ACCT 201 Lecture Notes - Lecture 10: Income Statement, Retained Earnings, Accounts Payable
ACCT 201 – Lecture 10 – Chapter 6
Chapter 6
• Example of solving a problem with Specific Identification, FIFO, LIFO, and Weighted
Average
• First, lets figure out the:
o Units in all? 39 (Beginning Inventory plus all of the purchases: 8+10+10+11)
o Units Sold? 24 (Sum of all of the “sale” sections: 5+8+11)
o Units left? 15 (Units total – units sold: (39 – 24)
• Solve using Specific Identification:
o We’ll set it up in two columns: “Sold” meaning how much of the total quantity
was sold, and “left” meaning how much of the total quantity is left
Sold
Left
Aug 4 Sale (5)
Aug 13 Sale (8)
Beg. Inventory
5@160
Beg. Inventory
3@160
From Aug 11
8@150
Beg Inv. 1@160
From Aug 20 10@140
Beg. Inventory 3@160
Aug 11 2@150
Beg. Inventory 2@160
Aug 11 2@150
Aug 29 11@130
Aug 26 Sale (11)
Question 1
Question/Graph Taken From
“Financial Accounting”, Fourth
Edition, J. David Spiceland, Wayne
Thomas, Don Herrmann. (Page 315)
o Keep in mind the descriptions given in question 1. With the August 4th sale, the
customer is buying 5 of the beginning inventory rackets, which are $160, but
since not all 8 are bought, there remains 3. For August 13, the customer buys 8
rackets, but these rackets are not the rackets from the beginning balance, they
are from the new rackets purchased on August 11th, which have a different price
of $150. Lastly, on the August 26th sale, the customer buys 1 of the rackets from
the beginning inventory, and buys 10 of the rackets that the company purchased
on August 20th, leaving 2 in beginning inventory, 2 in the rackets purchased
August 11th, and 11 purchased August 29th.
o Notice that adding up the costs from the “sold” column will get $3,560 ((5*160)
+ (8*150) + (1*160) + (10*140)) and the “left” column, you will only take the
total of the bottom right, as boxed in the example, this will equal $2,050. When
you add 3,560 and 2,050, you get 5,610, keep this in mind.
• Now solve the problem using FIFO (First in, first out):
o We’ll use the same format as the last question
o Using FIFO, the company is assuming that it sold its inventory in the
chronological order in which they bought it. So the first items they bought on
August 1st are all going to be sold before any of the other items purchased on
other dates are sold. So once the August 1st inventory runs out, the company will
assume that it sold the August 11th inventory, then the August 20th and August
29th. So since there are only 24 sold that we know, the first 24 items to be
purchased by the company will be the first 24 items to be bought by the
customer. Notice again that the “sold” column totals 3,620 and the “left” column
totals 1,990, and when added together, you again get 5,610
Sold
Left
(8/1) Beg Inv.
(8/11)
8@160
11@130
10@150
6@140
4 @140
3620
(8/20)
Question 2
(8/29)
(8/20)
1990
Document Summary
Acct 201 lecture 10 chapter 6. Chapter 6: example of solving a problem with specific identification, fifo, lifo, and weighted. Aug 29 11@130: keep in mind the descriptions given in question 1. With the august 4th sale, the customer is buying 5 of the beginning inventory rackets, which are , but since not all 8 are bought, there remains 3. For august 13, the customer buys 8 rackets, but these rackets are not the rackets from the beginning balance, they are from the new rackets purchased on august 11th, which have a different price of . August 11th, and 11 purchased august 29th: notice that adding up the (cid:272)osts f(cid:396)o(cid:373) the (cid:862)sold(cid:863) (cid:272)olu(cid:373)(cid:374) (cid:449)ill get ,(cid:1009)(cid:1010)(cid:1004) (cid:894)(cid:894)(cid:1009)*(cid:1005)(cid:1010)(cid:1004)(cid:895) + (cid:894)8*(cid:1005)(cid:1009)(cid:1004)(cid:895) + (cid:894)(cid:1005)*(cid:1005)(cid:1010)(cid:1004)(cid:895) + (cid:894)(cid:1005)(cid:1004)*(cid:1005)(cid:1008)(cid:1004)(cid:895)(cid:895) a(cid:374)d the (cid:862)left(cid:863) (cid:272)olu(cid:373)(cid:374), you (cid:449)ill o(cid:374)ly take the total of the bottom right, as boxed in the example, this will equal ,050.
