Financial and Managerial Accounting
15th Edition Warren Solutions Manual
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, CHAPTER 6
INVENTORIES
DISCUSSION QUESTIONS
1. The receiving report should be reconciled to the initial purchase order and the vendor’s invoice before
recording or paying for inventory purchases. This procedure will verify that the inventory received
matches the type and quantity of inventory ordered. It also verifies that the vendor’s invoice is charging
the company for the actual quantity of inventory received at the agreed-upon price.
2. A physical inventory should be taken periodically to test the accuracy of the perpetual records. In
addition, a physical inventory will identify inventory shortages or shrinkage.
3. No, they are not techniques for determining physical quantities. The terms refer to cost flow
assumptions, which affect the determination of the cost prices assigned to items in the inventory.
4. a. LIFO c. LIFO
b. FIFO d. FIFO
5. FIFO
6. LIFO. In periods of rising prices, the use of LIFO will result in the lowest net income and thus the
lowest income tax expense.
7. The inventory should be valued using the lower of its cost of $1,350 or its market (net realizable) value
of $1,295 ($1,475 – $180). Thus, the inventory should be valued at its market value of $1,295.
8. a. Gross profit for the year was understated by $14,750.
b. Inventory and stockholders’ equity (retained earnings) were understated by $14,750.
9. Bibbins Company. Since the merchandise was shipped FOB shipping point, title passed to Bibbins
Company when it was shipped and should be reported in Bibbins Company’s financial statements at
May 31, the end of the fiscal year.
10. Manufacturer’s. The manufacturer retains title until the goods are sold. Thus, any unsold merchandis at
the end of the year is part of the manufacturer’s (consignor’s) inventory, even though the merchandise is
in the hands of the retailer (consignee).
6-1
© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 6 Inventories
BASIC EXERCISES
BE 6–1
Gross Profit Ending Inventory
April April 30
a. First-in, first-out (FIFO) $200 ($300 – $100) $260 ($120 + $140)
b. Last-in, first-out (LIFO) $160 ($300 – $140) $220 ($100 + $120)
c. Weighted average cost $180 ($300 – $120) $240 ($120 2)
BE 6–2
a. Cost of goods sold (October 24):
40 units @ $30 $1,200
110 units @ $33 3,630
150 $4,830
b. Inventory, October 31: $2,310 = 70 units $33
BE 6–3
a. Cost of goods sold (July 27):
$5,800 = (100 units $58)
b. Inventory, July 31:
15 units @ $52 $ 780
25 units @ $58 1,450
40 $2,230
BE 6–4
a. Weighted average unit cost: $11.44
Inventory total cost after purchase on October 22:
140 units @ $10 $1,400
360 units @ $12 4,320
500 $5,720
Weighted average unit cost = $11.44 ($5,720 500 units)
b. Cost of goods sold (October 29): $3,432 (300 units $11.44)
c. Inventory, October 31: $2,288 (200 units $11.44)
6-2
© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 6 Inventories
BE 6–5
a. First-in, first-out (FIFO) method: $14,700 = (60 units $200) + (15 units $180)
b. Last-in, first-out (LIFO) method: $12,900 = (40 units $165) + (35 units $180)
c. Weighted average cost method: $13,650 (75 units $182), where average cost =
$182 = $54,600 300 units
BE 6–6
Market Total
Value per
Cost Unit (Net
Inventory per Realizable
Commodity Quantity Unit Value) Cost Market LCM
JFW1 6,330 $10 $11 $ 63,300 $ 69,630 $ 63,300
SAW9 1,140 36 34 41,040 38,760 38,760
Total $104,340 $108,390 $102,060
BE 6–7
Amount of Misstatement
Overstatement (Understatement)
Balance Sheet:
Inventory overstated* .................................... $ 8,780
Current assets overstated ............................ 8,780
Total assets overstated ................................. 8,780
Stockholders’ equity overstated .................. 8,780
Income Statement:
Cost of goods sold understated. .................. $(8,780)
Gross profit overstated ................................. 8,780
Net income overstated .................................. 8,780
* $728,660 – $719,880 = $8,780
6-3
© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
15th Edition Warren Solutions Manual
Visit to download the full and correct content document: https://testbankdeal.com/dow
nload/financial-and-managerial-accounting-15th-edition-warren-solutions-manual/
, CHAPTER 6
INVENTORIES
DISCUSSION QUESTIONS
1. The receiving report should be reconciled to the initial purchase order and the vendor’s invoice before
recording or paying for inventory purchases. This procedure will verify that the inventory received
matches the type and quantity of inventory ordered. It also verifies that the vendor’s invoice is charging
the company for the actual quantity of inventory received at the agreed-upon price.
