revsine09 - Financial Reporting and Analysis Chapter 9...

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Unformatted text preview: Financial Reporting and Analysis Chapter 9 Solutions Inventories Exercises Exercises E9-1. Account analysis (AICPA adapted) 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 $1,600,000cost 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 $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 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 January 30 50 @ $18 900 50 @ $20 _1,000 Units sold 250 Cost of goods sold $4,600 9-5 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 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 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 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 (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 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 $325,000total purchases plus the decrease in merchandise inventory. E9-4. Account analysis (AICPA adapted) 9-11 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 Since we already know cost of goods manufactured, we do not need to analyze work in process inventory....
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revsine09 - Financial Reporting and Analysis Chapter 9...

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