in.wbn.outs.010 Determining inventory cost outflow measures and entries

Transcription

1 Inventory» What s Behind the Numbers» Cost Outflows» Exercises EXERCISES in.wbn.outs.010 Determining inventory cost outflow measures and entries (CTSW Company) Use the templates provided for this exercise to determine the cost outflow measures under FIFO, LIFO, and Weighted Average cost methods, compare the consequences of each method, and record related entries. Use the templates in either the Excel file that s provided with the exercise materials or the tables at the end of this exercise. Compute This exercise helps you learn how to compute information. Events Craig Tessiatore s Ski Wear (CTSW) incorporated on March 31, 2010 and started operations on April 1, Its first quarter ends on June 30 th, second quarter on September 30 th and third quarter on December 31 st. CTSW had the following inventory purchases (units and purchase prices), sales (negative units), and units in ending inventory for each quarter: Units Purchase price per unit April 1 10 $100 April 1 - May 20 (6) May $110 May 21 - June 30 (30) June 30 9 July 1 45 $120 July 1- August 17 (30) August $130 August 17 - September 30 (55) September October $140 October 1 - November 24 (90) November $150 November 24 - December 31 (95) Record Keeping This exercise helps you learn how to do record keeping and reporting. December At the end of its third quarter, CTSW determined that the market value of the 24 units in ending inventory is $110 per unit. This is the market value the company used to determine if it needed to record an inventory impairment. You may customize this work, as long as you credit G. Peter & Carolyn R. Wilson and respect the Creative Commons Attribution-Noncommercial-Share Alike United States license NavAcc LLC.

2 2 NAVIGATING ACCOUNTING Part I: Determine measures under FIFO, LIFO, and Weighted Average Required (a) Complete Table 1: FIFO Perpetual including the FIFO Summary at the bottom of the page. Use either the Excel file template provided with the exercise materials or the template provided at the end of this exercise. Excel tip: Use the formula in cell AI12 ($1,000 total cost of April 1 purchase) to determine the other totals in this column. This tip also applies to Table 2. (b) Complete Table 2: LIFO Perpetual including the LIFO Summary. (c) Complete Table 3: Weighted Average Perpetual including the Weighted Average Summary. Part II: Compare FIFO, LIFO, and Weighted Average measures Required (a) Complete Table 4: LIFO Reserves, LIFO-FIFO Comparisons, and LIFO Tax Savings. Part III: Record entries under LIFO Required (a) Record entries for purchases, sales, LIFO reserve, and inventory impairments, if needed. Ignore other events (such as payments of AP balances). Determine trial balances, closing entries, and ending balances for each quarter. Use either the Excel file template provided with the exercise materials or the template provided on the next page NavAcc LLC, G. Peter & Carolyn R. Wilson

3 Table 1: FIFO Perpetual Complete the table below for the cost outflows under FIFO. Complete the FIFO Summary below for the quarterly cost of sales and ending inventory balances. Units Input Costs Layers Total March 31, = $0 April 1 10 $100 = $1,000 Sales, April 1 - May 20 (6) = Purchase, May $110 = $3,850 Sales, May 21 - June 30 (30) = June 30 9 = Purchase, July 1 45 $120 = $5,400 Sales, July 1- August 17 (30) = Purchase, August $130 = $7,800 Sales, August 17 - September 30 (55) = September = Purchase, October $140 = $14,000 Sales, October 1 - November 24 (90) = Purchase, November $150 = $12,000 Sales, November 24 - December 31 (95) = December 31 pre-impairment balance 24 = December 31 LCM impairment: market = $ = December 31 final balance 24 = FIFO Summary Cost of Sales Ending Inventory First quarter, April 1 - June 30 Second quarter, July 1 - September 30 Third quarter, October 1 - December 31

