1. The following inventory transactions took place for Bowman Corporation for the month of March 2022. Bowman...
Question:
1. The following inventory transactions took place for Bowman Corporation for the month of March 2022. Bowman uses a perpetual inventory system.
Date | Transaction | Quantity | Unit Cost / Selling Price |
March 1 | Beginning inventory | 100 | $3.20 |
March 6 | Purchase | 78 | $3.40 |
March 11 | Purchase | 86 | $3.50 |
March 14 | Sale | 176 | $6.50 |
March 20 | Sale | 50 | $6.60 |
March 23 | Purchase | 165 | $3.70 |
March 25 | Purchase | 181 | $3.70 |
March 28 | Sale | 200 | $6.70 |
Required
- Calculate the ending inventory using FIFO.
Date | Purchases | Sales | Balance | ||||||
Quantity | Unit Cost | Value | Quantity | Unit Cost | Value | Quantity | Unit Cost | Value | |
- What is the cost of goods sold under FIFO?
- Based on your findings in parts a) and b), what is the gross profit?
2. Andy's Auto sells new and used cars. Andy started his business on October 1, 2022, with no beginning inventory.
Oct 2Purchased 5 red cars for $25,000 each
Oct 5Purchased 5 blue trucks for $30,000 each
Oct 6Sold 2 blue trucks
Oct 7Sold 2 red cars
Oct 12Purchased 5 green SUVs for $35,000 each
Oct 15Sold 1 green SUV
Required
- Calculate the value of inventory at each date using the specific identification method. Show the ending inventory for October 2022.
Date | Purchases | Sales | Balance | ||||||
Quantity | Unit Cost | Value | Quantity | Unit Cost | Value | Quantity | Unit Cost | Value | |
- Assuming the red cars are sold for $30,000, the blue trucks for $40,000 and the green SUV for $40,000, which vehicle yields the highest gross profit margin?
3. Poppy Company uses a perpetual inventory system. It reported the following data related to beginning inventory and inventory purchases and sales for the month of August 2022.
Aug 1Beginning inventory consisted of 180 units at $6 per unit
Aug 10Purchased 400 units at $4 per unit
Aug 17Sold 250 units at $10 per unit
Aug 23Purchased 700 units at $3 per unit
Aug 27Sold 500 units at $9.50 per unit
Required
- Fill in the inventory schedule and calculate the values of ending inventory, COGS and gross profit using the specific identification method. Assume that the 250 units sold on August 17 consists of 100 units of beginning inventory and 150 units from the August 10 purchase. Also assume that the 500 units sold on August 27 consists of 50 units from the beginning inventory, 100 units from the August 10 purchase and 350 units from the August 23 purchase.
Date | Purchases | Sales | Balance | ||||||
Quantity | Unit Cost | Value | Quantity | Unit Cost | Value | Quantity | Unit Cost | Value | |
- Fill in the inventory schedule and calculate the values of ending inventory, COGS and gross profit using the FIFO cost method.
Date | Purchases | Sales | Balance | ||||||
Quantity | Unit Cost | Value | Quantity | Unit Cost | Value | Quantity | Unit Cost | Value | |
- Fill in the inventory schedule and calculate the values of ending inventory, COGS and gross profit using the weighted-average cost method.
Date | Purchases | Sales | Balance | ||||||
Quantity | Unit Cost | Value | Quantity | Unit Cost | Value | Quantity | Unit Cost | Value | |
Analysis
In times of decreasing prices, which is the case in this question, which method results in the highest profit? Which method would result in the highest gross profit in times of rising prices? Explain.
4. A company has three types of products: gadgets, widgets and gizmos. The cost and NRV of each type is listed below.
Required
- Complete the table by applying the lower of cost and net realizable value.
LCNRV Applied to | ||||||
Description | Category | Cost | NRV | Individual | Category | Total |
Gadget 1 | Gadgets | $1,500 | $1,390 | |||
Gadget 2 | Gadgets | 4,830 | 5,430 | |||
Total Gadgets | 6,330 | 6,820 | ||||
Widget A | Widgets | 890 | 470 | |||
Widget B | Widgets | 350 | 300 | |||
Total Widgets | 1,240 | 770 | ||||
Gizmo 1 | Gizmo | 1,350 | 1,960 | |||
Gizmo 2 | Gizmo | 2,460 | 2,320 | |||
Total Gizmos | 3,810 | 4,280 | ||||
Total | $11,380 | $11,870 |
- What options does the company have for applying the LCNRV rule?
- Assume the company applies the rule based on the total cost of the inventory. What is the amount of adjustment required?
5. On December 31, 2022, Kranky Bike Shop has three types of bikes: mountain bikes, road bikes and hybrid bikes. The cost and NRV of each type is listed below.
Required
- Complete the table by applying the lower of cost and net realizable value.
LCNRV Applied | to | |||||
Description | Category | Cost | NRV | Individual | Category | Total |
CCM | Mountain | $10,000 | $8,000 | |||
Mikado | Mountain | 8,000 | 5,500 | |||
Oryx | Mountain | 2,000 | 3,100 | |||
Total Mountain Bikes | ||||||
Giant | Road | 7,000 | 12,500 | |||
Norco | Road | 6,000 | 8,100 | |||
Total Road Bikes | ||||||
Electra | Hybrid | 2,800 | 2,500 | |||
Acquila | Hybrid | 2,600 | 3,000 | |||
Total Hybrid Bikes | ||||||
Total |
- Prepare the adjusting entry, if required, if LCNRV is applied using
i) individual products
ii) category
iii) total
Date | Account Title and Explanation | Debit | Credit |
Intermediate Accounting
ISBN: 978-0077400163
6th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson