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CHAPTER 8Assignment Exercise 8–1: FIFO and LIFO InventoryStudy the FIFO and LIFO explanations in the chapter.Requireda1.Use the format inExhibit 8–1to compute the ending FIFO inventory and the cost of goods sold, assuming $90,000 in sales; beginning inventory 500 units @ $50; purchases of 400 units @ $50; 100 units @ $65; 400 units @ $80.a2.Also compute the cost of goods sold percentage of sales.
b1.Use the format inExhibit 8–2to compute the ending LIFO inventory and the cost of goods sold, using same assumptions.b2.Also compute the cost of goods sold percentage of sales.c.Comment on the difference in outcomes.Assignment Exercise 8–2: Inventory TurnoverStudy the “Calculating Inventory Turnover” portion of the chapter closely, whereby the cost of goods sold divided by the average inventory equals the inventory turnover.Required
Compute two inventory turnover calculations as follows:1.Use the LIFO information in the previous assignment to first compute the average inventory and then to compute the inventory turnover.2.Use the FIFO information in the previous assignment to first compute the average inventory and then to compute the inventory turnover.Example 8A: Depreciation ConceptAssume that Metropolis Health System (MHS) purchased equipment for $200,000 cash on April 1 (the first day of its fiscal year). This equipment has an expected life of 10 years. The salvage value is 10% of cost. No equipment was traded in on this purchase.Straight-line depreciation is a method that charges an
previous depreciation is deducted from the asset’s cost. The computation is as follows:Step 1.Compute the straight-line rate: 1 divided by 10 equals 10%.Step 2.Now double the rate (as indouble-declining method): 10% times 2 equals 20%.Step 3.Compute the first year’s depreciation expense: 200,000 times 20% equals 40,000.Step 4.Compute the carry-forward book value at the beginning of the second year: 200,000 book value beginning Year 1 less Year 1 depreciation of 40,000 equals book value at the beginning of the second year of 160,000.