# Inventory january 1 10000 units 45000 cost of 100000

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Inventory, January 1 (10,000 units) \$ 45,000 Cost of 100,000 units purchased 532,000 Selling price of 80,000 units sold 700,000 Operating expenses 140,000 Units purchased consisted of 35,000 units at \$5.10 on May 10; 35,000 units at \$5.30 on August 15; and 30,000 units at \$5.60 on November 20. Income taxes are 30%. Instructions (a) Prepare comparative condensed income statements for 2010 under FIFO and LIFO. (Show computations of ending inventory.) (b) Answer the following questions for management. (1) Which inventory cost flow method produces the most meaningful inventory amount for the balance sheet? Why? (2) Which inventory cost flow method produces the most meaningful net income? Why? (3) Which inventory cost flow method is most likely to approximate actual physical flow of the goods? Why? (4) How much additional cash will be available for management under LIFO than under FIFO? Why? (5) How much of the gross profit under FIFO is illusory in comparison with the gross profit under LIFO? *P6-8B Hector Inc. is a retailer operating in British Columbia. Hector uses the perpetual in- ventory method. All sales returns from customers result in the goods being returned to inven- tory; the inventory is not damaged.Assume that there are no credit transactions; all amounts are settled in cash.You are provided with the following information for Hector Inc. for the month of January 2010. Problems: Set B 293 (a)(iii) Gross profit: LIFO \$4,215 FIFO \$4,645 Average \$4,414.60 (a)(1) Gross profit: Specific identification \$3,590 (2) FIFO \$3,791 (3) LIFO \$3,225 Compute ending inventory, prepare income statements, and answer questions using FIFO and LIFO. (SO 2, 3) (a) Net income FIFO \$105,700 LIFO \$91,000 Calculate cost of goods sold and ending inventory under LIFO, FIFO, and average-cost under the perpetual system; compare gross profit under each assumption. (SO 7) Compare specific identification, FIFO, and LIFO under periodic method; use cost flow assumption to justify price increase. (SO 2, 3) PDF Watermark Remover DEMO : Purchase from to remove the watermark

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294 Chapter 6 Inventories Instructions (a) For each of the following cost flow assumptions, calculate (i) cost of goods sold, (ii) ending inventory, and (iii) gross profit. (1) LIFO. (2) FIFO. (3) Moving-average-cost. (b) Compare results for the three cost flow assumptions. *P6-9B Fontana Co. began operations on July 1. It uses a perpetual inventory system. During July the company had the following purchases and sales. Unit Cost or Date Description Quantity Selling Price January 1 Beginning inventory 100 \$15 January 5 Purchase 150 18 January 8 Sale 110 28 January 10 Sale return 10 28 January 15 Purchase 55 20 January 16 Purchase return 5 20 January 20 Sale 80 32 January 25 Purchase 30 22 Purchases Date Units Unit Cost Sales Units July 1 5 \$120 July 6 4 July 11 7 \$136 July 14 3 July 21 8 \$147 July 27 6 Instructions (a) Determine the ending inventory under a perpetual inventory system using (1) FIFO, (2) moving-average cost, and (3) LIFO.
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