how much of the cost is allocated to to
the items sold and how much is allocated to the unsold ending
inventory). An accounting issue arises when identical units of
merchandise are acquired at different unit costs during a period.
In such cases, when an item is sold, it is necessary to determine
its cost using a cost flow assumption and related inventory
costing method. Does the "cost flow" method need to be the
same as as the physical "goods flow"? _________________
Different valuation methods produce significantly different
values for
cost of merchandise sold
and subsequent inventory levels. This means that the choice of
inventory valuation method can have a significant effect on a
company's financial position.
Although the implications are far reaching, the two items most
directly and immediately affected by the choice of inventory
valuation method are cost of merchandise sold on the
_________________ and inventory on the
_________________ .
The following formula illustrates the relationship between the
cost of merchandise sold and the ending inventory. The part of
the cost of merchandise available for sale is allocated to the
cost of merchandise sold for the inventory that is sold and the
value of the unsold inventory is assigned to the ending

3. inventory. Therefore, a change in the amount of the cost of
merchandise will impact the value of the ending inventory.
Beginning inventory
+
Purchases
=
Cost of merchandise available for sale
-
Cost of merchandise sold
=
Ending Inventory
How would an inventory valuation method that results in higher
cost of merchandise sold for the current period affect the
following items?
1.
Ending Inventory
_________________
2.
Revenue
_________________
3.
Net Income
_________________
4.
Total Expenses
_________________
Choosing a Valuation Method
There are four costing methods: specific identification; first-in,
first-out (FIFO); last-in, first-out (LIFO); and
average cost
. To better understand the average cost method, imagine
beginning inventory and each purchase as separate layers. These
layers determine the cost of merchandise available for sale. A
physical inventory is taken, and cost of goods available for sale
is then allocated to cost of merchandise sold and ending

4. inventory.
Imagine that you are an external consultant for Portsmouth Co.,
a company trying to determine the most appropriate inventory
valuation method for its operations. Its cost of inventory has
been fluctuating up and down all year, so Portsmouth Co.'s
primary goals are to minimize the effects of the cost
fluctuations on its figures for cost of merchandise sold, without
spending too much money. The available options are
FIFO
,
LIFO
,
average cost
, and
specific identification
.
Given Portsmouth Co.'s unique needs, which method would you
recommend?
_________________
Applying Average Cost
Click here
to review an illustrated example of the average cost calculation.
The key is to compute a new average cost after each purchase.
You will now put the average cost method into practice.
Portsmouth Co. would like to explore what is meant by the
weighted average cost per unit, a concept that is central to this
method of inventory valuation. Remember, the weighted average
must be adjusted with each purchase. Also, as sales occur,
previous inventory values must be bundled to keep track of
inventory on hand and to accurately track subsequent additions
to inventory.
The data for Portsmouth Co. is below for the month of
November.

5. Portsmouth Co.'s inventory data for November
Date
Description
Units Purchased at Cost
Units Sold at Retail
Nov. 1
Beg. Inv.
500 units @ $12 = $6,000
4
Purchase 1
200 units @ $12 = $2,400
7
Sale 1
420 @ $41
12
Purchase 2
600 units @ $10 = $6,000
15
Purchase 3
700 units @ $3 = $2,100
23
Sale 2
350 @ $41
Complete the schedule below. Remember, the weighted average
must be adjusted with each purchase. Also, as sales occur,
previous inventory values must be bundled to keep track of
inventory on hand and to accurately track subsequent additions
to inventory. Round the average cost per unit to
four decimal places

6. and total costs to the
nearest dollar.
Date
Description
Inventory Balance
Inventory Total
Weighted Average
Cost Per Unit
Cost of Goods Sold
Nov. 1
Beginning Inventory
500 x $12
= $6,000
= $12.00/unit
4
Balance forward
Purchase 1 (200 @ $12
500 x $12
200 x $12
= $6,000
= $2,400
= $ _________________ / unit

