A140/ACG1022 Section 01 Financial Accounting – Module 05 Inventory

Module 05 Content

Scenario:

You are an employee at a full-service bookkeeping and auditing firm called Accounting Solutions. Your long-term client Jane Jewels owns a retail hobby store, Hobbies Galore. Jane is switching from a periodic inventory to a perpetual inventory system. She has asked you to complete some inventory costing schedules using different methods.

Assessment Instructions:

Download the following Excel template.

Module 05 Assignment Inventory.xlsx

Use the information given to complete the following:

Complete a FIFO cost schedule and the corresponding journal entries.

Complete a LIFO cost schedule and the corresponding journal entries.

Complete a weighted average cost schedule and the corresponding journal entries.

Complete the table and answer the question about the cost schedules.

Estimate the ending inventory using the gross profit method and answer the last question.

Assessment Requirements/Submission Requirement:

Excel spreadsheet

Be sure to use the correct Excel formulas and formatting. IVE ATTACHED A WORD DOC WITH THE YOUTUBE LINKS TO THE VIDEOS TO HELP GUIDE.

RUBRIC:

1. FIFO Cost Schedule

Mastery

All elements are calculated correctly.

2. LIFO Cost Schedule

MasteryAll elements are calculated correctly.

3. Weighted Average Cost Schedule

MasteryAll elements are calculated correctly.

4. Journal Entries

Mastery

All journal entries were completed accurately. Debit and credit accounts and numbers are correct.

5. Part 4 and Answers to Questions

Mastery

The explanation is accurate and fully addresses the question. When required correct numbers and examples are given to support the answer

6. Estimating Inventory

Mastery

All line items and numbers are entered and completed correctly. The estimated inventory is correct.

7. Excel Use

Mastery

Excel formulas are used for all math operations and where appropriate, use cell references accurately. Excel formulas show a correct procedure and paper trail (uses the equal key to copy and transfer numbers when appropriate).

8. Professional Format

Mastery

Professional formatting of numbers, figures, and journal entries present with no errors in application, including: *dollar signs only on the first item in a column and last item(s) in document *decimals set to 0 unless the amount includes cents *1,000 comma separator format set. *Credits are indented when needed, *Capital letters are used on account names when needed. *There are no gaps in the information (lines are not randomly left blank.

