Inventory Costing
What are the three different inventory costing methods learned in class? Give an example of each.
FIFO - First in First Out
LIFO - Last in First Out
WA - Weighted Average
a) What is treasury stock?
b) What is the difference between common stock and preferred stock?
a) Stock that the company repurchases back, it is a contra equity account.
b) Common stock is usually cheaper, has less voting power than preferred, issued at higher amounts.
Preferred stock is more expensive, less issuance than common stock, higher voting power, receive dividends first.
The following transactions occurred during November for GGG. The company uses a perpetual inventory system. Each unit sells for $18. Calculate the cost of goods sold (COGS), gross profit, and ending inventory using FIFO.
Date | Qty | Price | Sell Price |
Nov.1| 50 | $10 | - |
Nov 3| 20 | - | $18 |
Nov 1 Purchase = 50 units x $10 = $500
Nov 3
Sales = 20 units * $18 = $360
COGS = 20 units * $10 price = $200
Gross Profit = Sales – COGS
$360 - $200 = $160
Ending Inventory = 30 units @ $10 = $300
Who Pays FICA taxes?
Employees: Pay half of the FICA taxes through payroll withholding.
Employers: Match the employee’s contributions dollar for dollar.
Self-employed individuals: Pay both the employer and employee portions (15.3%) through self-employment tax, reported on their personal tax return.
What does additional paid in capital represent?
The additional amount received from the issuance of a stock that was above its par value.
When prices are rising which inventory costing method has a lower gross profit?
LIFO - Last in First Out
What is the maturity value (how much will be paid back) on a $5,000, 6%, 2-month note?
5000 x 6% x 2/12 = $50 --> interest paid for having the notes payable
Payment of note at maturity --> 50 + 5,000 = $5,050
The following transactions occurred during November for GGG. The company uses a perpetual inventory system. Each unit sells for $18. Calculate price of the average units after Nov. 6.
Date | Qty | Price | Sell Price |
Nov.1| 50 bought | $10 | - |
Nov 3| 20 sold | - | $18 |
Nov 6| 40 bought | $12 | - |
Purchase = 50 units x $10 = $500
Sales = 20 * $18 = $360
COGS = 20 units * $10 price = $200
Gross Profit = Sales – COGS
$360 - $200 = $160
Purchased = 40 * $12 = $480
Leftover = 30 units * $10 = $300
WA Price = ($300 / $480)/70 total units = $11.14
WA Price = Total Cost of the Units (add new and old units price together in inventory)/ Total Units
What are the different FICA taxes?
Federal Unemployment Tax (FUTA)
State Unemployment Tax (SUTA or SUI)
Colorado's FAMLI Program (for Colorado employers)
Social Secuirty
Medicare
On February 15, 2025, Lomax Corporation issued for cash 25,000 shares of $5 par common stock at $18. Journalize this issuance.
Cash (25,000 x $18) $450,000
Common Stock (25,000 x $5) $125,000
Paid in Capital Common Stock
[(18-5) x 25,000] $325,000
Assume that three identical units of merchandise are purchased as follows:
1 unit purchased on July 1st for $ 100
1 unit purchased on July 15th for $ 120
1 unit purchased on July 25th for $ 150
If 1 unit is sold on July 31st for $ 405, what is the COGS using the FIFO method?
COGS = $100
How would you journalize the acquiring of the note and then the payment of a note at maturity if the interest expense is also paid at the end?
Acquiring the note;
Cash
Notes Payable
Paying note at maturity
Notes Payable
Interest Expense
Cash
On April 10, 2025, Lomax issued 4,500 shares of cumulative preferred 4% stock, $50 par, at $75. Journalize the entries to record the April 10, 2025, transaction.
Apr 10
Cash (4,500 x $75) $337,500
Preferred Stock (4,500 x $50) $225,000
Paid in Capital Preferred Stock
[(75-50) x 4,500] $112,500
True or False: All FICA taxes are paid from both the employer and employee. Self Employed only pays tax once.
FALSE!
Only the employer pays FUTA tax—not the employee. FUTA is not withheld from employee wages. SUTA, employers typically pay the full amount.
Self-employed individuals: Pay both the employer and employee portions (15.3%) through self-employment tax, reported on their personal tax return.
On January 1, the first day of the fiscal year, Designer Fabric Inc. issues a $4,000,000, 5%, 8-year bond that pays semiannual interest of $100,000 ($4,000,000 * 5% * ½ year), receiving cash of $4,000,000. The market rate of interest is also 5%.
a. Journalize the entry to record the issuance of the bonds.
b. Journalize the entry to record the first interest payment on June 30th
Jan 1
Cash 4,000.000
Bonds Payable 4,000,000
Jun 30th
Interest Expense 100,000
Cash 100,000
Assume that three identical units of merchandise are purchased as follows:
1 unit purchased on July 1st for $ 100
1 unit purchased on July 15th for $ 120
1 unit purchased on July 25th for $ 150
If 1 unit is sold on July 31st for $ 405, what is the Gross Profit using the LIFO method?
Gross Profit = $255
$750,000, 5.5%, 25-year note with annual payments of $55,800. How much of the first payment is interest? What is the new principal amount after the payment?
Payment - Interest = Principal Reduction
55,800 - (750,000 x 5.5%) = $41,250 interest = $14,550 principal reduction
Ending Principal Outstanding = Principal - Principal reduction
750,000 – 14,550 = $735,450 new principal amount
The following transactions occurred during November for GGG. The company uses a perpetual inventory system. Each unit sells for $18. Calculate the cost of goods sold (COGS), gross profit, and ending inventory using LIFO.
