(download pdf) Intermediate Accounting 10th Edition Spiceland Solutions Manual full chapter

Intermediate Accounting 10th Edition
Spiceland Solutions Manual

Go to download the full and correct content document:
https://testbankfan.com/product/intermediate-accounting-10th-edition-spiceland-soluti
ons-manual/
More products digital (pdf, epub, mobi) instant
download maybe you interests ...
Intermediate Accounting 8th Edition Spiceland Solutions

Manual
https://testbankfan.com/product/intermediate-accounting-8th-
edition-spiceland-solutions-manual/
Intermediate Accounting 9th Edition Spiceland Solutions

Manual
edition-spiceland-solutions-manual/
Intermediate Accounting 7th Edition Spiceland Test Bank
edition-spiceland-test-bank/
Intermediate Accounting IFRS 6th Edition Spiceland Test

Bank
https://testbankfan.com/product/intermediate-accounting-ifrs-6th-
Financial Accounting 4th Edition Spiceland Solutions

Manual
https://testbankfan.com/product/financial-accounting-4th-edition-
spiceland-solutions-manual/
Financial Accounting 5th Edition Spiceland Solutions

Manual
https://testbankfan.com/product/financial-accounting-5th-edition-
Financial Accounting 3rd Edition Spiceland Solutions

Manual
https://testbankfan.com/product/financial-accounting-3rd-edition-
Chapter 8 Inventories: Measurement
QUESTIONS FOR REVIEW OF KEY TOPICS

Question 8–1
Inventory for a manufacturing company consists of (1) raw materials, (2) work in
process, and (3) finished goods. Raw materials represent the cost, primarily purchase
price plus freight charges, of goods purchased from suppliers that will become part of
the finished product. Work-in-process inventory represents the products that are not
yet complete in the manufacturing process. The cost of work in process includes the
cost of raw materials used in production, the cost of labor that can be directly traced to
the goods in process, and an allocated portion of other manufacturing costs, called
manufacturing overhead. When the manufacturing process is completed, these costs
that have been accumulated in work in process are transferred to finished goods.
Question 8–2
Beginning inventory plus net purchases for the period equals cost of goods
available for sale. The main difference between a perpetual and a periodic system is
that the periodic system allocates cost of goods available for sale to ending inventory
and cost of goods sold only at the end of the period. The perpetual system
accomplishes this allocation by decreasing inventory and increasing cost of goods sold
each time goods are sold.
The perpetual inventory system is used by nearly all major companies.
Question 8–3
Perpetual System Periodic System
(1) Purchase of merchandise debit inventory debit purchases
(2) Sale of merchandise debit cost of goods sold;

credit inventory no entry
(3) Return of merchandise credit inventory credit purchase returns
(4) Payment of freight debit inventory debit freight-in
Solutions Manual, Chapter 8 8–1

Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Answers to Questions (continued)
Question 8–4
Inventory shipped f.o.b. shipping point is included in the inventory of the
purchaser when the merchandise is given to the delivery company. Laetner
Corporation records the purchase in 2021 and includes the shipment in its ending
inventory. Bockner Company records the sale in 2021. Inventory shipped f.o.b.
destination is included in the inventory of the seller until it reaches the purchaser’s
location. Bockner would include the merchandise in its 2021 ending inventory and
the sale/purchase would be recorded in 2022.
Question 8–5
A consignment is an arrangement under which goods are physically transferred to
another company (the consignee), but the transferor (consignor) retains legal title. If
the consignee can’t find a buyer, the goods are returned to the consignor. Goods held
on consignment are included in the inventory of the consignor until sold by the
consignee.
Question 8–6
Under the gross method, we record the purchase for the full (or gross) amount of
the inventory’s cost. Purchase discounts taken are a reduction of inventory at the time
the invoice is paid. Under the net method, we record the purchase of inventory for its
full amount minus (or net of) the possible discount on that amount. The presumption
by the purchaser under the net method is that inventory should be recorded for its cost,
and because the purchaser expects to pay the invoice within the discount period, the
discount should be subtracted at the time of the purchase to reflect the inventory’s
expected cost.
Question 8–7
1. Beginning inventory — increase
2. Purchases — increase
3. Ending inventory — decrease
4. Purchase returns — decrease
5. Freight-in — increase
8–2 Intermediate Accounting, 10e

Question 8–8
Four methods of assigning cost to ending inventory and cost of goods sold are (1)
specific identification, (2) first-in, first-out (FIFO), (3) last-in, first-out (LIFO), and
(4) average cost. The specific identification method requires each unit sold during the
period or each unit on hand at the end of the period to be traced through the system
and matched with its actual cost. First-in, first-out (FIFO) assumes that units sold are
the first units purchased. The last-in, first-out (LIFO) method assumes that the units
sold are the most recent units purchased. The average cost method assumes that cost
of goods sold and ending inventory consist of a mixture of all the goods available for
sale. The average unit cost applied to goods sold or ending inventory is an average
unit cost weighted by the number of units acquired at the various unit prices.
Question 8–9
When costs are declining, LIFO will result in a lower cost of goods sold and
higher net income than FIFO. This is because LIFO will include in cost of goods sold
the most recently purchased lower-cost merchandise. LIFO also will provide a higher
ending inventory in the balance sheet when costs are declining because the inventory
has units purchased at an earlier date, when costs were higher.
Question 8–10
Proponents of LIFO argue that it provides a better match of revenues and
expenses because cost of goods sold includes the costs of the most recent purchases.
These are matched with sales that reflect a current selling price. On the other hand,
inventory costs in the balance sheet generally are out of date because they are derived
from old purchase transactions. It is conceivable that a company’s LIFO inventory
balance could be based on unit costs actually incurred several years earlier. When
inventory quantity declines during a period, then these out-of-date inventory layers
will be liquidated and cost of goods sold will match noncurrent costs with current
selling prices.

Question 8–11
Many companies choose the LIFO inventory method to reduce income taxes in
periods when prices are rising. In periods of rising prices, LIFO results in a higher
cost of goods sold and therefore a lower net income than the other methods. The
companies’ income tax returns will report lower taxable incomes using LIFO and
lower taxes will be paid currently. If a company uses LIFO to measure its taxable
income, IRS regulations require that LIFO also be used to measure income reported to
investors and creditors.
Question 8–12
The gross profit, inventory turnover, and average days in inventory ratios are
designed to monitor inventories. The gross profit ratio is calculated by dividing gross
profit (net sales minus cost of goods sold) by net sales. Inventory turnover is
calculated by dividing cost of goods sold by average inventory, and we compute
average days in inventory by dividing the number of days in the period by the
inventory turnover ratio.
Question 8–13
A LIFO inventory pool groups inventory units into pools based on physical
similarities of the individual units. The average cost for all of a pool’s beginning
inventory and for all of a pool’s purchases during the period is used instead of
individual unit costs. If the quantity of ending inventory for the pool increases, then
ending inventory will consist of the beginning inventory plus a layer added during the
period at the average acquisition cost for the pool.
Question 8–14
The dollar-value LIFO method has important advantages. First, it simplifies the
recordkeeping procedures compared to unit LIFO because no information is needed
about unit flows. Second, it minimizes the probability of the liquidation of LIFO
inventory layers, even more so than the use of pools alone, through the aggregation of
many types of inventory into larger pools. In addition, firms that do not replace units
sold with new units of the same kind can use the method.

Answers to Questions (concluded)
Question 8–15
After determining ending inventory at year-end cost, the following steps remain:
1. Convert ending inventory valued at year-end cost to base year cost.

2. Identify the layers in ending inventory with the years they were created.
3. Convert each layer’s base year cost measurement to layer year cost
measurement using the layer year’s cost index and then sum the layers.
Question 8–16
The primary difference between U.S. GAAP and IFRS in the methods
allowed to value inventory is that IFRS does not allow the use of the LIFO
method.

BRIEF EXERCISES
Brief Exercise 8–1
Beginning inventory $186,000
Plus: Purchases 945,000
Less: Cost of goods sold (982,000)
Ending inventory $149,000

To record the purchase of inventory on account.
Inventory ......................................................................... 845,000

Accounts payable ........................................................ 845,000
To record sales on account and cost of goods sold.
Accounts receivable ........................................................1,420,000

Sales revenue............................................................... 1,420,000
Cost of goods sold ........................................................... 902,000

Inventory ..................................................................... 902,000

Both shipments should be included in inventory.
The goods shipped to a customer f.o.b. destination did not arrive at the
customer’s location until after the fiscal year-end. They belong to Kelly until they
arrive at the customer’s location. Title to the goods shipped from a supplier to Kelly
on December 30, f.o.b. shipping point, changed hands on December 30.

Purchase price = 10 units × $25,000 = $250,000
December 28, 2021

Inventory ......................................................................... 250,000
Accounts payable........................................................ 250,000
January 6, 2022
Accounts payable............................................................ 250,000
Cash (99% × $250,000) .................................................. 247,500
Inventory (1% × $250,000) ............................................ 2,500

December 28, 2021

Inventory (99% × $250,000) ............................................... 247,500
Accounts payable ....................................................... 247,500
January 6, 2022
Accounts payable ............................................................ 247,500
Cash ............................................................................. 247,500

First-in, first-out (FIFO)
Cost of goods sold:
Date of Cost of
Sale Units Sold Units Sold Total Cost
January 10 125 (from Beg. Inv.) $25 $3,125

January 25 75 (from Beg. Inv.) 25 1,875
25 (from 1/8 purchase) 28 700
Total 225 $5,700
Ending inventory:
Date of
Purchase Units Unit Cost Total Cost
January 8 75 $28 $2,100
January 19 200 30 6,000
Total $8,100

Brief Exercise 8–6 (concluded)
Average cost
Date Purchased Sold Balance
Beginning 200 @ $25 = $5,000 200 @ $25 $5,000

inventory
January 8 100 @ $28 = $2,800
$7,800
Available = $26/unit
300 units
January 10 125 @ $26 = $3,250 175 @ $26 $4,550
January 19 200 @ $30 = $6,000
$10,550
Available = $28.133/unit
375 units
January 25 100 @ $28.133 = $2,813 275 @ $28.133 $7,737

Ending
inventory
Total cost of goods sold = $6,063

Cost of goods available for sale:
Beginning inventory (200 × $25) $ 5,000
Purchases:
100 × $28 $2,800
200 × $30 6,000 8,800
Cost of goods available (500 units) $13,800
Cost of goods available for sale (500 units) $13,800

Less: Ending inventory (determined below) (8,100)
Cost of goods sold $ 5,700
Cost of ending inventory:
Date of
purchase Units Unit cost Total cost
January 8 75 $28 $2,100
January 19 200 30 6,000
Total $8,100
Average cost

Cost of goods sold $ 6,210 *
$13,800
Weighted-average unit cost = = $27.60
500 units
275 units × $27.60 = $7,590

* Alternatively, could be determined by multiplying the units sold by the average
cost: 225 units × $27.60 = $6,210

Beginning inventory (20,000 × $25) $ 500,000
Purchases:
80,000 × $30 2,400,000
Cost of goods available (100,000 units) 2,900,000
Less: Ending inventory (15,000 units) 375,000*
Cost of goods sold $2,525,000
*15,000 units × $25 each = $375,000

64,000 units were sold.
Cost of goods sold without year-end purchase:

Units purchased during the year: 60,000 × $18 $1,080,000
Plus units from beginning inventory: 4,000 × $15 60,000
Cost of goods sold 1,140,000
Cost of goods sold with year-end purchase:

64,000 units × $18 1,152,000
Difference $ 12,000
Under LIFO, cost of goods sold would be $12,000 higher and income before
income taxes $12,000 lower if the year-end purchase is made.
If FIFO were used instead of LIFO, the year-end purchase would have no effect
on income before income taxes. FIFO cost of goods sold with or without the
purchase would consist of the 10,000 units from beginning inventory and 54,000 units
purchased during the year at $18:
10,000 units × $15 $ 150,000

Plus: 54,000 units × $18 972,000

Units liquidated 5,000
Difference in cost ($30 – $25) × $5
Before-tax LIFO liquidation profit $25,000
Tax effect ($25,000 × 25%) (6,250)
LIFO liquidation profit $18,750
Cost of goods sold ......................................................... 15,000

LIFO reserve ($75,000 − $60,000) ................................. 15,000
The LIFO reserve has increased from $60,000 to $75,000. Inventory is reduced
with the use of the LIFO reserve, a contra account to inventory. Thus, an increase of
the LIFO reserve is a credit in the adjusting entry.

Cost of goods sold for the year ended August 31, 2017, would have been $200
million lower had Walgreens used FIFO for its LIFO inventory. The LIFO reserve
increased in 2017 by $200 million, from $2,800 million to $3,000 million. An
increase in the LIFO reserve has the effect of increasing cost of goods sold when
converting from FIFO to LIFO. So, to convert in the opposite direction from LIFO to
FIFO, we would subtract the increase in the LIFO reserve from the LIFO amount of
cost of goods sold to calculate FIFO cost of goods sold.
Cost of goods sold as reported (LIFO) $89,052 million

Decrease to convert to FIFO (200) million
Cost of goods sold (FIFO) $88,852 million

Average inventory = ($60,000 + 48,000)  2 = $54,000
Cost of goods sold  Average inventory = Inventory turnover

Cost of goods sold  $54,000 = 5
Cost of goods sold = $54,000 × 5
Cost of goods sold = $270,000
Gross profit ratio = 40%, therefore cost percentage = 60%
Sales × 0.60 = $270,000

Sales = $270,000  0.60 = $450,000

Ending Inventory Inventory Layers Inventory Layers Inventory
Date at Base Year Cost at Base Year Cost Converted to Cost DVL Cost
1/1/2021 $1,400,000
= $1,400,000 $1,400,000 (base) $1,400,000 × 1.00 = $1,400,000 $1,400,000
1.00
12/31/2021 $1,664,000
= $1,600,000 $1,400,000 (base) $1,400,000 × 1.00 = $1,400,000
1.04 200,000 (2018) 200,000 × 1.04 = 208,000 $1,608,000

EXERCISES
Exercise 8–1
1. To record the purchase of inventory on account and the payment of freight
charges.
Inventory ......................................................................... 5,000

Inventory ......................................................................... 300

Cash ............................................................................ 300
2. To record purchase returns.
Accounts payable............................................................ 600

Inventory ..................................................................... 600
3. To record cash sales and cost of goods sold.
Cash ................................................................................ 5,200

Sales revenue .............................................................. 5,200
Cost of goods sold .......................................................... 2,800

Inventory ..................................................................... 2,800

Exercise 8–2
1. To record the purchase of inventory on account and the payment of freight
charges.
Purchases ......................................................................... 5,000

Freight-in ......................................................................... 300

Cash ............................................................................. 300
2. To record purchase returns.
Accounts payable ............................................................ 600

Purchase returns .......................................................... 600
3. To record cash sales.
Cash ................................................................................. 5,200

Sales revenue............................................................... 5,200
NO ENTRY IS MADE FOR THE COST OF GOODS SOLD.

