PROBLEM 8.1A
SPORTS WORLD
Student to complete the yellow highligthed cells
a.
General Journal
2018
(1) Specific identification method:
Jan
##
Jan
##
Jan
##
To record cost of 1,000 Ace-5 reels sold to Angler’s
(2) Average-cost method:
To record cost of 1,000 Ace-5 reels sold to Angler’s
(3) First-in, First-out (FIFO) method:
To record cost of 1,000 Ace-5 reels sold to Angler’s
Warehouse.
(4) Last-in, First-out (LIFO) method:
Jan
##
To record cost of 1,000 Ace-5 reels sold to Angler’s
Warehouse.
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PROBLEM 8.1A
SPORTS WORLD (continued)
b. Inventory subsidiary ledger records:
(1) Specific identification method:
PURCHASED
Date
Dec 12
Jan 09
Units
Unit Cost
SOLD
Total
Units
Unit Cost
Total
Units
Cost
Total
Units
Unit Cost
Total
Units
Unit Cost
BALANCE
Cost of
Goods Sold
Units
Cost of
Goods Sold
Units
Cost
Cost of
Goods Sold
Units
Unit Cost
Cost of
Goods Sold
Units
Unit Cost
Unit Cost
Balance
Jan 15
(2) Average-cost method:
PURCHASED
Date
Dec 12
Jan 09
Jan 15
Units
Cost
SOLD
BALANCE
Balance
(3) First-in, first-out (FIFO) method:
PURCHASED
Date
Dec 12
Jan 09
Units
Unit Cost
SOLD
BALANCE
Balance
Jan 15
(4) Last-in, first-out (LIFO) method:
PURCHASED
Date
Dec 12
Jan 09
Units
Unit Cost
SOLD
BALANCE
Jan 15
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Balance
PROBLEM 8.1A
SPORTS WORLD (concluded)
c.
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PROBLEM 8.8A
WAL-MART
a.
Computations based on LIFO valuation of inventory:
(1) Inventory turnover rate:
Cost of Goods Sold
Average inventory
=
(2) Current ratio:
Current Assets
Current Liabilities
=
(3) Gross profit rate:
Gross Profit
Net Sales
=
b.
c.
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LO8-7
EXERCISE 8.14
Inventory Analysis
mil
39 million and cost of goods
mparable sales and cost of
sales, a great deal
buy when they
presented at
A recent income stal
sold of $365,086 million for the year ended la
goods sold figures for the year ended one year ear.
on and $358,069
lion, respectively. As you would expect, to be able to
of inventory must be maintained so that customers win
shop in Walmart stores. In fact, in the January 31, 2015,
$45.141 million and the comparable figure for a year earlier
a. Using the year-end inventory figures, compute the inventi
years.
b. Compute the average number of days required by Walmart to sell its inventory for the
years.
answer.
it for both
same
C.
In which year was the company more efficient in its management of inventory? Explain your
The Home Depot, Inc., financial statements appear in Appendix A at the end of this textbook.
LO8-7
EXERCISE 8.15
Using the Financial
Statements of Home
Depot, Inc.
Using figures from the income statement and balance sheet, answer the following questions,
What was the company’s inventory turnover for the most recent year reported?
a.
b. Using your answer from part a, what was the average number of days that merchandise
c.
HOMI
DEPUT
remained in inventory before it was sold?
rate? Explain.
Is the company’s operating cycle influenced significantly by its accounts receivable turnover
LO8-1
PROBLE
Alternati
Assumpt
System
Problem Set A
Craw
connect
On January 15, 2018, Sports World sold 1,000 Ace-5 fishing reels to Angler’s Warehouse. Imme-
diately prior to this sale, Sports World perpetual inventory records for Ace-5 reels included the
following cost layers.
LO8-1
PROBLEM 8.1A
Four Methods of Inventory
Valuation
Purchase Date
Quantity
Unit Cost
Total Cost
Dec. 12, 2017
600
$29
$17,400
Jan. 9, 2018.
900
32
28,800
Total on hand
1,500
$46,200
Instructions
Note: We present this problem in the normal sequence of the accounting cycle—that is, journal
entries before ledger entries. However, you may find it helpful to work part b first.
a. Prepare a separate journal entry to record the cost of goods sold relating to the January 15 sale
of 1,000 Ace-5 reels, assuming that Sports World uses:
1. Specific identification (500 of the units sold were purchased on December 12, and the
remaining 500 were purchased on January 9).
2. Average cost.
3. FIFO.
4. LIFO.
LO8-4
PROBLE
Alternat
Assump
System
caps
shift
In
control
Problem Set A
377
b. Complete a subsidiary ledger record for Ace-5 reels using each of the four inventory valuation
methods listed. Your inventory records should show both purchases of this product, the sale
on January 15, and the balance on hand at December 12, January 9, and January 15. Use the
formats for inventory subsidiary records illustrated on Exhibits 8-3 through 8-5 of this chapter.
c. Refer to the cost of goods sold figures computed in part a. For financial reporting purposes,
can the company use the valuation method that resulted in the lowest cost of goods sold if, for
tax purposes, it used the method that resulted in the highest cost of goods sold? Explain.
Problems 8.2A and 8.3A are based on the following data:
Speed World Cycles sells high-performance motorcycles and motocross racers. One of Speed
World’s most popular models is the Kazomma 900 dirt bike. During the current year, Speed World
Cycles purchased eight of these bikes at the following costs.
Units
Purchased
Unit
Cost
Total
Cost
Purchase Date
2
$ 9,900
July 1
July 22.
Aug. 3
$4,950
5,000
15,000
1100 l w w
5,100
15,300
$40,200
On July 28, Speed World Cycles sold four Kazomma 900 dirt bikes to the Vince Wilson racing
team. The remaining four bikes remained in inventory at September 30, the end of Speed World’s
fiscal year.
Assume that Speed World Cycles uses a perpetual inventory system. (See the data provided.)
1081
PROBLEM 8.2A
Chapter 8 Inventories and the Cost of Goods Sold
Proble
380
2. Determine the estimated shrinkage losses (measured at cost) incurred by BTE.com during
the year.
3. Compute BTE.com’s gross profit for the year. (Include inventory shrinkage losses in the
cost of goods sold.)
What controls might BTE.com implement to reduce inventory shrinkage?
C.
Walmart uses LIFO to account for its inventories. Recent financial statements were used to com-
pile the following information (dollar figures are in millions).
LO8-1, L08-7
PROBLEM 8.8A
FIFO versus LIFO
Comparisons
$ 45,000
63,278
Average inventory (throughout the year)
Current assets (at year-end)
Current liabilities (at year-end)
65,272
482,229
Sales
365,086
Cost of goods sold.
Gross profit.
117,143
Instructions
a. Using the information provided, compute the following measures based upon the LIFO
method.
1. Inventory turnover.
2. Current ratio (see Chapter 5 for a discussion of this ratio).
3. Gross profit rate (see Chapter 6 for a discussion of this statistic).
b. Assuming cost of goods sold would be lower under FIFO, what circumstances must the com-
pany have encountered to cause this situation? (Were replacement costs, on average, rising or
falling?)
c. How would you expect these ratios to differ (i.e., what direction) had the company used FIFO
instead of LIFO?
con
Problem Set B
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