Concept explainers
1.
Compute cost of goods available for sale and number of units available for sale.
1.

Explanation of Solution
Cost of goods available for sale: Cost of goods available for sale represents the sum of beginning merchandise and purchased merchandise. Cost of goods available for sale is not reported on any of the financial statements because the cost of goods available for sale is either sold, or remained as ending inventory, at the end of the year.
Compute cost of goods available for sale and number of units available for sale:
Particulars | Units | Cost of goods |
Beginning inventory | 100 units @ $50.00 | $5,000 |
March 5 | 400 units @ $55.00 | 22,000 |
March 18 | 120 units @ $60.00 | 7,200 |
March 25 | 200 units @ $62.00 | 12,400 |
Units available | 820 units | |
Cost of goods available for sale | $46,600 |
Table (1)
Therefore, units available are 820units and cost of goods available for sale is $46,600.
2.
Compute the number of units in ending inventory.
2.

Explanation of Solution
Compute the number of units in ending inventory:
Units available (from part 1) | 820 units |
Less: Units sold (420 + 160) | 580 units |
Ending Inventory (units) | 240 units |
Table (2)
Hence, the ending inventory is 240 units.
3.
Compute the cost assigned to ending inventory using (a) FIFO, (b) LIFO, (c) weighted average, and (d) specific identification.
3.

Explanation of Solution
First-in-First-Out (FIFO): In this method, items purchased initially are sold first. Therefore, the value of the ending inventory contains the recent cost for the remaining unsold items.
a) Compute the cost assigned to ending inventory using FIFO:
Date | Goods Purchased | Cost of Goods Sold | Inventory Balance |
March 1 | 100 @ $50 = $5,000 | ||
March 5 | 400 @ $55 = $22,000 | 100 @ $50 | |
400 @ $55 = $27,000 | |||
March 9 | 100 @ $50 = $ 5,000 | 80 @ $55 = $ 4,400 | |
320 @ $55 = $17,600 | |||
March 18 | 120 @ $60 = $ 7,200 | 80 @ $55 | |
120 @ $60 = $11,600 | |||
March 25 | 200 @ $62 = $ 12,400 | 80 @ $55 | |
120 @ $60 | |||
200 @ $62 = $24,000 | |||
March 29 | 80 @ $55 = $ 4,400 | 40 @ $60 | |
80 @ $60 = $ 4,800 | 200 @ $62 = $14,800 | ||
$ 31,800 |
Table (3)
Therefore, the cost assigned to ending inventory using FIFO is $14,800.
Last-in-First-Out (LIFO): In this method, items purchased recently are sold first. So, the value of the ending inventory contains the initial cost for the remaining unsold items.
b) Compute the cost assigned to ending inventory using LIFO:
Date | Goods Purchased | Cost of Goods Sold | Inventory Balance |
March 1 | 100 @ $50 = $5,000 | ||
March 5 | 400 @ $55 = $22,000 | 100 @ $50 | |
400 @ $55 = $27,000 | |||
March 9 | 400 @ $55 = $ 22,000 | 80 @ $50 = $ 4,000 | |
20 @ $50 = $1,000 | |||
March 18 | 120 @ $60 = $ 7,200 | 80 @ $50 | |
120 @ $60 = $11,200 | |||
March 25 | 200 @ $62 = $ 12,400 | 80 @ $50 | |
120 @ $60 | |||
200 @ $62 = $23,600 | |||
March 29 | 160 @ $62 = $9,920 | 40 @ $60 | |
200 @ $62 = $13,680 | |||
$ 32,920 |
Table (4)
Therefore, the cost assigned to ending inventory using LIFO is $13,680.
Weighted average cost method: Under average cost method, company calculates a new average after every purchase. It is determined by dividing the cost of goods available for sale by the units on hand.
c) Compute the cost assigned to ending inventory using weighted average cost:
Date | Goods Purchased | Cost of Goods Sold | Inventory Balance |
March 1 | 100 @ $50 = $5,000 | ||
March 5 | 400 @ $55 = $22,000 | 100 @ $50 | |
400 @ $55 = $27,000 | |||
Average cost is $54 | |||
March 9 | 420 @ $54 = $ 22,680 | 80 @ $54 = $ 4,320 | |
Average cost is $54 | |||
March 18 | 120 @ $60 = $ 7,200 | 80 @ $54 | |
120 @ $60 = $11,520 | |||
Average cost is $57.60 | |||
March 25 | 200 @ $62 = $ 12,400 | 80 @ $54 | |
120 @ $60 | |||
200 @ $62 = $23,920 | |||
Average cost is $59.80 | |||
March 29 | 160 @ $59.8 = $9,568 | 240 @ $59.80 = $14,352 | |
$ 32,248 | |||
Average cost is $59.80 |
Table (5)
Therefore, the cost assigned to ending inventory using weighted average cost is $14,352.
Specific identification inventory system: It is one of the
d) Compute the cost assigned to ending inventory using weighted average cost:
Particulars | Amount ($) |
Total goods available for sale (requirement 1) | $46,600 |
Less: Cost of goods sold (1) | ($32,540) |
Ending inventory | $14,060 |
Table (6)
Therefore, the cost assigned to ending inventory using specific identification method is $14,060.
Working note:
Calculate the cost of goods sold:
Particulars | Units @ cost per unit | Amount ($) |
Beginning inventory | 80 units @ $50 | $4,000 |
Purchase on March 5 | 340 units @55 | $18,700 |
Purchase on March 18 | 40 units @60 | $2,400 |
Purchase on March 25 | 120 units @62 | $7,440 |
Cost of goods sold | 32,540 |
(1)
Table (7)
4.
Compute the gross profit earned by the Company W for each of the four costing methods in requirement 3.
4.

