Fundamental Accounting Principles Volume 1 Canadian 15th Edition Larson Solutions Manual Download

Last revised: January 23, 2016.
Solution Manual for Fundamental Accounting Principles

Volume 1 Canadian 15th Edition by Larson Jensen
Dieckmann ISBN 1259087271 9781259087271
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Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. © 2016 McGraw-Hill Education Ltd. 6-1
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SOLUTIONS MANUAL
to accompany
Fundamental Accounting Principles
15th Canadian Edition
by Larson/Jensen/Dieckmann
Revised for the 15th Edition by:

Praise Ma, Kwantlen Polytechnic University
Technical checks by:

Rhonda Heninger, Southern Alberta Institute of Technology
Michelle Young, CPA
Chapter 6 Merchandise Inventories and Cost of Sales
Chapter Opening Critical Thinking Challenge Questions*
1. Would Amazon have a merchandise turnover similar to Lululemon Athletica’s?

Explain why or why not.
- Amazon may or may not have a merchandise turnover similar to Lululemon’s
because it depends on the type of merchandise being sold. Amazon sells
different product than Lululemon so the expectation is that its merchandise
turnover would be different. Additionally, Amazon has a wider range of
products than Lululemon so it could be expected that different types of
products carried by Amazon (or Lululemon) would have different turnovers.
Overall, Amazon has a strong focus on efficient delivery such as same day
delivery, which would result in a higher inventory turnover compared to
Lululemon.
2. What does “inventory demand planning” refer to?
- Inventory demand planning refers to anticipating demand by consumers for
particular types of inventory based on historical data, economic trends, and
other factors. By planning what the demand for particular products will be,
purchasing strategies can be developed to not only meet customer demand
but to minimize inventory on hand and obsolete stock.
3. What would the effect of cost saving strategies be on the weighted average cost
of inventory?
- Cost saving strategies would have the anticipated effect of reducing the
weighted average cost per unit of inventory.
*The Chapter 6 Critical Thinking Challenge questions are asked at the beginning of this
chapter. Students are reminded at the conclusion of the chapter to refer to the Critical
Thinking Challenge questions at the beginning of the chapter. The solutions to the
Critical Thinking Challenge questions are available here in the Solutions Manual and
accessible to students at Connect.
Concept Review Questions

1. The inventory cost should be $1,540 (2,000 – 800 (2,000 x 40%) + $200 +$140).
Inventory cost should include the invoice price minus any discounts plus any
added or incidental costs necessary to put it in a place and condition for sale.
2. a. First items into the inventory are assumed to be the first items sold.
b. The invoice price, less trade discounts, less returns, less discounts and
allowances, plus any additional incidental costs to put goods into place and
condition for sale.
3. Moving weighted average will result in the lower cost of goods sold when inventory
prices are falling because average cost per unit will be less than using FIFO. FIFO will
result in the more costly units assigned to cost of goods sold.
4. Merchandise inventory is disclosed on the balance sheet as a current asset. It also
may appear in the income statement as part of the calculation of cost of goods sold.
5. No, changing the inventory pricing method each period would violate the accounting
principle of consistency.
6. A change from one acceptable method to another is allowed if the company justifies
the change as an improvement in financial reporting.
7. The full-disclosure principle requires that the nature of the change, justification for
the change and the effect of the change on profit be disclosed in the notes to the
company’s financial statements.
8. The faithful representation principle requires that information be complete, neutral,
and free from error so that assets and income are not overstated and liabilities and
expenses are not understated. In terms of inventory, this means that it is imperative
to value inventory at the end of each accounting period to ensure it is not overstated
on the balance sheet and COGS is not understated on the income statement.
9. NRV or net realizable value refers to the sales price of inventory less the cost of
making the sale.
10. An inventory error that causes an understatement (or overstatement) of profit one
accounting period, if not corrected, will cause an overstatement (or understatement)
the next. Therefore, since the understatement (overstatement) of one period offsets
the overstatement (understatement) of the next, such errors are said to correct
themselves.
11. Many people make important decisions based on a company’s profit from period to
period. Therefore, inventory errors should not be permitted to cause fluctuations which
could cause erroneous decisions to be made.
12. WestJet’s inventory would be equivalent to 0.79% (36,658/4,646,433) of total assets.
This is not merchandise inventory because WestJet is not a merchandiser.
13. Danier’s cost of goods sold (or cost of sales) figure for the year ended June 28, 2014
is $73,697,000.
QUICK STUDY
Quick Study 6-1

1. The title will pass at the destination, which is Stark Company’s receiving dock. Carefree
should show the $500 in its inventory at year-end as Carefree retains title until the goods
reach Stark Company.
2. The consignor is Carefree Company. The consignee is Stark Company. The consignor,
Carefree Company, should include the unsold goods as a part of its inventory.
Quick Study 6-2

1,500 – 30 + 250 + 70 = 1,790 units in ending inventory
Quick Study 6-3

Cost...................................... $3,000
Add:
Transportation-In ................ $ 150
Import duties ....................... 200
Insurance ............................. 50
Inventory Cost ..................... $3,400
Quick Study 6-4

Cost...................................... $37,500
Add:
Transportation-In ................ $ 1,200
Cleaning Expenses ............. 490
Insurance ............................. 150
Inventory Cost ..................... $39,340
Quick Study 6-5

Beginning Inventory .......................... 10 units @ $50 $ 500
Add:
1st week purchase ............................. 10 units @ $51 $ 510
2nd week purchase ............................ 10 units @ $52 520
3rd week purchase ............................. 10 units @ $55 550
4th week purchase ............................. 10 units @ $60 600
Units Available .................... 50 units
Cost of Goods Available for Sale ...... $2,680
Quick Study 6-6

(a) FIFO - perpetual
Date Purchases Sales (at cost) Inventory Balance

Unit Total Unit Cost of Goods Unit Total
Units Cost Cost Units Cost Sold Units Cost Cost
Jan. 1 Beginning inventory
310 @ $3.00 = $ 930.00 310 @ $3.00 = $930.00
310 @ $3.00 = $930.00
9 75 @ $3.20 = $ 240.00 75 @ 3.20 = 240.00
310 @ $3.00 = $930.00
25 100 @ $3.35 = $ 335.00 75 @ 3.20 = 240.00
100 @ 3.35 = 335.00
28 310 @ $3.00 = $ 930.00 40 @ $3.20 = $128.00
35 @ 3.20 = 112.00 100 @ 3.35 = 335.00
Total 485 $1,505.00 345 $1,042.00 140 $463.00
Cost of goods available for sale = Cost of goods sold + Ending inventory
Quick Study 6-6 (continued)
(b) Moving weighted average - perpetual
Inventory Balance
Date Purchases Sales (at cost) (a) (b)  (a) (b)
Cost of
Unit Total Unit Goods Total Average Total Inventory Balance
Units Cost Cost Units Cost Sold Units Cost/Unit Cost Calculations
Beginning inventory
Jan. 1 310 @ $3.00 = $ 930.00 310 $3.00 $ 930.00
310 $ 930.00
9 75 @ $3.20 = $ 240.00 75 @ $3.20 = 240.00
385 $3.04 $1,170.00 385 $1,170.00
385 $1,170.00
25 100 @ $3.35 = $ 335.00 100 @ $3.35 = 335.00
485 $3.10 $1,505.00 485 $1,505.00
485 $1,505.00
28 345 @ $3.10 = $1,069.50 –345 @ $3.10 = –1,069.50
140 $3.11* $ 435.50 140 $ 435.50
Total 485 $1,505.00 345 $1,069.50 140 $ 435.50
* cost/unit changed due to rounding
Note: These amounts may vary if the cost/unit was not rounded to two decimal places.
Quick Study 6-7

Cost of
Unit Total Unit Goods Unit Total
310 @ $3.00 = $ 930.00 310 @ $3.00 =
$930.00
310 @ $3.00 =
$930.00
9 75 @ $3.20 = $ 240.00 75 @ 3.20 =
240.00
310 @ $3.00 =
$930.00
25 100 @ $3.35 = $ 335.00 75 @ 3.20 =
240.00
100 @ 3.35 =
335.00
28 250 @ $3.00 = $ 750.00 60 @ $3.00 =
$180.00
50 @ 3.20 = 160.00 25 @ 3.20 =
80.00
45 @ 3.35 = 150.75 55 @ 3.35 =
184.25
Total 485 $1,505.00 345 $1,060.75 140 $444.25
Quick Study 6-8
Purchases/Transportation-
In/
(Purchase Cost of Goods Sold/
Returns/Discounts) (Returns to Inventory) Balance in Inventory
Date Units Cost/Unit Total $ Units Cost/Unit Total $ Units Avg Cost/Unit Total $
Brought
Jan 1 Fwd. 10 $15.00 $150.00
3 6 $15.00 $ 90.00 4 15.00 60.00
7 25 $18.50 $462.50 29 18.02 522.50
8 50.00 29 19.74 572.50
17 (46.25) 29 18.15 526.25
18 14 18.15 254.10 15 18.14 272.15
Quick Study 6-9

a. FIFO b. FIFO c. Specific identification
Quick Study 6-10

a. and b.
NOTE: If it is assumed that aprons, bottles, and candles are one group of related items (i.e.,
kitchen items), then NRV can be applied to the three items as a group in response to part (a)
of the question. If, instead, it is assumed that the three items are not related, then part (a) is
not applicable.
Per Unit LCNRV applied to:

a. b.
Inventory Units on Total Total Inventory Each
Items Hand Cost NRV Cost NRV as a Group Product
Aprons 9 $6.00 $5.50 $ 54.00 $ 49.50 $ 49.50
Bottles 12 3.50 4.25 42.00 51.00 42.00
Candles 25 8.00 7.00 200.00 175.00 175.00
$296.00 $275.50 $275.50 $266.50
c.
2017
Dec. 31 Cost of Goods Sold .............................................. 29.50
Merchandise Inventory .................................... 29.50
To write inventory down to LCNRV; $296 – $266.50 = $29.50.
Quick Study 6-11

a. Understates cost of goods sold.
b. Overstates 2017 gross profit.
c. Overstates 2017 profit.
d. Understates 2018 profit.
e. The overstated profit for 2017 and the understated profit for 2018 combine to a correct
total income for the two year period.
f. The error in 2017 will not affect years subsequent to 2018.
Quick Study 6-12

Goods available for sale:
Inventory, January 1 ..................................................... $180,000
Purchases (net) ............................................................. 342,000
Goods available for sale ............................................... $522,000
Less: Estimated cost of goods
sold [$675,000 × (1 – 42%)] ........................................... 391,500
Estimated September 10 inventory
destroyed in the fire ...................................................... $130,500
Quick Study 6-13

a. Since gross profit for prior periods has been 30%, then Cost of Goods Sold must be 70%.
So, 70% x $565,000 net sales for July = $395,500 estimated cost of goods sold for July.
July’s beginning inventory (June’s ending inventory) ................ $ 65,000