Exercise 8–3
Beginning inventory $ 32,000
Plus net purchases:
Purchases $240,000
Less: Purchase discounts (6,000)
Less: Purchases returns (10,000)
Plus: Freight-in 17,000 241,000
Cost of goods available for sale 273,000
Less: Ending inventory (40,000)
Cost of goods sold $233,000

Exercise 8–4
PERPETUAL SYSTEM PERIODIC SYSTEM

($ in 000s)
Purchases
Inventory 155 Purchases 155
Accounts payable 155 Accounts payable 155
Freight
Inventory 10 Freight-in 10
Cash 10 Cash 10
Returns
Accounts payable 12 Accounts payable 12
Inventory 12 Purchase returns 12
Sales
Accounts receivable 250 Accounts receivable 250
Sales revenue 250 Sales revenue 250
Cost of goods sold 148 No entry

Inventory 148
End of period
No entry Cost of goods sold (below) 148
Inventory (ending) 30
Purchase returns 12
Inventory (beginning) 25
Purchases 155
Freight-in 10
Cost of goods sold:

Beginning inventory $25
Purchases $155
Less: Returns (12)
Plus: Freight-in 10
Net purchases 153
Cost of goods available 178
Less: Ending inventory (30)
Cost of goods sold $148

Exercise 8–5
2021 2022 2023
Beginning inventory 275 (1) 249 (3) 225
Cost of goods sold 627 621 584 (6)
Ending inventory 249 (2) 225 216
Cost of goods available for sale 876 846 (4) 800
Purchases (gross) 630 610 (5) 585
Purchase discounts 18 15 12 (7)
Purchase returns 24 30 14
Freight-in 13 32 16
Net purchases = Purchases (gross) – Purchase returns – Purchase discounts + Freight-in

Beginning inventory + Net purchases = Cost of goods available for sale
Cost of goods available for sale – Ending inventory = Cost of goods sold
2021:
(1) Cost of goods available for sale – Net purchases = Beginning inventory
876 – (630 – 18 – 24 + 13) = 275 = Beginning inventory
(2) Cost of goods available for sale – Cost of goods sold = Ending inventory
876 – 627 = 249 = Ending inventory
2022:
(3) 2022 beginning inventory = 2021 ending inventory = 249
(4) Cost of goods sold + Ending inventory = Cost of goods available for sale
621 + 225 = 846 = Cost of goods available for sale
(5) Cost of goods available for sale – Beginning inventory = Net purchases
846 – 249 = 597 = Net purchases
Net purchases + Purchases discounts + Purchase returns – Freight-in = Purchases (gross)

597 + 15 + 30 – 32 = 610 = Purchases (gross)
2023:
(6) Cost of goods available for sale – Ending inventory = Cost of goods sold
800 – 216 = 584 = Cost of goods sold

Exercise 8–5 (concluded)
(7) Cost of goods available for sale – Beginning inventory = Net purchases
800 – 225 = 575 = Net purchases
Purchases (gross) – Purchase returns + Freight-in – Net purchases = Purchase discounts
585 – 14 + 16 – 575 = 12 = Purchase discounts

Exercise 8–6
Inventory balance before additional transactions $165,000
Add:
2. Goods shipped to Kwok f.o.b. shipping point on December 28 17,000
3. Goods shipped to customer f.o.b. destination on December 27 22,000
Correct inventory balance $204,000
Exercise 8–7
Inventory balance before additional transactions $210,000
Add:
4. Merchandise on consignment with Joclyn Corp. 15,000
Deduct:
1. Merchandise shipped to Raymond f.o.b. destination on December 26 (30,000)
2. Merchandise held on consignment from the Harrison Company (14,000)
Correct inventory balance $181,000
Exercise 8–8
1. Excluded
2. Included
3. Included
4. Excluded
5. Included
6. Excluded
7. Included

Exercise 8–9
Requirement 1
Purchase price = 1,000 units × $50 = $50,000
July 15, 2021

Inventory ......................................................................... 50,000
July 23, 2021

Cash (98% × $50,000) .................................................... 49,000
Inventory (2% × $50,000) .............................................. 1,000
Requirement 2
August 15, 2021

Cash ............................................................................. 50,000
Requirement 3
The July 15 entry would include a debit to the Purchases account instead of to
Inventory, and the July 23 entry would include a credit to the Purchase Discounts
account instead of to Inventory.

Exercise 8–10
Requirement 1
July 15, 2021

Inventory (98% × $50,000) ................................................ 49,000
July 23, 2021

Cash ............................................................................ 49,000
Requirement 2
August 15, 2021

Purchase discounts lost ................................................... 1,000
Cash ............................................................................ 50,000
Requirement 3
The July 15 entry would include a debit to the Purchases account instead of to
Inventory.

Exercise 8–11
Requirement 1
Purchases: $500 × 70% = $350 per unit.
100 units × $350 = $35,000
November 17, 2021

Inventory ......................................................................... 35,000
November 26, 2021

Accounts payable ........................................................... 35,000
Inventory (2% × $35,000) .............................................. 700
Cash (98% × $35,000) .................................................... 34,300
Requirement 2
December 15, 2021

Cash ............................................................................. 35,000

Requirement 3
Requirement 1:
November 17, 2021

Inventory (98% × $35,000) ................................................ 34,300
November 26, 2021

Cash ............................................................................ 34,300
Requirement 2:
December 15, 2021

Purchase discounts lost (2% × $35,000) ............................ 700
Cash ............................................................................ 35,000

Exercise 8–12
The FASB Accounting Standards Codification® represents the single source
of authoritative U.S. generally accepted accounting principles. The specific
citation for each of the following items is:
1. Define the meaning of cost as it applies to the initial measurement of

inventory.
FASB ASC 330–10–30–1: “Inventory–Overall–Initial Measurement.”
The primary basis of accounting for inventories is cost, which has been
defined generally as the price paid or consideration given to acquire an
asset. As applied to inventories, cost means in principle the sum of the
applicable expenditures and charges directly or indirectly incurred in
bringing an article to its existing condition and location. It is understood
to mean acquisition and production cost, and its determination involves
many considerations.
2. Indicate the circumstances when it is appropriate to initially measure

agricultural inventory at fair value.
FASB ASC 905–330–30–1: “Agriculture–Inventory–Initial

Measurement.”
Exceptional cases exist in which it is not practicable to determine an
appropriate cost basis for products. A market basis is acceptable if the
products meet all of the following criteria:
• a. They have immediate marketability at quoted market prices that

cannot be influenced by the producer.
• b. They have characteristics of unit interchangeability.
• c. They have relatively insignificant costs of disposal.
The accounting basis of those kinds of inventories shall be their

realizable value, calculated on the basis of quoted market prices less
estimated direct costs of disposal. An example is freshly dressed meats
produced in meat packing operations.

3. What is a major objective of accounting for inventory?

FASB ASC 330–10–10–1: “Inventory–Overall–Objectives.”
A major objective of accounting for inventories is the proper determination of

income through the process of matching appropriate costs against revenues.
4. Are abnormal freight charges included in the cost of inventory?

FASB ASC 330–10–30–7: “Inventory–Overall–Initial Measurement.”
Unallocated overheads shall be recognized as an expense in the period in which

they are incurred. Other items such as abnormal freight, handling costs, and
amounts of wasted materials (spoilage) require treatment as current period
charges rather than as a portion of the inventory cost.

Exercise 8–13
Beginning inventory (2,000 × $5.30) $10,600
Purchases:
8,000 × $5.50 $44,000
6,000 × $5.60 33,600
4,000 × $5.80 23,200 100,800
Cost of goods available (20,000 units) $111,400
Cost of goods available for sale (20,000 units) $111,400

Date of
August 18 3,000 $5.60 $16,800
August 28 4,000 $5.80 23,200
Total $40,000
Last-in, first-out (LIFO)

Date of
Beg. Inv. 2,000 $5.30 $10,600
August 8 5,000 5.50 27,500
Total $38,100

Average cost

Cost of goods sold $72,410 *

$111,400
20,000 units
7,000 units × $5.57 = $38,990

cost: 13,000 units × $5.57 = $72,410

Exercise 8–14
Cost of goods sold:
Date of Cost of
Aug. 14 2,000 (from Beg. Inv.) $5.30 $10,600

4,000 (from 8/8 purchase) 5.50 22,000
Aug. 25 4,000 (from 8/8 purchase) 5.50 22,000
3,000 (from 8/18 purchase) 5.60 16,800
Total 13,000 $71,400
Ending inventory = (3,000 units × $5.60) + (4,000 units × $5.80) = $40,000

Average cost
Beginning 2,000 @ $5.30 = $10,600 2,000 @ $5.30 $10,600

inventory
August 8 8,000 @ $5.50 = $44,000
$54,600
10,000 units
August 14 6,000 @ $5.46 = $32,760 4,000 @ $5.46 $21,840
August 18 6,000 @ $5.60 = $33,600
$55,440
10,000 units
August 25 7,000 @ $5.544 = $38,808 3,000 @ $5.544 $16,632
August 28 4,000 @ $5.80 = $23,200 Ending inventory = $39,832

Total cost of goods sold =
$71,568

Exercise 8–15
Beginning 2,000 @ $5.30 = $10,600 2,000 @ $5.30 $10,600

inventory
August 8 8,000 @ $5.50 = $44,000 2,000 @ $5.30

8,000 @ $5.50 $54,600
August 14 6,000 @ $ 5.50 = $33,000 2,000 @ $5.30

2,000 @ $5.50 $21,600
August 18 6,000 @ $5.60 = $33,600 2,000 @ $5.30

2,000 @ $5.50 $55,200
6,000 @ $5.60
August 25 1,000 @ $5.50 = $ 5,500 2,000 @ $5.30

6,000 @ $5.60 = $33,600 1,000 @ $5.50 $16,100
August 28 4,000 @ $5.80 = $23,200 2,000 @ $5.30

1,000 @ $5.50 $39,300
4,000 @ $5.80 Ending
inventory

Exercise 8–16
Requirement 1
LIFO will result in the highest cost of goods sold figure because both the cost of
merchandise and the quantity of merchandise rose during the period. FIFO will result
in the highest ending inventory balance for the same reasons.
Requirement 2
Purchases:
1,000 × $ 95 $95,000
800 × $100 80,000 175,000

Less: Ending inventory (below) (80,000)
Date of
January 21 800 $100 $80,000

Date of
Beg. Inv. 600 $80 $48,000
January 15 200 95 19,000
Total $67,000

Requirement 3
FIFO will result in the highest cost of goods sold figure because the cost of
merchandise declined and the quantity of merchandise rose during the period. LIFO
will result in the highest ending inventory balance for the same reasons.

Purchases:
1,000 × $70 $70,000
800 × $65 52,000 122,000

Date of
January 21 800 $65 $52,000

Date of
Beg. Inv. 600 $80 $48,000
January 15 200 70 14,000
Total $62,000

Exercise 8–17
Requirement 1
Beginning inventory (5,000 × $10.00) $ 50,000
Purchases:
3,000 × $10.40 $31,200
8,000 × $10.75 86,000 117,200

Cost of goods sold $ 94,050*
$167,200
16,000 units
7,000 units × $10.45 = $73,150

cost: 9,000 units × $10.45 = $94,050

Requirement 2
Beginning 5,000 @ $10.00 = $50,000 5,000 @ $10.00 $50,000

inventory
September 7 3,000 @ $10.40 = $31,200
Available $81,200
= $10.15/unit
8,000 units
September 10 4,000 @ $10.15 = $40,600 4,000 @ $10.15 $40,600
September 25 8,000 @ $10.75 = $86,000
Available $126,600
= $10.55/unit
12,000 units
September 29 5,000 @ $10.55 = $52,750 7,000 @ $10.55 $73,850

Ending
inventory

Exercise 8–18
Requirement 1
FIFO cost of goods sold:
10,000 units @ $5.00 = $50,000

+ 10,000 units @ $6.00 (determined below) = 60,000
$110,000
Requirement 2
LIFO cost of goods sold:
20,000 units @ $6.00 (determined below) = $120,000
Calculations to determine cost per unit of year 2021 purchases:
Cost of goods sold

= Weighted-average cost per unit
Number of units sold
$115,000
= $5.75 per unit
20,000 units
$5.75 × 40,000 units = $230,000 = Cost of goods available for sale
$230,000 – 50,000 (beginning inventory) = $180,000 = Cost of purchases
$180,000
= $6 = Cost per unit of year 2021 purchases
30,000 units purchased

Purchases (30,000 × $6.00) 180,000

Exercise 8–19
Requirement 1
Cost of goods sold:
Date of Cost of
Apr. 30 20,000 (from Beg. Inv.) $12.20 $ 244,000

30,000 (from 2/12 purchase) 12.50 375,000
Sep. 9 40,000 (from 2/12 purchase) 12.50 500,000
30,000 (from 7/22 purchase) 12.80 384,000
Total 120,000 $1,503,000
Ending inventory = (20,000 units × $12.80) + (40,000 units × $13.20)

= $784,000
Note that Treynor would achieve the same result if it used FIFO on a periodic basis
rather than a perpetual basis. Its 120,000 units sold consist of the beginning inventory
of 20,000 units, all 70,000 units purchased on 2/12, and 30,000 units purchased on
7/22. Treynor’s numbers would be the same because, regardless of whether we view
FIFO inventory on a perpetual or periodic basis, we always view the oldest units on
hand as those that are the first to be sold.