Date | Qty | Price | Sell Price |
Nov.1| 50 bought | $10 | - |
Nov 3| 20 sold | - | $18 |
Nov 6| 40 bought | $12 | - |
Nov10| 30 sold | - | $18 |
Purchase = 50 units x $10 = $500
Sales = 20 * $18 = $360
COGS = 20 units * $10 price = $200
Gross Profit = Sales – COGS
$360 - $200 = $160
Purchased = 40 * $12 = $480
Leftover = 30 units *$10 = $300
Total Inventory = $780 (70 units)
Sales = 30 * $18 = $540
COGS = 30 * $12 = $360
Gross Profit = $540 - $360 = $180
Total - Sales = 900, COGS = 560, Gross Profit = 340, Ending Inventory = $420, 40 units with 10 units * $12 = $120 & 30 units * $10 = $300
Summit Supplies, LLC had gross wages of $150,000 for the week ended May 15.All $150,000 of wages are subject to Social Security and Medicare taxes, while $25,000 of wages are subject to federal and state unemployment taxes. Calculate how much the employer owes and what is taken from the paycheck of the employee. Tax rates are as follows:
Social Security Tax 6.20%
Medicare Tax 1.45%
SUTA 1.10%
FUTA 0.60%
FAMLI 0.44%
Employee
Social Security Tax Payable $9,300
Medicare Tax Payable $2,175
Employee FAMLI Tax Payable $660
Salary and Wages Paid: $137,865
Employer:
Social Security Tax Payable $9,300
Medicare Tax Payable $2,175
SUTA Tax Payable $275
FUTA Tax payable $150
Employee FAMLI Tax Payable $660
Keller Inc. has 200,000 shares of $10 par common stock outstanding on January 1. On May 5, the company declared a cash dividend of $0.08 per share on common stock to shareholders of record on May 25. The cash dividend is paid on June 15. Journalize the dividend entries required on each date.
May 5
Cash Dividends (200,000 x $.08) 16,000
Cash Dividends Payable 16,000
Jun 15
Cash Dividends Payable 16,000
Cash 16,000
If 1 unit is sold on July 31st for $ 405, what is the value of ending inventory using the weighted average method? (Round your answer to the nearest whole dollar).
A unit of inventory was purchased for $ 40 three years ago. Currently, its net realizable value is only $ 20. At what value should the unit of inventory be recorded on the balance sheet?
a) (100 + 120 + 150) = 370 cost of goods sold
370/3 units = 123.33
123.33 is the WA price
123.33 * 2 units leftover= 246.67 ending inventory
b) At $20, the lower of cost market or net realizable value, in this case the NRV
On the first day of the fiscal year, the market rate of interest is 9%. A company issues a $1,800,000, 7%, 6-year bond that pays semiannual interest of $63,000 ($1,800,000 × 7% × ½), receiving cash of $1,650,000. Journalize the bond issuance and the first interest payment.
Date Account Debit Credit
Jan 1
Cash 1,650,000
Discount on Bonds Payable 150,000
Bonds Payable 1,800,000
Jun 30
Interest Expense
(1,650,000 * 9% * ½) 74250
Discount on Bonds Payable 11,250
Cash 63,000
On the first day of the fiscal year, the market rate of interest is 8%. A company issues a $3,000,000, 9%, 7-year bond that pays semiannual interest of $135,000 ($3,000,000 × 9% × ½), receiving cash of $3,120,000. Journalize the bond issuance and the first interest payment.
Cash 3,120,000
Premium on Bonds Payable 120,000
Bonds Payable 3,000,000
Interest Expense
(3,120,600 x 8% x (½)) 124,800
Premium on Bonds Payable 10,200
Cash 135,000
Use the following information from Roadrunner Inc. for pay period ending March 21 to answer the ending question. Roadrunner Inc. is a large employer, so FAMLI is split between the employee and the employer, each paying half.
Total salaries $29,643
Salaries subject to payroll tax: Social Security and Medicare: $29,643
State and Federal unemployment tax: $10,000
Payroll Tax rates:
Social Security tax 6.20%
Medicare Tax 1.45%
CO FAMLI 0.44%
State unemployment tax 5.40%
Federal unemployment tax 0.80%
Employee Deductions:
Federal income tax withholding $2,482
State income tax withholding $504
Retirement contributions $213
a) What is the total amount paid to the employees after taxes and deductions? Round your answer to the nearest dollar.
b) What is the company's payroll tax expense? Roadrunner Inc. is a large employer, so FAMLI is split between the employee and the employer, each paying half. Round your final answer to the nearest dollar.
a) (29,643 x 6.20%) + (29,643 x 1.45%) + (29,643 x .44%) + 2,482 + 504 + 213 = $5,597.12 total tax and deductions.
$29,643 - $5,597.12 = $24,046
b) (29,643 x 6.20%)+ (29,643 x 1.45%) + (29,643 x .44%) + (10,000 x 5.40%) + (10,000 x .80%) = $3,018
On March 1, Nolan Corp. acquires 3,000 shares of its stock at $12 per share (par is $6). On August 1, Nolan sells for $15 per share 1,200 of the 3,000 shares of its treasury stock previously acquired at $12 per share. On November 1, Nolan sells an additional 600 shares of treasury stock at $10 per share.
a) Journalize these transactions on the posted dates.
b)What is the balance in Paid-In Capital from Sale of Treasury Stock after November 1st?
Mar 1
Treasury Stock (3,000 x $12) $36,000
Cash $36,000
Aug 1
Cash ($15 x 1,200) $18,000
Treasury Stock (1,200 x $12) $14,400 Additional Paid In Capital
[($15-$12) x 1,200] $3,600
Nov 1
Cash (600 x $10) $6,000
Paid in Capital [($12-$10) x 600] $1,200 Treasury Stock (600 x $12) $7,200
b) Paid In Capital 3,600 – 1,200 = $2,400
--Dr------Cr--
1,200 | 3,600