4 Table 2: LIFO Perpetual Complete the table below for the cost outflows under LIFO. Complete the LIFO Summary below for the quarterly cost of sales and ending inventory balances. Units Input Costs Layers Total March 31, = $0 April 1 10 $100 = $1,000 Sales, April 1 - May 20 (6) = Purchase, May $110 = $3,850 Sales, May 21 - June 30 (30) = June 30 9 = Purchase, July 1 45 $120 = $5,400 Sales, July 1- August 17 (30) = Purchase, August $130 = $7,800 Sales, August 17 - September 30 (55) = September = Purchase, October $140 = $14,000 Sales, October 1 - November 24 (90) = Purchase, November $150 = $12,000 Sales, November 24 - December 31 (95) = December 31 pre-impairment balance 24 = December 31 LCM impairment: market = $ = December 31 final balance 24 = LIFO Summary Cost of Sales Ending Inventory First quarter, April 1 - June 30 Second quarter, July 1 - September 30 Third quarter, October 1 - December 31

5 Table 3: Weighted Average Perpetual Complete the table below for the cost outflows under weighted average. Complete the Weighted Average Summary below for the quarterly cost of sales and ending inventory balances. Updated units Updated total and average cost units Changes inventory March 31, $0.0 = $0 $0 $0.0 April 1 10 $100.0 = $1,000 Sales, April 1 - May 20 (6) Purchase, May $110.0 = $3,850 Sales, May 21 - June 30 (30) = June 30 9 Purchase, July 1 45 $120.0 = $5,400 Sales, July 1- August 17 (30) = Purchase, August $130.0 = $7,800 Sales, August 17 - September 30 (55) = September Purchase, October $140.0 = $14,000 Sales, October 1 - November 24 (90) = Purchase, November $150.0 = $12,000 Sales, November 24 - December 31 (95) = December 31 pre-impairment balance 24 December 31 LCM impairment: market = $ December 31 final balance 24 Weighted average Summary First quarter, April 1 - June 30 Second quarter, July 1 - September 30 Third quarter, October 1 - December 31 Cost of Sales Ending Inventory

6 Table 4: LIFO Reserves, LIFO-FIFO Comparisons, and LIFO Tax Savings Complete table (a) measured at the balance sheet dates. Complete table (b) measured over each reporting period. Assumed tax rate: 40% Inventories, LIFO Reserve, and Cumulative LIFO Tax Savings (Measured at Balance Sheet Dates) December 31 March 31 June 30 September 30 Pre-impairment Post-impairment Units Cost Units Cost Units Cost Units Cost Units Cost FIFO inventory 0 $ LIFO inventory 0 $ LIFO reserve 0 $ Cumulative tax savings $0 Cost of Sales, Increase in LIFO Reserve, and Quarterly Tax Savings (Measured Over Reporting Periods) Third Quarter First Quarter Second Quarter Pre-impairment Post-impairment Cost of sales FIFO Increase in LIFO reserve Cost of sales LIFO Quarterly LIFO tax savings

7 BSE matrix: Inventories Entries Record entries for purchases, sales, LIFO reserve, and impairments. Ignore other events (such as payments of AP balances). Determine trial balances, closing entries, and quarter ending balances. + + FIFO Inventory Assets LIFO Inventory - LIFO Reserve = LIABILITIES + OWNERS' = + AP March 31, $0 - $0 + $0 - $0 First quarter purchases + - = + - First quarter FIFO cost of sales + - = + - First quarter increase in LIFO reserve + - = + - Other events (ignore) + - +? - First quarter trial balance + - +? - First quarter closing entries June ? - Second quarter purchases + - = + - Second quarter FIFO cost of sales + - = + - Second quarter increase in LIFO reserve + - = + - Other events (ignore) + - +? - Second quarter trial balance + - +? - Second quarter closing entries September = +? - Third quarter purchases + - = + - Third quarter FIFO cost of sales + - = + - Third quarter pre-impairment increase in LIFO reserve + - = + - Third quarter LCM impairment + - = + - Other events (ignore) + - +? - Third quarter trial balance + - +? - Third quarter closing entries December = +? - - EQUITY LIFO cost of sales