Please Answer The Following Questions Correctly
Please Answer The Following Problems Correctlyquestion 6headland C
Please answer the following problems correctly:
Question 6: Headland Company uses a periodic inventory system. For April, when the company sold 560 units, the following information is available:
- April 1 inventory: 240 units at $27 each, total $6,480
- April 15 purchase: 340 units at $28 each, total $9,520
- April 23 purchase: 290 units at $31 each, total $8,990
Compute the April 30 inventory and the April cost of goods sold using the FIFO method.
Question 7: Sandhill Company uses a periodic inventory system. For April, when the company sold 600 units, the following information is available:
- April 1 inventory: 350 units at $24 each, total $8,400
- April 15 purchase: 730 units at an unknown cost
- April 23 purchase: 1,000 units at $27.81 each, total $27,810
Compute the April 30 inventory and the April cost of goods sold using the LIFO method.
Question 10: Presented below is information related to Sarasota Inc.’s inventory, assuming Sarasota uses lower-of-LIFO cost-or-market:
- Skis, cost $235.60, selling price $262.45, cost to distribute $23.56, current replacement cost $251.24, normal profit margin $39.35
- Boots, cost $131.44, selling price $145.00, cost to distribute $9.92, current replacement cost $124.00, normal profit margin unseen
- Parkas, cost $65.72, selling price unspecified, cost to distribute $3.10, current replacement cost unspecified, normal profit margin unspecified
Determine:
(a) The ceiling and floor limits to market value for skis.
(b) The cost amount to be used in the lower-of-cost-or-market comparison for boots.
(c) The market amount to value parkas based on the lower-of-cost-or-market.
Question 9: A fire destroys all merchandise of Indigo Company on February 10, 2017. The following information is available:
- Inventory, January 1, 2017: $411,600
- Sales revenue to February 10: $990,300
- Purchases to February 10: $1,145,430
- Freight-in to February 10: $700
- Rate of gross profit on selling price: 30%
Estimate the approximate inventory on February 10, 2017.
Paper For Above instruction
Introduction
The inventory management and valuation questions presented involve applying different methods such as FIFO, LIFO, and lower-of-cost-or-market, as well as estimating lost inventory due to a fire. These concepts are fundamental in managerial and financial accounting, affecting reported profitability, inventory valuation, and strategic decision-making. This paper will explore each problem, providing detailed calculations and explanations to enhance understanding of these accounting principles.
Question 6: FIFO Inventory and Cost of Goods Sold Calculation
The first problem involves calculating ending inventory and cost of goods sold using FIFO (First-In, First-Out). Under FIFO, the oldest inventory costs are assigned to cost of goods sold, and the newest costs remain in ending inventory.
Given data:
- Beginning inventory (April 1): 240 units @ $27
- April 15 purchase: 340 units @ $28
- April 23 purchase: 290 units @ $31
- Units sold in April: 560 units
Calculating Cost of Goods Sold (FIFO):
The earliest inventory is sold first:
- 240 units @ $27 = $6,480
- Remaining units to sell: 560 - 240 = 320 units
- Next, 340 units @ $28 are available, so the entire 340 units are sold:
340 units @ $28 = $9,520
- Total units sold: 240 + 340 = 580 units (which exceeds 560, so adjust)
Since only 560 units are sold, the actual cost involves:
- 240 units @ $27 = $6,480
- 320 units @ $28 = $8,960
Total COGS = $6,480 + $8,960 = $15,440
Calculating Ending Inventory (April 30):
Remaining inventory after sales:
- 340 units - 320 units sold = 20 units @ $28 = $560
- 290 units @ $31 remain untouched
Total ending inventory:
- 20 units @ $28 = $560
- 290 units @ $31 = $8,990
Total ending inventory = $560 + $8,990 = $9,550
Results:
- Ending inventory = $9,550
- Cost of goods sold = $15,440
Question 7: LIFO Inventory and Cost of Goods Sold Calculation
In LIFO (Last-In, First-Out), the most recent inventory costs are assigned to COGS, and the oldest to ending inventory.
Given data:
- April 1 inventory: 350 units @ $24
- April 23 purchase: 1,000 units @ $27.81
Units sold: 600
Calculating COGS (LIFO):
- First, 600 units are sold:
- 600 units @ $27.81 (from April 23 purchase) = 600 * 27.81 ≈ $16,686
Remaining inventory:
- 1,000 units – 600 units = 400 units @ $27.81
- Plus the opening inventory of 350 units @ $24
Calculating Ending Inventory:
- 400 units @ $27.81 = $11,124
- 350 units @ $24 = $8,400
Total ending inventory = $11,124 + $8,400 = $19,524
Results:
- Ending inventory = approximately $19,524
- Cost of goods sold = approximately $16,686
Question 10: Lower-of-Cost-or-Market Valuation
This problem involves applying the lower-of-cost-or-market rule, which states that inventory should be reported at the lower of its historical cost or its current replacement cost, within certain limits (ceiling and floor).
(a) Ceiling and Floor for Skis:
- Ceiling = Market value (replacement cost) + normal profit margin
- Floor = Market value – normal profit margin
Given:
- Cost per unit = $235.60
- Replacement cost = $251.24
- Normal profit margin = $39.35
Calculations:
- Ceiling = minimum of cost and (replacement cost + normal profit margin)
- Floor = maximum of (replacement cost – normal profit margin) and zero (or, as per standard, the lower of cost and net realizable value)
Assuming typical standards:
Ceiling = min($235.60, $251.24 + $39.35) = $235.60
Floor = max($251.24 – $39.35, 0) = $211.89
(b) Cost amount for Boots:
- Cost = $131.44
Since comparison involves the lower-of-cost or market, and the market is determined by the middle point (between the ceiling and floor):
- Market value (for valuation) = between ceiling and floor
- Market = $124.00 (replacement cost)
(c) Market amount for Parkas:
- Cost unknown
- Replacement cost = assumed similar to similar items, but unspecified.
- Assuming an approximate market value by applying a similar logic:
If the replacement cost is unknown, but the normal profit margin is $35,
then the lower limit (floor) could be cost minus profit margin, the ceiling the replacement cost plus profit margin. Due to missing data, an approximation is that the market value would be close to the replacement cost—assumed as $65.72.
Question 9: Inventory Estimation After Fire
The calculation involves estimating ending inventory based on gross profit rate and sales.
Total sales: $990,300
Gross profit margin: 30%
Gross profit = 30% of sales = 0.30 * $990,300 = $297,090
Cost of goods sold (COGS) = Sales – Gross profit = $990,300 – $297,090 = $693,210
Purchases: $1,145,430 plus freight-in: $700, total purchases = $1,146,130
Beginning inventory: $411,600
Estimated ending inventory = Beginning inventory + Purchases – COGS
= $411,600 + $1,146,130 – $693,210
= $864,520
Conclusion:
The approximate inventory on February 10, 2017, is about $864,520, considering the gross profit ratio and purchases.
Conclusion
The complex inventory valuation and estimation problems demonstrate the critical importance of applying proper accounting methods (FIFO, LIFO, lower-of-cost-or-market) and estimates based on gross profit margins. Accurate inventory valuation impacts financial statements significantly, influencing perceived profitability, tax obligations, and strategic planning. Mastery of these calculations supports better financial decision-making and compliance with accounting standards.
References
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