6-1. Premier Bank and Trust is considering giving Alou Company a loan. Before do
ID: 2444492 • Letter: 6
Question
6-1. Premier Bank and Trust is considering giving Alou Company a loan. Before doing so, management decides that further discussions with Alou’s accountant may be desirable. One area of particular concern is the inventory account, which has a year-end balance of $297,000. Discussions with the accountant reveal the following.
Determine the correct inventory amount on December 31.
6-5. Zambian Co. uses a periodic inventory system. Its records show the following for the month of May, in which 68 units were sold.
Date
Explanation
Units
Unit Cost
Total Cost
30
$9
$270
25
11
275
35
12
420
90
$965
Compute the ending inventory at May 31 and cost of goods sold using the FIFO and LIFO methods.
FIFO
LIFO
1. Alou sold goods costing $38,000 to Comerico Company, FOB shipping point, on December 28. The goods are not expected to arrive at Comerico until January 12. The goods were not included in the physical inventory because they were not in the warehouse. 2. The physical count of the inventory did not include goods costing $95,000 that were shipped to Alou FOB destination on December 27 and were still in transit at year-end. 3. Alou received goods costing $19,000 on January 2. The goods were shipped FOB shipping point on December 26 by Grant Co. The goods were not included in the physical count. 4. Alou sold goods costing $35,000 to Emerick Co., FOB destination, on December 30. The goods were received at Emerick on January 8. They were not included in Alou's physical inventory. 5. Alou received goods costing $44,000 on January 2 that were shipped FOB shipping point on December 29. The shipment was a rush order that was supposed to arrive December 31. This purchase was included in the ending inventory of $297,000.Explanation / Answer
Answer to 6-1
Correct Inventory = $297,000 + $19,000 + $35,000 = $351,000
Answer to 6-5
Ending Inventory using FIFO = 22 * $12 = $264
Cost of Goods Sold using FIFO = (30*$9)+(25*$11)+(13*$12) = $701
Ending Inventory using LIFO = 22*$9 = $198
Cost of Goods Sold using LIFO = (35*$12)+(25*$11)+(8*$9) = $767
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