7. 7
Sale 1 (420 @ $41)
420 x $ _________________
=
= $ _________________
12
Balance forward
Purchase 2 (600 @ $10
_________________ x $ _________________
600 x $10
= $ _________________
= $6,000
= $ _________________ /unit
15
Balance forward
Purchase 3 (700 @ $3)
_________________ x $ _________________

8. 700 x $3
= $ _________________
= $2,100
= $ _________________ /unit
23
Sale 2 (350 @ $41)
350 x $ _________________
= $ _________________
End of month balance
_________________ x $ _________________
$ _________________
2.
Blueprint Problem: FIFO inventory – perpetual
Inventory and Cost of Merchandise Sold

9. Asset valuation and income measurement are two of the most
fundamental accounting concepts. For any company that sells
goods,
inventory
is a main focus. This problem concentrates on perpetual FIFO
inventory valuation.
When a company sells inventory, an expense is recorded. Which
of the following facts regarding this statement are true?
1.
The expense is recorded as “Cost of Merchandise Available for
Sale.”
_________________
2.
The
revenue recognition principle
dictates the timing.
_________________
3.
The expense appears on the balance sheet.
_________________
4.
The expense appears on the income statement.
_________________
5.
The
matching principle
dictates the time of record.
_________________
6.
The expense is recorded as
“Cost of Merchandise Sold.”
_________________
When a company purchases inventory, it is immediately
displayed on the _________________ as
_________________
The amount at which inventory is recorded is based upon the

10. _________________ .
Inventory Systems and Costing Methods
There are two concepts that must be understood for inventory
valuation and measurement:
inventory systems
and
inventory costing methods
. The two basic systems of accounting for merchandise
inventory are the perpetual inventory system and the periodic
inventory system. Under the perpetual inventory system,
continuous records are kept of the quantity and, usually, the
cost of individual items as they are bought and sold. Under the
periodic inventory system, the inventory not yet sold, or on
hand, is counted periodically. This physical count is usually
taken at the end of the accounting period.
What type of inventory tracking system is in use when changes
in inventory are immediately displayed on the balance sheet?
_________________
"Goods Flow" versus "Cost Flow"
The term "goods flow" refers to the PHYSICAL MOVEMENT
of inventory through the operations of the business. In most
business, we try to sell our oldest merchandise first. The term
"cost flow" refers to the COST associated with the assumed
flow of merchandise (i.e. how much of the cost is allocated to to
the items sold and how much is allocated to the unsold ending
inventory). An accounting issue arises when identical units of
merchandise are acquired at different unit costs during a period.
In such cases, when an item is sold, it is necessary to determine
its cost using a cost flow assumption and related inventory
costing method. Does the "cost flow" method need to be the
same as as the physical "goods flow"? _________________
First-in, First-out (FIFO)
There are four costing methods: specific identification; first-in,
first-out (FIFO); last-in, first-out (LIFO); and average cost.
This example will focus on FIFO. Under the first-in, first-out
(FIFO) inventory cost flow method, the first units purchased are

11. assumed to be sold and the ending inventory is made up of the
most current purchases.
To better understand the FIFO method, imagine that beginning
inventory and each purchase is a separate layer. These layers
determine the cost of goods available for sale. For each sale,
start with the earliest purchase (which may be beginning
inventory) and work forward until you have accounted for the
units sold.
Using FIFO, we assume the costs of the _________________
items we purchased are assigned to the first items we sell.
Therefore, the the most recent costs are assigned to the
_________________ while the _________________ will
consists of costs the beginning inventory and earlier purchases.
According to
GAAP
, there are three acceptable ways in which a publicly traded
company may value inventory. They are
FIFO
,
LIFO
, and average cost. In the period below, which of the
components in the cost of merchandise sold calculation would
be affected by a
current period change
in inventory valuation method (i.e. switching from LIFO to
FIFO)?
Beginning inventory
_________________
+ Purchases
_________________
Cost of merchandise available for sale
_________________
– Cost of merchandise sold
_________________
Ending inventory

