Spiceland Chpt 6 Assigned Homework Solutions

Spiceland Chpt 6 Assigned Homework Solutions - Chapter 6...

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Chapter 6 Homework Solutions – Spiceland Question 6-1 Inventory includes items a company intends for sale to customers. Inventory also includes items that are not yet finished products. The cost of inventory that has not been sold by the end of the reporting period is reported in the balance sheet as an asset. The cost of inventory that has been sold during the reporting period is reported as an expense (cost of goods sold) in the income statement. Question 6-2 Service companies earn revenues by providing services to their customers. Manufacturing or merchandising companies earn revenues by selling inventory rather than a service. Question 6-4 The cost of goods (or inventory) available for sale equals the cost of beginning inventory plus additional purchases during the reporting period. By subtracting the cost of ending inventory at the end of the reporting period from the cost of goods available for sale, we calculate cost of goods sold during the reporting period. Question 6-8 FIFO results in the highest reported amount for ending inventory when inventory costs are rising. The reason is that under the FIFO method, the oldest (or first) items are sold first and these are the lower-cost items, leaving the higher-cost items to be reported in ending inventory. Question 6-9 FIFO results in the highest reported amount of net income when inventory costs are rising. The reason is that under the FIFO method, the oldest (or first) items are sold first and these are the lower-cost items. Reporting cost of goods sold based on the lower-cost items results in net income being higher. Question 6-11 LIFO generally results in lower income taxes payable when inventory costs are increasing because pre-tax income in this case is lower (than if FIFO were used). The LIFO conformity rule requires a company that uses LIFO for tax reporting to also use LIFO for financial reporting.
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Chapter 6 Homework Solutions – Spiceland Pg. 2 Question 6-15 We report inventory using the lower-of-cost-or-market method, that is, at cost (specific identification, FIFO, LIFO, or average cost) or market value (replacement cost), whichever is lower. When market value falls below cost, we adjust inventory down from cost to market value. Question 6-21 Understating ending inventory in the current year will have the following effects in the current year: (a) assets (inventory) = understated (b) liabilities = no effect (c) stockholders’ equity (or retained earnings) = understated (d) revenues = no effect (e) expenses (cost of goods sold) = overstated (f) net income = understated
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Chapter 6 Homework Solutions – Spiceland Pg. 3 Exercise 6-2 Requirement 1 – FIFO (a) Date Transaction Number of units Unit cost
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Spiceland Chpt 6 Assigned Homework Solutions - Chapter 6...

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