Exercise 8-1

1. To record the purchase of inventory on account and the payment of freight

charges.

Inventory......................................................................... 4,000
Accounts payable........................................................ 4,000

Inventory......................................................................... 300
Cash............................................................................ 300

2. To record purchase returns.

Accounts payable............................................................ 600

Inventory..................................................................... 600

3. To record cash sales and cost of goods sold.

Cash................................................................................ 5,000
Sales revenue.............................................................. 5,000

Cost of goods sold.......................................................... 2,800

Inventory..................................................................... 2,800

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Exercise 8-2
1. To record the purchase of inventory on account and the payment of freight
charges.

Purchases........................................................................ 4,000
Accounts payable........................................................ 4,000

Freight-in........................................................................ 300
Cash............................................................................ 300

2. To record purchase returns.

Accounts payable............................................................ 600

Purchase returns.......................................................... 600

3. To record cash sales.

Cash................................................................................ 5,000
Sales revenue.............................................................. 5,000

NO ENTRY IS MADE FOR THE COST OF GOODS SOLD.

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Exercise 8-3
Requirement 1
Beginning inventory $ 32,000
Plus net purchases:
Purchases $230,000
Less: Purchase discounts (6,000)
Less: Purchases returns (8,000)
Plus: Freight-in 16,000 232,000
Cost of goods available for sale 264,000
Less: Ending inventory (40,000)
Cost of goods sold $224,000

Requirement 2

Cost of goods sold (above)............................................... 224,000

Inventory (ending)............................................................ 40,000
Purchase discounts.......................................................... 6,000
Purchase returns.............................................................. 8,000
Inventory (beginning)................................................... 32,000
Purchases.................................................................... 230,000
Freight-in.................................................................... 16,000

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Exercise 8-5
2003 2004 2005
Beginning inventory 275 (1) 249 (3) 225
Cost of goods sold 627 621 584 (6)
Ending inventory 249 (2) 225 216
Cost of goods available for sale 876 846 (4) 800
Purchases (gross) 630 610 (5) 585
Purchase discounts 18 15 12 (7)
Purchase returns 24 30 14
Freight-in 13 32 16

Net purchases = Purchases(gross) - Purchase returns - Purchase discounts + Freight-in

Beginning inventory + Net purchases = Cost of goods available for sale
Cost of goods available for sale - Ending inventory = Cost of goods sold

2003:
(1) Cost of goods available for sale - Net purchases = Beginning inventory
876 - (630 - 18 - 24 + 13) = 275 = Beginning inventory

(2) Cost of goods available for sale - Cost of goods sold = Ending inventory
876 - 627 = 249 = Ending inventory

2004:
(3) 2004 beginning inventory = 2003 ending inventory = 249

(4) Cost of goods sold + Ending inventory = Cost of goods available for sale
621 + 225 = 846 = Cost of goods available for sale

(5) Cost of goods available for sale - Beginning inventory = Net purchases
846 - 249 = 597 = Net purchases

Net purchases + Purchases discounts + Purchase returns - Freight-in = Purchases(gross)

597 + 15 + 30 - 32 = 610 = Purchases (gross)

2005:
(6) Cost of goods available for sale - Ending inventory = Cost of goods sold
800 - 216 = 584 = Cost of goods sold

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Exercise 8-5 (concluded)

(7) Cost of goods available for sale - Beginning inventory = Net purchases
800 - 225 = 575 = Net purchases
Purchases(gross) - Purchase returns + Freight-in - Net purchases = Purchase discounts
585 - 14 + 16 - 575 = 12 = Purchase discounts

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Exercise 8-8
Requirement 1
Purchase price = 100 units x $500 = $50,000 x .70 = $35,000

November 17, 2003

Purchases........................................................................ 35,000
Accounts payable........................................................ 35,000

November 26, 2003

Accounts payable ........................................................... 35,000
Purchase discounts (2% x $35,000)............................... 700
Cash (98% x $35,000).................................................... 34,300

