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Principles of Accounting, Volume 1: Financial Accounting

Problem Set A

Principles of Accounting, Volume 1: Financial AccountingProblem Set A
PA 1.

LO 10.1When 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.

Chart showing three purchases: 2 units for $6,000, 3 units for $7,000, and 4 units for $7,500.

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.

  1. first-in, first-out (FIFO)
  2. last-in, first-out (LIFO)
  3. weighted average (AVG)
PA 2.

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

Chart showing Beginning Inventory 1,050 units at $22 each for a total of 23,100, May 31 purchase of 1,020 units at 23 for a total of 23,460, July 15 purchase of 1,300 units at 26 for a total of 33,800, November 1 purchase of 1,200 units at 27 for a total of 32,400, with a Total (Goods Available) of 4,570 units for a total of $112,760. Ending Inventory is 900 units at a cost per unit of ?.

Calculate the ending inventory dollar value for each of the following cost allocation methods, using periodic inventory updating. Provide your calculations.

  1. first-in, first-out (FIFO)
  2. last-in, first-out (LIFO)
  3. weighted average (AVG)
PA 3.

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

Chart showing Beginning Inventory 1,050 units at $22 each for a total of 23,100, May 31 purchase of 1,020 units at 23 for a total of 23,460, July 15 purchase of 1,300 units at 26 for a total of 33,800, November 1 purchase of 1,200 units at 27 for a total of 32,400, with a Total (Goods Available) of 4,570 units for a total of $112,760. Ending Inventory is 900 units at a cost per unit of ?.

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.

  1. first-in, first-out (FIFO)
  2. last-in, first-out (LIFO)
  3. weighted average (AVG)
PA 4.

LO 10.3Calculate 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).

March 1 Beginning Inventory is 110 units at cost of $87 each, March 8 purchased 140 units at $89 each, March 11 sold 95 units for $120 each.
PA 5.

LO 10.3Use 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.

Beginning Inventory is 105 units at cost of $40 each, March 2 purchased 150 units at $42 each, March 31 sold 88 units for $75 each.
PA 6.

LO 10.3Use 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.

Beginning Inventory is 105 units at cost of $40 each, March 2 purchased 150 units at $42 each, March 31 sold 88 units for $75 each.
PA 7.

LO 10.3Use 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.

Beginning Inventory is 105 units at cost of $40 each, March 2 purchased 150 units at $42 each, March 31 sold 88 units for $75 each.
PA 8.

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

Purchased 165 units at $21 each. Sold 120 units for $36 each. Purchased 225 units at $27 each. Sold 180 units for $39 each. Purchased 210 units at $33 each.
PA 9.

LO 10.3Calculate 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).

Beginning Inventory is 240 units at cost of $100 each, sold 160 units for $140 each, purchased 520 units at $103 each, sold 400 units for $142 each, purchased 400 units at $110 each, sold 370 units for $144 each, Ending Inventory is 230 units.
PA 10.

LO 10.3Calculate 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).

Beginning Inventory is 240 units at cost of $100 each, sold 160 units for $140 each, purchased 520 units at $103 each, sold 400 units for $142 each, purchased 400 units at $110 each, sold 370 units for $144 each, Ending Inventory is 230 units.
PA 11.

LO 10.3Calculate 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).

Beginning Inventory is 240 units at cost of $100 each, sold 160 units for $140 each, purchased 520 units at $103 each, sold 400 units for $142 each, purchased 400 units at $110 each, sold 370 units for $144 each, Ending Inventory is 230 units.
PA 12.

LO 10.3Compare the calculations for gross margin for A76 Company, based on the results of the perpetual inventory calculations using FIFO, LIFO, and AVG.

PA 13.

LO 10.4Company 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?

Beginning Inventory plus purchases equals Goods Available for Sale minus Ending Inventory equals Cost of Goods Sold for 2021 and 2022, respectively: 31,000 plus 185,000 equals 216,000 minus 27,000 equals 189,000; 27,000 plus 188,000 equals 215,000 minus 31,000 equals 185,000.
PA 14.

LO 10.4Assuming a company’s year-end inventory were overstated by $5,000, indicate the effect (overstated/understated/no effect) of the error on the following balance sheet and income statement accounts.

  1. Income Statement: Cost of Goods Sold
  2. Income Statement: Net Income
  3. Balance Sheet: Assets
  4. Balance Sheet: Liabilities
  5. Balance Sheet: Equity
PA 15.

LO 10.5Use the following information relating to Shana Company to calculate the inventory turnover ratio and the number of days’ sales in inventory ratio.

Table showing Sales, Cost of Goods Sold, and Average Inventory respectively for: 2021: $22,000, $16,500, $2,400; 2022: $28,000, $21,000, $3,000; 2023: $33,000, $24,750, $3,500; 2024: $35,000, $26,250, $4,000.
PA 16.

LO 10.5Use the following information relating to Clover Company to calculate the inventory turnover ratio, gross margin, and the number of days’ sales in inventory ratio, for years 2022 and 2023.

Table showing Sales, Cost of Goods Sold, and Average Inventory respectively for: 2021: $250,000, $187,500, $24,000; 2022: $295,000, $221,250, $30,000; 2023: $323,000, $242,250, $35,000.
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