Tutorial 5
BBA 1114 - Principles of Accounting
Semester 3, August 2024
Topic: Inventory Valuation Methods
1. The Orange Juice Factory company is using a FIFO inventory system. On
January 15 they received an inventory shipment of 600 bottles of OJ at
the cost of $1.00. On Jan. 27 another 400 at the cost of $1.50 arrived.
Then sold 800 bottles to a customer on Jan 28 while another shipment of
675 OJ bottles at the cost of $1.75 arrived Jan. 30. On Feb. 3 a customer
purchased 700 OJ bottles. What is the cost of the bottles remaining as of
Feb. 4?
2. ABC Company uses the LIFO (Last-In, First-Out) method for inventory
valuation. The company had the following inventory transactions during
the month of November 2024:
Purchases:
November 1: Purchased 500 units at $20 each.
November 10: Purchased 400 units at $22 each.
November 20: Purchased 600 units at $25 each.
Sales:
November 15: Sold 700 units.
November 25: Sold 600 units.
By November 30, the company has determined that the Net Realizable
Value (NRV) of the remaining inventory is $12,000.
a) Calculate the Cost of Goods Sold (COGS) using the LIFO method.
b) Calculate the Ending Inventory using LIFO.
c) Calculate the necessary adjustment if the inventory needs to be
reduced to its NRV and show the journal entry using an "Allowance to
Reduce Inventory to NRV" account.
3. XYZ Retail Company provided the following financial information for the
year ending December 31, 2024. The company uses the Periodic
Inventory System to track its inventory and follows the FIFO method for
inventory valuation.
Financial Information:
Beginning Inventory (as of January 1, 2024): $50,000
Purchases during 2024: $200,000
Sales during 2024: $300,000
Gross Profit Margin: 40%
1
At the end of the year, XYZ Retail Company counted its physical inventory,
and the closing inventory was valued at $45,000.
a) Calculate the Cost of Goods Sold (COGS) and the Gross Profit for the
year ending December 31, 2024.
b) What would be the impact on Gross Profit if the closing inventory was
overstated by $5,000, and what would be the correct Gross Profit if the
overstatement was discovered later?