2. A physical inventory should be taken periodically to test the accuracy of the perpetual records. In
addition, a physical inventory will identify inventory shortages or shrinkage.
3. No, they are not techniques for determining physical quantities. The terms refer to cost flow
assumptions, which affect the determination of the cost prices assigned to items in the inventory.
4. a. LIFO c. LIFO
b. FIFO d. FIFO
5. FIFO
6. LIFO. In periods of rising prices, the use of LIFO will result in the lowest net income and thus the
lowest income tax expense.
7. The inventory should be valued using the lower of its cost of $1,350 or its market (net realizable) value
of $1,295 ($1,475 – $180). Thus, the inventory should be valued at its market value of $1,295.
8. a. Gross profit for the year was understated by $14,750.
b. Inventory and stockholders’ equity (retained earnings) were understated by $14,750.
9. Bibbins Company. Since the merchandise was shipped FOB shipping point, title passed to Bibbins
Company when it was shipped and should be reported in Bibbins Company’s financial statements at
May 31, the end of the fiscal year.
10. Manufacturer’s. The manufacturer retains title until the goods are sold. Thus, any unsold merchandis at
the end of the year is part of the manufacturer’s (consignor’s) inventory, even though the merchandise is
in the hands of the retailer (consignee).
6-1
© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 6 Inventories
BASIC EXERCISES
BE 6–1
Gross Profit Ending Inventory
April April 30
a. First-in, first-out (FIFO) $200 ($300 – $100) $260 ($120 + $140)
b. Last-in, first-out (LIFO) $160 ($300 – $140) $220 ($100 + $120)
c. Weighted average cost $180 ($300 – $120) $240 ($120 2)
BE 6–2
a. Cost of goods sold (October 24):
40 units @ $30 $1,200
110 units @ $33 3,630
150 $4,830
b. Inventory, October 31: $2,310 = 70 units $33
BE 6–3
a. Cost of goods sold (July 27):
$5,800 = (100 units $58)
b. Inventory, July 31:
15 units @ $52 $ 780
25 units @ $58 1,450
40 $2,230
BE 6–4
a. Weighted average unit cost: $11.44
Inventory total cost after purchase on October 22:
140 units @ $10 $1,400
360 units @ $12 4,320
500 $5,720
Weighted average unit cost = $11.44 ($5,720 500 units)
b. Cost of goods sold (October 29): $3,432 (300 units $11.44)
c. Inventory, October 31: $2,288 (200 units $11.44)
6-2
© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 6 Inventories
BE 6–5
a. First-in, first-out (FIFO) method: $14,700 = (60 units $200) + (15 units $180)
b. Last-in, first-out (LIFO) method: $12,900 = (40 units $165) + (35 units $180)
c. Weighted average cost method: $13,650 (75 units $182), where average cost =
$182 = $54,600 300 units
BE 6–6
Market Total
Value per
Cost Unit (Net
Inventory per Realizable
Commodity Quantity Unit Value) Cost Market LCM
JFW1 6,330 $10 $11 $ 63,300 $ 69,630 $ 63,300
SAW9 1,140 36 34 41,040 38,760 38,760
Total $104,340 $108,390 $102,060
BE 6–7
Amount of Misstatement
Overstatement (Understatement)
Balance Sheet:
Inventory overstated* .................................... $ 8,780
Current assets overstated ............................ 8,780
Total assets overstated ................................. 8,780
Stockholders’ equity overstated .................. 8,780
Income Statement:
Cost of goods sold understated. .................. $(8,780)
Gross profit overstated ................................. 8,780
Net income overstated .................................. 8,780
* $728,660 – $719,880 = $8,780
6-3
© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
