Gillespie Week 6 MBAA 603

Gillespie Week 6 MBAA 603 - Tim Gillespie Week 6 Homework...

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Tim Gillespie Week 6 Homework E8-4 1. An invoice for $8,100, terms f.o.b. destination, was received and entered January 2, 2011. The receiving report shows that the materials were received December 28, 2010. Dr. Cr. Raw Materials Inventory $8,100.00 Accounts Payable $8,100.00 No entry would be made. 3. Materials costing $28,000, shipped f.o.b. destination, were not entered by December 31, 2010, "because they were in a railroad car on the company's siding on that date and had not been unloaded." Dr. Cr. Raw Materials Inventory $28,000.00 Accounts Payable $28,000.00 Dr. Cr. Accounts Payable $7,500.00 Raw Materials Inventory $7,500.00 5. Materials costing $19,800 were received December 30, 2010, but not entry was made for them because "they were ordered with a specified delivery of no earlier than January 10, 2011." Dr. Cr. Raw Materials Inventory $19,800.00 Accounts Payable $19,800.00 Bradford Machine Company maintains a general ledger account for each class of inventory, debiting such accounts for increases during the period and crediting them for decreases. The transactions below relate to the Raw Materials inventory account, which is debited for materials purchased and credited for materials requisitioned for use. 2. Materials costing $7,300, were returned to the supplier on December 29, 2010, and were shipped f.o.b. shipping point. The return was entered on that date, even though the materials are not expected to reach the supplier's place of business until January 6, 2011. 4. An invoice for $7,500, terms f.o.b. shipping point, was received and entered December 30, 2010. The receiving report shows that the materials were received January 4, 2011, and the bill of lading shows that they were shipped January 2, 2011.
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Tim Gillespie Week 6 Homework E8-21 With LIFO Without LIFO Revenues $3,200,000 $3,200,000 Cost of goods sold $2,800,000 $2,800,000 Operating expenses $150,000 $150,000 Operating income $250,000 $250,000 LIFO adjustment $40,000 Taxable income $210,000 $250,000 Income taxes @ 36% $75,600 $90,000 Cash flow $174,400 $160,000 Extra cash $14,400 $- Increased cash flow 9% 0% A. Explain what is meant by the LIFO reserve account? B. How does LIFO subtract inflation from inventory costs? It allows companies to reduce the cost of goods sold account based on the LIFO Reserve Account and therefore would reduce the amount of inflation due to different costs in inventory. C. Explain how the cash flow of $174,400 in this example was computed. Explain why this amount may not be correct. D. Why does a company that uses LIFO have extra cash? Explain whether this situation will always exist? In a nutshell, LIFO subtracts inflation from inventory costs, deducts it from taxable income, and records it in a LIFO reserve account on the books. The LIFO benefit grows as inflation widens the gap between current-year and past-year (minus inflation) invetory costs. This gap is: A LIFO reserve account is a contra inventory account that shows the difference in a company between the FIFO costs and LIFO
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Gillespie Week 6 MBAA 603 - Tim Gillespie Week 6 Homework...

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