Plus: July purchases .................................................................... 385,500
Equals: Cost of goods available for sale ..................................... $ 450,500
Less: Estimated cost of goods sold for July ............................... 395,500
Equals: Estimated ending inventory for July .............................. $ 55,000
b. Therefore, the estimated shrinkage is $7,000 ($55,000 - $48,000).
Quick Study 6-14
At Cost At Retail
Goods available for sale ................................................................ $67,600 $104,000
Deduct: Net sales at retail ............................................................. 82,000
Ending inventory at retail............................................................... $ 22,000
Cost to retail ratio: ($67,600  $104,000) × 100 = 65% × 65%
Estimated ending inventory at cost: $22,000 × 65% = $ 14,300
Quick Study 6-15

September October
Cost Retail Cost Retail
Beginning $ 74,950 $112,000 $ 70,850 $109,000
inventory
..........................................................
Cost of goods 395,000 611,000 461,590 674,000
purchased
..........................................................
Goods available for $469,950 $723,000 $532,440 $783,000
sale
..........................................................
Less: Net sales at 614,000 700,000
retail
..........................................................
Ending inventory at $109,000 $ 83,000
retail
..........................................................
Cost to retail x 65%1 x 68%2
ratio
..........................................................
Estimated ending $ 70,850 $ 56,440
inventory
..........................................................
1. 469,950/723,000 = .65 or 65%
2. 532,440/783,000 = .68 or 68%
Quick Study 6-16
Both companies are improving their turnover rates for merchandise. However, Huff Company
has a higher turnover which suggests lower levels of inventory selling more rapidly than Mesa
Company. It appears that Huff Company is managing inventory more efficiently provided they
have enough merchandise to satisfy the needs of their customers (not turning them away
because of lack of adequate inventory).
Quick Study 6-17

a) Days’ sales in inventory
2017:
$56,195 × 365 = 50.00 days
$410,225
2016:
$82,500 × 365 = 87.41 days
$344,500
The change from 2016 to 2017 is generally considered to be favourable.
b) Inventory turnover
2017:
$410,225 = 5.92 times
($56,195 + $82,500)/2
2016:
$344,500 = 3.55 times
($82,500 + $111,500)/2
The change from 2016 to 2017 is generally considered to be favourable.
*Quick Study 6-18

a) FIFO periodic
Ending Inventory = 100 @ $3.35 = $335

40 @ $3.20 = $128 = $463 Cost of Ending Inventory
b) Weighted average cost - periodic
$1,505/485 units = $3.10* average cost per unit

140 units in ending inventory @ $3.10/unit = $434* Cost of Ending Inventory
*These amounts may vary if the cost/unit was not rounded to two decimal places.
EXERCISES
Exercise 6-1 (15 minutes)

a) Include – The inventory should be included in OMG Luggage’s inventory as of
December 31, 2017. As the shipping terms on this order are FOB shipping, OMG
Luggage took ownership of the inventory once Baggage Co. shipped the goods on
December 27, 2017. The inventory cost is $3,333 (2,500+$400+$300+$133)
b) Include – The inventory should be included in OMG Luggage’s inventory as at
December 31, 2017. With shipping terms of FOB destination, OMG Luggage still owns
the inventory until the goods reach the customer. As the goods were shipped on
December 31, 2017, it is reasonable to assume that the goods have not yet been
received by the customer as at December 31, 2017. Inventory cost is $500. Shipping
charges of $55 to the customer would be recorded as a freignt-out expense.
c) Include – Good held on consignment belong to the consignor. Inventory should be
included at a cost of $2,000, which is the unsold portion of the consignment inventory.
d) Exclude – The inventory should be excluded because the customer has already
purchased and paid for the goods. Thus, the customer owns the inventory.

(a) FIFO - perpetua
Cost of
75 @ $12.00 = $ 900 75 @ $12.00 = $ 900
10 70 @ $12.00 = $ 840 5 @ $12.00 = $ 60
5 @ $12.00 = $ 60
Mar. 14 250 @ $13.00 = $ 3,250 250 @ 13.00 = $3,250
5 @ $12.00 = $ 60
15 175 @ 13.00 = 2,275 75 @ $13.00 = $ 975
75 @ $13.00 = $ 975
Jul. 30 500 @ $14.00 = $ 7,000 500 @ 14.00 = $7,000
75 @ $13.00 = $ 975
Oct. 5 375 @ 14.00 = 5,250 125 @ $14.00 = $1,750
Total 825 $11,150 700 $9,400 125 $1,750
Gross profit calculation under FIFO:

Sales (700 units × $35)............ $24,500
Cost of goods sold ................. 9,400
Gross profit ............................. $15,100
Exercise 6-2 (continued)

(b) Moving weighted-average - perpetual
Inventory Balance
Cost of
Beginning inventory
Jan. 1 75 @ $12 = $ 900 75 $12.00 $ 900.00
75 $ 900.00
10 70 @ $12.00 = $ 840.00 –70 @ $12.00 = –840.00
5 $12.00 $ 60.00 5 $ 60.00
5 $ 60.00
Mar. 14 250 @ $13 = $ 3,250 250 @ $13.00 = 3,250.00
255 $12.98 $3,310.00 255 $ 3,310.00
255 $ 3,310.00
15 180 @ $12.98 = $2,336.40 –180 @ $12.98 = –2,336.40
75 $12.98 $ 973.60 75 $ 973.60
75 $ 973.60
July 30 500 @ $14 = $ 7,000 500 @ $14.00 = 7,000.00
575 $13.87 $7,973.60 575 $ 7,973.60
575 $ 7,973.60
Oct. 5 450 @ $13.87 = $6,241.50 –450 @ $13.87 = –6,241.50
125 $13.861 $1,732.10 125 $ 1,732.10
Total 825 $11,150 700 $9,417.90 125 $1,732.10
Cost of goods = Cost of goods sold + Ending inventory
available for sale
Gross profit calculation under Weighted-average: Sales (70 units × $35) ................. $24,500.00
Cost of goods sold ..................... 9,417.90
Gross profit ................................. $15,082.10
1 $1,732.10/125 units = $13.8568 which is rounded to $13.86.


Specific identification
Date Inventory
Purchases Sales (at cost)
Balance
Cost of
75 @ $12.00 = $ 900 75 @ $12.00 =
$ 900
10 70 @ $12.00 = $ 840 5 @ $12.00 =
$ 60
5 @ $12.00 =
$ 60
Mar. 14 250 @ $13.00 = $ 3,250 250 @ 13.00 =
3,250
3 @ $12.00 = $ 36 2 @ $12.00 =
$ 24
15 177 @ 13.00 = 2,301 73 @ 13.00 = 949
2 @ $12.00 =
$ 24
73 @ 13.00 = 949
Jul. 30 500 @ $14.00 = $ 7,000 500 @ 14.00 =
7,000
2 @ $12.00 =
$ 24
50 @ $13.00 = $ 650 23 @ 13.00 = 299
Oct. 5 400 @ 14.00 = 5,600 100 @ 14.00 =
1,400
Total 825 $11,150 700 $9,427 125 $1,723
Gross profit calculation under Specific Identification:
Sales (700 units × $35).......... $24,500

Cost of goods sold ............... 9,427
Gross profit ........................... $15,073

1. FIFO
Purchases Sales (at cost) Inventory Balance

Date Units Unit Total Cost Units Unit Cost of Units Cost Total
Cost Cost Goods Cost
Sold
Mar. 1 5@ $30 $150 5@ $30 $150
Mar. 3 50 @ $35 $1,750 5@ $30 $150
50 @ $35 $1,750
Mar. 6 100 @ $40 $4,000 5@ $30 $150
50 @ $35 $1,750
100 @ $40 $4,000

Mar. 17 5@ $30 $150 10 @ $35 $350
40 @ $35 $1,400 100 @ $40 $4,000
Mar. 23 30 @ $40 $1,200 10 @ $35 $350
100 @ $40 $4,000
30 @ $40 $1,200
Mar. 31 10 @ $35 $350 20 @ $40 $800
100 @ $40 $4,000

10 @ $40 $400
Total 185 $7,100 165 $6,300 20 $800
Cost of goods available Cost of goods sold + Ending inventory

for sale =
Exercise 6-4 (Continued)

2. Moving weighted average

Units Unit Total Cost Units Unit Cost of Units Cost Total
Cost Cost Goods Cost
Sold
Mar. 1 5@ $30 $150 5@ $30 $150
Mar. 3 50 @ $35 $1,750 55 @ $34.55 $1,900
Mar. 6 100 @ $40 $4,000 155 @ $38.06 $5,900
Mar. 17 45 @ $38.06 $1,713 110 @ $38.06 $4,187
Mar. 23 30 @ $40 $1,200 140 @ $38.48 $5,387
Mar. 31 120 @ $38.48 $4,618 20 @ $38.48 $770
Total 185 $7,100 165 $6,331 20 $770

Cost of goods available Cost of goods sold + Ending inventory
for sale =

1.
Jan. 1 120 units @ $6.50 = $ 780
Mar. 7 250 units @ 5.80 = 1,450
July 28 500 units @ 5.60 = 2,800
Oct. 3 450 units @ 5.50 = 2,475
Totals 1,320 units $7,505
available for cost of goods
sale available for sale
2.
Units sold:
Jan. 10 70 units
Mar. 15 125 units
Oct. 5 600 units
Totals 795 units
Therefore, units remaining in ending inventory:

1,320 units available for sale – 795 units sold = 525 units remaining in ending inventory
3.(a) FIFO - perpetual

Cost of
120 @ $6.50 = $ 780 120 @ $6.50 = $ 780
10 70 @ $6.50 = $ 455 50 @ $6.50 = $ 325
50 @ $6.50 = $ 325
Mar. 7 250 @ $5.80 = $1,450 250 @ 5.80 = 1,450
50 @ $6.50 = $ 325
15 75 @ 5.80 = 435 175 @ $5.80 = $1,015
175 @ $5.80 = 1,015
Jul. 28 500 @ $5.60 = $2,800 500 @ 5.60 = 2,800
175 @ $5.80 = $1,015
500 @ 5.60 = 2,800
Oct. 3 450 @ $5.50 = $2,475 450 @ 5.50 = 2,475
175 @ $5.80 = $1,015 75 @ $5.60 = $ 420
5 425 @ 5.60 = 2,380 450 @ 5.50 = 2,475
Total 1,320 $7,505 795 $4,610 525 $2,895
Exercise 6-5 (continued)

3.(b) Moving weighted average - perpetual
Inventory Balance
Average
Unit Total Unit Cost of Total Cost/ Total Inventory Balance
Units Cost Cost Units Cost Goods Sold Units Unit Cost Calculations
Beginning inventory
Jan. 1 120 @ $6.50 = $ 780.00 120 $6.50 $ 780.00
120 $ 780.00
10 70 @ $6.50 = $ 455.00 –70 @ $6.50 = –455.00
50 $6.50 $ 325.00 50 $ 325.00
50 $ 325.00
Mar. 7 250 @ $5.80 = $1,450.00 250 @ $5.80 = 1,450.00
300 $5.92 $1,775.00 300 $1,775.00
300 $1,775.00
15 125 @ $5.92 = $ 740.00 –125 @ $5.92 = –740.00
175 $5.911 $1,035.00 175 $1,035.00

175 $1,035.00
July 28 500 @ $5.60 = $2,800.00 500 @ $5.60 = 2,800.00
675 $5.68 $3,835.00 675 $3,835.00
675 $3,835.00
Oct. 3 450 @ $5.50 = $2,475.00 450 @ $5.50 = 2,475.00
1,125 $5.61 $6,310.00 1,125 $6,310.00
1,125 $6,310.00
5 600 @ $5.61 = $3,366.00 –600 @ $5.61 = –3,366.00
525 $5.61 $2,944.00 525 $2,944.00
Total 1,320 $7,505.00 795 $4,561.00 525 $2,944.00
1 Average cost/unit changed because of rounding: $1,035.00/175 units = $5.9143/unit which is rounded to $5.91.

