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Fin-Acctg7-SM-Ch06

# Fin-Acctg7-SM-Ch06 - Chapter 6 Inventory and Cost of Goods...

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Chapter 6 Inventory and Cost of Goods Sold Short Exercises (10 min.) S 6-1 Billions Inventory………………………… 3.9 Cash…………………………... 3.9 Accounts Receivable…………. 19.4 Sales Revenue………………. 19.4 Cost of Goods Sold…………… 4.2 Inventory……………………... 4.2 Cash……………………………… 18.9 Accounts Receivable………. 18.9 Chapter 6 Inventory and Cost of Goods Sold 87

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(10-15 min.) S 6-2 1. (Journal entries) Inventory………………………………….. 100,000 Accounts Payable……………………. 100,000 Amounts Receivable…………………… 240,000 Sales Revenue………………………... 240,000 Cost of Goods Sold…………………….. 80,000 Inventory (\$100,000 × .80)………….. 80,000 Cash (\$240,000 × .20)…………………... 48,000 Accounts Receivable………………... 48,000 2. (Financial statements) BALANCE SHEET Current assets: Inventory (\$100,000 \$80,000)………………. \$ 20,000 INCOME STATEMENT Sales revenue……………………………………… \$240,000 Cost of goods sold……………………………….. 80,000 Gross profit………………………………………… \$160,000 Financial Accounting 7/e Solutions Manual 88
(15-20 min.) S 6-3 a b c Average Cost FIFO LIFO Cost of goods sold: Average (24 × \$156.67) \$3,760 FIFO \$1,500 + (14 × \$160) \$3,740 LIFO \$3,200 + (4 × \$150) \$3,800 Ending inventory: Average (6 × \$156.67) \$ 940 FIFO (6 × \$160) 960 LIFO (6 × \$150) 900 Computations: Units sold = 24 (10 + 20 6) Units in ending inventory = 6 Average cost per unit = \$156.67 (\$1,500 + \$3,200) ÷ (10 + 20) Cost per unit: First purchase = \$150 (\$1,500 ÷ 10 = \$150) Second purchase = \$160 (\$3,200 ÷ 20 = \$160) Chapter 6 Inventory and Cost of Goods Sold 89

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(10-15 min.) S 6-4 Pinkie Copy Center Income Statement Year Ended December 31, 20XX Average FIFO LIFO Sales revenue (600 × \$20) \$12,000 \$12,000 \$12,000 Cost of goods sold (600 × \$9.90*) 5,940 (100 × \$9) + (500 × \$10) 5,900 (600 × \$10) 6,000 Gross profit 6,060 6,100 6,000 Operating expenses 3,000 3,000 3,000 Net income \$ 3,060 \$ 3,100 \$ 3,000 _____ * Average cost per unit: Beginning inventory (100 @ \$9.20)…………….. \$ 920 Purchases (700 @ \$10)…………………………… 7,000 Goods available…………………….……………… \$7,920 Average cost per unit \$7,920 / 800 units…… \$ 9.90 Financial Accounting 7/e Solutions Manual 90
(10-15 min.) S 6-5 Pinkie Copy Center Income Statement Year Ended December 31, 20XX Average FIFO LIFO Sales revenue (600 × \$20) \$12,000 \$12,000 \$12,000 Cost of goods sold (600 × \$9.90*) 5,940 (100 × \$9) + (500 × \$10) 5,900 (600 × \$10) ______ ______ 6,000 Gross profit 6,060 6,100 6,000 Operating expenses 3,000 3,000 3,000 Income before income tax \$ 3,060 \$ 3,100 \$ 3,000 Income tax expense (40%) \$ 1,224 \$ 1,240 \$ 1,200 *From S 6-4 Chapter 6 Inventory and Cost of Goods Sold 91 Method to minimize income tax expense. Method to maximize reported income (before tax).

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(5 min.) S 6-6 Microdot managers can purchase lots of inventory before year end. Under LIFO, these high inventory costs go directly to cost of goods sold in the current year. As a result, the current year’s net income drops and that saves on income tax. Saving on taxes is one reason companies want to decrease their income.
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