Ch. 8 Valuation of Inventories A Cost - Basis Approach Solutions to Brief Exercises

SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 8-1 RIVERA COMPANY Balance Sheet (Partial) December 31 Current assets Cash..................................................................... Receivables (net)................................................ Inventories Finished goods........................................... Work in process.......................................... Raw materials.............................................. Prepaid insurance............................................... Total current assets.................................... $ 190,000 400,000 $170,000 200,000 335,000 705,000 41,000 $1,336,000 LO: 1, Bloom: AP, Difficulty: Simple, Time: 3-5, AACSB: Analysis , AICPA BB: None, AICPA FC: Reporting, AICPA PC:, AICPA BB: None BRIEF EXERCISE 8-2 Inventory (150 X $34) Accounts Payable 5,100 Accounts Payable (6 X $34) Inventory 204 5,100 204 Accounts Receivable (125 X $50) Sales 6,250 Cost of Goods Sold (125 X $34) Inventory 4,250 6,250 4,250 LO: 1, Bloom: AP, Difficulty: Simple, Time: 5-7, AACSB: Analysis , AICPA BB: None, AICPA FC: Reporting, AICPA PC:, AICPA BB: None BRIEF EXERCISE 8-3 December 31 inventory per physical count Goods-in-transit purchased FOB shipping point Goods-in-transit sold FOB destination December 31 inventory $ 200,000 25,000 22,000 $ 247,000 LO: 2, Bloom: AP, Difficulty: Simple, Time: 3-5, AACSB: Analysis , AICPA BB: None, AICPA FC: Reporting, AICPA PC:, AICPA BB: None 8-10 BRIEF EXERCISE 8-4 Weighted average cost per unit Ending inventory 400 X $11.85 = Cost of goods available for sale Deduct ending inventory Cost of goods sold (600 X $11.85) $11,850 = $ 11.85 1,000 $ 4,740 $11,850 4,740 $ 7,110 LO: 3, Bloom: AP, Difficulty: Moderate, Time: 3-5, AACSB: Analysis , AICPA BB: None, AICPA FC: Measurement, Reporting, AICPA PC:, AICPA BB: None BRIEF EXERCISE 8-5 April 23 April 15 Ending inventory Cost of goods available for sale Deduct ending inventory Cost of goods sold 350 X $13 = $ 4,550 50 X $12 = 600 $ 5,150 $11,850 5,150 $ 6,700 LO: 3, Bloom: AP, Difficulty: Moderate, Time: 3-5, AACSB: Analysis , AICPA BB: None, AICPA FC: Measurement, Reporting, AICPA PC:, AICPA BB: None BRIEF EXERCISE 8-6 April 1 April 15 Ending inventory Cost of goods available for sale Deduct ending inventory Cost of goods sold 250 X $10 = 150 X $12 = $ 2,500 1,800 $ 4,300 $11,850 4,300 $ 7,550 LO: 3, Bloom: AP, Difficulty: Moderate, Time: 3-5, AACSB: Analysis , AICPA BB: None, AICPA FC: Measurement, Reporting, AICPA PC:, AICPA BB: None 8-11 BRIEF EXERCISE 8-7 FIFO inventory balance at December 31, 2017....................... LIFO inventory balance at December 31, 2017....................... LIFO reserve at December 31, 2017........................................ $2,900,000 (1,500,000) 1,400,000 LIFO reserve at December 31, 2017........................................ LIFO reserve at January 1,....................................................... LIFO effect for 2017.................................................................. At December 31, 2017, the entry to record the LIFO effect is: Cost of Goods Sold 100,000 Allowance to Reduce Inventory to LIFO $1,400,000 (1,300,000) 100,000 100,000 LO: 4, Bloom: AP, Difficulty: Moderate, Time: 3-5, AACSB: Analysis , AICPA BB: None, AICPA FC: Measurement, Reporting, AICPA PC:, AICPA BB: None BRIEF EXERCISE 8-8 2016 2017 $100,000 $119,900 ÷ 1.10 = $109,000 $100,000 X 1.00.............................................................. $9,000* X 1.10................................................................ $100,000 9,900 $109,900 *$109,000 – $100,000 2018 $134,560 ÷ 1.16 = $116,000 $100,000 X 1.00.............................................................. $9,000 X 1.10.................................................................. $7,000** X 1.16............................................................... $100,000 9,900 8,120 $118,020 **$116,000 – $109,000 LO: 4, Bloom: AP, Difficulty: Moderate, Time: 5-7, AACSB: Analysis , AICPA BB: None, AICPA FC: Measurement, Reporting, AICPA PC:, AICPA BB: None 8-12 BRIEF EXERCISE 8-9 2017 inventory at base amount ($22,140 ÷ 1.08) 2016 inventory at base amount Increase in base inventory 2017 inventory under LIFO Layer one $19,750 X 1.00 Layer two $ 750 X 1.08 $ 20,500 (19,750) $ 750 2018 inventory at base amount ($25,935 ÷ 1.14) 2017 inventory at base amount Increase in base inventory 2018 inventory under LIFO Layer one $19,750 X 1.00 Layer two $ 750 X 1.08 Layer three $ 2,250 X 1.14 $ 22,750 20,500 $ 2,250 $ 19,750 810 $ 20,560 $ 19,750 810 2,565 $ 23,125 LO: 4, Bloom: AP, Difficulty: Moderate, Time: 3-5, AACSB: Analysis , AICPA BB: None, AICPA FC: Measurement, Reporting, AICPA PC:, AICPA BB: None BRIEF EXERCISE 8-10 Cost of goods sold as reported............................................... Overstatement of 12/31/16 inventory...................................... Overstatement of 12/31/17 inventory...................................... Corrected cost of goods sold......................................... $1,400,000 (110,000) 35,000 $1,325,000 12/31/17 retained earnings as reported.................................. Overstatement of 12/31/17 inventory...................................... Corrected 12/31/17 retained earnings............................ $5,200,000 (35,000) $5,165,000 LO: 5, Bloom: AP, Difficulty: Simple, Time: 3-5, AACSB: Analysis , AICPA BB: None, AICPA FC: Reporting, AICPA PC:, AICPA BB: None 8-13