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revsine09 - Financial Reporting and Analysis Chapter 9...

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Financial Reporting and Analysis Chapter 9 Solutions Inventories Exercises Exercises E9-1. Account analysis (AICPA adapted)
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To find merchandise inventory, we first need to find cost of goods sold. This figure can be computed by using the gross margin percentage given. If profit is 20% of sales, then cost of goods sold must be (1-20%) or 80% of sales. So 80% of $2,000,000 is $1,600,000—cost of goods sold. Now we can look at the T-account for the answer. Inventory Beginning balance $300,000 Purchases 1,900,000 9-2
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$1,600,000 Cost of goods sold Ending balance X Now we can solve for X. $300,000 + $1,900,000 - $1,600,000 = X X = $600,000 E9-2. Cost flow computations (AICPA adapted) 9-3
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Requirement 1: Cost of goods sold and the cost of ending inventory under the FIFO method are computed below. FIFO FIFO January 12 150 @ $18 $2,700 9-4
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January 30 50 @ $18 900 50 @ $20 _1,000 Units sold 250 Cost of goods sold $4,600 9-5
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Now we know how many units are no longer in inventory, and we can compute the ending balance from the units remaining. Remaining in ending inventory: FIFO 50 @ $20 $1,000 100 @ $22 _2,200 150 Units $3,200 9-6
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The cost of ending inventory under FIFO is $3,200. We can use the same method to find the cost of ending inventory under LIFO. Requirement 2: LIFO January 12 100 @ $22 $2,200 50 @ $20 1,000 January 30 50 @ $20 1,000 9-7
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50 @ $18 ___900 Units sold 250 Cost of goods sold $5,100 Since City Stationers, Inc., does not use perpetual inventory records, we do not need to worry about the dates of the purchases and sales. LIFO ending inventory: 150 @ $18 = $2,700 Under LIFO, ending inventory is $500 less than it is under FIFO, or $2,700. 9-8
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E9-3. Account analysis (AICPA adapted) We can find cost of goods sold for 2001 by analyzing the inventory account. Inventory Beginning balance $X Purchases $315,000 9-9
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(Cash + increase in accounts payable) ? Solve for: Cost of goods sold Ending balance $X - 10,000 Purchases can be found by adding together the disbursements for purchases of merchandise ($290,000) and the increase in trade accounts payable ($25,000). 9-10
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We know that the ending balance in inventory is $10,000 less than the beginning balance. If we began with $X, and purchased $315,000, and ended with $X - 10,000, we must have sold all $315,000 that was purchased plus $10,000 of beginning inventory. Cost of goods sold is $325,000—total purchases plus the decrease in merchandise inventory. E9-4. Account analysis (AICPA adapted) 9-11
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To find Dumas’ sales for 2001, we need to first look at the inventory T-account. Finished Goods Inventory Beginning balance $45,000 Cost of goods Manufactured 340,000 X Solve for: Cost of goods sold Ending balance $52,000 9-12
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Since we already know cost of goods manufactured, we do not need to analyze work in process inventory. We solve for cost of goods sold as follows: $45,000 + $340,000 - X = $52,000 X = $333,000 Now that we know cost of goods sold, we can solve for sales using this figure and the gross profit amount given. Gross profit is the difference between sales 9-13
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revenue and cost of goods sold. So to find sales, we need only add cost of goods sold to gross profit. Sales in 2001 would be: $333,000 + $96,000 = $429,000 9-14
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E9-5. Account analysis (AICPA adapted) In this problem, we need to determine the accuracy of the inventory account. We know that cost of goods sold is 70% of sales [70% of $3,000,000 = $2,100,000]. Now let’s examine the T-account to see how our estimate compares.
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