Requirement 2

Purchases:
70,000 × $12.50 $875,000
50,000 × $12.80 640,000
40,000 × $13.20 528,000 2,043,000
Cost of goods available (180,000 units) $2,287,000
Cost of goods available for sale (180,000 units) $2,277,000

Date of
Beg. Inv. 20,000 $11.70 $234,000
Feb. 12 40,000 12.50 500,000
Total $734,000
Requirement 3
LIFO Reserve
Perpetual FIFO (Required 1) $ 784,000

Less: Periodic LIFO (Required 2) (734,000)
LIFO Reserve $ 50,000
Requirement 4

LIFO reserve ($50,000 − $10,000) ................................. 40,000

Exercise 8–20
Requirement 1
Average Cost
Beginning 80,000 @ $4.25 = $340,000 80,000 @ $4.25 = $340,000

inventory
Feb. 14 120,000 @ $4.50 = $540,000
$880,000
200,000 units
Mar. 5 150,000 @ $4.40 = $660,000 50,000 @ $4.40 = $220,000
Aug. 27 50,000 @ $4.80 = $240,000
$460,000
100,000 units
Sep. 12 60,000 @ $4.60 = $276,000 40,000 @ $4.60 = $184,000

Ending inventory
Total cost of goods sold =
$936,000

Requirement 2

Purchases:
120,000 × $4.50 $540,000
50,000 × $4.80 240,000 780,000
Cost of goods available (250,000 units) $1,120,000
Cost of goods available for sale (250,000 units) $1,120,000

Date of
Beg. Inv. 40,000 $4.25 $170,000
Requirement 3
LIFO Reserve
Perpetual average (Required 1) $ 184,000

Less: Periodic LIFO (Required 2) (170,000)
Requirement 4

LIFO reserve ($14,000 − $8,000) ................................... 6,000

Exercise 8–21
Requirement 1
September 30, 2017 ($ in millions)

LIFO reserve ($1,625 − $1,467) ......................................... 158
Cost of goods sold ....................................................... 158
Requirement 2
$148,598 + $158 = $148,756 million cost of goods sold under FIFO.
Cost of goods sold is provided as $148,598 (million) on a LIFO basis. To convert

LIFO to FIFO, the adjustment in Requirement 1 converting FIFO to LIFO is reversed
and cost of goods sold is thereby increased by $158.

Exercise 8–22
Requirement 1
Cost of goods sold:
50,000 units × $8.50 = $425,000
4,000 units × $7.00 = 28,000
$453,000
Requirement 2
When inventory quantity declines during a reporting period, liquidation of LIFO
inventory layers carried at different costs prevailing in prior years results in
noncurrent costs being matched with current selling prices. If the resulting effect on
income is material, it must be disclosed. In this case, the effect of the LIFO layer
liquidation is to increase income (ignoring taxes) by $6,000 [4,000 units liquidated ×
$1.50 ($8.50 current year cost per unit – $7 LIFO layer cost per unit)].

Exercise 8–23
Units liquidated 10,000
Units liquidated multiplied by the difference between
their current cost and acquisition cost:
8,000 × ($12 – $9) = $24,000
2,000 × ($12 – $8) = 8,000
Before-tax LIFO liquidation profit $32,000
When inventory quantity declines during a reporting period, liquidation of LIFO

inventory layers carried at different costs that prevailed in prior years results in
noncurrent costs being matched with current selling prices. If the resulting effect on
income is material, it must be disclosed. In this case, the effect of the LIFO layer
liquidation is to decrease cost of goods sold and thereby to increase income before
income taxes by $32,000.
Exercise 8–24
Requirement 1
The specific citation that describes the disclosure requirements that must be made
by publicly traded companies for a LIFO liquidation is FASB ASC 330–10–S99–3:
“Inventory–Overall–SEC Materials–LIFO Liquidations.”
Requirement 2
When a company using LIFO liquidates a substantial portion of its inventory, the
company must disclose the affect on income had the inventory liquidation not taken
place. Such disclosure would be required in order to make the financial statements not
misleading. Disclosure may be made either in a footnote or parenthetically on the
face of the income statement.

Exercise 8–25
($ in millions)
HOME DEPOT LOWE’S
Gross profit ratio = 34,356 = 34.05% 23,409 = 34.11%
100,904 68,619
Inventory turnover = 66,548 = 5.26 times 45,210 = 4.14 times

12,648.5 10,925.5
Average days = 365 = 69 days 365 = 88 days

in inventory 5.26 4.14
The gross profit ratios for the two companies are similar and both exceed the
industry average of 27%. On average, Lowe’s turns over its inventory 19 days slower
than does Home Depot and both companies turn over their inventories faster than the
industry average. This is not surprising, since Home Depot and Lowe’s lead the
market in size of stores and merchandise available, making it more difficult for
smaller retailers to sell merchandise as quickly as these two companies.
Exercise 8–26
1/1/2021 $660,000
= $660,000 $660,000 (base) $660,000 × 1.00 = $660,000 $660,000
1.00
12/31/2021 $690,000
= $663,462 $660,000 (base) $660,000 × 1.00 = $660,000
1.04 3,462 (2021) 3,462 × 1.04 = 3,600 663,600
12/31/2022 $760,000
= $703,704 $660,000 (base) $660,000 × 1.00 = $660,000
1.08 3,462 (2021) 3,462 × 1.04 = 3,600
40,242 (2022) 40,242 × 1.08 = 43,461 707,061

Exercise 8–27
12/31/2021 $200,000
= $200,000 $200,000 (base) $200,000 × 1.00 = $200,000 $200,000
1.00
12/31/2022 $231,000
= $220,000 Index = 1.05
Index
$200,000 (base) $200,000 × 1.00 = $200,000
20,000 (2022) 20,000 × 1.05 = 21,000 $221,000
12/31/2023 $299,000
= $260,000 Index = 1.15
Index
$200,000 (base) $200,000 × 1.00 = $200,000
20,000 (2022) 20,000 × 1.05 = 21,000
40,000 (2023) 40,000 × 1.15 = 46,000 $267,000
12/31/2024 $300,000
= $250,000 Index = 1.20
Index
$200,000 (base) $200,000 × 1.00 = $200,000
20,000 (2022) 20,000 × 1.05 = 21,000
30,000 (2023) 30,000 × 1.15 = 34,500 $255,500

Exercise 8–28
Set the base year, 1/1/2021, equal to 1.00.
Cost index in layer year: 264 ÷ 240 = 1.10

1/1/2021 $720,000
_______
= $720,000 $720,000 (base) $720,000 × 1.00 = $720,000 $720,000
1.00
12/31/2021 $880,000
_______
= $800,000 $720,000 (base) $720,000 × 1.00 = $720,000
1.10 80,000 (2021) 80,000 × 1.10 = 88,000 $808,000

Exercise 8–29
List A List B
i 1. Perpetual inventory a. Legal title passes when goods are
system delivered to common carrier.
l 2. Periodic inventory system b. Goods are transferred to another company
but title remains with transferor.
a 3. F.o.b. shipping point c. Purchases are recorded for the full cost of
the inventory.
c 4. Gross method d. If LIFO is used for taxes, it must be used
for financial reporting.
g 5. Net method e. Assumes items sold are those acquired
first.
h 6. Cost index f. Assumes items sold are those acquired
last.
k 7. F.o.b. destination g. Purchases are recorded for the full cost of
the inventory less any possible discount.
e 8. FIFO h. Used to convert ending inventory at year-
end cost to base year cost.
f 9. LIFO i. Continuously records changes in
inventory.
b 10. Consignment j. Items sold come from a mixture of goods
acquired during the period.
j 11. Average cost k. Legal title passes when goods arrive at
location.
d 12. IRS conformity rule l. Adjusts inventory at the end of the period.

Exercise 8–30
Requirement 1
a. Debit Credit
Inventory 330,000
Accounts Payable 330,000
(Purchased inventory on account)
b. Debit Credit
Accounts Receivable 570,000
Sales Revenue 570,000
(Sold inventory on account)
Cost of Goods Sold 310,000
Inventory 310,000
(Record cost of inventory sold)
c. Debit Credit
Cash 540,000
(Received cash on account)
d. Debit Credit
Inventory 24,000
Cash 24,000
(Paid freight on inventory received)
e. Debit Credit
Inventory 5,000
Cash 320,000
(Paid cash on account)
f. Debit Credit
Rent Expense 42,000
Cash 42,000
(Paid rent)
g. Debit Credit
Salaries Expense 150,000
Cash 150,000
(Paid salaries)

Requirement 2
Debit Credit
(a) December 31
Supplies Expense 17,000
Supplies 17,000
(Record supplies used)
($17,000 = $25,000 − $8,000)
Debit Credit
(b) December 31
Interest Expense 1,000
Interest Payable 1,000
(Record interest expense not yet paid)
($1,000 = $20,000 × 5%)
Debit Credit
(c) December 31
Income Tax Expense 18,000
Income Taxes Payable 18,000
(Record income taxes not yet paid)

Requirement 3
Displays Incorporated
Adjusted Trial Balance
December 31, 2021
Accounts Debit Credit
Cash $ 26,000
Supplies 8,000
Inventory 99,000
Land 227,000
Accounts Payable $ 23,000
Interest Payable 1,000
Notes Payable 20,000
Common Stock 186,000
Retained Earnings 129,000
Rent Expense 42,000
Totals $947,000 $947,000

Requirement 3 (continued)
Accounts Ending Beginning balance in bold, entries during January in blue,

Balance and adjusting entries in red.
Cash $ 26,000 = 22,000+540,000−24,000−320,000−42,000−150,000
Accounts Receivable 49,000 = 19,000+570,000−540,000
Supplies 8,000 = 25,000−17,000
Inventory 99,000 = 60,000+330,000−310,000+24,000−5,000
Land 227,000 = 227,000
Accounts Payable 23,000 = 18,000+330,000−325,000
Interest Payable 1,000 = 1,000
Income Taxes Payable 18,000 = 18,000
Notes Payable 20,000 = 20,000
Common Stock 186,000 = 186,000
Retained Earnings 129,000 = 129,000
Sales Revenue 570,000 = 570,000
Cost of Goods Sold 310,000 = 310,000
Rent Expense 42,000 = 42,000
Salaries Expense 150,000 = 150,000
Supplies Expense 17,000 = 17,000
Interest Expense 1,000 = 1,000
Income Tax Expense 18,000 = 18,000

Requirement 4
Income Statement
For the year ended December 31, 2021
Sales revenue $570,000
Cost of goods sold 310,000
Gross profit $260,000
Rent expense 42,000
Salaries expense 150,000
Supplies expense 17,000
Total operating expenses 209,000
Operating income 51,000
Interest expense 1,000
Income before taxes 50,000
Income tax expense 18,000
Net income $ 32,000
Requirement 5
Balance Sheet
December 31, 2021
Assets Liabilities
Cash $ 26,000 Accounts payable $ 23,000
Accounts receivable 49,000 Income taxes payable 18,000
Supplies 8,000 Interest payable 1,000
Inventory 99,000 Notes payable 20,000
Total current assets 182,000 Total liabilities 62,000
Land 227,000 Stockholders’ Equity

Common stock 186,000
Retained earnings 161,000 *
Total stockholders’ equity 347,000
Total liabilities and
Total assets $409,000 stockholders’ equity $409,000
* Retained earnings = Beginning retained earnings + Net income − Dividends

= $129,000 + $32,000 − $0
= $161,000

Requirement 6
December 31, 2021 Debit Credit

(Close revenue accounts)

Rent Expense 42,000
(Close expense accounts)
Requirement 7
(a) The LIFO reserve is:
Internal records (FIFO) $99,000
External reporting (LIFO) 85,000
LIFO reserve $14,000
(b) Step 1: $99,000 / 1.10 = $90,000 ending inventory at base year cost
Step 2: $60,000 beginning inventory

30,000 new layer in 2018
$90,000 ending inventory at base year cost
Step 3: $60,000 × 1.00 = $60,000

30,000 × 1.10 = $33,000
$93,000 ending inventory using dollar-value LIFO
(c) Indicate whether each of the ratios below generally would be higher or lower when reporting
inventory using LIFO (or dollar-value LIFO) instead of FIFO in periods of rising inventory costs
and stable inventory quantities.
1. Inventory turnover ratio – higher under LIFO
2. Average days in inventory – lower under LIFO
3. Gross profit ratio – lower under LIFO

Exercise 8–31
Requirement 1
January 2 Debit Credit
Notes Receivable 20,000
Cash 20,000
(Accepted 6% note receivable due in six months)
Inventory 385,000
(Purchased inventory on account)
Inventory 11,000
(Returned 100 units of inventory; $110 × 100 units)
(Sold inventory on account)
Inventory 360,000
(Recorded cost of inventory sold)
($360,000 = [$100×300 units]+[$110×3,000 units])
Sales Returns 26,000
(Customer returned inventory; $130 × 200 units)
Inventory 22,000
(Customer returned inventory; $110 × 200 units)
Cash 379,980
Sales Discounts (($130 × 2,700) × 2%) 7,020
Accounts Receivable ($36,000 + ($130 × 2,700)) 387,000
(Received cash from customers on account)
Allowance for Uncollectible Accounts 4,000
(Wrote off uncollectible accounts)
($40,000 − $36,000)
Cash 361,000
(Paid cash on account; $110 × 3,100 units) + $20,000)

Cash 28,000
(Paid salaries for the current period)
Utilities Expense 10,000
Cash 10,000
(Paid utilities for the current period)
Dividends 3,000
Cash 3,000
(Paid dividends)
Requirement 2
Bad Debt Expense 4,200
Allowance for Uncollectible Accounts 4,200
(Estimated uncollectible accounts)
($4,200 = ($52,000 × 10%) − $1,000)
Interest Receivable 100
Interest Revenue 100
(Record interest receivable)
($20,000 × 6% × 1/12 = $100)
Interest Expense 240
Interest Payable 240
(Record interest payable)
($36,000 × 8% × 1/12 = $240)
(Record income taxes payable)
Depreciation Expense 2,000
Accumulated Depreciation 2,000
(Record depreciation)

Requirement 3
Tripley Company
Adjusted Trial Balance
January 31, 2021
Accounts Debit Credit
Cash $ 27,980
Allowance for Uncollectible Accounts $ 5,200
Interest Receivable 100
Notes Receivable 20,000
Inventory 66,000
Building 70,000
Accumulated Depreciation 12,000
Land 200,000
Interest Payable 240
Notes Payable 36,000
Common Stock 100,000
Dividends 3,000
Sales Returns 26,000
Sales Discounts 7,020
Interest Revenue 100
Utilities Expense 10,000
Bad debt Expense 4,200
Depreciation Expense 2,000
Interest Expense 240
Totals $859,540 $859,540

Requirement 4
Tripley Company
Income Statement
For the year ended January 31, 2021
Sales revenue $429,000
Less: Sales returns (26,000)
Sales discounts (7,020)
Net sales revenue $395,980
Gross profit 57,980
Operating expenses:
Utilities expense 10,000
Bad debt expense 4,200
Depreciation expense 2,000 44,200
Operating income 13,780
Other income (expenses):
Interest revenue 100
Interest expense (240) (140)
Income before taxes 13,640
Net income $ 8,640

Requirement 5
Tripley Company
Balance Sheet
January 31, 2021
Assets Liabilities
Cash $ 27,980 Accounts payable $ 33,000
Accounts receivable 52,000 Interest payable 240
Less: Allowance for Income taxes payable 5,000
uncollectible accounts (5,200) 46,800
Interest receivable 100 Total current liabilities 38,240
Notes receivable 20,000 Notes payable 36,000
Inventory 66,000 Total liabilities 74,240
Total current assets 160,880
Property, plant, and equipment: Stockholders’ Equity
Building 70,000 Common stock 100,000
Less: Accumulated depreciation (12,000) Retained earnings 244,640 *
Land 200,000 Total stockholders’ equity 344,640
Total liabilities and
Total assets $418,880 stockholders’ equity $418,880
* Retained earnings = Beginning retained earnings + Net income − Dividends

= $239,000 + $8,640 − $3,000
= $244,640

Requirement 6
Sales revenue 429,000
Interest revenue 100
(Close temporary credit accounts)
Sales returns 26,000
Sales discounts 7,020
Utilities expense 10,000
Bad debt expense 4,200
Depreciation expense 2,000
Interest expense 240
Dividends 3,000
(Close temporary debit accounts)

Requirement 7
(a) The inventory turnover ratio is:
Inventory Cost of Goods Sold $338,000

= = = 7.0
Turnover Ratio Average Inventory ($30,000 + $66,000)/2
A ratio of 7.0 suggests that the average inventory balance is sold 7.0 times over the period.
Typically, a higher ratio is good. The industry average inventory turnover ratio is lower at 4.5, so the
company is selling its inventory more quickly than the average company in the same industry.
(b) The gross profit ratio is:
Gross (Net Sales − Cost of Goods Sold) ($395,980 − $338,000)

= = = 14.6%
Profit Ratio Net Sales $395,980
A gross profit ratio of 14.6% suggests that for every $1 of sales, the company spends $0.854 on
inventory ($1.00 − $0.146), resulting in a gross profit of $0.146. The industry average gross profit
ratio is higher at 33%, so the company is less profitable per dollar of sales than the average company
in the same industry.
(c) Based on the inventory turnover ratio and the gross profit ratio, the company’s business strategy
appears to be selling a high volume of less profitable items. In general, lower priced items sell
more frequently.

