5 - P7-1 Beginning Inventory: 70.000 ITEM A B C D E F G...

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Unformatted text preview: P7-1 Beginning Inventory: 70.000 ITEM A B C D E F G Final Inventory: 67,450 P7-3 AMOUNT 500 0 0 (1,200) 2,200 950 (5,000) EXPLANATION Goods used on trial basis Goods in transit Goods in transit Title changed at purchased FOB shipping FOB destination Company doesn't have title Atlanta Company Income Statement For the Month Ended January 31, 2007 Sales Revenue COGS Beginning Inventory Purchases Goods Available for Sale Ending Inventory COGS Gross PROFIT WA $12,600 2,500 4,880 7,380 3,280 4,100 $8,500 FIFO $12,600 2,500 4,880 7,380 3,680 3,700 $8,900 LIFO $12,600 2,500 4,880 7,380 2,860 4,520 $8,080 SI $12,600 2,500 4,880 7,380 3,580 3,800 $8,800 FIFO has a higher pretax income higher earnings per share. LIFO has the lowest tax expense it has the lowest net income LIFO has less outflow of cash because of a low income tax expense P7-5 RISING Sales Revenue COGS Beginning I Purchases Goods Avail. Ending I COGS Gross Profit Expense FIFO $12,500 3,600 5,200 8,800 2,600 6,200 6,300 4,000 LIFO $12,500 3,600 5,200 8,800 2,400 6,400 6,100 4,000 FIFO $12,500 3,900 4,800 8,700 2,400 6,30 6,200 4,000 FALLING LIFO $12,500 3,900 4,800 8,700 2,600 6,100 6,400 4,000 Pretax Income 2,300 Income Tax XP 690 Net Income $1,610 2,100 630 $1,470 2,200 660 $1,540 2,400 720 $1,680 When prices are rising, LIFO has a lower pretax income (lower net income) When prices are falling, FIFO has a lower pretax income (lower net income) When prices are rising, LIFO has a better cash position When prices are falling, FIFO has a better cash position Since prices are usually rising LIFO method is best. P7-11 a. Cash Sales Revenue b. COGS Inventory c. Sales Returns & Allowances Cash d. Inventory Acct. Payable e. Inventory Acct. Payable f. Equipment Cash g. Office Supplies Cash h. Shipping XP Cash i. Acct. Payable Cash j. Acct. Payable Cash Inventory 275,000 275,000 137,500 137,500 800 800 5,000 5,000 120,000 120,000 2,200 2,200 700 700 400 400 5,000 5,000 120,000 116,400 3,600 INVENTORY TURNOVEER: COGS / avg. inventory : 424,970 / 26, 379.5 = 16.1 ...
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5 - P7-1 Beginning Inventory: 70.000 ITEM A B C D E F G...

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