Chapter 7, Problem 7.1COP

Requirement 1 (a)

To determine

The amount of inventory using FIFO.

Explanation of Solution

Calculate the amount of inventory:

$\begin{array}{c}\text{Amount of inventory = }\left(\begin{array}{l}\text{Units on hand}\\ \times \text{Units cost}\end{array}\right)\\ =\left(4\times \$16\right)\\ =\$64\end{array}$

Requirement 1 (b)

To determine

The amount of total assets using FIFO.

Explanation of Solution

Calculate the amount of total assets:

$\begin{array}{c}\text{Amount of total assets = }\left(\begin{array}{l}\text{Current assets other than inventory}\\ \text{ + Inventory + }\\ \text{Other}\left(\text{non current assets}\right)\end{array}\right)\\ =\left(\$10+\$64+\$107\right)\\ =\$181\end{array}$

Requirement 1 (c)

To determine

The amount of total liabilities and stockholders’ equity using FIFO.

Explanation of Solution

Calculate the amount of total liabilities and stockholders’ equity:

$\begin{array}{c}\begin{array}{l}\text{Total liabilities and}\\ \text{stockholders’ equity}\end{array}\}=\text{Total assets}\\ \text{=\$181}\end{array}$

Requirement 1 (d)

To determine

The amount of stockholders’ equity using FIFO.

Explanation of Solution

Calculate the amount of stockholders’ equity:

$\begin{array}{c}\text{Stockholders’ equity = }\left(\begin{array}{l}\text{Total liabilities and stockholders’ equity}\\ -\text{Current liabilities}-\\ \text{Other}\left(\text{non}\right)\text{current liabilities}\end{array}\right)\\ \text{= }\left(\text{\$181}-\$\text{36}-\$44\right)\\ =\$101\end{array}$

Requirement 2 (a)

To determine

The amount of inventory using weighted average.

Explanation of Solution

Calculate the amount of inventory using weighted average:

Step 1: Calculate the weighted average cost per unit.

$\begin{array}{c}\begin{array}{c}\text{Weighted}\\ \text{average}\text{unit}\text{cost}\end{array}\}=\frac{\left(\begin{array}{l}\text{Cost}\text{of}\text{goods}\\ \text{available}\text{for}\text{sale}\end{array}\right)}{\left(\begin{array}{l}\text{Total}\text{units}\\ \text{available}\text{for}\text{sales}\end{array}\right)}\\ =\frac{\left(\$11\times 5\right)+\left(\$12\times 8\right)+\left(\$16\times 6\right)}{5+8+6}\\ =\frac{247}{\$19}\\ =\$13\end{array}$

Step 2: Calculate the amount of inventory using weighted average.

$\begin{array}{c}\text{Amount of inventory = }\left(\begin{array}{l}\text{Units on hand}\\ \times \text{Units cost}\end{array}\right)\\ =\left(4\times \$13\right)\\ =\$52\end{array}$

Requirement 1 (b)

To determine

The amount of total assets using weighted average.

Explanation of Solution

Calculate the amount of total assets using weighted average:

$\begin{array}{c}\text{Amount of total assets}\text{= }\left(\begin{array}{l}\text{Current assets other than inventory}\\ \text{ + Inventory + }\\ \text{Other}\left(\text{non current assets}\right)\end{array}\right)\\ =\left(\$10+\$52+\$107\right)\\ =\$169\end{array}$

Requirement 1 (c)

To determine

The amount of total liabilities and stockholders’ equity using weighted average.

Explanation of Solution

Calculate the amount of total liabilities and stockholders’ equity:

$\begin{array}{c}\begin{array}{l}\text{Total liabilities and}\\ \text{stockholders’ equity}\end{array}\}=\text{Total assets}\\ \text{=\$169}\end{array}$

Requirement 1 (d)

To determine

The amount of stockholders’ equity using weighted average.

Explanation of Solution

Calculate the amount of stockholders’ equity:

$\begin{array}{c}\text{Stockholders’ equity = }\left(\begin{array}{l}\text{Total liabilities and stockholders’ equity}\\ -\text{Current liabilities}-\\ \text{Other}\left(\text{non}\right)\text{current liabilities}\end{array}\right)\\ \text{= }\left(\text{\$169}-\$\text{36}-\$44\right)\\ =\$89\end{array}$

Requirement 3 (a)

To determine

The amount of inventory using LIFO.

Explanation of Solution

Calculate the amount of inventory:

$\begin{array}{c}\text{Amount of inventory = }\left(\begin{array}{l}\text{Units on hand}\\ \times \text{Units cost}\end{array}\right)\\ =\left(4\times \$11\right)\\ =\$44\end{array}$

Requirement 3 (b)

To determine

The amount of total assets using LIFO.

Explanation of Solution

Calculate the amount of total assets:

$\begin{array}{c}\text{Amount of total assets = }\left(\begin{array}{l}\text{Current assets other than inventory}\\ \text{ + Inventory + }\\ \text{Other}\left(\text{non current assets}\right)\end{array}\right)\\ =\left(\$10+\$44+\$107\right)\\ =\$161\end{array}$

Requirement 3 (c)

To determine

The amount of total liabilities and stockholders’ equity using LIFO.

Explanation of Solution

Calculate the amount of total liabilities and stockholders’ equity:

$\begin{array}{c}\begin{array}{l}\text{Total liabilities and}\\ \text{stockholders’ equity}\end{array}\}=\text{Total assets}\\ \text{=\$161}\end{array}$

Requirement 3 (d)

To determine

The amount of stockholders’ equity using LIFO.

Explanation of Solution

Calculate the amount of stockholders’ equity:

$\begin{array}{c}\text{Stockholders’ equity = }\left(\begin{array}{l}\text{Total liabilities and stockholders’ equity}\\ -\text{Current liabilities}-\\ \text{Other}\left(\text{non}\right)\text{current liabilities}\end{array}\right)\\ \text{= }\left(\text{\$161}-\$\text{36}-\$44\right)\\ =\$81\end{array}$

Requirement 4 (i)

To determine

The current ratio using FIFO.

Explanation of Solution

Calculate the current ratio:

$\begin{array}{c}\text{Current ratio}=\frac{\text{Current assets}}{\text{Current}\text{liabilities}}\\ =\frac{\text{\$10+\$64}}{\$36}\\ =2.06\end{array}$

Requirement 4 (ii)

To determine

The current ratio using weighted average.

Explanation of Solution

Calculate the current ratio:

$\begin{array}{c}\text{Current ratio}=\frac{\text{Current assets}}{\text{Current}\text{liabilities}}\\ =\frac{\text{\$10+\$52}}{\$36}\\ =1.72\end{array}$

Requirement 4 (iii)

To determine

The current ratio using LIFO.

Explanation of Solution

Calculate the current ratio:

$\begin{array}{c}\text{Current ratio}=\frac{\text{Current assets}}{\text{Current}\text{liabilities}}\\ =\frac{\text{\$10+\$44}}{\$36}\\ =1.50\end{array}$

The ratios are differing due to the inventory costing method assigned. Under FIFO method inventory is computed using the higher last–in costs, however, LIFO is using the lower first–in costs, and weighted average being an average of all costs.