2100 Solutions - CH6

Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second Canadian Edition
CHAPTER 6
Reporting and Analysing Inventory
ASSIGNMENT CLASSIFICATION TABLE
Study Objectives
Questions
Brief
Exercises
Exercises
A
Problems
B
Problems
1.
Describe the steps in

determining inventory
quantities.
1, 2, 3
1, 2
1A, 7A
1B, 7B
2.
Explain the basis of

accounting for
inventories and apply
the inventory cost flow
assumptions under a
periodic inventory
system.
4, 5, 6, 7
3, 4, 5,
12*, 13*
2A, 3A,
4A, 8A*
2B, 3B,
4B, *8B
3.
Explain the financial

statement effects of
each of the inventory
cost flow assumptions.
8, 9, 10
2A, 3A,
7A, 9A*,
10A*
2B, 3B,
7B, 9B*,
10B*
4.
Indicate the effects of

inventory errors on the
financial statements.
11, 12
4, 5
6, 7
5A, 6A
5B, 6B
5.
Explain the lower of

cost and market basis
of accounting for
inventories.
13, 14
4A
4B
6.
Calculate and interpret

inventory turnover.
15, 16, 17
7, 8
9, 10
4A, 5A, 7A 4B, 7B
7.
*Apply the inventory

cost flow assumptions
under a perpetual
inventory system
(Appendix A).
18*, 19*,
20*
9*, 10*, 11* 11*, 12*,

13*
8A*, 9A*,
10A*
8B*, 9B*,
10B*
*Note: All asterisked Questions, Exercises, and Problems relate to material contained in the
appendices to each chapter.
Solutions Manual
6-1
Chapter 6
Copyright 2004 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited
ASSIGNMENT CHARACTERISTICS TABLE

Problem
Number
Description
Difficulty
Level
Time
Allotted (min.)
Simple
30-40
1A
Identify items in inventory.
2A
Apply cost flow assumptions in periodic inventory

system, and assess financial statement effects.
Moderate
30-40
3A

system, prepare statements of earnings, and answer
questions.
Moderate
30-40
4A
Prepare journal entries for purchaser and seller using

FIFO periodic; apply lower of cost and market.
Moderate
30-40
5A
Determine effects of inventory errors.
Moderate
15-20
6A
Moderate
15-20
7A
Calculate ratios; comment on liquidity and effect of

cost flow assumptions on ratios.
Moderate
20-30
*8A
Apply average cost flow assumption in periodic and

perpetual inventory system.
Moderate
40-50
*9A
Apply cost flow assumptions in perpetual inventory

systems, and assess financial statement effects.
Moderate
40-50
*10A
Prepare journal entries under perpetual inventory

system. Assess financial statement effects.
Moderate
30-40
Simple
30-40
1B
Identify items in inventory.
2B

system and assess financial statement effects.
Moderate
30-40
3B

system, prepare statement of earnings, and answer
questions.
Moderate
30-40
4B
Prepare journal entries for purchaser and seller using

average periodic; apply lower of cost and market.
Moderate
30-40
5B
Moderate
15-20
Solutions Manual
6-2
Chapter 6
Problem
Number
6B
Description
Difficulty
Level
Moderate
Time
Allotted (min.)
15-20
7B
Calculate ratios; comment on liquidity and effect of

cost flow assumptions on ratios.
Moderate
20-30
*8B
Apply FIFO cost flow assumption in periodic and

perpetual inventory system.
Moderate
40-50
*9B
Apply cost flow assumptions in perpetual inventory

systems, and assess financial statement effects.
Moderate
40-50
*10B
Prepare journal entries under perpetual system.

Assess financial statement effects.
Moderate
30-40
Solutions Manual
6-3
Chapter 6
ANSWERS TO QUESTIONS
1. Inventoriable costs are $3,010 (invoice cost $3,000 + freight charges $70 purchase
discounts $60). The amount paid to negotiate the purchase is a buying cost that normally
is not included in the cost of inventory because of the difficulty of allocating these costs.
Buying costs are expensed in the year incurred.
2. Taking a physical inventory involves actually counting, weighing or measuring each kind
of inventory on hand. Retailers, such as hardware stores, generally have thousands of
different items to count. This is normally done when the store is closed. Tom will probably
count items and mark the quantity, description, and inventory number on prenumbered
inventory tags.
Purchased inventory in transit shipped FOB shipping point will have to be included in
inventory. Inventory that has been shipped to customers FOB destination and not
received by the customer before year-end will also have to be included in the count.
Finally, any inventory held by other retailers on consignment will have to be included in
the count as well.
3. (a) (1) The goods will be included in Janine Ltd.s inventory if the terms of sale
are FOB destination.
(2) They will be included in Fastrak Corporations inventory if the terms of sale are
FOB shipping point.
(b) Janine Ltd. should include goods shipped to a consignee in its inventory. Goods held
by Janine Ltd. on consignment should not be included in inventory
4. Actual physical flow may be impractical because many items are indistinguishable from
one another. Actual physical flow may also be inappropriate because management may
be able to manipulate net income through specific identification of items sold.
5
Because the specific identification method requires that records be kept of the original
cost of each individual inventory item it is possible to manipulate the cost of goods sold
by deliberately selecting to sell inventory items with higher or lower costs.
LIFO values the cost of goods sold at the most recent purchase price, therefore a
company could decide to buy or delay buying inventory at year-end to manipulate the
cost of goods sold.
6. (a) Average cost

(b) LIFO
(c) FIFO
Solutions Manual
6-4
Chapter 6
Questions (Continued)
7.
(1) No effect cash is not affected by inventory cost flow assumptions

(2) In a period of declining prices FIFO will produce a lower ending inventory as
inventory is valued using the most recent (lower) prices; LIFO will produce a higher
ending inventory as ending inventory is valued at the higher older prices.
(3) The cost of goods sold effect is opposite to that of ending inventory. Hence, cost of
goods sold will be higher under FIFO and lower under LIFO.
(4) Because of the effect on the cost of goods sold, net earnings will be lower under
FIFO and higher under LIFO.
8. Plato Ltd. is using the FIFO cost flow assumption of inventory costing, and York Ltd. is
using the LIFO cost flow assumption. Under FIFO, the latest goods purchased remain in
inventory. Thus, the inventory on the balance sheet should be close to current costs. The
reverse is true of the LIFO cost flow assumption. Plato Ltd. will have the higher gross
profit because cost of goods sold will include a higher proportion of goods purchased at
earlier (lower) costs.
9. Swift Corporation may experience severe cash shortages if this policy continues. All of its
net earnings is being paid out as dividends, yet some of the earnings must be reinvested
in inventory to maintain inventory levels. Some earnings must be reinvested because net
earnings is calculated with cost of goods sold based on older, lower costs while the
inventory must be replaced at current, higher costs. Because of this factor, net earnings
under FIFO are sometimes referred to as phantom profits.
10. No. Selection of an inventory cost flow assumption is a management decision made to
best match costs to revenues. However, once an assumption has been chosen, it should
be consistently applied.
11. (a) Mila Ltd.s 2004 net earnings will be understated $5,000; (b) 2005 net earnings will be
overstated $5,000; and (c) the 2005 retained earnings will be correct.
12. Assets will be understated because the items will not be included in inventory. If the
items are not in inventory, management will assume they have been sold or lost through
spoilage or theft. If the items are not in the inventory they will be expensed and therefore
the shareholders equity will also be understated. Liabilities will not be affected.
13. Lucy should know the following:
(a) A departure from the cost basis of accounting for inventories is justified when the
value of the goods is no longer as great as its cost. The write down to market should
be recognized in the period in which the price decline occurs.
(b) Market means current replacement cost or net realizable value. For a merchandising
company, current replacement cost is the cost at the present time from the usual
suppliers in the usual quantities. Other companies use net realizable value, which is
the selling price less the purchase cost and any disposal costs.
Solutions Manual
6-5
Chapter 6
Questions (Continued)
14. Rock Music Centre should report the CD players at $320 each for a total of $1,600. $320
is the net realizable value under the lower of cost and market basis of accounting for
inventories. A decline in replacement cost recognizes losses as soon as they are evident
so as not to impact decision making unfavourably. Valuation at LCM is conservative.
15. Agree. Effective inventory management is frequently the key to successful business
operations. Management attempts to maintain sufficient quantities and types of goods to
meet expected customer demand. It also seeks to avoid the cost of carrying inventories
that are clearly in excess of anticipated sales.
16. An inventory turnover ratio that is too high may indicate that the company is losing sales
opportunities because of inventory shortages. Inventory outages may also cause
customer ill will and result in lost future sales.
17. An increase in the days in inventory ratio from one year to the next would be seen as
deterioration in the companys efficiency in managing inventory. It means that more
inventory is being held relative to sales.
18. Periodic and perpetual inventory systems differ in the accounting treatment for
inventories. Under a perpetual inventory system inventory records are updated for every
purchase and sale transaction. The cost of goods sold is recorded each time a sale is
made. Under a periodic system, the inventory is only updated at the end of the period
when a physical inventory count is performed. Inventory purchases throughout the year
are debited to a purchases account. When a sale is recorded, no entry is made to
record the cost of the sale. Cost of goods sold is calculated separately after the physical
inventory count is performed.
*19. Disagree. The results under the FIFO cost flow assumption are the same but the results
under the LIFO cost flow assumption are different. The reason is that the pool of
inventoriable costs (costs of goods available for sale) is not the same. Under a periodic
system, the pool of costs is the goods available for sale for the entire period, whereas
under a perpetual system, the pool is the goods available for sale up to the date of sale.
*20. In a periodic system, the average is a weighted average based on total goods available
for sale for the period. In a perpetual system, the average is a moving average of goods
available for sale after each purchase.
Solutions Manual
6-6
Chapter 6
SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 6-1
(a) Ownership of the goods belongs to the consignor (Helgeson). Thus, these goods should
be included in Helgesons inventory.
(b) Goods held on consignment belong to the other company and should not be included in
Helgesons inventory.
(c) The goods being held belong to the customer. They should not be included in Helgesons
inventory.
(d) The goods in transit should not be included in the inventory count because ownership by
Helgeson does not occur until the goods reach the buyer.
(e) The goods in transit belong to the customer because ownership transferred at the point
of shipping. They should not be included in Helgesons inventory.
BRIEF EXERCISE 6-2
Beginning inventory
Purchases (300@$6 + 400@$7 +300@$8)
Goods available for sale
Goods sold
Ending inventory
Units
0
1,000
1,000
(600)
400
Dollars
$
0
7,000
$7,000
(a) FIFO
Cost of Goods Sold: (300 x $6) + (300 x $7) = $3,900
Ending Inventory: (300 x $8) + (100 x $7)
= 3,100
Total
$7,000
(b) Weighted Average
Weighted Average Cost = $7,000 1,000 = $7
Cost of Goods Sold: 600 x $7 = $4,200
Ending Inventory: 400 x $7
= 2,800
Total
$7,000
(c) LIFO
= 2,500
Total
$7,000
Solutions Manual
6-7
Chapter 6
BRIEF EXERCISE 6-3

