APEC UNIVERSITY

DEAN'S OFFICE OF BUSINESS SCIENCES

SCHOOL OF ACCOUNTING
ACCOUNTING II
INVENTORY PRACTICE FOR THE CLASSROOM

Prof. Germania Grullón, C.P.A., M.B.A.

Questionnaire:

1. Mention the four basic methods to determine prices or value.

the final inventory.

Specific cost.
FIFO (first in, first out).
LIFO (last in, first out).
Weighted average.

2. Mention two reasons to use the gross profit method for

estimate the final inventory.

It is used to determine the cost of inventories when the goods have been
Lost destroyed. This method is used to estimate the amount of inventories.
Lost due to fires, thefts, and other types of incidents. It is also often used.
To verify the accuracy of the inventory count available at the end of a
Accounting period.

3. Describe two ways in which perpetual and periodic systems differ in

the inventory record.

Through these methods, it is intended to determine the balance of the merchandise amount.
available for sale, the difference between them lies in whether it is maintained
updated this amount. With the perpetual system there is no need to make a
physical count of goods inventory at the end of the period, therefore, the
A periodic system is necessary to perform a physical count to determine the inventory.
of goods at the end of the period.

4. Mention the differences that exist in the cost of sales section of

income statement when using periodic inventory systems and
perpetual.

In the perpetual system, when goods are purchased or sold, they are recorded, that's why.
that at any time one can know the amount of goods in stock
and the total cost of sales for the period. In the periodic system, it is necessary to make
a physical count to determine the inventory of goods at the end of
period.

5. Indicate which is the method of final inventory valuation that provides a

exact measure of the cost of inventory and the cost of goods sold.
Permanent inventory system.

[Link] how inventory information can be used to

decision making.

Decision making essentially constitutes the choice of one of the possible options.
alternatives to the solution to a current or potential problem, which requires that
previously, the problem under study is detected and information is sought

Relate:

1. By using this method, the merchandise in the final inventory is valued.

its most recent costs.
2. Goods of a company intended for sale.
3. According to this method, the cost of goods sold is overstated.
4. Goods purchased free on board at the point of shipment.
5. This method obtains an exact measure of the cost of goods.
6. This system always maintains an updated balance of goods in
existence.
7. Investment that a company has in its short-term assets.
8. According to this method, a uniform cost is determined for all products.
9. With this method, it is necessary to take an inventory count at the end of
period.

Goods in transit ( 4)
Inventories (2)
Working Capital ( 7)
Perpetual inventory system (6)
Discount on transferred document (9)
PEPS (1)
UEPS ( 3)
Weighted average (8)
Specific costs (5)

Multiple Choice

The objective of this system or method is to determine the cost of sales and the value of
final inventory.

a) Inventory record system.

b) Inventory valuation method.
c) Inventory estimation systems.
d) Methods of recording cost of sales.

This system always maintains an updated balance of the amount of

merchandise in stock and the cost of goods sold.
a) PEPS control system
b) Periodic inventory system.
c) Perpetual inventory system.
d) Purchase system.

3. According to the perpetual inventory system, when paying for shipping of the
merchandise received in the warehouse must be:

Charge freight expenses to purchases.

Pay for freight expenses on purchases.
c) Load to prepaid expenses for freight.
d) Load to inventories.

4. Inventory valuation method that requires a record to be kept

detailed purchases and sales of goods to allocate the cost
correct for each unit:

PEPS
b) FIFO.
c) Specific costs.
d) Weighted average.

5. Inventory valuation method that reflects an undervalued ending inventory and

overvalued cost of sales:

a) PEPS.
b) UESP.
c) Specific costs.
Weighted average.

6. Inventory estimation system that uses retail costs and prices

from the available products for sale to obtain the final inventory.

e) Retail or detail price method.

f) Cost method.
g) Gross profit method.
h) Inventory percentage method.

7. Inventory valuation method prohibited by the IAS.

a) UEPS
 PEPS.
c) Averages.
d) None of the above.

8. Inventories can experience significant cost variations due to:

a) Price changes in the market.

b) Obsolescence.
c) Deterioration.
d) All of the above.

