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Financial Statement Effects of Cost Flow Methods

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Chapter 6: E6-9 PAGE 272 (SO 5 PAGE 255)

E6-9 Delhi Hardware reported cost of goods sold as follows.
Compute inventory and cost of
Determine effects of inventory errors. (SO 5)
E6-6 Zambia Company reports the following for the month of June.
Delhi made two errors: (1) 2006 ending inventory was overstated $2,000, and (2) 2007 ending
inventory was understated $6,000.
Instructions
Compute the correct cost of goods sold for each year.
Beginning inventory $ 20,000 $ 30,000
Cost of goods purchased 150,000 175,000
Cost of goods available for sale 170,000 205,000
Ending inventory 30,000 35,000
Cost of goods sold $140,000 $170,000

Chapter 6: E6-12 PAGE 273 (SO 7 PAGE 260)
*E6-12 Simpson Appliance uses a perpetual inventory system. For its flat-screen television sets,
the January 1 inventory was 3 sets at $600 each. On January 10, Alpine purchased 6 units at
$660 each. The company sold 2 units on January 8 and 5 units on January 15.
Instructions
Compute the ending inventory under (1) FIFO, (2) LIFO, and (3) average cost.

Chapter 6: P6-3A PAGE 275 (SO 2, 3 PAGE 245, 251)
P6-3A Milokimball Company had a beginning inventory on January 1 of 100 units of Product
WD-44 at a cost of $21 per unit. During the year, the following purchases were made.
Mar. 15 300 units at $24 Sept. 4 300 units at $28
July 20 200 units at $25 Dec. 2 100 units at $30
700 units were sold. Milokimball Company uses a periodic inventory system.
Instructions
(a) Determine the cost of goods available for sale.
(b) Determine (1) the ending inventory, and (2) the cost of goods sold under each of the assumed
cost flow methods (FIFO, LIFO, and average cost). Prove the accuracy of the cost
of goods sold under the FIFO and LIFO methods.
(c) Which cost flow method results in (1) the highest inventory amount for the balance sheet,
and (2) the highest cost of goods sold for the income statement?
(b)(2) Cost of goods sold:
FIFO $17,100
LIFO $18,800
Average $17,990

Solution Preview

Chapter 6: E6-9 PAGE 272 (SO 5 PAGE 255)

E6-9 Delhi Hardware reported cost of goods sold as follows.
Compute inventory and cost of

Determine effects of inventory errors. (SO 5)
E6-6 Zambia Company reports the following for the month of June.

Delhi made two errors: (1) 2006 ending inventory was overstated $2,000, and (2) 2007 ending inventory was understated $6,000.

Instructions
Compute the correct cost of goods sold for each year.

Assume (since year is not shown) 2006 2007
Beginning inventory $ 20,000 $ 30,000
Cost of goods purchased 150,000 175,000
Cost of goods available for sale 170,000 205,000
Ending inventory 30,000 35,000
Cost of goods sold $140,000 $170,000

Correct entries
Assume 2006 2007
Beginning inventory $ 20,000 $ 28,000
Cost of goods purchased 150,000 175,000
Cost of goods available for sale 170,000 203,000
Ending inventory 28,000 41,000
Cost of goods sold $142,000 $162,000

Chapter 6: E6-12 PAGE 273 (SO 7 PAGE 260)
*E6-12 Simpson Appliance uses a perpetual inventory system. ...

Solution Summary

This solution is comprised of a detailed explanation to compute inventory cost.

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