(a) LIFO. The ending inventory is valued at the earlier, higher costs.
(b) FIFO. The cost of goods is valued using the earlier, higher costs.
(c) Cash flow is not affected by the inventory cost flow assumptions, therefore the pretax
income will be the same under all assumptions.
(d) The factor that management should consider when choosing an inventory cost flow
assumptions is which assumption results in the fairest matching of costs to revenues.
BRIEF EXERCISE 6-4
The overstatement of ending inventory caused cost of goods sold to be understated $7,000
and net earnings to be overstated $7,000. The correct net earnings for 2004 is $83,000
($90,000 - $7,000).
Total assets in the balance sheet will be overstated by the amount that ending inventory is
overstated, $7,000.
BRIEF EXERCISE 6-5
Assets
Liabilities
Shareholders Equity
2004
Understated
No effect
Understated
2005
No effect
No effect
No effect
BRIEF EXERCISE 6-6

Inventory Categories
Cameras
Camcorders
VCRs
Total valuation
Cost
$12,000
.9,000
14,000
$35,000
Market
$10,200
9,500
12,800
$32,500
The lower of cost and market is $32,500.
Solutions Manual
6-8
Chapter 6
BRIEF EXERCISE 6-7

Inventory Turnover Ratio:
Days in Inventory:
$2,592
5.6 times
($478 $438) 2
365 days
65 days
5.6
BRIEF EXERCISE 6-8

(a)
Increase
(b) Decrease
(c) No effect
*BRIEF EXERCISE 6-9
(1) FIFO
Date
May 7
June 1
July 28
Purchases
Cost of Goods Sold
50 @ $10 = $500
30 @ $10 = $300
30 @ $15 = 450
August 27
Total
GAS
20 @ $10
13 @ $15 = 395
$950 CGS
$695
Balance
50 @ $10 = $500
20 @ $10 = 200
20 @ $10
30 @ $15 = 650
17 @ $15 = 255
EI
$255
(2) Average Cost

Date
May 7
June 1
July 28
August 27
Total
Purchases
Cost of Goods Sold
50 @ $10 = $500
30 @ $10 = $300
30 @ $15 = 450
33 @ $13 = 429
GAS
$950 CGS
$729
Balance
50 @ $10 = $500
20 @ $10 = 200
50 @ $13 = 650
17 @ $13 = 221
EI
$221
Solutions Manual
6-9
Chapter 6
*BRIEF EXERCISE 6-10

Beginning inventory
Purchases (300 @ $6 + 400 @ $7 + 300 @ $8)
Goods available for sale
Goods sold
Ending inventory
Units
0
1,000
1,000
(600)
400
Dollars
$
0
7,000
$7,000
(a) FIFO
Cost of Goods Sold: (200 x $6) + [(100 x $6) + (300 x $7)] = $3,900
= 3,100
Total
$7,000
(b) Moving Average
Cost of Goods Sold: (200 x $6) + (400 x $6.80 1) = $3,920
Ending Inventory: 400 x $7.702
= 3,080
Total
$7,000
1
2
(100 x $6) + (400 x $7) = $3,400; $3,400 500 = $6.80

(100 x $6.80) + (300 x $8) = $3,080; $3,080 400 = $7.70
(c) LIFO
= 3,000
Total
$7,000
Solutions Manual
6-10
Chapter 6
*BRIEF EXERCISE 6-11

(a) FIFO Periodic
Date
Jan.
Account Titles and Explanation

1
No entry required
Accounts Receivable..............................................
Sales .............................................................
2,500
Purchases...............................................................
Accounts Payable..........................................
4,000
Cash........................................................................
Sales..............................................................
6,400
9
15
(b)
Credit
2,500
4,000
6,400
FIFO Perpetual
Date
Jan.
Debit
Debit
No entry required
Accounts Receivable..............................................
Sales .............................................................
2,500
Cost of Goods Sold................................................

Merchandise Inventory..................................
1,500
Merchandise Inventory...........................................
Accounts Payable..........................................
4,000
Cash.......................................................................
Sales..............................................................
6,400
Cost of Goods Sold (200 @ $3 + 600 @ $4).........

Merchandise Inventory..................................
3,000
9
15
Credit
2,500
1,500
4,000
6,400
3,000
Solutions Manual
6-11
Chapter 6
SOLUTIONS TO EXERCISES
EXERCISE 6-1
(a) Do not include Shippers does not own items held on consignment
(b) Include in inventory Shippers still owns the items as they were only shipped on
consignment.
(c) Include in inventory Shipping terms FOB destination means that Shippers 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. Shippers Ltd should record this amount as a
sale on the statement of earnings.
(e) Do not include in inventory Because the shipping terms are FOB destination, Shippers
does not own the supplies until they arrive at Shippers premises.
(f) Include in inventory Shipping terms FOB shipping point means that ownership
transferred at the time of shipping and therefore, Shippers Ltd. owns the goods in transit.
(g) Record as supplies inventory on the balance sheet.
EXERCISE 6-2
Ending inventory Physical count.
1. No effectTitle passes to purchaser upon shipment
when terms are FOB shipping point..
2. No effectTitle does not transfer to Novotna until
goods are received
3. Add to inventory: Title passed to Novotna when
goods were shipped.
4. Add to inventory: Title remains with Novotna until
purchaser receives goods
Correct inventory..
$295,000
0
0
25,000
40,000
,$360,000
Solutions Manual
6-12
Chapter 6
EXERCISE 6-3
(a) FIFO Cost of Goods Sold
(#1012) $500 + (#1045) $450 = $950
(b) It could choose to sell specific units purchased at specific costs if it wished to impact
earnings selectively. If it wished to minimize earnings it would choose to sell the units
purchased at higher costsin which case the Cost of Goods Sold would be $950. If it
wished to maximize earnings it would choose to sell the units purchased at lower costs
in which case the cost of goods sold would be $850.
(c) I recommend they use the FIFO cost flow assumption because it provides a more
appropriate balance sheet valuation and reduces the opportunity to manipulate earnings.
(The answer may vary depending on the assumption the student chooses.)
Solutions Manual
6-13
Chapter 6
EXERCISE 6-4
(a)
FIFO
Beginning inventory (30 X $8)..................................................

Purchases
May 15 (25 X $10).........................................................
May 24 (35 X $12).........................................................
Cost of goods available for sale (90 units)...............................
Less: Ending inventory [(90 - 70) X $12]..................................
Cost of goods sold....................................................................
(b)
$240
$250
420
670
910
240
$670
Weighted Average

Purchases
May 15 (25 X $10).........................................................
May 24 (35 X $12).........................................................
Less: Ending inventory [(90 - 70) X $10.11*]...........................
$240
$250
420
670
910
202
$708
*$910.00 90 units = $10.11/unit

(c)
LIFO
Purchases
May 15 (25 X $10).........................................................
May 24 (35 X $12).........................................................
Less: Ending inventory [(90 - 70) X $8]....................................
$240
$250
420
670
910
160
$750
Solutions Manual
6-14
Chapter 6
EXERCISE 6-5
(a)
(1) FIFO
Beginning inventory (200 X $5)................................................................
Purchases
June 12 (300 X $6)...........................................................................
June 23 (500 X $7)...........................................................................
Cost of goods available for sale...............................................................
Less: Ending inventory (160 X $7)...........................................................
Cost of goods sold....................................................................................
$1,000
$1,800
3,500
5,300
6,300
1,120
$5,180
(2) Average Cost

Cost of Goods
Available for Sale
$6,300
Ending inventory
Cost of goods sold
Total Units
Available for Sale
1,000
Weighted Average
Unit Cost
$6.30
160 X $6.30 = $1,008

