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HW_ 4 Inventory with solution

# HW_ 4 Inventory with solution - Homework#4 Inventory(Ch 8...

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Homework #4 : Inventory (Ch 8 and Ch 9), due on February 24. Problem 1: Caylor Inc. is considering whether or not it should change from a last-in, first-out (LIFO) to first-in, first-out (FIFO) basis of pricing inventories. The following information is available. Sales 20,000 units @ 50 Inventory, Jan 1 5,000 units @ 20 Purchase 6,000 units @ 22 10,000 units @ 25 7,000 units @ 30 Inventory, Dec 31 8,000 units @ ? Operating expense \$200,000 Required: 1) Using a periodic method, prepare a condensed income statement for the year on both bases for comparative purposes. 2) Explain whether Caylor should change from LIFO to FIFO?

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Solution to Problem 1: part 1 First-in, first- out Last-in, first-out Sales ................................................ ......................................................... \$1,000,000 \$1,000,000 Cost of goods sold: Inventory, Jan. 1 ........................ \$100,000 \$100,000 Purchases ................................. 592,000 * 592,000 Cost of goods available ............. 692,000 692,000 Inventory, Dec. 31 ..................... 235,000 * * 166,000 * ** Cost of goods sold .............. 457,000 526,000 Gross profit ...................................... 543,000 474,000 Operating expenses ........................ 200,000 200,000 Net income ...................................... \$ 343,000 \$ 274,000 *Purchases 6,000 @ \$22 = \$132,000 10,000 @ \$25 = 250,000 7,000 @ \$30 = 210,000 \$592,000 **Computation of inventory, Dec. 31: First-in, first-out: 7,000 units @ \$30 = \$210,000 1,000 units @ \$25 = 25,000 \$235,000 ***Last-in, first-out: 5,000 units @ \$20 = \$100,000 3,000 units @ \$22 = 66,000 \$166,000
Solution to Part 2: any appropriate justification is acceptable.

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HW_ 4 Inventory with solution - Homework#4 Inventory(Ch 8...

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