PROBLEMS
Problem 8–1
Requirement 1
a. To record the purchase of inventory on account and the payment of freight
charges.
October 12
Inventory (98% × $22,000) ................................................. 21,560
Inventory ......................................................................... 500

Cash ............................................................................. 500
b. To record payment of accounts payable.
October 31
Purchase discounts lost ................................................... 440
Cash ............................................................................. 22,000
c. To record sales on account.
During October
Accounts receivable ........................................................ 28,000
Sales revenue............................................................... 28,000
Cost of goods sold ........................................................... 18,000

Inventory ..................................................................... 18,000
No entry is needed for item d.

Problem 8–1 (continued)
Requirement 2
a. To record the purchase of inventory on account and the payment of freight
charges.
October 12
Purchases (98% × $22,000) ................................................ 21,560
Freight-in ........................................................................ 500

Cash ............................................................................ 500
b. To record payment of accounts payable.
October 31
Interest expense .............................................................. 440
Cash ............................................................................ 22,000

Problem 8–1 (concluded)
c. To record sales on account.
During October
Accounts receivable ........................................................ 28,000
Sales revenue............................................................... 28,000
No entry is made for the cost of goods sold.
d.
Cost of goods sold:
Beginning inventory $15,000

Plus net purchases:
Purchases $21,560
Plus: Freight-in 500 22,060
Cost of goods available for sale 37,060
Less: Ending inventory (19,060)
Adjusting entry:
October 31
Cost of goods sold (above*).............................................. 18,000
Inventory (ending)............................................................. 19,060
Inventory (beginning) .................................................... 15,000
Purchases ..................................................................... 21,560
Freight-in ..................................................................... 500
If James considers the purchase discount lost of $440 on October 31 to be an increase in cost of
goods sold, then the Purchase Discounts Lost account would be debited on October 31 and credited
(closed) in this year-end adjusting entry, increasing cost of goods sold to $18,440 ($18,000 + $440).

Problem 8–2
1. The transaction is not correctly accounted for. Inventory held on consignment by
another company should be included in the inventory of the consignor. Rasul
should include this merchandise in its 2021 ending inventory.
2. The transaction is not correctly accounted for. Legal title to merchandise shipped
f.o.b. shipping point changes hands when the goods are shipped. Rasul should
record the purchase and corresponding account payable in 2021 and include the
merchandise in its 2021 ending inventory.
3. The transaction is not correctly accounted for. Since the merchandise was shipped
f.o.b. destination and did not arrive at the customer's location until 2022, it should
be included in Rasul’s 2021 ending inventory. The sale should be recorded in
2022.
4. The transaction is correctly accounted for. Merchandise held on consignment from
another company belongs to the consignor and should be excluded from the
inventory of the consignee.
5. The transaction is correctly accounted for. Since the merchandise was shipped
f.o.b. destination and did not arrive at Rasul’s location until 2022, it should not be
included in Rasul’s 2021 ending inventory. The purchase is correctly recorded in
2022.
Problem 8–3
Accounts
Inventory Payable Sales
Initial amounts $1,250,000 $1,000,000 $9,000,000
Adjustments - increase (decrease):
1. (155,000) (155,000) NONE
2. (22,000) NONE NONE
3. NONE NONE 40,000
4. 210,000 NONE NONE
5. 25,000 25,000 NONE
6. 2,000 2,000 NONE
7. (5,300) (5,300) NONE
Total adjustments 54,700 (133,300) 40,000
Adjusted amounts $1,304,700 $ 866,700 $9,040,000

Problem 8–4
Requirement 1
Even though specific dates for purchases and sales of inventory are not given,
amounts for ending inventory and cost of goods sold under FIFO are the same using
calculations under a periodic or perpetual inventory system. Therefore, we can
calculate perpetual FIFO as follows:

Net purchases:
Purchases (50,000* units × $10.00) $500,000
Less: Purchase returns (1,000 units × $10.50) (10,500)
Less: Purchase discounts
($490,000 × 2%) (9,800)
Plus: Freight-in (50,000 units × $0.50) 25,000 504,700
Cost of goods available (59,000 units) 584,700
Cost of goods sold (45,000 units) $440,500
* The 5,000 units purchased on December 28 are not included. The

merchandise was shipped f.o.b. destination and did not arrive at Johnson’s
warehouse until the following year.
Date of
During the year 14,000 10.30** $144,200
**($10 × 98%) + $0.50 per unit freight-in charge = $10.30 per unit
Requirement 2
Sales (45,000 units × $18.00) $810,000
Less:
Cost of goods sold (above) $440,500
Other operating expenses 150,000 (590,500)
Income before income taxes $219,500

Requirement 3
Cost of ending inventory under LIFO (periodic inventory system):
Date of
Beg. Inv. 10,000 $ 8.00 $ 80,000
During the year 4,000 10.30*** 41,200
Total 14,000 $121,200
***($10 × 98%) + $0.50 per unit freight-in charges = $10.30
LIFO Reserve
Perpetual FIFO (Required 1) $ 144,200
Less: Periodic LIFO (above) (121,200)

LIFO reserve ($23,000 − $15,000) ................................. 8,000
Requirement 4
Sales (45,000 units × $18.00) $810,000

Less:
Cost of goods sold**** $448,500
Other operating expenses 150,000 (598,500)
Income before income taxes $211,500
**** $440,500 (Required 2 using FIFO) + $8,000 (Required 3 LIFO reserve

adjustment) = $448,500.

Problem 8–5
Cost of goods available for sale for periodic system:
Purchases:
5,000 × $ 9.00 $45,000
6,000 × $10.00 60,000 105,000
1. FIFO, periodic system

Date of
Jan. 10 2,000 $ 9.00 $18,000
Jan. 18 6,000 10.00 60,000
Totals 8,000 $78,000
Alternatively, cost of goods sold can be determined by adding the cost of the 6,000
units in beginning inventory ($48,000) and the 3,000 units from the January 10
purchase ($27,000) = $75,000.

2. LIFO, periodic system

Date of
Beg. Inv. 6,000 $8.00 $48,000
Jan. 10 2,000 9.00 18,000
Totals 8,000 $66,000
Alternatively, cost of goods sold can be determined by adding the cost of the 6,000
units from the January 18 purchase ($60,000) and the 3,000 units from the January
10 purchase ($27,000) = $87,000.

3. FIFO, perpetual system

Beginning 6,000 @ $8.00 = $48,000 6,000 @ $8.00 $48,000
inventory
January 5 3,000 @ $8.00 = $24,000 3,000 @ $8.00 $24,000
January 10 5,000 @ $9.00 = $45,000 3,000 @ $8.00

5,000 @ $9.00 $69,000
January 12 2,000 @ $8.00 = $16,000 1,000 @ $8.00

5,000 @ $9.00 $53,000
January 18 6,000 @ $10.00 = $60,000 1,000 @ $8.00

5,000 @ $9.00 $113,000
6,000 @ $10.00
January 20 1,000 @ $8.00 = $ 8,000 2,000 @ $9.00

3,000 @ $9.00 = $27,000 6,000 @ $10.00 $78,000
Ending
inventory
4. Average cost, periodic system


$153,000
17,000 units
8,000 units × $9.00 = $72,000
Alternatively, cost of goods sold could be determined by multiplying the units
sold by the average cost: 9,000 units × $9.00 = $81,000.

5. Average cost, perpetual system

Beginning 6,000 @ $8.00 = $48,000 6,000 @ $8.00 $48,000

inventory
January 5 3,000 @ $8.00 = $24,000 3,000 @ $8.00 $24,000
January 10 5,000 @ $9.00 = $45,000
$69,000
8,000 units
January 12 2,000 @ $8.625 = $17,250 6,000 @ $8.625 $51,750
January 18 6,000 @ $10.00 = $60,000
$111,750
12,000 units
January 20 4,000 @ $9.3125 = $37,250 8,000 @ $9.3125 $74,500

Ending
inventory

Problem 8–6
Requirement 1
Cost of goods available for sale for periodic system:
Purchases:
5,000 × $4.00 $20,000
12,000 × $4.50 54,000
17,000 × $5.00 85,000
a. FIFO

Date of
March 22 14,000 $5.00 $70,000
b. LIFO

Date of
Jan. 7 5,000 $4.00 $20,000
Feb. 16 9,000 4.50 40,500
Totals 14,000 $60,500

c. Average cost

Cost of goods sold $ 93,529*

$159,000
34,000 units
14,000 units × $4.6765 = $65,471
cost: 20,000 units × $4.6765 = $93,530 (rounding)
Gross Profit ratio:

FIFO: $51,000* ÷ $140,000** = 36%
LIFO: $41,500* ÷ $140,000** = 30%
Average: $46,471* ÷ $140,000** = 33%
*Sales less cost of goods sold
**20,000 units × $7 sales price = sales
Requirement 2
In situations when costs are rising, LIFO results in a higher cost of goods sold
and, therefore, a lower gross profit ratio than FIFO.

Problem 8–7
Requirement 1
Beginning inventory ($60,000 + $60,000 + $63,000) $183,000
Purchases:
211 $63,000
212 63,000
213 64,500
214 66,000
215 69,000
216 70,500
217 72,000
218 72,300
219 75,000 615,300
Cost of goods available 798,300
Ending inventory:
213 $64,500
216 70,500
219 75,000 (210,000)
Requirement 2
Cost of goods available for sale $798,300

Cost of ending inventory (3 autos):
Car ID Cost
219 $ 75,000
218 72,300
217 72,000
Total $219,300

Requirement 3
Cost of goods available for sale $798,300

Cost of ending inventory (3 autos):
Car ID Cost
203 $ 60,000
207 60,000
210 63,000
Total $183,000
Requirement 4

Cost of goods sold $598,725*

$798,300
Weighted-average unit cost = = $66,525
12 units
3 units × $66,525 = $199,575

cost: 9 units × $66,525 = $598,725

Problem 8–8
Requirement 1
The note indicates that if the company had used FIFO, inventory would have
been higher by $1,934 million and $2,139 million at the end of 2017 and 2016,
respectively. The decrease in the difference between LIFO and FIFO means there
was a decrease in the LIFO reserve in 2017. The decrease in the LIFO reserve
decreased cost of goods sold by $205 million under LIFO. Therefore, we reverse
this and add this amount to LIFO cost of goods sold to determine FIFO cost of
goods sold of $31,254 million ($31,049 million + $205 million).
Requirement 2
Because cost of goods sold would have been higher by $205 million if FIFO had
been used, income before taxes under FIFO would have been lower by $205
million.
Requirement 3
The information might be useful to a financial analyst interested in comparing
Caterpillar’s performance with another company using the FIFO inventory
method exclusively.

Problem 8–9
Requirement 1
Beginning inventory $ 450,000
Purchases:
30,000 units @ $25 750,000
Cost of goods available for sale 1,200,000
Date of
Beg. Inv. 10,000 $15 $150,000
Beg. Inv. 5,000 20 100,000
Totals 15,000 $250,000
Requirement 2
Cost of goods sold assuming all units purchased at the year 2021 price:
40,000 units × $25.00 = $1,000,000
Less: LIFO cost of goods sold (950,000)
LIFO liquidation profit before tax 50,000
Multiplied by 1 – 0.25 × 0.75
LIFO liquidation profit $ 37,500
Requirement 3
$50,000* × 25% = $12,500
* ($25 − $20) × 10,000 units = $50,000 additional reported for cost of goods sold.

Problem 8–10
Requirement 1
Cost of goods sold:

2021: 1,000 × $16 = $ 16,000
10,000 × $18 = 180,000
11,000 $196,000
2022: 1,500 × $16 = $ 24,000

13,000 × $18 = 234,000
14,500 $258,000
2023: 1,000 × $12 = $ 12,000

12,000 × $18 = 216,000
13,000 $228,000
Requirement 2
LIFO liquidation before-tax profit or loss:

2021: 1,000 units × $2 ($18 – $16) = $2,000 profit
2022: 1,500 units × $2 ($18 – $16) = $3,000 profit
2023: 1,000 units × $6 ($18 – $12) = $6,000 profit
Requirement 3
Disclosure note:
During fiscal 2023, 2022, and 2021, inventory quantities in certain LIFO layers were
reduced. These reductions resulted in a liquidation of LIFO inventory quantities
carried at lower costs prevailing in prior years as compared with the cost of fiscal
2023, 2022, and 2021 purchases. As a result, cost of goods sold decreased by $6,000,
$3,000, and $2,000 in fiscal 2023, 2022, and 2021, respectively, and net income
increased by approximately $4,500, $2,250, and $1,500, respectively.

