Accounting, Analysis, and Principles
Englehart Company sells two types of pumps. One is large and is for commercial use. The other is smaller and is used in residentialswimming pools. The following inventory data is available for the month of March.
Price per
Units Unit Total
Residential Pumps
Inventory at Feb. 28: 200 \( 400 \) 80,000
Purchases:
March 10 500 \( 450 \)225,000
March 20 400 \( 475 \)190,000
March 30 300 \( 500 \)150,000
Sales:
March 15 500 \( 540 \)270,000
March 25 400 \( 570 \)228,000
Inventory at March 31: 500
Commercial Pumps
Inventory at Feb. 28: 600 \( 800 \)480,000
Purchases:
March 3 600 \( 900 \)540,000
March 12 300 \( 950 \)285,000
March 21 500 \(1,000 \)500,000
Sales:
March 18 900 \(1,080 \)972,000
March 29 600 \(1,140 \)684,000
Inventory at March 31: 500
Accounting
(a) Assuming Englehart uses a periodic inventory system, determine the cost of inventory on hand at March 31 and thecost of goods sold for March under first-in, first-out (FIFO).
(b) Assume Englehart uses dollar-value LIFO and one pool, consisting of the combination of residential and commercialpumps. Determine the cost of inventory on hand at March 31 and the cost of goods sold for March. Assume Englehart’sinitial adoption of LIFO is on March 1. Use the double-extension method to determine the appropriate price indices.
(Hint:The price index for February 28/March 1 should be 1.00.) (Round the index to three decimal places.)
Analysis
(a) Assume you need to compute a current ratio for Englehart. Which inventory method (FIFO or dollar-value LIFO) doyou think would give you a more meaningful current ratio?
(b) Some of Englehart’s competitors use LIFO inventory costing and some use FIFO. How can an analyst compare theresults of companies in an industry, when some use LIFO and others use FIFO?
Principles
Can companies change from one inventory accounting method to another? If a company changes to an inventory accounting methodused by most of its competitors, what are the trade-offs in terms of the conceptual framework discussed in Chapter 2 of the textbook?
The following is a record of Pervis Ellison Company’s transactions for Boston Teapots for the month of May 2017.
May 1 Balance 400 units @ \(20 May 10 Sale 300 units @ \)38
12 Purchase 600 units @ \(25 20 Sale 540 units @ \)38
28 Purchase 400 units @ $30
Instructions
(a) Assuming that perpetual inventories are not maintained and that a physical count at the end of the month shows 560units on hand, what is the cost of the ending inventory using (1) FIFO and (2) LIFO?
(b) Assuming that perpetual records are maintained and they tie into the general ledger, calculate the ending inventory using (1) FIFO and (2) LIFO.
Question:Stallman Company took a physical inventory on December 31 and determined that goods costing \(200,000 were on hand. Not included in the physical count were \)25,000 of goods purchased from Pelzer Corporation, f.o.b. shipping point, and \(22,000 of goods sold to Alvarez Company for \)30,000, f.o.b. destination. Both the Pelzer purchase and the Alvarez sale werein transit at year-end. What amount should Stallman report as its December 31 inventory?
At December 31, 2016, Stacy McGill Corporation reported current assets of \(370,000 and current liabilities of \)200,000. The following items may have been recorded incorrectly.
1. Goods purchased costing \(22,000 were shipped f.o.b. shipping point by a supplier on December 28. McGill received andrecorded the invoice on December 29, 2016, but the goods were not included in McGill’s physical count of inventorybecause they were not received until January 4, 2017.
2. Goods purchased costing \)15,000 were shipped f.o.b. destination by a supplier on December 26. McGill received andrecorded the invoice on December 31, but the goods were not included in McGill’s 2016 physical count of inventorybecause they were not received until January 2, 2017.
3. Goods held on consignment from Claudia Kishi Company were included in McGill’s December 31, 2016, physical countof inventory at \(13,000.
4. Freight-in of \)3,000 was debited to advertising expense on December 28, 2016.
Instructions
(a) Compute the current ratio based on McGill’s balance sheet.
(b) Recompute the current ratio after corrections are made.
(c) By what amount will income (before taxes) be adjusted up or down as a result of the corrections?
Presented below is information related to Kaisson Corporation for the last 3 years.
Quantities Base-Year Cost Current-Year Cost
in Ending
Item Inventories Unit Cost Amount Unit Cost Amount
December 31, 2016
A 9,000 \(2.00 \)18,000 \(2.20 \)19,800
B 6,000 3.00 18,000 3.55 21,300
C 4,000 5.00 20,000 5.40 21,600
Totals \(56,000 \)62,700
December 31, 2017
A 9,000 \(2.00 \)18,000 \(2.60 \)23,400
B 6,800 3.00 20,400 3.75 25,500
C 6,000 5.00 30,000 6.40 38,400
Totals \(68,400 \)87,300
December 31, 2018
A 8,000 \(2.00 \)16,000 \(2.70 \)21,600
B 8,000 3.00 24,000 4.00 32,000
C 6,000 5.00 30,000 6.20 37,200
Totals \(70,000 \)90,800
Instructions
Compute the ending inventories under the dollar-value LIFO method for 2016, 2017, and 2018. The base period is January 1, 2016,and the beginning inventory cost at that date was $45,000. Compute indexes to two decimal places.
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