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COST OF GOODS SOLD
6 AND INVENTORY
DISCUSSION QUESTIONS
1. Merchandisers are companies that purchase inventory in a finished condition and hold it for
resale without further processing. Merchandisers that sell directly to consumers are called
retailers, while merchandisers that sell to other businesses are called wholesalers. Examples of
merchandisers are Sears, Wal-Mart, and Target. Manufacturers are companies that buy and
transform raw materials into a finished product that is then sold. Examples of manufacturers
include Sony, Toyota, and Intel.
2. Manufacturers use three types of inventory: raw materials, work-in-process, and finished goods.
Raw materials inventory are the basic ingredients used to make a product. As the raw materials
are used to manufacture a product, they become part of work-in-process inventory, which
consists of raw materials that are used in production as well as other production costs, such
as labor and utilities. Once the production process is complete, these costs are moved to the
the Finished goods inventory account, which represents the cost of the final product that is
available for sale. Merchandisers have only one inventory account. All inventory accounts are
classified as assets on the balance sheet. When sold, both types of inventory become cost of
goods sold, which is an expense on the income statement.
3. The flow of inventory for a merchandiser is:

1. Purchase goods (becomes inventory).
2. Sell goods (becomes cost of goods sold).
The flow of inventory for a manufacturer is:
1. Purchase material (becomes raw materials inventory).
2. Use materials in production (becomes work-in-process inventory).
3. Complete production (becomes finished goods inventory).
4. Sell goods (becomes cost of goods sold).
4. The components of cost of goods available for sale are:

Beginning inventory
+ Purchases
+ Transportation-in
Net purchases
– Purchase discounts
– Purchase returns
= Cost of goods available for sale
The components of cost of goods sold are:

Beginning inventory
+ Net purchases
= Cost of goods available for sale
– Ending inventory
= Cost of goods sold
6-1
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
CHAPTER 6 Cost of Goods Sold and Inventory
5. Cost of goods sold is the cost of the outflow from inventory to customers. It rests on the expense
recognition principle that requires that any costs used to generate revenue should be recognized in
the same period that the revenue is recognized. Because revenue is recognized as goods are sold,
cost of goods sold is an expense. Cost of goods sold is determined by allocating the cost of goods
available for sale between ending inventory and cost of goods sold.
6. In a perpetual inventory system, balances for inventory and cost of goods sold are continually
(perpetually) updated with each sale or purchase of inventory. An entry is made to the inventory
account when a purchase or sale is made and to the cost of goods sold account each time a
sale is made. A perpetual inventory system requires that detailed records be maintained on a
transaction-by-transaction basis for each purchase and sale of inventory. In other words, a
perpetual inventory system records both the revenue and the cost side of each sales transaction.
In a periodic inventory accounting system, entries to the Inventory and Cost of goods sold
accounts are not made during the period. Instead, a periodic system records the cost of
purchases as they occur (in an account separate from the Inventory account), takes a physical
count of inventory at the end of the period, and applies the cost of goods sold model to determine
the balances of ending inventory and cost of goods sold. Therefore, a periodic system only
produces balances for ending inventory and cost of goods sold at the end of each accounting
period (periodically).
7. When a perpetual inventory system is employed, the accounting records must provide the
information necessary to add each purchase to inventory and to add each sale to cost of goods
sold. In addition, inventory will have to be simultaneously reduced for each sale. It can be quite
expensive to maintain an accounting system that keeps an up-to-date record of both ending
inventory and cost of goods sold at any point in time. Under a periodic inventory system, the
accounting records simply accumulate the cost of purchases until the end of the accounting
period. At the end of the period, cost of goods sold is allocated between ending inventory and
cost of goods sold. Thus, a perpetual system requires the recording of considerably more
information, which makes it more costly than a periodic system. The additional information made
available during the period by a perpetual system provides management with greater control over
inventory which can be a significant and extremely valuable advantage in a competitive business
environment.
8. Applying the historical cost principle, companies must make adjustments to the purchase price
of inventory to include the actual outflows made to make the goods ready for resale. That is, the
cost of inventory should include the purchase price of the merchandise plus any cost of bringing
the goods to a salable condition and location. For example, transportation charges (freight-in)
incurred are added to the purchase price because the goods are not ready to sell until they are
transported to the purchaser’s place of business.
9. The items that require adjustments in the determination of the net cost of purchases include:
1. Transportation-in—expenditures made to move the inventory from the seller’s location to the
purchaser’s location.
2. Purchase discounts—price reductions granted by the seller of inventory on credit to the
purchaser of inventory in order to encourage prompt payment.
3. Purchase returns—the cost of merchandise returned to suppliers.
4. Purchase allowances—a deduction in the purchase price of goods given to the purchaser
when the purchaser is dissatisfied with the merchandise in some way.
6-2
10. “F.O.B. shipping point” and “F.O.B. destination” are words used on sales invoices to indicate
whether the seller or the purchaser is responsible for the transportation charges. If an invoice is
marked “F.O.B. shipping point,” the goods become the property of the purchaser at the
shipping point, and the purchaser is responsible for paying the transportation charges. If an
invoice is marked “F.O.B. destination,” the goods become the property of the purchaser at
their destination, and the seller is normally responsible for the transportation charges.
11. There are two journal entries involved in every sales transaction under the perpetual inventory
system because a perpetual inventory system must keep track of the inventory effect of both
the sales and cost of goods sold portions of the transaction.
12. The four inventory costing methods produce different amounts for the cost of ending
inventory and cost of goods sold because purchase prices are changing over time. The
reason is that the costs attached to ending inventory and cost of goods sold are different
depending on which cost allocation method is selected.
13. Unit costs are allocated to cost of goods sold (CGS) and to ending inventory as follows:
FIFO LIFO Weighted Average
CGS Oldest Newest Average of cost of goods
available for sale
Ending inventory Newest Oldest Average of cost of goods
available for sale
14. When prices are rising, the cost of goods sold will be the highest under LIFO because costs
of the newer, high-cost units are allocated to cost of goods sold. Since cost of goods sold is
an expense and expenses are higher, then income will be lower and so will income taxes.
15. If prices are rising and LIFO is used, net income will be smaller than if FIFO is used. LIFO will
cause the cost of the newer, high-cost units to be in cost of goods sold, while FIFO will cause
the cost of the older, low-cost units to be in cost of goods sold.
If prices are falling and LIFO is used, net income will be larger than if FIFO is used. LIFO will
cause the cost of the newer, low-cost units to be in cost of goods sold, while FIFO will cause
the cost of the older, high-cost units to be in cost of goods sold.
Note that LIFO always causes the cost of the newer units to be in cost of goods sold. When
prices are rising, the new units are at high prices. When prices are falling, the new units are
at low prices. Neither LIFO nor FIFO is always associated with higher or lower net income
because it depends on the direction of the change in the purchase price of the inventory—
e.g., purchase prices may be increasing (the most common scenario) or decreasing.
16. When LIFO is used and prices are rising, the cost of ending inventory will be the cost of the
older, low-cost units. When FIFO is used and prices are rising, ending inventory cost will be
the cost of the newer, high-cost units. Therefore, in periods of rising prices, the ending
inventory amount on the balance sheet will be smaller for LIFO than for FIFO.
When LIFO is used and prices are falling, the cost of ending inventory will include the cost
of the older, high-cost units. If FIFO is used, the cost of ending inventory will include the
cost of the newer, low-cost units. Therefore, in periods of falling prices, the ending inventory
amount on the balance sheet will be larger if LIFO is used rather than FIFO.
Note that neither LIFO nor FIFO always produces the higher or lower amount for ending
inventory.The comparison depends on the direction of price changes.
6-3
17. If inventory were not written down to market when market is lower than cost, the balance
sheet would present an amount for inventory that would be greater than the amount that can
be realized from selling the inventory. This excess of cost over market could mislead statement
users about the value of the company. The lower of cost or market (LCM) rule is an application
of the conservatism principle.
18. In the current period, the write-down of inventory from cost to market causes a reduction
in income and a reduction of the carrying amount of inventory on the balance sheet.
However, in future periods, when the inventory is sold, a smaller cost of goods sold will be
deducted from the selling price, so income will be larger than it otherwise would have been.
Thus, the write-down recognizes the decrease in value of the company’s assets in the
period in which the decrease occurs.
19. The gross profit ratio tells management the company’s ability to sell inventory at a profit.
In short, this ratio tells users how many cents of every dollar are available to cover expenses
other than cost of goods sold and to earn a profit. The higher the gross profit ratio the better
for the company. The inventory turnover ratio tells management how quickly inventory is
purchased (or produced) and sold and provides an indicator of how much of the company’s
funds are tied up in inventory. A high inventory turnover ratio indicates that a company is
rapidly selling its inventory, thus reducing the amount of funds tied up in inventory.
20. A LIFO reserve is the amount that inventory would increase (or decrease) if the company
had used FIFO rather than LIFO. In other words, the LIFO reserve adjusts (usually reduces)
the inventory (maintained on a FIFO or weighted average basis) to a LIFO basis. The LIFO
reserve is used to assist financial statement users in making comparisons between companies
that prepare their financial statements under different inventory costing methods. The LIFO
reserve is also called an “allowance to reduce inventory to LIFO” or the “excess of FIFO or
average cost over LIFO.”
21. An error in the determination of ending inventory affects the income statement by changing the
amount of cost of goods sold for the period. The cost of goods sold change flows through to net
income and to ending retained earnings on the balance sheet. In addition, the error
produces a change in the amount of ending inventory that is recorded on the balance sheet.
Because ending inventory for one period becomes beginning inventory for a second period, the
determination of cost of goods sold in the second period is also in error. Assuming no other
errors are made, the amounts of the errors in cost of goods sold and net income exactly offset
each other over the two periods, so that total income for the two periods is correct even though
each period’s net income was incorrect.
22. The journal entries to record the purchase of goods under the periodic inventory system include
the following accounts: Purchases, Purchase Discounts, Purchase Returns and Allowances,
and Transportation-In. In a perpetual inventory system, these accounts aren’t used because all
purchased inventory is recorded directly into the Inventory account.
23. The statement is incorrect for all costing methods except FIFO. The continuous allocation of the
cost of goods available for sale to cost of goods sold and inventory under perpetual systems
gives rise to a difference between perpetual and periodic results for LIFO and weighted average
methods. Since FIFO always allocates the most recent cost of goods available for sale to
inventory, the greater frequency of perpetual allocations does not produce a different result.
6-4
MULTIPLE-CHOICE QUESTIONS
6-1. b ($20,000 + $185,000 – $30,000)
6-2. d
6-3. a $15,000 × (1 – 0.02)
6-4. c
6-5. a (2 units × $31,000) + (1 unit × $27,000)
6-6. b (1,200 units × $25) + (1,500 units × $28) – [(1,200 units × $25)
+ (1,200 units × $28)] + (1,000 units × $30)
6-7. d (1,500 units × $28) + (900 units × $25)
6-8. b Average cost of inventory after Sale #1 of $8,000 (300 units

× $26.6667*) + Cost of purchase #2 of $30,000 (1,000 units × $30)
* (1,200 units × $25) + (1,500 units × $28) = $72,000;

$72,000/2,700 units = $26.6667
6-9. a
6-10. d
6-11. b
6-12. b
6-13. a
6-14. b
6-15. c
6-16. c (1,200 units × $25) + (1,200 units × $28)
6-17. a (1,200 units × $25) + (100 units × $28)
6-18. b 1,300 units × $27.5676; average cost is computed as total

cost of inventory ($102,000) divided by total units available
for sale (3,700 units)
6-5
CORNERSTONE EXERCISES
CE 6-19
1. Number of units sold:
Beginning inventory……………………………………………… 940
Add: Purchases…………………………………………………… 4,510
Units available for sale…………………………………………… 5,450
Less: Ending inventory………………………………………… (770)
Units sold…………………………………………………………… 4,680
2. Cost of goods sold:

Beginning inventory……………………………………………… $10,340
Add: Purchases…………………………………………………… 49,610
Cost of goods available for sale……………………………… $59,950
Less: Ending inventory………………………………………… (8,470)
Cost of goods sold……………………………………………… $51,480
CE 6-20
Journal
Date Account and Explanation Debit Credit
Apr. 1 Inventory 3,100
Accounts Payable 3,100
(Purchased inventory on account)
1 Inventory 250
Cash 250
(Recorded the payment of freight charges)
8 Accounts Payable 800

Inventory 800
(Returned merchandise)
10 Accounts Payable 2,300

Cash* 2,254
Inventory** 46
(Paid accounts payable within discount
period)
* ($3,100 – $800) × 0.98 = $2,254
** $2,300 × 0.02 = $46
6-6
CE 6-21
Journal
Apr. 1 Accounts Receivable 3,038
Sales Revenue 3,038
(Recorded sale on account)
1 Cost of Goods Sold 2,225

Inventory 2,225
(Recorded cost of merchandise sold)
8 Sales Revenue 784

Accounts Receivable 784
(Recorded return of merchandise)
8 Inventory 500
Cost of Goods Sold 500
(Recorded cost of merchandise returned)
10 Cash** 2,254
Accounts Receivable 2,254
(Received customer payment within discount
period)
* ($3,100 × 0.98) = $3,038
** ($3,038 – $784) = $2,254
Note: The April 1 payment of freight by Mathis Company did not involve Reece
Company and, therefore, is not recorded on Reece's books.
6-7
CE 6-22
Under the FIFO method, cost of goods sold is $7,350 and ending inventory is $1,750. Calculations are shown below.
Date Description Cost of Goods Sold Inventory Balance

June 1 Inventory on hand 200 × $10 = $2,000 $2,000
9 Purchase 1 (300 @ $12) 200 × $10 = $2,000
$5,600
300 × $12 = $3,600
14 Sale 1 (400 @ $25) 200 × $10 = $2,000
$4,400 100 × $12 = $1,200 $1,200
200 × $12 = $2,400
22 Purchase 2 (250 @ $14) 100 × $12 = $1,200
$4,700
250 × $14 = $3,500
29 Sale 2 (225 @ $25) 100 × $12 = $1,200
$2,950 125 × $14 = $1,750 $1,750
125 × $14 = $1,750
$7,350
6-8
CE 6-23
Under the LIFO method, cost of goods sold is $7,750 and ending inventory is $1,350. Calculations are shown below.

June 1 Inventory on hand 200 × $10 = $2,000 $2,000
9 Purchase 1 (300 @ $12) 200 × $10 = $2,000
$5,600
300 × $12 = $3,600
14 Sale 1 (400 @ $25) 100 × $10 = $1,000
$4,600 100 × $10 = $1,000 $1,000
300 × $12 = $3,600
22 Purchase 2 (250 @ $14) 100 × $10 = $1,000
$4,500
250 × $14 = $3,500
29 Sale 2 (225 @ $25) 225 × $14 = $3,150 $3,150 100 × $10 = $1,000
$1,350
25 × $14 = $ 350
$7,750
6-9
CE 6-24
Under the average cost method, cost of goods sold is $7,450 and ending inventory is $1,650. Calculations are shown below.
Cost
Date Description Cost of Goods Sold Inventory Balance per Unit
June 1 Inventory on hand 200 × $10.0000 = $2,000 $2,000 $10.0000
9 Purchase 1 (300 @ $12) 200 × $10.0000 = $2,000
$5,600 $11.2000
300 × $12.0000 = $3,600
14 Sale 1 (400 @ $25) 400 × $11.2 = $4,480 100 × $11.2000 = $1,120 $1,120 $11.2000
22 Purchase 2 (250 @ $14) 100 × $11.2000 = $1,120
$4,620 $13.2000
250 × $14.0000 = $3,500
29 Sale 2 (225 @ $25) 225 × $13.2 = $2,970 125 × $13.2000 = $1,650 $1,650
$7,450
CE 6-25
1. FIFO
2. FIFO
3. LIFO
6-10
CE 6-25 (Continued)
4. Generally, the use of LIFO results in the most realistic amount for cost of goods
sold because it matches the most current costs, which are closer to market values,
to cost of goods sold. As a result, the use of LIFO is said to result in the most
realistic amount for income. The use of FIFO results in the most realistic measure
of ending inventory because the most current costs, which are closer to market
value, are reported in ending inventory. This result would not change if inventory
prices were decreasing because the most current costs would always be reported
in cost of goods sold for LIFO and in ending inventory for FIFO.
CE 6-26
1. The carrying amount of inventory using the lower of cost or market method applied
on an item-by-item basis is $52,860 (as shown below).
Product Cost Net Realizable Value LCM

RSK-89013 $22,800 (600 × $38) $28,200 (600 × $47) $22,800
LKW-91247 19,740 (420 × $47) $16,800 (420 × $40) 16,800
QEC-57429 13,260 (510 × $26) $16,320 (510 × $32) 13,260
$55,800 $52,860
Journal
2. Date Account and Explanation Debit Credit
Cost of Goods Sold* 2,940
Inventory 2,940
(Reduced inventory to market value)
* $55,800 – $52,860 = $2,940
CE 6-27
a. Singleton’s gross profit ratio*…………………… 23.85%
b. Singleton’s inventory turnover ratio**………… 21.48
c. The average days to sell inventory***………… 16.99 days
* $155,000/$650,000 = 23.85%
** $495,000/[($21,250 + $24,850)/2] = 21.48
*** (365 days/21.48) = 16.99 days
6-11
CE 6-28
1. Net income for 2019 = $155,000 ($175,000 – $20,000)
Net income for 2020 = $230,000 ($210,000 + $20,000)
2. For 2019, ending inventory would be overstated, resulting in net income being
overstated. Because Net Income closes to Retained Earnings, the overstatement
of net income would cause retained earnings to be overstated as well.
For 2020, the overstatement of ending inventory in 2019 would cause beginning
inventory in 2020 to be overstated. The overstatement of beginning inventory
would cause cost of goods to be overstated and net income to be understated.
The understatement of Net Income would close to Retained Earnings and cancel
out the overstatement from 2019. The ending inventory for 2020 would not be
affected by the earlier misstatement of inventory. Therefore, there is no overall
effect on the 2020 balance sheet.
CE 6-29
Journal
Apr. 1 Purchases 3,100
1 Transportation-In 250
Cash 250
(Paid cash for shipping fees)

Purchase Returns and Allowances 800

Cash* 2,254
Purchase Discounts** 46
(Recorded payment within the discount
period)
* ($3,100 – $800) × 0.98 = $2,254
** $2,300 × 0.02 = $46
6-12
CE 6-30
Cost of Goods Sold Ending Inventory

200 units × $10 = $2,000 125 units × $14 = $1,750
300 units × $12 = 3,600
125 units × $14 = 1,750
625 units $7,350 125 units $1,750
CE 6-31

250 units × $14 = $3,500 125 units × $10 = $1,250
300 units × $12 = 3,600
75 units × $10 = 750
625 units $7,850 125 units $1,250
CE 6-32
Weighted Average Cost of Goods Available for Sale
=
Cost per Unit Units Available for Sale
$9,100
=
750
= $12.1333/unit
The cost of goods available for sale ($9,100) is allocated between inventory
and cost of goods sold using the average cost of the inventory as follows:

625 units × $12.1333 = $7,583 125 units × $12.1333 = $1,517
6-13
BRIEF EXERCISES
BE 6-33
1. Cost of Goods Sold = Beginning Inventory + Purchases – Ending Inventory
= $60,000 + $625,000 – $50,000
= $635,000
2. Gross Margin = Sales – Cost of Goods Sold

= $950,000 – $635,000 (from Requirement 1)
= $315,000
BE 6-34
Raymond Company:
Journal
Jan. 1 Inventory 5,000
(Purchased inventory on credit)

Inventory 500

Cash 2,940
Inventory ($3,000 × 0.02) 60
(Recorded payment with discount period)

Cash* 1,500
(Recorded payment outside of discount period)
* $5,000 – $500 – $3,000 = $1,500
6-14
BE 6-34 (Continued)
Geeslin Company:
Journal
Jan. 1 Accounts Receivable 4,900
Sales Revenue 4,900
(Record sale to customer)

Inventory 3,750
8 Sales Revenue 490

Accounts Receivable 490
8 Inventory 375
(Recorded cost of merchandise returned)
10 Cash 2,940
(Recorded receipt with discount period)*
30 Cash 1,500
Accounts Receivable** 1,470
Sales Revenue*** 30
(Recorded receipt outside of discount period)
* The accounting for sales discounts was illustrated in Chapter 5 (see Cornerstone 5-1).
** $4,900 – $490 – $2,940 = $1,470
*** $1,500 – $1,470
6-15
BE 6-35
Under the FIFO method, cost of goods sold is $260 and ending inventory is $330. Calculations are shown below.
Description Cost of Goods Sold Inventory Balance

Sept. 1 Beginning inventory 20 × $5 = $100 $100
10 Purchase (30 @ $8) 20 × $5 = $100

$340
30 × $8 = $240
20 Sales (40 @ $15) 20 × $5 = $100

$260 10 × $8 = $ 80 $ 80
20 × $8 = $160
25 Purchase (25 @ $10) 10 × $8 = $ 80

$330
25 × $10 = $250
$260
6-16
BE 6-35 (Continued)
Under the LIFO method, cost of goods sold is $290 and ending inventory is $300. Calculations are shown below.

