Chapter_7_HW_Solution_final

# Chapter_7_HW_Solution_final - AEM 221 Financial Accounting...

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AEM 221 Financial Accounting Spring 2007 Chapter 7 Homework Solution 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 \$ 650 \$ 120 \$ 720 \$ 840 \$ 520 \$ 320 \$ 330 \$ 180 \$ 150 B 910 190 820 1,010 210 800 110 110 0 C 640 160 380 540 320 220 420 110 310 D 780 100 590 690 260 430 350 250 100 E 990 200 880 1,080 590 490 500 560 (60 ) 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 \$11 For the year 2007: b. Purchase, April 11 9,000 7 c. Purchase, June 1 8,000 15 d. Sales (\$43 each) 11,000 e. Operating expenses (excluding income tax expense), \$190,000 Required: 1. Prepare a separate income statement through pretax income that details cost of goods sold for a. Case A: FIFO. b. Case B: LIFO. For each case, show the computation of the ending inventory. 2. Compare the pretax income and the ending inventory amounts between the two cases. 1. LUNAR COMPANY 1

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Income Statement For the Year Ended December 31, 2007 Case A FIFO Case B LIFO Sales revenue \$473,000 \$473,000 Cost of goods sold: Beginning inventory 33,000 33,000 Purchases 183,000 183,000 Goods available for sale 216,000 216,000 Ending inventory 127,000 75,000 Cost of good sold 89,000 141,000 Gross profit 384,000 332,000 Expenses 190,000 190,000 Pretax income \$ 194,000 \$142,000 2. Comparison of Amounts Case A FIFO Case B LIFO Difference Pretax Income \$194,000 \$142,000 \$52,000 Ending Inventory 127,000 75,000 52,000 E7-8 Analyzing and Interpreting the Financial Statement Effects of LIFO and FIFO Scoresby Inc. uses a periodic inventory system. At the end of the annual accounting period, December 31, 2009, the accounting records provided the following information for Product 2: 2
Transactions Units Unit Cost a. Inventory, December 31, 2008 7,000 \$6 For the year 2009: b. Purchase, March 5 19,000 6 c. Purchase, September 19 10,000 8 d. Sale (\$25 each) 8,000 e. Sale (\$29 each) 16,000 f. Operating expenses (excluding income tax expense), \$509,000 Required: 1. Prepare a separate income statement through pretax income that details cost of goods sold for Cases A and B. For each case, show the computation of the ending inventory.

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• Fall '07
• LITTLE,J.

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