12. _________________
FIFO Inventory Calculation
Click here
to review an illustrated example of the FIFO calculation. The
steps illustrated in the example are recapped below.
1. Start with beginning inventory.
2. Add a layer for each purchase made.
3. Record cost of merchandise sold as sales occur and adjust
layers.
4. Compute the ending inventory for the period.
Below is the data for the month of January, 2011.
1/1 Beg. Inv.
220 Units @ $9
1/8 Purchase
120 Units @ $11
1/14 Sale
176 Units
1/22 Purchase
150 Units @ $9
1/25 Sale
104 Units
Compute the FIFO layers amounts for the cost of merchandise
available for sale after each purchase and sale.
After 1/8 Purchase
Layer 1 _________________ units $ _________________
price per unit $ _________________ value of the layer
Layer 2 _________________ units $ _________________
price per unit $ _________________ value of the layer
After 1/14 Sale
Layer 1 _________________ units $ _________________
price per unit $ _________________ value of the layer
Layer 2 _________________ units $ _________________
price per unit $ _________________ value of the layer
After 1/22 Purchase
Layer 1 _________________ units $ _________________
price per unit $ _________________ value of the layer

13. Layer 2 _________________ units $ _________________
price per unit $ _________________ value of the layer
Layer 3 _________________ units $ _________________
price per unit $ _________________ value of the layer
After 1/25 Sale
Layer 1 _________________ units $ _________________
price per unit $ _________________ value of the layer
Layer 2 _________________ units $ _________________
price per unit $ _________________ value of the layer
Layer 3 _________________ units $ _________________
price per unit $ _________________ value of the layer
Based on your answers above, complete the worksheet below.
FIFO Inventory Worksheet for Month Ending January 2011
Purchases
Cost of Merchandise Sold
Inventory Balance
1/1 Beg. Inv.
220 Units @ $9
1,980
1/8 Purchase
120 Units @ $11
$ _________________
$ _________________
1/14 Sale
176 Units
$ _________________
$ _________________
1/22 Purchase

14. 150 Units @ $9
$ _________________
$ _________________
1/25 Sale
104 Units
$ _________________
$ _________________
Total
$ _________________
$ _________________
$ _________________
Recording Changes in Inventory under FIFO Valuation
Under the perpetual system, two journal entries are are required
to record sales; one to record the sale and one to record the cost
of merchandise sold. Click on the links below to review the
journal entries for purchases and sales transactions.
Purchase
Sales
After a purchase or sale occurs, the transaction must be
recorded or journalized. In the following journal, record the
purchases and sales for the month assuming that all inventory
purchases were made with cash and all sales were made on
account at a fixed unit price of $22 per unit. There are several
facts to remember:
(1) All inventory is purchased with cash, and cash only.
(2) All sales are made on account, and on account only.
(3) When recording sales, record the revenue portion of the

15. transaction first.
Not sure about the account title? Click here to view the chart of
accounts.
+
Assets
+
Liabilities
+
Equity
+
Revenues/Gains
+
Expenses/Losses
GENERAL JOURNAL
page
DATE
DESCRIPTION
DOC.
NO.
POST.
REF.
DEBIT
CREDIT

16. 1
Jan.
08
1
2
2
3

17. 3
4
Jan. 14 Record revenue
4
5

18. 5
6
6
7
Jan. 14 Record cost

19. 7
8
8
9
9

20. 10
Jan.
22
10
11
11
12

21. 12
13
Jan. 25 Record revenue
13
14

22. 14
15
15
16
Jan. 25 Record cost

23. 16
17
17
18
18

24. 3.
Blueprint Problem: LIFO inventory - perpetual
Inventory and Cost of Merchandise Sold
Asset valuation and income measurement are two of the most
fundamental accounting concepts. For any company that sells
goods,
inventory
is a main focus. This problem concentrates on perpetual LIFO
inventory valuation
.
When a company records a sale, it is displayed on the
_________________ as _________________ . The amount
at which sold inventory is expensed depends on the
_________________ . The inventory remaining must be
properly valued so that it can be reported on the
_________________ in the _________________ section.
Why isn't an expense recorded for inventory when it is
purchased instead of when it is sold?
_________________
In order to determine the amounts to be reported on the balance
sheet and income statement, you must first understand the
relationship between the
cost of merchandise sold
and ending inventory. This relationship is expressed in the
cost of merchandise sold model
.

