ch 7 fall - Chapter 7 Homework Problems E7-17 Analyzing the...

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Chapter 7 Homework Problems E7-17 Analyzing the Effects of an Error in Recording Purchases 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 correctly counted and reported each year. Assuming that no correction was made in 2006 or 2007, indicate whether each of the following financial statement amounts will be understated, overstated, or correct. 1. Net Income for 2006. Choice Selected Correct Overstated Correct Understated 2. Net Income for 2007. Choice Selected Correct Overstated Correct Understated 3. Retained Earnings for December 31, 2006 Choice Selected Correct Correct Overstated Understated 4. Retained Earnings for December 31, 2007.
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Choice Selected Correct Understated Overstated Correct E7-3 Inferring Missing Amounts Based on Income Statement Relationships Supply the missing dollar amounts for the 2006 income statement of Lewis Retailers for each of the following independent cases: Cases Sales Revenue Beginning Inventory Purchases Total Available Ending Inventory Cost of Goods Sold Gross Profit Expenses Pretax Income or (Loss) A $ 600 $ 100 $ 720 $ 820 $ 500 $ 320 $ 280 $ 190 $ 90 B 910 180 800 980 190 790 120 120 0 C 570 150 340 490 300 190 380 120 260 D 820 80 610 690 250 440 380 260 120 E 1,020 170 910 1,080 550 530 490 540 (50 ) E7-7 Analyzing and Interpreting the Financial Statement Effects of LIFO and FIFO 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 $12 For the year 2007: b. Purchase, April 11 9,000 10 c. Purchase, June 1 8,000 16 d. Sales ($50 each) 11,000 e. Operating expenses (excluding income tax expense), $193,000 Required: Prepare a separate income statement through pretax income that details cost of goods sold for: Case A: FIFO. Case B: LIFO.
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For each case, show the computation of the ending inventory. 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 $550,000 $550,000 Cost of goods sold: Beginning inventory 36,000 36,000 Purchases 218,000 218,000 Goods available for sale 254,000 254,000 Ending inventory 138,000 96,000 Cost of good sold 116,000 158,000 Gross profit 434,000 392,000 Expenses
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ch 7 fall - Chapter 7 Homework Problems E7-17 Analyzing the...

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