Sept. 1 Beginning inventory 20 × $5 = $100 $100
10 Purchase (30 @ $8) 20 × $5 = $100

$340
30 × $8 = $240
20 Sales (40 @ $15) 30 × $8.00 = $240

$290 10 × $5 = $ 50 $ 50
10 × $5.00 = $ 50
25 Purchase (25 @ $10) 10 × $5 = $ 50

$300
$290 25 × $10 = $250
6-17
BE 6-35 (Continued)
Under the average cost method, cost of goods sold is $272 and ending inventory is $318. Calculations are shown below.
Cost
Description Cost of Goods Sold Inventory Balance per Unit
Sept. 1 Beginning inventory 20 × $5 = $100 $100 $5.00
10 Purchase (30 @ $8) 20 × $5 = $100

$340 $6.80
30 × $8 = $240
20 Sales (40 @ $15) 40 × $6.80 = $272 40 × $6.80 = $272 $272 $6.80
25 Purchase (25 @ $10) 10 × $6.80 = $ 68

$318
$272 25 × $10.00 = $250
6-18
BE 6-36
1. FIFO: FIFO allocates the cost of the earliest purchases to cost of goods
sold. Therefore, in a period of rising prices, FIFO produces the lowest
amount for cost of goods sold and, therefore, the highest amount for net
income.
2. LIFO: LIFO allocates the cost of the most recent purchases to cost of goods
sold. Therefore, in a period of rising inventory prices, LIFO produces the
lowest amount for net income and, therefore, the lowest amount for taxes.
3. FIFO: FIFO allocates the cost of the most recent purchases to ending
inventory. Therefore, in a period of rising inventory prices, FIFO produces
the highest amount for ending inventory.
4. If inventory prices declined during the period, the inventory costing methods
would give opposite results. That is, FIFO would produce the lowest amount
produce the highest amount for net income and ending inventory.
6-19
BE 6-37
1. $16,500. Because the market value, defined as net realizable value, is lower
than cost, the inventory must be written down to its lower market value.
2.
Journal
Dec. 31 Cost of Goods Sold* 1,300
Inventory 1,300
* $17,800 – $16,500 = $1,300
BE 6-38
1. (a) Gross Profit Ratio = Gross Profit
Net Sales
= ($280,000 – $120,000)
$280,000
= 57.14%
(b) Inventory Turnover Ratio = Cost of Goods Sold
Average Inventory
= $120,000
($5,000 + $10,000)/2
= $120,000
$7,500
= 16.00
(c) Average Days to Sell Inventory = 365
Inventory Turnover
= 365
16.00
= 22.81
2. The gross profit ratio tells how many cents of every dollar are available to cover
expenses other than cost of goods sold and to earn a profit. The inventory turnover
ratio describes how quickly inventory is purchased (or produced) and sold. The
average days to sell inventory gives a measure of how many days it takes to sell
inventory.
6-20
BE 6-39
1. Cost of goods sold for 2019 = $605,000 [$620,000 – ($65,000 – $50,000)]
Gross profit for 2019 = $395,000 [($1,000,000 – $620,000) + ($65,000 – $50,000)]
2. For 2019, ending inventory would be understated, resulting in gross profit (and
net income) being understated. Because the understatement of net income
closes to Retained Earnings, retained earnings would be understated as well.
For 2020, the understatement of ending inventory in 2019 would cause the
beginning inventory in 2020 to be understated. The understatement of
beginning inventory would cause cost of goods to be understated and net
income to be overstated. This overstatement of net income would close to
Retained Earnings and cancel out the understatement from 2019. The ending
inventory for 2020 would not be affected by the earlier misstatement of
inventory. Therefore, there is no overall effect on the 2020 balance sheet.
6-21
BE 6-40
Raymond Company:
Journal
Jan. 1 Purchases 5,000


Cash 2,940
Purchase Discounts ($3,000 × 0.02) 60
(Recorded payment with discount period)

Cash* 1,500
(Recorded payment outside of discount period)
* $5,000 – $500 – $3,000 = $1,500
6-22
BE 6-41
FIFO:

20 units × $5 = $100 10 units × $8 = $ 80
20 units × $8 = 160 25 units × $10 = 250
$260 $330
LIFO:

25 units × $10 = $250 15 units × $8 = $120
15 units × $8 = 120 20 units × $5 = 100
$370 $220
Average Cost:
Weighted Average Cost of Goods Available for Sale
=
$590
= = $7.8667/unit
75 units
The cost of goods available for sale ($590) is allocated between inventory and
cost of goods sold using the average cost of the inventory as follows:

40 units × $7.8667 = $315 35 units × $7.8667 = $275
6-23
EXERCISES
E 6-42
1. Sales revenue is $10,960, computed as:
240 × $13 = $ 3,120
210 × $15 = 3,150
335 × $14 = 4,690
Total 785 $10,960
Ending inventory: $1,520 [$8 × (150 + 825 – 240 – 210 – 335)]

Cost of goods sold: $6,280 (785 units sold × $8 each)
2. Gross margin: $4,680 [Sales Revenue – Cost of Goods Sold

($10,960 – $6,280)]
E 6-43
a. $46,100 ($44,500 + $11,200 – $9,600)
b. $11,200 (Beginning Inventory for 2018 = Ending Inventory for 2017)
c. $16,700 ($11,200 + $55,300 – $49,800)
d. $16,700 (Beginning Inventory for 2019 = Ending Inventory for 2018)
e. $54,050 ($16,700 + $51,100 – $13,750)
E 6-44
1. b
2. a
3. a
4. b
5. b
6. a
7. c
6-24
E 6-45
Journal
1. Inventory* 6,875
2. Inventory 320
Cash 320
(Paid shipping fees)
3. Accounts Payable 275

Inventory** 275
4. Accounts Payable 6,600

Cash*** 6,600
(Paid for bags purchased on account)
* 1,250 units × $5.50 = $6,875
** 50 units × $5.50 = $275
*** $6,875 – $275 = $6,600
5. Total cost of this purchase: $6,920 ($6,875 + $320 – $275)
6-25
E 6-46
Journal
Apr. 1 Inventory 25,150
2 Inventory 28,200

Cash* 24,647
Inventory** 503
(Paid within the discount period)

Cash 28,200
(Paid outside the discount period)
* $25,150 × (1.00 – 0.02) = $24,647
** $25,150 × 0.02 = $503
6-26
E 6-47
Entry to record the first shipment:
Journal
May 12 Inventory 142,500
12 Inventory 8,300
(Paid shipping costs)
Entry to record the second shipment:

Journal
Entry to record the third shipment:

Journal
E 6-48
1. Total sales revenue for Stanley Company would be $9,710 ($5,460 + $4,250).
The second shipment for $3,800 would not be included in sales because,
under F.O.B. destination shipping terms, the company should not record a
sale until the goods reach the customer.
2. If Stanley improperly includes the $3,800 shipment as a sale, sales revenue

and net income would be overstated by $3,800. Assets (accounts receivable)
and stockholders’ equity would also be overstated by $3,800. There is no
effect on expenses or liabilities.
6-27
E 6-49
1. Journal
a
Inventory 91,450
Accounts Payableb 930

Inventory 930
(Recorded return of defective cartridges sold)

Sales Revenuec 151,270
(Sold inventory on account)
Cost of Goods Soldd 95,480

Inventory 95,480
(Recorded cost of inventory sold)
Sales Revenue 2,040

Accounts Receivablee 2,040
(Recorded return of defective cartridges)
Inventoryf 1,240
Cost of Goods Sold 1,240
(Recorded return of defective cartridges)
a
1,475 units × $62 = $91,450
b
15 units × $62 = $930
c
(830 units × $95) + (710 units × $102) = $151,270
d
1,540 units × $62 = $95,480
e
20 units × $102 = $2,040
f
20 units × $62 = $1,240
6-28
E 6-49 (Continued)
2. The cost of ending inventory is determined by multiplying the number of units
in ending inventory by the cost per unit.
Units available for sale*…………………………………………………………… 1,700

Less: Units returned to suppliers……………………………………………… (15)
Goods available for sale……………….….…………………….….…………… 1,685
Less: Units sold**…………………………………………………………………… (1,540)
Items returned……………………………………………………………………… 20
Units in ending inventory………………………………………………………… 165
Cost per unit………………………………………………………………………… × $62
Cost of ending inventory………………………………………………………… $10,230
* 225 units + 1,475 units = 1,700 units

** 830 units + 710 units = 1,540 units
Note: Alternatively, the cost of ending inventory can be computed by starting with
beginning inventory of $13,950 (225 units × $62) and then adding or subtracting
the change in inventory according to the journal entries made above.
The cost of goods sold is $94,240. This amount is computed as the units sold
(1,540 units) multiplied by the price per unit ($62) minus the cost of the units
returned (20 units × $62).
Gross profit is $54,990, computed as:

Sales…………………………………………………………………………………… $151,270
Less: Sales returns and allowances…………………………………………… (2,040)
Cost of goods sold………………………………………………………………… (94,240)
Gross profit………………………………………………………………………… $ 54,990
E 6-50
1. Specific identification ending inventory:
40 @ $7.10 = $ 284
30 @ $7.20 = 216
80 @ $7.50 = 600
40 @ $7.70 = 308
Ending inventory = $1,408
Specific identification cost of goods sold:

70 (110 – 40) @ $7.10 = $ 497
545 (575 – 30) @ $7.20 = 3,924
600 (680 – 80) @ $7.50 = 4,500
190 (230 – 40) @ $7.70 = 1,463
Cost of goods sold = $10,384
6-29
E 6-50 (Continued)
2. Under the FIFO method, cost of goods sold is $10,329 and ending inventory is $1,463. Calculations are shown below.

Inventory on hand 110 × $7.10 = $ 781 $ 781
Purchase 1 (575 @ $7.20) 110 × $7.10 = $ 781
$4,921
575 × $7.20 = $4,140
Sale 1 (380 @ $12.00) 110 × $7.10 = $ 781
$ 2,725 305 × $7.20 = $2,196 $2,196
270 × $7.20 = $1,944
Sale 2 (225 @ $12.00) 225 × $7.20 = $1,620 $ 1,620 80 × $7.20 = $ 576 $576
Purchase 2 (680 @ $7.50) 80 × $7.20 = $ 576
$5,676
680 × $7.50 = $5,100
Sale 3 (270 @ $12.00) 80 × $7.20 = $ 576
$ 2,001 490 × $7.50 = $3,675 $3,675
190 × $7.50 = $1,425
Sale 4 (290 @ $12.50) 290 × $7.50 = $2,175 $ 2,175 200 × $7.50 = $1,500 $1,500
Purchase 3 (230 @ $7.70) 200 × $7.50 = $1,500
$3,271
230 × $7.70 = $1,771
Sale 5 (240 @ $12.50) 200 × $7.50 = $1,500
$ 1,808 190 × $7.70 = $1,463 $1,463
40 × $7.70 = $ 308
$10,329
6-30
E 6-50 (Continued)
3. Under the LIFO method, cost of goods sold is $10,399 and ending inventory is $1,393. Calculations are shown below.

Inventory on hand 110 × $7.10 = $ 781 $ 781
Purchase 1 (575 @ $7.20) 110 × $7.10 = $ 781
$4,921
575 × $7.20 = $4,140
Sale 1 (380 @ $12.00) 380 × $7.20 = $2,736 $ 2,736 110 × $7.10 = $ 781
$2,185
195 × $7.20 = $1,404
Sale 2 (225 @ $12.00) 195 × $7.20 = $1,404
$ 1,617 80 × $7.10 = $ 568 $ 568
30 × $7.10 = $ 213
Purchase 2 (680 @ $7.50) 80 × $7.10 = $ 568
$5,668
680 × $7.50 = $5,100
Sale 3 (270 @ $12.00) 270 × $7.50 = $2,025 $ 2,025 80 × $7.10 = $ 568
$3,643
410 × $7.50 = $3,075
Sale 4 (290 @ $12.50) 290 × $7.50 = $2,175 $ 2,175 80 × $7.10 = $ 568
$1,468
120 × $7.50 = $ 900
Purchase 3 (230 @ $7.70) 80 × $7.10 = $ 568
120 × $7.50 = $ 900 $3,239
230 × $7.70 = $1,771
Sale 5 (240 @ $12.50) 230 × $7.70 = $1,771 80 × $7.10 = $ 568
$ 1,846 $1,393
10 × $7.50 = $ 75 110 × $7.50 = $ 825
$10,399
6-31
E 6-50 (Continued)
4. Under the average cost method, cost of goods sold is $10,349 and ending inventory is $1,442. Calculations are shown below
using four decimal places for per-unit calculations and rounding all other numbers to the nearest dollar.
Cost
Inventory on hand 110 × $7.10 = $ 781 $ 781 $7.10
Purchase 1 (575 @ $7.20) 110 × $7.10 = $ 781
$4,921 $7.1839
575 × $7.20 = $4,140
Sale 1 (380 @ $12.00) 380 × $7.1839 = $ 2,730 305 × $7.1839 = $2,191 $2,191 $7.1839
Sale 2 (225 @ $12.00) 225 × $7.1839 = $ 1,616 80 × $7.1839 = $ 575 $ 575 $7.1839
Purchase 2 (680 @ $7.50) 80 × $7.1839 = $ 575
$5,675 $7.4671
680 × $7.50 = $5,100
Sale 3 (270 @ $12.00) 270 × $7.4671 = $ 2,016 490 × $7.4671 = $3,659 $3,659 $7.4671
Sale 4 (290 @ $12.50) 290 × $7.4671 = $ 2,165 200 × $7.4671 = $1,493 $1,493 $7.4671
Purchase 3 (230 @ $7.70) 200 × $7.4671 = $1,493
$3,264 $7.5907
230 × $7.70 = $1,771
Sale 5 (240 @ $12.50) 240 × $7.5907 = $ 1,822 190 × $7.5907 = $1,442 $1,442 $7.5907
$10,349
Note: The sum of cost of goods sold and ending inventory ($10,349 + $1,442 – $11,791) differs from cost of goods
available for sale ($11,792) due to rounding.
6-32
E 6-50 (Continued)
5. An examination of the ending inventory amounts recorded under each method
reveals that FIFO will result in the highest amount of assets (ending inventory)
reported on the balance sheet and the lowest amount reported as cost of goods
sold on the income statement. LIFO produces the highest amount reported as
cost of goods sold on the income statement, and, therefore, the lowest net
income and taxes paid. LIFO also produces the lowest amount reported as
ending inventory on the balance sheet. The average cost method falls in between
the other two for both ending inventory calculations and cost of goods sold.
Because the specific identification method could result in the highest cost of
goods sold or the highest ending inventory depending on which specific goods
were sold and which were still on hand, no generalized statement can be made
with regard to this method.
6-33
E 6-51

Beginning inventory 210 × $88 = $ 18,480 $ 18,480
Purchase 1 (1,150 @ $95) 210 × $88 = $ 18,480
$127,730
1,150 × $95 = $109,250
Sale 1 (990 @ $130) 210 × $88 = $ 18,480
$ 92,580 370 × $95 = $ 35,150 $ 35,150
780 × $95 = $ 74,100
Purchase 2 (950 @ $112) 370 × $95 = $ 35,150
$141,550
950 × $112 = $106,400
Sale 2 (975 @ $130) 370 × $95 = $ 35,150
$102,910 345 × $112 = $ 38,640 $ 38,640
605 × $112 = $ 67,760
$195,490
6-34
E 6-51 (Continued)
2. Under the LIFO method, cost of goods sold is $202,825 and ending inventory is $31,305. Calculations are shown below.

Purchase 1 (1,150 @ $95) 210 × $88 = $ 18,480
$127,730
1,150 × $95 = $109,250
Sale 1 (990 @ $130) 990 × $95 = $ 94,050 $ 94,050 210 × $88 = $ 18,480
$ 33,680
160 × $95 = $ 15,200
Purchase 2 (950 @ $112) 210 × $88 = $ 18,480
160 × $95 = $ 15,200 $140,080
950 × $112 = $106,400
Sale 2 (975 @ $130) 950 × $112 = $106,400 210 × $88 = $ 18,480
$108,775 $ 31,305
25 × $95 = $ 2,375 135 × $95 = $ 12,825
$202,825
6-35
E 6-51 (Continued)
3. Under the average cost method, cost of goods sold is $197,239 and ending inventory is $36,891. Calculations
are shown below using four decimal places for per-unit calculations and rounding all other numbers to the
nearest dollar.
Cost
Beginning inventory 210 × $88.0000 = $ 18,480 $ 18,480 $88.0000
Purchase 1 (1,150 @ $95) 210 × $88.0000 = $ 18,480
$127,730 $93.9191
1,150 × $95.0000 = $109,250
Sale 1 (990 @ $130) 990 × $93.9191 = $ 92,980 $ 92,980 370 × $93.9191 = $ 34,750 $ 34,750 $93.9191
Purchase 2 (950 @ $112) 370 × $93.9191 = $ 34,750

$141,150 $106.9318
950 × $112 = $106,400
Sale 2 (975 @ $130) 975 × $106.9318 = $ 104,259 $104,259 345 × $106.9318 = $ 36,891 $ 36,891 $106.9318
$197,239
6-36
E 6-51 (Continued)
4. FIFO LIFO Avg. Cost
Sales*………………………………………… $ 255,450 $ 255,450 $ 255,450
Less: Cost of goods sold………………… (195,490) (202,825) (197,239)
Gross margin………………………………… $ 59,960 $ 52,625 $ 58,211
Less: Operating expenses………………… (21,600) (21,600) (21,600)
Income before taxes………………………… $ 38,360 $ 31,025 $ 36,611
Tax rate……………………………………… 30% 30% 30%
Income taxes expense……………………… $ 11,508 $ 9,308 $ 10,983
(990 units + 975 units) × $130 = $255,450
5. Gross Profit Ratio = Gross Profit

Sales
Inventory Turnover = Cost of Goods Sold
Average Inventory
FIFO LIFO Avg. Cost

Gross profit ratio 23.47% 20.60% 22.79%
Inventory turnover 6.845 8.148 7.124
The choice of inventory method affects not only the amount reported as inventory
but also the reported amount for cost of goods sold, which, in turn, affects gross
profit. In a period of rising prices, FIFO produces a lower amount for cost of goods
sold, higher gross profit, and higher ending inventory than LIFO. Therefore, the
use of FIFO would result in a higher gross profit ratio (due to the higher reported
gross profit) and a lower inventory turnover (due to lower amounts reported as
cost of goods sold and higher ending inventory amounts) than LIFO. Average
cost would produce ratios in between the ratios produced under FIFO and LIFO.
E 6-52
FIFO LIFO
Ending inventory …………………………………………………… higher lower
Cost of goods sold………………………………………………… lower higher
Gross margin………………………………………………………… higher lower
Income before taxes………………………………………………… higher lower
Payments for income taxes……………………………………… higher lower
Net income…………………………………………………………… higher lower
6-37
E 6-53
1. Average Cost:
Sales revenue………………………………………………………………… $ 828,600
Less: Cost of goods sold………………………………………………… (399,050)
Gross margin………………………………………………………………… $ 429,550
Less: Operating expenses………………………………………………… (370,400)
Income from operations…………………………………………………… $ 59,150
Less: Interest expense……………………………………………………… (42,100)
Income before taxes………………………………………………………… $ 17,050
Less: Income tax expense*………………………………………………… (5,797)
Net income…………………………………………………………………… $ 11,253
* $17,050 × 0.34 = $5,797
FIFO:
Sales revenue………………………………………………………………… $ 828,600
Gross margin………………………………………………………………… $ 442,100
Income before taxes………………………………………………………… $ 29,600
Less: Income tax expense**……………………………………………… (10,064)
Net income…………………………………………………………………… $ 19,536
** $29,600 × 0.34 = $10,064
LIFO:
Sales revenue………………………………………………………………… $ 828,600
Gross margin………………………………………………………………… $ 403,700
Income before taxes………………………………………………………… $ (8,800)
Plus: Tax savings due to loss***………………………………………… 2,992
Net income…………………………………………………………………… $ (5,808)
*** $8,800 × 0.34 = $2,992
2. The unit costs are different for ending inventory for each inventory method,
causing cost of goods sold to be different. The differences arise because each
method assumes different unit costs are allocated to cost of goods sold and
ending inventory. Because the use of FIFO lead to the highest reported net
income (and, conversely, the use of LIFO reported in the lowest reported
income), we can infer that purchase prices have been rising during the year.
3. The most realistic amount for income comes from LIFO, because it matches the
most current costs with revenue. The most realistic amount for ending inventory
comes from FIFO, because it reports inventory at the amount closest to current
market value on the balance sheet.
6-38
E 6-54

Purchase 1 (130 @ $370) 22 × $400 = $ 8,800
$56,900
130 × $370 = $48,100
Sale 1 (145 @ $450) 22 × $400 = $ 8,800
$ 54,310 7 × $370 = $ 2,590 $ 2,590
123 × $370 = $45,510
Purchase 2 (180 @ $330) 7 × $370 = $ 2,590
$61,990
180 × $330 = $59,400
Purchase 3 (90 @ $250) 7 × $370 = $ 2,590
180 × $330 = $59,400 $84,490
90 × $250 = $22,500
Sale 2 (265 @ $450) 7 × $370 = $ 2,590
180 × $330 = $59,400 $ 81,490 12 × $250 = $ 3,000 $ 3,000
78 × $250 = $19,500
$135,800
6-39
E 6-54 (Continued)
Under the LIFO method, cost of goods sold is $134,350 and ending inventory is $4,450. Calculations are shown below.

