1. 1 Class Problem Dallas Company had the following inventory transactions at the end of 2008. Indicate whether Dallas should show the inventory in its financials as of 12/31/08. 1. On 12/28, purchased inventory, FOB Destination. Shipped 12/28, did not arrive until Jan. 2. Not part of Dallas inventory 2. On Dec. 29, purchased inventory, FOB Shipping Point. Shipped 12/29, did not arrive until Jan. 2 Part of Dallas inventory 3. On 12/28, sold inventory to Houston Company, FOB Destination. Shipped 12/28; Houston received on Jan. 2. Part of Dallas inventory

2. 2 Class Problem Dallas Company had the following inventory transactions at the end of 2008. Indicate whether Dallas should show the inventory in its financials as of 12/31/08. 4. On 12/28, sold inventory to Amarillo Company, FOB Shipping Point. Shipped 12/28; Amarillo received on Jan. 2. Not part of Dallas inventory. 5. On 12/28, sold inventory to Amarillo Company, FOB Shipping Point. Shipped 12/28; Amarillo received on Dec. 29. Not part of Dallas inventory.

3. 3 Class Problem - Cost Flows Given the following activity for January: Cost Total Units per Unit Cost Begin Inventory 20 $ 9.00 $180 Purchase 1/10 40 10.00 400 Purchase 1/22 30 11.00 330 Total available 90 units $910 Sales - 55 units Ending inventory? 35 units

4. 4 FIFO(LISH) FIFO for COGS (top down) 55 units 20 @ $9 = $180 35 @ $10 = $350 Total = $530 LISH for EI (bottom up) 35 units 30 @ $11 = $330 5 @ $10 = $ 50 Total $380

5. 5 LIFO(FISH) LIFO for COGS (bottom up) 55 units 30 @ $11 = $330 25 @ $10 = $250 Total =$580 FISH for EI (top down) 35 units 20 @ $ 9 = $180 15 @ $10 = $150 Total = $330

6. 6 Average First calculate average: Goods available cost = $910 Goods available units = 90 units Avg. = $10.11 per unit Now COGS: 55 units x $10.11 per unit = $ 556 Now EI: 35 units x $10.11 per unit = $354

7. Comparison of FIFO, LIFO, and Average In times of rising prices: highest COGS: lowest COGS highest EI lowest EI highest Net Income lowest Net Income LIFO FIFO

8. 9 Class Problem-Inventory Error Assume that the ending inventory of 2007 was undervalued by $9,000. If the error goes undetected in 2008, what effect would the error have on the balance sheet and income statement accounts for 2007 and 2008. Analyze using the following relationships: BI + P - EI = COGS NI A = L + SE Note that the asset account in inventory error analysis is ending inventory, and the equity effect is retained earnings, specifically the effect on net income.

9. 10 Class Problem Analysis (O = overstated, U = understated): BI + P - EI = COGS NI A = L + SE 07:9u9o9u 08:9u 9oXX Why no effect on 2008 ending SE? NI 2007 understated by $9,000 NI 2008 overstated by $9,000 Both closed to RE, so no net effect at end.

10. 5. Journal Entries - Periodic System Part 1: What is the value of Cost of Goods Sold? BI + P (net) + TI = EI + COGS 2,600 + [12,000 -900 -1,400] + 500= 1,900 + COGS 10,900 = COGS Part 2, AJE: Cost of Goods Sold10,900 Inventory - Ending 1,900 Purchase Discounts 900 Purchase Rt. & Allow. 1,400 Purchases12,000 Transportation-in 500 Inventory - Beginning 2,600

11. Exercise 5-6 Note: terms 1/10, n/30 7/3: Purchases3,500 A/P-Wildcat3,500 7/6: Purchases7,000 A/P-Cyclone7,000 7/12:Cash paid? $3,500 x.99 = $3,465 A/P-Wildcat3,500 Cash3,465 Purchase discounts 35

12. Exercise 5-6 8/5: A/P-Cyclone7,000 Cash7,000 Hints for E5-7: 3/3: Shipping costs: Transportation-In 250 Cash 250 3/15: A/P-Boilermaker 500 Purchase Allowance 500 3/22:A/P-Gopher 400 Purchase Returns 400 (For Returns & Allowances, remember to reduce A/P for these items before calculating amount due or discount.)

13. Exercise 5-11 Part 1 in class: First: Calculate dollar amount of Goods Available for Sale (GAS): BI 65 @ $20 = $1,300 P 50 @ $22 = 1,100 P 60 @ $23 = 1,380 P 45 @ $24 = 1,080 Tot.220 units $4,860 Sold 140 units So EI = 220 – 140 = 80 units

14. Exercise 5-11 Part 1 in class: This is Specific Identification: 55@ $20 = $1,100 35@ $22 = $ 770 45@ $23 = $1,035 5@ $24 = $ 120 Total $3,025 COGS EI = GAS – COGS EI = $4,860 - $3,025 = $1,835 (You do Average, FIFO, LIFO.)

15. Problem 5-11 Note, you do not need individual sales for periodic system - just total sales: In units: 500 + 700 + 800 =2,000 units Sales in dollars (only for Part 3): (1,200@ $10) + (800 @ $11) = $20,800 Now cost layers for all techniques: BI 600 @ $5.00 = $3,000 P 800 @ $5.40 = 4,320 P 700 @ $5.76 = 4,032 P 800 @ $5.90 = 4,720 GAS 2,900 units $16,072 Sold 2,000 units So EI=900 units (For Wt. AVG: $16,072/2,900 =$5.542 per unit)

16. Problem 5-11 LIFO EI (900 units)= FISH (first) BI 600 @ $5.00 = $3,000 10/8 300 @ $5.40 = $1,620 Total $4,620 LIFO COGS (2000 units) = LIFO (last) 10/29 800 @ $5.90 = $ 4,720 10/18 700 @ $5.76 = $ 4,032 10/8 500 @ $5.40 = $ 2,700 Total$11,452 Or COGS = GAS – EI = 16,072 – 4,620 = 11,452

17. Problem 5-11 Income Statement Sales$ 20,800 COGS 11,452 Gross Margin$ 9,348 Operating Expenses 3,000 Income before Taxes$ 6,348 Income Tax Expense 1,904 Net Income$ 4,444