Cost of Goods Available for Sale =

Leader: Chen Guo Handout Title: Chapter 7 Course: Acct 284 Supplemental Instruction Instructor: Clem Iowa State University Date: Oct 12, 2009  Inventory o Merchandiser

o Manufacturer

 Cost of Goods Sold =

 Inventory Costing Methods o Specific ID o FIFO o LIFO o Weighted Average

 LIFO Conformity Rule

 Lower of Cost or Market

 Ratio Analysis o Inventory Turnover Ratio

o Days to Sell =

Supplemental Instruction 1060 Hixson-Lied Student Success Center v 294-6624 v www.si.iastate.edu 1. The following are the transactions for the month of July.

Units Unit Cost Selling Price

July 1 Beginning inventory 120 11

July 13 Purchase 550 12

July 25 Sold (280 ) 18

July 31 Ending inventory 390

Required:

Calculate sales, cost of goods sold, and gross profit, under FIFO, LIFO, and weighted average. Assume a periodic inventory system is used. (Round your answers to the nearest dollar amount. Omit the "$" sign in your response.)

Weighted FIFO LIFO Average

Sales $ $ $

Cost of goods sold

Gross profit $ $ $

2. The Jewel Fool had the following inventory items on hand at the end of the year.

Cost per Replacement Quantity Item Cost per Item

Necklaces 56 $ 87 $ 68

Bracelets 44 78 43

Required:

Determine the lower of cost or market per unit and the total amount that should be reported on the balance sheet for each item of inventory. (Omit the "$" sign in your response.)

Lower of cost or market per unit Total amount

Necklaces $ $

Bracelets $

Total $

3. Orion Iron Corp. uses a periodic inventory system. At the end of the annual accounting period, December 31, 2009, the accounting records provided the following information:

Transactions Units Unit Cost

a. Inventory, December 31, 2008 3,260 $ 11

For the year 2009:

b. Purchase, April 11 8,880 9

c. Purchase, June 1 7,890 12

d. Sale, May 1 (sold for $40 per unit) 3,720

e. Sale, July 3 (sold for $40 per unit) 5,460

f. Operating expenses (excluding income tax expense), $205,010

Required:

(a) Compute the cost of goods sold under FIFO, LIFO, and weighted average. (Round Weighted average cost to two decimal places and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Cost of goods sold

FIFO $

LIFO $

Weighted average $

(b) Prepare an income statement that shows 2009 amounts under the FIFO method, LIFO method and weighted average method. (Round Weighted average cost to two decimal places and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

ORION IRON CORPORATION Income Statement For the Year Ended December 31, 2009

Case A Case B Case C

FIFO LIFO Weighted Average

Sales revenue $ $ $

Cost of goods sold

Gross profit

Operating expenses

Operating income $ $ $ Case A Case B Case C

FIFO LIFO Weighted Average

Ending Inventory $ $ $

(c) Compute the ending inventory amounts that would be reported under the three methods. (Round Weighted average cost to two decimal places and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

(d) Which inventory costing method may be preferred by Orion Iron Corp. for income tax purposes?

Weighted average

4. RadioShack Corporation (RadioShack) sells consumer electronic goods and services through its 4,972 stores and 777 kiosks. In its annual report filed with the SEC for the year ended December 31, 2005, the company reported that it wrote down inventory by approximately $20,000,000 because its cost exceeded its market value.

Required:

Show the effects of this adjustment on the journal entry that the company would have made to record it. (Omit the "$" sign in your response.)

General Journal Debit Credit

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