840 X $6.30 = $5,292 or
$6,300 $1,008 = $5,292
(3) LIFO
Cost of goods available for sale...............................................................
Less: Ending inventory (160 X $5)...........................................................
Cost of goods sold....................................................................................
$6,300
800
$5,500
(b) The FIFO cost flow assumption will produce the highest ending inventory because costs
have been rising. Under this assumption, the earliest costs are assigned to cost of goods
sold, and the latest costs remain in ending inventory.
(c) The LIFO cost flow assumption will produce the highest cost of goods sold for Lakshmi
Ltd. Under LIFO the most recent costs are charged to cost of goods sold and the earliest
costs are included in the ending inventory.
(d) The selection of a cost flow assumption does not affect cash flow. Cash flow is
determined by purchases and payments not the allocation of costs between cost of
goods sold and ending inventory.
Solutions Manual
6-15
Chapter 6
EXERCISE 6-6
(a)
Beginning inventory........................................................................
Cost of goods purchased...............................................................
Cost of goods available for sale.....................................................
Corrected ending inventory............................................................
Cost of goods sold..........................................................................
a
b
2004
$ 20,000
160,000
180,000
26,000a
$154,000
2005
$ 26,000
175,000
201,000
38,000b
$163,000
$30,000 - $4,000 = $26,000

$35,000 + $3,000 = $38,000
(b)
Inventory error for 2004 will cause 2004 cost of goods sold to be understated by $4,000,
which will cause the 2004 net earnings and retained earnings to be overstated by the same
amount. When the error reverses in 2005, cost of goods sold will be overstated and 2005
net earnings will be understated. Over the two years the error will reverse and therefore the
2005 retained earnings balance will be correct.
The $3,000 understatement of inventory in 2005 will cause the 2005 cost of goods sold to be
overstated and the 2005 net earnings and retained earnings to be understated by $3,000.
EXERCISE 6-7
(a)
Sales.............................................................................................
Cost of goods sold........................................................................
Beginning inventory...............................................................
Cost of goods purchased.......................................................
Cost of goods available for sale............................................
Ending inventory ($40,000 - $4,000).....................................
Cost of goods sold.................................................................
Gross profit...................................................................................
2004
2005
$210,000
$250,000
32,000
173,000
205,000
36,000
169,000
$ 41,000
36,000
202,000
238,000
52,000
186,000
$ 64,000
(b) The cumulative effect on total gross profit for the two years is zero as shown below:
Incorrect gross profits:
Correct gross profits:
Difference
$45,000 + $60,000 =
$41,000 + $64,000 =
$105,000
105,000
$
0
Solutions Manual
6-16
Chapter 6
EXERCISE 6-7 (Continued)

(c) Gross Profit Margin
2004
2005
Before correction
$45,000 $210,000
= 21.4%
$60,000 $250,000
= 24.0%
After correction
$41,000 $210,000
$64,000 $250,000
=19.5%
= 25.6%
(d) Dear Mr./Ms. President:

Because your ending inventory of December 31, 2004 was overstated by $4,000, your
net earnings for 2004 were overstated and net earnings for 2005 were understated by
$4,000.
In a periodic system, the cost of goods sold is calculated by deducting the cost of ending
inventory from the total cost of goods you have available for sale in the period.
Therefore, if this ending inventory figure is overstated, as it was in December 2004, the
cost of goods sold is understated and therefore net earnings will be overstated by that
amount. Consequently, this overstated ending inventory figure goes on to become the
next periods beginning inventory amount and is a part of the total cost of goods available
for sale. Therefore, the mistake repeats itself in the reverse.
The effect on the gross profit margin is significant. Before correction the margin was
21.4% in 2004 and increased 2.6% to 24.0% in 2005. After the error is corrected the
margin for 2004 is19.5% and the increase is 6.1% to 25.6% in 2005.
Thank you for allowing me to bring this to your attention. If you have any questions,
please contact me at your convenience.
Sincerely,
Solutions Manual
6-17
Chapter 6
EXERCISE 6-8
Units
Cameras:
Minolta
Canon
Light Meters:
Vivitar
Kodak
Total
Cost/Unit Total Cost

(a)
Market
Total Market
Value/Unit Value (b)
5
7
$175
150
$ 875
1,050
$160
152
$ 800
1,064
12
10
125
115
1,500
1,150
$4,575
119
135
1,428
1,350
$4,642
(c)
Cody Camera Shop should report its inventory at the lower of cost or market. In this case,
the total cost of $4,575 is lower than the market of $4,642 and therefore the inventory should
be reported on Codys financial statements at $4,575.
EXERCISE 6-9
Inventory Turnover
2002
$14,858.0
7.4 times
($2,258.0 $1,766.9) 2
2001
$12,100.1
8.2 times
($1,766.9 $1,183.7) 2
Days in Inventory
2002
2001
365
49 days
7.4 times
365
45 days
8.2 times
Solutions Manual
6-18
Chapter 6
EXERCISE 6-9 (Continued)

Gross Profit Margin
2002
2001
$19,597.0 - $14,858.0
24.2%
$19,597.0
$15,326.6 - $12,100.1
21.1%
$15,326.6
The inventory turnover ratio decreased by approximately 10% [(7.4-8.2) 8.2] from 2002 to
2001. The days in inventory increased by approximately the same amount over the same
time period. Both of these changes would be considered negative since it appears it is taking
the company longer to turn over its inventory.
Best Buys gross profit margin increased slightly from 21.1% to 24.2%. This means that Best
Buys selling prices increased faster than their cost of sales.
EXERCISE 6-10
(a) There was probably an insignificant difference between the two cost flow assumptions on
the total inventory because overall, prices may not have changed significantly. Inventory
cost flow assumptions assume that prices are rising or falling, with such a variety of
inventory items, price increases on some items may be offset by decreases on other
items causing the inventory changes between the two assumptions to be minimal.
(b) Inventory Turnover
FIFO: $191,808 $23,902
= 8.03
LIFO: $191,838 $23,752
= 8.08
(c) LIFO gives the higher inventory turnover

(d) The choice of inventory cost flow assumption is a way of matching the cost of inventory
to revenue. The actual physical movement of inventory will be the same regardless of
which cost flow assumption is adopted. Therefore, Wal-Marts inventory will turn over at
the same rate regardless which cost flow assumption is used by the company.
Solutions Manual
6-19
Chapter 6
*EXERCISE 6-11
(a) (1) FIFO
Date
Purchases
Cost of Goods Sold
Balance
June 1 BI 200 @ $5 = $1,000
200 @ $5 = $1,000
June 12 P 300 @ $6 = $1,800
200 @ $5
300 @ $6 = $2,800
June 15
200 @ $5
200 @ $6 = $2,200 100 @ $6 =
$600
June 23 P 500 @ $7 = $3,500
100 @ $6
500 @ $7 = $4,100
June 27
100 @ $6
340 @ $7 = $2,980 160 @ $7 = $1,120
Total
GAS
$6,300 CGS
$5,180 EI
$1,120
(a) (2) Average Cost
Date
June 1
June 12
June 15
June 23
June 27
Total
Purchases
BI 200 @ $5 = $1,000
P 300 @ $6 = $1,800
Cost of Goods Sold

400 @ $5.60 = $2,240
P 500 @ $7 = $3,500
GAS
$6,300
440 @ $6.77 = $2,978

CGS
$5,218
Balance
200 @ $5 =
$1,000
500 @ $5.60 = $2,800
100 @ $5.60 = $560
600 @ $6.77* = $4,060
160 @ $6.77 = $1,082
EI
$1,082
* $6.766666 rounded to $6.77

(a) (3) LIFO
Date
June 1
June 12
Purchases
Cost of Goods Sold
Balance
BI 200 @ $5 = $1,000
200 @ $5 = $1,000
P 300 @ $6 = $1,800
200 @ $5
300 @ $6 = $2,800
June 15
300 @ $6
100 @ $5 = $2,300 100 @ $5 = $500
June 23 P 500 @ $7 = $3,500
100 @ $5
500 @ $7 = $4,000
June 27
440 @ $7 = $3,080 100 @ $5
60 @ $7 = $920
Total
GAS
$6,300 CGS
$5,380 EI
$920
Solutions Manual
6-20
Chapter 6
*EXERCISE 6-11 (Continued)

(b)
FIFOPeriodic
FIFOPerpetual
Cost of Goods Sold Ending Inventory

$5,180
$1,120
05,180
01,120
Weighted AveragePeriodic
Moving AveragePerpetual
05,292
05,218
01,008
01,082
LIFOPeriodic
LIFOPerpetual
05,500
05,380
800
0920
FIFO: The results do not change.

Average cost: Cost of goods sold is $74 lower and ending inventory $74 higher using a
perpetual system.
LIFO: Cost of goods sold is $120 lower and ending inventory $120 higher using a perpetual
system.
(c) The average cost is not the simple average or a weighted average because average cost
under the perpetual inventory system is referred to as a moving weighted average, which
means that the inventory cost is recalculated each time inventory is purchased.
Solutions Manual
6-21
Chapter 6
*EXERCISE 6-12
(a)
Date
Sept. 1
Purchases
(26 @ $97)
Sept. 5
FIFO
Sales
(12 @ $97)=$1,164
Sept. 12 (45 @ $102) = $4,590

Sept. 16
Balance
$2,522
(14 @ $97) = $1,358
(14 @ $97) +
(45 @ $102) =$5,948
(14 @ $97) +
(36 @ $102)=$5,030
Sept. 19 (28 @ $104) = $2,912
(9 @ $102) = $918
(9 @ $102) +
(28 @ $104) =$3,830
Cost of Goods Sold: $1,164 + $5,030 = $6,194

Ending Inventory: $3,830
Date
Sept. 1
Purchases
(26 @ $97)
Sept. 5
AVERAGE COST
Sales
(12 @ $97) = $1,164
(14 @ $97)=$1,358
(59@$100.81) a = $5,948
Sept. 12 (45 @ $102) = $4,590

Sept. 16
Balance
$2,522
(50 @ $100.81) =$5,041*
Sept. 19 (28 @ $104) $2,912
(9@ $100.81) = $907

(37@$103.22) b=$3,819
*Rounded
a
$5,948 59 = $100.81
b
$3,819 37 = $103.22
Solutions Manual
6-22
Chapter 6

(a) (Continued)
Date
Sept. 1
Purchases
(26 @ $97)
Sept. 5
LIFO
Sales
(12 @ $97)=$1,164
Sept. 12 (45 @ $102) =$4,590

Sept. 16
Balance
$2,522
(14 @ $97) = $1,358
(14 @ $97) +
(45 @ $102) = $5,948
(5 @ $97) +
(45 @ $102) =$5,075
Sept. 19 (28 @ $104) = $2,912
(9 @ $97) = $873
(9@ $97)+
(28 @ $104) =$3,785

(b)
FIFO
Beginning inventory (26 X $97)...........................................................
Purchases
Sept. 12 (45 X $102)...........................................................................
Sept. 19 (28 X $104)...........................................................................
$2,522
$4,590
2,912
Cost of goods available for sale..........................................................

