Inventory Practice Problems PDF

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Inventory – Practice Problems Problem #1: During its first year of operations, Fulbright made the following purchases (listed in chronological order of acquisition):  40 units at $100  70 units at $ 80  170 units at $ 60 Sales for the year totaled 270 units, leaving 10 units on hand at the end of the year. Compute ending inventory using the FIFO method and LIFO.

Problem #2: Inventory purchase and sales data are as follows. [Note: There was no inventory before the purchase made on January 1.] Purchased on January 1 -- 100 units, $9 cost per unit Purchased on January 16 -- 300 units, $8 cost per unit Purchased on January 25 -- 400 units, $7 cost per unit Sold on January 31 -- 500 units, $10 selling price per unit The company uses AVERAGE COST. Compute GROSS MARGIN for January.

Problem #3 Inventory records for Herb's Chemicals revealed the following: March 1, 20X9, inventory of 1,000 gallons @ $7.20 = $7,200 Purchases: March 10 600 gals @ $7.25 March 16 800 gals @ $7.30 March 23 600 gals @ $7.35 Sales:

March 5 March 14 March 20 March 26

400 gals 700 gals 500 gals 700 gals

Compute ending inventory using the LIFO method assuming a perpetual inventory system is used.

Problem #4: If Tanks-4-All had beginning inventory of $1,845, purchases made during the year of $3,500, and ending inventory of $1,346 what is COGS for the year?

Problem #5: The following information comes from the 20X7 General Motors (GM) Corporation annual report to shareholders: Inventories included the following for Automotive and Other Operations ($ in millions): FIFO Inventory Adjustment LIFO Inventory

20X7 16,362 xxxxx 14,939

20X6 15,429 1,508 xxxxx

Cost of Goods Sold in 20X7 = $166,259 What is the amount of the LIFO reserve in 20X7?

Problem #6: Using the data below, compute NUMBER OF DAYS’ SALES IN INVENTORY. Note: If you need to compute the average balance for any account, assume that the beginning-of-year balance is the same as the end-of-year balance reported below. Accounts Payable 210 Accounts Receivable 1,600 Capital Stock 120 Cash 50 Cost of Goods Sold 300 Inventory 190 Long-term Debt 1,820 Net Income 140 Property, Plant, and Equipment (net) 700 Retained Earnings 390 Sales 1,500 Market value of shares 3,000

Compute Number of Days’ Sales in Inventory.,

Problem #7: The company reported the following inventory data for the month: Beginning Inventory = 300 units @ $17.50 Purchases: March 15 = 900 units @ $18.00 March 26 = 1,200 units @ $18.25 Units Remaining at Year End = 400 Compute cost of goods sold and ending inventory assuming LIFO inventory valuation. Assume that ALL sales occurred on March 31.

Problem #8: Shown below is activity for one of the products of Denver Office Equipment: January 1 balance, 500 units @ $55 = $27,500 Purchases: January 10: 500 units @ $60 January 20: 1,000 units @ $63 Sales: January 12: 800 units January 28: 750 units Compute cost of goods sold and ending inventory under FIFO, LIFO and average cost. Assume a perpetual inventory system is used.

Problem #9 Use the following data from the Joker Company to calculate the amounts below: Date 1/1 1/3 1/7 1/20 1/22 1/30

Transaction Beginning inventory Purchases Sales (@ $26 per unit) Purchases Sales (@ $27 per unit) Purchases

Quantity 2,000 18,000 7,000 6,000 16,000 3,000

Price/Cost 10.00 10.40 11.00 12.00

Assume Joker Company uses a perpetual inventory system. Calculate cost of goods sold and ending inventory using (1) FIFO, (2) LIFO and (3) average cost. Round per unit cost to two decimal places.

Conceptual Questions: 1. During periods when costs are rising and inventory quantities are stable, cost of goods sold will be: A. Higher under FIFO than LIFO. B. Higher under FIFO than average cost. C. Lower under average cost than LIFO. D. Lower under LIFO than FIFO.

2. During periods when costs are rising and inventory quantities are stable, ending inventory will be: A. Higher under LIFO than FIFO. B. Lower under average cost than LIFO. C. Higher under average cost than FIFO. D. Higher under FIFO than LIFO.

3. Which of the following is a reason why the specific identification method may be considered ideal for assigning costs to inventory and cost of goods sold? A. The potential for manipulation of net income is reduced. B. There is no arbitrary allocation of costs. C. The cost flow matches the physical flow. D. Able to use on all types of inventory.

4. Assuming no beginning inventory, what can be said about the trend of inventory prices if cost of goods sold computed when inventory is valued using the FIFO method exceeds cost of goods sold when inventory is valued using the LIFO method? A. Prices decreased. B. Prices remained unchanged. C. Prices increased. D. Price trend cannot be determined from information given.

5. An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation is: A.FIFO. B. LIFO. C. Weighted Average. D. None of the above.

ANSWERS Problem #1: During its first year of operations, Fulbright made the following purchases (listed in chronological order of acquisition):  40 units at $100  70 units at $ 80  170 units at $ 60 Sales for the year totaled 270 units, leaving 10 units on hand at the end of the year. Compute ending inventory using the FIFO method and LIFO. FIFO ending inventory = 10 units

$60 = $600.

