June 1 Purchased 5 rebuilt engines from Good As New Company for $750 each. June
ID: 2454550 • Letter: J
Question
June 1 Purchased 5 rebuilt engines from Good As New Company for $750 each.
June 5 Replaced the engine on a motorcycle for a customer. Charged the customer $1,000 for the rebuilt engine and $250 in labor.
June 10 Purchased 10 rebuilt engines from Good as New for $800 each.
June 15 Replaced the engines on 10 motorcycles for the town’s police department. Charged $1,250 each for the rebuilt engines.
June 17 Purchased 5 rebuilt engines from Good as New for $850 each.
June 20 Sold a rebuilt engine to a customer for $1,250 cash.
1. Complete the following table to provide the value of the ending inventory and cost of goods sold under (a) Specific Identification, (b) FIFO, (c) LIFO, and (d) Average Cost. (Round to the nearest dollar.)
Inventory Valuation Method
Ending Inventory
Cost of Goods Sold
Specific Identification (assume that the June 15 sale was from the June 10 purchase, and that the June 20 sale was from the June 1 purchase)
FIFO
LIFO
Average Cost
2. Complete the table below to prepare the Gross Margin Section of the June income statement under each of the inventory valuation methods.
FIFO
LIFO
Average Cost
Sales
Beginning Inventory
Add: Purchases
Cost of goods available for sale
Less: Ending Inventory
Cost of Goods Sold
Gross Margin
3. The accountant for Get Your Motor Runnin’ prepared the following analysis of the inventory of rebuilt engines at the end of the year. Prepare the journal entry required to value the inventory at lower of cost or market.
Inventory Item
Quantity
Cost per item
Market Value per item
Engine A
3
$750
$700
Engine B
5
$800
$850
Engine C
4
$500
$575
GENERAL JOURNAL
Page: 4
Date
Account and Explanation
Post. Ref.
Debit
Credit
4. The owner of Get Your Motor Runnin’, Tim Baker, wants to understand the reasons for choosing a particular inventory valuation method. Write a brief explanation of the impact of the different valuation methods for his company.
Inventory Valuation Method
Ending Inventory
Cost of Goods Sold
Specific Identification (assume that the June 15 sale was from the June 10 purchase, and that the June 20 sale was from the June 1 purchase)
FIFO
LIFO
Average Cost
Explanation / Answer
1.
2.
3.
Workings:
1.
2. Calculation of cost of closing inventory amd cost of goods sold.
Inventory Valuation Method Ending Inventory Cost of Goods Sold Specific Identification (assume that the June 15 sale was from the June 10 purchase, and that the June 20 sale was from the June 1 purchase) 6,500 9,500 FIFO 6,650 9,350 LIFO 6,150 9,850 Average Cost 6,400 9,600