Assume that the market price per unit (cost to replace) of Douglas’s inventory on December 31 was $13. Calculate the total amount to be assigned to the ending inventory on December 31 under each of the following methods:

Assume that the market price per unit (cost to replace) of Douglas’s inventory on December 31 was $13. Calculate the total amount to be assigned to the ending inventory on December 31 under each of the following methods:

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January 5, 2022
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Douglas Company’s beginning inventory and purchases during the fiscal year ended December 31, 20–, were as follows:

There are 1,000 units of inventory on hand on December 31.
Calculate the total amount to be assigned to the ending inventory and cost of goods sold on December 31 under each of the following methods:

a. FIFO

Douglas Company’s beginning inventory and purchases during the fiscal year ended December 31, 20–, were as follows:

There are 1,000 units of inventory on hand on December 31.
Calculate the total amount to be assigned to the ending inventory and cost of goods sold on December 31 under each of the following methods:

b. LIFO

Douglas Company’s beginning inventory and purchases during the fiscal year ended December 31, 20–, were as follows:

There are 1,000 units of inventory on hand on December 31.
Calculate the total amount to be assigned to the ending inventory and cost of goods sold on December 31 under each of the following methods:

c. Weighted-average (round calculations to two decimal places)

Assume that the market price per unit (cost to replace) of Douglas’s inventory on December 31 was $13. Calculate the total amount to be assigned to the ending inventory on December 31 under each of the following methods:

a. FIFO lower-of-cost-or-market

Assume that the market price per unit (cost to replace) of Douglas’s inventory on December 31 was $13. Calculate the total amount to be assigned to the ending inventory on December 31 under each of the following methods:

b. Weighted-average lower-of-cost-or-market

Prepare required entries to apply:

a. FIFO lower-of-cost-or-market

Prepare required entries to apply:

b. Weighted-average lower-of-cost-or-market

Answer and ExplanationSolution by a verified expert

1a
Step 1 of 4
In order to determine how many units were sold, the number of ending units is subtracted from the total number of units available for sale.

Units Sold = Total Units Available for Sale - Ending Units

4,400 = 5.400 - 1,000

Step 2 of 4
In FIFO, the first units purchased are the first units sold. Step 1 calculated that 4,400 units were sold, so the first 4,400 units purchased are the ones to be used in the cost calculation. The following units are included:

Beginning Inventory Jan 1 = 1,100 units

1st purchase = 900 units

2nd purchase = 400 units

3rd purchase = 700 units

4th purchase = 600 units

5th purchase = 700 units (out of 800 units)

Units sold = 1,100 + 900 + 400 + 700 + 600 + 700 = 4,400

Step 3 of 4
Determine the cost of goods sold for the 4,400units from step 2 by using the cost for each of the units.

Beginning Inventory Jan 1 = 1,100 units @ $8.00 = $8,800

1st purchase = 900 units @ 9.00 = $8,100

2nd purchase = 400 units @ $9.50 = $3,800

3rd purchase = 700 units @ $10.25 = $7,175

4th purchase = 600 units @ $11.00 = $6,600

5th purchase = 700 units @ 12.00 = $8,400

Cost of Goods Sold = $8,800 + $8,100 + $3,800 + $7,175 + $6,600 + $8,400 = $42,875

Step 4 of 4
Determine the value of the ending inventory by subtracting the cost of goods sold from the cost of goods available for sale.

Ending Inventory = Cost of Goods Available for Sale - Cost of Goods Sold

Ending Inventory = $56,700- $42,875= $13,825

Final answer
The cost of goods sold with the FIFO method is $42,875. The cost of ending inventory = $13,825.

b
Step 1 of 4
In order to determine how many units were sold, the number of ending units is subtracted from the total number of units available for sale.

Units Sold = Total Units Available for Sale - Ending Units

4,400 = 5,400 - 1,000

Step 2 of 4
In LIFO, the last units purchased are the first units sold. Step 1 calculated that 4,400 units were sold, so the last 4,400 units purchased are the ones to be used in the cost calculation. The following units are included:

7th purchase = 500 units

6th purchase = 400 units

5th purchase = 800 units

4th purchase = 600 units

3rd purchase = 700 units

2nd purchase = 400 units

1st purchase = 900 units

Beginning Inventory = 100 (out of 1,100)

Units sold = 500 + 400 + 800 + 600 + 700 + 400 + 900 + 100 = 4,400

Step 3 of 4
Determine the cost of goods sold for the 4,400 units from step 2 by using the cost for each of the units.