Specific identification
Date Inventory
Purchases Sales (at cost)
Balance
Cost of
120 @ $6.50 = $ 780 120 @ $6.50 = $ 780.00
10 70 @ $6.50 = $ 455.00 50 @ $6.50 = $ 325.00
50 @ $6.50 = $ 325.00
Mar. 7 250 @ $5.80 = $1,450 250 @ 5.80 = 1,450.00
25 @ $6.50 = $ 162.50 25 @ $6.50 = $ 162.50
15 100 @ 5.80 = 580.00 150 @ 5.80 = 870.00
25 @ $6.50 = $ 162.50
150 @ 5.80 = 870.00
Jul. 28 500 @ $5.60 = $2,800 500 @ 5.60 = $2,800.00
25 @ $6.50 = $ 162.50
150 @ 5.80 = 870.00
500 @ 5.60 = 2,800.00
Oct. 3 450 @ $5.50 = $2,475 450 @ 5.50 = 2,475.00
25 @ $6.50 = $ 162.50
150 @ 5.80 = 870.00
320 @ $5.60 = $1,792.00 180 @ 5.60 = 1,008.00
5 280 @ 5.50 = 1,540.00 170 @ 5.50 = 935.00
Total 1,320 $7,505 795 $4,529.50 525 $2,975.50

CAR ARMOUR
Income Statement
For year ended December 31, 2017
Moving
Weighted Specific
FIFO Average Identification
Sales ..................................... $11,925.00 $ 11,925.00 $11,925.00
(795 units × $15 selling price)
Cost of goods sold..................... 4,610.00 4,561.00 4,529.50
Gross profit ................................ $ 7,315.00 $ 7,364.00 $ 7,395.50
Operating expenses ................... 1,250.00 1,250.00 1,250.00
Profit ..................................... $ 6,065.00 $ 6,114.00 $ 6,145.50
1) The Specific Identification method results in the highest profit with $6,145.50. However, it
should be noted that Specific Identification may be higher or lower depending on which
units were sold.
2) If costs were rising instead of falling then the FIFO method would probably result in the
highest profit.
Exercise 6-8
Purchases/Transportation-
In/ (Purchase Cost of Goods Sold/
Returns/Discounts) (Returns to Inventory) Balance in Inventory
Avg
DateUnits Cost/Unit Total $ Units Cost/Unit Total $ Units Cost/Unit Total $
Brought
Mar. 1 60 Forward $ 5,640.00 60 $94.00 $5,640.00
2 35 $96.00 3,360.00 95 94.74 9,000.00
3 22 94.74 $ 2,084.28 73 94.74 6,915.72
4 (2) 94.74 (189.48) 75 94.74 7,105.20
7 65 94.74 6,158.10 10 94.74 947.10
17 40 97.00 3,880.00 50 96.54 4,827.10
28 43 96.54 4,151.22 7 96.55* 675.88
Goods
Available Goods Ending
Totals 135 for Sale $12,880.00 128 Sold $12,204.12 7 Inventory $ 675.88
*Average changed because of rounding
Analysis component:
The gross profit ratio for Product W506 for March 2017 is 35.58% calculated as net March
sales of $18,944 (128 units × $148) less March cost of goods sold of $12,204.12 = $6,739.88
gross profit ÷ $18,944 sales = .3558 × 100 = 35.58%. This is favourable as gross profit
increased from February to March 2017. The most probable cause is the lower price paid for
the balance brought forward which reduces the average cost. Maintaining the same selling
price will then create a higher gross profit.

a. LCNRV applied to inventory as a group of similar/related items: $14,411
b. LCNRV applied separately to each product: $13,802
Calculations:
a. b.
Inventory Units Total Total Inventory Each
Items on Hand Cost NRV Cost NRV as a Group Product
BB 22 $110 $115 $ 2,420 $ 2,530 $ 2,420
FM 15 145 138 2,175 2,070 2,070
MB 36 186 172 6,696 6,192 6,192
SL 40 78 92 3,120 3,680 3,120
$14,411 $14,472 $14,411 $13,802
c. 2017
Dec. 31 Cost of Goods Sold .................................................. 609
Merchandise Inventory ................................... 609
To write inventory down to NRV;
14,411 – 13,802 = 609
1. $900,000 – $500,000 = $400,000
2.
For years ended Income statement information
December 31, 2017, 2018, and actually reported for
2019 years ended December 31,
income statement
information
should have been reported 2017 2018 2019
as:
Sales $900,000 $900,000 $900,000 $900,000
Cost of goods sold:
Beginning $200,000 $200,000 $180,000 $200,000
inventory
Add: Purchases 500,000 500,000 500,000 500,000
Less: Ending 200,000 180,000 200,000 200,000
inventory
Cost of goods sold 500,000 520,000 480,000 500,000
Gross profit $400,000 $380,000 $420,000 $400,000

Inventory, January 1 .......................................................... $ 450,000
Purchases ........................................................................... $1,590,000
Purchase returns ................................................................ (23,100)
Transportation-in ............................................................... 37,600 1,604,500
Goods available for sale .................................................... $2,054,500
Less: Estimated cost of goods sold:
Sales .................................................................................. $2,000,000
Estimated cost of goods sold
[$2,000,000 × (1 – 30%)] ................................................. (1,400,000)
Estimated March 31 inventory $ 654,500

At Cost At Retail
Beginning inventory ............................................. $127,600.00 $256,800.00
Net purchases ....................................................... 231,240.00 393,600.00
Goods available for sale ....................................... $358,840.00 $650,400.00
Deduct net sales at retail ......................................... 520,000.00
Ending inventory at retail ......................................... $130,400.00
Cost ratio: ($358,840/$650,400) × 100 = 55.17%
Ending inventory at cost ($130,400 × 55.17%) ........ $ 71,941.68

a. $109,200 × 55.17% = $60,245.64
b.
At Cost At Retail
Estimated inventory that should have
been on hand ................................................ $ 71,941.68 $130,400.00
Physical inventory ........................................................ 60,245.64 109,200.00
Inventory shrinkage ...................................................... $ 11,696.04 $ 21,200.00

Inventory turnover
2018:
$643,825 = 7.0 times
($96,400 + $86,750)/2
2017:
$426,650 = 4.8 times
($86,750 + $91,500)/2
Days’ sales in inventory

2018:
$ 96,400 × 365 = 54.7 days
$643,825
2017:
$ 86,750 × 365 = 74.2 days
$426,650
It appears that Russo has lower levels of inventory on hand because it is turning it over
more quickly. Inventory is staying in the store 54.7 days in 2018 before it was sold as
compared to 74.2 days in 2017. This is generally favourable provided customers are not
being turned away because of out-of-stock items.
*Exercise 6-15 (20 minutes)

Ending Cost of
Inventory Goods Sold
a. FIFO:
120 × $4.40 .................................................................. $528
$13,200 – $528 ............................................................ $12,672
b. Weighted-average cost ($13,200/2,640 = $5.00):

$5.00 × 120 .................................................................. $600
$13,200 – $600 ............................................................ $12,600
FIFO provides the lower profit because it has the higher cost of goods sold due to decreasing
unit costs.

Ending Cost of
Inventory Goods Sold
a. FIFO:
(60 × $2.45) + (95 × $2.30) ........................................... $365.50
(120 × $2.10) + (250 × $2.20) + (405 × $2.30) ............... $1,733.50
b. Weighted-average cost ($2,099/930 = $2.26):

$2.26 × 155 .................................................................. $350.30
$2.26 × 775 .................................................................. $1,748.70*
*$2.26 x 775 = 1,751.50. Cost of goods sold has been adjusted to $1,748.70 because ending
inventory plus cost of goods sold must equal cost of goods available for sale of $2,099.00.
Weighted average provides the lowest profit because it has the highest cost of goods sold due
to rising unit costs.

Ending inventory:
Units Cost/Unit Total Cost
Beginning inventory 80 @ $2.10 = $168.00
March 7 purchase 27 @ 2.20 = 59.40
July 28 purchase 48 @ 2.30 = 110.40
155 $337.80
Cost of goods sold:
Cost of goods available for sale less Ending inventory = Cost of goods sold
$2,099.00 – $337.80 = $1,761.20
PROBLEMS
Problem 6-1A (30 minutes)Part 1

a. Exclude – With shipping terms of FOB destination, J&M does not take ownership of
the inventory until January 3, 2018. Therefore, J&M does not own the inventory (blue
jackets, Item #7649) as at December 31, 2017. J&M has incorrectly included the blue
jackets (Item #7649) in their inventory listing.
b. Exclude – With FOB shipping terms, J&M no longer owns the inventory on December
31, 2017 when the goods are shipped. The company has correctly excluded these
goods as scarves (Item #5566) is not included in the inventory listing.
c. Include –With shipping terms of FOB shipping, J&M takes ownership of the inventory
as at December 30, 2017. Thus, the inventory should be included in inventory as at
December 31, 2017. The inventory should be included at a cost of $3,900
($3,300+$320+$220+$60). J&M has made an error in not included the red blazers in the
inventory listing.
d. Exclude – The inventory held on consignment for Duke Co. should be excluded from
J&M’s inventory. J&M does not own the consigned goods.
e. Include – With shipping terms of FOB destination, J&M still owns the inventory until
the goods reach the customer on January 3, 2018. Thus, J&M owns the inventory as
at December 31, 2017 and should include the goods in the final inventory listing. The
inventory should be included at a cost of $1,000.
Part 2
Merchandise Inventory
Unadjusted Balance. 75,500 2,000 (a)
(c) 3,900 5,000 (d)
(e)1,000
Adjusted Bal. 73,400
Note: There is no error in (b) as J&M has correctly excluded the inventory.
Problem 6-2A (40 minutes )
1) (a) FIFO - perpetual