Purchase 1 (130 @ $370) 22 × $400 = $ 8,800

$56,900
130 × $370 = $ 48,100
Sale 1 (145 @ $450) 130 × $370 = $ 48,100
$ 54,100 7 × $400 = $ 2,800 $ 2,800
15 × $400 = $ 6,000
Purchase 2 (180 @ $330) 7 × $400 = $ 2,800
$62,200
180 × $330 = $ 59,400
Purchase 3 (90 @ $250) 7 × $400 = $ 2,800
180 × $330 = $ 59,400 $84,700
90 × $250 = $ 22,500
Sale 2 (265 @ $450) 90 × $250 = $ 22,500 7 × $400 = $ 2,800

$ 80,250 $ 4,450
175 × $330 = $ 57,750 5 × $330 = $ 1,650
$134,350
6-40
E 6-54 (Continued)
Under the average cost method, cost of goods sold is $135,138 and ending inventory is $3,662. Calculations are shown below.
Cost
Beginning inventory 22 × $400 = $ 8,800 $ 8,800 $400.0000
Purchase 1 (130 @ $370) 22 × $400 = $ 8,800
$56,900 $374.3421
130 × $370 = $ 48,100
Sale 1 (145 @ $7) 145 × $374.3421 = $ 54,280 7 × $374.3421 = $ 2,620 $ 2,620 $374.3421
Purchase 2 (180 @ $330) 7 × $374.3421 = $ 2,620
$62,020 $331.6578
180 × $330 = $ 59,400
Purchase 3 (90 @ $250) 187 × $331.6578 = $ 62,020
$84,520 $305.1264
90 × $250 = $ 22,500
Sale 2 (265 @ $12) 265 × $305.1264 = $ 80,858 12 × $305.1264 = $ 3,662 $ 3,662 $305.1264
$135,138
2. Cost of goods sold is lower with LIFO than FIFO because the prices of inventory are falling.
6-41
E 6-55
1. Calculation of FIFO cost of goods sold:
2017 2018 2019
Beginning inventory………………………… $ 0 $ 2,400 $ 5,400
a b c
Add: Purchases……………………………… 16,000 32,400 45,000
Goods available for sale…………………… $16,000 $34,800 $50,400
d e f
Less: Ending inventory…………………… (2,400) (5,400) (1,500)
Cost of goods sold………………………… $13,600 $29,400 $48,900
a
10,000 pages × $1.60 per page = $16,000
b
16,200 pages × $2.00 per page = $32,400
c
18,000 pages × $2.50 per page = $45,000
d
1,500 pages × $1.60 per page = $2,400
e
2,700 pages × $2.00 per page = $5,400
f
600 pages × $2.50 per page = $1,500
2. Calculation of LIFO cost of goods sold:

2017 2018 2019
Beginning inventory………………………… $ 0 $ 2,400 $ 4,800
a b c
Add: Purchases……………………………… 16,000 32,400 45,000
Goods available for sale…………………… $16,000 $34,800 $49,800
d e f
Less: Ending inventory…………………… (2,400) (4,800) (960)
Cost of goods sold………………………… $13,600 $30,000 $48,840
a
10,000 pages × $1.60 per page = $16,000
b
16,200 pages × $2.00 per page = $32,400
c
18,000 pages × $2.50 per page = $45,000
d
1,500 pages × $1.60 per page = $2,400
e
(1,500 pages × $1.60 per page ) + (1,200 pages × $2.00 per page) = $4,800
f
600 pages × $1.60 per page = $960
6-42
E 6-55 (Continued)
3. 2017 2018 2019
Excess of LIFO over FIFO
Cost of goods sold $ 0 $ 600 $ (60)
In 2017, the use of FIFO would result in the same cost of goods sold as LIFO because
all pages available for sale and sold during 2017 were purchased at the same unit
cost. In 2018, the use of FIFO would result in the reporting of cost of goods sold of
$600 less than if LIFO were used. This difference arises because FIFO assigns the
more recent, higher-cost purchases to inventory and the older, lower-cost purchases
to cost of goods sold. LIFO assigns the more recent, higher-cost purchases to cost
of goods sold. In 2019, the use of FIFO would result in a $60 larger cost of goods
sold—an unusual event during periods of rising prices—because the quantity of
inventory declined by a very substantial amount. The decline released the lower
costs (from 2017) from the LIFO inventory, reducing 2017 LIFO cost of goods sold
below 2019 FIFO cost of goods sold. This 2019 reduction in inventory is termed a
LIFO liquidation.
E 6-56
1. The carrying value of Meredith’s ending inventory using the lower of cost or market
rule applied on an item-by-item basis is $33,390 (as computed below).
Total Total Lower of
Historical Market Cost or
Item Cost* Value** Market
Window air conditioner……………………… $ 4,500 $ 2,625 $ 2,625
Dishwasher……………………………………… 4,950 4,620 4,620
Refrigerator…………………………………… 14,700 14,875 14,700
Microwave……………………………………… 3,300 2,625 2,625
Washer (clothing)……………………………… 5,040 6,160 5,040
Dryer (clothing)………………………………… 3,780 4,050 3,780
Total………………………………………… $36,270 $33,390
* Historical Cost = Number of Units × Historical Cost per Unit
** Market Value = Number of Units × (Selling Price - Costs of Disposal)
Journal
Inventory 2,880
* $36,270 – $33,390 = $2,880
3. The lower of cost or market rule is an application of the conservatism principle.
The LCM rule recognizes an expense in the period in which there is a decline in
market value of inventory rather than in the period in which the inventory is sold.
6-43
E 6-57
1. The carrying value of Shaw Systems' ending inventory using the lower of cost or
market rule applied on an item-by-item basis is $84,430 (as computed below).
Total Total Lower of

Historical Market Cost or
Item Cost* Value** Market
Phone………………………………… $15,000 $12,500 $12,500
Stereo………………………………… 31,860 34,200 31,860
Electric shaver……………………… 6,450 6,020 6,020
MP3 alarm clock……………………… 11,700 11,250 11,250
Handheld game system…………… 22,800 23,940 22,800
$87,810 $84,430
* Historical Cost = Number of Units × Historical Cost per Unit
** Market Value = Number of Units × (Selling Price - Costs of Disposal)
Journal
Inventory 3,380
* $87,810 – $84,430 = $3,380
3. In the current period, the application of the LCM rule would cause assets
(inventory) to decrease by $3,380. In addition, cost of goods sold would increase
by $3,380 which causes net income and stockholders’ equity to decrease by $3,380.
In a subsequent period in which the inventory is sold, the cost of goods sold
would be less due to the inventory write-down in the earlier period. Therefore, the
net income reported in the subsequent period would be $3,380 higher than it
would have been if the LCM adjustment had not been made. Note that the
application of the LCM rule only changes the timing of when cost of goods sold
is recognized.
6-44
E 6-58
Net Sales
= ($754,690 – $528,600)
= 29.96%
$754,690
A gross profit ratio of 29.96% means that almost 30 cents of every dollar
of sales is available to cover expenses other than cost of goods sold and
to earn a profit.
Inventory Cost of Goods Sold
=
Turnover Ratio Average Inventory
$528,600
= = 7.321
$72,200
The inventory turnover of 7.321 times says that McLelland purchases and
sells its inventory almost 7.321 times a year.
Average Days to 365
=
Sell Inventory Inventory Turnover
365
= = 49.86 days
7.321
This ratio indicates that it takes McLelland approximately 50 days to sell
its inventory.
Net Sales
= ($754,690 – $555,000)/$754,690
= 26.46%
A gross profit ratio of 26.46% means that approximately 26 cents of every
dollar of sales is available to cover expenses other than cost of goods sold
and to earn a profit.
Inventory Cost of Goods Sold
=
Turnover Ratio Average Inventory
= $555,000/$45,800
= 12.118
The inventory turnover of 12.118 times says that McLelland purchases and
sells its inventory almost 12.118 times a year.
Average Days to 365
=
Sell Inventory Inventory Turnover
= 365/12.118
= 30.12 days
This ratio indicates that it takes McLelland approximately 30 days to sell its
inventory.
6-45
E 6-58 (Continued)
3. Because the use of LIFO resulted in a higher amount reported as cost of goods sold,
the gross profit reported under LIFO is less than under FIFO. However, LIFO also
reported lower amounts for ending inventory, resulting in higher inventory turnover
and a shorter average days to sell inventory. Therefore, the different methods
appear to be providing somewhat conflicting information on how effective the
company is at managing and controlling its inventory. In determining which method
presents a better indicator of management’s ability to manage and control its
inventory, remember that the use of FIFO results in a more realistic amount for
inventory because it reports the most current costs (which are closer to market value)
on the balance sheet. Therefore, the ratios computed under FIFO provide the most
realistic assessment of management’s control over its inventory.
E 6-59
1. 2019 2018
Sales revenue…………………… $538,200 $483,700
Cost of goods sold:
Beginning inventory………… $ 45,800 * $ 32,100
Purchases…………………… 343,200 292,700
Cost of goods
available for sale……… $389,000 $324,800
Ending inventory…………… (46,800) 342,200 (45,800) * 279,000
Gross margin…………………… $196,000 $204,700
Operating expenses…………… 167,200 151,600
Income before taxes…………… $ 28,800 $ 53,100
* $39,300 + $6,500 = $45,800
2. 2018 2019
Beginning inventory………………………………………………… +0 – 6,500
Ending inventory…………………………………………………… – 6,500 —
Stockholders’ equity……………………………………………… – 6,500 —
Cost of goods sold………………………………………………… + 6,500 – 6,500
Gross margin………………………………………………………… – 6,500 + 6,500
Income before taxes………………………………………………… – 6,500 + 6,500
6-46
E 6-60
Journal
1. Purchases* 6,875
2. Transportation-In 320
Cash 320
(Paid cash for shipping fees)
3. Accounts Payable** 275

4. Accounts Payable*** 6,600

Cash 6,600
(Paid off accounts payable)
* 1,250 units × $5.50 = $6,875

** 50 units × $5.50 = $275
*** $6,875 – $275 = $6,600
5. Total cost of this purchase:

$6,875 + $320 – $275 = $6,920
6. The accounts used in the journal entries are different from Exercise 6-45 because, in
this example, Compass Inc. is using the periodic inventory system, not the perpetual
system. In a periodic system, the purchase of inventory and any transportation costs
to get the merchandise to the warehouse are recorded in a purchases account and
a transportation-in account, respectively, instead of directly into inventory. These
two accounts are added to purchases in the determination of net purchases. In
addition, under a periodic system, any purchase return is recorded as a reduction
to Purchases instead of as a reduction in Inventory. At the end of the period, net
purchases are added to beginning inventory to compute the cost of goods available
for sale.
6-47
E 6-61
1. Journal
a
Purchases 91,450

b
Sales Revenue 151,270
(Recorded sales on account)
Accounts Payablec 930

(Recorded return of defective cartridges
to supplier)
Sales Revenue 2,040

d
(Recorded return of defective cartridges
by customers)
a
1,475 units × $62 = $91,450
b
(830 units × $95) + (710 units × $102) = $151,270
c
15 units × $62 = $930
d
20 units × $102 = $2,040
6-48
E 6-61 (Continued)
2. The cost of ending inventory is determined by multiplying the number of units
in ending inventory by the cost per unit:
Units in goods available for sale*……………………………………… 1,700
Less: Units returned to supplier………………………………………… (15)
Units in cost of goods available for sale……………………………… 1,685
Less: Units sold**………………………………………………………… (1,540)
Items returned……………………………………………………………… 20
Units in ending inventory………………………………………………… 165
Cost per unit………………………………………………………………… × $62
Cost of ending inventory………………………………………………… $ 10,230
Cost of goods sold:
Cost of goods available for sale***……………………………… $104,470
Cost of ending inventory…………………………………………… (10,230)
$ 94,240
* 225 units + 1,475 units = 1,700 units
** 830 units + 710 units = 1,540 units
*** 1,685 units × $62 = $104,470
Gross profit is $54,990, computed as:

Sales………………………………………………………………………… $151,270
Less: Sales returns and allowances…………………………………… (2,040)
Cost of goods sold………………………………………………………… (94,240)
Gross profit………………………………………………………………… $ 54,990
3. Differences in this example as compared to Exercise 6-49 are caused by the

use of different inventory systems (a perpetual inventory system was used in
Exercise 6-49; a periodic inventory system was used in this exercise). Under a
periodic system, purchases are recorded in a purchases account instead of
directly into the inventory account. In addition, cost of goods sold is not
recorded at the same time as a sale. Instead, cost of goods sold is computed
at the end of the period by applying the cost of goods sold model.
6-49
E 6-62
1. Goods available for sale:
Cost
Units per Unit Total Cost
Beginning inventory………… 400 $20 $ 8,000
Purchase 1, Feb. 21………… 5,200 24 $124,800
Purchase 2, July 15………… 4,800 28 134,400
Purchase 3, Sept. 30………… 8,500 30 255,000
Total purchases…………… 18,500 514,200
Goods available for sale…… 18,900 $522,200
Sales were 18,500 units. Therefore, ending inventory is 400 units (18,900 – 18,500).
FIFO
The cost of the ending inventory is the cost of the newest 400 units. The 400
newest units would be drawn from Purchase 3.
Cost of ending inventory ($30 × 400 units)………………………………...…..…… $ 12,000
Cost of goods sold is the cost of goods available for sale minus the cost of
ending inventory as shown in the following calculation:
Beginning inventory……………………………………………………………………… $ 8,000
Add: Purchases…………………………………………………………………………… 514,200
Cost of goods available for sale……………………………………………………… $522,200
Less: FIFO ending inventory*………………………………………………………… (12,000)
FIFO cost of goods sold (18,500 units)……………………………………………… $510,200
* 400 units × $30 = $12,000
Alternatively, FIFO cost of goods sold can be determined by computing the cost of
the oldest 18,500 units in goods available for sale. The oldest 18,500 units are the
400 units from beginning inventory, 5,200 units from Purchase 1; 4,800 units from
Purchase 2; and 8,100 units from Purchase 3. The cost of these units is $510,200
[(400 units × $20) + (5,200 units × $24) + (4,800 units × $28) + (8,100 units × $30)].
6-50
E 6-62 (Continued)
LIFO
The cost of ending inventory is the cost of the oldest 400 units. The 400 oldest units
would be drawn from beginning inventory and Purchase 1. The cost of ending
inventory is $8,000 [(400 units × $20) + (0 units × $24)]. Cost of goods sold is the
cost of goods available for sale minus the cost of ending inventory as shown in
the following calculation:
Beginning inventory……………………………………………………………… $ 8,000
Add: Purchases…………………………………………………………………… 514,200
Cost of goods available for sale……………………………………………… $522,200
Less: LIFO ending inventory…………………………………………………… (8,000)
LIFO cost of goods sold (18,500 units)……………………………………… $514,200
Alternatively, LIFO cost of goods sold can be determined by computing the cost
of the newest 18,500 units available for sale. The newest 18,500 units are 8,500 units
from Purchase 3; 4,800 units from Purchase 2; and 5,200 units from Purchase 1.
The cost of these 18,500 units is $514,200 [(8,500 units × $30) + (4,800 units × $28) +
(5,200 units × $24)].
Average Cost
First, the weighted average cost per unit must be determined by dividing the
cost of goods available for sale by the units in goods available for sale:
$522,200/18,900 units…………………………………………………………… $27.6296
The cost of ending inventory is the weighted average cost per unit times the
number of units:
$27.6296 × 400 units…………...………………………………………………… $ 11,052
Cost of goods sold is the cost of goods available for sale minus the cost of
ending inventory as shown in the following calculation:
Beginning inventory……………………………………………………………… $ 8,000
Add: Purchases…………………………………………………………………… 514,200
Cost of goods available for sale……………………………………………… $522,200
Less: Average cost ending inventory*………………………………………… (11,052)
Average cost of goods sold (18,500 units)…………………………………… $511,148
* 400 units × $27.6296 = $11,052
Alternatively, the weighted average cost of goods sold can be determined by

multiplying the weighted average cost per unit times the number of units in cost
of goods sold. The cost of goods sold is $511,148 (18,500 units × $27.6296).
6-51
E 6-62 (Continued)
2. Income statements:
Average
FIFO LIFO Cost
Sales revenue*……………………… $ 925,000 $ 925,000 $ 925,000
Less: Cost of goods sold………… (510,200) (514,200) (511,148)
Gross margin………………………… $ 414,800 $ 410,800 $ 413,852
* 18,500 units × $50 = $925,000
3. As you can see from the above partial income statements, the use of FIFO
results in a lower cost of goods sold, which leads to higher income. LIFO is
the exact opposite; its use results in higher cost of goods sold and a lower
income amount. The average cost method falls in between the other two
methods for both the cost of goods sold and income amounts.
6-52
E 6-63
1. Goods available for sale:
Cost per
Units Unit Total Cost
Beginning inventory………… 1,400 $12 $16,800
Purchase 1, Feb. 26………… 2,400 16 $38,400
Purchase 2, June 14………… 2,200 20 44,000
Total purchases…………… 4,600 82,400
Goods available for sale…… 6,000 $99,200
Sales were 4,200 units (2,300 units + 1,900 units). Therefore, ending inventory
is 1,800 units (6,000 units – 4,200 units).
Inventory Costing
Method Cost of Goods Sold Ending Inventory
FIFO………………………… $99,200 – $36,000 = $63,200 1,800 × $20 = $36,000
LIFO………………………… $99,200 – $23,200 = $76,000 1,400 × $12 = $16,800
400 × $16 = $ 6,400
$23,200
Average Cost* …………… $99,200 – $29,760 = $69,440 (1,800 × $16.5333) = $29,760
* Weighted average cost per unit = $99,200/6,000 units = $16.5333/unit
2. By looking at the above calculations, you can see that, when purchase prices are rising,
the FIFO method resulted in the lowest reported amount for cost of goods sold and the
largest amount for net income. Also, FIFO results in a larger inventory amount on the
balance sheet relative to the other methods. The use of LIFO produces the opposite
results. The application of LIFO, when purchase prices are rising, results in the largest
reported amount for cost of goods sold and the smallest reported amount for net
income. LIFO also produces a smaller inventory valuation on the balance sheet. The
average cost method causes the dollar amounts for inventory, cost of goods sold, and
net income to fall in between the other methods.
6-53
E 6-64
1. FIFO
Cost of goods sold (5,240 units):
500 @ $9.00 = $ 4,500
1,600 @ $9.40 = 15,040
1,200 @ $10.20 = 12,240
1,400 @ $10.80 = 15,120
540 @ $11.30 = 6,102
5,240 $ 53,002
Ending inventory (560 units)

560 @ $11.30 = $ 6,328
LIFO
Cost of goods sold (5,240 units):
1,100 @ $11.30 = $ 12,430
1,400 @ $10.80 = 15,120
1,200 @ $10.20 = 12,240
1,540 @ $9.40 = 14,476
5,240 $ 54,266
Ending inventory (560 units)

60 @ $9.40 = $ 564
500 @ $9.00 = 4,500
560 $ 5,064
Average Cost
$59,330/5,800 units = $10.2293
Cost of goods sold = 5,240 × $10.2293 = $ 53,602
Ending inventory = 560 × $10.2293 = $ 5,728
2. The use of LIFO produces the most realistic amount for income, because it
matches the most current costs, which are closer to current market value,
against current revenues. The use of FIFO will result in the most realistic
amount for inventory because it reports the most current costs on the balance
sheet.
3. In a period of rising prices, the use of LIFO, which expenses the most current
costs, will result in the lowest amount of income and the lowest amount paid
for taxes.
6-54
PROBLEM SET A
P 6-65A
For 2018 (solve in the following order):
(c) = $359,620 – $116,450 = $243,170
(b) = $243,170 + $42,780 = $285,950
(a) = $285,950 – $36,800 = $249,150

(d) = $42,780 (Beginning Inventory for 2019 = Ending Inventory for 2018)
(e) = $42,780 + $301,600 = $344,380
(f) = $344,380 – $289,700 = $54,680
(g) = $423,150 – $289,700 = $133,450
6-55
P 6-66A
Journal
a. Apr. 2 Inventory 10,800
Accounts Payablea 10,800
2 Inventory 195
Cash 195
(Paid freight costs)
b. 3 Inventory 1,150
Cashb 1,150
(Purchased inventory for cash)
c. 4 Inventory 8,250
d. 10 Accounts Payable 10,800

Inventoryc 216
d
Cash 10,584
(Paid accounts payable within discount period)
e. 15 Accounts Payable 325

Inventory 325
f. 20 Cash 17,104
Sales Revenuee 17,104
(Made cash sales)
a
360 units × $30 = $10,800
b
115 units × $10 = $1,150
c
$10,800 × 0.02 = $216
d
$10,800 × (1.00 – 0.02) = $10,584
e
(118 units × $90) + (92 units × $12) + $5,380 = $17,104
6-56
P 6-66A (Continued)
Journal
Apr. 20 Cost of Goods Sold 7,580
Inventory 7,580
g. 23 Sales Revenue 860

Cash 860
23 Inventory 450
(Recorded cost of goods sold)
f
h. 25 Accounts Receivable 4,950
g
Cash 180
Sales Revenue 5,130
(Made sales, both cash and on account)

Inventory 1,800
h
i. 29 Accounts Payable 7,925
Cash 7,925
f
55 units × $90 = $4,950
g
15 units × $12 = $180
h
$8,250 – $325 = $7,925
j. No entry required until the bags arrive due to the shipping terms (F.O.B.
destination).
6-57
P 6-66A (Continued)
2. Alpharack Company
Income Statement
For the period ended April 30, 2019
Sales*……………………………………………………………………………… $21,374
Less: Cost of goods sold**…………………………………………………… (8,930)
Gross margin……………………………………………………………………… $12,444
Less: Operating expenses……………………………………………………… (8,500)
Income before income taxes ………………………………………………… $ 3,944
Income taxes expense ………………………………………………………… (1,180)
Net income………………………………………………………………………… $ 2,764
* $17,104 – $860 + $5,130 = $21,374 (based on journal entries)
** $7,580 – $450 + $1,800 = $8,930 (based on journal entries)
6-58
P 6-67A
1. Under the FIFO method, cost of goods sold is $567.70 and ending inventory is $58.80. Calculations are shown below.

