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223_Hwk_7_Solutions

# 223_Hwk_7_Solutions - HA 223 Fall 2006 Homework 7 Solution...

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HA 223 – Fall 2006 – Homework 7 – Solution E7–2. (Italics for missing amounts only.) Case A Case B Case C Net sales revenue ........... \$7,950 \$ 5,500 \$5,920 Beginning inventory ........ \$11,000 \$ 6,500 \$ 4,000 Purchases ................... 5,000 8,770 9,420 Goods available for sale. 16,000 15,270 13,420 Ending inventory ............. 10,250 11,220 8,020 Cost of goods sold .......... 5,750 4,050 5,400 Gross profit ................... 2,200 1,450 520 Expenses ................... 1,300 1,950 520 Pretax income ................. \$ 900 \$ (500 ) \$ -0 - E7–7. Req. 1 LUNAR COMPANY Income Statement For the Year Ended December 31, 2007 Case A Case B FIFO LIFO Sales revenue 1 ............................... \$440,000 \$440,000 Cost of goods sold: Beginning inventory ................ 36,000 36,000 Purchases ............................... 194,000 194,000 Goods available for sale 2 230,000 230,000 Ending inventory 3 ................... 114,000 96,000 Cost of goods sold ........... 116,000 134,000 Gross profit .................................. 324,000 306,000 Expenses .................................. 195,000 195,000 Pretax income ................................. \$129,000 \$111,000 Computations: (1) Sales: (11,000 units @ \$40) = \$440,000

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E7–7. (continued) (2) Goods available for sale (for both cases): Units Unit Cost Total Cost Beginning inventory 3,000 \$12 \$ 36,000 Purchase, April 11, 2007 9,000 10 90,000 Purchase, June 1, 2007 8,000 13 104,000 Goods available for sale 20,000 \$230,000 (3) Ending inventory (20,000 available – 11,000 units sold = 9,000 units): Case A FIFO: (8,000 units @ \$13 = \$104,000) + (1,000 units @ \$10 = \$10,000) = \$114,000 . Case B LIFO: (3,000 units @ \$12 = \$36,000)+ (6,000 units @ \$10 = \$60,000) = \$96,000 . Req. 2 Comparison of Amounts Case A Case B FIFO LIFO Pretax Income \$129,000 \$111,000 Difference \$18,000 Ending Inventory 114,000 96,000
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