Cost of
Unit Unit Total Unit Goods Unit Total
s Cost Cost Units Cost Sold Units Cost Cost
500 @ $85.00 = $42,500 500 @ $85.00 =
$42,500
500 @ $85.00 =
$42,500
Feb. 10 250 @ $82.00 = $20,500 250 @ 82.00 =
20,500
Mar. 15 330 @ $85.00 = $28,050 170 @ $85.00 =
$14,450
250 @ 82.00 =
20,500
170 @ $85.00 =
$14,450
250 @ 82.00 =
20,500
Aug. 21 130 @ $95.00 = $12,350 130 @ 95.00 =
12,350
Sept 10 170 @ $85.00 = $14,450 185 @ $82.00 =
$15,170
65 @ 82.00 = 5,330 130 @ 95.00 =
12,350
Total 880 $75,350 565 $47,830 315 $27,520
Problem 6-2A (continued)

1) (b) Moving weighted-average - perpetual
Inventory Balance
Cost of Average
Unit Total Unit Goods Total Cost/ Total Inventory Balance
Units Cost Cost Units Cost Sold Units Unit Cost Calculations
Beginning inventory
Jan. 1 500 @ $85.00 = $42,500.00 500 $85.00 $42,500.00
500 $42,500.00
Feb. 10 250 @ $82.00 = $20,500.00 250 @ $82.00 = 20,500.00
750 $84.00 $63,000.00 750 $63,000.00
750 $63,000.00
Mar. 15 330 @ $84.00 = $27,720.00 –330 @ $84.00 = –27,720.00
420 $84.00 $35,280.00 420 $35,280.00
420 $35,280.00
Aug 21 130 @ $95.00 = $12,350.00 130 @ $95.00 = 12,350.00
550 $86.60 $47,630.00 550 $47,630.00
550 $47,630.00
Sept 10 235 @ $86.60 = $20,351.00 –235 @ $86.60 = –20,351.00
315 $86.60 $27,279.00 315 $27,279.00
Total 880 $75,350.00 565 $48,071.00 315 $27,279.00

2) Specific Identification

Total Total
Units Unit Cost Cost Units Unit Cost Cost of Goods Sold Units Unit Cost Cost
500 @ $85.00 = $42,500 500 @ $85.00 = $42,500
500 @ $85.00 = $42,500
Feb. 10 250 @ $82.00 = $20,500 250 @ 82.00 = 20,500
Mar. 15 170 @ $85.00 = $14,450 330 @ $85.00 = $28,050
160 @ 82.00 = 13,120 90 @ 82.00 = 7,380
330 @ $85.00 = $28,050
90 @ 82.00 = 7,380
Aug. 21 130 @ $95.00 = $12,350 130 @ 95.00 = 12,350
Sept. 10 165 @ $85.00 = $14,025 165 @ $85.00 = $14,025
20 @ 82.00 = 1,640 70 @ 82.00 = 5,740
50 @ 95.00 = 4,750 80 @ 95.00 = 7,600
Total 880 $75,350 565 $47,985 315 $27,365
Problem 6-2A (concluded)
3)
Moving Weighted Specific
Feb. 10 Merchandise Inventory ............. 20,500 20,500 20,500
Accounts Payable .............. 20,500 20,500 20,500
To record the purchase of
inventory on credit.
Sept. 10 Accounts Receivable ................ 34,075 34,075 34,075

Sales ................................... 34,075 34,075 34,075
To record a credit sale;
$145/unit x 235 units =
$34,075.00.
10 Cost of Goods Sold .................. 19,780 20,351 20,415

Merchandise Inventory ...... 19,780 20,351 20,415
To record the sale of
merchandise.
*Problem 6-3A (25 minutes)

a) FIFO basis:
Total cost of the 880 units for sale .................... $75,350
Less: Ending inventory on a FIFO basis:
130 units @ $95 .............................................. $12,350
185 units @ $82 .............................................. 15,170 27,520
Cost of units sold ............................................... $47,830
b) Weighted average cost basis:

Total cost of the 880 units for sale .................... $75,350.00
Less: Ending inventory at weighted-average cost:
($75,350/880 = $85.63) × 315 .......................... 26,973.45*
Cost of units sold ............................................... $48,376.55*
*These amounts may vary if the unit cost/unit was not rounded to two decimal places.
Problem 6-4A (40 minutes)


Cost of
280 @ $80.00 = $22,400 280 @ $80.00 = $22,400
280 @ $80.00 = $22,400
Feb. 10 195 @ $84.00 = $16,380 195 @ 84.00 = 16,380
20 280 @ $80.00 = $22,400
80 @ 84.00 = 6,720 115 @ $84.00 = $ 9,660
115 @ $84.00 = $ 9,660
Mar. 13 290 @ $78.00 = $22,620 290 @ 78.00 = 22,620
115 @ $84.00 = $ 9,660
290 @ 78.00 = 22,620
Sept 5 255 @ $64.00 = $16,320 255 @ 64.00 = 16,320
Oct. 10 115 @ $84.00 = $ 9,660
290 @ 78.00 = 22,620
105 @ 64.00 = 6,720 150 @ $64.00 = $ 9,600
Total 1,020 $77,720 870 $68,120 150 $ 9,600

Inventory Balance
Cost of
Beginning inventory
Jan. 1 280 @ $80.00 = $22,400.00 280 $80.00 $22,400.00
280 @ $80.00 = $22,400.00
Feb. 10 195 @ $84.00 = $16,380.00 195 @ 84.00 = 16,380.00
475 $81.64 $38,780.00 475 $38,780.00
475 $38,780.00
Feb 20 360 @ $81.64 = $29,390.40 360 29,390.40
115 $81.651 $ 9,389.60 115 $ 9,389.60

115 $ 9,389.60
Mar. 13 290 @ $78.00 = $22,620.00 290 @ $78.00 = 22,620.00
405 $79.042 $32,009.60 405 $32,009.60
405 $32,009.60
Sep. 5 255 @ $64.00 = $16,320.00 255 @ $64.00 = 1 6,320.00
660 $73.233 $48,329.60 660 $48,329.60
660 $48,329.60
Oct. 10 510 @ $73.23 = $37,347.30 510 37,347.30
150 $73.224 $10,982.30 150 $10,982.30
Total 1,020 $77,720.00 870 $66,737.70 150 $10,982.30
*Changed due to rounding;

2)
Moving
Weighted
FIFO Average
Sales (870 x $139,200 $139,200.00
$160)
........................................
Cost of goods 68,120 66,737.70
sold
........................................
Gross $ 71,080 $ 72,462.30
profit
........................................
Analysis Component
If Gale Company had been experiencing increasing prices in the acquisition of

additional inventory, gross profit would have been highest using a FIFO inventory
costing method and lowest under a Moving Weighted Average inventory costing method.
a) FIFO basis:
Total cost of the 1,020 units for sale ................. $77,720
150 units @ $64 .............................................. 9,600

($77,720/1,020 = $76.20) × 150 ....................... 11,430*
Cost of units sold ............................................... $66,290*

1. a) FIFO
Date Units Unit Total Units Unit Cost Units Cost Total
Cost Cost Cost of Cost
Goods
Sold
Oct. 1 20 @ $14 $280 20 @ $14 $280
Oct. 3 10 @ $15 $150 20 @ $14 $280
10 @ $15 $150
Oct. 6 15 @ $14 $210 5@ $14 $70
10 @ $15 $150
Oct. 12 20 @ $17 $340 5@ $14 $70

10 @ $15 $150
20 @ $17 $340
Oct. 19 5@ $14 $70 15 @ $17 $255
10 @ $15 $150
5@ $17 $85
Oct. 23 30 @ $19 $570 15 @ $17 $255
30 @ $19 $570
Oct. 30 15 @ $17 $255 20 @ $19 $380
10 @ $19 $190
Oct. 31 15 @ $20 $300 20 @ $19 $380
15 @ $20 $300
Total 95 $1,640 60 $960 35 $680
Problem 6-6A (Continued) Part 1 b) Moving weighted average

Date Units Unit Total Units Unit Cost Units Cost Total
Cost Cost Cost of Cost
Goods
Sold
Oct. 1 20 @ $14 $280 20 @ $14 $280
Oct. 3 10 @ $15 $150 30 @ $14.33 $430
Oct. 6 15 @ $14.33 $215 15 @ $14.33 $215
Oct. 12 20 @ $17 $340 35 @ $15.86 $555
Oct. 19 20 @ $15.86 $317 15 @ $15.86 $238
Oct. 23 30 @ $19 $570 45 @ $17.96 $808
Oct. 30 25 @ $17.96 $449 20 @ $17.96 $359
Oct. 31 15 @ $20 $300 35 @ $18.83 $659
Total 95 $1,640 60 $981 35 $659

Total 95 $1,640 60 $981 35 $659

2.
FIFO Weighted moving average
Sales $3,000 (60 x $50) $3,000 (60 x $50)
Cost of goods sold 960 981
Gross Profit $2,040 $2,019
3.
a. FIFO produces the higher gross profit
b. FIFO produces the higher ending inventory balance.
4.
Sales $3,000 (60 x $50) $3,000 (60 x $50)
Cost of goods sold 960 981
Gross Profit 2,040 2,019
Gross Profit percentage 68% 67%
FRESH EXPRESS COMPANY

Income Statement Comparing FIFO and
Moving Weighted-Average Inventory Costing Methods
For Year Ended December 31, 2017
Moving
FIFO WeightedAverage
Cost
Sales (5,500 units sold x $495,000 $495,000
$90/unit)
..........................................................................................
Cost of goods 218,600 218,815
sold
..........................................................................................
Gross $276,400 $276,185
profit
..........................................................................................
Operating expenses (5,500 units sold x 77,000 77,000
$14/unit)
..........................................................................................
Profit $199,400 $199,185
..........................................................................................
NOTE: The COGS calculations for each of FIFO and Moving Weighted Average are on the
following pages.


