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Question

At December 31,2017 McGlaggen Corporation reported current asstes of
$638,000 and current liabilities of $384,000. The following items may have been
recorded incorrectly. McGlaggen uses the periodic method.
1. Goods purchased costing $10,000 were shipped f.o.b. destination by a supplier on
December 26.
McGlaggen received and recorded the invoice on December 31, but the goods were not
included
in McGlaggen’s physical count of inventory because they were not received until
January 2.
2. Freight-in of $4,000 was debited to advertising expense on December 28.
3. Goods purchased costing $11,000 were shipped f.o.b. shipping point by a supplier on
December
28. McGlaggen received and recorded the invoice on December 29, but the goods were not
included
in McGlaggen’s physical count of inventory because they were not received until
January 4.
4. Goods held on consignment from Brown Company were included in McGlaggen’s physical
count
of inventory at $13,000.
Instructions
(a) Compute the current ratio based on McGlaggen’s balance sheet.
(b) Recompute the current ratio after corrections are made.
(c) By what amount will income (before taxes) be adjusted up or down as a result of the
corrections?
2

5

E8-13B (FIFO and LIFO—Periodic and Perpetual) Inventory information for Part 311
of Bonds Corp. discloses the following information for the month of June.
June 1 Balance
11 Purchased
20 Purchased

450 units @ $1
1,200 units @ $2
750 units @ $3

June 10 Sold
15 Sold
27 Sold

300 units @ $2.40
750 units @ $2.50
450 units @ $2.70

Instructions
(a) Assuming that the periodic inventory method is used, compute the cost of goods
sold and ending inventory under (1) LIFO and (2) FIFO.
(b) Assuming that the perpetual inventory method is used and costs are computed at
the time of each withdrawal, what is the value of the ending inventory at LIFO?
(c) Assuming that the perpetual inventory method is used and costs are computed at
the time of each withdrawal, what is the gross profit if the inventory is valued at
FIFO?
(d) Why is it stated that FIFO usually produces a higher gross profit than LIFO?
2

5

E8-17B (FIFO and LIFO—Periodic and Perpetual) The following is a record of
Ensberg Company’s trans- actions for Colt Products for the month of May.
May

1 Balance 600 units @
12 $10.00 900 units @
Purchase
28 $03.00 600 units @
Purchase
$15.00

May 10 Sale 450 units @
$19 20 Sale 810 units @
$19

Instructions
(a) Assuming that perpetual inventories are not maintained and that a physical
count at the end of the month shows 840 units on hand, what is the cost of the
ending inventory using (1) FIFO and (2) LIFO?
(b) Assuming that perpetual records are maintained and they tie into the general
ledger, calculate the ending inventory using (1) FIFO and (2) LIFO.
8

E8-24B (Dollar-Value LIFO) The dollar-value LIFO method was adopted by Queen Corp. on
January 1,
2014. Its inventory on that date was $510,000. On December 31, 2017, the inventory at prices
existing on
that date amounted to $530,000. The price level at January 1, 2017, was 100, and the price level at
December 31, 2017, was 106.

1


2Chapter 8

Valuation of Inventories: A Cost-Basis

Approach
Instructions
(a) Compute the amount of the inventory at December 31, 2017, under the dollar-value LIFO
method.
(b) On December 31, 2017, the inventory at prices existing on that date was $588,600, and
the price
level was 109. Compute the inventory on that date under the dollar-value LIFO method.

2

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P8-4B (Compute FIFO, LIFO, and Average-Cost) Pillsbury Company’s record of
transactions concerning part WA6 for the month of September was as follows.
Purchases
September 1 (balance on hand)
3
12
16
22
26

Sales
300
@
200
@
300
@
300
@
500
@
300
@

$03.00
12.10
12.25
12.30
12.30
12.40

September 4
17
27
30

400
600
300
200

Instructions
(a) Compute the inventory at September 30 on each of the following bases. Assume
that perpetual in- ventory records are kept in units only. Carry unit costs to the
nearest cent.
(1) First-in, first-out
(FIFO).
(2)
Last-in, first-out
(LIFO).
(3) Average cost.

8

P8-8B (Dollar-Value LIFO) Marco Sun Fun manufactures three categories of bicylces:
Mountain, Road, and Hybrid. On January 1, 2017, Marco adopted dollar-value LIFO and
decided to use a single inventory pool. The company’s January 1 inventory consists of:
Category

Quantity

Cost per Unit

Total Cost

Mountain
Road
Hybrid

3,000
2,000
5,000

$450
800
250

$1,350,000
1,600,000
1,250,000

10,000

$4,200,000

During 2017, the company had the following purchases and sales.

Category

Quantity
Purchased

Cost per Unit

Quantity
Sold

Selling Price
per Unit

Mountain
Road
Hybrid

10,000
9,000
13,000

$495
820
300

11,000
8,000
12,000

$ 650
1,200
500

32,000

31,000

Instructions
(Round to four decimals.)
(a) Compute ending inventory, cost of goods sold, and gross profit.