chapter_7_solution

chapter_7_solution - Homework#6 Chapter 7 Homework Problems...

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Homework #6 Chapter 7 Homework Problems E7-17 Analyzing the Effects of an Error in Recording Purchases LO7 Garraway Ski Company mistakenly recorded purchases of inventory on account received during the last week of December 2006 as purchases during January of 2007 (this is called a purchases cutoff error ). Garraway uses a periodic inventory system, and ending inventory was overstated in 2006. Please indicate whether each of the following financial statement amounts will be understated, overstated, or correct. 1. Net Income for 2006. Choice Selected Correct Understated Correct Overstated 2. Net Income for 2007. Choice Selected Correct Understated Correct Overstated 3. Retained Earnings for December 31, 2006. Choice Selected Correct Overstated Understated Correct 4. Retained Earnings for December 31, 2007. Choice Selected Correct Overstated Correct Understated E7-3 Inferring Missing Amounts Based on Income Statement Relationships LO1 Supply the missing dollar amounts for the 2006 income statement of Lewis Retailers for each of the following independent cases:
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Cases Sales Revenue Beginning Inventory Purchases Total Available Ending Inventory Cost of Goods Sold Gross Profit Expenses Pretax Income or (Loss) A $ 620 $ 80 $ 700 $ 780 $ 500 $ 280 $ 340 $ 190 $ 150 B 950 220 800 1,020 210 810 140 120 20 C 640 170 350 520 300 220 420 110 310 D 800 60 610 670 240 430 370 270 100 E 1,020 230 890 1,120 590 530 490 560 (70 ) E7-7 Analyzing and Interpreting the Financial Statement Effects of LIFO and FIFO LO2, 3 Lunar company uses a periodic inventory system. At the end of the annual accounting period, December 31, 2007, the accounting records provided the following information for Product 2: Transactions Units Unit Cost a. Inventory, December 31, 2006 3,000 $13 For the year 2007: b. Purchase, April 11 9,000 8 c. Purchase, June 1 8,000 14 d. Sales ($36 each) 11,000 e. Operating expenses (excluding income tax expense), $195,000 Required: 1. Prepare a separate income statement through pretax income that details cost of goods sold for a. Case A: FIFO. b. Case B: LIFO. For each case, show the computation of the ending inventory. 2. Compare the pretax income and the ending inventory amounts between the two cases. 1. LUNAR COMPANY Income Statement For the Year Ended December 31, 2007 Case A FIFO Case B LIFO Sales revenue $ 396,000 $ 396,000
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Cost of goods sold: Beginning inventory 39,000 39,000 Purchases 184,000 184,000 Goods available for sale 223,000 223,000 Ending inventory 120,000 87,000 Cost of good sold 103,000 136,000 Gross profit 293,000 260,000 Expenses 195,000
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chapter_7_solution - Homework#6 Chapter 7 Homework Problems...

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