25. Use the selection lists to build the cost of merchandise sold
model.
1.
_________________
2.
_________________
3.
Cost of merchandise available for sale
4.
- Ending Inventory
5.
_________________
Based on the cost of merchandise sold formula, the ending
inventory can be computed by subtracting the
_________________ from the _________________
Inventory Systems and Costing Methods
There are two concepts that must be understood for inventory
valuation and measurement:
inventory systems
and
inventory costing methods
. The two basic systems of accounting for merchandise
inventory are the perpetual inventory system and the periodic
inventory system. Under the _________________ inventory
system, continuous records are kept of the quantity and, usually,
the cost of individual items as they are bought and sold. Under
the _________________ inventory system, the inventory not
yet sold, or on hand, is counted periodically. This physical
count is usually taken at the end of the accounting period.
Although it is more expensive to maintain, the
_________________ system is far more accurate and up-to-
date than other inventory tracking systems.
"Goods Flow" versus "Cost Flow"
The term "goods flow" refers to the PHYSICAL MOVEMENT

26. of inventory through the operations of the business. In most
business, we try to sell our oldest merchandise first. The term
"cost flow" refers to the COST associated with the assumed
flow of merchandise (i.e. how much of the cost is allocated to to
the items sold and how much is allocated to the unsold ending
inventory). It is important to note that the "cost flow" method
_________________ be the same as the physical "goods flow".
An accounting issue arises when identical units of merchandise
are acquired at different unit costs during a period. In such
cases, when an item is sold, it is necessary to determine its cost
using a cost flow assumption and related inventory costing
method. An inventory costing method _________________
LIFO (Last-in, First-out) Costing
There are four costing methods: specific identification; first-in,
first-out (FIFO); last-in, first-out (LIFO); and average cost.
This example will focus on LIFO. Under the last-in, first-out
(LIFO) inventory cost flow method, the last units purchased are
assumed to be sold and the ending inventory is made up of the
earlier purchases.
To better understand the LIFO method, imagine that beginning
inventory and each purchase is a separate layer. These layers
determine the cost of goods available for sale. For each sale,
start with the latest purchase and work backwards until you
have accounted for the units sold.
Using LIFO, we assume the costs of the _________________
items we purchased are assigned to the first items we sell.
Therefore, the most recent costs are assigned to the
_________________ while the _________________ will
consists of costs the beginning inventory and earlier purchases.
APPLY THE CONCEPTS: LIFO inventory calculation
Click here
to review an illustrated example of the LIFO calculation. The
steps illustrated in the example are recapped below.
1. Start with beginning inventory.

27. 2. Add inventory layers as purchases are made.
3. Compute the cost of merchandise sold as sales occur. Use
only the cost of merchandise available for sale as of the sales
date.
4. Update the inventory balance after each transaction. (Be sure
you do not use an amount more than once.)
5. Determine the ending inventory for the period.
Below is the data for the month of January, 2011.
1/1 Beg. Inv.
210 Units @ $10
1/8 Purchase
100 Units @ $13
1/14 Sale
70 Units
1/22 Purchase
130 Units @ $7
1/25 Sale
150 Units
Compute the LIFO layers amounts for the cost of merchandise
available for sale after each purchase and sale.
After 1/8 Purchase
Layer 1 _________________ units $ _________________
price per unit $ _________________ value of the layer
Layer 2 _________________ units $ _________________
price per unit $ _________________ value of the layer
After 1/14 Sale
Layer 1 _________________ units $ _________________
price per unit $ _________________ value of the layer
Layer 2 _________________ units $ _________________
price per unit $ _________________ value of the layer
After 1/22 Purchase
Layer 1 _________________ units $ _________________
price per unit $ _________________ value of the layer
Layer 2 _________________ units $ _________________

