FINANCIAL MANAGERIAL ACCOUNTING 12TH EDITION WARREN Solution Manual

FINANCIAL MANAGERIAL ACCOUNTING 12TH EDITION WARREN Solution Manual

1. The receiving report should be reconciled to the initial purchase order and the vendor’s invoice
before recording or paying for inventory purchases. This procedure will verify that the inventory
received matches the type and quantity of inventory ordered. It also verifies that the vendor’s
invoice is charging the company for the actual quantity of inventory received at the agreed-upon
price.
2. A physical inventory should be taken periodically to test the accuracy of the perpetual records. In
addition, a physical inventory will identify inventory shortages or shrinkage.
3. No, they are not techniques for determining physical quantities. The terms refer to cost flow
assumptions, which affect the determination of the cost prices assigned to items in the inventory.
4. a. LIFO c. LIFO
b. FIFO d. FIFO
5. FIFO
6. LIFO. In periods of rising prices, the use of LIFO will result in the lowest net income and thus the
lowest income tax expense.
7. Net realizable value (estimated selling price less any direct cost of disposition, such as sales
commissions).
8. a. Gross profit for the year was understated by $14,750.
b. Merchandise inventory and stockholders’ equity (retained earnings) were understated by $14,750.
9. Bibbins Company. Since the merchandise was shipped FOB shipping point, title passed to
Bibbins Company when it was shipped and should be reported in Bibbins Company’s financial
statements at May 31, the end of the fiscal year.
10. Manufacturer’s. The manufacturer retains title until the goods are sold. Thus, any unsold
merchandise at the end of the year is part of the manufacturer’s (consignor’s) inventory, even
though the merchandise is in the hands of the retailer (consignee).
CHAPTER 6
INVENTORIES
DISCUSSION QUESTIONS
6-1
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
CHAPTER 6 Inventories
PE 6–1A
a. First-in, first-out (FIFO)
b. Last-in, first-out (LIFO)
c. Weighted average cost
PE 6–1B
a. First-in, first-out (FIFO)
b. Last-in, first-out (LIFO)
c. Weighted average cost
PE 6–2A
a. Cost of merchandise sold (May 28):
15 units @ $120 $1,800
3 units @ $130 390
18 $2,190
b. Inventory, May 31: $7,410 = 57 units × $130
PE 6–2B
a. Cost of merchandise sold (July 24):
6 units @ $15 $ 90
34 units @ $18 612
40 $702
b. Inventory, July 31: $1,008 = 56 units × $18
PRACTICE EXERCISES
Gross Profit
February
Ending Inventory
February 28
$86 ($42 + $44)
$82 ($40 + $42)
$84 ($42 × 2)
June June 30
Gross Profit Ending Inventory
$35 ($75 – $40)
$31 ($75 – $44)
$33 ($75 – $42)
$50 ($110 – $60) $120 ($60 × 2)
$60 ($110 – $50) $130 ($60 + $70)
$40 ($110 – $70) $110 ($50 + $60)
6-2
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
CHAPTER 6 Inventories
PE 6–3A
a. Cost of merchandise sold (June 26):
$5,400 = (90 units × $60)
b. Inventory, June 30:
20 units @ $50 $1,000
35 units @ $60 2,100
55 $3,100
PE 6–3B
a. Cost of merchandise sold (March 27):
$4,800 = (240 units × $20)
b. Inventory, March 31:
45 units @ $18 $ 810
135 units @ $20 2,700
180 $3,510
PE 6–4A
a. Weighted average unit cost: $71.25
Inventory total cost after purchase on July 15:
40 units @ $60 $ 2,400
120 units @ $75 9,000
160 $11,400
Weighted average unit cost = $71.25 ($11,400 ÷ 160 units)
b. Cost of merchandise sold (July 27): $5,985 (84 units × $71.25)
c. Inventory, July 31: $5,415 (76 units × $71.25)
PE 6–4B
a. Weighted average unit cost: $9.50
Inventory total cost after purchase on October 22:
125 units @ $8 $1,000
375 units @ $10 3,750
500 $4,750
Weighted average unit cost = $9.50 ($4,750 ÷ 500 units)
b. Cost of merchandise sold (October 29): $2,660 (280 units × $9.50)
c. Inventory, October 31: $2,090 (220 units × $9.50)
6-3
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
CHAPTER 6 Inventories
PE 6–5A
a. First-in, first-out (FIFO) method: $3,726 = 23 units × $162
b. Last-in, first-out (LIFO) method: $3,105 = 23 units × $135
c. Weighted average cost method: $3,450 (23 units × $150), where average cost =
$150 = $13,500 ÷ 90 units
PE 6–5B
a. First-in, first-out (FIFO) method: $20,094 = (40 units × $357) + (17 units × $342)
b. Last-in, first-out (LIFO) method: $19,854 = (20 units × $360) + (37 units × $342)
c. Weighted average cost method: $19,665 (57 units × $345), where average cost =
$345 = $110,400 ÷ 320 units
PE 6–6A
Unit Unit
Inventory Cost Market Lower of
Commodity Quantity Price Price Cost Market C or M
1107B 450 $80 $78 $36,000 $35,100 $35,100
1110M 75 60 64 4,500 4,800 4,500
Total $40,500 $39,900 $39,600
PE 6–6B
Unit Unit
Inventory Cost Market Lower of
Commodity Quantity Price Price Cost Market C or M
JFW1 6,330 $10 $11 $ 63,300 $ 69,630 $ 63,300
SAW9 1,140 36 34 41,040 38,760 38,760
Total $104,340 $108,390 $102,06