Seneca Co. began the year with 6,500 units of product in its January 1 inventory costing $35 each. It made four purchases of its product during the year as follows. The company uses a periodic inventory system. On December 31, a physical count reveals that 8,500 units of its product remain in inventory.

Date	Activities
January 4	11,500 units @$33 each
May 18	13,400 units @ $32 each
July 9	11,000 units @$29 each
November 21	7,600 units @ $27 each

Required

1. Compute the number and total cost of the units available for sale during the year.

2. Compute the amounts assigned to ending inventory and the cost of goods sold using (a) FIFO, (b) LIFO, and (c) weighted average. (Round all amounts to cents.)

Use the data and results from the previous exercise to prepare comparative income statements for the month of January for the company similar to those shown in Financial Statement Effects of Inventory Costing Methods for the four inventory methods. Assume expenses are $1,250 and the applicable income tax rate is 40%. (Round amounts to cents.)

Required

1. Which method yields the highest net income?

2. Does net income using weighted average fall above, between, or below that using FIFO and LIFO?

3. If costs were rising instead of falling, which method would yield the highest net income?

Visit four retail stores with another classmate. In each store, identify whether the store uses a bar coding system to help manage its inventory. Try to find at least one store that does not use bar coding. If a store does not use bar coding, ask the store’s manager or clerk whether he or she knows which type of inventory method the store employs. Create a table that shows columns for the name of store visited, type merchandise sold, use or nonuse of bar coding, and the inventory method used if bar coding is not employed. You also might inquire as to what the store’s inventory turnover is and how often physical inventory is taken.

What is the meaning of market as it is used in determining the lower of cost or market for inventory?

Refer to the information in the third exercise of this chapter and assume the periodic inventory system is used. Determine the costs assigned to ending inventory and to cost of goods sold using (d) LIFO.

A company has cost of goods sold of $85,000 and ending inventory of$18,000. Its days’ sales in inventory equals

• a. 49.32 days.
• b. 0.21 day.
• c. 4.72 days.
• d. 77.29 days.
• e. 1,723.61 days.

Refer to the information in the third exercise of this chapter and assume the periodic inventory system is used. Determine the costs assigned to ending inventory and to cost of goods sold using (c) FIFO.

Hallam Company’s financial statements show the following. The company recently discovered that in making physical counts of inventory, it had made the following errors: Year 1 ending inventory is overstated by $18,000 and Year 2 ending inventory is understated by$26,000.

Required

1. For each key financial statement figure—(a), (b), (c), and (d) above—prepare a table similar to the following to show the adjustments necessary to correct the reported amounts.

2. What is the total error in combined net income for the three-year period resulting from the inventory errors? Explain.

Refer to the information in the third exercise of this chapter and assume the periodic inventory system is used. Determine the costs assigned to ending inventory and to cost of goods sold using (b) weighted average.

Refer to the information in the third exercise of this chapter and assume the periodic inventory system is used. Determine the costs assigned to ending inventory and to cost of goods sold using (a) specific identification. (Round per unit costs and inventory amounts to cents.) For specific identification, ending inventory consists of 200 units, where 180 are from the January 30 purchase, 5 are from the January 20 purchase, and 15 are from beginning inventory.

Navajo Company’s financial statements show the following. The company recently discovered that in making physical counts of inventory, it had made the following errors: Year 1 ending inventory is understated by $56,000 and Year 2 ending inventory is overstated by$20,000.

Required

1. For each key financial statement figure—(a), (b), (c), and (d) above—prepare a table similar to the following to show the adjustments necessary to correct the reported amounts.

2. What is the total error in combined net income for the three-year period resulting from the inventory errors? Explain.

A physical inventory of Office Necessities Company taken at December 31 reveals the following.

Required

1. Compute the lower of cost or market for the inventory applied separately to each item.

2. If the market amount is less than the recorded cost of the inventory, then record the LCM adjustment to the Merchandise Inventory account.

A physical inventory of Liverpool Company taken at December 31 reveals the following.

Required

1. Compute the lower of cost or market for the inventory applied separately to each item.

2. If the market amount is less than the recorded cost of the inventory, then record the LCM adjustment to the Merchandise Inventory account.

Periodic: A company reports the following beginning inventory and purchases, and it ends the period with 30 units in inventory.

i) Compute ending inventory using the FIFO periodic system.

a.$400 b. $1,460 c.$1,360 d. $300

ii) Compute cost of goods sold using the LIFO periodic system.

a.$400 b. $1,460 c.$1,360 d. $300