Cost of
Unit Total Unit Goods Total
Units Cost Cost Units Cost Sold Units Unit Cost Cost
600 @ $35.00 = $ 21,000 600 @ $35.00 = $ 21,000
600 @ $35.00 = $ 21,000
Feb. 20 1,500 @ $37.00 = $ 55,500 1,500 @ 37.00 = 55,500
600 @ $35.00 = $ 21,000
1,500 @ 37.00 = 55,500
May 16 700 @ $41.00 = $ 28,700 700 @ 41.00 = 28,700
Sept 20 600 @ $35.00 = $ 21,000
.
1500 @ 37.00 = 55,500
400 @ 41.00 = 16,400 300 @ $41.00 = $ 12,300
300 @ $41.00 = $ 12,300
Dec. 11 3,300 @ $42.00 = $138,600 3,300 @ 42.00 = 138,600
22 300 @ $41.00 = $ 12,300
2,700 @ 42.00 = 113,400 600 @ $42.00 = $ 25,200
Total 6,100 $243,800 5,500 $218,600 600 $ 25,200

Inventory Balance
Cost of
Unit Total Unit Goods Total Average Total
Units Cost Cost Units Cost Sold Units Cost/Unit Cost Inventory Balance Calculations
Beginning inventory
Jan. 1 600 @ $35.00 = $ 21,000 600 $35.00 $ 21,000
600 @ $35.00 = $ 21,000
Feb. 20 1,500 @ $37.00 = $ 55,500 1,500 @ 37.00 = 55,500
2,100 $36.43 $ 76,500 2,100 $ 76,500
2,100 $ 76,500
May 16 700 @ $41.00 = $ 28,700 700 @ $41.00 = 28,700
2,800 $37.57 $105,200 2,800 $105,200
2,800 $105,200
Sept. 20 2,500 @ $37.57 = $ 93,925 –2,500 @ $37.57 = –93,925
300 $37.581 $ 11,275 300 $ 11,275
300 $ 11,275
Dec. 11 3,300 @ $42.00 = $138,600 3,300 @ $42.00 = 138,600
3,600 $41.63 $149,875 3,600 $149,875
3,600 $149,875
22 3,000 @ $41.63 = $124,890 –3,000 @ $41.63 = –124,890
600 $41.642 $ 24,985 600 $ 24,985
Total 6,100 $243,800 5,500 $218,815 600 $ 24,985
Analysis Component
If the manager of Fresh Express earns a bonus based on a percentage of gross profit, she will prefer the FIFO inventory
costing method since it has produced the higher gross profit. FIFO will always produce a higher gross profit than Moving
weighted average when the unit costs of merchandise inventory are increasing.
1 Cost per unit changed due to rounding; $11,275/300 units = $37.5833 which is rounded to $37.58.
2 Cost per unit changed due to rounding; $24,985/600 units = $41.6417 which is rounded to $41.64.
FRESH EXPRESS COMPANY

Income Statement Comparing FIFO and
Weighted Average Inventory Costing Methods
Weighted Average
FIFO
Sales ............................. $495,000 $495,000
COGS ............................ 218,600 219,818
Gross Profit .................. $276,400 $275,182
Operating Expenses .... 77,000 77,000
Profit ............................. $199,400 $198,182
Supporting calculations:
Cost of goods available for sale:
600 units in beginning inventory @ $35 .......... $ 21,000
1,500 @ $37 ............................................................ 55,500
700 @ $41 ........................................................... 28,700
3,300 @ $42 ........................................................... 138,600
6,100 units available for sale ............................... $243,800
a) FIFO basis:
Total cost of the 6,100 units ......................................... $243,800
600 @ $42 .................................................................. 25,200
Cost of units sold ......................................................... $218,600
b) Weighted average:
Total cost of the 6,100 units ......................................... $243,800
($243,800/6,100) = $39.97 × 600 ............................... 23,982*
Cost of units sold ......................................................... $219,818*

Cost of goods sold: 2017 2018 2019
Reported ............................................................. $ 715,000 $ 847,000 $ 770,000
Adjustments: Dec. 31, 2017 error ................ – 70,000 + 70,000
Dec. 31, 2018 error ................ + 32,000 – 32,000
Corrected ............................................................ $ 645,000 $ 949,000 $ 738,000
Profit: 2017 2018 2019
Reported ............................................................. $ 220,000 $ 275,000 $ 231,000
Adjustments: Dec. 31, 2017 error ................ + 70,000 – 70,000
Dec. 31, 2018 error ................. – 32,000 + 32,000
Corrected ............................................................ $ 290,000 $ 173,000 $ 263,000
Total current assets: 2017 2018 2019
Reported ............................................................. $1,155,000 $1,265,000 $1,100,000
Adjustments: Dec. 31, 2017 error ................. + 70,000
Dec. 31, 2018 error ................ – 32,000
Corrected ............................................................ $1,225,000 $1,233,000 $1,100,000
Equity: 2017 2018 2019
Reported ............................................................. $1,287,000 $1,430,000 $1,232,000
Adjustments: Dec. 31, 2017 error ................ + 70,000
Dec. 31, 2018 error ................ – 32,000
Corrected ............................................................ $1,357,000 $1,398,000 $1,232,000
Analysis component:
These errors are “self-correcting” in the year following the error. Each overstatement (or
understatement) of profit is offset by a matching understatement (or overstatement) in the
following year. Thus, aggregate profit for the three-year period is not affected by the errors.
The understatement of inventory by $70,000 results in an overstatement of cost of goods
sold by that same amount. The $70,000 overstatement of cost of goods sold results in an
understatement of gross profit by the same amount. This understatement of gross profit
carries through to an understatement of profit. Since the understated profit is closed to
capital, the final equity figure is understated by the amount of the inventory
understatement.

2017 2018 2019
Corrected Ending Inventory $ 345,000 $ 420,000 $ 392,000
+ $ 52,000 – $ 14,000 (no change)
$ 397,000 $ 406,000
Corrected Cost of Goods Sold $1,300,000 $1,750,000 $2,100,000
– $ 52,000 + $ 52,000 – $ 14,000
$1,248,000 + $ 14,000 $2,086,000
$1,816,000
Corrected Profit $ 340,000 $ 516,000 $ 652,000
+$ 52,000 - $ 52,000 +$ 14,000
$ 392,000 - $ 14,000 $ 666,000
$ 450,000

b.
Units a. Separately
Inventory on Total Total Major to Each
Items Hand Cost NRV Cost NRV Group Product
Audio equipment:
Wireless audio receivers 335 $185 $196 $ 61,975 $ 65,660 $ 61,975
Touchscreen MP3 players 250 220 200 55,000 50,000 50,000
Audio mixers 316 174 190 54,984 60,040 54,984
Audio stands 194 100 82 19,400 15,908 15,908
Subtotal $191,359 $191,608 $191,359
Video:
Televisions 470 295 250 $138,650 $117,500 117,500
1GB video cards 281 180 168 50,580 47,208 47,208
Satellite video recorders 202 615 644 124,230 130,088 124,230
Subtotal $313,460 $294,796 294,796
Car Audio:
In-dash GPS navigators 175 142 168 $ 24,850 $ 29,400 24,850
Double-DIN CD/Bluetooth/USB receivers 160 195 210 31,200 33,600 31,200
Subtotal $ 56,050 $ 63,000 56,050
Totals $560,869 $549,404 $542,205 $527,855

2(a). Dec. 31 Cost of Goods Sold .................................................. 18,664
Merchandise Inventory ................................... 18,664
To write inventory down to LCNRV;
560,869 – 542,205 = 18,664
2(b). Dec. 31 Cost of Goods Sold .................................................. 33,014

560,869 – 527,855 = 33,014

2016 Gross profit ratio:
Sales ......................................................... $3,200,225
Cost of sales............................................. 1,760,575
Gross margin ........................................... $1,439,650
Gross profit ratio...................................... 45%*
Estimated inventory:
Inventory, December 31, 2016................. $294,100
Net purchases, 2017 ............................... 182,400
Goods available for sale .......................... $ 476,500
Less: estimated cost of goods sold:
Sales ......................................................... $350,600
Estimated cost of goods sold .................
[$350,600 × (1 – 45%)] ........................... 192,830
Estimated February 10, 2017 inventory ....... $ 283,670
Less: inventory salvaged ........................ 106,200
Estimated inventory lost in fire ..................... $ 177,470
*rounded to nearest whole percentage

Sporting Pro
Estimated Inventory
March 31, 2017
Inventory, January 1, 2017 ............................... $ 300,260
Purchases ......................................................... $ 945,200
Less: Purchase returns ................................... 13,050
Add: Transportation-in .................................. 6,900
Net cost of goods purchased ........................... 939,050
Goods available for sale ................................... $1,239,310
Sales .................................................................. $1,191,150
Less: Sales returns ........................................... 9,450
Net sales ............................................................ $1,181,700
[$ 1,181,700 × (1 – 36%)] ............................... 756,288
Estimated March 31, 2017 inventory ................... $ 483,022
Problem 6-14A (25 minutes) Part 1

EARTHLY GOODS
Estimated Inventory
December 31, 2017
At Cost At Retail
Beginning inventory ................................................. $ 471,350 $ 927,150
Purchases ................................................................. 3,328,830 6,398,700
Purchase returns ...................................................... (52,800) (119,350)
Goods available for sale .......................................... $3,747,380 $7,206,500
Net sales ($5,495,700 – $44,600) ............................... 5,451,100
Ending inventory at retail.......................................... $1,755,400
Cost to retail ratio ($3,747,380  $7,206,500) x 100 . × 52%
Ending inventory at cost ........................................... $ 912,808
Part 2
Estimated loss at retail: $1,755,400 -$1,675,800 = $79,600; $79,600 × 52% = $41,392
EARTHLY GOODS
Inventory Shortage
December 31, 2017
At Cost At Retail
Estimated inventory, December 31 ......................... $912,808 $1,755,400
Physical inventory .................................................... 871,416 1,675,800
Inventory shortage ................................................... $ 41,392 $ 79,600

Part 1 At Cost At Retail
Beginning inventory................................................. $ 75,000 $ 93,750
Purchases ................................................................. 1,275,000 1,731,250
Less: Purchase returns and allowances ............... 15,000 20,000
Add: Transportation-in ........................................... 18,750
Goods available for sale .......................................... $1,353,750 $1,805,000
Deduct net sales at retail ($1,642,500 – $18,000) ........ 1,624,500

Ending inventory at retail ............................................. $ 180,500
Cost to retail ratio ($1,353,750  $1,805,500) x 100 ..... x 75%
Estimated ending inventory at cost ($180,500 × 75%): $ 135,375
Part 2
The estimated cost of the stolen inventory is $135,375 – $58,500 = $76,875
2014 2013
a. Inventory
turnover ratio 493,955,000 = 2.27 495,099,000 = 2.22
(218,979,000 + 216,533,000)/2 (216,533,000 + 229,199,000)/2

b. Days’ sales in
inventory (218,979,000 /493,955,000) x 365 (216,533,000 /495,099,000) x 365
= 162 days = 160 days
Indigo’s inventory turnover has increased slightly meaning that inventory is selling
slightly faster in 2014 compared to 2013. The days sales in inventory shows that the
company is holding inventory for fewer days in 2014 compared to 2013. This change
from 2013 to 2014 is favourable.
Part 1
Cost of units available for sale:
19,000 units in beginning inventory @ $7.50 .... $ 142,500
26,000 units purchased @ $9.00 ........................ 234,000
31,000 units purchased @ $11.00 ....................... 341,000
21,500 units purchased @ $12.00 ...................... 258,000
31,000 units purchased @ $13.50 ...................... 418,500
128,500 units for sale ........................................... $1,394,000
Part 2
a) FIFO basis:
Total cost of the 128,500 units for sale ............. $1,394,000
15,000 units @ $13.50 ................................... 202,500
Cost of units sold ............................................... $1,191,500