28. price per unit $ _________________ value of the layer
Layer 3 _________________ units $ _________________
price per unit $ _________________ value of the layer
After 1/25 Sale
Layer 1 _________________ units $ _________________
price per unit $ _________________ value of the layer
Layer 2 _________________ units $ _________________
price per unit $ _________________ value of the layer
Based on your answers above, complete the worksheet below.
LIFO Inventory Worksheet
Transaction
Purchases
Cost of Merchandise Sold
Inventory balance
1/1 Beg. Inv.
210 Units @ $10
$2,100
1/8 Purchase
100 Units @ $13
$ _________________
$ _________________

29. 1/14 Sale
70 Units
$ _________________
$ _________________
1/22 Purchase
130 Units @ $7
$ _________________
$ _________________
1/25 Sale
150 Units
$ _________________
$ _________________
Total
$ _________________
$ _________________
$ _________________
APPLY THE CONCEPTS: Recording changes in inventory
under LIFO valuation
Under the perpetual system, two journal entries are are required
to record sales; one to record the sale and one to record the cost
of merchandise sold. Click on the links below to review the

30. journal entries for purchases and sales transactions.
Purchase
Sales
After a purchase or sale occurs, the transaction must be
recorded or journalized. In the following journal, record the
purchases and sales for the month, assuming that all inventory
purchases were made with cash and all sales were made on
account at a fixed unit price of $22 per unit. Several facts to
remember: (1) All inventory
purchases
are made with cash and cash only; (2) All
sales
are made on account and on account only; and (3) when
recording sales, Schiphol wants you to
record the revenue portion of the transaction first
.
If an amount box does not require an entry leave it blank.
Not sure about the account title? Click here to view the chart of
accounts.
+
Assets
+
Liabilities
+
Equity
+
Revenues/Gains
+
Expenses/Losses

31. GENERAL JOURNAL
page
DATE
DESCRIPTION
DOC.
NO.
POST.
REF.
DEBIT
CREDIT
1
Jan.
08
1
2

32. 2
3
3
4
Jan. 14 Record sale
4
5

33. 5
6
6
7
Jan. 14 Record cost
7
8

34. 8
9
9
10
Jan.
22

35. blank
10
11
11
12
12
13
Jan. 25 Record sale

36. 13
14
14
15
15
16
Jan. 25 Record cost

37. 16
17
17
18
18

38. 4.
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Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Cost Flow Methods
Three identical units of Item JC07 are purchased during July, as
shown below.
Item JC07
Units
Cost
July 9
Purchase
1

39. $241
July 17
Purchase
1
244
July 26
Purchase
1
247
Total
3
$732
Average cost per unit
$244
($732 ÷ 3 units)
Assume that one unit is sold on July 31 for $349. Determine the
gross profit for July and ending inventory on July 31 using the
(a)
first-in, first-out (FIFO)
; (b)

40. last-in, first-out (LIFO)
; and (c) weighted average cost methods.
Gross Profit
Ending Inventory
a. First-in, first-out (FIFO)
$ _________________
$ _________________
b. Last-in, first-out (LIFO)
$ _________________
$ _________________
c. Weighted average cost
$ _________________
$ _________________
5.
eBook
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Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Perpetual Inventory Using

