211c8m6 - Introduction to Financial Accounting Chapter 8...

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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 1 Chapter 8, Module 6 Chapter 8, Module 6 Slide 1 AMIS 211 Introduction to Financial Accounting Professor Marc Smith Chapter 8 Module 6 Chapter 8 Module 6 Hi everyone. Welcome back. Let’s continue our discussion of the distinctions between LIFO, FIFO, and Weighted Average—the three (3) inventory cost methods. And, in this Module, let’s look at how the choice of inventory method directly effects the different financial statements. Now, if you will go to the next slide with me.
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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 2 Chapter 8, Module 6 Slide 2 How can we calculate the sales revenue earned by XYX Company for May? by XYX Company for May? 40 units sold x $10.00 selling price per unit x Sales Revenue = $400 = $400 Assume: Operating expenses were $50 during May and the Assume: Operating expenses were $50 during May and the income tax rate is 40%. income tax rate is 40%. Reminder: This example was a period of inflation (rising costs Reminder: This example was a period of inflation (rising costs ). ). Chapter 8 Module 6: Comparison of Methods Let’s refer back to the example from the Web site—the one that we worked together a couple of Modules ago. And, let’s see if we can figure out from that problem the amount of Sales Revenue that XYZ Company would report for the month of May. We can calculate their Sales Revenue by taking the number of units sold, which we know are 40, and multiplying it by the selling price per unit. That is given in the problem as $10.00 a unit. We sell each unit for 10 bucks ($10.00). We sold 40 of them. The Total Sales Revenue is $400.00. I would also like you to make an assumption in order to complete the financial statements. I would like you to assume that during the month of May, XYZ Company had Operating Expenses of $50.00 and an Income Tax Rate of 40%.
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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 3 Chapter 8, Module 6 I would also like you to remember that: this problem was an example of a period of Inflation. Inventory Costs were increasing throughout the month of May. Please keep that in mind. And, go to the next slide. Slide 3 FIFO Wtd Avg LIFO Sales $400.00 $400.00 $400.00 CGS 122.50 152.00 180.00 Gross Profit 277.50 248.00 220.00 Oper. expenses 50.00 50.00 50.00 Income before tax 227.50 198.00 170.00 Taxes (40%) 91.00 79.20 68.00 Net Income $136.50 $118.80 $102.00 Income Statement Impact Income Statement Impact [Given operating expenses of $50 and a 40% tax rate] [Given operating expenses of $50 and a 40% tax rate] Chapter 8 Module 6: Comparison of Methods And, let’s look at Income Statements prepared under each of the three (3) inventory methods. Notice that: under each method, the Sales Revenue is the same: $400.00. We sold 40 units at $10.00 each. However, each method shows a different amount of Cost of Goods Sold. Just two Modules ago, we calculated those amounts together.
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This note was uploaded on 04/21/2008 for the course ACCT 211m taught by Professor Zeigler/smith during the Winter '07 term at Ohio State.

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211c8m6 - Introduction to Financial Accounting Chapter 8...

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