Total cost of the 128,500 units for sale ............. $1,394,000
($1,394,000/128,500 = $10.85) × 15,000 .......... 162,750*
Cost of units sold ............................................... $1,231,250*
ALTERNATE PROBLEMS
Problem 6-1B (30 minutes)Part 1

a) Exclude – With FOB shipping terms, Y+R no longer owns the inventory on November 30, 2017 when the goods are
shipped. The company has correctly excluded these goods.
b) Exclude – With the shipping terms of FOB destination, Y+R does not take ownership of the inventory until December
3, 2017. Therefore, Y+R does not own the inventory (women’s black suede boots item # RU633) as at November 30,
2017.
c) Include –With shipping terms of FOB shipping, Y+R takes ownership of the inventory as at November 30, 2017, when
the inventory was shipped. The inventory should be included at a cost of $2,777 ($2,300+$230+$161+$86)
d) Include – With shipping terms of FOB destination, Y+R still owns the inventory until the goods reach the customer
on January 3, 2018. Thus, Y+R owns the inventory as at November 30, 2017 and should include the goods in the
final inventory listing. The inventory should be included at a cost of $1,800.
e) Exclude – The inventory held on consignment for Hughe Black should be excluded from Y+R’s inventory. Y+R does
not own the consigned goods.
Part 2
Merchandise Inventory
Unadjusted Balance 49,222 1,500 (b)
(c) 2,777 3,700 (e)
(d)1,800
Bal $48,599
Note: Y+R has corrected excluded the inventory in (a). No correction required.
Problem 6-2B (40 minutes)


Total Unit Cost of Goods Unit Total
Units Unit Cost Cost Units Cost Sold Units Cost Cost
600 @ $105.00 = $ 63,000 600 @
$105.00 = $63,000
600 @
$105.00 = $63,000
Feb. 13 200 @ $109.00 = $ 21,800 200 @109.00 = 21,800
15 300 @ $105.00 = $31,500 300 @
$105.00 = $31,500
200 @109.00 = 21,800
300 @
$105.00 = $31,500
200 @109.00 = 21,800
Aug. 5 345 @ $112.00 = $ 38,640 345 @112.00 = 38,640
10 300 @ $105.00 = $31,500 165 @%109.0 = $17,985
0
35 @ 109.00 = 3,815 345 @ 112.00 = 38,640
Total 1,145 $123,440 635 $66,815 510 $56,625
Problem 6-2B (continued)

1) (b) Moving weighted-average - perpetual
Inventory Balance
Cost of Average
Unit Total Unit Goods Total Cost/ Total
Units Cost Cost Units Cost Sold Units Unit Cost Inventory Balance Calculations
Beginning
inventory
Jan. 1 600 @ $105.00 = $ 63,000.00 600 $105.00 $63,000.00
600 $63,000.00
Feb. 13 200 @ $109.00 = $ 21,800.00 200 @ $109.00 = 21,800.00
800 $106.00 $84,800.00 800 $84,800.00
800 $84,800.00
15 300 @ $106.00 = $31,800.00 –300 @ $106.00 = -31,800.00
500 $106.00 $53,000.00 500 $53,000.00
500 $53,000.00
Aug. 5 345 @ $112.00 = $ 38,640.00 345 @ $112.00 = 38,640.00
845 $108.45 $91,640.00 845 $91,640.00
845 $91,640.00
10 335 @ $108.45 = $36,330.75 –335 @ $108.45 = -36,330.75
510 $108.45 $55,309.25 510 $55,309.25
Total 1,145 $123,440.00 635 $68,130.75 510 $55,309.25
Problem 6-2B (concluded)

2) Specific identification

Cost of
600 @ $105.00 = $ 63,000 600 @ $105.00 = $63,000
600 @ $105.00 = $63,000
Feb. 13 200 @ $109.00 = $ 21,800 200 @ 109.00 = 21,800
15 175 @ $105.00 = $18,375 425 @ $105.00 = $44,625
125 @ 109.00 = 13,625 75 @ 109.00 = 8,175
425 @ $105.00 = $44,625
75 @ 109.00 = 8,175
Aug. 5 345 @ $112.00 = $ 38,640 345 @ 112.00 = 38,640
10 15 @ $105.00 = $ 1,575 410 @ $105.00 = $43,050
320 @ 112.00 = 35,840 75 @ 109.00 = 8,175
25 @ 112.00 = 2,800
Total 1,145 $123,440 635 $69,415 510 $54,025
3)
a. b. c.
Moving Weighted Specific
Feb. 15 Accounts Receivable ................... 49,500 49,500 49,500

Sales ...................................... 49,500 49,500 49,500
To record a credit sale;
$165/unit x 300 units = $49,500.
15 Cost of Goods Sold ..................... 31,500 31,800 32,000

Merchandise Inventory ......... 31,500 31,800 32,000
To record the sale of
merchandise.
Aug. 5 Merchandise Inventory ................ 38,640 38,640 38,640

Accounts Payable ................. 38,640 38,640 38,640
To record the purchase of
inventory on credit.
*Problem 6-3B (25 minutes)

a) FIFO basis:
345 units @ $112 ............................................ $38,640
165 units @ $109 ............................................ 17,985 56,625
Cost of units sold ............................................... $ 66,815
b) Weighted-average cost basis:

Total cost of the 1,145 units for sale ................. $123,440.00
($123,440/1,145 = $107.81) × 510 ................... 54,983.10*
Cost of units sold ............................................... $ 68,456.90*


Unit Total Unit Cost of Unit Total
Units Cost Cost Units Cost Goods Sold Units Cost Cost
180 @ $30.00 = $ 5,400 180 @ $30.00 = $5,400
Feb. 20 145 @ $30.00 = $ 4,350 35 @ $30.00 = $1,050
35 @ $30.00 = $1,050
Apr. 30 315 @ $29.00 = $ 9,135 315 @ 29.00 = 9,135
35 @ $30.00 = $1,050
315 @ 29.00 = 9,135
Oct. 5 225 @ $25.00 = $ 5,625 225 @ 25.00 = 5,625
10 35 @ $30.00 = $ 1,050
315 @ 29.00 = 9,135
190 @ 25.00 = 4,750 35 @ $25.00 = $ 875
Total 720 $20,160 685 $19,285 35 $ 875
1) b) Moving weighted-average - perpetual
Inventory Balance
Cost of
Total Unit Goods Total Average Total Inventory Balance
Units Unit Cost Cost
Units Cost Sold Units Cost/Unit Cost Calculations
Beginning inventory
Jan. 1 180 @ $30.00 = $ 5,400.00 180 $30.00 $ 5,400.00
180 $ 5,400.00
Feb. 20 145 @ $30.00 = $ 4,350.00 -145 @ $30.00 = - 4,350.00
35 $30.00 $ 1,050.00 35 $ 1,050.00
35 $ 1,050.00
Apr. 30 315 @ $29.00 = $ 9,135.00 315 @ $29.00 = 9,135.00
350 $29.10 $10,185.00 350 $10,185.00
350 $10,185.00
Oct. 5 225 @ $25.00 = $ 5,625.00 225 @ $25.00 = 5,625.00
575 $27.50 $15,810.00 575 $15,810.00
575 $15,810.00
10 540 @ $27.50 = $14,850.00 –540 @ $27.50 = -14,850.00
35 $27.431 $ 960.00 35 $ 960.00

Total 720 $20,160.00 685 $19,200.00 35 $ 960.00
1 Changed due to rounding; $960.00/35 units = $27.4286 which is rounded to $27.43.
2)
Moving Weighted
FIFO Average
Sales (685 × $40) ...................... $27,400 $27,400
Less: Cost of goods sold ........ 19,285 19,200
Gross profit .............................. $ 8,115 $ 8,200
Analysis component:
Gross profits calculated in Part 2 would increase under FIFO and decrease under Moving
Weighted Average if Manson Company had been experiencing increasing prices in the
purchase of additional inventory.

a) FIFO basis:
35 units @ $25 ................................................ 875
b) Moving weighted average cost basis:

Less: Ending inventory at weighted average cost:
($20,160/720 = $28) × 35 ................................. 980
a) FIFO

2. b) Moving weighted average
Date Units Unit TotalPurchases

Units Unit CostSales
of (atUnits
cost) CostInventory
Total Cost
Balance
Cost Cost Cost Goods
Date Units Unit Total Units
Sold Unit Cost of Units Cost Total
Nov. 1 150 @ $49 Cost Cost
$7,350 Cost150Goods
@ $49.00 $7,350 Cost
Sold
Nov. 1 150 @ $49 $7,350 150 @ $49 $7,350
Nov. 4 100 @ $49 $4,900 50 @ $49.00 $2,450
Nov. 4 100 @ $49 $4,900 50 @ $49 $2,450

Nov. 6 200 @ $47 $9,400 250 @ $47.40 $11,850
Nov. 6 200 @ $47 $9,400 50 @ $49 $2,450

Nov. 16 350 @ $45 $15,750 600 @ $46.00
200 @ $27,600
$47 $9,400
Nov. 16 350 @ $45 $15,750 50 @ $49 $2,450
200 @ $47 $9,400

Nov. 20 275 @ $46 $12,650 325 @ $46.00
350 @ $14,950
$45 $15,750
Nov. 20 50 @ $49 $2,450 325 @ $45 $14,625
200 @ $47 $9,400

Nov. 24 150 @ $40 $6,000 25 @ $45 475$1,125
@ $44.11 $20,950
Nov. 24 150 @ $40 $6,000 325 @ $45 $14,625

Nov. 28 250 @ $44.11 $11,028 225 @ $44.11
150 @ $9,925 $6,000
40
Nov. 28 250 @ $45 $11,250 75 @ $45 $3,375

Nov. 30 100 @ $44.11 $4,411 125 @ $44.11
150 @ $5,514 $6,000
40
Nov. 30 75 @ $45 $3,375 125 @ $40 $5,000

Total 850 $38,500 725 $32,989
25 @ $40 125$1,000 $5,514
Cost of goods
Total 850 Cost of goods sold +
$38,500 725 Ending
$33,500 inventory
125 $5,000
available for sale =

2.
FIFO Moving weighted average
Sales $76,000* $76,000*
Cost of goods sold 33,500 32,989
Gross Profit $42,500 $43,011
*Sales Calculation
100 x $100 = $10,000
275 x $100 = $27,500
250 x $110 = $27,500
100 x $110 = $11,000
$76,000
3. a) Moving weighted average produces the higher gross profit

b) Moving weighted average produces the higher ending inventory balance.
4.
Sales $76,000 $76,000
Gross Profit $42,500 $43,011
Gross Profit percentage 56% 57%

THE BLIZZARD COMPANY
Income Statement Comparing FIFO
and Moving Weighted Average Inventory Costing Methods
Moving
Weighted
FIFO Average
Sales ($51 x 3,050 units) .............................. $155,550 $155,550.00
Cost of goods sold ....................................... 83,070 83,056.50
Gross profit ................................................... $ 72,480 $ 72,493.50
Operating expenses ($7 x 3,050 units) ........ 21,350 21,350.00
Profit .............................................................. $ 51,130 $ 51,143.50
NOTE: The COGS calculations for each of FIFO and Moving Weighted Average are on the
following pages.