Explanation of Solution
Gross margin (gross profit): Gross margin is the amount of revenue earned from goods sold over the costs incurred for the goods sold.
Compute the gross profit earned by the Company W for each of the four costing methods in requirement 3:
FIFO |
LIFO |
Weighted Average |
Specific Identification | |
Sales (2) | $50,900 | $50,900 | $50,900 | $50,900 |
Less: Cost of goods sold | 31,800 | 32,920 | 32,248 | 32,540 |
Gross profit | $ 19,100 | $17,980 | $ 18,652 | $ 18,360 |
Table (8)
Gross profit under FIFO method is higher ($19,100) and under LIFO method is lower ($17,980)
Working note:
Calculate the sales amount:
Sales on March 9 | $35,700 |
Sales on March 29 | $15,200 |
Total sales amount | $50,900 |
(2)
Table (9)
Want to see more full solutions like this?
Chapter 5 Solutions
FINANCIAL ACCOUNTING ACCT 2301 >IC<
- Need help with this question solution general accountingarrow_forwardOn January 1, 2023, Pharoah Ltd. had 702,000 common shares outstanding. During 2023, it had the following transactions that affected the common share account: Feb. 1 Issued 160,000 shares Mar. 1 Issued a 10% stock dividend May 1 Acquired 181,000 common shares and retired them June 1 Issued a 3-for-1 stock split Oct. 1 Issued 78,000 shares ♡ The company's year end is December 31Determine the weighted average number of shares outstanding as at December 31, 2023. (Round answer to O decimal places, eg. 5,275.) Weighted average number of shares outstandingarrow_forwardOn January 1, 2023, Pharoah Ltd. had 702,000 common shares outstanding. During 2023, it had the following transactions that affected the common share account: Feb. 1 Issued 160,000 shares Mar. 1 Issued a 10% stock dividend May 1 Acquired 181,000 common shares and retired them June 1 Issued a 3-for-1 stock split Oct. 1 Issued 78,000 shares ♡ The company's year end is December 31 Assume that Pharoah earned net income of $3,441,340 during 2023. In addition, it had 90,000 of 10%, $100 par, non-convertible, non-cumulative preferred shares outstanding for the entire year. Because of liquidity limitations, however, the company did not declare and pay a preferred dividend in 2023. Calculate earnings per share for 2023, using the weighted average number of shares determined above. (Round answer to 2 decimal places, e.g. 15.25.) Earnings per sharearrow_forward
- Provide correct answer general accounting questionarrow_forwardDiscuss the following questions below 1. Definition and scope of IAS 38 2. Recognition of criteria of intangible assets 3. Meaurement basis for intangible assets 4. Amortization methods and their implications for financial reportingarrow_forwardPlease solve this problem general accounting questionarrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education





