CHAPTER EIGHT

EXERCISE 8-16 (20-25 minutes)

(a) Calculations

1.
2,100 units available for sale – 1,400 units sold = 700 units in the ending inventory.

500 @ $4.58 =
$2,290

200 @ 4.60 = 920

700
$3,210
Ending inventory at FIFO cost.

2.
$9,240 cost of goods available for sale  2,100 units available for sale = $4.40 weighted-average unit cost.

700 units X $4.40 = $3,080 Ending inventory at weighted-average cost.

(b) Analysis of methods
FIFO will yield the highest ending inventory and therefore the highest current ratio. FIFO uses the most recent costs to price the ending inventory units. The company has experienced rising purchase prices.
FIFO gives the higher inventory values, a lower cost of goods sold (beginning inventory + purchases – ending inventory) and a higher gross profit.

EXERCISE 8-18 (10-15 minutes) (a)
12/31/14
Inventory
283,250

Cost of Goods Sold

283,250

12/31/15
Cost of Goods Sold
283,250

Inventory

283,250

12/31/15
Inventory
351,250

Cost of Goods Sold

351,250
(b)
12/31/14
Inventory
321,000

Cost of Goods Sold

321,000

Loss on Inventory Due to Decline in NRV

37,750

Allowance to Reduce Inventory to NRV

37,750

12/31/15
Cost of Goods Sold
321,000

Inventory

321,000

12/31/15
Inventory
385,000

Cost of Goods Sold

385,000

Allowance to Reduce Inventory to NRV

4,000*

Recovery of Loss Due to Decline in NRV of Inventory

4,000

*Cost of inventory at 12/31/14
$321,000
Lower of cost and NRV at 12/31/14 (283,250) Allowance amount needed to reduce inventory

to NRV (a)
$ 37,750

Cost of inventory at 12/31/15
$385,000
Lower of cost and NRV at 12/31/15 (351,250) Allowance amount needed to reduce inventory

to NRV (b)
$ 33,750

Recovery of