OpenStax Principles of Accounting, Volume 1: Financial Accounting

Chapter 10: Inventory

Solution
A.
Cost of Goods Sold $156,000
÷ Average Inventory 16,000
= Inventory Turnover Ratio 9.8
B.
Average Inventory 16,000
÷ Average Daily Cost of Goods Sold 427.40
= Number of Days' Sales in Inventory Ratio 37.4

EB17. LO 10.5 Complete the missing pieces of Delgado Company's inventory calculations and
ratios.

Solution
Beginning inventory $25,000
Purchases 132,000
Goods available for sale 157,000
Ending inventory 27,000
Cost of goods sold 130,000
Turnover ratio 5
Days' sales in inventory 73

Problem Set A

PA1. LO 10.1 When prices are rising (inflation), which costing method would produce the
highest value for gross margin? Choose between first-in, first-out (FIFO); last-in, first-out
(LIFO); and weighted average (AVG).
Evansville Company had the following transactions for the month.

Calculate the gross margin for each of the following cost allocation methods, assuming A62 sold
just one unit of these goods for $10,000. Provide your calculations.
A. first-in, first-out (FIFO)
B. last-in, first-out (LIFO)

Page 20 of 40
OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 10: Inventory
C. weighted average (AVG)
Solution
A.
Sales revenue $10,000
– Cost of goods sold 6,000
= Gross margin 4,000
B.
Sales revenue 10,000
– Cost of goods sold 7,500
= Gross margin 2,500
C.
Sales revenue 10,000
– Cost of goods sold* 7,000
= Gross margin 3,000
*AVG calc [(2 × $6,000) + (3 × $7,000) + (4 × $7,500)]/9 = $7,000

PA2. LO 10.2 Trini Company had the following transactions for the month.

Calculate the ending inventory dollar value for each of the following cost allocation methods,
using periodic inventory updating. Provide your calculations.
A. first-in, first-out (FIFO)
B. last-in, first-out (LIFO)
C. weighted average (AVG)
Solution
A.
Number of Units Dollar per Unit Value
Ending inventory 900 $27.00 $24,300
B.
Number of Units Dollar per Unit Value
Ending inventory 900 22.00 19,800
C.
Number of Units Dollar per Unit Value
Ending inventory 900 24.67 22,203
Avg = [(1,050 × $22) + (1,020 × $23) + (1,300 × $26) + (1,200 × $27)]/4,570 = $24.67 per unit

PA3. LO 10.2 Trini Company had the following transactions for the month.

Page 21 of 40
OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 10: Inventory

Calculate the cost of goods sold dollar value for the period for each of the following cost
allocation methods, using periodic inventory updating. Provide your calculations.
A. first-in, first-out (FIFO)
B. last-in, first-out (LIFO)
C. weighted average (AVG)
Solution
A.
Number of Units Dollar per Unit Value
Ending inventory 900 $27.00 $24,300
= Cost of goods sold (GAFS – Ending inventory) 88,460
B.
Number of Units Dollar per Unit Value
Ending inventory 900 22.00 19,800
= Cost of goods sold (GAFS – Ending inventory) 92,960
C.
Number of Units Dollar per Unit Value
Ending inventory 900 24.67 22,203
Avg = [(1,050 × $22) + (1,020 × $23) + (1,300 × $26) + (1,200 × $27)]/4,570 = $24.67 per unit
= Cost of goods sold (GAFS – Ending inventory) 90,557

PA4. LO 10.3 Calculate the cost of goods sold dollar value for A74 Company for the sale on
March 11, considering the following transactions under three different cost allocation methods
and using perpetual inventory updating. Provide calculations for (a) first-in, first-out (FIFO); (b)
last-in, first-out (LIFO); and (c) weighted average (AVG).

Solution
A.
Number of Units Dollar per Unit Value
Cost of goods sold 95 $87 $8,265
B.
Number of Units Dollar per Unit Value
Cost of goods sold 95 89 8,455

C.

Page 22 of 40
OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 10: Inventory

Number of Units Dollar per Unit Value

Cost of goods sold 95 88.12 8,371
Avg = [(110 × $87) + (140 × $89)]/250 = $88.12 per unit

PA5. LO 10.3 Use the first-in, first-out (FIFO) cost allocation method, with perpetual inventory
updating, to calculate (a) sales revenue, (b) cost of goods sold, and c) gross margin for A75
Company, considering the following transactions.

Solution
Sales (88 × 75) $6,600
– COGS (88 × 40) 3,520
= Gross margin 3,080

PA6. LO 10.3 Use the last-in, first-out (LIFO) cost allocation method, with perpetual inventory
updating, to calculate (a) sales revenue, (b) cost of goods sold, and c) gross margin for A75
Company, considering the following transactions.

Solution
Sales (88 × 75) $6,600
– COGS (88 × 42) 3,696
= Gross margin 2,904

PA7. LO 10.3 Use the weighted-average (AVG) cost allocation method, with perpetual
inventory updating, to calculate (a) sales revenue, (b) cost of goods sold, and c) gross margin for
A75 Company, considering the following transactions.