Less: Ending inventory (9 @$102) + (28 @ $104).............................
Cost of goods sold..............................................................................
7,502
10,024
3,830
$6,194
AVERAGE COST
Less: Ending inventory (37 X $101.251)...........................................
$10,024
3,746
$ 6,278
$10,024 99 = $101.25
LIFO
Less: Ending inventory (26 @ $97) + (11@ $102)..........................
$10,024
3,644
$ 6,380
Solutions Manual
6-23
Chapter 6

(b) (Continued)
FIFO
Average cost
LIFO
Ending
Inventory
$3,830
$3,746
$3,644
Periodic
Cost of Goods
Sold
$6,194
$6,278
$6,380
Ending
Inventory
$3,830
$3,819
$3,785
Perpetual
Cost of Goods
Sold
$6,194
$6,205
$6,239
Solutions Manual
6-24
Chapter 6
*EXERCISE 6-13
(a)
Sept. 5 Cash
Sales
5 Cost of Goods Sold
Inventory
12 Inventory
Accounts Payable
16 Cash
Sales
16 Cost of Goods Sold
Inventory
19 Inventory
Accounts Payable
FIFO
Dr.
Cr.
02,388
02,388
01,164
01,164
04,590
04,590
09,950
09,950
05,030
05,030
02,912
02,912
Moving Average
Dr.
Cr.
02,388
02,388
01,164
01,164
04,590
04,590
09,950
09,950
05,041
05,041
02,912
02,912
LIFO
Dr.
Cr.
02,388
02,388
01,164
01,164
04,590
04,590
09,950
09,950
05,075
05,075
02,912
02,912
(b)
FIFO
Sept. 5 Cash
Sales
12 Purchases
Accounts Payable
16 Cash
Sales
19 Purchases
Accounts Payable
Dr.
02,388
04,590
09,950
02,912
Cr.
02,388
04,590
09,950
02,912
Weighted Average
Dr.
Cr.
02,388
02,388
04,590
04,590
9,950
09,950
02,912
2,912
LIFO
Dr.
02,388
04,590
09,950
2,912
Cr.
02,388
04,590
09,950
02,912
Solutions Manual
6-25
Chapter 6
SOLUTIONS TO PROBLEMS
PROBLEM 6-1A
(a) The goods should not be included in inventory as they were shipped FOB
shipping point and shipped February 26. Title to the goods transfers to the
customer February 26. Banff should have recorded the transaction in the
Sales and Accounts Receivable accounts.
(b) The amount should not be included in inventory as they were shipped FOB
destination and not received until March 1. The seller still owns the
inventory. No entry is recorded.
(c) Include $500 in inventory.
(d) Include $400 in inventory.
(e) $750 should be included in inventory as the goods were shipped FOB
shipping point. (They were received March 1assume they were shipped at
least one day prior.)
(f) The sale will be recorded on March 2. The goods should be included in
inventory at the end of February at their cost of $320.
(g) The damaged goods should not be included in inventory. They should be
recorded in a cost of goods sold (loss) account since they are not able to be
sold.
Solutions Manual
6-26
Chapter 6
PROBLEM 6-2A
(a)
Date
Feb. 1
Feb.20
May 5
Aug.12
Dec. 8
(b)
COST OF GOODS AVAILABLE FOR SALE

Explanation
Units
Unit Cost
Beginning inventory
400
$8
Purchase
700
9
Purchase
500
10
Purchase
300
11
Purchase
100
12
Total
2,000
Total Cost
$ 3,200
6,300
5,000
3,300
1,200
$19,000
FIFO
Step 1: Cost of Goods Sold
Step 2: Ending Inventory
Unit
Total
Units Cost
Cost
Date Units Unit Cost Total Cost
400
$8
$ 3,200
Aug. 12 300
$11
$3,300
700
9
6,300
Dec. 8 100
12
1,200
500
10
5,000
400
$4,500
1,600
$14,500
Average Cost
Step1: Cost of Goods Sold
Step 2:
Weighted Average Total
Units Unit Cost
Cost
1,600 $9.50* = $15,200
Ending Inventory

Units
Unit Cost
Cost
400
$9.50 =
$3,800
*$19,000 2,000 = $9.50
Solutions Manual
6-27
Chapter 6
PROBLEM 6-2A (Continued)

(b) Continued
LIFO
Unit
Total
Units Cost
Cost
100 $ 12
$ 1,200
300
11
3,300
500
10
5,000
700
9
6,300
1,600
$15,800

Date
Beg.
Units Unit Cost Total Cost

400
$8
$3,200
(c) LIFO results in the lowest inventory amount for the balance sheet, $3,200.
FIFO results in the lowest cost of goods sold for the statement of earnings,
$14,500.
Cash flow is not affected by the inventory cost flow assumption; therefore
cash flow will be the same under all three assumptions.
Solutions Manual
6-28
Chapter 6
PROBLEM 6-3A
(a)
Quarter
1
2
3
4

Explanation
Units
Unit Cost Total Cost
Beg. Inventory
15,000
$2.25
$ 33,750
Purchase
60,000
2.30
138,000
Purchase
50,000
2.50
125,000
Purchase
50,000
2.60
130,000
Purchase
70,000
2.65
185,500
Total
245,000
$612,250
FIFO: Cost of Goods Sold:

Unit Total
Units
Cost
Cost
15,000 $ 2.25 $ 33,750
60,000
2.30
138,000
50,000
2.50
125,000
50,000
2.60
130,000
50,000
2.65
132,500
225,000
$559,250
Average Cost: Cost of Goods Sold
Weighted Average
Units
Unit Cost
225,000
$2.50*
Total
Cost
=$562,500
*$612,250 245,000 = $2.50 (rounded)

LIFO: Cost of Goods Sold
Unit
Total
Units
Cost
Cost
70,000 $ 2.65 $185,500
50,000
2.60
130,000
50,000
2.50
125,000
55,000
2.30
126,500
225,000
$567,000
Solutions Manual
6-29
Chapter 6
(b)
REAL NOVELTY INC.

Condensed Statements of Earnings
Year Ended December 31, 2004
FIFO
AVERAGE
Sales...................................................... $900,000 $900,000
Cost of goods sold
Beginning inventory........................
33,750
33,750
Cost of goods purchased................
578,500
578,500
Cost of goods available for sale...... 612,250
612,250
a
Ending inventory.............................
53,000
49,750b
Cost of goods sold..........................
559,250 562,500
Gross profit.............................................
340,750
337,500
Operating expenses...............................
147,000
147,000
Earnings before income taxes................
193,750
190,500
Income tax expense...............................
60,000
60,000
Net earnings........................................... $133,750 $130,500
a
b
c
LIFO
$900,000
33,750
578,50
612,250
45,250c
567,000
333,000
147,000
186,000
60,000
$126,000
20,000 x $2.65 = $53,000

20,000 x $2.50 = $49,750 (adjusted for rounding errors)
(15,000 x $2.25) + (5,000 x $2.30) = $45,250
Solutions Manual
6-30
Chapter 6

(c) Dear Real Novelty Inc.
After preparing the comparative condensed statement of earnings for the
year ended December 31, 2004 under the FIFO, average cost, and LIFO
cost flow assumptions, we have found the following:
1. The FIFO cost flow assumption produces the most meaningful
inventory amount for the balance sheet because the units are costed at
the most recent purchases. This assumption is most likely to
approximate actual physical flow because the oldest goods are usually
sold first to minimize spoilage and obsolescence.
2. The LIFO cost flow assumption produces the most meaningful net
earnings because the costs of the most recent purchases are matched
against sales.
3. The LIFO cost flow assumption produces the most meaningful gross
profit figure because it values the cost of goods sold at the most current
prices.
4. The FIFO cost flow assumption is most likely to approximate actual
physical flow because the oldest goods are usually sold first to minimize
spoilage and obsolescence.
5. None of the cost flow assumptions have an impact on cash flow.
Therefore cash available to management should be the same under all
assumptions.
Sincerely,
Solutions Manual
6-31
Chapter 6
PROBLEM 6-4A
(a)
Purchaser
Date
Oct.
Debit
No entry required
Purchases...................................................
Accounts Payable ...............................
1,680
Accounts Receivable..................................
Sales....................................................
5,250
Sales Returns and Allowances...................