Requirement 2

November 17, 2003

Purchases........................................................................ 35,000
Accounts payable........................................................ 35,000

December 15, 2003

Accounts payable............................................................ 35,000
Cash............................................................................ 35,000

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Exercise 8-8 (concluded)

Requirement 3
Requirement 1:

November 17, 2003

Purchases (98% x $35,000)................................................ 34,300
Accounts payable........................................................ 34,300

November 26, 2003

Accounts payable............................................................ 34,300
Cash............................................................................ 34,300

Requirement 2:

November 17, 2003

Purchases (98% x $35,000)................................................ 34,300
Accounts payable........................................................ 34,300

December 15, 2003

Accounts payable............................................................ 34,300
Interest expense (2% x $35,000)........................................ 700
Cash............................................................................ 35,000

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Exercise 8-13
Requirement 1
LIFO will result in the highest cost of goods sold figure because both the cost of
merchandise and the quantity of merchandise rose during the period. FIFO will result
in the highest ending inventory balance for the same reasons.
Requirement 2
Cost of goods available for sale:
Beginning inventory (600 x $80) $ 48,000
Purchases:
1,000 x $ 90 $90,000
800 x $100 80,000 170,000
Cost of goods available (2,400 units) $218,000

First-in, first-out (FIFO)

Cost of goods available for sale (2,400 units) $218,000
Less: Ending inventory (below) (80,000)
Cost of goods sold $138,000
Cost of ending inventory:
Date of
purchase Units Unit cost Total cost
January 21 800 $100 $80,000

Last-in, first-out (LIFO)

Cost of goods available for sale (2,400 units) $218,000
Less: Ending inventory (below) (66,000)
Cost of goods sold $152,000
Cost of ending inventory:
Date of
purchase Units Unit cost Total cost
BI 600 $80 $48,000
January 15 200 90 18,000
Total $66,000

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Exercise 8-19
Ending
Ending Inventory Inventory Layers Inventory Layers Inventory
Date at Base Year Cost at Base Year Cost Converted to Cost DVL Cost

1/1/03 $660,000
= $660,000 $660,000 (base) $660,000 x 1.00 = $660,000 $660,000
1.00

12/31/03 $690,000
= $669,903 $660,000 (base) $660,000 x 1.00 = $660,000
1.03 9,903 (2003) 9,903 x 1.03 = 10,200 670,200

12/31/04 $770,000
= $700,000 $660,000 (base) $660,000 x 1.00 = $660,000
1.10 9,903 (2003) 9,903 x 1.03 = 10,200
30,097 (2004) 30,097 x 1.10 = 33,107 703,307

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Problem 8-2
1. The transaction is not correctly accounted for. Inventory held on consignment by
another company should be included in the inventory of the consignor. Rasul
should include this merchandise in its 2003 ending inventory.
2. The transaction is not correctly accounted for. Legal title to merchandise shipped
f.o.b. shipping point changes hands when the goods are shipped. Rasul should
record the purchase and corresponding account payable in 2003 and include the
merchandise in its 2003 ending inventory.
3. The transaction is not correctly accounted for. Since the merchandise was shipped
f.o.b. destination and did not arrive at the customer's location until 2004, it should
be included in Rasuls 2003 ending inventory. The sale should be recorded in
2004.
4. The transaction is correctly accounted for. Merchandise held on consignment from
another company belongs to the consignor and should be excluded from the
inventory of the consignee.
5. The transaction is correctly accounted for. Since the merchandise was shipped
f.o.b. destination and did not arrive at Rasuls location until 2004, it should not be
included in Rasuls 2003 ending inventory. The purchase is correctly recorded in
2004.