Beginning inventory 10 × $8.00 = $ 80.00 $ 80.00
Purchase 1 (22 @ $8.80) 10 × $8.00 = $ 80.00
$ 273.60
22 × $8.80 = $ 193.60
Purchase 2 (26 @ $9.05) 10 × $8.00 = $ 80.00
22 × $8.80 = $ 193.60 $ 508.90
26 × $9.05 = $ 235.30
Sale 1 (19 @ $20.00) 10 × $8.00 = $ 80.00 13 × $8.80 = $ 114.40
$159.20 $ 349.70
9 × $8.80 = $ 79.20 26 × $9.05 = $ 235.30
Sale 2 (25 @ $20.00) 13 × $8.80 = $ 114.40
$223.00 14 × $9.05 = $ 126.70 $ 126.70
12 × $9.05 = $ 108.60
Purchase 3 (12 @ $9.80) 14 × $9.05 = $ 126.70
$ 244.30
12 × $9.80 = $ 117.60
Sale 3 (20 @ $20.00) 14 × $9.05 = $ 126.70
$185.50 6 × $9.80 = $ 58.80 $ 58.80
6 × $9.80 = $ 58.80
$567.70
6-59
P 6-67A (Continued)
2. Under the LIFO method, cost of goods sold is $578.50 and ending inventory is $48.00. Calculations are shown below.

Beginning inventory 10 × $8.00 = $ 80.00 $ 80.00
Purchase 1 (22 @ $8.80) 10 × $8.00 = $ 80.00
$273.60
22 × $8.80 = $ 193.60
Purchase 2 (26 @ $9.05) 10 × $8.00 = $ 80.00
22 × $8.80 = $ 193.60 $508.90
26 × $9.05 = $ 235.30
Sale 1 (19 @ $20.00) 19 × $9.05 = $ 171.95 $171.95 10 × $8.00 = $ 80.00
22 × $8.80 = $ 193.60 $336.95
7 × $9.05 = $ 63.35
Sale 2 (25 @ $20.00) 7 × $9.05 = $ 63.35 10 × $8.00 = $ 80.00
$221.75 $115.20
18 × $8.80 = $ 158.40 4 × $8.80 = $ 35.20
Purchase 3 (12 @ $9.80) 10 × $8.00 = $ 80.00
4 × $8.80 = $ 35.20 $232.80
12 × $9.80 = $ 117.60
Sale 3 (20 @ $20.00) 12 × $9.80 = $ 117.60
4 × $8.80 = $ 35.20 $184.80 6 × $8.00 = $ 48.00 $ 48.00
4 × $8.00 = $ 32.00
$578.50
6-60
P 6-67A (Continued)
3. Under the average cost method, cost of goods sold is $571.01 and ending inventory is $55.49. Calculations are
shown below.
Cost
Beginning inventory 10 × $8.0000 = $ 80.00 $ 80.00 $8.0000
Purchase 1 (22 @ $8.80) 10 × $8.0000 = $ 80.00
$ 273.60 $8.5500 (a)
22 × $8.80 = $ 193.60
Purchase 2 (26 @ $9.05) 32 × $8.5500 = $ 273.60
$ 508.90 $8.7741 (b)
26 × $9.05 = $ 235.30
Sale 1 (19 @ $20.00) 19 × $8.7741 = $166.71 $166.71 39 × $8.7741 = $ 342.19 $ 342.19 $8.7741
Sale 2 (25 @ $20.00) 25 × $8.7741 = $219.35 $219.35 14 × $8.7741 = $ 122.84 $ 122.84 $8.7741
Purchase 3 (12 @ $9.80) 14 × $8.7741 = $ 122.84
$ 240.44 $9.2477 (c)
12 × 9.80 = $ 117.60
Sale 3 (20 @ $20.00) 20 × $9.2477 = $184.95 $184.95 6 × $9.2477 = $ 55.49 $ 55.49 $9.2477
$571.01
Note: Cost of goods sold and ending inventory amounts were rounded to the nearest penny.
(a) $273.60/32 = $8.5500
(b) $508.90/58 = $8.7741
(c) $240.44/26 = $9.2477
6-61
P 6-67A (Continued)
4. Journal
Dec. 2 Inventory 193.60
Cash 193.60
(Purchased inventory)
5 Inventory 235.30
Cash 235.30
7 Cash 380.00
Sales Revenue* 380.00
(Recorded cash sales to customers)
7 Cost of Goods Sold 159.20

Inventory 159.20
10 Cash 500.00
Sales Revenue** 500.00

Inventory 223.00
12 Inventory 117.60
Cash 117.60
* 19 units × $20 = $380
** 25 units × $20 = $500
6-62
P 6-67A (Continued)
Journal
Dec. 14 Cash 400.00
Sales Revenue*** 400.00

Inventory 185.50
*** 20 units × $20 = $400
5. LIFO would result in the lowest amount of taxes paid because, in a period of
rising prices, it produces the largest amount for cost of goods sold, which
causes income before taxes to be the lowest of the three inventory methods.
6-63
P 6-68A
1. Under the FIFO method, cost of goods sold is $9,540 and $4,490 for 2018 and 2019, respectively.
Ending inventory is $3,510 and $1,820 for 2018 and 2019, respectively. Calculations are shown below.

2018
Beginning inventory 200 × $9 = $1,800 $1,800
Purchase 1 (300 @ $11) 200 × $9 = $1,800
$5,100
300 × $11 = $3,300
Sale 1 (320 @ $25) 200 × $9 = $1,800
$3,120 180 × $11 = $1,980 $1,980
120 × $11 = $1,320
Purchase 2 (500 @ $12) 180 × $11 = $1,980
$7,980
500 × $12 = $6,000
Sale 2 (550 @ $25) 180 × $11 = $1,980
$6,420 130 × $12 = $1,560 $1,560
370 × $12 = $4,440
Purchase 3 (150 @ $13) 130 × $12 = $1,560
$3,510
150 × $13 = $1,950
CGS for 2018: $9,540
2019
Sale 3 (200 @ $25) 130 × $12 = $1,560
$2,470 80 × $13 = $1,040 $1,040
70 × $13 = $ 910
Purchase 4 (200 @ $14) 80 × $13 = $1,040
$3,840
200 × $14 = $2,800
Sale 4 (150 @ $25) 80 × $13 = $1,040
$2,020 130 × $14 = $1,820 $1,820
70 × $14 = $ 980
CGS for 2019: $4,490
6-64
P 6-68A (Continued)
Gross Margin for 2018 = Sales* – Cost of Goods Sold
= $21,750 – $9,540
= $12,210
* (320 units × $25) + (550 units × $25) = $21,750
Gross Margin for 2019 = Sales** – Cost of Goods Sold

= $8,750 – $4,490
= $4,260
** (200 units × $25) + (150 units × $25) = $8,750
2. Under the LIFO method, cost of goods sold is $9,930 and $4,500 for 2018 and 2019, respectively. Ending inventory is
$3,120 and $1,420 for 2018 and 2019, respectively. Calculations are shown below.

2018
Beginning inventory 200 × $9 = $1,800 $1,800
Purchase 1 (300 @ $11) 200 × $9 = $1,800
$5,100
300 × $11 = $3,300
Sale 1 (320 @ $25) 300 × $11 = $3,300
$3,480 180 × $9 = $1,620 $1,620
20 × $9 = $ 180
Purchase 2 (500 @ $12) 180 × $9 = $1,620
$7,620
500 × $12 = $6,000
Sale 2 (550 @ $25) 500 × $12 = $6,000
$6,450 130 × $9 = $1,170 $1,170
50 × $9 = $ 450
Purchase 3 (150 @ $13) 130 × $9 = $1,170
$3,120
150 × $13 = $1,950
CGS for 2018: $9,930
6-65
P 6-68A (Continued)

2019
Sale 3 (200 @ $25) 150 × $13 = $1,950
$2,400 80 × $9 = $ 720 $ 720
50 × $9 = $ 450
Purchase 4 (200 @ $14) 80 × $9 = $ 720
$3,520
200 × $14 = $2,800
Sale 4 (150 @ $25) 150 × $14 = $2,100 $2,100 80 × $9 = $ 720
$1,420
50 × $14 = $ 700
CGS for 2019: $4,500

= $21,750 – $9,930
= $11,820
* (320 units × $25) + (550 units × $25) = $21,750

= $8,750 – $4,500
= $4,250
** (200 units × $25) + (150 units × $25) = $8,750
6-66
P 6-68A (Continued)
3. Under the average cost method, cost of goods sold is $9,602 and $4,491 for 2018 and 2019, respectively. Ending inventory is
$3,448 and $1,757 for 2018 and 2019, respectively. Calculations are shown below.
Cost
2018
Beginning inventory 200 × $9.0000 = $1,800 $1,800 $ 9.0000 (a)
Purchase 1 (300 @ $11) 200 × $9.0000 = $1,800
$5,100 $10.2000* (b)
300 × $11.00 = $3,300
Sale 1 (320 @ $25) 320 × $10.2000 = $3,264 $ 3,264 180 × $10.2000 = $1,836 $1,836 $10.2000
Purchase 2 (500 @ $12) 180 × $10.2000 = $1,836
$7,836 $11.5235 (c)
500 × $12.00 = $6,000
Sale 2 (550 @ $25) 550 × $11.5235 = $6,338 $ 6,338 130 × $11.5235 = $1,498 $1,498 $11.5235
Purchase 3 (150 @ $13) 130 × $11.5235 = $1,498
$3,448 $12.3143 (d)
150 × $13.00 = $1,950
CGS for 2018: $ 9,602
2019
Sale 3 (200 @ $25) 200 × $12.3143 = $2,463 $ 2,463 80 × $12.3143 = $ 985 $ 985 $12.3143
Purchase 4 (200 @ $14) 80 × $12.3143 = $ 985
$3,785 $13.5179
200 × $14.00 = $2,800
Sale 4 (150 @ $25) 150 × $13.5179 = $2,028 $ 2,028 130 × $13.5179 = $1,757 $1,757 $13.5179 (e)
CGS for 2019: $ 4,491
Note: Cost of goods sold and ending inventory amounts were rounded to the nearest dollar
* The average cost per unit is calculated by dividing the inventory balance by the respective number of units available in inventory.
(a) $1,800.00/200 = $9.0000

(b) $5,100.00/500 = $10.2000
(c) $7,836.00/680 = $11.5235
(d) $3,448.00/280 = $12.3143
(e) $3,785.00/280 = $13.5179
6-67
P 6-68A (Continued)
Gross Margin for 2018 = Sales – Cost of Goods Sold
= $21,750 – $9,602
= $12,148
= $8,750 – $4,491
= $4,259
4. The use of LIFO would result in the lowest amount paid for taxes because LIFO
expenses the more current, higher cost items, which results in a lower gross
margin. Lower gross margin results in lower income before taxes, which would
minimize the amount of taxes due.
5. LIFO produces the most realistic amount for income because it matches current
costs against revenues. FIFO produces the most realistic amount for inventory
because it reports the inventory at the most current costs, which more accurately
reflect market value.
Weighted
6. FIFO LIFO Average
2018
Gross profit ratio*………………………… 56.14% 54.34% 55.85%
Inventory turnover**……………………… 3.59 4.04 3.66
2019
Gross profit ratio………………………… 48.69% 48.57% 48.68%
Inventory turnover……………………… 1.68 1.98 1.73
* Gross Margin/Sales
** Cost of Goods Sold/Average Inventory Balance
The choice of inventory costing method would affect these ratios because each of
the ratios uses cost of goods sold or ending inventory as a part of the equation.
With rising prices, the use of FIFO would result in the highest gross profit ratio,
while the use of LIFO would result in the highest inventory turnover.
6-68
P 6-69A
1. The carrying amount of inventory using the lower of cost or market approach
applied on an item-by-item basis is $20,100 (as computed below).
Model Cost Market Value LCM

T-260 $ 3,750 (15 × $250) $ 6,675 (15 × $445) $ 3,750
S-256 9,100 (28 × $325) 8,400 (28 × $300) 8,400
R-193 4,200 (20 × $210) 4,600 (20 × $230) 4,200
Z-376 4,275 (15 × $285) 3,750 (15 × $250) 3,750
$21,325 $23,425 $20,100
Journal
Inventory 1,225
* $21,325 – $20,100 = $1,225
3. In the current period, the application of the LCM rule would cause assets
(Inventory) to decrease by $1,225. In addition, cost of goods sold would increase
by $1,225, which causes net income and stockholders’ equity to decrease by
$1,225. In a subsequent period in which the inventory is sold, the cost of goods
sold would be less due to the inventory write-down in the earlier period.
Therefore, the net income reported in the subsequent period would be $1,225
higher than it would have been if the LCM adjustment had not been made. Note
that the application of the LCM rule only changes the timing of when cost of
goods sold is recognized.
6-69
P 6-70A
1. The market value of $0.75 per gallon is larger than all of the costs. Therefore, using the lower of cost or market rule will
result in the cost of each inventory item being used to determine the cost of ending inventory and cost of goods sold.
FIFO:

Beginning inventory 5,000,000 × $0.50 = $ 2,500,000
Feb. 20 Purchase 1 5,000,000 × $0.50
$ 7,700,000
(10,000,000 @ $0.52) 10,000,000 × $0.52
May 15 Purchase 2 5,000,000 × $0.50
(25,000,000 @ $0.56) 10,000,000 × $0.52 $21,700,000
25,000,000 × $0.56
June 29 Sale 1 5,000,000 × $0.50
(35,000,000 @ $0.75) 10,000,000 × $0.52 $18,900,000 5,000,000 × $0.56 = $ 2,800,000
20,000,000 × $0.56
Sept. 12 Purchase 3 5,000,000 × $0.56
$22,000,000
(32,000,000 @ $0.60) 32,000,000 × $0.60
Nov. 22 Sale 2 5,000,000 × $0.56
$17,800,000 7,000,000 × $0.60 = $ 4,200,000
(30,000,000 @ $0.75) 25,000,000 × $0.60
$36,700,000
6-70
P 6-70A (Continued)
Average Cost:
Cost
Beginning inventory 5,000,000 × $0.5000 = $ 2,500,000 $0.5000
Feb. 20 Purchase 1 5,000,000 × $0.5000
$ 7,700,000 $0.5133 * (a)
(10,000,000 @ $0.52) 10,000,000 × $0.5200
May 15 Purchase 2 5,000,000 × $0.5000
(25,000,000 @ $0.56) 10,000,000 × $0.5200 $21,700,000 $0.5425 (b)
25,000,000 × $0.5600
June 29 Sale 1 35,000,000 × $0.5425 = $18,987,500 5,000,000 × $0.5425 = $ 2,712,500 $0.5425
(35,000,000 @ $0.75)
Sept. 12 Purchase 3 5,000,000 × 0.5425
$21,912,500 $0.5922 (c)
(32,000,000 @ $0.60) 32,000,000 × $0.6000
Nov. 22 Sale 2 30,000,000 × $0.5922 = $17,766,000 7,000,000 × $0.5922 = $ 4,145,400 $0.5922
(30,000,000 @ $0.75)
$36,753,500
Note: Cost of goods sold and ending inventory amounts were rounded to the nearest dollar
(a) $7,700,000/15,000,000 = $0.5133

(b) $21,700,000/40,000,000 = $0.5425
(c) $21,912,500/37,000,000 = $0.5922
6-71
P 6-70A (Continued)
Next, the lower of cost or market rule must be applied to get the final inventory
valuation at 12/31/2019.
Inventory Method Cost of Inventory Market Value of Inventory

FIFO $4,200,000 $0.76 × 7,000,000 = $5,320,000
Average Cost $4,145,400 $0.76 × 7,000,000 = $5,320,000
The final inventory valuations, based on the lower of the two columns above for
each method, are:
FIFO: $4,200,000
Average cost: $4,145,400
2. The market value of $0.58 is lower than the cost of the final purchase. Therefore,
the application of the lower of cost or market rule will result in some adjustments
to the cost of ending inventory. The first step is to compute the cost of the ending
inventory using the appropriate costing method. Next, the lower of inventory cost
or market rule must be applied to get the final inventory valuation. The cost of
inventory is the same as calculated above.

FIFO $4,200,000 $0.58 × 7,000,000 = $4,060,000
Average Cost $4,145,400 $0.58 × 7,000,000 = $4,060,000
each method, are:
FIFO: $4,060,000
Average cost: $4,060,000
6-72
P 6-71A
1. The first error understates inventory by $42,000. The second error also understates
inventory by $28,500. This leads to a total understatement of ending inventory in
2017 of $70,500.
2019 2018 2017

2. Sales revenue………………… $ 4,643,200 $ 4,287,500 $ 3,647,900
Cost of goods sold…………… (2,475,100) (2,252,100) * (1,935,600) **
Gross margin………………… $ 2,168,100 $ 2,035,400 $ 1,712,300
Operating expense…………… (1,548,600) (1,428,400) (1,152,800)
Income from operations…… $ 619,500 $ 607,000 $ 559,500
Other expenses……………… (137,300) (123,600) (112,900)
Income before taxes………… $ 482,200 $ 483,400 $ 446,600
Income tax expense (34%)… (163,948) (164,356) (151,844)
Net income…………………… $ 318,252 $ 319,044 $ 294,756
* $2,181,600 + $70,500 = $2,252,100

** $2,006,100 – $70,500 = $1,935,600
3. Ending inventory errors will correct themselves the subsequent year. This occurs
because the ending inventory for one period is the beginning inventory of the
next period. Thus, the effect of an error in the valuation of ending inventory
(assuming no other errors are made) will cause income to be understated in
1 year and overstated the next year. The error is said to self-correct and there will
be no cumulative effect of this error on income.
4. As stated in the answer to Requirement 3, the inventory error corrects itself in

the following year, which means the income in the third year (2019) will be
unaffected.
6-73
P 6-72A
Units available for sale: 70 units (10 units + 22 units + 26 units + 12 units)
Units sold: 64 units (19 units + 25 units + 20 units)
Units, ending inventory: 6 units (70 units – 64 units)
1. FIFO:
10 units × $8.00 $ 80.00 6 units × $9.80 $58.80
22 units × $8.80 193.60
26 units × $9.05 235.30
6 units × $9.80 58.80
64 units $ 567.70 6 units $58.80
2. LIFO:
12 units × $9.80 $ 117.60 6 units × $8.00 $48.00
26 units × $9.05 235.30
22 units × $8.80 193.60
4 units × $8.00 32.00
64 units $ 578.50 6 units $48.00
3. Average cost:
Weighted Average = Cost of Goods Available for Sale

= $626.50
70 units
= $8.9500/unit
The cost of goods available for sale ($626.50) is allocated between inventory

64 units × $8.9500 = $572.80 6 units × $8.9500 = $53.70
6-74
P 6-72A (Continued)
4. Journal
Dec. 2 Purchases 193.60
Cash 193.60
5 Purchases 235.30
Cash 235.30
7 Cash 380.00
a
Sales Revenue 380.00
(Recorded sale of inventory)
10 Cash 500.00
b
12 Purchases 117.60
c
Cash 117.60
14 Cash 400.00
d
a
19 units × $20 = $380
b
25 units × $20 = $500
c
12 units × $9.80 = $117.60
d
20 units × $20 = $400
5. LIFO would result in the lowest amount paid for income taxes because it has the
highest cost of goods sold. (LIFO expenses the more current, higher-cost items.)
This higher cost of goods sold would result in a low net income, which would
cause lower taxes.
6. The differences occur because the companies are using different inventory
systems. Under a periodic system, purchases are recorded in a purchases
account instead of directly into the inventory account. In addition, cost of goods
sold is not recorded at the same time as a sale. Instead, cost of goods sold is
recorded at the end of the period after applying the cost of goods sold model.
6-75
P 6-73A
1. FIFO:
2018
Units available for sale: 1,150 units (200 units + 300 units + 500 units + 150 units)
Units sold: 870 units (320 units + 550 units)
Units in inventory: 280 units (1,150 units – 870 units)

