Review Problem In Class Exercise Group Members: Elan, Inc. was started on Januar
ID: 2556037 • Letter: R
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Review Problem
In Class Exercise Group Members: Elan, Inc. was started on January 1, 2011. During its frst fiscal year, ending September 30,2011, the following inventory transactions took place] Quantity Purchasedp Cost Total Date per UniCost January 1 March 1* May1 July 1 September 1 $26$26,000 $28$50,400 $33 $82,500 $36$32,400 $42 $84,000 1,000 1,800 900 2,000 The number of units sold during the 2011 fiscal year was 5,000. During the 2012 fiscal year, the following inventory transactions took place: Quantity Cost Total Date Unit Cost $38$19,000 $35$35,000 $32$38.400 $29$66,700 $27$21,600 November 1 April 1t June 1t August 1* 500 1,000 1,200 2,300 800 As of September 30, 2012 there were 3,000 units left in inventory Required: Assuming a periodic inventory system and in the appropriate section of the answer book, please: 1) Provide the dollar amount of goods available for sale, ending inventory and cost of goods sold for 2) Provide the dollar amount of goods available for sale, ending inventory and cost of goods sold for 3) Assume the company uses the LIFO inventory system. Assume the ending inventory for fiscal September 30, 2012 using the LIFO valuation method. September 30, 2012 using the Average Cost valuation method year 2011 is overstated by $10,000. If the error is not corrected what will be the effect on COGS in 2011 and 2012? ndicate only if it understated or overstated? The amount is not necessary.)Explanation / Answer
1)Total units purchased in 2012=5800.
Closing stock=3000
Total goods sold will be 2800
As per last in first out method basis 2800 units will be calculated as under:
August 1=800
June 1=2000
Clsoing inventory will be
June 1=300
April 1=1200
February 1=1000
November 1=500
Cost of goods avaliable for sale 5800 units.
Cost of goods sold=Opening Stock+purchases-Clsoing stock
=0+5800-3000=2800
2)Average of unit cost per unit=21600/800=27
Cost og goods sold=2800*27= $75600
Ending inventory=3000*27= $81000
Units avaliable for sale=5800*27=$156600
3)When you overstate ending inventory, this reduces the amount of inventory that would otherwise have been charged to the cost of goods soldduring the period, so that the cost of goods sold expense declines in the current reporting period. You can see this with the following formula that is used to derive the cost of goods sold:
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