Problem 8–11
Requirement 1
Sales (27,000 units × $2,000) $54,000,000
Less: Cost of goods sold (27,000 units × $1,000) (27,000,000)
Gross profit $27,000,000
Gross profit ratio = $27,000,000  $54,000,000 = 50%
Requirement 2
Sales (27,000 units × $2,000) $54,000,000
Less: Cost of goods sold* (25,000,000)
Gross profit ratio = $29,000,000  $54,000,000 = 53.7%
*Cost of goods sold:

15,000 units × $1,000 = $15,000,000
6,000 units × $ 900 = 5,400,000
4,000 units × $ 800 = 3,200,000
2,000 units × $ 700 = 1,400,000
27,000 units $25,000,000

Requirement 3
The gross profit and gross profit ratio are higher applying the requirement 2
assumption of 15,000 units purchased because of the LIFO liquidation profit that
results. When inventory quantity declines during a reporting period, LIFO inventory
layers carried at costs prevailing in prior years are “liquidated” or assumed sold in the
cost of goods sold calculation. This results in noncurrent costs being matched with
current selling prices. If the company had purchased at least 27,000 units during
2022, there would be no LIFO liquidation.
The profit difference ($2,000,000 in this case), if material, must be disclosed in a
note. The difference can be arrived at by comparing the current replacement cost of
$1,000 with each inventory layer from prior years that was included in this year’s cost
of goods sold, as follows:
6,000 units × $100 ($1,000 – $900) $ 600,000
4,000 units × $200 ($1,000 – $800) 800,000
2,000 units × $300 ($1,000 – $700) 600,000
Total LIFO liquidation profit $2,000,000
Requirement 4
Sales (27,000 units × $2,000) $54,000,000
Cost of goods sold:
5,000 units × $700 $ 3,500,000
4,000 units × $800 3,200,000
6,000 units × $900 5,400,000
12,000 units × $1,000 12,000,000 24,100,000
27,000 units
Gross profit = $29,900,000
Gross profit ratio = $29,900,000  $54,000,000 = 55.4%
If only 15,000 units are purchased, cost of goods sold, gross profit, and the gross
profit ratio would be exactly the same as when 28,000 units are purchased.
Requirement 5
The number of units purchased has no effect on FIFO cost of goods sold. When
applying the first-in, first-out approach, beginning inventory costs are included in cost
of goods sold first, regardless of the quantities of inventory purchased in the new
reporting period.

Problem 8–12
Requirement 1
Allowance for uncollectible accounts
Balance, beginning of year $7

Add: Bad debt expense for 2021 8
Less: End-of-year balance (10)
Accounts receivable written off $5
Requirement 2
Accounts receivable analysis:
Balance, beginning of year ($583 + 7) $ 590

Add: Credit sales 6,255
Less: write-offs (from Requirement 1) (5)
Less: Balance end of year ($703 + 10) (713)
Cash collections $6,127
Requirement 3
Cost of goods sold for 2021 would have been $130 million lower had Inverness
used the average cost method for its entire inventory. While beginning inventory
would have been $350 million higher, ending inventory also would have been higher
by $480 million. An increase in beginning inventory causes an increase in cost of
goods sold, but an increase in ending inventory causes a decrease in cost of goods
sold. Purchases for the year are the same regardless of the inventory valuation method
used. Therefore, cost of goods sold would have been $5,060 ($5,190 – 130).
Requirement 4
a. Receivables turnover ratio = $6,255 = 9.73 times
($703 + 583)/2
b. Inventory turnover ratio = $5,190 = 6.15 times

($880 + 808)/2
c. Gross profit ratio = ($6,255– 5,190) = 17%

$6,255

Requirement 5
If inventory costs are increasing, when inventory quantity declines during a
period, liquidation of LIFO inventory layers carried at lower costs prevailing in prior
year’s results in noncurrent costs being matched with current selling prices. The
“income” generated by this liquidation is known as LIFO liquidation profit.
The liquidation caused 2021 cost of goods sold to be lower by $8 million [$6
million  (1 – 0.25)]

Problem 8–13
Ending
1/1/2021 $400,000
= $400,000 $400,000 (base) $400,000 × 1.00 = $400,000 $400,000
1.00
12/31/2021 $441,000
= $420,000 $400,000 (base) $400,000 × 1.00 = $400,000
1.05 $20,000 (2021) $20,000 × 1.05 = 21,000 $421,000
12/31/2022 $487,200
= $435,000 $400,000 (base) $400,000 × 1.00 = $400,000
1.12 $20,000 (2021) $20,000 × 1.05 = $21,000
$15,000 (2022) $15,000 × 1.12 = $16,800 $437,800
12/31/2023 $510,000
= $425,000 $400,000 (base) $400,000 × 1.00 = $400,000
1.20 $20,000 (2021) $20,000 × 1.05 = $21,000
$5,000 (2022) $5,000 × 1.12 = $5,600 $426,600
Problem 8–14
Ending
1/1/2021 $150,000
= $150,000 $150,000 (base) $150,000 × 1.00 = $150,000 $150,000
1.00
12/31/2021 $200,000
= $185,185 $150,000 (base) $150,000 × 1.00 = $150,000
1.08 $35,185 (2021) $35,185 × 1.08 = $38,000 $188,000
12/31/2022 $245,700
= $210,000 $150,000 (base) $150,000 × 1.00 = $150,000
1.17 $35,185 (2021) $35,185 × 1.08 = $38,000
$24,815 (2022) $24,815 × 1.17 = $29,034 $217,034
12/31/2023 $235,980
= $207,000 $150,000 (base) $150,000 × 1.00 = $150,000
1.14 $35,185 (2021) $35,185 × 1.08 = $38,000
$21,815 (2022) $21,815 × 1.17 = $25,524 $213,524
12/31/2024 $228,800
= $208,000 $150,000 (base) $150,000 × 1.00 = $150,000
1.10 $35,185 (2021) $35,185 × 1.08 = $38,000
$21,815 (2022) $21,815 × 1.17 = $25,524
$1,000 (2024) $1,000 × 1.10 = $1,100 $214,624

Problem 8–15
Ending
1/1/2021 $260,000
= $260,000 $260,000 (base) $260,000 × 1.00 = $260,000 $260,000
1.00
12/31/2021 $340,000
= $333,333 $260,000 (base) $260,000 × 1.00 = $260,000
1.02 73,333 (2021) 73,333 × 1.02 = 74,800 $334,800
12/31/2022 $350,000
= $330,189 $260,000 (base) $260,000 × 1.00 = $260,000
1.06 70,189 (2021) $70,189 × 1.02 = 71,593 $331,593
12/31/2023 $400,000
= $373,832 $260,000 (base) $260,000 × 1.00 = $260,000
1.07 $70,189 (2021) $70,189 × 1.02 = $71,593
$43,643 (2023) $43,643 × 1.07 = $46,698 $378,291
12/31/2024 $430,000
= $390,909 $260,000 (base) $260,000 × 1.00 = $260,000
1.10 $70,189 (2021) $70,189 × 1.02 = $71,593
$43,643 (2023) $43,643 × 1.07 = $46,698
$17,077 (2024) $17,077 × 1.10 = $18,785 $397,076

Problem 8–16
Ending
1/1/2021 $84,000
= $84,000 $84,000 (base) $84,000 × 1.00 = $84,000 $84,000
1.00
12/31/2021 $100,800
= $96,000 $84,000 (base) $84,000 × 1.00 = $84,000
1.05 $12,000 2021) $12,000 × 1.05 = $12,600 $96,600
12/31/2022 $136,800
= $120,000 $84,000 (base) $84,000 × 1.00 = $84,000
1.14 $12,000 (2021) $12,000 × 1.05 = $12,600
$24,000 (2022) $24,000 × 1.14 = $27,360 $123,960
12/31/2023 $150,000
= $125,000 $84,000 (base) $84,000 × 1.00 = $84,000
1.20 (1) $12,000 (2021) $12,000 × 1.05 = $12,600
$24,000 (2022) $24,000 × 1.14 = $27,360
$5,000 (2023) $5,000 × 1.20 = $6,000 $129,960
12/31/2024 $160,000(5)
= $128,000(4) $84,000 (base) $84,000 × 1.00 = $84,000
1.25 $12,000 (2021) $12,000 × 1.05 = $12,600
$24,000 (2022) $24,000 × 1.14 = $27,360
$5,000 (2023) $5,000 × 1.20 = $6,000
$3,000 (2024) $3,000(3) × 1.25 = $3,750(2) $133,710
(1) $150,000  $125,000 = 1.20 (2023 cost index)

(2) $133,710 – $129,960 = $3,750
(3) $3,750  1.25 = $3,000
(4) $125,000 + $3,000 = $128,000 (2024 inventory at base-year cost)
(5) $128,000 × 1.25 = $160,000 (2024 inventory at year-end costs)

DECISION MAKERS’ PERSPECTIVES CASES
Judgment Case 8–1
Advance warning of the company's impending bankruptcy existed at the date of
the financial statements. As a rule, inventories should rise in tandem with sales. If
inventories rise faster, it may be because the goods simply aren't selling. This is
particularly true of companies in faddish or seasonal businesses—Merry-Go-Round's
world.
The company's report showed that inventories on January 30 were $82.2 million,
up 37 percent from $60 million a year earlier. That's well above the 15 percent sales
growth in the same period, to $877.5 million from $761.2 million. This alone should
have been a major cause for concern. It indicated the company's goods simply weren't
selling as rapidly as it expected, causing its inventories to bulge. The increase in
receivables from $6,195 to over $6 million should also have been cause for concern.

Real World Case 8–2
Requirement 1
Identifying items that should be included in inventory is difficult due to goods in
transit, goods on consignment, and sales returns.
Goods in transit. Inventory shipped f.o.b. shipping point is included in the
purchaser’s inventory as soon as the merchandise is shipped. On the other hand,
inventory shipped f.o.b. destination is included in the purchaser’s inventory only after
it reaches the purchaser’s location.
Goods on consignment. Goods held on consignment are included in the
inventory of the consignor until sold by the consignee.
Sales returns. When the right of return exists, a seller must be able to estimate
those returns. As a result, a company includes in inventory the cost of merchandise it
anticipates will be returned.
Requirement 2
In addition to the direct acquisition costs such as the price paid and transportation
costs to obtain inventory, the costs of unloading, unpacking, and preparing inventory
for sale or raw materials for use, if material in amount, also should be included in the
cost of inventory.
Requirement 3
Dick’s Sporting Goods considers cost to include the direct cost of merchandise
and inbound freight.

Judgment Case 8–3
1. a. The specific identification method requires each unit to be clearly
distinguished from similar units either by description, identification number, location,
or other characteristic. Costs are accumulated for specific units and expensed as the
units are sold. Thus, the specific identification method results in recognized cost
flows being identical to actual physical flows. Ideally, each unit is relatively
expensive and the number of units relatively few so that recording costs is not
burdensome. Under the specific identification method, if similar items have different
costs, cost of goods sold is influenced by the specific units sold.
b. It is appropriate for Happlia to use the specific identification method
because each appliance is expensive, and easily identified by number and description.
The specific identification method is feasible because Happlia already maintains
records of its units held by individual retailers. Management’s ability to manipulate
cost of goods sold is minimized because once the inventory is in the retailer’s hands,
Happlia’s management cannot influence the units selected for sale.
2. a. Happlia should include in inventory carrying amounts all necessary and
reasonable costs to get an appliance into a useful condition and place for sale.
Common (or joint) costs should be allocated to individual units. Such costs exclude
the excess costs incurred in transporting refrigerators to Minneapolis and their
reshipment to Kansas City. These unit costs should only include normal freight costs
from Des Moines to Kansas City. In addition, costs incurred to provide time utility to
the goods, that is, ensuring that they are available when required, will also be included
in inventory carrying amounts.
b. Examples of inventoriable costs include the unit invoice price, plus an
allocated proportion of the port handling fees, import duties, freight costs to Des
Moines and to retailers, insurance costs, repackaging, and warehousing costs.
3. The 2021 income statement should report in cost of goods sold all
inventory costs related to units sold in 2021, regardless of when cash is received from
retailers. Excess freight costs incurred for shipping the refrigerators from Minneapolis
to Kansas City should be included in determining operating income.

Communication Case 8–4
Suggested Grading Concepts and Grading Scheme:
Content (70%)
_______ 20 Describes the differential effect on ending inventory
and cost of goods sold of using FIFO versus LIFO
when
_____ Prices are increasing.
_____ Prices are decreasing.
_______ 25 Discusses the various motivating factors that
might influence the choice of inventory method.
______ The actual physical flow of product.
______ The better match of expenses with revenues
provided by LIFO.
______ The effect on the balance sheet.
______ The effect on reported income and income
taxes.
______ The cost of implementation of LIFO.
_______ 10 Discusses briefly the methods available to
simplify LIFO.
_______ 15 Discusses the IRS conformity rule with respect to
LIFO and the relaxation of the rule that allows a
a company using LIFO to present supplemental
non-LIFO disclosures.
______
_______ 70 points
Writing (30%)
_______ 6 Terminology and tone appropriate to the audience of
a company president.
_______ 12 Organization permits ease of understanding.

_____ Introduction that states purpose.
_____ Paragraphs that separate main points.
_______ 12 English
_____ Sentences grammatically clear and well organized,
concise.
_____ Word selection.
_____ Spelling.
_____ Grammar and punctuation.
______
_______ 30 points

LIFO produces a higher cost of goods sold, lower taxable income, and therefore
lower income taxes currently payable than FIFO only in periods when the costs of the
company’s products are rising. When costs are decreasing, LIFO results in lower cost
of goods sold, higher taxable income, and a higher current tax liability than FIFO. In
the case of the electronics client, you would explain this to the intern concluding that
the costs of the client's products must be decreasing, as frequently occurs in this
industry.
Judgment Case 8–6

At the end of a reporting period it is important to ensure that a proper inventory
cutoff is made. A proper cutoff involves the determination of the ownership of goods
that are in transit between the company and its customers as well as the company and
its suppliers. If the shipment is made f.o.b. shipping point, then ownership is
transferred to the buyer when the goods reach the common carrier. If the shipment is
made f.o.b. destination, then ownership is transferred to the buyer when the goods
arrive at the buyer’s location.
In this case, John is incorrect if the goods were shipped f.o.b. destination. If so,
even though the company is not in physical possession of the goods, they should be
included in ending inventory because the shipment had not reached the buyer's
location by the end of the reporting period.