Cost of
Unit Unit Goods Unit Total
Units Cost Total Cost Units Cost Sold Units Cost Cost
610 @ $29.00 = $17,690 610 @ $29.00 = $17,690
610 @ $29.00 = $17,690
Apr. 810 @ $28.00 = $22,680 810 @ 28.00 = 22,680
2
610 @ $29.00 = $17,690 70 @ $28.00 = $ 1,960
May 740 @ 28.00 = 20,720
20
70 @ $28.00 = $ 1,960
Jun. 320 @ $27.00 = $ 8,640 320 @ 27.00 = 8,640
14
70 @ $28.00 = $ 1,960
320 @ 27.00 = 8,640
Aug. 1,340 @ $26.00 = $34,840 1,340 @ 26.00 = 34,840
29
Oct. 70 @ $28.00 = $ 1,960 30 @ $26.00 = $ 780
25
320 @ 27.00 = 8,640
1,310 @ 26.00 = 34,060
Total 3,080 $83,850 3,050 $83,070 30 $ 780
Inventory Balance
Cost of Average
Total Goods Total Cost/ Total
Units Unit Cost Cost Units Unit Cost Sold Units Unit Cost Inventory Balance Calculations
Beginning inventory
Jan. 1 610 @ $29.00 = $17,690.00 610 $29.00 $17,690.00
610 $17,690.00
Apr. 2 810 @ $28.00 = $22,680.00 810 @ $28.00 = 22,680.00
1,420 $28.43 $40,370.00 1,420 $40,370.00
1,420 $40,370.00
May 20 1,350 @ $28.43 = $38,380.50 –1,350 @ $28.43 = –38,380.50
70 $28.421 $ 1,989.50 70 $ 1,989.50

70 $ 1,989.50
Jun. 14 320 @ $27.00 = $ 8,640.00 320 @ $27.00 = 8,640.00
390 $27.26 $10,629.50 390 $10,629.50
390 $10,629.50
Aug. 29 1,340 @ $26.00 = $34,840.00 1,340 @ $26.00 = 34,840.00
1,730 $26.28 $45,469.50 1,730 $45,469.50
1,730 $45,469.50
Oct. 25 1,700 @ $26.28 = $44,676.00 –1,700 @ $26.28 = -44,676.00
30 $26.45 $ 793.50 30 $ 793.50

Total 3,080 $83,850.00 3,050 $83,056.50 30 $ 793.50
Analysis component:
If The Blizzard Company manager earns a bonus based on a percentage of gross profit, she will prefer the Moving Weighted
Average inventory costing method since it has produced the highest gross profit. Moving Weighted Average will always
produce a higher gross profit than FIFO when the unit costs of merchandise inventory are decreasing.
1 Changed due to rounding; $1,985.50/70 units = $28.4214 which is rounded to $28.42.

*Problem 6-8B
THE BLIZZARD COMPANY

Income Statement Comparing FIFO and Weighted-
Average Inventory Costing Methods
Weighted
FIFO Average
Sales (3,050 x $51/unit) ............................. $155,550.00 $155,550.00
COGS.......................................................... 83,070.00 83,033.40
Gross Profit................................................ $ 72,480.00 $ 72,516.60
Operating Expenses (3,050 x $7/unit) ...... 21,350.00 21,350.00
Profit ........................................................... $ 51,130.00 $ 51,166.60
Supporting calculations:

610 units in beginning inventory @ $29 = $17,690.00
810 units purchased April 2 @ $28 = 22,680.00
320 units purchased June 14 @ $27 = 8,640.00
1,340 units purchased August 29 @ $26 = 34,840.00
3,080 $83,850.00
a) FIFO periodic
Total cost of the 3,080 units for sale ............................ $83,850.00
30 units @ $26 = ............................................. 780.00
Cost of units sold ......................................................... $83,070.00

Total cost of the 3,080 units for sale ............................ $83,850.00
($83,850/3,080) = $27.22 × 30 units = ....................... 816.60*
Cost of units sold .......................................................... $83,033.40*

Cost of goods sold 2017 2018 2019
Reported ............................................................. $102,600 $106,400 $ 98,015
Adjustments: Dec. 31, 2017 error ..................... + 8,100 – 8,100
Dec. 31, 2018 error ..................... – 10,800 + 10,800
Corrected ............................................................ $110,700 $ 87,500 $108,815
Profit: 2017 2018 2019

Reported ............................................................. $ 87,400 $105,635 $ 91,955
Adjustments: Dec. 31, 2017 error .................... – 8,100 + 8,100
Dec. 31, 2018 error ..................... + 10,800 – 10,800
Corrected ............................................................ $ 79,300 $124,535 $ 81,155
Total current assets: 2017 2018 2019

Reported ............................................................. $133,000 $138,250 $131,475
Adjustments: Dec. 31, 2017 error ..................... – 8,100
Dec. 31, 2018 error ..................... + 10,800
Corrected ............................................................ $124,900 $149,050 $131,475
Equity: 2017 2018 2019

Reported ............................................................. $152,000 $158,000 $168,000
Adjustments: Dec. 31, 2017 error ..................... – 8,100
Dec. 31, 2018 error ..................... + 10,800
Corrected ............................................................ $143,900 $168,800 $168,000
Analysis Component
These errors are “self-correcting” in the year following the error. Each overstatement (or
understatement) of profit is offset by a matching understatement (or overstatement) in the
following year. Thus, aggregate profit for the three-year period is not affected by the errors.

1)
Incorrect Corrected
Income Statement Information Income Statement Information
For Years Ended December 31 For Years Ended December 31
2017 % 2018 % 2017 % 2018 %
Sales .................... $671,000 100 $835,000 100 $671,000 100 $835,000 100
Cost of goods sold 402,600 60 417,500 50 365,100* 54 463,500** 56
Gross profit ......... $268,400 40 $417,500 50 $305,900 46 $371,500 44
* $402,600 – $37,500 = $365,100

** $417,500 + $37,500 – $16,000 + $24,500 = $463,500
2) The gross profit information now reflects the increased cost of goods sold of which the owner
was aware.

Part 1
Per Unit NRV applied to:
b.
Units a. Separately
Inventory on Total Total Major to Each
Items Hand Cost NRV Cost NRV Category Product
Office furniture:
Desks 430 $261 $305 $112,230 $131,150 $112,230
Credenzas 290 227 256 65,830 74,240 65,830
Chairs 585 49 43 28,665 25,155 25,155
Bookshelves 320 93 82 29,760 26,240 26,240
Subtotals $236,485 $256,785 $236,485
Filing cabinets:
Two-drawer 215 81 70 $ 17,415 $ 15,050 15,050
Four-drawer 400 135 122 54,000 48,800 48,800
Lateral 178 104 118 18,512 21,004 18,512
Subtotals $ 89,927 $ 84,854 84,854
Office Equip.:
Fax machines 415 168 200 $ 69,720 $ 83,000 69,720
Copiers 544 317 288 172,448 156,672 156,672
Typewriters 355 125 117 44,375 41,535 41,535
Subtotals $286,543 $281,207 281,207
Totals $612,955 $622,846 $602,546 $579,744

2a. Dec. 31 Cost of Goods Sold .................................................. 10,409
612,955 – 602,546 = 10,409
2b. Dec. 31 Cost of Goods Sold .................................................. 33,211

612,955 – 579,744 = 33,211

2016 Gross profit ratio:
Sales ................................................. $2,122,550.00
Cost of sales..................................... 1,337,175.00
Gross margin ................................... $ 785,375.00
Gross profit ratio.............................. 37.0%
Estimated inventory:
Inventory, December 31, 2016......... $131,200.00
Net purchases, 2017 ....................... 414,900.00
Goods available for sale .................. $ 546,100.00
Sales ................................................. $737,650.00
[$737,650 × (1 – 37%)] ................... 464,719.50
Estimated July 5, 2017 inventory lost
in the flood........................................ $ 81,380.50

BELLE EQUIPMENT CO.
Estimated Inventory
March 31, 2017
Inventory, January 1, 2017 ............................... $
376,440.00
Purchases ......................................................... $1,066,050.00
Less: Purchase returns .................................... 19,185.00
Add: Transportation-in ..................................... 32,950.00
Net cost of goods purchased ...........................
1,079,815.00
Goods available for sale
............................................................................ $1,456,255.00
Sales .................................................................. $1,855,125.00
Less: Sales returns ........................................... 37,100.00
Net sales ............................................................ $1,818,025.00
[$1,818,025 × (1 – 30%)]
................................................... 1,272,617.50
Estimated March 31, 2017 inventory ................... $
183,637.50

Part 1
THE WILKE CO.
Estimated Inventory
December 31, 2017
At Cost At Retail
Beginning inventory ..................................... $ 40,835.00 $
57,305.00
Purchases ...................................................... 251,945.00 383,53
0.00
Purchase returns .......................................... (5,370.00)
(7,665.00)
Goods available for sale ............................... $287,410.00 $
433,170.00
Sales .......................................................................... $393,060.00

Sales returns ............................................................. (2,240.00)
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. © 2016 McGraw-Hill Education Ltd.
6-66
Net sales
................................................................................ $390,820.00
Ending inventory at retail ($433,170 – $390,820) .... $
42,350.00
Cost ratio: ($287,410  $433,170) x
100 ....................................................................................
66.35%
Ending inventory at cost ($42,350 × 66.35%) .......... $
28,099.23
6-67
Part 2
Estimated physical inventory at cost: $39,275 × 66.35% = $26,058.96
THE WILKE CO.

Inventory Shortage
December 31, 2017
At Cost At Retail
Estimated inventory, December 31, 2017
............................................................................ $28,099.23 $42,35
0.00
Physical inventory ($39,275 × 66.35%) ............. 26,058.96
39,275.00
Inventory shortage ........................................... $ 2,040.27 $
3,075.00

At Cost At Retail
Beginning inventory ..................................................... $ 75,000 $ 125,000
Purchases ..................................................................... 1,050,000 1,750,000
Less: Purchase returns and allowances.................... 125,000 200,000
Add: Transportation-in................................................ 5,000 -
Goods available for sale ............................................. . $1,005,000 $1,675,000
Deduct net sales at retail ($1,357,500 – $17,500)............. 1,340,000

Ending inventory at retail ................................................. $ 335,000
Cost to retail ratio ($1,005,000  $1,675,000) x 100 ....... × 60%
Estimated ending inventory at cost ($335,000 × 60%): $ 201,000
Inventory loss = $201,000 × 20%* = $40,200
*Because the insurance company covers 80% of the

loss, Poundmaker Company’s estimated loss is 20% (100% – 80%).
6-68
2014 2013
a. Inventory 73,697,000 = 3.31 76,579,000 = 3.21
turnover ratio
(21,721,000 + 22,810,000)/2 (22,810,000 + 24,891,000)/2
b. Days’ sales in (21,721,000 /73,697,000) x 365 (22,810,000 /76,579,000) x 365

inventory
= 108 days = 109 days
Danier Leather’s inventory turnover ratio has increased meaning that inventory is selling
faster in 2014 compared to 2013. The days sales in inventory shows that the company is
holding inventory for fewer days in 2014 compared to 2013. The change in the inventory
turnover ratio and days’ sales in inventory is favourable.
Part 1
6,300 units in beginning inventory @ $68 ......... $ 428,400
10,500 units purchased @ $65 ............................. 682,500
13,000 units purchased @ $62 ............................. 806,000
12,000 units purchased @ $59 ............................. 708,000
15,500 units purchased @ $56 ............................. 868,000
57,300 units for sale ............................................. $3,492,900
Part 2
a) FIFO basis:
Total cost of the 57,300 units for sale ................. $3,492,900
15,500 units @ $56 ............................................ $868,000
1,000 units @ $59 .............................................. 59,000 927,000
Cost of units sold ................................................. $2,565,900
Total cost of the 57,300 units for sale ......................... $3,492,900
($3,492,900/57,300) = $60.96 × 16,500 units ............. 1,005,840*
Cost of units sold ......................................................... $2,487,060*
ANALYTICAL AND REVIEW PROBLEMS
A&R Problem 6-1