9. Inventories must be presented in accordance with the standards of

financial information in:

a) Current assets.
b) Fixed assets.
c) Real estate, machinery, and equipment.
d) Other assets.

10. The payments made for an order not yet received are given
classify as:

a) Accounts receivable.
b) Advances to suppliers within the inventory sector.
c) Various debtors.
d) Advances to suppliers within other assets.

The company ACME, S.A. had an inventory of 2,500 units on April 1st.
2010. The price per unit of inventory at that date was $50.00.
During the month, the following acquisitions were made:

UNIT
S
DATE PURCHASE UNIT
S S UNT.
Apr-06 2 500
$53.00
Apr-13 5 000
55.00
Apr-18 6 000
54.00
Apr-25 10 000
52.00
 Apr-29 4 500
54.00
TOTALS 28,000

2,500.00 50.00 125,000.00

INITIAL INVENTORY OF MERCHANDISE
FIRST PURCHASE (APR-06)
2,500.00 53.00 132,500.00
SECOND PURCHASE (APR-13)
5,000.00 55.00 275,000.00
THIRD PURCHASE (APR-18)
6,000.00 54.00 324,000.00
FOURTH PURCHASE (APR-25)
10,000.00 520,000.00
FIFTH PURCHASE (APR-29)
4,500.00 54.00 243,000.00
Merchandise Available for Sale
30,500.00 318.00 1,619,500.0
0
Units sold
21,250.00
Final inventory
9,250.00

UEPS
2500 units of initial inventory at
50.00 125,000.00
2500 first purchase units
53.00 132,500.00
4250 units of second purchase
55.00 233,750.00
Final inventory: 9250 units
491,250.00

Cost of Goods Available for Sale

1,619,500.0
0
Final inventory
491,250.00
Cost of goods sold
1,128,250.0
0
At the end of April, there were 9,250 units in inventory, according to a
physical count. Determine the value of the final inventory and the cost of sales by
the LIFO method.

As of June 30, 2010, Productos Islas had the following information regarding
the purchases and sales of merchandise

UNIT
S
DATE PURCHASE PRICE
S UNT.
Balance as of the 1st. 4,000 $80
June
June 02 8,000 $82
June-08 4,000 $88
June 19 12,000 $83
June 26 4,000 $85
TOTALS 32,000

During the month of June, 23,600 units were sold at $180.00 each.
the month:

Required:

a) Calculate the final inventory using each of these methods:

● Weighted average.
● PEPS.

INITIAL INVENTORY OF MERCHANDISE

4,000.00 80.00 320,000.00
FIRST PURCHASE (jun-02)
8,000.00 82.00 656,000.00
SECOND PURCHASE (jun-08)
4,000.00 88.00 352,000.00
THIRD PURCHASE (Jun-19)
12,000.00 83.00 996,000.00
FOURTH PURCHASE (jun-26)
4,000.00 85.00 340,000.00
Merchandise Available for Sale
32,000.00 2,664,000.00
Units sold
 23,600.00
Final inventory
8,400.00

PEPS
4400 units of the third purchase to
83.00 365,200.0
0
4000 units from the last purchase to
85.00 340,000.0
0
8400 units
705,200.0
0

Weighted Average
Cost of goods available for sale 83.25
2,664,000.00
Number of units in stock
32,000.00

Final inventory units

8,400.00
Average unit cost 83.25
Cost of ending inventory
699,300.0
0

b) Calculate the gross profit on sales, assuming that the company employed
the LIFO method to value the final inventory.

4000 units of initial inventory to

80.00 320,000.00
4400 units of primary purchases
82.00 360,800.00
Final inventory: 8400 units
680,800.00

UEPS
 Sales (180)
23,600.00 4,248,000.0
0

Initial inventory
320,000.00
(+) Purchases
2,344,000.0
0
goods available for sale
2,664,000.0
0
Final Inventory
680,800.00
Cost of goods sold
1,983,200.0
0
Gross utility in sales
2,264,800.0
0

3. Caribbean Computers, Inc. reported the following regarding the year 2010:

NET SALES
1,232,700.00

COST OF SALES
960,000.00

INITIAL INVENTORY
25,000.00

FINAL INVENTORY
23,300.00

It is required:

a) Determine the inventory turnover for the year 2010 and the number of days.
average time taken to sell the inventory.

b) Explain the meaning of your calculations.

