Examples of Accounting Problems and Solutions

Problem 1: Inventory Valuation using FIFO, Specific Identification, and Weighted Average methods

The following transactions took place in ABBA Limited during the year ended December 31, 2019:

On December 31, 2019, 2,500 units were sold for $3.00 each.

For specific identification purposes, the items sold were:

1,200 units of purchase #1    300 units of purchase #3

1,000 units of purchase #4

Required:

1. Calculate the cost of ending inventory under each of the following costing methods:
2. FIFO
3. Specific identification
4. Weighted average
5. Complete the following calculations:

3. In a period of falling prices, does FIFO or weighted average costing produce the lowest net income

Sheren Limited has a December 31 year end. The company purchased the following equipment on January 1, 2020.

Required:

1.  Calculate the total depreciation for the four-year period 2020-2023 using the straight-line method.
2.  Assume the equipment is sold for cash on January 1, 2024 for a gain of $500. How much cash was received?

Required:

Complete the following table showing the impact of each transaction on total assets, total liabilities and total equity. Use (+) to show an increase, (–) to show a decrease and ‘NC’ if there is no change.