Net Net Accounts
Purchases Income Payable Inventory
Balance per company’s books $325,000 $25,000 $31,000 $18,400
(a) 0 + 4,500 0 + 4,500
(b) 0 – 4,100 0 – 4,100
(c) + 3,900 0* + 3,900 + 3,900
(d) – 2,700 + 2,700 – 2,700 0
(e) 0 – 1,800** 0 + 2,400
Correct Balances $326,200 $26,300 $32,200 $25,100
*This has no effect on profit because both net purchases and ending merchandise
inventory are increased by $3,900; the net effect on profit is zero.
**The sale price of the goods was $4,200 and the cost of goods sold was $2,400 resulting
in a gross profit of $1,800 that caused profit to be overstated by the same amount.
Therefore, to correct the error, $1,800 must be subtracted from profit.
Ethics Challenge
1. In an environment of rising prices the use of FIFO results in a lower cost of goods
sold than Moving Weighted Average. If cost of goods sold is lower, profit will be
higher. A higher profit will improve the profit margin ratio which is calculated as
profit/net sales.
With rising prices FIFO also results in the most recent, higher prices becoming part
of ending inventory. This means that the balance sheet inventory figure will be
larger than under Moving Weighted Average. In the numerator of the current ratio,
inventory is included as part of the current asset total. A larger inventory, therefore,
results in a bigger numerator and therefore a larger current ratio than under Moving
Weighted Average.
2. It is true that managers have discretion in choosing an inventory costing method.

It appears, however, that Diversion’s owner does not understand that changing
methods can only be done very selectively over time. Furthermore a change in
method must be justified by management as “improving the financial reporting for
the company.” The consistency principle does not allow frequent changes in
inventory costing methods by management. If Diversion’s owner can justify the
method change as improving the financial reporting for the company her action is
not unethical. However, she must realize that changing methods can only be an
infrequent occurrence given that consistency in financial reporting is required.
Also, the full disclosure principle requires that the owner disclose to the bank that
she has implemented a change in inventory costing method from Moving Weighted
Average to FIFO.
Focus on Financial Statements
FFS 6-1
1.
Moving
FIFO Weighted
Average
Merchandise inventory, December 31, 2016 12,000 12,000
Purchases 159,000 159,000
Merchandise inventory, December 31, 2017 19,000 23,000
2. (a) FIFO
Fardan Stereo Sales

Income Statement
Revenues
Net sales (449,000 – 6,000) .............................................................. $443,000
Expenses:
Cost of goods sold ........................................................................... $152,000
Operating expenses (5,000 + 92,000 + 109,000 + 8,000)................. 214,000
Interest expense ............................................................................... 2,000
Total expenses ............................................................................... 368,000
Profit..................................................................................................... $ 75,000
FFS 6-1 (continued)

2. (a) FIFO
Fardan Stereo Sales
Balance Sheet
December 31, 2017
Assets
Current assets: .........................................................
Cash ..................................................................... $ 16,000
Accounts receivable............................................ 27,000
Merchandise inventory........................................ 19,000
Prepaid rent ......................................................... 36,000
Total current assets ............................................ $ 98,000
Property, plant and equipment:
Store fixtures ....................................................... $117,000
Less: Accumulated depreciation .................. 82,000 $ 35,000
Intangible assets:
Trademark ........................................................... 3,000
Total assets ................................................................... $136,000
Liabilities
Current liabilities:
Accounts payable ................................................ $18,000
Unearned sales revenue ..................................... 4,000
Total current liabilities ........................................ $ 22,000
Long-term liabilities:
Notes payable, due in 2020 ................................... 22,000
Total liabilities .......................................................... $ 44,000
Equity
Mikel Fardan, capital* ................................................ 92,000
Total liabilities and equity............................................. $136,000
*61,000 + 75,000 – 44,000
2. (b) Moving weighted average
Fardan Stereo Sales

Income Statement
Revenues
Net sales ....................................................................... $443,000
Expenses:
Cost of goods sold ....................................................... $148,000
Operating expenses ..................................................... 214,000
Interest expense ........................................................... 2,000
Total expenses ........................................................... 364,000
Profit................................................................................. $ 79,000
FFS 6-1 (concluded)
2. (b) Moving weighted average

Fardan Stereo Sales
Balance Sheet
December 31, 2017
Assets
Current assets: .........................................................
Cash ..................................................................... $ 16,000
Accounts receivable ............................................ 27,000
Merchandise inventory ........................................ 23,000
Prepaid rent.......................................................... 36,000
Total current assets............................................. $102,000
Property, plant and equipment:
Store fixtures ....................................................... $117,000
Less: Accumulated depreciation .................. 82,000 35,000
Intangible assets:
Trademark ........................................................... 3,000
Total assets.................................................................... $140,000
Liabilities
Current liabilities:
Accounts payable ................................................ $18,000
Unearned sales revenue...................................... 4,000
Total current liabilities......................................... $ 22,000
Long-term liabilities:
Notes payable, due in 2020 ................................... 22,000
Total liabilities........................................................... $ 44,000
Equity
Mikel Fardan, capital* ................................................ 96,000
Total liabilities and equity ............................................. $140,000
*61,000 + 79,000 – 44,000
Analysis component:
3. The schedule reflects falling costs because when unit costs are decreasing, FIFO
will produce the higher cost of goods sold and Moving Weighted Average the lower.
4. a. To maximize profit, Moving Weighted Average should be used.
b. To maximize assets, Moving Weighted Average should be used.
FFS 6-2
a. According to note 5, inventory for Danier represents raw materials, work-in-process,

and finished goods whereas inventory for WestJet, according to note 18(a),
represents fuel, aircraft expendables, de-icing fluid and other.
a. Note 1(j) to Danier’s financial statements, under the heading “Inventories,” indicates
that the weighted average cost method is used.
b. Inventory is classified on Danier’s balance sheet as a current asset.
c. The balance in inventory for Danier decreased by $1,089,000 from June 29, 2013 to
June 28, 2014 (calculated as $22,810,000 at June 29, 2013 – $21,721,000at June 28,
2014 = $1,089,000).
Critical Thinking Mini Case

CT 6-1
Note to instructor: Student responses will vary therefore the answer here is only
suggested and not inclusive of all possibilities; it is presented in point form for brevity.
Problem(s):
— Benton Beverages’ cost of goods sold is decreasing yet industry information shows
that this should not be the case
Goal(s)*:
— To investigate cost of goods sold and its components to ensure that it is being
accurately reported
Assumption(s)/Principle(s):
— It appears that inventory levels were inflated given how the pallets of beverages
were stacked
Facts:
— as presented
— the year-end adjusting entry is adding progressively larger amounts to merchandise
inventory (and correspondingly crediting/decreasing cost of goods sold expense)
which is not typical (normally this adjustment records the opposite)
— the year-end adjustment increased from 5.7% of cost of goods sold in 2011 to 13.7%
in 2017 (calculated as: 20,000/352,000 × 100 = 5.7%; 63,000/459,000 × 100 = 13.7%).
Conclusion(s)/Consequence(s):
— without additional information this cannot be confirmed but it appears that inventory
was subject to fraudulent activities
— given that the CEO instructed staff to stack pallets in a suspicious manner
implicates her in the potential fraud
— a thorough investigation is required to determine exactly why the adjusting entry to
merchandise inventory is so high and increasing
*The goal is highly dependent on “perspective.”

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Fundamental Accounting Principles Volume 1 Canadian 15th Edition Larson Solutions Manual Download

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Last revised: January 23, 2016.

Solution Manual for Fundamental Accounting Principles

Revised for the 15th Edition by:

Technical checks by:

Chapter 6 Merchandise Inventories and Cost of Sales

Chapter Opening Critical Thinking Challenge Questions*

1. Would Amazon have a merchandise turnover similar to Lululemon Athletica’s?

Concept Review Questions

Quick Study 6-1

Quick Study 6-2

Quick Study 6-3

Quick Study 6-4

Quick Study 6-5

Quick Study 6-6

Date Purchases Sales (at cost) Inventory Balance

Quick Study 6-6 (continued)

(b) Moving weighted average - perpetual

* cost/unit changed due to rounding

Quick Study 6-7

Date Purchases Sales (at cost) Inventory Balance

Quick Study 6-8

Quick Study 6-9

Quick Study 6-10

Per Unit LCNRV applied to:

Quick Study 6-11

Quick Study 6-12

Quick Study 6-13

July’s beginning inventory (June’s ending inventory) ................ $ 65,000

b. Therefore, the estimated shrinkage is $7,000 ($55,000 - $48,000).

Quick Study 6-14

Quick Study 6-15

Quick Study 6-16

Quick Study 6-17

The change from 2016 to 2017 is generally considered to be favourable.

The change from 2016 to 2017 is generally considered to be favourable.

*Quick Study 6-18

Ending Inventory = 100 @ $3.35 = $335

b) Weighted average cost - periodic

$1,505/485 units = $3.10* average cost per unit

Exercise 6-1 (15 minutes)

Exercise 6-2 (45 minutes)

Gross profit calculation under FIFO:

Exercise 6-2 (continued)

1 $1,732.10/125 units = $13.8568 which is rounded to $13.86.

Exercise 6-3 (20 minutes)

Gross profit calculation under Specific Identification:

Sales (700 units × $35).......... $24,500

Exercise 6-4 (30 minutes)

Purchases Sales (at cost) Inventory Balance

Mar. 3 50 @ $35 $1,750 5@ $30 $150

100 @ $40 $4,000

100 @ $40 $4,000

Mar. 31 10 @ $35 $350 20 @ $40 $800

100 @ $40 $4,000

Cost of goods available Cost of goods sold + Ending inventory

Exercise 6-4 (Continued)

Date Purchases Sales (at cost) Inventory Balance

Mar. 3 50 @ $35 $1,750 55 @ $34.55 $1,900

Mar. 6 100 @ $40 $4,000 155 @ $38.06 $5,900

Mar. 17 45 @ $38.06 $1,713 110 @ $38.06 $4,187

Mar. 23 30 @ $40 $1,200 140 @ $38.48 $5,387

Mar. 31 120 @ $38.48 $4,618 20 @ $38.48 $770

Total 185 $7,100 165 $6,331 20 $770