INITIAL INVENTORY
 25,000.00
(+)FINAL INVENTORY
23,300.00
SUM OF BALANCES
48,300.00
(/)
2.00
AVERAGE OF
INVENTORY 24,150.00

COST OF SALES
960,000.0
0
AVERAGE OF
INVENTORY 24,150.00
Inventory turnover 40
1 Year (/) 365
Days
9:00

Inventory turnover is determined by dividing the cost of the

merchandise sold (cost of sales) over the average of
inventory during the period, then the inventory turnover (40) is
divide by the number of days in a year (365) and the result of this
they are the average number of days it takes to sell the inventory
(9 days).

4. The financial statements of the beverage distributor Yupi, S.A., at the end of the year
contained the following information:

Inventory as of December 31, year 2000 using FIFO: 1,900 units at $14.00 =
$26,600.00
Inventory as of December 31, year 2000 using LIFO: 1,900 units at $10.00 =
$19,000.00

Purchases of January 10, 2001: 2,500 units at $15.00 = $37,500.00

Purchases of January 22, 2001: 5,000 units at $16.00 = $80,000.00

Ventas de enero 13 de 2001: 4 000 unidades a $38.00 = $152,000.00

Ventas de enero 29 de 2001: 2 800 unidades a $39.00 = $109,200.00

Required:

a) Calculate the number of inventory units as of January 31, 2001.

b) Determine the value of the inventory as of January 31, 2001, according to the
FIFO and LIFO valuation method.
c) Calculate the inventory turnover with each of the values of
inventory obtained FIFO and LIFO.
d) Explain which of the two methods is more useful for evaluating movements of
company inventory.

A)
PEPS

INITIAL INVENTORY OF MERCHANDISE

1,900.00 2:00 PM 26,600.00
FIRST PURCHASE (Jan-10)
2,500.00 3:00 PM 37,500.00
SECOND PURCHASE (Jan-22)
5,000.00 16:00 80,000.00
Merchandise Available for Sale
9,400.00 144,100.0
0
Units sold
6,800.00
Final inventory
2,600.00

B)
2600 units from the last purchase at
16:00 41,600.00
Final inventory: 2600 units
41,600.00
Cost of merchandise available for sale
144,100.00
Final inventory
41,600.00
Cost of sales
102,500.00

UEPS

INITIAL INVENTORY OF MERCHANDISE

1,900.00 10.00 19,000.00
FIRST PURCHASE (Jan-10)
2,500.00 3:00 PM 37,500.00
SECOND PURCHASE (Jan-22)
5,000.00 4:00 PM 80,000.00
Goods Available for Sale
9,400.00 136,500.0
0
Units sold
6,800.00
Final inventory
2,600.00

1900 units of initial inventory to

10.00 19,000.00
700 units of first purchases A
3:00 PM 10,500.00
Final inventory: 2600 units
29,500.00

Cost of Goods Available for Sale

136,500.0
0
Final inventory
 29,500.00
Cost of goods sold
107,000.0
0

C)
PEPS.
INITIAL INVENTORY
26,600.00
(+) FINAL INVENTORY
41,600.00
SUM OF BALANCES
68,200.00
(/)
2.00
AVERAGE OF
INVENTORY. 34,100.00

COST OF SALES
102,500.00
AVERAGE INVENTORY
34,100.00
Inventory Turnover.
3.00

UEPS.
INITIAL INVENTORY
26,600.00
FINAL INVENTORY
29,500.00
SUM OF BALANCES
56,100.00
(/)
2.00
AVERAGE OF
INVENTORY 28,050.00

COST OF SALES
107,000.00
AVERAGE OF
INVENTORY 28,050.00
Inventory Turnover.
4.00

D)
The PEPS method is more useful for evaluating the company's movements, already
that by using this method, the goods from the final inventory remain
valued at their most recent costs. That is, it has more accounting validity and
the last acquisition or production prices are recognized.