Chapter 8

Inventories: Measurement

EXERCISES
Exercise 8-1
PERPETUAL SYSTEM

PERIODIC SYSTEM
($ in 000s)

Purchases
Inventory
Accounts payable

265

Freight
Inventory
Accounts payable

16

Returns
Accounts payable
Inventory
Sales
Accounts receivable
Sales revenue
Cost of goods sold
Inventory
End of period
No entry

Purchases
Accounts payable

265

265

16

16

Freight-in
Accounts payable

Accounts payable
Purchase returns
Accounts receivable
Sales revenue

350

350

350
264

16

350

No entry
264
Cost of goods sold (below)
Inventory (ending)
Purchase returns
Inventory (beginning)
Purchases
Freight-in
Cost of goods sold:
Beginning inventory
Purchases
Less: Returns
Plus: Freight-in
Net purchases
Cost of goods available
Less: Ending inventory
Cost of goods sold

Alternate Exercise and Problem Solutions

265

264
123
6
112
265
16
$112
$265
(6)
16
275
387
(123)
$264

The McGraw-Hill Companies, Inc., 2013

8-1

Exercise 8-2

Inventory balance before additional transactions

$317,000

Add:
Materials purchased f.o.b. shipping point on 12/28
Deduct:
Merchandise held on consignment from the Harvey Company
Correct inventory balance

32,000
(12,000)
$337,000

Exercise 8-3Requirement 1
Purchase price = 50 units x $800 = $40,000 x .75 = $30,000
January 14, 2013
Purchases.........................................................................
Accounts payable........................................................

January 23, 2013

Accounts payable ...........................................................
Purchase discounts (2% x $30,000)................................
Cash (98% x $30,000)....................................................

30,000
30,000

30,000
600
29,400

Requirement 2
January 14, 2013
Purchases.........................................................................
Accounts payable........................................................

30,000

February 13, 2013

Accounts payable............................................................
Cash............................................................................

30,000

The McGraw-Hill Companies, Inc., 2013

8-2

30,000

30,000

Intermediate Accounting, 7/e

Exercise 8-3 (concluded)

Requirement 3
Requirement 1:
January 14, 2013
Purchases (98% x $30,000)................................................
Accounts payable........................................................

29,400

January 23, 2013

Accounts payable............................................................
Cash............................................................................

29,400

29,400

29,400

Requirement 2:
January 14, 2013
Purchases (98% x $30,000)................................................
Accounts payable........................................................

29,400

February 13, 2013

Accounts payable............................................................
Interest expense (2% x $30,000)........................................
Cash............................................................................

29,400
600

Exercise 8-4

29,400

30,000

First-in, first-out (FIFO)

Cost of goods sold:

Date of
sale

Units sold

Alternate Exercise and Problem Solutions

Cost of
Units Sold

Total Cost
The McGraw-Hill Companies, Inc., 2013
8-3

March 14

3,000 (from BI)

1,000 (from 3/8 purchase)
March 25 4,000 (from 3/8 purchase)
3,000 (from 3/18 purchase)
Total
11,000

$8.00
8.40
8.40
8.20

$24,000
8,400
33,600
24,600
$90,600

Ending inventory = 3,000 units x $8.20 = $24,600

The McGraw-Hill Companies, Inc., 2013

8-4

Intermediate Accounting, 7/e

Exercise 8-4 (continued)

Last-in, first-out (LIFO)
Date

Purchased

Sold

Balance

Beginning
inventory

3,000 @ $8.00 =

$24,000

3,000 @ $8.00

$24,000

March 8

5,000 @ $8.40 =

$42,000

3,000 @ $8.00
5,000 @ $8.40

$66,000

3,000 @ $8.00
1,000 @ $8.40

$32,400

4,000 @ $ 8.40 =

March 14
March 18

6,000 @ $8.20 =

$49,200

March 25
Total cost of goods sold

Alternate Exercise and Problem Solutions

$33,600

3,000 @ $8.00
1,000 @ $8.40
6,000 @ $8.20
6,000 @ $8.20 =
1,000 @ $8.40 =

$49,200
$ 8,400

$91,200

3,000 @ $8.00

$81,600
$24,000
Ending
inventory

The McGraw-Hill Companies, Inc., 2013

8-5

Exercise 8-4 (concluded)

Average cost
Date

Purchased

Beginning
inventory

3,000 @ $8.00 =

$24,000

March 8

5,000 @ $8.40 =

$42,000

$66,000

Sold

Balance
3,000 @ $8.00

$24,000

4,000 @ $8.25 =

$33,000 4,000 @ $8.25

$33,000

7,000 @ $8.22 =

$57,540 3,000 @ $8.22

$24,660
Ending
inventory

= $8.25/unit

8,000 units

March 14
March 18

6,000 @ $8.20 =

$49,200

$82,200
10,000 units

= $8.22/unit

March 25
Total cost of goods sold

$90,540

Exercise 8-5Requirement 1
Cost of goods available for sale:
Beginning inventory (7,000 x $22.00)
Purchases:
6,000 x $22.65
$135,900
9,000 x $24.00
216,000
Cost of goods available (22,000 units)
Cost of goods available for sale (22,000 units)
Less: Ending inventory (below)
Cost of goods sold
The McGraw-Hill Companies, Inc., 2013
8-6