Solution
LIFO
a) Sales (88 × 75) $6,600
b) – COGS (88 × 41.18) 3,624
c) = Gross margin 2,976
Avg = [(105 × $40) + (150 × $42)]/255 = $41.18 per unit

Page 23 of 40
OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 10: Inventory

PA8. LO 10.3 Prepare journal entries to record the following transactions, assuming perpetual
inventory updating and first-in, first-out (FIFO) cost allocation. Assume no beginning inventory.

Solution
Merchandise Inventory 3,465
Accounts Payable 3,465

Accounts Receivable 4,320

Sales Revenue 4,320
Cost of Merchandise Sold (120 @ 21) 2,520
Merchandise Inventory 2,520

Merchandise Inventory 6,075

Accounts Payable 6,075

Accounts Receivable 7,020

Sales Revenue 7,020
Cost of Merchandise Sold [(45 @ 21) + (135 @ 27)] 4,590
Merchandise Inventory 4,590

Merchandise Inventory 6,930

Accounts Payable 6,930

PA9. LO 10.3 Calculate a) cost of goods sold, b) ending inventory, and c) gross margin for A76
Company, considering the following transactions under three different cost allocation methods
and using perpetual inventory updating. Provide calculations for first-in, first-out (FIFO).

Solution
FIFO (perpetual) Inventory
Cost of Inventory
Cost of Goods Purchased Cost of Goods Sold Remaining

Page 24 of 40
OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 10: Inventory
Number Unit Total Number Unit Total Number Unit Total
of Units Cost Cost of Units Cost Cost of Units Cost Cost
Beginning 240 $100 $24,00

Sale 160 $100 $16,000 80 100 8,00

Purchase 520 $103 $53,560 80 100 8,00

520 103 53,56

Sale 80 100 8,000

320 103 32,960 200 103 20,60

Purchase 400 110 44,000 200 103 20,60

400 110 44,00

Sale 200 103 20,600

170 110 18,700 230 110 25,30

Total Purchases 97,560 Total COGS 96,260

Gross Margin, FIFO perpetual

Sales $132,480
– COGS 96,260
= Gross margin 36,220

PA10. LO 10.3 Calculate a) cost of goods sold, b) ending inventory, and c) gross margin for A76
Company, considering the following transactions under three different cost allocation methods
and using perpetual inventory updating. Provide calculations for last-in, first-out (LIFO).

Solution
LIFO (perpetual) Inventory
Cost of Goods Cost of Inventory
Purchased Cost of Goods Sold Remaining
Number Unit Total Number Unit Total Number Unit Total
of Units Cost Cost of Units Cost Cost of Units Cost Cost
Beginning 240 $100 $24,000

Sale 160 $100 $16,000 80 100 8,000

Page 25 of 40
OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 10: Inventory
Purchase 520 $103 $53,560 80 100 8,000
520 103 53,560

Sale 400 103 41,200 80 100 8,000

120 103 12,360

Purchase 400 110 44,000 80 100 8,000

120 103 12,360
400 110 44,000

Sale 370 110 40,700 80 100 8,000

120 103 12,360
30 110 3,300
Total Purchases $97,560 Total COGS $97,900

Gross Margin, LIFO Perpetual

Sales $132,480
– COGS 97,900
= Gross margin 34,580

PA11. LO 10.3 Calculate a) cost of goods sold, b) ending inventory, and c) gross margin for A76
Company, considering the following transactions under three different cost allocation methods
and using perpetual inventory updating. Provide calculations for weighted average (AVG).

Solution
AVG (perpetual) Inventory
Cost of Goods
Purchased Cost of Goods Sold Cost of Inventory Remaining
Number Unit Total Number Unit Total Number Unit Total
of Units Cost Cost of Units Cost Cost of Units Cost Cost
Beginning 240 $100.00 $24,000

Sale 160 $100.00 $16,000 80 100.00 8,000

Purchase 520 $103 $53,560 600 102.60 61,560

Sale 400 102.60 41,040 200 102.60 20,520

Purchase 400 110 44,000 600 107.53 64,520

Page 26 of 40
OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 10: Inventory

Sale 370 107.53 39,786 230 107.53 24,732

Total Purchases $97,560 Total COGS $96,826

Gross Margin, AVG Perpetual

Sales $132,480
– COGS 96,826
= Gross margin 35,654

PA12. LO 10.3 Compare the calculations for gross margin for A76 Company, based on the
results of the perpetual inventory calculations using FIFO, LIFO, and AVG.
Solution
Comparison of FIFO, LIFO, AVG; Perpetual
FIFO LIFO AVG
Sales Revenue $132,480 $132,480 $132,480
– Cost 96,260 97,900 96,826
= Gross Margin 36,220 34,580 35,654

PA13. LO 10.4 Company Elmira reported the following cost of goods sold but later realized that
an error had been made in ending inventory for year 2021. The correct inventory amount for
2021 was 32,000. Once the error is corrected, (a) how much is the restated cost of goods sold for
2021? and (b) how much is the restated cost of goods sold for 2022?

Solution
2021
Goods available for sale 216,000
– Corrected ending inventory 32,000
= Corrected cost of goods sold 184,000

2022
Corrected beginning inventory 32,000
+ Purchases 188,000
= Corrected goods available for sale 220,000
– Ending inventory 30,000
= Corrected cost of goods sold 190,000

Page 27 of 40