Concept explainers
Hurst Company’s beginning inventory and purchases during the fiscal year ended December 31, 20-2, were as follows:
There are 1,200 units of inventory on hand on December 31, 20-2.
REQUIRED
- 1. Calculate the total amount to be assigned to the cost of goods sold for 20-2 and ending inventory on December 31 under each of the following periodic inventory methods:
- (a) FIFO
- (b) LIFO
- (c) Weighted-average (round calculations to two decimal places)
- 2. Assume that the market price per unit (cost to replace) of Hurst’s inventory on December 31 was $18. Calculate the total amount to be assigned to the ending inventory on December 31 under each of the following methods:
- (a) FIFO lower-of-cost-or-market
- (b) Weighted-average lower-of-cost-or-market
- 3. In addition to taking a physical inventory on December 31, Hurst decides to estimate the ending inventory and cost of goods sold. During the fiscal year ended December 31, 20-2, net sales of $100,000 were made at a normal gross profit rate of 35%. Use the gross profit method to estimate the cost of goods sold for the fiscal year ended December 31 and the inventory on December 31.
1.
(a)
Calculate the total amount of cost of goods sold and cost of ending inventory on December 31, under FIFO method (Periodic inventory system).
Explanation of Solution
First-in-First-Out (FIFO): In First-in-First-Out method, the first purchased items are sold first. The value of the ending inventory consists of the recently purchased items.
Calculate the total amount of cost of goods sold and cost of ending inventory on December 31, under FIFO method (Periodic inventory system):
Table (1)
Therefore, the cost of sold and cost of ending inventory under FIFO (Periodic inventory system) is $64,250 and $22,750.
2.
(b)
Calculate the total amount of cost of goods sold and cost of ending inventory on December 31, under LIFO method (Periodic inventory system).
Explanation of Solution
Last-in-First-Out (LIFO): In Last-in-First-Out method, the last purchased items are sold first. The value of the closing stock consists of the initially purchased items.
Calculate the total amount of cost of goods sold and cost of ending inventory on December 31, under LIFO method (Periodic inventory system):
Table (2)
Therefore, the cost of sold and cost of ending inventory under LIFO (Periodic inventory system) is $75,000 and $12,000.
3.
(c)
Calculate the total amount of cost of goods sold and cost of ending inventory on December 31, 20-2 under weighted average cost method.
Explanation of Solution
Weighted-average cost method: Under average cost method inventories are priced at the average of all available inventories. Average cost is the quotient of total cost of goods available for sale and total units available for sale.
Calculate the total amount of cost of goods sold and cost of ending inventory on December 31 under weighted average cost method:
Step 1: Calculate the weighted-average cost.
Step 2: Calculate the amount of ending inventory.
Step 3: Calculate the amount of cost of goods sold.
Therefore, the cost of sold and cost of ending inventory under weighted average cost method (Periodic inventory system) is $69,600 and $17,400.
2.
(a)
Calculate the cost of ending inventory on December 31 under FIFO method (Lower of cost or market).
Explanation of Solution
Lower-of-cost-or-market: The lower-of-cost-or-market (LCM) is a method which requires the reporting of the ending merchandise inventory in the financial statement of a company, at its current market value or at is historical cost price, whichever is less.
First-in-First-Out (FIFO): In First-in-First-Out method, the first purchased items are sold first. The value of the ending inventory consists of the recently purchased items.
Calculate the cost of ending inventory under FIFO (Lower of cost or market):
Particulars |
FIFO Cost (A) |
Market Cost (B) |
LCM Valuation (C = A or B ) Whichever is lesser |
Ending inventory under FIFO | $22,750 | $21,600 | $21,600 |
Table (3)
Working note:
Calculate the market cost.
Therefore, the cost of ending inventory on December 31 under FIFO method (Lower of cost or market) is $21,600.
2.
(b)
Calculate the cost of ending inventory on December 31 under weighted average cost method (Lower of cost or market).
Explanation of Solution
Weighted-average cost method: Under average cost method inventories are priced at the average of all available inventories. Average cost is the quotient of total cost of goods available for sale and total units available for sale.
