Solution_Chpt07 - Chapter 7 solution 1 a 6 c 4 2 d 7 a 3 a...

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Chapter 7 solution ACCT 2301 LI 1. a) 2. d) 3. a) 4. b) 5. c) 6. c) 7. a) 8. c) 9. c) 10. a) 4. Goods available for sale is the sum of the beginning inventory and the amount of goods purchased during the period. Cost of goods sold is the amount of goods available for sale less the ending inventory. 5. Beginning inventory is the stock of goods on hand (in inventory) at the start of the accounting period. Ending inventory is the stock of goods on hand (in inventory) at the end of the accounting period. The ending inventory of one period automatically becomes the beginning inventory of the next period. 6. (a) Average cost –This inventory costing method in a periodic inventory system is based on a weighted-average cost for the entire period. At the end of the accounting period the average cost is computed by dividing the goods available for sale in units into the cost of goods available for sale in dollars . The computed unit cost then is used to determine the cost of goods sold for the period by multiplying the units sold by this average unit cost. Similarly, the ending inventory for the period is determined by multiplying this average unit cost by the number of units on hand. (b) FIFO –This inventory costing method views the first units purchased as the first units sold. Under this method cost of goods sold is costed at the oldest unit costs, and the ending inventory is costed at the newest unit costs. (c) LIFO –This inventory costing method assumes that the last units purchased are the first units sold. Under this method cost of goods sold is costed at the latest unit costs and the ending inventory is costed at the oldest unit costs. (d) Specific identification –This inventory costing method requires that each item in the beginning inventory and each item purchased during the period be identified specifically so that its unit cost can be determined by identifying the specific item sold. This method usually requires that each item be marked, often with a code that indicates its cost. When it is sold, that unit cost is the cost of goods sold amount. It often is characterized as a pick-and-choose method. When the ending inventory is taken, the specific items on hand, valued at the cost indicated on each of them, is the ending inventory amount. E7–3. (Italics for missing amounts only.) Case Sales Revenue Beg. Inven- tory Pur- chases Total Avail- able Ending Inventory Cost of Goods Sold Gross Profit Ex- penses Pretax Income or (Loss) A $ 650 $100 $700 $800 $500 $300 $350 200 $150 B 900 200 800 1,000 300 700 200 150 50 C 600 150 350 500 300 200 400 100 300 D 800 150 550 700 300 400 400 200 200 E 1,000 200 900 1,100 600 500 500 550 (50) 1
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Chapter 7 solution ACCT 2301 LI E7-5 Weighted Units FIFO LIFO Average Cost of goods sold: Beginning inventory ($4) ....................... 2,000 8,000 8,000 8,000 Purchases (March 21) ($7) ..................... 5,000 35,000 35,000 35,000 (August 1) ($8) ................... 3,000 24,000 24,000 24,000 Goods available for sale ............ 10,000 67,000 67,000 67,000 Ending inventory* .................................. 4,000 31,000 22,000 26,800 Cost of goods sold ..................... 6,000 36,000 45,000 40,200 *Ending inventory computations: FIFO: (3,000 units @ $8) + (1,000 units @ $7) = $31,000.
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