Accounts Receivable...........................
875
Purchases...................................................
Accounts Payable ...............................
910
Accounts Payable.......................................
Purchase Returns and Allowances......
65
Sales....................................................
2,250
11
13
17
22
29
(b)
Seller
Credit
1,680
5,250
875
910
65
2,250
Pataki Inc.General Journal
Date
Oct.
Schwinghamer Inc.General Journal
9
17
22
Debit
Sales....................................................
1,680
Sales....................................................
910

Accounts receivable............................
65
Credit
1,680
910
65
Solutions Manual
6-32
Chapter 6

(c)
Ending Inventory
Unit
Date
Units Cost
Oct. 17
45*
$13
Total
Cost
$585
*60 + 120 150 + 25 + 70 5 75 = 45

(d)The inventory should be valued at $540, 45 units @ $12. This is the lower of
cost and market.
(e) Inventory turnover is calculated by dividing cost of goods sold by average
inventory. Reducing the value of the inventory will increase the inventory
turnover ratio.
Solutions Manual
6-33
Chapter 6
PROBLEM 6-5A
(a) (INCORRECT)
PELLETIER INC.
Statement of Earnings
Year Ended July 31
Sales
Cost of goods sold
Beginning inventory
Purchases
Cost of goods available for sale
Ending inventory
Cost of goods sold
Gross profit
Operating expenses
Earnings before taxes
Income tax expense
Net earnings
2004
$300,000
2005
$320,000
30,000
200,000
230,000
22,000
208,000
92,000
60,000
32,000
12,000
$ 20,000
22,000
240,000
262,000
31,000
231,000
89,000
64,000
25,000
0
$ 25,000
(CORRECT)
PELLETIER INC.
For the Year Ended July 31
Sales
Cost of goods sold
Beginning inventory
Purchases
Cost of goods available for sale
Ending inventory
Cost of goods sold
Gross profit
Operating expenses
Earnings (loss) before taxes
Income tax expense
Net earnings (loss)
2004
$300,000
2005
$320,000
30,000
200,000
230,000
25,000
205,000
95,000
60,000
35,000
12,000
$ 23,000
25,000
265,000
290,000
31,000
259,000
61,000
64,000
(3,000)
0
$ (3,000)
Solutions Manual
6-34
Chapter 6

(b) Inventory turnover
(INCORRECT)
2004:
$208,000
8.0 times
($30,000 $22,000) 2
2005:
$231,000
8.7 times
($22,000 $31,000) 2
(CORRECT)
2004:
$205,000
7.5 times
($30,000 $25,000) 2
2005:
$259,000
9.3 times
($25,000 $31,000) 2
Solutions Manual
6-35
Chapter 6
PROBLEM 6-6A
2004
2005
(a)
(b)
Cost of
Net
Goods Sold
Earnings
Understate Overstated
d
Overstated Understated
(c)
Retained
Earnings
Overstated
(d)
Ending
Inventory
Overstated
(e)
Inventory
Turnover
Understated
No effect
No effect
Understated
Solutions Manual
6-36
Chapter 6
PROBLEM 6-7A
(a)
Inventory Turnover
2002
2001
Days In Inventory
$11,497
8.7 times
($1,342 $1,310) 2
$10,750
8.6 times
($1,310 $1,192) 2
Current Ratio
365
42 days
8.7 times
$6,413
1.06 : 1
$6,052
365
42.4 days
8.6 times
$5,853
1.17 : 1
$4,998
PepsiCos liquidity appears to be low. Its current ratio is just over 1:1. This
means that its current assets are just sufficient to cover its current liabilities. It
has 42 days sales in inventory, which seems reasonable and is likely normal for
the industry. The problem may be in its immediate liquidity, or its receivables.
(b)
2002
2001
2000
Raw Materials as % of
Total Inventory
$525 $1,342
= 39%
$535 $1,310
= 40.8%
$503 $1,192
= 42.2%
Work in Progress as %
of Total Inventory
$214 $1,342
= 16%
$205 $1,310
= 15.6%
$160 $1,192
= 13.4%
Finished Goods as % of
Total Inventory
$603 $1,342
= 45%
$570 $1,310
= 43.6%
$529 $1,192
= 44.4%
Pepsi Cos total inventory has increased over the past three years. However,
the company seems to be carrying a higher level of work in progress and
finished goods and fewer raw materials. It would seem that the company is
taking steps to minimize the amount of resources tied up in raw materials while
having more finished goods on hand.
(c) Slightly higher inventories would result in a small decrease in then inventory
turnover ratio. In this case however, the inventory turnover ratio increased
slightly meaning that cost of goods sold increased at a greater percentage
than the inventory.
Solutions Manual
6-37
Chapter 6
*PROBLEM 6-8A
SALES
Oct. 11
29
Total
Units
150
80
230
Unit Cost
$35
$40
Total Cost
$5,250
3,200
$8,450

Date
Oct. 1
9
22
Total
Explanation
Beginning inventory
Purchase
Purchase
00Units
60
120
70
250
Unit Cost
$25
26
27
Total Cost
$1,500
3,120
1,890
$6,510
(a) 1. Average Cost Periodic

Ending Inventory
Unit
Date
Units Cost
Oct. 31
20 $26.04*
*
Total
Cost
$521
Cost of Goods Sold

Cost of goods
available
$6,510
Less: Ending inventory
521
Cost of goods sold
$5,989
$6,510 250 = $26.04
Sales
Less: Cost of goods sold
Gross profit
$8,450
5,989
$ 2,461
Solutions Manual
6-38
Chapter 6
*PROBLEM 6-8A (Continued)

(a) (Continued)
2. Average Cost - Perpetual
Date
Oct. 1
9
11
22
29
Unit
Total
Units
Cost
Cost
60 $25.00 $1,500
120 26.00 3,120
180
4,620
(150) 25.67 (3,851)
30
769
70 27.00 1,890
100
2,659
(80) 26.59 (2,127)
20
$ 532
Sales
Less: Cost of goods sold
Gross profit
Average
Cost
$25.00
Cost of
Goods Sold
25.67
$3,851
26.59
2,127
$5,978
$8,450
5,978
$ 2,472
(b)
Gross profit
Ending inventory
Average Cost
Periodic
Perpetual
$2,461
$2,472
$ 521
$ 532
The results for the average cost flow assumption differ depending on whether a
perpetual or periodic system is used. This is because using a perpetual system
the average cost is recalculated after each purchase.
Solutions Manual
6-39
Chapter 6
*PROBLEM 6-9A
(a) (1) FIFO:
Date
Description
May 1 Purchase
Purchases
05
$90 $450
6 Sale
11 Purchase
04 0$99
396
2 90
03 99 477
03 0103
309
1 99
1 103 202
27 Sale
29 Purchase
30 Balance
2
14
106
Ending Inventory
5 $90
03 $90 $270
14 Sale
21 Purchase
CGS
212
$1,367 10
$949
0$$450
02
90
0180
2
04
90
99
0576
01
99
099
1
99
03 103
0$408
103
206
2 103
02 106
418
44
$418
Solutions Manual
6-40
Chapter 6

(a) (Continued)
(2) Average
Date
Description
May 1 Purchase
Purchases
05
04 0$99
05
03 0103
30 Balance
$90
96
106
14
480
309
2 101.25
$270
396
27 Sale
29 Purchase
5
03
14 Sale
21 Purchase
Ending Inventory
$90 $450
6 Sale
11 Purchase
CGS
202.50
212
$1,367 10
$952.50
$90 0$$$450
02
90
0180
06
96*
0576
01
96
096
04 101.25**
0$405
101.25
202.50
04 103.63***
414.50
40
, $414.50
* $576 6 = $96
** $405 4 = $101.25
*** $414.50 4 = $103.63
Solutions Manual
6-41
Chapter 6

(a) (Continued)
(3) LIFO
Date Description
May 1 Purchase
Purchases
05
$90
CGS
$450
6 Sale
11 Purchase
0$99
0103
30 Balance
0180
2
04
90
99
0576
01
90
090
1
03
90
103
0$399
1
01
90
103
193
1
01
2
90
103
106
405
$962 40
$405
309
27 Sale
29 Purchase
90
1 90
04 99 486
03
2 103 206
2
14
106
212
$1,367 10
$90 0$$$450
02
396
14 Sale
21 Purchase
5
03 $90 $270
04
Ending Inventory
Solutions Manual
6-42
Chapter 6

(b)
Because prices are rising, FIFO will produce the highest gross profit and
net earnings.
(c)
Because the ending inventory is valued using the most recent prices, the
FIFO cost flow assumption produces the highest ending inventory.
Solutions Manual
6-43
Chapter 6
*PROBLEM 6-10A
(a)
Moving
Average Cost
FIFO
Jan. 1
No entry required
(150 @ $17 = $2,550)
Inventory....................
2,100
Cash.....................
(100 @ $21 = $2,100)
6
2,100
2,100
Cash..........................
Sales.....................
(175 @ $40 = $7,000)
7,000
Cost of Goods Sold. . .

