ch 7_Solutions

ch 7_Solutions - E7-2 Case A Net sales revenue Beginning...

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E7-2) 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) 1) Case A (FIFO) Case B (LIFO) Net sales revenue 440,000 440,000 Beginning inventory 36,000 36,000 Purchases 194,000 194,000 Goods available for sale 230,000 230,000 Ending inventory 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 Case A: Ending Inventory = $230,000 - [ (3000* $12)+(8000*$10) ] = $114,000 Case B: Ending Inventory = $230,000 - [ (8000* $13)+(3000*$10) ] = $96,000 2) The pretax income as well as the ending inventory amounts are both greater when the FIFO method was used. This is due to the fact that more of the units were sold from the units purchased on April 11 th in the FIFO method. However, in the long run when all of these units are sold, the income from goods sold will be the same no matter which method has been used. 3) As explained in the last answer, in the long run neither method is better. However, for the year
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