Ethics Case 8–7
Requirement 1
Without purchase of the additional units:
Sales (35,000 @ $60) $2,100,000
Cost of goods sold (35,000 × $30) (1,050,000)
Due Jim Lester ($1,050,000 × 20%) = $210,000
With purchase of the additional units:

Sales $2,100,000
Cost of goods sold:
20,000 × $40 $800,000
15,000 × $30 450,000 (1,250,000)
Gross profit $ 850,000
Due Jim Lester ($850,000 × 20%) = $170,000

Requirement 2
Discussion should include these elements.
Facts:
If Moncrief purchases the additional units at the end of the year under a periodic
LIFO inventory system, the transaction results in a reduced payment to Jim Lester,
reduced profits to shareholders, and reduced income tax payments to government
entities. By purchasing the additional units of Zelenex, Moncrief reduces Jim Lester's
payment by $40,000 ($210,000 – $170,000) and decreases gross profit by $200,000
($1,050,000 – $850,000). The net effect on before-tax income is a decrease of
$160,000 ($200,000 – $40,000). Since Moncrief does not intend to sell the units until
2022, the only logical reason for purchasing more costly inventory at year-end is
profit manipulation.
Ethical Dilemma:
Should Moncrief exercise its right to purchase inventory at will, resulting in a
reduction in net income, or recognize the rights of Jim Lester to receive profit for the
sale of his product, shareholders' rights to have their investment appreciate through
positive earnings, and government entities' rights to collect tax on economic net
income?

Requirement 1
The LIFO conformity rule permits LIFO users to present disclosures that report,
in a note, the difference between inventories valued using LIFO and inventory valued
as if another method had been used. Wolverine's note provides this information.
Requirement 2
December 30, 2017
Ending Beginning
Inventory Inventory
($ in millions)
Inventory as stated $276.7 $348.7
Increase from LIFO to FIFO inventory 16.4 22.4
FIFO inventory balances $293.1 $371.1
Requirement 3
Cost of goods sold for the fiscal year ended December 30, 2017, would have been
$6.0 million higher had Wolverine used FIFO for its entire inventory. The decrease in
the LIFO reserve ($22.4 million – $16.4 million) decreased cost of goods sold by $6.0
million, and to reverse this and convert back to FIFO, the effect is the opposite
whereby cost of goods sold is increased by $6.0 million. Therefore, cost of goods sold
under FIFO would have been $1,432.6 million ($1,426.6 million under LIFO + $6
million decrease in LIFO reserve).
The higher amount of cost of goods sold under FIFO means that gross profit
would have been lower by $6 million. Gross profit under FIFO would have been
$917.4 million ($923.4 under LIFO − $6 million decrease in LIFO reserve).
Requirement 4
When inventory quantities decline during a period, then out-of-date inventory
layers are liquidated and cost of goods sold will partially match noncurrent costs with
current selling prices. This occurrence is known as a LIFO liquidation. If costs have
been increasing (decreasing), LIFO liquidations produce higher (lower) gross profit
than would have resulted if the liquidated inventory were included in cost of goods
sold at current costs. The paper profits (losses) caused by including out-of-date, low
(high) costs in cost of goods sold is referred to as the effect on income of liquidations
of LIFO inventory, and these amounts must be separately disclosed if material.

Requirement 3
The following is based on Whole Foods’ 2017 financial statements. Answers
will vary depending on the financial statement dates chosen.
a. Whole Foods uses the last-in, first-out (LIFO) method for approximately 92.9%
of its inventories at the end of 2017 and 91.8% of its inventories at the end of
2016 and FIFO for the remainder.
b. Assuming that current cost approximates FIFO cost, the inventory disclosure
note indicates that, if FIFO had been used to value LIFO inventories,
inventories would have been higher than reported by $47 million at the end of
2017 and $42 million at the end of 2016. Cost of goods sold for 2017 would
have been $5 million lower ($47 – 42) had Whole Foods used FIFO.
Beginning FIFO inventory would have been $42 million higher and ending
FIFO inventory also would have been higher by $47 million. An increase in
beginning inventory causes an increase in cost of goods sold, while an increase
in ending inventory causes a decrease in cost of goods sold. Purchases for 2017
are the same regardless of the inventory valuation method used.
c. Inventory turnover = cost of goods sold divided by average inventory
($ in millions)
Inventory turnover = $10,633 = 21.5 times
$494*
*($471 + 517) ÷ 2

The dollar-value LIFO inventory estimation technique begins with the
determination of the current year’s ending inventory valued in terms of year-end costs.
It is not necessary for a company using DVL to track the cost of purchases during the
year. All that is needed is to take the physical quantities of goods on hand at the end
of the year and apply year-end costs.
The next step is to convert the ending inventory from year-end costs to base year
costs. This usually is accomplished by dividing the ending inventory at year-end costs
by the year’s cost index. The cost index reflects the change in cost from a base year to
the current year. The ending inventory has been deflated for cost changes from the
base year to the end of the current year.
The next step in the procedure is to identify the layers in ending inventory with
the years they were created by comparing ending inventory at base year cost to the
beginning inventory at base year cost. Applying the LIFO concept, if inventory has
increased, ending inventory at base year cost consists of the beginning inventory layer
plus a current year layer.
The final step converts the layers identified to cost by multiplying the layers at
base year cost by the layer’s cost index. The costs are totaled to obtain ending
inventory at DVL cost.

Research Case 8–11
Requirement 1
The FASB’s codification citation that provides guidance for determining whether
an arrangement involving the sale of inventory is in substance a financing
arrangement is FASB ASC 470–40–05–2: “Debt–Product Financing Arrangements–
Overview and Background.”
Requirement 2
The FASB’s codification citation that addresses the recognition of a product
financing arrangement is FASB ASC 470–40–25–1: “Debt–Product Financing
Arrangements–Recognition.”
Requirement 3
The appropriate accounting treatment for this type of arrangement is for the
sponsor to record a liability at the time the proceeds are received from the other entity.
The sponsor does not record the transaction as a sale and does not remove the product
from its inventory. The cost of the repurchase amount in excess of the originally
recorded liability represents financing and holding costs. These costs are accounted
for in accordance with the sponsor’s accounting policies applicable to other financing
and holding costs. Notice that this is an example of “substance (a loan) over form (a
sale).”
Requirement 4
Journal entry to record the “sale” (cash receipt):
Cash ................................................................................ 160,000

Liability—product financing arrangement ................. 160,000
Journal entry to record the repurchase:
Liability—product financing arrangement .................... 160,000

Holding and financing costs* ........................................ 4,000
Cash ............................................................................ 164,000

Research Case 8–11 (concluded)
*The treatment of these costs depends on the accounting policies of the sponsor. For
example, if these costs normally are expensed as period costs, then the debit in this
case would be to an expense account (or accounts).

Analysis Case 8–12
Requirement 1
($ in millions)
KOHL’S DILLARDS
Gross profit ratio = 6,919 = 36.2% 2,061 = 32.9%

19,095 6,261
Inventory turnover = 12,176 = 3.32 times 4,200 = 2.93 times

3,668.5 1,435
Average days = 365 = 110 days 365 = 125 days

in inventory 3.32 2.93
Kohl’s has a larger gross profit ratio and its average days in inventory is 15 days
less than is Dillards.
Requirement 2
The objective of this requirement is to motivate students to obtain hands-on

familiarity with actual annual reports and to apply the techniques learned in the
chapter. You may wish to provide students with multiple copies of the same
annual reports and compare responses. Another approach is to divide the class
into teams who evaluate reports from a group perspective.

DATA ANALYTICS case
Your Tableau analysis should produce the following bar chart:

Your Tableau analysis should produce the following map chart:

Data Analytics Case (concluded)
Requirement 1
Which of the five regions’ operations has the highest gross profit?
The West region’s operations has the highest with a gross profit of about $4.2
million.
Requirement 2
Which of the five regions’ operations has the lowest gross profit?
The East region’s operations has the lowest with a gross profit of $523,731.
Requirement 3
Which state’s operations has the highest gross profit ratio?
Kansas’s operations has the highest with a gross profit ratio of 33.5%.
Requirement 4
Which state’s operations has the lowest gross profit ratio?
Colorado’s operations has the lowest with a gross profit ratio of -1.0%.

Target Case
Requirement 1
Target uses LIFO. More specifically, the company uses the LIFO retail inventory
method to account for the majority of its inventory and the related cost of sales.
Under this method, inventory is stated at cost using the LIFO method as
determined by applying a cost-to-retail ratio to each merchandise grouping's
ending retail value. The LIFO retail inventory method is covered in chapter 9.
Requirement 2
The cost of inventory includes the amount Target pays to its suppliers to acquire
inventory, freight costs incurred in connection with the delivery of product to its
distribution centers and stores, and import costs, reduced by vendor income and
cash discounts.
Requirement 3
($ in millions)
Gross profit ratio = $20,754 = 28.9%

$71,879
Inventory turnover = $51,125 = 6.03 times

$8,483*
*($8,657 + 8,309) ÷ 2
Target’s gross profit ratio indicates that the company is more profitable than the
industry average. Its inventory turnover ratio indicates the company sells its inventory
less frequently.

Air France–KLM Case
Per note 4.16, AF uses the weighted-average method to value its inventory. Under IFRS, the FIFO
(first-in, first-out) method also can be used. However, the LIFO (last-in, first-out) method, which
can be used under U.S. GAAP in addition to the average cost method and the FIFO method, is
prohibited under IFRS.