200 units × $ 9 = $1,800 130 units × $12 = $1,560
300 units × $11 = 3,300 150 units × $13 = 1,950
370 units × $12 = 4,440
870 units $9,540 280 units $3,510
Gross Margin = Sales* – Cost of Goods Sold

= $21,750 – $9,540
= $12,210
* 870 units × $25 = $21,750

2019
Units available for sale: 480 units (130 units + 150 units + 200 units)
Units in inventory: 130 units (480 units – 350 units)

130 units × $12 = $1,560 130 units × $14 = $1,820
150 units × $13 = 1,950
70 units × $14 = 980
350 units $4,490 130 units $1,820
Gross Margin = Sales** – Cost of Goods Sold

= $8,750 – $4,490
= $4,260
** 350 units × $25 = $8,750
6-76
P 6-73A (Continued)
2. LIFO:
2018

150 units × $13 = $ 1,950 200 units × $9 = $1,800
500 units × $12 = 6,000 80 units × $11 = 880
220 units × $11 = 2,420
870 units $10,370 280 units $2,680
Gross Margin = Sales – Cost of Goods Sold

= $21,750 – $10,370
= $11,380
2019

200 units × $14 = $2,800 130 units × $9 = $1,170
80 units × $11 = 880
70 units × $9 = 630
350 units $4,310 130 units $1,170

= $8,750 – $4,310
= $4,440
6-77
P 6-73A (Continued)
3. Average cost:
2018
= $13,050 = $11.3478/unit
1,150 units
The cost of goods available for sale ($13,050) is allocated between inventory and

870 units × $11.3478 = $9,873 280 units × $11.3478 = $3,177

= $21,750 – $9,873
= $11,877
2019
= $5,977* = $12.4521/unit
480 units
* $3,177 + $2,800 = $5,977

350 units × $12.4521 = $4,358 130 units × $12.4521 = $1,619

= $8,750 – $4,358
= $4,392
6-78
P 6-73A (Continued)
4. The use of LIFO would result in the lowest amount paid for taxes because
LIFO expenses the more current, higher cost items, which results in a
lower gross margin. Lower gross margin results in lower income before
taxes, which would minimize the amount of taxes due.
5. LIFO produces the most realistic amount for income because it matches
current costs against revenues. FIFO produces the most realistic amount
for inventory because it reports the inventory at the most current costs,
which more accurately reflect market value.
6. Under conditions of rising inventory prices, companies that use LIFO may
be able to increase their gross margin simply by delaying year end
purchases until the next year, or they may decrease their gross margin by
increasing the quantity of year end purchases. Delaying year end
purchases increases gross margin by causing older, lower costs to be
expensed as cost of goods sold. This is known as a LIFO liquidation, and
the decrease in cost of goods sold (while sales revenue remains constant)
will cause an increase in gross margin. Increasing the quantity of year end
purchases will have the opposite effect because the cost of goods sold
will be assigned the more current, higher costs. This would result in a
lower gross margin relative to if the purchases had not been made.
Manipulation of year end purchases has no effect on gross margin when

FIFO is used because the cost of goods sold amount is being calculated
based on purchases from the beginning of the year rather than year end.
7. There are differences in the dollar amounts for cost of goods sold and
ending inventory under each method, except for FIFO. These differences
occur because of the different inventory costing systems used—in the first
problem, a perpetual inventory system was used, whereas in this problem,
a periodic inventory system was used. The answers were the same under
the FIFO inventory costing method because the same units are assumed
to be in ending inventory and cost of goods sold regardless of whether a
perpetual or periodic inventory system was used.
6-79
PROBLEM SET B
P 6-65B
(a) = $28,600 + $104,730 = $133,330
(c) = $104,730 + $6,940 = $111,670
(b) = $111,670 – $104,250 = $7,420

(d) = $6,940 (Beginning Inventory for 2019 = Ending Inventory for 2018)
(e) = $127,500 – $6,940 = $120,560
(g) = $154,810 – $38,980 = $115,830
(f) = $127,500 – $115,830 = $11,670
6-80
P 6-66B
Journal
a. June 1 Inventory 21,100
a
1 Inventory 310
Cash 310
(Paid freight costs)
b. 2 Inventory 5,720
b
Cash 5,720
c. 6 Inventory 5,625
c
d. 10 Accounts Payable 21,100

d
Inventory 422
Cashe 20,678
(Paid accounts payable within discount period)
e. 12 Accounts Payable 585

Inventory 585
(Returned inventory)
f. 18 Cash 18,984
f
Sales Revenue 18,984
(Recorded cash sales)
a
(100 units × $85) + (210 units × $60) = $21,100
b
88 units × $65 = $5,720
c
125 units × $45 = $5,625
d
$21,100 × 0.02 = $422
e
$21,100 × (1.00 – 0.02) = $20,678
f
(50 units × $116) + (92 units × $85) + (21 units × $100) + (48 units × $68) = $18,984
6-81
P 6-66B (Continued)
Journal
June 18 Cost of Goods Sold 13,295
Inventory 13,295
(Sold inventory)
g. 21 Sales Revenue 1,160

Cashg 1,160
(Recorded return of sales merchandise)
21 Inventory 850
(Recorded cost of inventory returned)
h
h. 23 Accounts Receivable 2,320
i
Cash 1,500
Sales Revenue 3,820
(Recorded sales, both cash and on account)

Inventory 2,675
i. 30 Accounts Payable 5,040

Cash j 5,040
g
10 units × $116 = $1,160
h
20 units × $116 = $2,320
i
15 units × $100 = $1,500
j
$5,625 – $585 = $5,040
j. No entry required until the shoes arrive due to the shipping terms (F.O.B.
destination).
6-82
P 6-66B (Continued)
2. Jordan Footwear
Income Statement
For the period ended June 30, 2019
Sales*………………………………………………………………………… $ 21,644
Less: Cost of goods sold**……………………………………………… (15,120)
Gross margin……………………………………………………………… $ 6,524
Less: Operating expenses……………………………………………… (5,300)
Income before income taxes …………………………………………… $ 1,224
Income taxes expense…………………………………………………… (365)
Net income…………………………………………………………………… $ 859
* $18,984 + $3,820 – 1,160
** $13,295 – $850 + $2,675 = $15,120 (from journal entries)
6-83
P 6-67B
1. Under the FIFO method, cost of goods sold is $2,848 and ending inventory is $288. Calculations are shown below.

Beginning inventory 9 × $58 = $522 $ 522
Purchase 1 (6 @ $72) 9 × $58 = $522
$ 954
6 × $72 = $432
Purchase 2 (8 @ $80) 9 × $58 = $522
6 × $72 = $432 $1,594
8 × $80 = $640
Sale 1 (10 @ $150) 9 × $58 = $522 5 × $72 = $360
$ 594 $1,000
1 × $72 = $ 72 8 × $80 = $640
Purchase 3 (9 @ $86) 5 × $72 = $360
8 × $80 = $640 $1,774
9 × $86 = $774
Sale 2 (15 @ $150) 5 × $72 = $360
8 × $80 = $640 $1,172 7 × $86 = $602 $ 602
2 × $86 = $172
Purchase 4 (8 @ $96) 7 × $86 = $602
$1,370
8 × $96 = $768
Sale 3 (12 @ $150) 7 × $86 = $602
$1,082 3 × $96 = $288 $ 288
5 × $96 = $480
$2,848
6-84
P 6-67B (Continued)
2. Under the LIFO method, cost of goods sold is $2,962 and ending inventory is $174. Calculations are shown below.

Beginning inventory 9 × $58 = $522 $ 522
Purchase 1 (6 @ $72) 9 × $58 = $522
$ 954
6 × $72 = $432
Purchase 2 (8 @ $80) 9 × $58 = $522
6 × $72 = $432 $1,594
8 × $80 = $640
Sale 1 (10 @ $150) 8 × $80 = $640 9 × $58 = $522
$ 784 $ 810
2 × $72 = $144 4 × $72 = $288
Purchase 3 (9 @ $86) 9 × $58 = $522
4 × $72 = $288 $1,584
9 × $86 = $774
Sale 2 (15 @ $150) 9 × $86 = $774
4 × $72 = $288 $1,178 7 × $58 = $406 $ 406
2 × $58 = $116
Purchase 4 (8 @ $96) 7 × $58 = $406
$1,174
8 × $96 = $768
Sale 3 (12 @ $150) 8 × $96 = $768
$1,000 3 × $58 = $174 $ 174
4 × $58 = $232
$2,962
6-85
P 6-67B (Continued)
3. Under the average cost method, cost of goods sold is $2,875.81 and ending inventory is $260.19. Calculations are shown below.
Cost
Beginning inventory 9 × $58.0000 = $ 522 $ 522 $58.0000
Purchase 1 (6 @ $72) 9 × $58.0000 = $ 522
$ 954 $63.6000 (a)
6 × $72.0000 = $ 432
Purchase 2 (8 @ $80) 15 × $63.6000 = $ 954
$ 1,594 $69.3043 (b)
8 × $80.0000 = $ 640
Sale 1 (10 @ $150) 10 × $69.3043 = $ 693.04 $ 693.04 13 × $69.3043 = $900.96 $ 900.96 $69.3043
Purchase 3 (9 @ $86) 13 × $69.3043 = $900.96
$1,674.96 $76.1345 (c)
9 × $86.0000 = $774.00
Sale 2 (15 @ $150) 15 × $76.1345 = $1,142.02 $1,142.02 7 × $76.1345 = $532.94 $ 532.94 $76.1345
Purchase 4 (8 @ $96) 7 × $76.1345 = $532.94
$1,300.94 $86.7293 (d)
8 × $96.0000 = $768.00
Sale 3 (12 @ $150) 12 × $86.7293 = $1,040.75 $1,040.75 3 × $86.7293 = $260.19 $ 260.19 $86.7293
$2,875.81
(a) $954.00/15 = $63.6000

(b) $1,594.00/23 = $69.3043
(c) $1,674.96/22 = $76.1345
(d) $1,300.94/15 = $86.7293
6-86
P 6-67B (Continued)
4. Journal
Feb. 15 Inventory 432
Cash 432
Mar. 22 Inventory 640

Cash 640
Apr. 9 Cash 1,500

Sales Revenue* 1,500
9 Cost of Goods Sold 594

Inventory 594
(Sold inventory)
May 29 Inventory 774

Cash 774
July 10 Cash 2,250

Sales Revenue** 2,250

Inventory 1,172
(Sold inventory)
Sept. 10 Inventory 768

Cash 768
* 10 units × $150 = $1,500
** 15 units × $150 = $2,250
6-87
P 6-67B (Continued)
Journal
Oct. 15 Cash 1,800
Sales Revenue*** 1,800

Inventory 1,082
(Sold inventory)
*** 12 units × $150 = $1,800
5. LIFO would result in the lowest amount of taxes paid because, in a period of
rising prices, it produces the largest amount for cost of goods sold, which
causes income before taxes to be the lowest of the three inventory methods.
6-88
P 6-68B
1. Under the FIFO method, cost of goods sold is $63,300 and $35,000 for 2018 and 2019, respectively.
Ending inventory is $28,800 and $49,600 for 2018 and 2019, respectively. Calculations are shown below.

2018
Purchase 1 (700 @ $52) 100 × $45 = $ 4,500
$40,900
700 × $52 = $36,400
Sale 1 (600 @ $90) 100 × $45 = $ 4,500
$30,500 200 × $52 = $10,400 $10,400
500 × $52 = $26,000
Purchase 2 (500 @ $56) 200 × $52 = $10,400
$38,400
500 × $56 = $28,000
Sale 2 (600 @ $90) 200 × $52 = $10,400 $ 5,600
$32,800 100 × $56 = $ 5,600
400 × $56 = $22,400
Purchase 3 (400 @ $58) 100 × $56 = $ 5,600
$28,800
400 × $58 = $23,200
CGS for 2018: $63,300
2019
Sale 3 (400 @ $90) 100 × $56 = $ 5,600
$23,000 100 × $58 = $ 5,800 $ 5,800
300 × $58 = $17,400
Purchase 4 (900 @ $62) 100 × $58 = $ 5,800
$61,600
900 × $62 = $55,800
Sale 4 (200 @ $90) 100 × $58 = $ 5,800
$12,000 800 × $62 = $49,600 $49,600
100 × $62 = $ 6,200
CGS for 2019: $35,000
6-89
P 6-68B (Continued)
= $108,000 – $63,300
= $44,700
* (600 units × $90) + (600 units × $90) = $108,000

= $54,000 – $35,000
= $19,000
** (400 units × $90) + (200 units × $90) = $54,000
2. Under the LIFO method, cost of goods sold is $64,400 and $35,600 for 2018 and 2019, respectively. Ending inventory
is $27,700 and $47,900 for 2018 and 2019, respectively. Calculations are shown below.

2018
Purchase 1 (700 @ $52) 100 × $45 = $ 4,500
$40,900
700 × $52 = $36,400
100 × $45 = $ 4,500
Sale 1 (600 @ $90) 600 × $52 = $31,200 $31,200 $ 9,700
100 × $52 = $ 5,200
Purchase 2 (500 @ $56) 100 × $45 = $ 4,500

100 × $52 = $ 5,200 $37,700
500 × $56 = $28,000
Sale 2 (600 @ $90) 500 × $56 = $28,000
$33,200 100 × $45 = $ 4,500 $ 4,500
100 × $52 = $ 5,200
Purchase 3 (400 @ $58) 100 × $45 = $ 4,500
$27,700
400 × $58 = $23,200
CGS for 2018: $64,400
6-90
P 6-68B (Continued)

2019
Sale 3 (400 @ $90) 400 × $58 = $23,200 $23,200
100 × $45 = $ 4,500 $ 4,500
Purchase 4 (900 @ $62) 100 × $45 = $ 4,500

$60,300
900 × $62 = $55,800
Sale 4 (200 @ $90) 200 × $62 = $12,400 $12,400 100 × $45 = $ 4,500
$47,900
700 × $62 = $43,400
CGS for 2019: $35,600

= $108,000 – $64,400
= $43,600
* (600 units × $90) + (600 units × $90) = $108,000

= $54,000 – $35,600
= $18,400
** (400 units × $90) + (200 units × $90) = $54,000
6-91
P 6-68B (Continued)
3. Under the average cost method, cost of goods sold is $63,439 and $35,235 for 2018 and 2019, respectively. Ending
inventory is $28,661 and $49,226 for 2018 and 2019, respectively. Calculations are shown below.
Cost
2018
Beginning inventory 100 × $45.0000 = $ 4,500 $ 4,500 $45.0000
Purchase 1 (700 @ $52) 100 × $45.0000 = $ 4,500

$40,900 $51.1250 * (a)
700 × $52.0000 = $36,400
Sale 1 (600 @ $90) 600 × $51.1250 = $30,675 $30,675 200 × $51.1250 = $10,225 $10,225 $51.1250
Purchase 2 (500 @ $56) 200 × $51.1250 = $10,225

$38,225 $54.6071 (b)
500 × $56.0000 = $28,000
Sale 2 (600 @ $90) 600 × $54.6071 = $32,764 $32,764 100 × $54.6071 = $ 5,461 $ 5,461 $54.6071
Purchase 3 (400 @ $58) 100 × $54.6071 = $ 5,461

$28,661 $57.3220 (c)
400 × $58.0000 = $23,200
CGS for 2018: $63,439
2019
Sale 3 (400 @ $90) 400 × $57.3220 = $22,929 $22,929 100 × $57.3220 = $ 5,732 $ 5,732 $57.3200
Purchase 4 (900 @ $62) 100 × $57.3220 = $ 5,732

$61,532 $61.5320 (d)
900 × $62.0000 = $55,800
Sale 4 (200 @ $90) 200 × $61.5320 = $12,306 $12,306 800 × $61.5320 = $49,226 $49,226 $61.5320
CGS for 2019: $35,235
(a) $40,900/800 = $51.1250

(b) $38,225/700 = $54.6071
(c) $28,661/500 = $57.3220
(d) $61,532/1,000 = $61.5320
6-92
P 6-68B (Continued)
= $108,000 – $63,439
= $44,561
= $54,000 – $35,235
= $18,765
4. The use of LIFO would result in the lowest amount paid for taxes because LIFO
expenses the more current, higher cost items, which results in a lower gross
margin. Lower gross margin results in lower income before taxes, which would
minimize the amount of taxes due.
5. LIFO produces the most realistic amount for income because it matches current
costs against revenues. FIFO produces the most realistic amount for inventory
because it reports the inventory at the most current costs, which more accurately
reflect market value.
Weighted
6. FIFO LIFO Average
2018
Gross profit ratio*………………………… 41.39% 40.37% 41.26%
Inventory turnover**……………………… 3.80 4.00 3.83
2019
Gross profit ratio………………………… 35.19% 34.07% 34.75%
Inventory turnover………………………… 0.89 0.94 0.92
* Gross Margin
Sales
** Cost of Goods Sold
Average Inventory Balance
The choice of inventory costing method would affect these ratios because each
of the ratios uses cost of goods sold or ending inventory as a part of the equation.
With rising prices, the use of FIFO would result in the highest gross profit ratio,
while the use of LIFO would result in the highest inventory turnover.
6-93
P 6-69B
1. The carrying amount of inventory using the lower of cost or market approach
applied on an item-by-item basis is $22,835 (as computed below).
Model Cost Market Value LCM

RSQ535 $ 3,000 (30 × $100) $ 3,600 (30 × $120) $ 3,000
JKY942 7,280 (52 × $140) 6,500 (52 × $125) 6,500
LLM112 7,140 (84 × $85) 6,720 (84 × $80) 6,720
KZG428 6,615 (63 × $105) 8,064 (63 × $128) 6,615
$24,035 $24,884 $22,835
Journal
Inventory 1,200
* $24,035 – $22,835 = $1,200
3. In the current period, the application of the LCM rule would cause assets (Inventory)
to decrease by $1,200. In addition, cost of goods sold would increase by $1,200,
which causes net income and stockholders’ equity to decrease by $1,200. In a
subsequent period in which the inventory is sold, the cost of goods sold would be
less due to the inventory write-down in the earlier period. Therefore, the net income
reported in the subsequent period would be $1,200 higher than it would have been
if the LCM adjustment had not been made. Note that the application of the LCM rule
only changes the timing of when cost of goods sold is recognized.
6-94
P 6-70B
1. The market value of $0.38 per gallon is larger than all of the costs. Therefore, using the lower of cost or market rule
will result in the cost of each inventory item being used to determine the cost of ending inventory and cost of goods sold.
FIFO:

Beginning inventory 5,000 × $0.10 = $ 500 $ 500
Feb. 20 Purchase 1 5,000 × $0.10 = $ 500

$12,500
(100,000 @ $0.12) 100,000 × $0.12 = $12,000
Apr. 2 Sale 1 5,000 × $0.10 = $ 500

$ 9,500 25,000 × $0.12 = $ 3,000 $ 3,000
(80,000 @ $0.35) 75,000 × $0.12 = $ 9,000
May 15 Purchase 2 25,000 × $0.12 = $ 3,000

$10,980
(57,000 @ $0.14) 57,000 × $0.14 = $ 7,980
25,000 × $0.12 = $ 3,000

Sept. 12 Purchase 3 57,000 × $0.14 = $ 7,980 $23,730
(85,000 @ $0.15) 85,000 × $0.15 = $12,750
Oct. 20 Sale 2 25,000 × $0.12 = $ 3,000

(160,000 @ $0.35) 57,000 × $0.14 = $ 7,980 $22,680 7,000 × $0.15 = $ 1,050 $ 1,050
78,000 × $0.15 = $11,700
$32,180
6-95
P 6-70B (Continued)
Average Cost:
Cost
Beginning inventory 5,000 × $0.1000 = $ 500 $ 500 $0.1000
Feb. 20 Purchase 1 5,000 × $0.1000 = $ 500

$ 12,500 $0.1190 * (a)
(100,000 @ $0.12) 100,000 × $0.1200 = $ 12,000
Apr. 2 Sale 1 80,000 × $0.1190 = $ 9,520 25,000 × $0.1190 = $ 2,975 $ 2,975 $0.1190
(80,000 @ $0.35)
May 15 Purchase 2 25,000 × $0.1190 = $ 2,975

$ 10,955 $0.1336 (b)
(57,000 @ $0.14) 57,000 × $0.1400 = $ 7,980
Nov. 12 Purchase 3 82,000 × $0.1336 = $ 10,955

$ 23,705 $0.1419 (c)
(85,000 @ $0.15) 85,000 × $0.1500 = $ 12,750
Oct. 20 Sale 2 160,000 × $0.1419 = $ 22,704 7,000 × $0.1419 = $ 993 $ 993 $0.1419
(160,000 @ $0.35)
$ 32,224
(a) $12,500/105,000 = $0.1190

(b) $10,955/82,000 = $0.1336
(c) $23,705/167,000 = $0.1419
6-96
P 6-70B (Continued)
Next, the lower of cost or market rule must be applied to get the final inventory
valuation.

FIFO $1,050 $0.38 × 7,000 = $2,660
Average Cost $ 993 $0.38 × 7,000 = $2,660
each method, are:
FIFO: $1,050
Average cost: $ 993
2. The market value of $0.12 is lower than some of the purchases. Therefore, the
application of the lower of cost or market rule will result in some adjustments to the
cost of ending inventory. First, compute the value of ending inventory as was shown
in Requirement 1. Next, the lower of cost or market rule must be applied to get the
final inventory valuation by comparing the cost of the inventory (previously
computed) to its market value.