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Problem 8-5
Cost of goods available for sale for periodic system:
Beginning inventory (6,000 x $8.00) $ 48,000
Purchases:
5,000 x $ 9.00 $45,000
6,000 x $10.00 60,000 105,000
Cost of goods available (17,000 units) $153,000

1. FIFO, periodic system

Cost of goods available for sale (17,000 units) $153,000

Less: Ending inventory (determined below) (78,000)
Cost of goods sold $ 75,000

Cost of ending inventory:

Date of
purchase Units Unit cost Total cost
Jan. 18 6,000 $10.00 $60,000
Jan. 10 2,000 9.00 18,000
Totals 8,000 $78,000

2. LIFO, periodic system

Cost of goods available for sale (17,000 units) $153,000

Less: Ending inventory (determined below) (66,000)
Cost of goods sold $ 87,000
Cost of ending inventory:
Date of
purchase Units Unit cost Total cost
BI 6,000 $8.00 $48,000
Jan. 10 2,000 9.00 18,000
Totals 8,000 $66,000

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Problem 8-5 (continued)

3. LIFO, perpetual system

Date Purchased Sold Balance
Beginning 6,000 @ $8.00 = $48,000 6,000 @ $8.00 $48,000
inventory

January 5 3,000 @ $8.00 = $24,000 3,000 @ $8.00 $24,000

January 10 5,000 @ $9.00 = $45,000 3,000 @ $8.00

5,000 @ $9.00 $69,000

January 12 2,000 @ $9.00 = $18,000 3,000 @ $8.00

3,000 @ $9.00 $51,000

January 18 6,000 @ $10.00 = $60,000 3,000 @ $8.00

3,000 @ $9.00 $111,000
6,000 @ $10.00

January 20 4,000 @ $10.00 = $40,000 3,000 @ $8.00

3,000 @ $9.00
2,000 @ $10.00 $71,000

Ending
inventory
Total cost of goods sold = $82,000

4. Average cost, periodic system

Cost of goods available for sale (17,000 units) $153,000

Less: Ending inventory (below) (72,000)
Cost of goods sold $ 81,000*

Cost of ending inventory:

$153,000
Weighted-average unit cost = = $9.00
17,000 units
8,000 units x $9.00 = $72,000
* Alternatively, could be determined by multiplying the units sold by the average
cost: 9,000 units x $9.00 = $81,000

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Problem 8-5 (concluded)

5. Average cost, perpetual system

Date Purchased Sold Balance

Beginning 6,000 @ $8.00 = $48,000 6,000 @ $8.00 $48,000

inventory

January 5 3,000 @ $8.00 = $24,000 3,000 @ $8.00 $24,000

January 10 5,000 @ $9.00 = $45,000

$69,000
= $8.625/unit
8,000 units

January 12 2,000 @ $8.625 = $17,250 6,000 @ $8.625 $51,750

January 18 6,000 @ $10.00 = $60,000

$111,750
= $9.3125/unit
12,000 units

January 20 4,000 @ $9.3125 = $37,250 8,000 @ $9.3125 $74,500

Ending
inventory

Total cost of goods sold = $78,500

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Problem 8-10
Ending
Ending Inventory Inventory Layers Inventory Layers Inventory
Date at Base Year Cost at Base Year Cost Converted to Cost DVL Cost

1/1/03 $400,000
= $400,000 $400,000 (base) $400,000 x 1.00 = $400,000 $400,000
1.00

12/31/03 $441,000
= $420,000 $400,000 (base) $400,000 x 1.00 = $400,000
1.05 20,000 (2003) 20,000 x 1.05 = 21,000 421,000

12/31/04 $487,200
= $435,000 $400,000 (base) $400,000 x 1.00 = $400,000
1.12 20,000 (2003) 20,000 x 1.05 = 21,000
15,000 (2004) 15,000 x 1.12 = 16,800 437,800

12/31/05 $510,000
= $425,000 $400,000 (base) $400,000 x 1.00 = $400,000
1.20 20,000 (2003) 20,000 x 1.05 = 21,000
5,000 (2004) 5,000 x 1.12 = 5,600 426,600

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