Another random document with
no related content on Scribd:
“The dreadful summit of the cliff,
That beetles o’er his base into the sea....
The very place puts toys of desperation,
Without more motive, into every brain
That looks so many fathoms to the sea,
And hears it roar beneath.”
Nor is the much talked of cradle forgotten, slung on ropes, for crossing the
chasm between a lower cliff and the Holm of Noss;—a detached rocky islet,
the top of which only affords pasture, during the summer months, for some
half dozen sheep.
The curious and singularly-perfect ancient Pictish or Scandinavian Burgh, in
the Island of Moosa, rises again before me; Scalloway Bay, with its old Castle
in ruins, its fishermen’s cots, and fish-drying sheds. A high, long, out-jutting
rocky promontory too, on which I had stood watching the “yeasty waves” far
below, as they rolled thundering into an irregular cave, which, in the course of
ages, they had scooped out among the basaltic crags, and, leaping up, scattered
drenching showers of diamond spray. Every succeeding dash of the billows
produced a loud report like the discharge of artillery, the reverberations
echoing along the shore. In the black creek below, the brine seething like a
caldron was literally churned into white foam-flakes, which, rising into the air
on sudden gusts of wind, sailed away inland, high overhead, like a flock of sea-
birds. These flakes were of all sizes, large masses of froth at times floating
down, and alighting at our very feet, from so great a height that they had
merely shewed as black specks against the bright sunlight. In lulls one could
actually lift them bodily from the ground, upwards of two cubic feet in size;
but when the wind rose, such masses of whipped sea-cream were again seized
upon, swept aloft, divided into smaller portions, and carried away across the
island. These and other pleasing memories presented themselves as we now
gazed on the distant, dim-blue Shetland Isles.
Saw a large vessel disabled and being towed southwards from Shetland, where
she appears to have come to grief. Topmasts gone, sides battered and patched
with boards. She is high out of the water, so that the cargo must have been
discharged. All our opera-glasses and telescopes are in requisition.
FOOLA.
Sat on the boom for hours, the vessel rolling heavily over the great smooth
Atlantic billows. In the afternoon passed the island of Foola, which has been
called the St. Kilda of Shetland. It lies about sixteen miles west of Mainland,
and is high and precipitous. The cliffs are tenanted by innumerable sea-fowls,
which are caught in thousands by the cragsmen, and afford a considerable
source of revenue to the inhabitants.
Blue and cloudlike the detached and isolated heights of Mainland, Yell, and
Unst—the promontory of Hermanness, on the latter, being the most northerly
point of the British islands—are fast sinking beneath the horizon. Ere long
Foola, left astern, follows the others. No land in sight, not a sail on the
horizon; all round is now one smooth heaving circular plain of blue water—
the ever changing level producing a most singular optical effect.
In the evening walked the deck with Mr. Haycock, discoursing of Norwegian
scenery, and of yacht excursions thither. The evening clear and pleasant,
although the ground-swell continued to increase. Turned in, at half-past ten
o’clock. The vessel rolled much during the night. Professor Chadbourne, Mr.
Murray, and Mr. Cleghorn’s berths were in the same state-room as mine. The
quarter-deck being elevated, one of our windows opened towards the deck,
and could at all times afford good and safe ventilation; but the stewards always
would shut it, watching their opportunity of doing so when we were asleep. We
always opened it again, when on waking we found the deed had been done;
and all of us made a point of shouting out ferociously when we caught them
stealthily at it. This shutting and opening occurred several times every night,
and seemed destined to go on, spite of all our remonstrances; a nuisance only
relieved by a slight dash of the ludicrous. Danes don’t seem to like fresh air.
Saturday morning, July 23.—No land in sight, open sea from Norway to
America; heavy swell on the Atlantic, and wind changing from N.E. to N.W.;
numerous whales blowing, quite close to the vessel; gulls and kittiwakes flying
about.
At mid-day came in sight of the Faröe Islands rising above the horizon; fixed
the first glimpse of them, and continued sketching their outline from time to
time, as on nearing them it developed itself—watching with great interest the
seeming clouds slowly becoming crags. Little Dimon, a lofty rock-island,
somewhat resembling Ailsa, and purple in the distance, was, from the first, the
most prominent and singular object on the horizon line.
The waves rolling so heavily that not only the hull, but the mast of a sloop, not
very far off, is quite hid by each long swell. The Professor, Dr. Livingston, and
Mr. Murray all agree in saying that they never had such heavy seas in crossing
the Atlantic.
The Faröe group consists of twenty-two islands, seventeen of which are
inhabited. A bird’s-eye view of them would exhibit a series of bare, steep,
oblong hills, in parallel ranges; with either valleys or narrow arms of the sea
between them, and all lying north-west and south-east. The name Faröe is said
to be derived from faar or foer, the old word for a sheep; that animal having
probably been introduced by the Norse sea-rovers long before these islands
were permanently colonised in the time of Harold. However, fier—the Danish
word for feathers—is more likely to be the correct etymology; for these islands
are the native habitat of innumerable sea-birds.
They lie 185 miles north-west of the Shetland Isles, 400 west of Norway, and
320 south-east of Iceland; population upwards of 3000, and subject to
Denmark.
We are now approaching Suderoe, the most southerly of the islands. On our
left lie several curious detached rocks, near one of which, called the Monk, is a
whirlpool, dangerous in some states of the tide; although its perils, like those
of Corrivreckan between Jura and Scarba in the Hebrides, have been greatly
exaggerated. On one occasion I sailed over the latter unharmed by Sirens,
Mermaids, or Kelpies; only observing an irregular fresh on the water, where
the tide-ways met, and hearing nothing save a dripping, plashing noise in the
cross-cut ripple, as if many fish were leaping around the boat.
In storms, however, such places had better receive a wide berth.
The approach to the Faröe group is very fine, presenting to our view a
magnificent panorama of fantastically-shaped islands—peaked sharp angular
bare precipitous rocks, rising sheer from the sea; the larger-sized islands being
regularly terraced in two or more successive grades of columnar trap-rock.
Some of these singular hill-islets are sharp along the top, like the ridge of a
house, and slope down on either side to the sea, at an angle of fifty degrees.
Others of them are isolated stacks.
The hard trap-rock, nearly everywhere alternating with soft tufa, or claystone,
sufficiently accounts for the regular, stair-like terraces which form a striking
and characteristic feature of these picturesque islands. The whole have
evidently, in remote epochs, been subjected to violent physical abrasion,
probably glacial, during the period of the ice-drift; and, subsequently, to the
disintegrating crumbling influences of moisture, and of the atmosphere itself.
Frost converts each particle of moisture into a crystal expanding wedge of ice,
which does its work silently but surely and to an extent which few people
would imagine.
We now pass that singular rock-island, Little Dimon, which supports a few
wild sheep; and Store Dimon, on which only one family resides. The cliffs
here, as also on others of the islands, are so steep that boats are lowered with
ropes into the sea; and people landing are either pulled up by ropes, or are
obliged to clamber up by fixing their toes and fingers in holes cut on the face
of the rock. Sea-fowls and eggs are every year collected in thousands from
these islets by the bold cragsmen. These men climb from below; or, like the
samphire-gatherer—“dreadful trade”—are let down to the nests by means of a
rope, and there they pursue their perilous calling while hanging in “midway
air” over the sea. They also sometimes approach the cliffs at night, in boats,
carrying lighted torches, which lure and dazzle the birds that come flying
around them, so that they are easily knocked down with sticks, and the boat is
thus speedily filled. As many as five thousand birds have been taken in one
year from Store Dimon alone, and in former times they were much more
numerous.
We watch clouds like white fleecy wool rolling past, and apparently being raked
by the violet-coloured peaks; whilst others lower down are pierced and rest
peacefully among them.
Having passed Sandoe, through the Skaapen Fiord, we see Hestoe, Kolter,
Vaagoe, and other distant blue island heights in the direction of Myggenaes,
the most western island of the group. We now sail between Stromoe on the
west, and Naalsöe on the east. Stromoe is the central and largest island of the
group, being twenty-seven miles long and seven broad. It contains Thorshavn,
the capital of Faröe. Naalsöe, the needle island, is so called from a curious cave
at the south end which penetrates the island from side to side like the eye of a
needle—larger, by a long way, than Cleopatra’s. Daylight shews through it, and,
in calm weather, boats can sail from the one side to the other. We observe a
succession of sea-caves in the rocks as we sail along, the action of the waves
having evidently scooped out the softer strata, and left the columnar trap-rock
hanging like a pent-house over each entrance. These caves are tenanted by
innumerable sea-birds. On the brink of the water stand restless glossy
cormorants; along the horizontal rock-ledges above them, sit skua-gulls,
kittiwakes, auks, guillemots, and puffins, in rows; and generally ranged in the
order we have indicated, beginning with the cormorant on the lower stones or
rocks next the sea, and ending with the puffin, which takes the highest station
in this bird congress.
If disturbed, they raise a harsh, confused, deafening noise; screaming and
fluttering about in myriads. Their numbers are so frequently thinned, and in
such a variety of ways, that old birds may, on these occasions, be excused for
exhibiting signs of alarm.
NAALSÖE.
The Faröese eat every kind of sea-fowl, with the exception of gulls, skuas, and
cormorants; but are partial to auks, guillemots, and puffins. They use them
either fresh, salted or dried. The rancid fishy taste of sea-birds resides, for the
most part, in the skin only—that removed, the rest is generally palatable. In
the month of May the inhabitants of many of the islands subsist chiefly on
eggs. Feathers form an important article of export.
We watched several gulls confidingly following the steamer; one in particular,
now flying over the deck as far as the funnel, now falling astern to pick up bits
of biscuit that were thrown overboard to it. Long I stood admiring its beautiful
soft downy plumage, its easy graceful motions, the great distance to which a
few strokes of its powerful pinions urged it forward, or, spread bow-like and
motionless, allowed it simply to float and at times remain poised in the air
right over the deck, now peering down with its keen yet mild eyes, and leaving
us to surmise what embryo ideas of wonder might now be passing through its
little bird-brain.
The Danish officer raised, levelled his piece, and fired; the poor thing
screamed like a child, threw up its wings, turned round, and fell upon the sea
like a stone; its companions came flying confusedly in crowds to see what was
wrong with it, and received another shower of lead for their pains.
Holding no peace-society, vegetarian, homeopathic &c. views, I do not object
to the bona fide clearing of a country from dangerous animals; or to shooting,
when rendered necessary for supplying our wants; but—from the higher,
healthier platform of Christian manliness, reason and common sense—would
most emphatically protest against thoughtless or wanton cruelty. Such
barbarism could not be indulged in, much less be regarded as sport, but from
sheer thoughtlessness in the best; while, under almost any circumstances, the
destruction of animal life will, by the true gentleman, be regarded as a painful
necessity.
Those who love sport for its own sake may be divided into three classes—the
majority of sportsmen it is to be hoped belonging to the first of these
divisions;—viz., the thoughtless, who have never considered the subject at all,
or looked at any of its bearings; those whose blunted feelings are, in one
direction, estranged from the beauty and joy of existence; and the third and
last class, where civilization makes so near an approach to the depravity of
savage natures, that a tiger-like eagerness to destroy life takes possession of a
man and becomes a passion. He then only reckons the number of braces
bagged, and considers not desolate nests, broken-winged pining birds, and the
many dire tragedies wrought on the moor by his murderous gun.
A study of the habits of birds, taking cognizance of all the interesting ongoings
of their daily lives, of their wonderful instincts and labours of love, would, we
should think, make a man of rightly-constituted mind feel the necessity of
destroying them to be painful; and he certainly would not choose to engage in
it as sport. The fable of the boys and the frogs is in point, and the term
“sport,” thus applied, is surely a cruel, and certainly a one-sided word. In low
natures, sympathy becomes totally eclipsed and obscured by selfishness; and all
selfishness is sin.
Although shocked at witnessing the needless destruction of the poor gull, for
the sake of the officer, who was of a gentle kindly nature, doubtless belonging
to the “first division,” we tried hard to palliate the deed; but that pitiful cry of
agony haunts us yet!
“Farewell, farewell! but this I tell
To thee, thou Wedding guest!
He prayeth well, who loveth well
Both man, and bird, and beast.
“He prayeth best, who loveth best

All things both great and small;
For the dear God who loveth us,
He made and loveth all.”
Whales rising to the surface and spouting around the vessel; also shoals of
porpoises tumbling and gambolling about; sometimes swimming in line so as
closely to resemble the coils of a snake moving along; such an appearance has
probably originated the mythic sea-serpent.
There are still many caves in the rocks close on the sea; innumerable birds
flying out of them and settling on the surface of the heaving water close under
the cliffs.
We now approach a little bay, surrounded by an amphitheatre of bare hills; the
hollow, for a wonder, slopes down to the shore; we observe patches of green
among the rocks, and a flag flying. Several fishing sloops lie at anchor, but
there is no appearance of a town. Here we are told is Thorshavn, the capital of
Faröe—the haven of Thor. As we approach, we discover that it is a town, the
chief part of it built upon a rocky promontory which divides the bay; we can
also distinguish the church and fort. The green tint we had observed is grassy
turf—but it happens to be growing on the roofs of the wooden houses; and
the houses are scattered irregularly among the brown rocks. On the
promontory, house rises above house from the water’s edge; and the black,
wooden church tower rising behind appears to crown them all. On an
eminence, to the right of the town, is the battery or fort, with a flagstaff in
front. All glasses in requisition, we curiously examine the place and discover
several wooden jetties—landing places for fishing boats. Beneath the fort and
all round, split fish are spread on the rocks to dry; many square fish-heaps also
are being pressed under boards, with heavy stones placed above them.
The scenery around is not unlike that of Loch Long in Scotland, while the
general aspect of Thorshavn itself resembles the pictures of old towns given in
the corners of maps of the fifteenth century.
As we enter the bay with colours flying, the Danish flag is run up at the fort,
displayed by the sloops, and flutters from the flagstaff at Mr. Müller’s house.
This gentleman is one of the local authorities and also agent for the steamer. A
cold wind blows down the ravine, boats are coming off, the steam-whistle
rejoices on hearing itself echoed among the hills, and the anchor is let go.
Now, that we are near it, the town appears really picturesque and carries one
several hundred years back, with its veritable old-world, higgledy-piggledy
quaintness.
THORSHAVN.
Saturday night, 6 P.M.—Went on shore in the captain’s boat, called at Mr. Müller’s
office—a comfortable new erection—and then separated into parties to
explore the place. Crowds of men, women, and children, standing at every
door, stare at us with undisguised child-like wonder; the men—middle-sized
stalwart fellows with light hair and weathered faces—taking off their caps to us
as we pass along returning their salutes.
“An ancient fishy smell,” together with a strong flavour of turf-smoke,
decidedly predominate over sundry other nondescript odours in this strange
out-landish town. The results of our exploration are embodied in the following
jottings, which, at all events, participate so far in the spirit of the place as to
resemble its ground-plan.
Houses, stone for a few feet next the ground, then wood, tarred or painted
black, and generally two stories in height; small windows, the sashes of which
are painted white; green turf on the roofs. The interiors of the poorer sort of
houses are very dark; an utter absence of voluntary ventilation; one fire, and that
in the kitchen, the chimney often only a hole in the roof. Yet even in these
hovels there is generally a guest-room, comfortably boarded and furnished. In
such apartments we observed chairs, tables, chests of drawers, feather-beds,
down coverlets, a few books, engravings on the walls, specimens of ingenious
native handiwork, curiosities, &c. This juxtaposition under the same roof was
new to us, and struck every one as something quite peculiar and contrary to all
our previous experiences. The streets of Thorshavn are only narrow dirty
irregular passages, often not more than two or three feet wide; one walks upon
bare rock or mud. These passages wind up steep places, and run in all manner
of zigzag directions, so that the most direct line from one point to another
generally leads “straight down crooked lane and all round the square.”
Observed a man on the top of a house cutting grass with a sickle. Here the
approach of spring is first indicated by the turf roofs of the houses becoming
green. Being invited, we entered several fishermen’s houses; they seemed dark,
smoky, and dirty; and, in all, the air was close and stifling. In one, observed a
savoury pot of puffin broth, suspended from the ceiling and boiling on a turf
fire built open like a smith’s forge, the smoke finding only a very partial egress
by the hole overhead; on the wall hung a number of plucked puffins and
guillemots; several hens seen through the smoke sitting contentedly perched
on a spar evidently intended for their accommodation in the corner of the
apartment; a stone hand-mill for grinding barley, such as Sarah may have used,
lay on the floor; reminding one of the East, from whence the Scandinavians
came in the days of Odin.
In passing along the street we saw strips of whale-flesh, black and reddish-
coloured, hanging outside the gable of almost every house to dry, just as we
have seen herrings in fishing-villages on our own coasts. When a shoal of
whales is driven ashore by the boatmen, there are great rejoicings among the
islanders, whose faces, we were told, actually shine for weeks after this their
season of feasting. What cannot be eaten at the time is dried for future use.
Boiled or roasted it is nutritious, and not very unpalatable. The dried flesh
which I tasted resembled tough beef, with a flavour of venison. Being “blood-
meat,” I would not have known it to be from the sea; and have been told that,
when fresh and properly cooked, tender steaks from a young whale can
scarcely be distinguished from beef-steak.
The costume of the men is curious, and somewhat like that of the Neapolitans;
—a woollen cap, like the Phrygian, generally dark-blue or reddish; a long jacket
and knee-breeches, both of coarse home-made cloth, blue or brown; long
stockings; and thin, soft, buff-coloured lamb-skin shoes, made of one piece of
leather, and without hard soles, so that they can find sure footing with them
on the rocks, or use their toes when climbing crags almost as well as if they
had their bare feet. There is less peculiarity in the female costume. The men
and women generally have light hair and blue eyes. Honest and industrious,
crime is scarcely known amongst them.
Visited the Fort, which is very primitive; simply a little space on a hill-side,
enclosed with a low rough stone wall; four small useless cannon lying on the
grass, enjoying a sinecure—literally lying in clover; a wooden sentry-box in the
corner; a flagstaff in front of it, and two little cottages behind, to
accommodate several of the garrison, who prefer living there to lodging in the
town, as their comrades do. There are only some eight or ten soldiers
altogether; and these, with the commander, constitute the sole military
establishment in Faröe. They appear to occupy themselves with fishing, &c.,
very much like the other inhabitants of the place.
FORT.
Visited the library, which was established by a former Amptman or Governor.