FIFO $1,050 $0.12 × 7,000 = $840
Average Cost $ 993 $0.12 × 7,000 = $840
each method, are:
FIFO: $840
Average cost: $840
6-97
P 6-71B
1. The first error overstates inventory by $37,000. The second error overstates
inventory by $12,800. This leads to a total overstatement of ending inventory in
2017 of $49,800.
2019 2018 2017

2. Sales revenue…………………… $1,168,500 $ 998,400 $ 975,300
Cost of goods sold……………… (785,800) (625,650) * (709,600) **
Gross margin……………………… $ 382,700 $ 372,750 $ 265,700
Operating expense……………… (162,500) (142,800) (155,300)
Income from operations………… $ 220,200 $ 229,950 $ 110,400
Other expenses…………………… (73,500) (58,150) (54,500)
Income before taxes…………… $ 146,700 $ 171,800 $ 55,900
Income tax expense (34%)……… (49,878) (58,412) (19,006)
Net income………………………… $ 96,822 $ 113,388 $ 36,894
* $675,450 – $49,800 = $625,650

** $659,800 + $49,800 = $709,600
3. Ending inventory errors will correct themselves the subsequent year. This occurs
because the ending inventory for one period is the beginning inventory of the
next period. Thus, the effect of an error in the valuation of ending inventory
(assuming no other errors are made) will cause income to be overstated in
1 year and understated the next year. The error is said to self-correct and there
will be no cumulative effect of this error on income.
4. As stated in the answer to Requirement 3, the inventory error corrects itself in the
following year, which means the income in the third year (2019) will be unaffected.
6-98
P 6-72B
Units available for sale: 40 units (9 units + 6 units + 8 units + 9 units + 8 units)
Units sold: 37 units (10 units + 15 units + 12 units)
Units, ending inventory: 3 units (40 units – 37 units)
1. FIFO:
9 units × $58 $ 522 3 units × $96 $288
6 units × $72 432
8 units × $80 640
9 units × $86 774
5 units × $96 480
37 units $ 2,848 3 units $288
2. LIFO:
8 units × $96 $ 768 3 units × $58 $174
9 units × $86 774
8 units × $80 640
6 units × $72 432
6 units × $58 348
20 units $ 2,962 3 units $174
3. Average cost:

= $3,136
40 units
= $78.40/unit
The cost of goods available for sale ($3,136) is allocated between inventory

37 units × $78.4000 = $2,901 3 units × $78.4000 = $235
6-99
P 6-72B (Continued)
4. Journal
Feb. 15 Purchases 432
Cash 432
Mar. 22 Purchases 640

Cash 640
Apr. 9 Cash 1,500

Sales Revenue* 1,500
May 29 Purchases 774

Cash 774
July 10 Cash 2,250

Sales Revenue** 2,250
Sept. 10 Purchases 768

Cash 768
Oct. 15 Cash 1,800

Sales Revenue*** 1,800
* 10 units × $150 = $1,500
** 15 units × $150 = $2,250
*** 12 units × $150 = $1,800
5. LIFO would result in the lowest amount paid for income taxes because it has the
highest cost of goods sold. (LIFO expenses the more current, higher cost items.)
This higher cost of goods sold would result in a low net income, which would
cause lower taxes.
6-100
P 6-72B (Continued)
6. Similarities and differences occur in the dollar amounts for cost of goods sold and
ending inventory under each method. Regardless of whether a perpetual or periodic
inventory method is used, the costing methods (FIFO, LIFO, and average cost)
maintain the same relationship. For example, in these problems purchase prices
are rising. In both cases, FIFO (relative to LIFO and average cost) produced the
highest cost for ending inventory and the lowest cost of goods sold. LIFO produced
the lowest cost of ending inventory and the highest cost of goods sold. However,
FIFO results in the same cost of ending inventory and the same cost of goods sold
regardless of whether a perpetual or periodic inventory system is used because
the same costs will always be the first in and first out. However, LIFO and average
cost result in different amounts under a perpetual versus a periodic system.
6-101
P 6-73B
1. FIFO:
2018
Units available for sale: 1,700 units (100 units + 700 units + 500 units + 400 units)
Units sold: 1,200 units (600 units + 600 units)
Units in inventory: 500 units (1,700 units – 1,200 units)

100 units × $45 = $ 4,500 100 units × $56 = $ 5,600
700 units × $52 = 36,400 400 units × $58 = 23,200
400 units × $56 = 22,400
1,200 units $63,300 500 units $28,800
Gross Margin = Sales* – Cost of Goods Sold

= $108,000 – $63,300
= $44,700
* (600 units × $90) + (600 units × $90) = $108,000

2019
Units available for sale: 1,400 units (100 units + 400 units + 900 units)
Units in inventory: 800 units (1,400 units – 600 units)

100 units × $56 = $ 5,600 800 units × $62 = $49,600
300 units × $58 = 17,400
100 units × $58 = 5,800
100 units × $62 = 6,200
600 units $35,000 800 units $49,600
Gross Margin = Sales** – Cost of Goods Sold

= $54,000 – $35,000
= $19,000
** (400 units × $90) + (200 units × $90) = $54,000
6-102
P 6-73B (Continued)
2. LIFO:
2018

400 units × $58 = $23,200 100 units × $45 = $ 4,500
500 units × $56 = 28,000 400 units × $52 = 20,800
300 units × $52 = 15,600
1,200 units $66,800 500 units $25,300

= $108,000 – $66,800
= $41,200
2019

200 units × $62 = $12,400 100 units × $45 = $ 4,500
400 units × $62 = $24,800 400 units × $52 = 20,800
300 units × $62 = 18,600
600 units $37,200 800 units $43,900

= $54,000 – $37,200
= $16,800
6-103
P 6-73B (Continued)
3. Average cost:
2018
= $92,100 = $54.1765/unit
1,700 units

1,200 units × $54.1765 = $65,012 500 units × $54.1765 = $27,088

= $108,000 – $65,012
= $42,988
2019
= $82,888 * = $59.2057/unit
1,400 units
* (500 units × $54.1765) + (900 units × $62) = $82,888

600 units × $59.2057 = $35,523 800 units × $59.2057 = $47,365

= $54,000 – $35,523
= $18,477
6-104
P 6-73B (Continued)
4. The use of LIFO generally would result in the lowest amount paid for taxes
because LIFO expenses the more current, higher cost items, which results
in a lower gross margin. Lower gross margin results in lower income before
taxes, which would minimize the amount of taxes due.
5. LIFO produces the most realistic amount for income because it matches
current costs against revenues. FIFO produces the most realistic amount
for inventory because it reports the inventory at the most current costs,
which more accurately reflect market value.
6. Under conditions of rising inventory prices, companies that use LIFO may
be able to increase their gross margin simply by delaying year end
purchases until the next year, or they may decrease their gross margin by
increasing the quantity of year end purchases. Delaying year end
purchases increases gross margin by causing older, lower costs to be
expensed as cost of goods sold. This is known as a LIFO liquidation, and
the decrease in cost of goods sold (while sales revenue remains constant)
will cause an increase in gross margin. Increasing the quantity of year end
purchases will have the opposite effect because the cost of goods sold
will be assigned the more current, higher costs. This would result in a
lower gross margin relative to if the purchases had not been made.
Manipulation of year end purchases has no effect on gross margin when

FIFO is used because the cost of goods sold amount is being calculated
based on purchases from the beginning of the year rather than year end.
7. Similarities and differences occur in the dollar amounts for cost of goods
sold and ending inventory under each method. Regardless of whether a
perpetual or periodic inventory is used, the costing methods (FIFO, LIFO,
and average cost) maintain the same relationship (as long as no LIFO
liquidations occur). For example, in these problems purchase prices are
rising. In both cases, FIFO (relative to LIFO and average cost) produced
the highest cost for ending inventory, the lowest cost of goods sold, and the
highest gross margin. LIFO produced the lowest cost of ending inventory,
the highest cost of goods sold, and the lowest gross margin. However, note
that FIFO results in the same cost of ending inventory and the same cost of
goods sold regardless of whether a perpetual or periodic inventory system is
used because the same costs will always be the first in and first out. However,
LIFO and average cost result in different amounts under a perpetual versus a
periodic system.
6-105
CASES
Case 6-74
1. If the returned inventory had been reduced to its liquidation value, cost
of goods sold would have been higher, gross margin and income from
operations would have been lower, and net income would have been
lower (but due to a favorable income tax effect, it would not decrease
as much as income from operations).
2. Mary is in a difficult position. The CFO has most likely behaved unethically
and in a way that will probably damage the business. The purchase of the
televisions is most likely a transaction designed to improve the company's
appearance to investors. Mary should carefully examine the documentation
and monitor the delivery and likely return of the inventory in the next period.
If she challenges the CFO's decision, she may lose her job. If the company
has a whistleblower hotline, Mary could inform the company's internal
auditors, which could take her off the hook.
Case 6-75
1. If a company has used the LIFO method for a number of years, then a
substantial reduction in inventory quantity is likely to cause older, lower
inventory costs to be transferred from inventory to cost of goods sold.
This reduction in inventory quantity will cause a one-time reduction in
cost of goods sold and an increase in gross margin and income before
taxes as these lower costs are expensed. If the company has used FIFO,
then the inventory reduction will not materially affect cost of goods sold
as the costs transferred from inventory to cost of goods sold will
approximate current replacement costs.
2. Once a company has adopted the just-in-time procedure and has done the
necessary inventory reduction, there should be little difference between
LIFO and FIFO, as cost of goods sold for both methods should be composed
of primarily current period purchases due to the low inventory levels.
6-106
Case 6-76
If FIFO is used and beginning and ending inventory quantities are essentially
the same, the cost of beginning inventory will be included in cost of goods
sold along with the early purchases for the current year, and the cost of ending
inventory will be the cost of the last purchases for the year. If LIFO is used
under the same circumstances, then cost of goods sold will be the current
period’s purchases, and ending inventory cost will equal beginning inventory
cost. When prices are volatile, it is unlikely that the cost of FIFO beginning
inventory will be the same as the cost of the last purchases for the year.
Therefore, cost of goods sold using FIFO should differ from LIFO cost of goods
sold. The FIFO and LIFO costs of ending inventory are also likely to differ.
If the quantity of goods in inventory is also changing from period to period, FIFO
cost of goods sold will continue to include beginning inventory costs and early
purchases for the year. LIFO cost of goods sold will include the later current year
purchases when inventory quantity is increased but will include some beginning
inventory costs when ending inventory quantity is smaller than the beginning
inventory quantity. FIFO ending inventory always includes the later purchases
for the current year, while LIFO includes beginning inventory costs and some
costs from the beginning of the current year if ending inventory quantity is larger
than the beginning quantity.
Case 6-77
1. Because Hill Motor Company had used the LIFO inventory method for some
time and because prices for inventories had increased, a reduction in the
quantity of items held in inventory meant that some old, low costs were taken
out of inventory and put into cost of goods sold. In 2019 and 2018, these old
costs were $134 million and $294 million less than the current cost of
purchasing these items. The decrease in cost of goods sold increased gross
margin, income from operations, income before taxes, and net income.
2. No. When FIFO is used, cost of goods sold includes the ending inventory from
the previous period (the last items purchased in the previous year are in ending
inventory) plus purchases (in chronological order) from the current year. An
inventory reduction occurs when fewer items are purchased than used. An
inventory reduction when FIFO is used means that fewer items from the last
purchase(s) of the current year are in ending inventory. Therefore, cost of
goods sold, gross margin, income from operations, income before taxes, and
net income are essentially unaffected by a decline in the quantity of inventory
when FIFO is used.
6-107
Case 6-78
1. The basic equation for calculation of cost of goods sold is:
BI + P – EI = CGS
where: BI = Beginning Inventory
P = Purchases
EI = Ending Inventory
CGS = Cost of Goods Sold
If that equation is made a part of an equation that represents the income

statement, the following relationship can be identified:
(R – CGS – OX – OXL + ORG) × (1 – t) = NI
where: R = Sales Revenue
OX = Operating Expenses
OXL = Other Expenses and Losses
ORG = Other Revenues and Gains
t = Tax Rate
NI = Net Income
The net income effect of misstatements in ending inventory is the amount of the
misstatement multiplied by (1 – Tax Rate). If ending inventory is overstated, profits
are inappropriately increased. Profits are decreased by understatements of
ending inventory.
2. A manager intent on misstating income might choose ending inventory for

accomplishing the misstatement because the amount of ending inventory is
normally determined from a physical inventory. If the quantities in the physical
inventory are increased above the quantities actually on hand, then an
overstatement of ending inventory has been simply and easily accomplished.
To make such misstatements more difficult to accomplish, generally accepted
auditing standards require that the external auditor observe the physical
inventory.
6-108
Case 6-79
1. The store manager may be reluctant to admit that the computers have little
sales value because to do so would require recognition of a significant loss
for the period that might adversely affect his or her performance evaluation.
2. Failure to recognize a decline in the value of inventory results in an

overstatement of profits and inventory in the near term. Overvalued inventory
may also incur storage and other costs that could be avoided if the inventory
were marked down and sold.
3. Public accountants who participate in misrepresenting the value of inventory

risk disciplinary actions by their professional associations and also risk losing
their license to practice as certified public accountants. Management accountants
that participate in such misrepresentations, when discovered, as they invariably
are, also lose their reputation for professional integrity, which in the long run can
damage their careers.
Case 6-80
1. Inventory for 2016 was $44,469,000,000, and for 2015 it was $45,141,000,000.
2. Wal-Mart primarily uses LIFO while its Sams Club segment uses weighted
average. Foreign operations use FIFO. (This information is found in Note 1
of the financial statements).
3. Cost of goods sold (cost of sales) for 2016 was $360,984,000,000; for 2015 it was
$365,086,000,000; and for 2014 it was $358,069,000,000.
4. Gross Profit Ratio Gross Profit

=
(amounts in millions) Net Sales
= ($478,614 – $360,984)
$478,614
= 24.58%
Inventory Turnover = Cost of Goods Sold

(amounts in millions) Average Inventory
= $360,984/[($45,141 + $44,469)/2]
= 8.06
5. Wal-Mart does use the lower of cost or market method. Because Wal-Mart does
not mention any inventory write-downs in the notes to the financial statesments, it
does not seem that it will be writing down any inventory to market value in 2018.
6. If inventory were overstated, assets would be overstated on the balance sheet.

Assuming a 1% overstatement, this would result in a $444,690,000 overstatement
of assets. This would also, in turn, cause income (and stockholders’ equity) to be
overstated by $444,690,000 (ignoring taxes). This effect on income would correct
itself in the next fiscal year, when income would be understated.
6-109
Case 6-81
1. Under Armour inventory:
December 31, 2015 = $783,031,000
December 31, 2016 = $917,491,000
Columbia inventory:
December, 2015 = $473,637,000
December, 2016 = $487,997,000
2. Under Armour uses a method that approximates the lower of cost or market
under the FIFO method (obtained from Note 2 in the “Notes to the Consolidated
Financial Statements”). Columbia uses the lower of cost or market method
under the FIFO method (obtained from Note 2 in the “Notes to the Consolidated
Financial Statements”). The two companies do use the same inventory valuation
method.
3. Under Armour’s cost of goods sold:
2014 = $1,572,164,000
2015 = $2,057,766,000
2016 = $2,584,724,000
Columbia's cost of goods sold:
2014 = $1,145,639,0600
2015 = $1,252,680,000
2016 = $1,266,697,000
4. Under Armour’s ratios:
Gross profit: $2,240,611,000/$4,825,335,000 = 46.43%
Inventory turnover
= $2,584,724,000/[($917,491,000 + $783,031,000)/2] = 3.04
Columbia’s ratios:
Gross profit: $1,110,348,000*/$2,377,045,000 = 46.71%
Inventory turnover
= $1,266,697,000/[($487,997,000 + $473,637,000)/2] = 2.63
By looking at the above ratios, you can see that Under Armour does a better job of
turning over its inventory more times each year than Columbia. However, Columbia
has a slightly higher gross profit margin on the products it sells. This enables
Columbia to generate slightly more profit with fewer inventory turns.
5. Under Armour does use the lower of cost or market method when valuing inventories.
There is no evidence that Under Armour had an inventory write-down in the 2016 fiscal
year. Columbia also uses the lower of cost or market method when valuing inventories.
Similar to Under Armour, there is no evidence that Columbia had an inventory write-dow
in the 2016 fiscal year.
6-110
Case 6-82
1. Under the FIFO method, cost of goods sold is $4,928.75 and ending inventory is $1,433.75.

May 10 Purchase 240 × $8.25 = $1,980.00 $1,980.00
(240 @ $8.25)
25 Sale 180 × $8.25 = $1,485.00 $1,485.00 60 × $8.25 = $ 495.00 $ 495.00

(180 @ $15)
June 5 Purchase 60 × $8.25 = $ 495.00

$3,120.00
(300 @ $8.75) 300 × $8.75 = $2,625.00
12 Sale 60 × $8.25 = $ 495.00

$1,282.50 210 × $8.75 = $1,837.50 $1,837.50
(150 @ $15) 90 × $8.75 = $ 787.50
5 Sale 135 × $8.75 = $1,181.25 $1,181.25 75 × $8.75 = $ 656.25 $ 656.25

(135 @ $15)
Aug. 8 Purchase 75 × $8.75 = $ 656.25

$2,413.75
(190 @ $9.25) 190 × $9.25 = $1,757.50
20 Sale 75 × $8.75 = $ 656.25

$ 980.00 155 × $9.25 = $1,433.75 $1,433.75
(110 @ $15) 35 × $9.25 = $ 323.75
$4,928.75
6-111
Case 6-82 (Continued)

Under the LIFO method, cost of goods sold is $4,996.25 and ending inventory is $1,366.25.

May 10 Purchase 240 × $8.25 = $1,980.00 $1,980.00
(240 @ $8.25)
25 Sale 180 × $8.25 = $ 1,485.00 $1,485.00 60 × $8.25 = $ 495.00 $ 495.00

(180 @ $15)
June 5 Purchase 60 × $8.25 = $ 495.00

$3,120.00
(300 @ $8.75) 300 × $8.75 = $2,625.00
12 Sale 150 × $8.75 = $ 1,312.50 $1,312.50 60 × $8.25 = $ 495.00

$1,807.50
(150 @ $15) 150 × $8.75 = $1,312.50
July 5 Sale 135 × $8.75 = $ 1,181.25 $1,181.25 60 × $8.25 = $ 495.00

$ 626.25
(135 @ $15) 15 × $8.75 = $ 131.25
Aug. 8 Purchase 60 × $8.25 = $ 495.00

(190 @ $9.25) 15 × $8.75 = $ 131.25 $2,383.75
190 × $9.25 = $1,757.50
20 Sale 110 × $9.25 = $ 1,017.50 $1,017.50 60 × $8.25 = $ 495.00

(110 @ $15) 15 × $8.75 = $ 131.25 $1,366.25
80 × $9.25 = $ 740.00
$4,996.25
6-112

Under the average cost method, cost of goods sold is $4,954.34 and ending inventory is $1,408.16.
Cost
May 10 Purchase 240 × $8.25 = $1,980.00 $1,980.00 $8.25
(240 @ $8.25)
25 Sale 180 × $8.25 = $1,485.00 $1,485.00 60 × $8.25 = $ 495.00 $ 495.00 $8.25

(180 @ $15)
June 5 Purchase 60 × $8.25 = $ 495.00

$3,120.00 $8.6667
(300 @ $8.75) 300 × $8.75 = $2,625.00
12 Sale 150 × $8.6667 = $1,300.00 $1,300.00 210 × $8.6667 = $1,820.00 $1,820.00 $8.6667
(150 @ $15)
July 5 Sale 135 × $8.6667 = $1,170.00 $1,170.00 75 × $8.6667 = $ 650.00 $ 650.00 $8.6667
(135 @ $15)
Aug. 8 Purchase 75 × $8.6667 = $ 650.00

$2,407.50 $9.0849
(190 @ $9.25) 190 × $9.25 = $1,757.50
20 Sale 110 × $9.0849 = $ 999.34 $ 999.34 155 × $9.0849 = $1,408.16 $1,408.16 $9.0849
(110 @ $15)
$4,954.34
2. An examination of the ending inventory amounts recorded under each method reveals that FIFO will result in the highest
amount of assets (ending inventory) reported on the balance sheet and the lowest amount reported as cost of goods sold
on the income statement. LIFO produces the highest amount of cost of goods sold on the income statement and, therefore,
the lowest net income and taxes paid. LIFO also produces the lowest amount reported as ending inventory on the balance
sheet. The average cost method falls in between the other two for both ending inventory calculations and cost of goods sold.
6-113

Journal
May 10 Inventory 1,980.00
Cash 1,980.00
25 Cash 2,700.00
a
Sales Revenue 2,700.00
(Sold inventory)
Cost of Goods Sold 1,485.00

Inventory 1,485.00
June 5 Inventory 2,625.00

Cash 2,625.00
12 Cash 2,250.00
b
(Sold inventory)

Inventory 1,282.50
July 5 Cash 2,025.00

c
(Sold inventory)