7th purchase = 500 units @ $14.05 = $7,025

6th purchase = 400 units @ $14.00 = $5,600

5th purchase = 800 units @ $12.00 = $9,600

4th purchase = 600 units @ $11.00 = $6,600

3rd purchase = 700 units @ $10.25 = $7,175

2nd purchase = 400 units @ $9.50 = $3,800

1st purchase = 900 units @ $9.00 = $8,100

Beginning Inventory = 100 @ $8.00 = $800

Cost of Goods Sold = $7,025 + $5,600 + $9,600 + $6,600 + $7,175 + $3,800 + $8,100 + $800 = $48,700

Step 4 of 4
Determine the value of the ending inventory by subtracting the cost of goods sold from the cost of goods available for sale.

Ending Inventory = Cost of Goods Available for Sale - Cost of Goods Sold

Ending Inventory = $56,700 - $48,700= $8,000

Final answer
The cost of goods sold with the LIFO method is $48,700. The cost of ending inventory = $8,000

c
Step 1 of 4
Calculate the average cost per unit by dividing cost of goods available for sale by the total number of units.

Average cost per unit = Cost of Goods Available for Sale/Total Number of Units

Average cost per unit = $56,700/5,400 = $10.50

Step 2 of 4
In order to determine how many units were sold, the number of ending units is subtracted from the total number of units available for sale.

Units Sold = Total Units Available for Sale - Ending Units

4,400 = 5,400 - 1,000

Step 3 of 4
Calculate the cost of goods sold by multiplying the number of units sold by the average cost per unit.

Cost of Goods Sold = Number of Units Sold x Average Cost Per Unit

Cost of Goods Sold = 4,400 x $10.50 = $46,200

Step 4 of 4
Calculate the ending inventory by multiplying the number of ending units by the average cost per unit.

Ending Inventory = Number of Ending Units x Average Cost Per Unit

Ending Inventory = 1,000 x $10.50 = $10,500

Final answer
The cost of goods sold with the weighted cost method is $46,200.The cost of ending inventory = $10,500

2a
Step 1 of 3
Identify FIFO cost from Problem 1.

FIFO cost $13,825

Step 2 of 3
Calculate the market cost of 1,000 units at $13.00 per unit.

Market Cost = Number of Units x Market Price per Unit

$13,000 = 1,000 x $13.00

Step 3 of 3
Determine which cost is lower: FIFO or market. Market is lower.

FIFO = $13,825 > Market Cost $13,000

Final answer
Choose Market Cost with a cost of $13,000.

b
Step 1 of 3
Identify weighted average cost from Problem 1.

Weighted Average Cost = $10,500

Step 2 of 3
Calculate the market cost of 1,000 units at $13.00 per unit.

Market Cost = Number of Units x Market Price per Unit

$13,000 = 1,000 x $13.00

Step 3 of 3
Determine which cost is lower: weighted average or market. Weighted average is lower.

Weighted average = $10,500 < Market Cost $13,000 Final answer Choose the weighted average cost at $10,500

3a
Explanation
A journal entry provides information about all business transactions. On December 31st, is a debit to the loss on write-down of inventory and a credit to the merchandise inventory for $825. This entry is to record the loss in inventory value.

The loss in inventory value is determined by subtracting FIFO ending inventory cost of $13,825 from the market value of $13,000.

Loss In Inventory Value = Market Value - FIFO Ending

Inventory

= $13,000 - $13,825

= ($825)

b
Here is a tip:
Profit or loss in the inventory value provides an indication as to whether journal entry is required or not.

Explanation
The ending inventory value per unit under the weighted average method is $10,500. The market value per unit of the inventory is $13,000. No journal entry is required in this case, as the ending inventory per unit value is lower than the market value per unit.

Verified Answer
No journal entry is required.

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