 Hello, in this lecture we're going to continue with some test type questions, smaller questions that could fit into a multiple choice format. So we have a company's normal selling price for a product is $23 per unit, however, due to the market competition, the selling price has fallen to $18 per unit. This company's current inventory costs are $230 units purchased at $19 per unit, however, the replacement cost has fallen to $16 per unit. So the idea being here that if there's a reduction in the value of the inventory, we generally want to put it on there at the lower amount because we don't want to overstate our inventory. Remember, when we're talking to our reader, we would basically, from at least a regular toy standpoint, we would rather understate our assets, basically, because rather than overstate our assets from that standpoint. So by doing that, we're going to basically put our inventory on there at the lower of cost or market. So we have the units here, the $230 units, and the lower of the cost or market is $16 or $19, $19 or $16, and in this case, the lower is, of course, $16. Therefore, we're going to have to have the $230 units times this should be $16, not $160, $16. $230 units times $16 would be this $3680, this would be the dollar amount, and we would have to basically adjust our inventory to the lower of cost or replacement cost. Next one says that the company has inventory of 14 units at a cost of $9 each in August 1st. August 3rd, it purchased 24 units at $12, 16 units are sold on August 5th using the unifyful perpetual inventory method. What amount will be reported in cost of goods sold for the 16 units that were sold? So we could basically kind of just think this through and try to figure out the cost of the goods sold. I like to basically put these into a table, though, because if we do so, then it'll allow us to answer basically any type of question they ask. Notice what they asked us here is what was the cost of goods sold of the 16. They could have asked us, however, how much is left in any inventory, and if we set these same kind of problems up in a similar way, we can set them up in a way that we can always answer basically both of those questions. So in order to do that, I would basically make a column of six-column kind of grid, and we're going to talk about the ending inventory and the purchases over here and the cost of goods sold over here, and it would look something like this, and once you get used to doing something like this, then it becomes fairly easy to set these things up. A company has inventory, so this is going to be like the beginning balance that we're going to start off with, and I'm just going to put those in the last three columns because it consists of the units times the dollar amount, so 14 units times $9. So I'm going to go ahead and multiply those out. This equals 14 units times $9, and that gives us the 126. That's what's on the balance sheet at the beginning. And then we have a purchase here that happens, and I'm just going to put that in the same column over here, so we got the purchase that happens, and that will be 24 units at an increased price of $12. Therefore, if we take the 24 units times 12, we are at the 288, and then it just says 16 units are sold. So then we're going to have to sale, and I'm going to put the sale over here because this is where we'll calculate the cost of goods sold, and this is where we will put the ending inventory that is still left. So over here we're going to have to think about which units were sold. Under the first and first out, we sell the oldest first, which were the 14 at 9. Then we'll eat into the newer ones. So these are going to be sold first, but there's only 14 of those. We sold 16, therefore these are wiped out. So the sale, this is the sale, is wiped out at the 14. Those are $9 cost. This equals the 14 times 9. Now notice the thing that people get often very confused on is that they start to want to think about the sales price here. There is no sales price in this because we're not thinking about the sales price that we're thinking about the cost. The sales price will have to be given to us if we were actually to make the sale. We're trying to think about how much the cost of the sale was. So then we had, remember we sold 16 minus this 14. So that means we have two left, 14 plus two being the 16. And those are going to be at the $12 up here. So those are at $12. And therefore we have two times 12 and that gives us the 24. So if we sum those up, then the cost of goods that sold were this 126 and 24. If however they asked us what's left in Indian inventory, which is quite possible, then we would have to say, OK, well, these are wiped out. We sold all 14 of those. And then we have 24 minus two. We have 22 left at $12. Therefore, Indian inventory equals the 22 times 12. So if they asked us what the cost of goods sold is, it would be this. If they asked us how much is still left in Indian inventory after the sale of the 16 units, it would be that. Next one says, given the following information, determine the cost of inventory at June 30th using the life of perpetual inventory method. So once again, I'm going to set this up with basically those six columns again. I'm going to set all these kind of up, whether this FIFO, LIFO, or average. And I'm just going to say, OK, we're going to have these six columns. These are going to be the sales columns. This is going to be what's left and the purchases. And so in this case, we start with a beginning over here, 32 units at $20 each. So that's given here, 32 units at $20. If we multiply that out 32 times 20, we have 640 units. And then on June, we had a sale of 24 of those units. So we're going to sell 24 units. So we're just going to say 24 units at and there's only one layer here. We've only got one layer. So that makes it fairly easy. It doesn't under the last and first out, but we only got the one layer. So we're going to say that's at $20. So we're going to say this is 24 times 20. And that's going to be the cost of sales. What do we have left then? Well, we had 32 minus the 24 that we just sold. That means we have eight units. They all cost $20 because we only have this one layer. So we've got eight units times 20. OK, so then the next thing that happens is we have a purchase. So we have a purchase and we're going to put that over here. Now we have another layer. Now we're only counting this layer here. This is kind of done for us now. Now we're here and we're adding like a new layer to it. That new layer being 24 units at $25. So the price went up. All things else equal. That would be the case normally. So we've got 24 times 25 each. That gives us the 600. So what's left in Indian inventory? The sum of this layer that's still left and this layer. So we have eight units at 20 for 160 and 24 units at 25. That gives us the 760. This is what is in Indian inventory in terms of dollars. And that is that. Company has operated with 30% average growth profit ratio for a number of years. It had 102,000 in sales during the second quarter of this year. If it began the