Inventory 1,181.25
Aug. 8 Inventory 1,757.50

Cash 1,757.50
a
180 units × $15 = $2,700
b
150 units × $15 = $2,250
c
135 units × $15 = $2,025
6-114

Journal
Aug. 20 Cash 1,650.00
d
(Sold inventory)
Cost of Goods Sold 980.00

Inventory 980.00
d
110 units × $15 = $1,650
6-115
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130. Allgemeines Trocknen an der Sonne. (S. 328.)
Von links nach rechts: Aldat, Nias, Kutschuk, Mollah Schah, Turdu Bai und
Tscherdon.
131. Gletschermassiv im Südwesten vom Lager Nr. 27. (S. 329.)
Die Sonne hat aber auch ihre Schattenseiten. Kaum guckt sie
über den östlichen Wüstenrand, so füllt sich die Luft mit Millionen
Bremsen, die, Wolkensäulen vergleichbar, Pferde und Reiter
begleiten und umgeben. Man muß sich verteidigen, so gut man
kann, und die Pferde werfen und schlagen mit Kopf und Mähne.
Dunglik (die Hügel) ist eine kleine Oase auf dem Wege nach
den Bergen und liegt gerade da, wo die flachen Schuttkegel der
letzteren langsam anzusteigen beginnen. Von Abdall, das 838 Meter
über dem Meere liegt, waren wir 203 Meter gestiegen. Alle waren
müde von der durchwachten Nacht; ich selbst schlief unter der
ersten besten Tamariske ein und wachte erst wieder auf, als mir die
Sonne auf den Kopf brannte. Da siedelte ich in das Zelt über und
setzte mich dort, sehr leicht gekleidet, zum Arbeiten hin.
Am folgenden Morgen wurde ich um 3 Uhr geweckt, Lichter und
Laternen wurden angezündet und das aus Tee, Eiern und Brot
bestehende Frühstück gebracht. Das Gepäck wurde geordnet und
die Tiere beladen; es fing an, im Osten hell zu werden, und als wir
um 4½ Uhr aufbrachen, wobei wir Wasservorrat für uns selbst und
die Hunde mitnahmen, war es schon ganz hell, und geschäftig
gingen die Bremsen an ihr Tagewerk. Ich schlug ein paar Hundert
tot, die sich auf der nackten Haut der Kamele festgesogen hatten.
Sie summten in Schwärmen um uns und folgten uns ein paar
Kilometer weit, wie vor Wut erglühend, als die aufgehende Sonne
durch ihre mit Blut gefüllten Leiber schien. Es knallt, wenn die
Peitschenschnur den aufgeschwollenen Sauger trifft und er platzt.
Doch bald wagten sie sich nicht weiter vom Vegetationsgebiete zu
entfernen, und wir waren sie für den Rest des Tages los.
Wir kamen jetzt auf den offenen, wüsten, kiesigen und
unfruchtbaren Sai hinaus, der langsam nach dem Gebirge ansteigt;
hier gibt es keinen Grashalm, kein Insekt, keine Spur von Leben, nur
auf asphalthartem Boden dünn verstreuten Kies und Sand.
In launenhaft wechselnden Abständen sind kleine
Steinpyramiden errichtet, deren einzige Aufgabe es ist, als
Richtschnur beim Sturme zu dienen. Die Asiaten finden, daß sie
ihren Wegen und Stegen einen gewissen Dankbarkeitstribut schuldig
sind, der den Pyramiden in Gestalt eines Zuschusses von einem
oder mehreren Steinen gebracht wird. Ohne Weg würden sie nicht
nach Quellen und Weiden hinfinden, und besonders denkt der
glücklich einem Sturme entronnene Wanderer an die, welche ihm
unter schwierigen Verhältnissen folgen, und liefert daher gern seinen
Beitrag dazu, die Wegweiser noch deutlicher zu machen.
Mittlerweile begann die Tageshitze mit heißen Dämpfen und
Luftbewegungen anzurücken. Ich wußte, daß der Weg nach der
ersten Quelle Tattlik-bulak weit war, denn dieser Schuttkegel am
Nordfuße des Kwen-lun war an allen Punkten, wo ich ihn früher
überschritten hatte, unendlich breit gewesen. Doch wenn ich gehofft
hatte, ziemlich bald ins Gebirge hineinzukommen, so wurde diese
Illusion vernichtet, als wir zwei mächtige Steinhaufen, zwischen
denen der Weg hindurchführte, passierten und damit nach Tokta
Ahuns wenig erfreulicher Erklärung gerade die Hälfte des Weges
zurückgelegt hatten. Wir ritten schon sieben Stunden in
ununterbrochenem Karawanentempo.
Die kleinen, fünf Monate alten Hunde waren schon zu Anfang
des Marsches müde und in einem Korbe auf ein Kamel gesetzt
worden, wo es ihnen sehr gut ging. Als die Sonne zu stechen
begann, wurden sie mit einer Filzdecke zugedeckt, und wir hörten
nichts weiter von ihnen, bis wir an unserem Bestimmungsorte
anlangten, wo sie munter und gesund, nur etwas steifbeinig, aus
ihrem Verstecke hervorkamen und die Gegend in Augenschein
nahmen.
Maschka und Jolldasch waren empfindlicher gegen die Hitze und
schienen vor Müdigkeit erschöpft zu sein, als wir die zweite Hälfte
des Tagemarsches antraten. Obgleich sie ein paarmal Wasser
bekamen, blieben sie doch zurück und mußten geholt werden.
Schließlich wurden sie gebunden auf ein Kamel gelegt. Aber diese
Art zu reisen war nicht nach ihrem Geschmack; sie wälzten sich
herunter, sobald das Kamel sich in seinen wiegenden Gang setzte.
Dann blieben sie wieder zurück, und Schagdur ritt mit der
Wasserkanne zurück. Nach ziemlich langer Zeit sahen wir ihn mit
Jolldasch zurückkehren; er war sehr niedergeschlagen und meldete,
daß Maschka gestorben sei. Beide Hunde hatten sich an einer
schattigen Terrasse in einem Hohlwege halb eingegraben. Maschka
hatte alles Wasser, das in der kupfernen Kanne war, bekommen und
es gierig verschlungen. Dann hatte Schagdur Jolldasch an der Leine
geführt und Maschka vor sich auf den Sattel genommen; er war aber
noch nicht weit mit ihnen gekommen, als der Hund aufgeregt wurde,
das Pferd in den Hals biß und den Kopf fallen ließ. Die letzten
Wassertropfen nützten nichts; der beste und klügste aller unserer
Hunde war und blieb tot und mußte am Wegrande zurückgelassen
werden.
Jetzt war das Wasser zu Ende, und ich fürchtete das Schlimmste
für Jolldasch. Nach mehrfachem Fortlaufen band ich ihn selbst auf
einer Kamellast fest, wo er halb tot und seekrank geschaukelt wurde.
Im übrigen hielten sowohl Menschen wie Tiere sich gut. Es war
aber auch einer großen Anstrengung wert, dem stickigen Sommer
drunten zu entfliehen. Des Reitens müde ging ich mehrere Stunden
zu Fuß. Die Landschaft bleibt sich gleich; die Steigung ist
unmerklich. Gegen Abend wurde das Terrain kupiert, und wir
gelangten zwischen niedrige Hügel von Rollsteinkies, Sand und
Lehm. Später tritt anstehendes Gestein auf, außerordentlich
verwitterter und brüchiger hellgrüner Schiefer und Granit. Wir folgen
einem ausgeprägten Trockentale aufwärts, das Seitentäler aufnimmt,
und die Landschaft wird immer kräftiger ausgemeißelt von
Regenbächen, die jetzt keinen Tropfen Wasser mehr enthalten.
Von dem oberen Teile einer schmalen, abfallenden Talfurche
öffnet sich die Perspektive über die Oase, den Bach und die
Herberge H u n g - l u g u , ein doppelt angenehmer Anblick nach einem
solchen Tage. Sobald wir dort angekommen waren, wurden die
Hunde nach dem Bache gebracht, und es folgte ein Trinken, das gar
kein Ende nehmen wollte. Sie liefen in das frisch sprudelnde,
schwach salzhaltige Wasser, das sie mit großer Begierde „löffelten“,
wobei ihre Augen vor Freude strahlten. Manchmal ging es zu
schnell, und das Wasser kam in die unrechte Kehle; dann husteten
und räusperten sie sich, um sofort weiterzuschlürfen. Darauf legten
sie sich der Länge nach ins Wasser, wälzten sich in dem am Ufer
wachsenden Grase, bellten vor Freude und tranken von neuem.
Die Vegetation ist in diesem herrlichen Tale üppig und besteht
hauptsächlich aus prächtigen, zu wirklichen Bäumen entwickelten
Tamarisken, im übrigen aus Gras, Kamisch und allerlei Kräutern; in
einer Erweiterung des Tales steht sogar eine Gruppe alter knorriger
Pappeln. Wir zogen talaufwärts weiter. In einem herrlichen
Tamariskenhaine fanden wir die Pferdekarawane, die den ganzen
Tag bedeutenden Vorsprung gehabt hatte, und eine kleine Karawane
von sieben Eseln und sieben Schafen, die Numet Bek einen Tag
vorher von Abdall geschickt hatte, um uns mit Proviant zu
unterstützen.
Nichts kann herrlicher sein, als nach 14½stündigem,
angestrengtem Marsche durch eine Wüste von 70 Kilometer Breite
eine solche Oase zu erreichen. Hier wurde auch in der Dämmerung
eines der gemütlichsten Lager, die ich je gehabt habe,
aufgeschlagen. Meine Jurte wurde zum ersten Male am Außenrande
des Tamariskenwaldes aufgerichtet und war mit Bett, Teppich und
Kisten so nett, sauber und einladend, daß ich die Fähre und ihre
behagliche Kajüte nicht länger vermißte. Schagdur, Turdu Bai und
Mollah Schah pflanzten ihr weißes Zelt unter den Tamarisken auf,
die anderen kampierten in einem Dickicht, das einer Laube glich. Um
9 Uhr zeigte das Thermometer +20 Grad und im Wasser +12,8 Grad,
so daß mir die gewöhnliche Abenddusche nach all der Hitze ziemlich
kalt vorkam. Schon hier befanden wir uns in einer Höhe von 1953
Meter, 1115 Meter über Abdall.
Alle waren entzückt über den Tagesbefehl für den 3. Juli, der auf
Ausruhen an der Ta t t l i k - b u l a k (süßen Quelle) lautete. Über die
Hitze brauchten wir uns nicht länger zu beklagen; die Sonne stach
mittags allerdings, aber es wehte aus Südwest, nicht gleichmäßig
und ununterbrochen wie in der Ebene, sondern stoßweise,
manchmal so heftig, daß die Jurte umzufallen drohte, manchmal
hörte der Wind auf und machte der Windstille Platz. An der linken
Talseite steht ein kleiner senkrechter Wall von Rollsteinen, und aus
dieser Wand sprudelt mit einer Temperatur von +10 Grad die
kristallklare süße Quelle hervor. Auf dem Walle oberhalb erhebt sich
eine Steinpyramide mit ein paar Stangen. Auf einer derselben las
ich: P. Splingaert 1894 und C. E. Bonin 1899.
Die Vegetation ist reich, obwohl sie nur in wenigen Arten auftritt.
Von Tieren kommen nur einige kleine Vögel, Ameisen, Spinnen,
Fliegen, Zecken und Käfer vor. Ein paar Bremsen hatten sich hierher
verirrt; sie waren vielleicht von unseren eigenen Kamelen
mitgebracht. Wir genossen unser Glück in vollen Zügen, und alles
wäre gut gewesen, wenn wir nicht Maschka, den Liebling aller,
verloren gehabt hätten. Beim Aufbruch von diesem herrlichen
Ruheplatze wurden einige Veränderungen mit dem Gepäck
vorgenommen. Die Jolle wurde in eine Filzdecke genäht, um vor
dem Scheuern geschützt zu sein, und die Jurte wurde auf die Pferde
geladen, die immer zuerst nach dem Lagerplatz gelangten. Von nun
an sollte ich schon bei der Ankunft mein Haus fertig finden.
Der Weg führt zwischen Felsen von schwarzem Schiefer in dem
Tale des Baches von Tattlik-bulak aufwärts. Die Tamarisken stehen
gerade in Blüte, und ihre prachtvollen Blütentrauben mit ihrer reinen
violetten Farbe erheitern sozusagen die sonst eintönige, braungraue
Berglandschaft (Abb. 114). Unaufhörlich kreuzen wir den kleinen
Bach, dessen frisches Wasser in unmittelbarer Nähe zu haben uns
sehr angenehm war, da der Tag heiß wurde. Im Winter ist dieses
ganze Tal mit Eis bedeckt. Der Bach friert nach und nach zu, und
diejenigen, welche dann hier durchkommen, müssen auf dem Eise
gehen. Man vermeidet dann diesen Weg, weil die Tiere sich leicht
die Beine brechen können. Hier lag noch ein totes Kamel von einer
mongolischen Pilgerkarawane, die diesen Weg im Winter gemacht
hatte; es war auf dem Eise ausgeglitten und hatte ein Bein
gebrochen. Gleich hinter Tattlik-bulak steht eine kleine Gruppe von
Pappeln, und zwischen ihren Ästen lagen Stangen, die eine Art
Bahre bildeten. Hier sollen früher Kameljäger ihr erlegtes Wild auf
die Bäume gelegt haben, um es vor Hunden und wilden Tieren zu
schützen. Jetzt kommen selten wilde Kamele in diese Gegend.
Als wir am Abend auf der kleinen Weide von B a s c h - k u r g a n
ankamen, war mein tragbares Hotel schon fertig und möbliert, ganz
wie ein Wirtshaus an der Landstraße (Abb. 116). Doch darf ich dort
nicht eintreten, um mich ausschließlich der recht notwendigen Ruhe
hinzugeben. Nein, erst werden Thermo- und Barograph ausgepackt,
dann die heute unterwegs gesammelten Gesteinproben etikettiert
und eingepackt, darauf die Kartenblätter gezeichnet und zuletzt die
Aufzeichnungen und Beobachtungen eingetragen. Um diese Zeit ist
das Mittagessen fertig; ihm folgen um 9 Uhr die gewöhnliche
meteorologische Ablesungsreihe und das Ablesen des Hypsometers;
wenn dann auch noch die Chronometer aufgezogen und verglichen
sind, gehe ich ins Freie, um eine Weile mit den Hunden zu spielen
und sie zu füttern. Vor 11 Uhr ist die Tagesarbeit selten zu Ende;
dann lese ich noch eine halbe Stunde im Bett, bevor ich in der
frischen, gesunden Gebirgsluft fest einschlafe.
Um die Höhen nicht zu schnell zu nehmen, hatten wir
beschlossen, während des Rittes nach dem Hauptquartier oft
Rasttage einzuschieben; so wurde auch Basch-kurgan ein Tag
geopfert. Hier treffen drei Täler zusammen, die in das lange Tal von
Tattlik-bulak übergehen. Der Name „Festung des Talkopfes“ schreibt
sich von der Ruine eines auf einem isolierten Hügel thronenden
kleinen chinesischen Forts her. Schagdur und Mollah, mein Sekretär
von Abdall, machten einen weiten Ausflug nach Osten, auf welchem
ersterer nach einiger Unterweisung im Gebrauch von Kompaß und
Uhr eine rohe Kartenskizze von dem Lande zu machen beauftragt
war. Es war das erstemal, daß er eine solche Aufgabe löste, und
wenn die Karte auch nur als Kroki verwendbar war, gab sie mir doch
einen guten Begriff vom Verlauf der Bergketten und Täler in jener
Richtung. Schagdur vervollkommnete sich später zu einem
bedeutenden Grade von Sicherheit in der Auffassung des Terrains.
Bei Basch-kurgan kreuzten wir die untere Kette des Astin-tag,
welche das Tal von Tattlik-bulak durchbricht; ein Paßübergang ist
daher unnötig. Der nächste Tagemarsch führt uns weiter aufwärts
nach dem Hauptkamme desselben Bergsystems. Dorthin gelangten
wir jedoch nicht in einem Tag, sondern wir lagerten unterwegs schon
in B a s c h - j o l l , einem kleinen Weideplatz mit einer herrlichen Quelle
(+5,8 Grad) und den Ruinen einer chinesischen Festung.
Am 8. Juli hatten wir einen langen Wüstenweg vor uns und
nahmen Wasser mit. Um 6½ Uhr brachen wir auf und zogen immer
höher nach dem Kamme des Astin-tag hinauf. Auf beiden Seiten
erheben sich steile, wilde, zackige Felsenmassen. Der Hohlweg
erweitert sich und führt nach einem bequemen, hügeligen Passe
hinauf, der merkwürdigerweise keinen anderen Namen als „Dawan“,
der Paß, hat. Der bisher nach Osten führende Weg bog jetzt nach
Süden ab. Doch auch ostwärts erstreckt sich zwischen felsigen
Bergen ein Tal, in welchem zwei wilde Kamele davonflüchteten. Dies
ist im innersten Asien das dritte Gebiet, wo ich wilde Kamele
getroffen habe, und ich bin, nach den Beobachtungen, die später
gemacht wurden, in der Lage, eine Karte ihrer Verbreitung zu geben.
Auf dem Passe sprühregnete es leicht; als wir aber
hinuntergingen und das breite, flache Längental, das den Astin-tag
vom Akato-tag trennt, überschritten, begann es tüchtig zu regnen,
und der Donner rollte über den Bergen. Das Land ist eine Wüstenei;
man sieht keine Spur von Leben. Wir waren über 13 Stunden
geritten, als wir endlich die namenlose Steppe erreichten, wo die
Karawane Halt gemacht hatte und die Tamariskenbüsche Feuerung
gaben, wo aber weder Wasser noch Weide zu finden war.
Am Morgen des 9. Juli war der Himmel völlig klar und die
Temperatur auf +0,7 Grad heruntergegangen. Die jetzt herrschende
Marschordnung war folgende: voran gingen die Esel und die noch
übrigen Schlachtschafe. Ihnen folgten Mollah Schah und Kutschuk
mit den Pferden, und da sie schneller ritten als alle anderen, waren
sie stets die ersten an den Lagerplätzen. Dann kamen Turdu Bai und
Mollah mit den Kamelen und zuletzt ich mit Schagdur und Tokta
Ahun. Letzterer war mein Cicerone, da er die Gegend sehr gut
kannte. Schagdur hielt mein Pferd, wenn ich Berggipfel anpeilte oder
Gesteinproben abschlug, deren Einpacken in Zeitungspapier seine
Sache war. Infolge all des dadurch verursachten Aufenthalts langten
wir stets ein, zwei Stunden später im Lager an als die anderen.
Im Südwesten leuchten die Firnfelder eines prachtvollen
Bergmassivs, I l l w e - t s c h i m e n genannt; an der uns zugekehrten
Seite desselben liegen zwei kleine Salzseen, der U s u n - s c h o r und
der K a l l a - k ö l l .
Während der kurzen Rast an einem Quellbecken am Fuße des
Akato-tag veränderte sich plötzlich das Wetter; der Himmel überzog
sich, und es gab einen Platzregen; wir waren augenscheinlich schon
mitten im Klima Tibets, wo Sonnenschein, Wind und Regen
miteinander in wenigen Minuten abwechseln.
Von der Quelle gehen wir durch eine trockene Rinne nach
Südwesten. Hier erhob sich ein heftiger Südweststurm, der keinen
Regen brachte, aber Staub und Sand aufwirbelte und uns so das
Gesicht peitschte, daß die Haut schmerzte. Er kam wie eine
kompakte gelbgraue Wand von lauter Wirbeln angezogen und hüllte
uns in einen Nebel ein, der die Landschaft auf allen Seiten
verschwinden ließ. Nichts als der Weg ist sichtbar; man schwankt im
Sattel und kann nur mit Mühe seine Aufzeichnungen machen, wobei
die Marschroutenblätter beinahe zerrissen werden. Nach zwei
Stunden endete der Orkan ebenso plötzlich, wie er losgebrochen
war. Wir waren sozusagen durch einen Fluß von Wirbelwind
gewatet. Im Gegensatz zu den Stürmen des Tieflandes klärte sich
die Luft sofort auf und wurde wieder ebenso rein und durchsichtig
wie vorher. Daß der Flugsand von diesen heftigen Bergwinden
wirklich weitergetragen wird, sahen wir sofort; auf dem leichten
Doppelpasse des Akato lagen kleine Dünen angehäuft, die
südwestliche Winde dorthin geführt hatten.
Auf dem Südabhange, den wir südostwärts kreuzten, wiederholte
sich dasselbe orographische Relief, das wir beim Astin-tag gesehen
hatten. Der Sai, der harte Schuttkegel, fällt langsam nach einem
neuen Riesentale ab, das sich von Westen nach Osten zieht und im
Süden von einer neuen Bergkette, dem Tschimen-tag, begrenzt wird.
Der Sai geht in Kakir, horizontalen, im Wasser nach Regen
abgelagerten Tonschlamm, über. Hier lagen die Gerippe der beiden
Pferde, die von Tscherdons und Faisullahs Karawane gestorben
waren. Endlich hob sich vom Ufer eines kleinen Sees, der nur den
Namen „K ö l l “ führt, einen halben Kilometer Durchmesser hat und
von Rasen umgeben ist, die Jurte ab.
Seltsamerweise traten jetzt wieder Mücken und Bremsen auf,
und namentlich die ersteren plagten uns sehr, bis wir das
Hauptquartier in Tschimen-tag verlassen hatten. Sobald man einen
Augenblick stillsteht, wird man von ihnen umschwärmt; Pferde und
Hunde werden ebenso heftig angegriffen, aber die Haut der Kamele
ist für ihre feinen Folterwerkzeuge zu dick. Hier in den Bergen leben
und regieren die Mücken jeden Sommer 2½ Monate. Man wundert
sich, daß ihre Larven die hier im Winter herrschende strenge Kälte
überdauern können.
Am 10. Juli zogen wir schräg über das Tal nach Südosten und
kreuzten dabei verschiedene Rinnen, bis wir an die Schlucht Temirlik
kamen, wo wir an einigen von frischer Weide umgebenen Quellen
rasteten.
Es war eine wahre Feuerprobe, am folgenden Morgen mitten im
ärgsten Mückentanze die astronomischen Beobachtungsreihen
auszuführen; die Mücken nahmen immer die Gelegenheit wahr,
wenn ich an den Schrauben drehte und mich nicht verteidigen
konnte.
(2961 Meter über dem Meere) sollte später während
Te m i r l i k
der Reise ein wichtiger Punkt werden. Auch jetzt stellten sich
mehrere Gäste in unserem Lager ein. Gleichzeitig mit uns kamen
vier Goldgräber aus den Gruben von Bokalik an; sie hatten sich ein
paar Monate im Gebirge aufgehalten, aber nicht so viel Gold
gefunden, daß es der Rede wert war, und kehrten daher mißmutig
nach Chotan zurück. Während des Ruhetages stieß die in
Tscharchlik bestellte Maiskarawane mit ihren fünf Führern und einem
artigen Briefe des Ambans, den ich S. 284 mitgeteilt habe, zu uns.
Schließlich kamen auch Boten aus dem Hauptquartier, wohin wir
noch zwei Tagereisen hatten, mit der Nachricht, daß dort alles gut
stehe.
Der eine war Chodai Värdi, „der von Gott Gegebene“, wie der
Name besagt, tatsächlich aber ein unangenehmer Kerl aus Jangi-
köll, der mir später einmal beinahe einen verhängnisvollen Streich
gespielt hätte. Der andere hieß Aldat und war afghanischen
Stammes, wohnte aber in Tschertschen. Er hatte in den Bergen
überwintert, um Yake zu schießen, deren Haut er an Kaufleute aus
Kerija verhandelte. Er war ein prächtiger, hübscher junger Mann, der
jährlich als Nimrod in diesem wilden Gebirge umherstreifte. Er
wandert im Herbste hierher und nimmt großen Munitionsvorrat mit.
Die Flinte und der Pelz sind das einzige, was er sonst noch zu
tragen hat, und dann streift er den ganzen Winter wie ein halbwilder
Bergbewohner ohne Zelt und Proviant umher und lebt von dem
Fleisch der Yake, die er schießt, und stillt seinen Durst aus den
Quellen, die der ewige Schnee speist. Im Sommer kommen dann
seine Brüder mit Eseln, um die Yakfelle von seinen verschiedenen
Stapelplätzen abzuholen; sie schneiden die brauchbaren Stücke aus
und bringen sie nach Tschertschen. Islam hatte ihn engagiert, weil er
alle Gebirgsgegenden bis an den Fuß des Arka-tag genau kannte;
weiter südlich war Aldat aber nie gewesen.
Aldat war ein seltsamer, aber sympathischer Mensch, hatte eine
Adlernase und einen Vollbart, sowie den harmonisch geformten
Schädel der arischen Rasse, ein Typus, dessen edle Züge durch
keinen Tropfen mongolischen Blutes verdorben waren. Das
einsame, düstere, an Entbehrungen reiche, aber dennoch fesselnde
Leben, das er auf den Bergketten und in den engen Tälern des
Kwen-lun zu führen gewohnt war, spiegelte sich wider in seinem
wehmütigen Blicke, der zu grübeln und zu fragen schien. Er war
noch nicht lange bei uns, als er sich auch schon gut zurechtfand. Er
redete nie unnötigerweise, antwortete kurz und klar auf Fragen und
ging, die Flinte auf der Schulter, beinahe stets für sich allein. Sein
Gang war königlich; er schien über den Boden hinzuschweben,
wurde nie müde und verspürte nichts von dem ermattenden
Einflusse der Luftverdünnung.
Ich fand großen Gefallen an Aldat und schlug ihm vor, sich an
unserer ersten Tibetexpedition zu beteiligen, was er ohne Zögern
annahm. Das Leben, das er führte, erschien mir ebenso unerklärlich
wie verlockend. Ich fragte ihn, was er anfange, wenn die Jagd
fehlschlage und er nichts zu essen habe. „Dann hungere ich,“
antwortete er, „bis ich wieder einen Yak finde.“ Wo er schlafe? In
Klüften und Schluchten, manchmal auch in Höhlen. Ob er sich vor
Wölfen fürchte? Nein, er habe Zunder, Stahl und Stein und zünde
allabendlich ein kleines Feuer an, an dem er sein Yakfleisch brate;
überdies vertraue er auf seine Flinte. Sich verirren? Nein, das könne
er nicht; er kenne alle Pässe und habe die Täler unzählige Male
durchstreift. Und das beständige Alleinsein falle ihm durchaus nicht
schwer; er habe keine anderen Freunde, die ihm fehlen könnten, als
seinen alten Vater und seine Brüder.
132. Aussicht nach Süden vom Lager Nr. 28 aus. (S. 330.)
133. Bugsierung eines Kamels über den Fluß. (S. 339.)

