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ACG 2021 - CHAPTER 5 – IN-CLASS EXERCISE - SOLUTION
PERPETUAL INVENTORY SYSTEM
EXAMPLE:
The inventory records of Synergy Prosthetics indicate the following purchases at July 31. First calculate the total amount of each purchase.
DATE UNITS PER UNIT
TOTAL
July 1 Beg Inventory 6 units $ 60 $
July 8 Purchase 5 units $ 67 335
July 15 Purchase 10 units $70 700
July 26 Purchase 5 units $85 425
AVAILABLE
FOR SALE 26 units^ $1,
On July 29th, Synergy sold 18 units at a price of $125 each. Compute Cost of Goods Sold and Ending Inventory using each of the following methods: FIFO, LIFO & Weighted Average Cost.
First-in-First-Out (FIFO)
A B C A x C B x C SOLD END INV PER UNIT
COGS END INV
From July 1 6 units $60 $
From July 8 5 units $67 335
From July 15 7 units 3 units $70 490 210
July 26 5 units $85 425
TOTAL 18 units 8 units $ 1,185 $ 635
Last-in-First-Out (LIFO)
A B C A x C B x C SOLD END INV PER UNIT
COGS END INV
From July 26 5 units $85 $
From July 15 10 units $70 700
From July 8 3 units 2 units $67 201 134
July 1 6 units $60 360
TOTAL 18 units 8 units $1,326 $ 494
Weighted Average Cost
AVERAGE COST COGS END INV
Inventory Available for Sale $1,
Divide by: Units Available for Sale 26
Average Cost $ 70 x 18 units X 8 units
TOTAL $1,260 $ 560
LOWER OF COST OR MARKET
Inventory is originally recorded at original cost. However, it should be periodically evaluated to see if adjustments need to be made to comply with the Lower of Cost or Market (LCM) rule.
Market value = Replacement Cost
A B C A x B A x C ITEM QTY COST PER UNIT
MV PER
UNIT
TOTAL
COST
TOTAL
MKT
LCM
X 20 $40 $42 $ 800 $ 840 $ 800
Y 15 38 35 570 525 525
Z 30 28 24 840 720 720
TOTAL $ 2,210 $ 2,085 $ 2,
If the LCM rule is applied to each individual item, show the entry necessary to adjust inventory.
Inventory COGS Bal. 2, 165 165
2,
If the LCM is applied to total inventory in aggregate, what would be the ending inventory after
adjustment? ___$2,085________
NOTE: Once an adjustment has been made to reduce the inventory total, you cannot make an entry
to increase the inventory balance later, even if the market value increases. Also, an entry can never
be made to record inventory above its original cost.