It occupies two rooms, which are shelved all round and comfortably heated
with a stove. We observed many standard Danish, German, French and
English books, several valuable folio works of reference, and many trashy
modern novels. The Faröese are inquisitive and intelligent, show a taste for
reading, but possess no native literature like the Icelanders.
Visited the church, which is built of wood. The service performed in it is the
Lutheran, as in Denmark. It contains an altar-piece intended to represent
“Joseph of Arimathea with the dead body of Christ,” two large candles, and a
silver and ebony crucifix. The galleries, of plain unvarnished wood, are
arranged like opera stalls, one above the other from the floor, and with green
curtains to each. At the right side of the pulpit were three large sand-glasses,
an old custom once common in all our churches; fronting the altar was the
organ-loft. Everything about the church was neat, clean, and primitive. Flower-
beds were planted so as to form wreaths or crosses on the graves in the
churchyard; and all appeared to be carefully tended and kept in order by loving
hands.
Went by invitation of Fraulein Löbner to drink tea at her mother’s, the Danish
officer with me. We were ushered into a charming old-fashioned room with
low panelled roof; everything in it was neat, scrupulously clean, and primitive.
A valance of white Nottingham lace-curtain ran along the top of the diamond-
paned lattice windows; while a row of flower-pots, with blooming roses and
geraniums, stood in the window-sill. There were cabinets with rich old china-
ware; several paintings on the wall, two of which were really excellent—one, a
portrait in oil of her late father who had been Governor of Faröe; the other a
portrait of her brother, also deceased. Her father was a Dane of German
extraction; and her mother—a kindly old lady to whom we were now
introduced—a native of Faröe.
At tea we had preserves, made from rhubarb grown in their own garden; a
silver ewer of delicious cream highly creditable to Faröese dairyship; and buns,
tarts, almond-cakes, &c., baked by the one baker of Thorshavn, and quite as
good as could be had in London.
While the officer was sketching from the window, our kind hostess wound up
a musical box, at the same time expressing her regret that the piano-forte,
which I had observed standing in the room, was under repair. She also showed
us a folio of her own drawings, and many engravings. Here a lady of cultivated
mind, and who has mingled in good society, is happy and content to dwell in
this remote isle; for to her it possesses the magic of that endearing word—
home!
She tells us that wool, fish, feathers, and skins form the chief articles of export;
that barley is the only grain raised in Faröe, but the summer is so short that it
has not time to ripen. The ears are plucked by the hand and dried in a kiln.
The rye, of which their black bread is made, is imported chiefly from
Denmark. The hay-harvest is of great importance to the inhabitants. There are
numerous sheep in the islands—some individuals possessing flocks of from
four to five hundred, besides a few ponies and cows. Dried, the mutton is
serviceable for food during winter, when frequent storms interfere with fishing
operations.
As in Shetland, the wool is collected from the sheep by the hand, at the season
of the year when they are casting their fleeces; for shearing, besides being a
more painful process, would deprive them of the long hair so necessary for
their protection in an uncertain climate, and leave them to shiver exposed to
the untempered fury of the northern blast. The sheep thus enables the
islanders to supply their own home wants, and also annually to export many
thousand pairs of knitted stockings and gloves, together with the overplus raw
material.
Miss L. informs us that Thorshavn contains about eight hundred inhabitants.
Of these, most of the men are fishers when the weather will admit of their
going off. The people are very ingenious, and make knives of all sizes, with
curiously inlaid wooden handles and sheaths. The wood for such purposes is
obtained from logs of mahogany, which are frequently found as drift-wood
among these islands. We were shewn a home-made fancy work-table, neatly
put together in a very ingenious and workman-like manner.
Each man here is a sort of Jack-of-all-trades, from the mending of boats or
nets, to the killing of sheep and drying them in sheds for the winter store of
provisions; from the making of lamb-skin shoes to the building of houses, or
the manufacture of implements.
Miss Löbner has kindly and obligingly undertaken to procure some specimens
of these manufactures and local curiosities against my return from Iceland.
Gazing round, as we take leave of our kind entertainers, I fix in my mind’s eye
the lady-like air and quaint point-devise costume of the elder lady, who, with
silvery hair combed back from her brow, had moved about most assiduously
performing all the sacred rites of hospitality to her guests; the mediæval aspect
of everything in the room,—from the stove to the timepiece, from the
polished wooden floor to the panelled ceiling; the diamond-paned lattice
windows, with their old-world outlook on the town and the flat wooden
bridge, close by, which crosses a brawling stream rushing impetuously over
rocks from the gully behind; the absolute cleanness and polish of everything;
and the monthly roses blooming freshly as of old;—all so vividly impress
themselves upon my mind that the whole becomes a waking dream of other
days; and it would not seem much out of keeping, or at all surprising, were the
Emperor Charles V. himself to open the door and walk into the quaint old
apartment we are now about to leave.
FROM THORSHAVN—SHOWING FARÖESE BOATS.
Nine P.M.—Wandered alone by the shore, and sketched the view, looking
north, from beneath the fort; also made a drawing of the bay from the wooden
jetty; while engaged on the latter, crowds of fishermen gathered around me
making odd remarks of wonder, the general scope of which I could gather, as
they recognised the steamer, boats, hills, &c., coming up on the paper;
sketched one of the onlookers, an intelligent looking fellow, and here he is.
FARÖESE BOATMAN.
The fishing boats or skiffs, have all the high bow and stern of the Norwegian
yawl; square lug-sails very broad and carried low are the most common. The
weather is so very uncertain, the gusts so sudden and violent, that, preceded by
a lull during which a lighted candle may be carried in the open air, they come
roaring down the valleys or between the islands, bellowing with a noise like
thunder, and sometimes strip the turf from the hill side, roll it up like a sheet
of lead and carry it away into the sea, while the air is darkened by clouds of
dust and stones.
Felt comfortably warm when sketching in the open air between ten and eleven
P.M., for, though the climate is moist, the mean temperature is warmer than
that of Denmark, and, on account of the gulf stream, not much below our
own. Forchhammer states that at Thorshavn in mild years, it is 49·2°; in cold
years, 42·3°; the average temperature being 45·4°. The greatest height of the
thermometer during his observations was 72·5°, and the lowest 18·5°.
Shortly before eleven o’clock the soldiers of the fort manned their boat, and
rowed us off to the steamer.
After narrating our various experiences on shore, had a pleasant quiet home-
talk with Professor Chadbourne, read a few verses of the New Testament, and
as the week was drawing to a close we retired to our berths, wishing each other
a good night’s rest after all the novel excitement, wonder, and fatigues of the
day.
Sabbath, July 24.—Wind high, and the lashing rain pouring down in torrents.
Went ashore at ten o’clock to attend church; heard the pleasing sound of
psalm-singing in various of the fishermen’s dwellings as we passed along.
Called for Mr. Müller, who had invited me to his pew. The service was
Lutheran, and began at eleven o’clock. The pastor was absent, but the
assistant, M. Lützen, who is also schoolmaster and organist, officiated. All the
people, singing lowly, joined in several fine old German chorales, led by the
organist, who also played some of Sebastian Bach’s music with much taste and
feeling—although little indebted to the instrument, which was old and infirm,
piping feebly and tremulously in its second childhood.
The area of the church was entirely occupied by women, many of them with
their bare heads, but most of them with a quaint little covering on the back
part of the head for hair and comb; only saw two bonnets in the whole
congregation. One old lady—with her hair combed back, a black silk covering
on the back part of her head, and, from where it terminated behind her ears, a
stiff white frill sticking right out—looked as if she had just stepped out from
one of Holbein’s pictures; others resembled Gerard Dow’s old women. The
men “were drest, in their Sunday’s best;”—long jackets and knee-breeches of
coarse blue or brown cloth, frequently ornamented with rows of metal
buttons; stockings of the same colours; and the never-varying buff-coloured
lamb-skin shoes.
It was pleasing to see these stalwart descendants of the brave old Vikings “the
heathen of the Northern sea,”—these men whose daily avocations exposed
them to constant perils by sea and land, here, in the very haven of Thor,
walking reverently into a Christian church, with their caps and Bibles in their
hands, and quietly entering their pews to worship God.
Although the day was very wet, and the regular minister absent, there was
present a congregation of about two hundred; and all seemed truly devotional
during the service.
From the roof, between two old-fashioned brass chandeliers, was suspended a
brig, probably the gift of some sailor preserved from shipwreck. The service
began at eleven o’clock, and ended at half-past twelve. When it was over, I
spoke with Skolare Lützen, who had officiated. He is a native of Copenhagen,
speaks little English, but good German. He took me over the building, and
into the pulpit. Altogether, the quaint appearance of the church, the organ, the
singing of the people, the devout reading and simplicity of the service, and the
curious old costumes carried one back to the time of the Reformation, and to
me all was singularly interesting. One could fancy that here, if anywhere, the
European world had stood still, and that Luther himself would not have
detected the lapse of centuries, if permitted once more to gaze on such a scene
as was here presented.
Two of us accompanied Mr. Müller to his house before going on board the
steamer. His wife and daughter were hospitable and kind; and, as usual on a
visit here, tarts, cakes, and wine were produced. His home resembles a
museum, containing many stuffed birds, eggs, geological specimens and other
natural curiosities collected in these islands. His little son’s name is Erasmus.
Captain Andriessen had wished to sail to-day, but could not get men to work
on Sabbath discharging the cargo; at which I was well pleased, both for the
right feeling it indicated on the part of the Faröese, and for our own sakes.
Here we lie peacefully anchored in the bay, enjoying the Sabbath quiet, while
the tempest is now howling wildly outside the islands, and the lashing pelting
rain is pouring down on the deck overhead like a shower-bath.
“Such groans of roaring wind and rain I never
Remember to have heard.”
The rain having abated, ere retiring for the night, walked the deck for half an
hour. Thorshavn, as seen in the strong light and shade of evening from the
steamer’s deck, has truly a most quaint old-world look—all the more so now
that we know it from exploration—so very primitive that one can scarcely
imagine anything like it. It is unique.
BASALT CAVES—SOUTH POINT OF STROMOE.
Monday morning, July 25.—From an early hour, all hands busily occupied
discharging the cargo, heavily-laden boats following each other to the shore. At
half-past one o’clock, the last boat pushes off, the steam-whistle is blown, and
we sail away round the south point of Stromoe, shaping our course north-west
through Hestoe Fiord. The coast of the islands is abrupt, mostly rising sheer
from the sea; many basaltic columns, and a succession of wave-worn caves, in
front of which countless sea-birds are flying, swimming and diving. The trap
hills are regularly terraced like stairs. Clouds drifting among the hills, and from
every gully cataracts leaping down in white foam to the sea. The general colour
of the rocks is gray and brown, slightly touched here and there with green.
These islands might be characterized as several groups or chains of hills, lying
nearly parallel to each other and separated by narrow arms of the sea, which
run in straight lines north-west and south-east. The summits of the larger
islands reach an elevation of from one to two thousand feet; while the highest
hill—Slattaretind, near Eide in Oesteroe—is two thousand nine hundred feet
high.
The hills around still exhibit a succession of grassy declivities, alternating with
naked walls of black or brown rock. The flat heights of these islands, we are
told, are either bare rock or marshy hollows. There are also several small lakes,
the largest of which, in Vaagoe, is only two miles in circumference, and lies
surrounded by wild rugged mountain masses.
We count a dozen foaming cataracts, all in sight at once, and falling down over
precipitous rocks around us into the sea. The wind perceptibly sways them
hither and thither, and then dispersing the lower portion of the water raises it
in silvery clouds of vapour on which rainbows play. They resemble the
Staubach in Switzerland; and remind us of the wild mist-veil apparition of
Kühleborn, in the charming story of Undine.
The tidal currents, in the long narrow straits which divide the northern islands
from each other, are strong but regular; running six hours the one way and six
hours the other. Boatmen must calculate and wait for the stream, as the oar is
powerless against it.
The atmospheric effects are beautiful;—a bold headland, ten miles to the
south, appears in the bright sunshine to be of the deepest violet colour; no
magic of the pencil could approach such a tint. It is heightened too by the
white gleaming sail of a fishing smack relieved against it.
When we got clear of the islands, the ground-swell became much heavier; for
the storm of the preceding day had been terrific. Great heavy waves of smooth
unbroken water, worse than Spanish rollers; boat tumbling and plunging
about, with sail set to steady her; walked the deck for an hour and found use
for my sea-legs.
Several gulls follow the ship; I never tire of watching their graceful motions, as,
with white downy plumage and wings tipt with black, they fly forward round
the mast, remain poised over the deck, or fall astern keeping in the steamer’s
wake. Two of our companions have discovered a capital sheltered nook and sit
smoking, perched up inside the large inverted boat which we are taking north
with us.
An Icelander and a Dane are among the second-class passengers; got them to
read aloud to me Icelandic and Danish, also Greek and Latin. In pronouncing
the latter two, they follow the classic mode and give the broad vowel sounds,
as taught in the German and Scottish universities but not at Oxford or
Cambridge.
The dim Faröes are fast falling astern—
“Far-off mountains turnéd into clouds.”
The vessel by the log makes eight knots—course, N. by W. and sails set.
The day lengthens as we go north, and at midnight I can now see to read large
print, although the sky is very cloudy.
No land—no sail in sight; we heave over the billows of the lonely Northern
Sea, and now all is clear before us for Iceland!
PORTLAND HUK.

(download pdf) Intermediate Accounting 10th Edition Spiceland Solutions Manual full chapter

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

(download pdf) Intermediate Accounting 10th Edition Spiceland Solutions Manual full chapter

Uploaded by

Copyright:

Available Formats

Intermediate Accounting 10th Edition

Spiceland Solutions Manual

Intermediate Accounting 8th Edition Spiceland Solutions

Intermediate Accounting 9th Edition Spiceland Solutions

Intermediate Accounting 7th Edition Spiceland Test Bank

Intermediate Accounting 9th Edition Spiceland Test Bank

Intermediate Accounting IFRS 6th Edition Spiceland Test

Financial Accounting 4th Edition Spiceland Solutions

Financial Accounting 5th Edition Spiceland Solutions

Financial Accounting 3rd Edition Spiceland Solutions

QUESTIONS FOR REVIEW OF KEY TOPICS

(1) Purchase of merchandise debit inventory debit purchases

(2) Sale of merchandise debit cost of goods sold;

(3) Return of merchandise credit inventory credit purchase returns

(4) Payment of freight debit inventory debit freight-in

Solutions Manual, Chapter 8 8–1

8–2 Intermediate Accounting, 10e

Solutions Manual, Chapter 8 8–3

8–4 Intermediate Accounting, 10e

1. Convert ending inventory valued at year-end cost to base year cost.

Solutions Manual, Chapter 8 8–5

Brief Exercise 8–2

Inventory ......................................................................... 845,000

To record sales on account and cost of goods sold.

Accounts receivable ........................................................1,420,000

Cost of goods sold ........................................................... 902,000

8–6 Intermediate Accounting, 10e

Brief Exercise 8–4

December 28, 2021

Solutions Manual, Chapter 8 8–7

December 28, 2021

8–8 Intermediate Accounting, 10e

Cost of goods sold:

January 10 125 (from Beg. Inv.) $25 $3,125

Solutions Manual, Chapter 8 8–9

Beginning 200 @ $25 = $5,000 200 @ $25 $5,000

January 8 100 @ $28 = $2,800

January 10 125 @ $26 = $3,250 175 @ $26 $4,550

January 19 200 @ $30 = $6,000

January 25 100 @ $28.133 = $2,813 275 @ $28.133 $7,737

8–10 Intermediate Accounting, 10e

First-in, first-out (FIFO)

Cost of goods available for sale (500 units) $13,800

Cost of goods available for sale (500 units) $13,800

275 units × $27.60 = $7,590

Solutions Manual, Chapter 8 8–11

*15,000 units × $25 each = $375,000

Brief Exercise 8–9

Cost of goods sold without year-end purchase:

Cost of goods sold with year-end purchase:

10,000 units × $15 $ 150,000

8–12 Intermediate Accounting, 10e

Brief Exercise 8–11

Cost of goods sold ......................................................... 15,000

Brief Exercise 8–12

Cost of goods sold as reported (LIFO) $89,052 million

Solutions Manual, Chapter 8 8–13

Cost of goods sold  Average inventory = Inventory turnover

Gross profit ratio = 40%, therefore cost percentage = 60%

Sales × 0.60 = $270,000

Brief Exercise 8–14

8–14 Intermediate Accounting, 10e

Inventory ......................................................................... 5,000

Inventory ......................................................................... 300