41. FIFO
Beginning inventory, purchases, and sales for Item ER27 are as
follows:
January 1
Inventory
78 units @ $21
9
Sale
53 units
13
Purchase
55 units @ $24
28
Sale
29 units
Assuming a perpetual inventory system and using the first-in,
first-out (FIFO) method, determine (a) the cost of merchandise
sold on January 28 and (b) the inventory on January 31.
a. Cost of merchandise sold on January 28
$ _________________
b. Inventory on January 31
$ _________________
6.
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42. Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Perpetual Inventory Using
LIFO
Beginning inventory, purchases, and sales for Item CZ83 are as
follows:
January 1
Inventory
110 units @ $19
5
Sale
88 units
11
Purchase
122 units @ $23
21
Sale
102 units
Assuming a perpetual inventory system and using the last-in,
first-out (LIFO) method, determine (a) the cost of merchandise
sold on January 21 and (b) the inventory on January 31.
a. Cost of merchandise sold on January 21
$ _________________

43. b. Inventory on January 31
$ _________________
7.
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Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Lower-of-Cost-or-Market Method
On the basis of the following data, determine the value of the
inventory at the lower-of-cost-or-market by applying lower-of-
cost-or-market to each inventory item, as shown in
Exhibit 9
.
Item
Inventory Quantity
Unit Cost Price
Unit Market Price
CK3J
95
$57

44. $55
VZ31
186
29
31
$ _________________
8.
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Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Effect of Inventory Errors
During the taking of its
physical inventory
on December 31, 2014, Zula Company incorrectly counted its
inventory as $266,700 instead of the correct amount of
$304,040. Indicate the effect of the misstatement on Zula's
December 31, 2014, balance sheet and income statement for the
year ended December 31, 2014.
Cost of merchandise sold

45. _________________
_________________
$ _________________
Current assets
_________________
_________________
$ _________________
Gross profit
_________________
_________________
$ _________________
Merchandise inventory
_________________
_________________
$ _________________
Net income
_________________
_________________
$ _________________
Owner's equity
_________________
_________________
$ _________________
Total assets
_________________
_________________
$ _________________
9.
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eBook
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eBook
eBook

46. eBook
Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Animated Example Exercise
Inventory Turnover
and
Number of Days' Sales in Inventory
The following financial statement data for years ending
December 31 for Gillispie Company are shown below.
2014
2013
Cost of merchandise sold
$1,276,040
$957,760
Inventories:
Beginning of year
$275,210

47. $191,990
End of year
396,390
275,210
a.
Determine the inventory turnover for 2014 and 2013. Round to
one decimal place.
Inventory Turnover
2014
_________________
2013
_________________
b.
Determine the number of days' sales in inventory for 2014 and
2013. Assume 365 days a year. Round interim calculations and
final answers to one decimal place.
Number of Days' Sales in Inventory
2014
_________________ days
2013
_________________ days
c.
Does the change in inventory turnover and the number of days'
sales in inventory from 2013 to 2014 indicate a favorable or an
unfavorable trend?

48. _________________
10.
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Perpetual Inventory Using
FIFO
Beginning inventory, purchases, and sales data for portable
DVD players are as follows:
June 1
Inventory
48 units @ $49
6
Sale
32 units
14
Purchase
24 units @ $52
19
Sale
20 units
25
Sale
10 units

49. 30
Purchase
35 units @ $56
The business maintains a perpetual inventory system, costing by
the first-in, first-out method.
Determine the cost of the merchandise sold for each sale and the
inventory balance after each sale, presenting the data in the
form illustrated in
Exhibit 3.
a.
Under FIFO, if units are in inventory at two different costs,
enter the units with the LOWER unit cost first in the Cost of
Merchandise Sold Unit Cost column and in the Inventory Unit
Cost column.
Cost of the Merchandise Sold Schedule
First-in, First-out Method
Portable DVD Players
Date
Quantity Purchased

50. Purchases Unit Cost
Purchases Total Cost
Quantity Sold
Cost of Merchandise Sold Unit Cost
Cost of Merchandise Sold Total Cost
Inventory Quantity
Inventory Unit Cost
Inventory Total Cost
June 1

51. 48
$
49
$
2,352
June 6
$

52. $
June 14
$
$

54. June 19

55. June 25

56. June 30

58. June 30
Balances
$
$
b.
Based upon the preceding data, would you expect the inventory
to be higher or lower using the
last-in, first-out method
?
_________________
11.
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