Calculate the cost of ending inventory under weighted average cost (Lower of cost or market):
Particulars |
Weighted Average Cost (A) |
Market Cost (B) |
LCM Valuation (C = A or B ) Whichever is lesser |
Ending inventory under weighted average cost | $17,400 | $21,600 | $17,400 |
Table (4)
Working note:
Calculate the market cost.
Therefore, the cost of ending inventory on December 31 under weighted average cost method (Lower of cost or market) is $17,400.
3.
Estimate the cost of goods sold and ending inventory for the year December 31 uing the gross profit methods.
Explanation of Solution
Gross profit method:
- Gross profit method is used to determine the amount of estimated inventory lost or destroyed by theft, fire, or other hazards.
- The gross profit for the period is calculated from the preceding year, which is adjusted for any current period changes in the sales and cost price of the inventory.
- It estimates the value of inventory and cost of goods sold by avoiding the expenses occurred on physical count of inventory.
Estimate the cost of goods sold and ending inventory for the year December 31 uing the gross profit methods:
Gross profit Method | ||
Details | Amount ($) | Amount ($) |
Beginning inventory, January 1, 20-2 | 15,000 | |
Add: Net cost of purchases, January 1, 20-2 – December 31, 20-2 | 72,000 | |
Cost of goods available for sale | 87,000 | |
Less: Estimated cost of goods sold. | ||
Net sales | 100,000 | |
Less: Estimated gross profit of 35% | (35,000) | |
Estimated cost of goods sold | (65,000) | |
Estimated cost of inventory at December 31, 20-2 | $22,000 |
Table (5)
Working note:
Calculate the estimated gross profit.
The estimated gross profit is 35% of the net sales.
Therefore, the estimated cost of goods sold and ending inventory for the year December 31 uing the gross profit methods is $65,000 and $22,000.
Want to see more full solutions like this?
Chapter 13 Solutions
Bundle: College Accounting, Chapters 1-9, Loose-Leaf Version, 22nd + LMS Integrated for CengageNOWv2, 2 terms Printed Access Card for Heintz/Parry's College Accounting, Chapters 1-27, 22nd
- I won't to this question answer general Accountingarrow_forwardVerma Inc.'s total assets at the beginning of the year amount to $500,000,000, and its total assets at the end of the year amount to $250,000,000. If its return on assets for the year is 28%, what is Verma's net income for the year?arrow_forwardSuperior electronic reported sales solve this accounting questionsarrow_forward
- At the end of April, Nina Company had completed Jobs 50 and 51. Job 50 is for 23,040 units, and Job 51 is for 26,000 units. The following data relate to these two jobs: On April 6, Nina Company purchased on account 60,000 units of raw materials at $12 per unit. On April 21, raw materials were requisitioned for production as follows: 25,000 units for Job 50 at $10 per unit and 27,000 units for Job 51 at $12 per unit. During April, Nina Company accumulated 20,000 hours of direct labor costs on Job 50 and 24,000 hours on Job 51. The total direct labor was incurred at a rate of $20.00 per direct labor hour for Job 50 and $22.00 per direct labor hour for Job 51. Nina Company estimates that total factory overhead costs will be $1,750,000 for the year. Direct labor hours are estimated to be 500,000. Determine the balance on the account in the work in process subsidiary ledger in which the costs charged to a particular job order are recorded on job cost sheets for Jobs 50 and 51 at the end of…arrow_forwardTotal Assets = $251, 000 & Total Liabilities = $110, 000arrow_forwardGeneral Accounting questionarrow_forward
- Hello tutor please provide correct answer general Accountingarrow_forwardSubject = General Accountarrow_forwardChipa Corp. started the year with total assets of $303,000 and total liabilities of $243,000. During the year the business recorded $631,000 in revenues, $329,000 in expenses, and dividends of $57,000. Stockholders' equity at the end of the year was _. Solve the financial accounting problem.arrow_forward
- College Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,Financial AccountingAccountingISBN:9781337272124Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage Learning
- Financial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage LearningPrinciples of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax CollegeSurvey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning