Chapter 7 Homework Student Templates – 7th EditionExercise 7–7
Oahu Kiki tracks the number of units purchased and sold throughout each accounting period but applies
its inventory costing method at the end of each month, as if it uses a periodic inventory system. Assume
Oahu Kiki’s records show the following for the month of January. Sales totaled 240 units.
Date
Units
Unit Cost
Total Cost
Beginning Inventory
January 1
120
$ 80
$ 9,600
Purchase
January 15
380
$ 90
$34,200
Purchase
January 24
200
$110
$22,000
Required:
1. Calculate the number and cost of goods available for sale.
2. Calculate the number of units in ending inventory.
3. Calculate the cost of ending inventory & cost of goods sold using the FIFO, LIFO, & weighted average.
Requirement 1 – Goods available for sale (# units and total $ amount)
Date/Inventory Used
# Units X Cost Paid
= Total Dollar Amount
Beginning Inventory
120 units x $ 80
$9,600
+ Jan. 15th Purchase
380 units x $ 90
$34,200
+ Jan. 24th Purchase
200 units x $110
$22,000
700 units
$ 65,800
Goods Available for Sale
Requirement 2 – Units in Ending Inventory
Units in Ending Inventory = Units Available – Units Sold = 700 – 240 = 460 units.
Chapter 7 Homework Solutions – ACCT 220 7th Edition
1
Exercise 7–7 Continued
Requirement 3 – Cost of Goods Sold & Ending Inventory using FIFO, LIFO & Weighted Ave.
FIFO – Cost of Goods Sold & Ending Inventory
FIFO (First in First Out) Cost of Goods Sold
Beginning Inventory
120 units x $ 80
$ 9,600
Jan. 15th Purchase
120 units x $ 90
$10,800
FIFO Cost of Goods Sold
240 units
$20,400
FIFO Ending Inventory
LIFO – Cost of Goods Sold & Ending Inventory
LIFO (Last in First Out) Cost of Goods Sold
LIFO Cost of Goods Sold
240 units
LFIO Ending Inventory
LIFO Ending Inventory = $65,800 – $25,600
LIFO Ending Inventory = $40,200
Weighted Average (Average Cost) – Cost of Goods Sold & Ending Inventory
Weighted average unit cost: Cost of Goods Available
$65,800
# Units Available for Sale
700 units
= $94 per unit
Weighted Average Cost of Goods Sold =
Weighted Average Ending Inventory =
Chapter 7 Homework Solutions – ACCT 220 7th Edition
2
Exercise 7 – 7
Scoresby Inc. tracks the number of units purchased and sold throughout each year but applies its
inventory costing method at the end of the year, as if it uses a periodic inventory system. Assume its
accounting records provided the following information at the end of the annual accounting period,
December 31.
Transactions
Units
Unit Cost
a. Inventory, Beginning
3,000
$8
b. Purchase, March 5
9,500
9
c. Purchase, September 19
5,000
11
d. Sale, April 15 (sold for $29 per unit)
4,000
e. Sale, October 31 (sold for $31 per unit)
8,000
For the year:
f. Operating expenses (excluding income tax expense), $250,000
Required:
1. Calculate the number and cost of goods available for sale.
2. Calculate the number of units in ending inventory.
3. Compute the cost of ending inventory and cost of goods sold under (a) FIFO, (b) LIFO, and (c)
weighted average cost.
4. Prepare an income statement that shows the FIFO method in one column, the LIFO method in another
column, and the weighted average method in a final column. Include the following line items in the
income statement: Sales, Cost of Goods Sold, Gross Profit, Operating Expenses, and Income from
Operations.
5. Compare the Income from Operations and the ending inventory amounts that would be reported
under the three methods. Explain the similarities and differences.
6. Which inventory costing method minimizes income taxes?
Requirement 1 – Goods available for sale (# units and total $ amount)
Beginning Inventory
March 5th Purchase
September 19th Purchase
Goods Available for Sale
17,500 units
$ 164,500
Requirement 2 – Units in Ending Inventory (Units NOT Sold)
Chapter 7 Homework Solutions – ACCT 220 7th Edition
3
Exercise 7 – 9 Continued
Requirement 3 – Cost of Goods Sold & Ending Inventory using FIFO, LIFO & Weighted Ave.
FIFO – Cost of Goods Sold & Ending Inventory
FIFO (First in First Out) Cost of Goods Sold
FIFO Cost of Goods Sold
FIFO Ending Inventory = Goods Available for Sale – FIFO Cost of Goods Sold
LIFO – Cost of Goods Sold & Ending Inventory
LIFO (Last in First Out) Cost of Goods Sold
September 19th Purchase
5,000 units x $11
$55,000
March 5th Purchase
7,000 units x $ 9
$63,000
LIFO Cost of Goods Sold
12,000 units
$118,000
LFIO Ending Inventory = Goods Available for Sale – LIFO Cost of Goods Sold
LIFO Ending Inventory = $164,500 – $118,000
LIFO Ending Inventory = $46,500
Weighted Average (Average Cost) Cost of Goods Sold & Ending Inventory
Weighted Average Cost per Unit =
Weighted Average Cost of Goods Sold
Weighted Average Ending Inventory
Chapter 7 Homework Solutions – ACCT 220 7th Edition
4
Exercise 7 – 9 Continued
Requirement 4 – Prepare an Income Statement comparing each method used to compute Cost of Goods
Sold. Determine what is Income (Loss) from Operations.
Income Statement
FIFO
LIFO
Weighted Ave.
Sales Revenue [(4,000 x $29) + (8,000 x $31)]
$364,000
$364,000
$364,000
Cost of Goods Sold
105,000
118,000
112,800
250,000
250,000
250,000
Gross Profit
Operating Expenses
Income (Loss) from Operations
Requirement 5 – Compare the 3 methods (FIFO, LIFO and Weighted Average)
Case A
Case B
Case C
FIFO
LIFO
Weighted Average
59,500
46,500
51,700
Income from Operations
Ending Inventory
The above table demonstrates that the operating income difference when comparing two cases is
exactly the same as the inventory difference. Differences in inventory have a dollar–for–dollar effect
on Income from Operations. The method with the highest ending inventory always has the highest
Income from Operations. The weighted average method always falls between the FIFO and LIFO
methods.
Requirement 6
The LIFO method will minimize taxes because it reports less taxable income (when costs are rising)
because the higher unit costs are used to calculate Cost of Goods Sold. A higher Cost of Goods Sold
means less Income from Operations and therefore reduces income taxes.
Chapter 7 Homework Solutions – ACCT 220 7th Edition
5
PA 7 – 1
Gladstone Company tracks the number of units purchased and sold throughout each accounting period
but applies its inventory costing method at the end of each period, as if it uses a periodic inventory
system. Assume its accounting records provided the following information at the end of the annual
accounting period, December 31.
Transactions
Units
Unit Cost
Beginning inventory, January 1
1,800
$50
a. Purchase, January 30
2,500
62
b. Sale, March 14 ($100 each)
(1,450)
c. Purchase, May 1
1,200
d. Sale, August 31 ($100 each)
(1,900)
Transactions during the year:
80
Required:
1. Compute the amount of goods available for sale, ending inventory, and cost of goods sold at
December 31 under each of the THREE (3) inventory costing methods:
FIFO (first in first out), LIFO (last in first out) and weighted average.
2. Of the three (3) methods, which will result in the highest gross profit? Which will result in the lowest
income taxes?
Requirement 1 – Goods Available for Sale using FIFO, LIFO & Weighted Average
Goods available for sale (# units and total $ amount)
Goods Available for Sale
5,500 units
$341,000
Units in Ending Inventory
Ending Inventory Units =
Chapter 7 Homework Solutions – ACCT 220 7th Edition
6
PA 7 – 1 continued
Requirement 1 Continued
Compute Cost of Goods Sold & Ending Inventory using FIFO, LIFO & Weighted Ave.
FIFO
FIFO (First in First Out) Cost of Goods Sold
FIFO Cost of Goods Sold
FIFO Ending Inventory = Goods Available for Sale – FIFO Cost of Goods Sold
FIFO Ending Inventory = $341,000 – $186,100
FIFP Ending Inventory = $154,900
LIFO
LIFO (Last in First Out) Cost of Goods Sold
LIFO Cost of Goods Sold
LFIO Ending Inventory = Goods Available for Sale – LIFO Cost of Goods Sold
Weighted Average
Weighted average unit cost:
Cost of Goods Available
# Units Available for Sale
Weighted Average Cost of Goods Sold = $62 X 3,350 units sold = $207,700
Weighted Average Ending Inventory = $62 X 2,150 units not sold = $133,300
Chapter 7 Homework Solutions – ACCT 220 7th Edition
7
Question 1 (1 point)
Listen
PA 7-1
There were 5,500 units available for sale a total cost of
$341,000.
Question 1 options:
a) True
b) False
Question 2 (1 point)
Listen
Exercise 7-9
There were a total of 17,500 units available for sale; 12,000
units were sold and 5,500 units were not sold.
Question 2 options:
a) True
b) False
Question 3 (1 point)
Listen
PA 7-1
Based on the weighted average method, the average cost per
unit is $120.
Question 3 options:
a) True
b) False
Question 4 (1 point)
Listen
Exercise 7-7 – Requirement 3
Cost of Goods Sold under FIFO, First in First Out, is $20,400.
Question 4 options:
a) True
b) False
Question 5 (1 point)
Listen
Exercise 7-7 – Requirement 1
Goods Available for Sale is $65,800.
Question 5 options:
a) True
b) False
Question 6 (1 point)
Listen
Exercise 7-9 – Requirement 3
Assume LIFO is used, (Last-In-First-Out), Cost of Goods Sold
would be $118,000 and Ending Inventory would be $46,500.
Question 6 options:
a) True
b) False
Question 7 (1 point)
Listen
Exercise 7-7 – Requirement 3
Cost of Goods Sold, using the weighted average method, is
$22,560.
Question 7 options:
a) True
b) False
Question 8 (1 point)
Listen
Exercise 7-9 – Requirement 4
Income from Operations was $9,000 under FIFO (First-In-FirstOut).
Question 8 options:
a) True
b) False
Question 9 (1 point)
Listen
PA 7-1
Under LIFO (Last in First Out), Cost of Goods Sold is $111,700.
Question 9 options:
a) True
b) False
Question 10 (1 point)
Listen
Exercise 7-9 – Requirement 3
Based on the three methods in this example, the weighted
average method resulted the highest dollar value for Cost of
Goods Sold and the highest dollar value for Ending Inventory.
Question 10 options:
a) True
b) False
Question 1 (1 point)
Listen
Goods available for sale is equal to Cost of Goods Sold plus
inventory purchases for the year.
Question 1 options:
a) True.
b) False.
Question 2 (1 point)
Listen
Goods Available for Sale is always the same dollar value when
using FIFO, LIFO and Average Cost to value the Cost of Goods
Sold.
Question 2 options:
a) True.
b) False.
Question 3 (1 point)
Listen
Merchandise Inventory is a current asset account reported on
the Balance Sheet.
Question 3 options:
a) True.
b) False.
Question 4 (1 point)
Listen
The Jackson Co. began the year with $10,000 in
inventory. During the year the company purchased $90,000
worth of inventory. At the end of the year, $80,000 of
inventory remained. Cost of goods sold would be $20,000.
Question 4 options:
a) True.
b) False.
Question 5 (1 point)
Listen
During inflationary prices, FIFO (First-In-First-Out) will report
the lowest dollar value for Cost of Goods Sold.
Question 5 options:
a) True.
b) False.
Question 6 (1 point)
Listen
During inflationary prices, LIFO (Last-In-First-Out) will result in
the highest dollar value for Net Income.
Question 6 options:
a) True.
b) False.
Question 7 (1 point)
Listen
When determining the cost of goods sold using FIFO (First-InFirst-Out), you start with the first price paid which is typically
found in beginning inventory.
Question 7 options:
a) True.
b) False.
Question 8 (1 point)
Listen
Use the following information to answer questions 8, 9 and 10:
The Matisse Co. sells hula hoops the company purchases from
their supplier, the Goop Co. At year end, the Matisse Co. sold a
total of 1,000 hula hoops at a selling price of $10 per unit. The
following information relates to inventory for the current year:
Beginning Inventory:
Purchase 1:
Purchase 2:
Purchase 3:
100 units @ $2.00 per unit
300 units @ $2.20 per unit
500 units @ $3.00 per unit
500 units @ $4.00 per unit
Question: Cost of Goods Sold using FIFO, First In First Out, is
$3,560.
Question 8 options:
a) True.
b) False.
Question 9 (1 point)
Listen
Use the following information to answer questions 8, 9 and 10:
The Matisse Co. sells hula hoops the company purchases from
their supplier, the Goop Co. At year end, the Matisse Co. sold a
total of 1,000 hula hoops at a selling price of $10 per unit. The
following information relates to inventory for the current year:
Beginning Inventory:
Purchase 1:
Purchase 2:
Purchase 3:
100 units @ $2.00 per unit
300 units @ $2.20 per unit
500 units @ $3.00 per unit
500 units @ $4.00 per unit
Question: Ending Inventory using LIFO, Last-In-First-Out, is
$420.
Question 9 options:
a) True.
b) False.
Question 10 (1 point)
Listen
Use the following information to answer questions 8, 9 and 10:
The Matisse Co. sells hula hoops the company purchases from
their supplier, the Goop Co. At year end, the Matisse Co. sold a
total of 1,000 hula hoops at a selling price of $10 per unit. The
following information relates to inventory for the current year:
Beginning Inventory:
Purchase 1:
Purchase 2:
Purchase 3:
100 units @ $2.00 per unit
300 units @ $2.20 per unit
500 units @ $3.00 per unit
500 units @ $4.00 per unit
Question: Cost of Goods Sold using the Average Cost method
is $4,000.
Question 10 options:
a) True.
b) False.
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