Demo assignment

Merchandising transactions

Estimating inventory

Module 05 Assignment Inventory
Use the information below to complete the tasks. (HINT: under view use “freeze panes” so it is easier to scroll through
Model Airplane kits sell for $50 each
Hobbies Galore
Item: Model Airplane kits
Date
Item
1-Aug Balance
5-Aug Purchase
12-Aug Sale
15-Aug Purchase
28-Aug Sale
Quantity
5
7
8
13
9
Unit Cost
$20
$21
$22
1
Prepare a perpetual inventory costing record using FIFO and journalize the purchase and sales transactio
Purchases
Cost of Goods Sold
Date
Quantity
Unit Cost Total Cost
Quantity
Unit Cost Total Cost
1-Aug
5-Aug
7
$21
$147
$0
12-Aug
$0
5
$20
$100
$0
3
$22
$66
15-Aug
13
$22
$286
$0
$0
$0
28-Aug
9
$22
$198
9
$22
$198
$0
$0
Total
20
$631
$365
2
Prepare a perpetual inventory costing record using LIFO and prepare the purchase and sales transaction
Purchases
Cost of Goods Sold
Date
Quantity
Unit Cost Total Cost
Quantity
Unit Cost Total Cost
1-Aug
5-Aug
7
$21
$147
$0
12-Aug
$0
7
$21
$147
$0
1
$20
$20
15-Aug
13
$22
$286
$0
0
$0
$0
28-Aug
9
$22
$198
9
$22
$198
$0
$0
Total
29
$631
$365
3
Prepare a perpetual inventory costing record using weighted average cost and prepare the purchase and
Purchases
Cost of Goods Sold
Date
Quantity
Unit Cost Total Cost
Quantity
Unit Cost Total Cost
1-Aug
5-Aug
7
$21.00
$147.00
12-Aug
$0.00
8
$20.58
$164.67
15-Aug
13
$22.00
$286.00
$0.00
28-Aug
9
$22.00
$198.00
9
$20.58
$185.25
0
$0.00
$0.00
0
$0.00
$0.00
0
$0.00
$0.00
$0.00
$0.00
29
$631
$350
4
Using the information above, complete the table for FIFO, LIFO and Weighed Average Cost and answer t
FIFO
LIFO
Weighted Average Cost
Revenue
Cost of Goods Sold
Gross Profit
$
$
$
198.00
84.00
114.00
$
$
$
100.00
100.00
–
$110.0
165.00
55.00
$
$
During inflation, which costing method gives the highest profit before operating expenses? Which meth
inventory on hand?
During inflation, the costing method that gives the highest profit before operating expenses is LIFO (Last
the latest inventory purchased is sold first. Since inventory costs are rising due to inflation, LIFO assigns th
goods sold. As a result, the remaining inventory on hand is valued at older, lower costs. This results in low
because the cost of goods sold is higher.
5
Estimate the August 1 inventory for Hobbies Galore using the gross profit method.
Hobbies Galore lost inventory in one of its storage units last month, July. Over the last five years, gross profit
following records were recovered.
Beginning Inventory
Net Purchases
Sales
Sales returns and allowances
Sales discounts
$
Estimate the August 1 inventory using the gross profit method.
Beginning inventory
Net purchases
Less: Sales
Add: Sales Returns
Add: Sales discounts
Net sales
Gross profit
COGS
42,500
341,900
530,400
12,300
6,500
42,500
341,900
12,300
$
6,500
332,240
Estimated inventory
Give an example of a time when a business would estimate its ending inventory using the gross profit
A time when a business would estimate the ending inventory through use of gross profit method is when
experiencess a loss of inventory due o unforeseen circumstances such as a fire accident. This method is pa
inventory records are unavailable or unreliable due to the loss. By applying the historical gross profit perc
business can estimate the cost of goods sold, allowing for the calculation of ending inventory. This approa
inventory levels and financial position despite the absence of accurate inventory data resulting from unfo
easier to scroll through the information)
ase and sales transactions. (Aassume all purchases and sales are on account)
Remaining Inventory on Hand
Quantity
Unit Cost Total Cost
Date
5
$20
$100
Aug
5
5
$20
$100
7
$21
$147
12
$0
4
$21
$84
$0
$0
15
4
$22
$88
$0
28
$519
e and sales transactions.
Remaining Inventory on Hand
Quantity
Unit Cost Total Cost
5
$20
$100
5
$20
$100
7
$21
$147
$0
4
$20
$80
0
$0
0
$0
4
$22
$88
$0
25
$519
Journal
Accounts
Inventory
Accounts Payable
Accounts Receivable
Sales
Cost of Goods Sold
Inventory
Inventory
Accounts Payable
Accounts Receivable
Sales
Cost of Goods Sold
Inventory
Journal
Date
Aug
Accounts
5
12
15
28
Inventory
Accounts Payable
Accounts Receivable
Sales
Cost of Goods Sold
Inventory
Inventory
Accounts Payable
Accounts Receivable
Sales
Cost of Goods Sold
Inventory
epare the purchase and sales transactions.
Remaining Inventory on Hand
Quantity
Unit Cost Total Cost
5
$20.00
$100.00
12
$20.58
$247.00
4
$20.58
$247.00
$22.00
$110.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$83
$704
Journal
Date
Aug
15
28
$110.00
165.00
55.00
expenses? Which method gives the highest cost of
g expenses is LIFO (Last-In, First-Out). LIFO assumes that
inflation, LIFO assigns the highest osts to the cost of
costs. This results in lower reported profits for the period
od.
ve years, gross profit has averaged 35%. The
42,500
341,900
530,400 $
146,000
12,300
$
6,500
164,800
332,240
5
12
rage Cost and answer the question.
Weighted Average Cost
$
$
Accounts
497,040
Inventory
Accounts Payable
Accounts Receivable
Sales
Cost of Goods Sold
Inventory
Inventory
Accounts Payable
Accounts Receivable
Sales
Cost of Goods Sold
Inventory
374,740
y using the gross profit method.
s profit method is when the retailer than a a retailer
This method is particularly useful when detailed
storical gross profit percentage to the remaining sales, the
g inventory. This approach provides a practical way to assess
data resulting from unfortunate events.
122,300
Journal
Post.
Accounts
Debit
Credit
$147
$147
$
400.00
$
163.00
$
$
$
$
400.00
$
163.00
$
286.00
$
198.00
$
84.00
286.00
198.00
84.00
Journal
Accounts
Post.
$
Debit
100.00
$
100.00
$
100.00
$
–
$
$
Credit
$
100.00
$
100.00
$
–
$
–
$
–
–
Journal
Accounts
Post.
Debit
$100.00
Credit
$100.00
$
247.00
$
100.00
$
$
$
$
247.00
$
100.00
$
100.00
$
110.00
$
165.00
100.00
110.00
165.00