Inventory...............
3,075
00000
2,100
7,000
7,000
7,000
00
3,255
00
3,255
3,075
FIFO: (150 @ $17) +(25 @ $21)= $3,075; Balance 75 @ $21 = $1,575

Average Cost: ($2,550 + $2,100) / (150 + 100) = $18.60
175 @ $18.60 = $3,255; Balance 75 @ $18.60 = $1,395
Inventory....................
Cash.....................
(50 @ $24 = $1,200)
1,200
1,200
1,200
1,200
00
Solutions Manual
6-44
Chapter 6

(a) (Continued)
Jan.15
Cash..........................
Sales.....................
(75 @ $45 = $3,375)
3,375

Inventory...............
1,575
3,375
3,375
3,375
1,557
1,575
1,557
FIFO:(75 @ $21) = $1,575; Balance 50 @ $24 = $1200

Average Cost: ($1,395 + $1,200) (75 +50) = $20.76
75 @ $20.76 = $1,557; Balance 50 @ $20.76 = $1,038
23
(b)
Inventory....................
Cash.....................
(100 @ $28 = $2,800)
2,800
2,800
2,800
2,800
FIFO produces the higher ending inventory balance because inventory is

valued at the most recent costs.
Net cash flow will be the same under either assumption, as cash flow is
not affected by the inventory cost flow assumption used.
Gross profit will be higher under the FIFO assumption as it produces a
lower cost of goods sold because CGS is valued at the oldest (lowest)
prices.
Solutions Manual
6-45
Chapter 6
PROBLEM 6-1B
(a)
Title to the goods does not transfer to the customer until March 2. Include
the $800 in ending inventory.
(b)
Kananaskis owns the goods once they are shipped on February 26.
Include inventory of $375.
(c)
Include $500 in inventory.
(d)
Exclude the items from Kananaskis inventory. Craft Producers Ltd. still
owns the inventory.
(e)
Title of the goods does not transfer to Kananaskis until March 2. Exclude
this amount from the February 28 inventory.
(f)
The sale will be recorded on February 26. The goods (cost, $280) should
be excluded from Kananaskis inventory at the end of February.
Solutions Manual
6-46
Chapter 6
PROBLEM 6-2B
(a)

Date
Jan. 1
Mar.15
July 20
Sept. 4
Dec. 2
Explanation
Beginning inventory
Purchase
Purchase
Purchase
Purchase
Total
(b)
Units
100
300
200
300
100
1,000

$20
$ 2,000
24
7,200
25
5,000
28
8,400
30
3,000
$25,600
FIFO
Unit
Total
Units Cost
Cost
100 $ 20
$ 2,000
300
24
7,200
200
25
5,000
200
28
5,600
800
$19,800

Sept. 4 100
$28
$2,800
Dec. 2 100
30
3,000
200
$5,800
AVERAGE COST
Step1: Cost of Goods Sold
Step 2:
Ending Inventory

Units Unit Cost
Cost
800
$25.60* = $20,480

Units
Unit Cost
Cost
200
$25.60 =
$5,120
*$25,600 1,000 = $25.60
Solutions Manual
6-47
Chapter 6
PROBLEM 6-2B (Continued)

(b) (Continued)
LIFO
Unit
Total
Units Cost
Cost
100 $ 30
$ 3,000
300
28
8,400
200
25
5,000
200
24
4,800
800
$21,200

Beg.
100
$20
$ 2,000
Mar.15 100
24
2,400
200
$ 4,400
(c) FIFO results in the highest inventory amount for the balance sheet, $5,800.
LIFO results in the highest cost of goods sold for the statement of earnings,
$21,200.
Cash flow is not affected by the inventory cost flow assumption; therefore
cash flow will be the same under all assumptions.
Solutions Manual
6-48
Chapter 6
PROBLEM 6-3B
(a)
Date
May 10
Aug. 15
Nov. 20
Explanation
Beg. Inventory
Purchase
Purchase
Purchase
Total
Units
10,000
40,000
50,000
20,000
120,000
Unit Cost
$3.50
4.00
4.25
4.50
Total Cost
$ 35,000
160,000
212,500
90,000
$497,500
FIFO: Cost of Goods Sold:

Units
10,000
40,000
45,000
95,000
Unit
Cost
$3.50
4.00
4.25
Total
Cost
$ 35,000
160,000
191,250
$386,250
Average Cost: Cost of Goods Sold

Weighted Average
Units
Unit Cost
95,000
$4.15*
=
Total
Cost
$393,854
*$497,500 120,000 = $4.15 (rounded)

LIFO: Cost of Goods Sold
Units
20,000
50,000
25,000
95,000
Unit
Total
Cost
Cost
$4.50 $ 90,000
4.25
212,500
4.00
100,000
$402,500
Solutions Manual
6-49
Chapter 6

(b)
TUMATOE INC.
Condensed Statement of Earnings
Year Ended December 31, 2004
Sales
....................................................
Cost of goods sold
Beginning inventory............................
Cost of goods purchased...................
Cost of goods available for sale.........
Ending inventory................................
Cost of goods sold.............................
Gross profit................................................
Operating expenses..................................
Income before income taxes.....................
Income tax expense..................................
Net earnings..............................................
FIFO
$665,000
AVERAGE
LIFO
$665,000 $665,000
35,000
35,000
462,500
462,500
497,500
497,500
a
111,250
103,646b
386,250
393,854
278,750
271,146
120,000
120,000
158,750
151,146
50,000
50,000
$108,750 $101,146
35,000
462,500
497,500
95,000c
402,500
262,500
120,000
142,500
50,000
$ 92,500
(20,000 @ $4.50) + (5,000 @ $4.25) = $111,250

(25,000 @ $497,500 120,000) = $103,646
c
(10,000 @ $3.50) + (15,000 @ $4.00) = $95,000
b
Solutions Manual
6-50
Chapter 6

(c) Dear Tumatoe Inc.
After preparing the comparative condensed statement of earnings for the
year ended December 31, 2004 under the FIFO, average cost, and LIFO
cost flow assumptions, we have found the following:
1. The FIFO cost flow assumption produces the most meaningful
inventory amount for the balance sheet because the units are costed at
the most recent purchases.
2. The LIFO cost flow assumption produces the most meaningful net
earnings because the costs of the most recent purchases are matched
against sales.
3. The FIFO cost flow assumption is most likely to approximate actual
physical flow because the oldest goods are usually sold first to minimize
spoilage and obsolescence.
4. None of the cost flow assumptions have an impact on cash flow.
5. The factors that management should consider when choosing an
inventory cost flow assumption is which assumption results in the fairest
matching of costs to revenues.
You should choose the cost flow assumption that best fits the nature of
your inventory items and your pattern of selling.
Sincerely,
Solutions Manual
6-51
Chapter 6
PROBLEM 6-4B
(a) Purchaser
Date
July 5
8
15
25
26
AMELIA INC.
General Journal
Purchases...................................................
Cash....................................................
Debit
540
Credit
540
Cash...........................................................
Sales....................................................
715

Cash....................................................
110
Purchases...................................................
Cash....................................................
200
Cash...........................................................
Purchase Returns and Allowances......
40
715
110
200
40
(b) Seller
KARINA INC.
General Journal
Date
July 5
July
July
25
26

Cash...........................................................
Sales....................................................
Debit
540
Cash...........................................................
Sales....................................................
200

Cash....................................................
40
Credit
540
200
40
Solutions Manual
6-52
Chapter 6

(c)
Average Cost = $950 105 = $9.05

Ending Inventory = 501 @ $9.05 = $452.50
1
25 + 60 65 + 10 + 25 - 5 = 50
(d)
Ending inventory should be valued at $350 (50 units @ $7.00) which is

the lower of cost or market.
(e)
The decline in the inventory would cause the inventory turnover ratio to
increase and therefore cause the days in inventory ratio to decrease.
Solutions Manual
6-53
Chapter 6
PROBLEM 6-5B
(a) (INCORRECT)
ALYSSA INC.
Year Ended July 31
2004
Sales .............................................................. $300,000
Cost of goods sold
Beginning inventory...................................
30,000
Purchases.................................................. 200,000
Cost of goods available for sale................. 230,000
Ending inventory........................................
22,000
Cost of goods sold..................................... 208,000
Gross profit.....................................................
92,000
Operating expenses.......................................
60,000
Earnings before taxes.....................................
32,000
Income tax expense.......................................
12,000
Net earnings .................................................. $ 20,000
2005
$320,000
22,000
240,000
262,000
31,000
231,000
89,000
64,000
25,000
10,000
$ 15,000
(CORRECT)
ALYSSA INC.
Year
Ended
2004
Sales .............................................................. $300,000
Cost of goods sold
Beginning inventory...................................
30,000
Purchases.................................................. 200,000
Cost of goods available for sale................. 230,000
Ending inventory........................................
27,000
Cost of goods sold..................................... 203,000
Gross profit.....................................................
97,000
Operating expenses.......................................
60,000
Earnings before taxes.....................................
37,000
Income tax expense.......................................
12,000
Net earnings .................................................. $ 25,000
July
31
2005
$320,000
27,000
240,000
267,000
31,000
236,000
84,000
64,000
20,000
10,000
$ 10,000
Solutions Manual
6-54
Chapter 6

(b) The impact of this error on retained earnings at July 31, 2005 is zero. The
error in the 2004 ending inventory is offset by the error in the 2005
beginning inventory. The total earnings for the two years is $35,000 in both
the incorrect and correct Statement of Earnings.
Solutions Manual
6-55
Chapter 6
PROBLEM 6-6B
2004
2005
(a)
(b)
Cost of
Net
Goods Sold
Earnings
Overstated Understated
Understate Overstated
d
(c)
Retained
Earnings
Understated
No effect
(d)
Ending
Inventory
Understated
No effect
(e)
Days in
Inventory
Overstated
Overstated
Solutions Manual
6-56
Chapter 6
PROBLEM 6-7B
(a)
Inventory Turnover
Days In Inventory
Current Ratio
2002
$129,246
365
6.2 times
59 days
($25,361 $16,539) 2
6.2 times
$131,839
1.77 : 1
$74,485
2001
$98,190
365
8.3 times
44 days
($16,539 $7,047) 2
8.3 times
$93,937
1.86 : 1
$50,529
CoolBrands current ratio declined slightly in 2002 but is still above the
industry average of 1.42:1. This indicates that CoolBrands appears to
have sufficient current assets to cover its current liabilities. However, this
may not be the case because there is a very slow moving inventory
included in this figure. In 2002 Cool Brands inventory turnover declined to
levels below that experienced by the rest of the industry. This may
indicate that the company is having trouble selling its inventory, which
could have an impact on future liquidity.
(b)
If CoolBrands were to switch to LIFO and prices are rising it would be

expected that inventory levels would be lower since inventory would now
be carried at the earlier lower costs versus the most recent costs (as is
the case under FIFO). The inventory turnover ratio should increase since
the denominator (average inventory) would be lower and the days in
inventory should decrease. The current ratio would also decrease
because current assets would be lower.
Solutions Manual
6-57
Chapter 6
*PROBLEM 6-8B
(a) (1) Perpetual Inventory System
Date Description
Purchases
Sales
CGS
Ending Inventory
June1 Beginning
inventory
10
18
Purchase
02
5
Purchase
25 $60.00
090 $90 $8,100 065 64.00 $5,660
28
30 Balance
050 0$95
20 64.00
4,750 030 68.00 3,320
$9,260 140
05
68
0340
5 68.00
02 72.00 01,780
0
02 072 1,440
0
14
0
02 64.00 01,280
0
20 64.00
03 68.00 03,660
5
03 068 2,380
5
25 Sale
Purchase
25 60.00
85 64.00 06,940
08 $64 $5,440
5
Sale
$60.0
0 $1,500
$12,850 140
$8,980
25
, $1,780
Cost of Goods Sold: $8,980