LIFO ending inventory = 10 units at $100 = $1,000

Problem #2: Inventory purchase and sales data are as follows. [Note: There was no inventory before the purchase made on January 1.] Purchased on January 1 -- 100 units, $9 cost per unit Purchased on January 16 -- 300 units, $8 cost per unit Purchased on January 25 -- 400 units, $7 cost per unit Sold on January 31 -- 500 units, $10 selling price per unit The company uses AVERAGE COST. Compute GROSS MARGIN for January. Sales = 500 x $10 = $5,000 COGS = 500 x $7.625** = $3,813 Gross Margin = $5,000 - $3,813 = $1,187 **((100 x $9) + (300 x $8) + (400 x $7) ) / 800 =$7.625 per unit

Problem #3 Inventory records for Herb's Chemicals revealed the following: March 1, 20X9, inventory of 1,000 gallons @ $7.20 = $7,200 Purchases: March 10 600 gals @ $7.25 March 16 800 gals @ $7.30 March 23 600 gals @ $7.35 Sales:

March 5 March 14 March 20 March 26

400 gals 700 gals 500 gals 700 gals

Compute ending inventory using the LIFO method assuming a perpetual inventory system is used.

Ending inventory = $7.20 x 500 = $3,600 + $7.30 x 200 = $1,460 = $5,060

Problem #4: If Tanks-4-All had beginning inventory of $1,845, purchases made during the year of $3,500, and ending inventory of $1,346 what is COGS for the year?

Problem #5: The following information comes from the 20X7 General Motors (GM) Corporation annual report to shareholders: Inventories included the following for Automotive and Other Operations ($ in millions): FIFO Inventory Adjustment LIFO Inventory

20X7 16,362 1,423 14,939

20X6 15,429 1,508 13,921

Cost of Goods Sold in 20X7 = $166,259 What is the amount of the LIFO reserve in 20X7? 1,423

Problem #6: Using the data below, compute NUMBER OF DAYS’ SALES IN INVENTORY. Note: If you need to compute the average balance for any account, assume that the beginning-of-year balance is the same as the end-of-year balance reported below. Accounts Payable 210 Accounts Receivable 1,600 Capital Stock 120 Cash 50 Cost of Goods Sold 300 Inventory 190

Long-term Debt 1,820 Net Income 140 Property, Plant, and Equipment (net) 700 Retained Earnings 390 Sales 1,500 Market value of shares 3,000

Compute NUMBER OF DAYS’ SALES IN INVENTORY. Number of days' sales in inventory = 365 / (COGS / Avg. Inventory) = 365 / (300 / (190 + 190 / 2) ) = 231.2 days

Problem #7: The company reported the following inventory data for the month: Beginning Inventory = 300 units @ $17.50 Purchases: March 15 = 900 units @ $18.00 March 26 = 1,200 units @ $18.25 Units Remaining at Year End = 400 Compute cost of goods sold and ending inventory assuming LIFO inventory valuation. Assume that ALL sales occurred on March 31. During the month, there was a total of 2,400 units of inventory (300+900+1,200). Of these units, ending inventory contained 400, and the remainder were sold during the year. Using LIFO, the most recently purchased inventory is sold first, leaving the oldest units in ending inventory. COGS = (1,200 x $18.25) + (800 x $18.00) = $36,300 Ending Inventory = (300 x $17.50) + (100 x $18.00) = $7,050

Problem #8: Shown below is activity for one of the products of Denver Office Equipment: January 1 balance, 500 units @ $55 = $27,500 Purchases: January 10: 500 units @ $60 January 20: 1,000 units @ $63 Sales: January 12: 800 units January 28: 750 units Compute cost of goods sold and ending inventory under FIFO, LIFO and average cost. Assume a perpetual inventory system is used.

Problem #9 Use the following data from the Joker Company to calculate the amounts below: Date 1/1 1/3 1/7 1/20 1/22 1/30

Transaction Beginning inventory Purchases Sales (@ $26 per unit) Purchases Sales (@ $27 per unit) Purchases

Quantity 2,000 18,000 7,000 6,000 16,000 3,000

Price/Cost 10.00 10.40 11.00 12.00

Assume Joker Company uses a perpetual inventory system. Calculate cost of goods sold and ending inventory using (1) FIFO, (2) LIFO and (3) average cost. Round per unit cost to two decimal places.

Conceptual Questions 1. During periods when costs are rising and inventory quantities are stable, cost of goods sold will be: A. Higher under FIFO than LIFO. B. Higher under FIFO than average cost. C. Lower under average cost than LIFO. D. Lower under LIFO than FIFO. 2. During periods when costs are rising and inventory quantities are stable, ending inventory will be: A. Higher under LIFO than FIFO. B. Lower under average cost than LIFO. C. Higher under average cost than FIFO. D. Higher under FIFO than LIFO. 3. Which of the following is a reason why the specific identification method may be considered ideal for assigning costs to inventory and cost of goods sold? A. The potential for manipulation of net income is reduced. B. There is no arbitrary allocation of costs. C. The cost flow matches the physical flow. D. Able to use on all types of inventory. 4. Assuming no beginning inventory, what can be said about the trend of inventory prices if cost of goods sold computed when inventory is valued using the FIFO method exceeds cost of goods sold when inventory is valued using the LIFO method? A. Prices decreased. B. Prices remained unchanged. C. Prices increased. D. Price trend cannot be determined from information given. 5. An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation is: A.FIFO. B. LIFO. C. Weighted Average. D. None of the above....