$154,000
351,900
$505,900
$505,900
(207,000)
$298,900
Intermediate Accounting, 7/e

Cost of ending inventory:

$505,900
Weighted-average unit cost =

= $23 (rounded)
22,000 units

9,000 units x $23 (rounded) = $207,000

Alternate Exercise and Problem Solutions

The McGraw-Hill Companies, Inc., 2013

8-7

Exercise 8-5 (concluded)

Requirement 2
Date

Purchased

Sold

Beginning
inventory

7,000 @ $22.00 = $154,000

April 5

6,000 @ $22.65 = $135,900

$289,900

Balance
7,000 @ $22.00

$154,000

= $22.30/unit

13,000 units

April 11
April 26

5,000 @ $22.30 = $111,500

8,000 @ $22.20

$178,400

8,000 @ $23.20 = $185,600

9,000 @ $23.20

$208,800
Ending
inventory

9,000 @ $24.00 = $216,000

$394,400

= $23.20/unit

17,000 units

April 28
Total cost of goods sold

$297,100

Ending

Exercise 8-6
Date
1/1/13

12/31/13

12/31/14

Ending Inventory
at Base Year Cost

Inventory Layers
at Base Year Cost

$832,000
= $832,000
1.00

$832,000 (base)

$832,000 x 1.00 = $832,000

$832,000

$954,000
= $935,294
1.02

$832,000 (base)
103,294 (2013)

$832,000 x 1.00 = $832,000

103,294 x 1.02 = 105,360

937,360

$975,000
= $928,571
1.05

$832,000 (base)
96,571 (2013)

$832,000 x 1.00 = $832,000

96,571 x 1.02 =
98,502

930,502

The McGraw-Hill Companies, Inc., 2013

8-8

Inventory Layers
Converted to Cost

Inventory
DVL Cost

Intermediate Accounting, 7/e

PROBLEMS
Problem 8-1Requirement 1
Beginning inventory (8,000 x $10.00)
Net purchases:
Purchases (45,000* units x $12.00)
Less: Purchase discounts
($11 x 40,000 units x 80% x 2%)
Cost of goods available (53,000 units)
Less: Ending inventory (below)

$ 80,000
$540,000
(7,040)

Cost of goods sold

532,960
612,960
( 70,000)
$542,960

* The 5,000 units purchased on December 28 are included. The units were
shipped f.o.b. shipping point before year-end. The $12 unit cost includes freight
charges.
Cost of ending inventory:
Date of
purchase
BI

Problem 8-2

Units
7,000

Unit cost
$ 10.00

Total cost
$ 70,000

Cost of goods available for sale for periodic system:

Beginning inventory (10,000 x $25.00)

Purchases:
8,000 x $24.00
$192,000
7,000 x $27.00
189,000
Cost of goods available (25,000 units)

$250,000
381,000
$631,000

1. FIFO, periodic system

Cost of goods available for sale (25,000 units)
Less: Ending inventory (determined below)
Cost of goods sold

$631,000
(309,000)
$322,000

Cost of ending inventory:

Alternate Exercise and Problem Solutions

The McGraw-Hill Companies, Inc., 2013

8-9

Date of
purchase
Jan. 4
Jan. 22
Totals

Units
5,000
7,000
12,000

Unit cost
$24.00
27.00

Total cost
$120,000
189,000
$309,000

2. LIFO, periodic system

Cost of goods available for sale (25,000 units)
Less: Ending inventory (determined below)
Cost of goods sold

$631,000
(298,000)
$333,000

Cost of ending inventory:

Date of
purchase
BI
Jan. 4
Totals

Units
10,000
2,000
12,000

The McGraw-Hill Companies, Inc., 2013

8-10

Unit cost
$25.00
24.00

Total cost
$250,000
48,000
$298,000

Intermediate Accounting, 7/e

Problem 8-2 (concluded)

3. Average cost, periodic system
Cost of goods available for sale (25,000 units)
Less: Ending inventory (below)
Cost of goods sold

$631,000
(302,880)
$328,120*

Cost of ending inventory:

Weighted-average unit cost =

$631,000
= $25.24
25,000 units

12,000 units x $25.24 = $302,880

* Alternatively, could be determined by multiplying the units sold by the average
cost: 13,000 units x $25.24 = $328,120

Alternate Exercise and Problem Solutions

The McGraw-Hill Companies, Inc., 2013

8-11