Ending Inventory:
$1,780
Solutions Manual
6-58
Chapter 6
*PROBLEM 6-8B (Continued)

(a) (Continued)
(2) Periodic Inventory System
Date
June 1
June 4
June 18
June 28
Explanation
Beginning inventory
Purchase
Purchase
Purchase
Total
Units
25
85
35
20
165

$60
$ 1,500
64
5,440
68
2,380
72
1,440
$10,760
FIFO
Units Sold = 90+50 = 140
Units in Ending inventory = 165 140 = 25
Unit
Total
Units Cost
Cost
25 $ 60
$1,500
85
64
5,440
30
68
2,040
140
$8,980
(b)

Units Unit Cost Total Cost
5
$68
$ 340
20
72
1,440
25
$1,780
The results under FIFO in a perpetual system as the same as in a

periodic system. Under both inventory systems, the first costs in
inventory are the ones assigned to the cost of goods sold.
Solutions Manual
6-59
Chapter 6
*PROBLEM 6-9B
(a) (1) FIFO
Date Description
July 1 Purchase
Purchases
06
$90
CGS
$540
6 Sale
11 Purchase
14
Ending Inventory
03 $90 $270
04
0$99
396
3
02
Sale
21 Purchase
05
30 Balance
15
0106
90
99 468
530
$1,466
$738
$90
0$$$540
03
90
0270
3
04
90
99
0666
02
99
0198
2
05
99
106
0$728
$728
Solutions Manual
6-60
Chapter 6

(a) (Continued)
(2) Average
Date Description
July 1 Purchase
Purchases
06
$90
CGS
$540
6 Sale
11 Purchase
14
Ending Inventory
03 $90.00 $270
04
0$99
396
Sale
05
21 Purchase
05
30 Balance
15
0106
95.14
476
530
$1,466
$746
$90
0$$$540
03
90
0270
07
95.14
0666
02
95.14
0190
07
102.86
0$720
$720
Solutions Manual
6-61
Chapter 6

(a) (Continued)
(3) LIFO
Date Description
July 1 Purchase
Purchases
06
$90
CGS
$540
6 Sale
11 Purchase
Ending Inventory
03 $90 $270
04
0$99
396
4
01
14 Sale
21 Purchase
05
30 Balance
15
0106
99
90
486
530
$1,466
$756
$90
0$$$540
03
90
0270
3
04
90
99
0666
02
90
0180
2
05
90
106
0$710
$710
(b) FIFO produces the highest gross profit and net earnings, because it has the
lowest cost of goods sold.
(c)
FIFO produces the highest ending inventory valuation.
Solutions Manual
6-62
Chapter 6
*PROBLEM 6-10B
(a)
Moving
Average Cost
FIFO
Jan. 1
5
No entry required
(50 @ $12= $600)
Inventory....................
1,400
Accounts Payable.
(100 @ $14= $1,400)
7
1,400
1,400
Accounts Receivable.
Sales.....................
(110 @ $25 = $7,000)
2,750

Inventory...............
1,440
00000
1,400
2,750
2,750
2,750
00
1,466
00
1,466
1,440
FIFO: (50 @ $12) + (60 @ $14)= $1,440; Balance 40 @ $14 = $560

Average Cost: ($600 + $1,400) (50 + 100) = $13.33
110 @ $13.33 = $1,466; Balance 40 @ $13.33 = $534
14
Inventory....................
Accounts Payable.
(30 @ $16 = $480)
480
480
480
480
00
Solutions Manual
6-63
Chapter 6
*PROBLEM 6-10B (Continued)

(a) (Continued)
Jan. 20 Accounts Receivable.
Sales.....................
(60 @ $25 = $1,500)
1,500

Inventory...............
880
1,500
1,500
1,500
869
880
869
FIFO:(40 @ $14) + (20 @ $16) = $880; Balance 10 @ $16 = $160

Average Cost: ($534 + $480) (40 +30) = $14.49
60 @ $14.49 = $869; Balance 10 @ $14.49 = $145
25
Inventory ..............................360
Accounts Payable.
(20 @ $18 = $360)
360
360
360
(b)
1.
Net cash flow will be the same under either assumption, as cash flow is not
affected by the inventory cost assumption used.
2.
Gross profit will be higher under the FIFO cost flow assumption as it
produces a lower cost of goods sold because cost of goods sold is valued
at the oldest (lowest) prices.
3.
FIFO produces the higher ending inventory balance because inventory is

valued at the most recent costs.
Solutions Manual
6-64
Chapter 6
BYP 6-1 FINANCIAL REPORTING PROBLEM
(Note: All dollar amounts are in millions)

(a)
Inventories were $1,702 in 2002 and $1,512 in 2001.
(b)
Inventories increased $190 in 2002. Using 2001 as the base year, the increase was
approximately 12.6% ($190 $1,512). In 2002, inventories were 48.3% of current
assets ($1,702 $3,526). In 2001 they were 49% ($1,512 $3,086).
(c)
Cost of sales is not reported separately in Loblaws statement of earnings. Cost of sales
are reported with selling and administrative expenses. Loblaw may not report it
separately because it feels it would provide competitors with valuable information.
Solutions Manual
6-65
Chapter 6
BYP 6-2 COMPARATIVE ANALYSIS PROBLEM

(a)
Loblaw
1.
Sobeys
Inventory turnover
$9,964.4
$444.0
$21,425
$1,702
2002
= 12.6 times
2003
$20,035
$1,512
2001
2.
= 13.3 times
$9,334.9
$394.6
2002
= 23.7 times
Days in inventory
365 days
22.4
365 days
12.6
2002
= 29 days
2003
365 days
13.3
2001
(b)
= 22.4 times
= 27.4 days
= 16.3 days
365 days
23.7
2002
= 15.4 days
Generally, companies that are able to keep their inventory at lower levels and higher
turnovers and still satisfy customer needs are the most successful. Both companies
inventory ratios have deteriorated in the most recent year. Sobeys inventory ratios are
better than Loblaws.
Solutions Manual
6-66
Chapter 6
BYP 6-3 RESEARCH CASE

(a)
If the inventory is no longer needed then its market value will decline. If the
companies have entered into long-term supply contracts they may be forced to
purchase the inventory at the higher contract price and then immediately write it
down because of the decline in the market price due to excess supply.
(b)
Nortels inventory write-off in 2001 was $1.1 billion.
(c)
Nortels inventory turnover in 2001 was 11.1 and 7.3 in 2000. The turnover ratio
increased in 2001 because the large inventory write down decreased the carrying
value of the inventory on the balance sheet. This caused the denominator of the
inventory turnover ratio to be less, leading to a higher inventory turnover ratio.
(d)
A danger sign to watch for concerning the carrying values of inventory is when the
inventory value is growing faster than the value of sales.
Solutions Manual
6-67
Chapter 6
BYP 6-4 INTERPRETING FINANCIAL STATEMENTS
(a)
By not valuating its inventory in excess of market Cooper is using the lower of cost or
market to value its inventory.
(b)
The company may be taking steps to better manage its inventories and reduce the
amount of working capital tied up in inventory by introducing inventory management
techniques such as reducing the need for raw materials though improving supplier
relationships or by reducing finished goods inventory by implementing better customer
ordering systems.
(c)
The company probably uses FIFO to value its nondomestic inventories due to the fact
that many countries do not permit the use of LIFO as a means of inventory valuation.
Therefore for foreign reporting it is easier to value the nondomestic inventories initially
using FIFO rather then having to convert LIFO based numbers to FIFO after the fact.
(d)
Inventory Turnover
2002
2001
$2,839,757
9.7 times
($280,641 $306,478) 2
$2,724,692
9.0 times
($306,478 $296,460) 2
Days In Inventory
365
37.6 days
9.7 times
365
40.6 days
9.0 times
The companys inventory turnover improved slightly in 2002. This companys inventory
is also turning over faster than the industry average of 6.8 times per year. This may
indicate that the company is better managing its inventory costs when compared to
other companies in the industry.
(e) If the company had used FIFO the 2002 ending inventory would have been ($280,641+
$52,336 = $332,977). This would be an immaterial difference from the perspective of
the analyst as it causes very little change in the companys inventory turnover ratios.
FIFO is a better measure of ending inventory as it values ending inventory at the most
recent purchase costs.
Solutions Manual
6-68
Chapter 6
BYP 6-5 A GLOBAL FOCUS

(a)
One reason Fuji makes adjustments is that by reporting using U.S. accounting
standards it makes it easier for U.S. investors to evaluate the company. This increases
the chances that it will attract U.S. investors. The U.S. financial markets are the largest
in the world, and thus represent a huge source of potential capital. The second reason it
might adjust its figures to comply with U.S. standards is that the United States
represents a huge market for its product. In recent years Fuji has taken a large share of
the U.S. film market away from Kodak. If it attracts U.S. citizens to invest in its shares,
these people are also more likely to buy its products.
(b)
Fuji uses the perpetual inventory system to account for most of its inventory. The note
on Inventories state that it uses moving average cost flow assumption, which is
consistent with a perpetual inventory system.
(c)
They may use different cost flow assumptions because the cost of using moving
average for some inventories may be greater than the benefit it provides.
Solutions Manual
6-69
Chapter 6
BYP 6-5 (Continued)

(d)
Fuji
Kodak
(millions of dollars)
Inventory turnover
FIFO/Average
$9,537.8
3.4
($2,695.5 $2,857.4) 2
$8,670
4.6
($1,581 $2,167) 2
LIFO
$8,675
6.08
($1,137 $1,718) 2
Average days in inventory

FIFO/Average
365 days
107.4 days
3.4
365 days
79.3 days
4.6
LIFO
365 days
60 days
6.08
The comparison with both inventories at FIFO/Average is the more relevant for decisionmaking purposes. This comparison is more relevant because it uses the same measurement.
Solutions Manual
6-70
Chapter 6
BYP 6-5 (Continued)

(e)
Fuji
Finished goods
Work in progress
Raw materials
Total
Kodak
000(millions of dollars) 00%
$1,673.1
494.1
528.3
$2,695.5
62.1%
18.3
19.6
100.0%
$ 851
318
412
$1,581
53.8%
20.1
26.1
100.0%
Fuji is holding a higher percentage of finished goods, while Kodak is holding a higher
percentage of work-in-process and raw materials. This difference could be explained by a
difference in their respective forecasts of the future. For example, maybe Fuji predicted an
upturn in demand before Kodak did. Or, it could be a reflection of their different
manufacturing practices. Perhaps Kodak holds items in finished goods for a shorter period of
time. The difference also might be due to differences in the amount of work that they
outsource. That is, it may be that one buys some of its product at least partially
manufactured.
Solutions Manual
6-71
Chapter 6
BYP 6-6 FINANCIAL ANALYSIS ON THE WEB

Due to the frequency of change with regard to information available on the world wide web,
the Accounting on the Web cases are updated as required. Their suggested solutions are also
updated whenever necessary, and can be found online in the Instructor Resources section of
our home page <www.wiley.com/canada/kimmel>.
Solutions Manual
6-72
Chapter 6
BYP 6-7 COLLABORATIVE LEARNING ACTIVITY
(a)
1.
2.
3.
4.
5.
6.
7.
8.
(b)
1.
4.
6.
7.
Items were shipped FOB destination title had not transferred at year-end so
exclude from the inventory of office supplies.
Goods were shipped FOB shipping ownership passed to JIT Auto Parts on July
31 and should therefore be included in the ending inventory. Increase inventory.
Items were shipped FOB Shipping before year-end items should not be included
in ending inventory.
This transaction involves the purchase of property, plant and equipment and
therefore does not affect inventory.
Goods were shipped FOB shipping ownership passed to JIT Auto Parts on July
30 and should therefore be included in the ending inventory. Increase inventory.
This is not an inventory transaction.
This purchase represents a cost of the building not inventory.
Items were shipped FOB destination title had not transferred at year-end so
include in JIT Auto Parts inventory. Increase inventory.
Office Max till owns the office supplies, as the shipping terms were FOB
Destination.
Nadeau Furniture still owns the office furniture, as the shipping terms were FOB
Destination.
JIT Auto Parts does not own the cars at year-end, as the shipping terms were
FOB Destination.
The steel was shipped FOB shipping point and is therefore owned by JIT Auto
Parts at year-end. It should be reported as a cost of the building.
Solutions Manual
6-73
Chapter 6
BYP 6-8 COMMUNICATION ACTIVITY
MEMO
To:
Joy Small, President
From:
Student
Date:
Today
Subject:
2003 Ending Inventory Error
The combined gross profit and net earnings for 2003 and 2004 are correct. However, the
gross profit and net earnings for each year are incorrect.
As you know, 2003 ending inventory was overstated by $1 million. This error will cause 2003
net earnings to be incorrect because the ending inventory is used to calculate 2003 cost of
goods sold. Since the ending inventory is subtracted in the calculation of cost of goods sold,
an overstatement of ending inventory results in an understatement of cost of goods sold and
therefore and overstatement of net earnings.
Unless corrected, this error will also affect 2004 net earnings. The 2003 ending inventory is
also the 2004 beginning inventory. Therefore, 2004 beginning inventory is also overstated,
which causes an overstatement of cost of goods sold and an understatement of 2004 net
earnings.
If the error is not corrected the gross profit and net earnings for 2003 and 2004 will be
incorrect. Because the error one year reverses in the next year the trend will be misleading.
Solutions Manual
6-74
Chapter 6
BYP 6-9 ETHICS CASE
(a)
Specific Identification
Maximize
Gross Profit
Sales.............................................................
Cost of goods sold.......................................
Gross profit..................................................
Goods Available for Sale
Date
Units
0Cost
Mar.
1
150
$300
3
200
350
10
350
0375
$433,000
238,750
$194,250
00Minimize
Gross Profit
$433,000
240,250
$192,750
Total
$ 45,000
70,000
131,250
$246,250
Specific IdentificationMaximize gross profit (minimize cost of sales by deciding to

sell the diamonds purchased at the lowest cost)
Cost of Goods Sold
Date
Units
Mar.
5
150
30
25
170
330
0Cost
0$300
,,,,350
350
375
Total
$ 45,000
10,500
59,500
123,750
$238,750
Ending Inventory
Date
0 Units
Mar. 25
20
Cost
$375
0 Total
$7,500
Specific IdentificationMinimize gross profit (maximize cost of sales by selling the

diamonds purchased at the highest cost)
Cost of Goods Sold
Date
Units
Mar.
5
180
Mar. 25
350
20
130
0Cost
,,$350
375
350
300
Total
$ 63,000
131,250
7,000
39,000
$240,250
Ending Inventory
Date
0Units
Mar. 25
20
00Cost
$300
0 Total
$6,000
Solutions Manual
6-75
Chapter 6
BYP 6-9 (Continued)

(b)
FIFO
Sales.....................................................................
Cost of goods sold................................................
Gross profit..........................................................
Goods Available for Sale

Date
Units
0Cost
Mar.
1
150
$300
3
200
350
10
350
375
Cost of Goods Sold
Date
Units
0Cost
Mar.
5
150$300
30
350
25
170
350
330
375
$433,000
238,750
$194,250
Total
$ 45,000
70,000
131,250
$246,250
Total
$ 45,000
10,500
59,500
123,750
$238,750
Ending Inventory
Date
0Units
Mar. 25
20
0 Cost
$375
00Total
$7,500
(c)
The stakeholders are the shareholders, customers, and staff of Discount Diamonds.
The practice is unethical if management selects which diamonds to sell based solely on
a desire to manipulate profits.
(d)
Discount Diamonds should select FIFO. This cost flow assumption provides the best
balance sheet valuation and is not subject to manipulation.
Solutions Manual
6-76
Chapter 6
Legal Notice
Copyright
Copyright 2004 by John Wiley & Sons Canada, Ltd. or related companies. All rights reserved.
The data contained in these files are protected by copyright. This manual is furnished under licence
and may be used only in accordance with the terms of such licence.
The material provided herein may not be downloaded, reproduced, stored in a retrieval system,
modified, made available on a network, used to create derivative works, or transmitted in any form or
by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise without the
prior written permission of John Wiley & Sons Canada, Ltd.
Solutions Manual
6-77
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Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Second Canadian Edition

Describe the steps in

Explain the basis of

Explain the financial

Indicate the effects of

Explain the lower of

Calculate and interpret

4A, 5A, 7A 4B, 7B

*Apply the inventory

9*, 10*, 11* 11*, 12*,

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Second Canadian Edition

ASSIGNMENT CHARACTERISTICS TABLE

Identify items in inventory.

Apply cost flow assumptions in periodic inventory

Apply cost flow assumptions in periodic inventory

Prepare journal entries for purchaser and seller using

Determine effects of inventory errors.

Determine effects of inventory errors.

Calculate ratios; comment on liquidity and effect of

Apply average cost flow assumption in periodic and

Apply cost flow assumptions in perpetual inventory

Prepare journal entries under perpetual inventory

Identify items in inventory.

Apply cost flow assumptions in periodic inventory

Apply cost flow assumptions in periodic inventory

Prepare journal entries for purchaser and seller using

Determine effects of inventory errors.

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Second Canadian Edition

Calculate ratios; comment on liquidity and effect of

Apply FIFO cost flow assumption in periodic and

Apply cost flow assumptions in perpetual inventory

Prepare journal entries under perpetual system.

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Second Canadian Edition

6. (a) Average cost

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Second Canadian Edition

(1) No effect cash is not affected by inventory cost flow assumptions

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Second Canadian Edition

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Second Canadian Edition

SOLUTIONS TO BRIEF EXERCISES

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Second Canadian Edition

BRIEF EXERCISE 6-3

BRIEF EXERCISE 6-6

The lower of cost and market is $32,500.

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Second Canadian Edition

BRIEF EXERCISE 6-7

BRIEF EXERCISE 6-8

(2) Average Cost

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Second Canadian Edition

*BRIEF EXERCISE 6-10

(100 x $6) + (400 x $7) = $3,400; $3,400 500 = $6.80

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Second Canadian Edition

*BRIEF EXERCISE 6-11

Account Titles and Explanation

9, 10, 11* 11, 12,