134. Fester Boden unter den Füßen. (S. 339.)
135. Ein glücklich über den Fluß gebrachtes Kamel. (S. 339.)
Ein unruhig umherirrender Geist in Menschengestalt! Ich kann

mir kaum ein Land denken, in dem das Alleinsein unheimlicher ist
als Tibet; die Wüste wäre nicht schlimmer. Bei Tag geht es noch an,
aber nachts, wenn die Kälte die Haut schmerzen macht und die
dunkeln Bergketten sich unheimlich drohend im Mondschein
erheben! Armer Aldat, wie manches Mal war er müde und matt nach
fehlgeschlagenen Hoffnungen an die einsame Quelle gekommen,
wo nur die Antilopen zu trinken pflegten, und hatte sich, in seinen
Pelz gehüllt, am Rande ihres Bettes hingelegt und dort den
langsamen Gang der Stunden der Nacht abgewartet. Und wenn die
Sonne, seine einzige Freundin in der Wildnis, endlich aufging,
geschah es nur, um ihn zu ermahnen, die Jagd nach wilden Yaken
ohne Rast und Ruh wie ein Spürhund fortzusetzen. Sein Leben war
in Wahrheit gefährlich, arm und groß, und, als er schon lange tot
war, konnte ich nicht verstehen, wie er es ausgehalten hatte; noch
heute ist er mir ein Rätsel. Ich hatte alles, dessen ich bedurfte,
Diener, eine Leibwache von Kosaken, Wächter und Hunde, aber
dennoch war mir, wenn der Schneesturm klagend um die Jurte
sauste und die Wölfe in den Bergen heulten, oft ganz wunderlich
zumute.
Die Leute, die mich auf dieser Reise nach dem Hauptquartier im
nördlichen Tibet begleiteten, sollten sich alle auf die eine oder
andere Weise auszeichnen. Turdu Bai war, wie schon erwähnt, der
beste Muselmann, den ich in meinem Dienste gehabt habe, und
wenn er zugegen war, war ich stets der Kamele wegen beruhigt.
Schagdur war über jedes Lob erhaben, und ich kann nicht Worte
genug finden, um die Dienste, die er mir leistete, zu würdigen. Er
lernte alles, vergaß nichts und brauchte nie erinnert zu werden, und
ich hatte ihn stets gern in meiner Gesellschaft. Es war ein gewisses
Etwas an ihm, das ihn so sympathisch machte. Ich bewunderte
hauptsächlich seinen wilden, verwegenen Mut in Gefahren und die
Ruhe, mit der er schwere Aufgaben übernahm. Zweimal hatte er
später Gelegenheit zu zeigen, wie gern er sein Leben für mich
hingegeben hätte. Es war ein ebenso erhebendes wie wohltuendes
Gefühl, sich von solcher Treue in der blindesten, uneigennützigsten
Gestalt, die ich je kennen gelernt, umgeben zu wissen; daher hielt
ich sehr viel von diesem jungen burjatischen Kosaken, der in seiner
Heimat vor den Götzen des Lamaismus gekniet hatte, ihnen jetzt
aber verächtlich den Rücken kehrte. Es war nicht mein Verdienst,
daß dies geschah, denn ich fühlte mich nicht berufen, den Glauben
der Asiaten zu erschüttern, wohl aber gab das Leben in meiner
Karawane sowohl Schagdur wie den anderen mancherlei zu denken,
wovon sie früher nie geträumt hatten.
Tokta Ahun aus Abdall war ein durchaus ehrlicher Naturmensch,
ein verständiger Kerl, der mir von großem Nutzen war. Ich habe
vorher erwähnt, daß er sowohl die Pferde wie die Kamele nach
Temirlik begleitete und jetzt mit uns zum dritten Male in zwei
Monaten die Reise nach dem Hauptquartier hinauf machte, das
kürzlich der Mücken halber von dieser Quelle nach M a n d a r l i k
(3437 Meter) verlegt worden war. Da er bei einer späteren
Expedition eine hervorragende Rolle spielen wird, sage ich jetzt
nichts weiter über ihn.
Auch mit Kutschuk wird der Leser bald genauere Bekanntschaft
machen; er war ein prächtiger, außergewöhnlich tüchtiger Mensch.
Auch Mollah Schah war mit in Nordtibet.
Bleibt also nur noch Mollah, der „Herr Doktor“, eine klassische
Erscheinung von fünfzig Lenzen, ein kleines, dürres, verhutzeltes
Männchen, ohne ein Härchen auf Kinn und Lippen, weshalb wir ihn
manchmal scherzend fragten, ob er nicht eigentlich ein verkleidetes
Weib oder im besten Falle ein Mongole sei, welche Reden für die
Gläubigen des Propheten gerade nicht schmeichelhaft sind. Er
redete mit einer Stimme, die scharf wie ein Pfriemen war, und
schwatzte immer, sogar abends, wenn keiner zuhörte. Doch er war
sehr lustig, wußte gut Bescheid und war bei allen beliebt. Auch
Mollah Schah werde ich noch genauer vorstellen, denn er begleitete
mich auf der zweiten Expedition nach dem Lop-nor.
Der Abend wurde durch ein rasendes Gewitter aus Westen
verherrlicht, und die Windstöße drückten beinahe die Jurte nieder,
die auf allen Seiten verankert werden mußte. Ein strömender Regen
durchweichte unsere Wohnungen und machte den Boden schlüpfrig,
und die Leute, die den Mais gebracht hatten, kauerten sich unter den
Filzstücken und Sackleinwandstreifen, die sie zur Hand hatten, wie
Murmeltiere zusammen. Die jungen Hunde bellten wütend bei den
Donnerschlägen, die sie jetzt zum ersten Male hörten und wohl für
irgendeinen unerlaubten Spektakel in den Bergen hielten. Doch da
es fortfuhr zu donnern, beruhigten sie sich allmählich und knurrten
nur noch leise. Schließlich schienen sie dahinterzukommen, daß der
Donner zum Stück gehöre und sich durch Hundegebell nicht
erschrecken lasse.
Am 12. Juli gingen wir nach Osten über das Tal U s u n - j a r . Hinter
der trockenen Schlucht B a s c h - b a l g u n verlassen wir den
Vegetationsgürtel und reiten auf hartem, unfruchtbarem Kiesboden
weiter; links aber sehen wir noch immer den hellen Grasgürtel, der
sich bis an den Geröllfuß des Akato erstreckt, von wo aus die
Karawane von ein paar Kulan- oder wilden Eselherden neugierig
betrachtet wird.
Östlich von der Quelle K u m u t l u k sieht man im Nordosten die
bedeutende Wasserfläche des G a s - n o r einen großen Teil des
Talgrundes einnehmen. Die Ufer sind von so heimtückischen
Sümpfen umgeben, daß man nur an einem einzigen Punkte an den
See gelangen kann. Sie glänzen hier und dort kreideweiß wie von
Schnee, und das Wasser ist scharf salzig. Im Westen des Gas-nor
liegt eine kleine Süßwasserlagune, Ajik-köll genannt, weil sich dort
Bären von den Früchten der Sträucher ernähren sollen.
Bei Ts c h i g g e l i k (Binsenstelle, 2977 Meter) oder Dundu-namuk
(mittelste Quelle), wie die Mongolen den Platz nennen, wachsen
„Boghana“-Sträucher, Kamisch und Binsen; hier war die Luft
buchstäblich voll von Mücken und Moskitos, die uns ärger peinigten
als je am Tarim und ein Jucken wie von einem Ekzem hervorriefen.
Jetzt hatten wir nur noch eine Tagereise vor uns. Wir ritten gegen
Süden das Tal von Mandarlik hinauf, das sich zwischen 8 Meter
hohen Geröllterrassen scharf markiert und höher oben von einem
kristallhellen Bach durchrauscht wird. Wir treten in dieses Quertal
auf dem Nordabhange des Tschimen-tag ein; die äußersten
Felsausläufer lassen wir hinter uns zurück, die Granitmassen mit
ihren wilden, bizarren Vorsprüngen rücken einander immer näher.
Wendet man sich im Sattel um, so sieht man wie durch ein breites
Tor den Gas-nor und dahinter in der Ferne den Kamm des Akato-
tag. Das breite Tschimental läuft im Osten in das Zaidambecken aus.
In einer Erweiterung des Mandarliktales weiden unsere Pferde,
Maulesel und Kamele. Tscherdon, Islam, Faisullah und die anderen
kommen uns zu Fuß entgegen, und bald darauf sind wir wieder
daheim in einem großen, gut ausgestatteten Hauptquartier (Abb.
117, 118, 119).
Siebenundzwanzigstes Kapitel.
Über den Tschimen-tag, Ara-tag
und Kalta-alagan nach dem oberen
Kum-köll.
V or dem Aufbruch zur ersten tibetischen Expedition gönnten wir

uns im Hauptquartier im Tale von Mandarlik eine Woche Ruhe.
Es war eine weidereiche, schöne, herrliche Gegend, die zwischen
mächtigen Granitfelsen eingeschlossen war. Auf einer Terrasse am
linken Ufer des munter rauschenden Flusses dieses Tales erhob sich
unser wanderndes Dorf. Die Kosaken und der Schneider Ali Ahun,
der beständig vollauf zu tun hatte, residierten in der großen
mongolischen Jurte, hinter welcher Schagdur aus mitgebrachten
Brettern eine Einfriedigung zimmerte, um das meteorologische
Häuschen vor etwaigen Besuchen der Kamele zu schützen. Die
Muselmänner wohnten teils in zwei geräumigen Zelten, teils in den
schützenden Verschanzungen, die dadurch entstanden, daß die
Kamellasten und die Maissäcke in Kreisen und Reihen aufgestapelt
wurden. Ich selbst hauste in der kleinen Jurte, vor welcher alle
meine Kisten standen, die zum Schutze gegen die oft genug
fallenden Regenschauer mit einer weißen Decke zugedeckt waren.
Die Aussicht talaufwärts war großartig; im Hintergrund erhob sich
der Hauptkamm des Tschimen-tag mit seinen bei klarem Wetter
blendenden Schneefeldern (Abb. 120). Die Kamele, die jetzt fast
zwei Monate im Gebirge geweidet hatten und bald ins Feuer sollten,
waren rund wie Tonnen und glänzten vor Fett. Auch die anderen
Karawanentiere hatten es in jeder Beziehung gut. Von der
Schafherde waren noch 42 Stück da; die verlorenen Hunde wurden
durch drei zugelaufene ersetzt, welche halbwilde Deserteure von
den nächsten mongolischen Lagerplätzen in Tschurchak waren.
Nach diesem Orte machte Schagdur einen Ausflug und wurde
dort sehr freundlich aufgenommen. Die Mongolen versprachen uns
alles, was wir an Tieren brauchen würden, zu verkaufen, und hofften,
daß ich ihnen gelegentlich einen Besuch abstatten würde. Tscherdon
ritt eines Tages talaufwärts, stieß dort auf eine Herde von 50 Yaken
und erlegte eine prächtige fette Kuh. Ich beschäftigte mich mit
Beobachtungen und Exkursionen und bereitete die nächste Reise
vor. Proviant für sieben Mann auf 2½ Monate wurde beiseite gestellt.
Alle überflüssigen Gäste, die unser Lager bevölkerten, wurden
fortgeschickt.
Im Hauptquartier blieben Islam als Karawan-baschi, Faisullah als
Hüter der vier Kamele von Abdall, Chodai Kullu, Kader und Chodai
Värdi zur Besorgung der Pferde, Ali Ahun als Schneider und
Schagdur als Bedeckung und Meteorolog. Er sollte die ganze Zeit
über täglich dreimal ablesen und die selbstregistrierenden
Instrumente in Gang halten. Musa aus Osch sollte uns bis an den
Kum-köll mit sechs Pferden begleiten, die dazu bestimmt waren,
anfangs den anderen Tieren die Lasten zu erleichtern, und Tokta
Ahun sollte von dort mit ihm umkehren. Letzterer hatte gebeten, den
Sommer in Mian, wo er Weizen baute, zubringen zu dürfen, erhielt
aber Befehl, sich in 2½ Monaten wieder bei uns einzufinden und
dann ein halbes Dutzend Kamele mitzubringen.
Die Karawane war mit besonderer Sorgfalt ausgewählt und
folgendermaßen zusammengesetzt: Tscherdon als meine rechte
Hand, Zelterrichter, Kammerdiener und Koch, Turdu Bai als
Karawan-baschi für die sieben Kamele, Mollah Schah als solcher für
die elf Pferde und einen Maulesel, Kutschuk als Ruderer für die
geplanten Seefahrten. Nias aus Kerija, ein Goldgräber, den wir im
Gebirge getroffen hatten, sollte als Handlanger der höhergestellten
Muselmänner fungieren, und Aldat war so weit Wegweiser, als seine
Kenntnis der Gegend reichte. Jolldasch kam natürlich mit und

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Cornerstones of Managerial Accounting 6th Edition Mowen

3. The flow of inventory for a merchandiser is:

4. The components of cost of goods available for sale are:

The components of cost of goods sold are:

6-3. a $15,000 × (1 – 0.02)

6-5. a (2 units × $31,000) + (1 unit × $27,000)

6-7. d (1,500 units × $28) + (900 units × $25)

6-8. b Average cost of inventory after Sale #1 of $8,000 (300 units

* (1,200 units × $25) + (1,500 units × $28) = $72,000;

6-16. c (1,200 units × $25) + (1,200 units × $28)

6-17. a (1,200 units × $25) + (100 units × $28)

6-18. b 1,300 units × $27.5676; average cost is computed as total

2. Cost of goods sold:

8 Accounts Payable 800

10 Accounts Payable 2,300

1 Cost of Goods Sold 2,225

8 Sales Revenue 784

Date Description Cost of Goods Sold Inventory Balance

Date Description Cost of Goods Sold Inventory Balance

Product Cost Net Realizable Value LCM

8 Accounts Payable 800

10 Accounts Payable 2,300

Cost of Goods Sold Ending Inventory

Cost of Goods Sold Ending Inventory

Cost of Goods Sold Ending Inventory

2. Gross Margin = Sales – Cost of Goods Sold

8 Accounts Payable 500

10 Accounts Payable 3,000

30 Accounts Payable 1,500

1 Cost of Goods Sold 3,750

8 Sales Revenue 490

Description Cost of Goods Sold Inventory Balance

10 Purchase (30 @ $8) 20 × $5 = $100

20 Sales (40 @ $15) 20 × $5 = $100

25 Purchase (25 @ $10) 10 × $8 = $ 80

Description Cost of Goods Sold Inventory Balance

10 Purchase (30 @ $8) 20 × $5 = $100

20 Sales (40 @ $15) 30 × $8.00 = $240

25 Purchase (25 @ $10) 10 × $5 = $ 50

10 Purchase (30 @ $8) 20 × $5 = $100

20 Sales (40 @ $15) 40 × $6.80 = $272 40 × $6.80 = $272 $272 $6.80

25 Purchase (25 @ $10) 10 × $6.80 = $ 68

8 Accounts Payable 500

10 Accounts Payable 3,000

30 Accounts Payable 1,500

Cost of Goods Sold Ending Inventory

Cost of Goods Sold Ending Inventory

Cost of Goods Sold Ending Inventory

Ending inventory: $1,520 [$8 × (150 + 825 – 240 – 210 – 335)]

2. Gross margin: $4,680 [Sales Revenue – Cost of Goods Sold

3. Accounts Payable 275

4. Accounts Payable 6,600

5. Total cost of this purchase: $6,920 ($6,875 + $320 – $275)

9 Accounts Payable 25,150

25 Accounts Payable 28,200