quarter with 18-2 of inventory at a cost of 72-2 of inventory during the quarter, it's estimated Indian inventory by the gross profit method is what? OK, so I'm going to set this up basically showing what the calculation would look like on the income statement and then back into the numbers. So I'd like to kind of look at it as if it was in the format of an income statement first. So we're going to say that starts off with sales. I'm going to put that in the outer column. And they told us the sales was 102 in during the first quarter. If it began the quarter with 18-2 of inventory at a cost of 72-2. So I'm going to calculate the cost of goods sold now. And that usually starts off with the beginning inventory. And it says we began the quarter with 18-2 in inventory. So 18-200 in inventory. And then we purchased, so purchased 72-200. So 72,200 of inventory was purchased. And then we usually subtract ending inventory. Ending inventory would then be subtracted. And of course, that is the unknown. That's what we do not know yet. So I'm going to say ending inventory is yellow. You can make it an X or something like that. Ending inventory abbreviated in some way if you're writing this down. So then I'm going to indent this. I'm going to indent this. And that would usually give us the cost of goods sold, which we would put in the outer column up here. But of course, we can't calculate it because we don't know this number. So we need to get that number. That's an unknown to us at this point. And that would give us the gross profit. So the gross profit then would be here, which would be sales minus cost of goods sold. That's how we calculate gross profit. Again, we don't know it. We're going to have to back into all those numbers with this one added piece of information that was given, which was this 30% average gross profit. Now I usually put this number, this 30% next to the gross profit here. And so we'll put 0.3, 30% is 0.3. If we move the decimal two places to the left, I'm going to go to the home tab. I'm going to go to the numbers group. I'm going to make that a percentage like so. And you might be asking, well, why do you put it there? And that's because the calculation is generally gross profit divided by sales. So if we want the gross profit percent, I'm going to put it up here, gross profit percent, that's going to equal the gross profit divided, alt enter divided by sales. Gross profit divided by sales. I'm going to go ahead and center that here. I'm going to go ahead and underline it. That's our ratio that we will be using. And we could put an equal sign here. So we're going to say this equals that. Okay, so then if we plug in our numbers, then of course we've got 0.3 is the gross profit going to go to the home tab, numbers, percentize that and that equals this gross profit. We don't know what the gross profit is. That's the X, alt enter over the sales, which we do know of 102,000. So we have that and I'm going to go ahead and center that. I'm going to go ahead and underline this and we can solve for the GP gross profit kind of like we'd solve for X. Now you might do this a bit, but some other ways, some more intuitively ways we can kind of think about that, we could say that, okay, so if this 30% is this number, which is the unknown, divided by that, then it's either going to be a division problem or a multiplication problem to figure this number out. And in this case it's going to be a multiplication number. We're going to say it's going to be this number times 30%. We'll give us this 30,006. And then we can figure out and check if that is the case because then we can do our calculation and say, all right, well it does 30,006 divided by the 102,000. Does that equal 30% or 0.3? It does. So then we've kind of checked our work there and that works. Then we can back into this number a couple different ways. We could say, all right, I know that this number minus this number equals that number. And if we wrote that out algebraically, it would be 102,000 minus x equals the 30,006. And we could solve for x and say, okay, well then x, I got to put that on both sides. And that equals, I'm going to flip the sign right now by saying, well let's do this, 30,006 minus 102. And that'll give us this 74 and I got to flip the sign because this would really be negative x and negative whatever, 71,4. So I can say x then equals 71,4 positive. And that's what then this number would be, 71,4. And so we have that. And then we could test that again, of course. We can test that and we're gonna say, all right, does that work? We're gonna say 102,000 minus 71,4 gives us gross profit of 30,006. Now a lot of books will actually back this in a different way. They'll say, well, if that's 30%, then the gross profit has got to be the other piece of it, which is gonna be, of course, 100%, one minus 0.3 or let's go home tab numbers and 70%. So we could calculate it that way. We could say, okay, well then this has got to be the 102,000 times 70% and that's another way you can look at it. And then we got to back into this number here. So I'm gonna delete some of this and give us some space and we're gonna say, all right. So we know that this plus this minus this equals that. So if we wrote that out algebraically, it would look like this. Oh, not with a percent there. No percentage there. Okay, we're gonna say 18,2 plus 72,2 minus the unknown of X is going to equal. I'm gonna pull this over. I'm gonna pull this whole thing over here and that's going to equal the 71,4. And we could solve that algebraically. We could say, all right, this equals the 72,2 plus the 18,2 minus X equals 71,4. And then if we solve for X, we would say X then is going to equal this equals the 71,4 minus the 90,004. And of course, this is really negative X. So it's really X. I can flip the sign by multiplying both sides. And that would be that. Now, again, you might do it more intuitively. You might say, okay, well, if this plus this minus this equals that, then I can kind of add those up. That's one number, it's 90,004. So it's that one number minus this equals that. So you might say then, well, how about I take the sum of these two and then minus this number. It's gotta be addition or subtraction and then you could double check your number, you're gonna say, and obviously I got the same number here, but then you could double check your number with the trustee calculator with the normal calculation, 18,2 plus 72,2 minus the 19. Does that give us 71,4? It does. So note what we have to, this is often the case with these smaller kind of problems with these multiple choice type problems. We had to back into the numbers to get to here when normally we would add, we would do it this way, get the formula. So in order to do these, you need to memorize cost of good soul formula, beginning inventory plus purchase of minus ending inventory. And of course, we need to know the sale, the growth profit, that's gonna be sales minus cost of good soul gives us the growth profit. And we need to know the growth profit per cent, which is going to be growth profit divided by sales.