ACTG 500 Practice Problems 6 Inventories

ACTG 500 Practice Problems 6 Inventories - University of...

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1 University of Illinois at Chicago College of Business Administration ACTG 500: I NTRODUCTION TO F INANCIAL A CCOUNTING Fall 2009 Practice Problems 6: Inventories E6-27 Units Cost Beginning Inventory 1,000 $ 20,000 Purchases: #1 1,800 39,600 #2 800 20,800 #3 1,200 34,800 Goods available for sale 4,800 $115,200 Units in ending inventory = 4,800 – 2,800 = 2,000 a. First-in, first-out Units Cost Total 1,200 @ $29 = $34,800 800 @ $26 = 20,800 Ending Inventory 2,000 $55,600 Cost of goods available for sale $115,200 Less: Ending inventory 55,600 Cost of goods sold $ 59,600 Balance Sheet Income Statement Transaction Cash Asset + Noncash Assets = Liabil- ities + Contrib. Capital + Earned Capital Rev- enues Expen- ses = Net Income COGS 59,600 INV 59,600 59,600 59,600 COGS INV Record FIFO cost of goods sold -59,600 Inventory = -59,600 Retaine d Earning s +59,600 Cost of Goods Sold = -59,600
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2 b. Last-in, first-out Units Cost Total 1,000 @ $20 = $20,000 1,000 @ $22 = 22,000 Ending inventory 2,000 $42,000 Cost of goods available for sale $115,200 Less: Ending inventory 42,000 Cost of goods sold $ 73,200 c. Average cost $115,200 / 4,800 = $24 average unit cost 2,000 × $24 = $48,000 ending inventory $115,200 - $48,000 = $67,200 cost of goods sold (or 2,800 × $24) d. 1. In most circumstances, the first-in, first-out method represents physical flow. First- in, first-out physical flow is critical when inventory is perishable or in situations in which the earliest items acquired are moved out first because of risk of deterioration or obsolescence such as technology products and retail items. 2. Last-in, first-out yields the highest cost of goods sold expense during periods of
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This note was uploaded on 03/06/2011 for the course ECON 435 taught by Professor Galven during the Spring '11 term at Ill. Chicago.

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ACTG 500 Practice Problems 6 Inventories - University of...

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