Determine cost of goods sold and ending inventory

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Determine cost of goods sold and ending inventory using FIFO, LIFO, and average-cost with analysis. (SO 2, 3) Determine items and amounts to be recorded in inventory. (SO 1) Determine cost of goods sold and ending inventory using FIFO, LIFO, and average-cost with analysis. (SO 2, 3) (b) Cost of goods sold: FIFO $13,600 LIFO $15,200 Average $14,475 (b)(2) Cost of goods sold: FIFO $109,000 LIFO $119,500 Average $114,062 w w w . w i l e y . c o m / c o l l e g e / w e y g a n d t PDF Watermark Remover DEMO : Purchase from to remove the watermark
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(c) Which cost flow method results in (1) the lowest inventory amount for the balance sheet, and (2) the lowest cost of goods sold for the income statement? P6-4A The management of Morales Co. is reevaluating the appropriateness of using its present inventory cost flow method, which is average-cost.They request your help in determining the re- sults of operations for 2010 if either the FIFO method or the LIFO method had been used. For 2010, the accounting records show the following data. 288 Chapter 6 Inventories Inventories Purchases and Sales Beginning (15,000 units) $32,000 Total net sales (215,000 units) $865,000 Ending (30,000 units) Total cost of goods purchased (230,000 units) 595,000 Quarter Units Unit Cost Total Cost 1 60,000 $2.40 $144,000 2 50,000 2.50 125,000 3 50,000 2.60 130,000 4 70,000 2.80 196,000 230,000 $595,000 Purchases were made quarterly as follows. Operating expenses were $147,000, and the company’s income tax rate is 34%. 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 cost flow method (FIFO or LIFO) produces the more meaningful inventory amount for the balance sheet? Why? (2) Which cost flow method (FIFO or LIFO) produces the more meaningful net income? Why? (3) Which cost flow method (FIFO or LIFO) is more 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) Will gross profit under the average-cost method be higher or lower than (a) FIFO and (b) LIFO? ( Note : It is not necessary to quantify your answer.) P6-5A You are provided with the following information for Pavey Inc. for the month ended October 31, 2010. Pavey uses a periodic method for inventory. Compute ending inventory, prepare income statements, and answer questions using FIFO and LIFO. (SO 2, 3) (a) Net income FIFO $115,500 LIFO $104,940 (b)(4) $5,440 Unit Cost or Date Description Units Selling Price October 1 Beginning inventory 60 $25 October 9 Purchase 120 26 October 11 Sale 100 35 October 17 Purchase 70 27 October 22 Sale 60 40 October 25 Purchase 80 28 October 29 Sale 110 40 Instructions (a) Calculate (i) ending inventory, (ii) cost of goods sold, (iii) gross profit, and (iv) gross profit rate under each of the following methods. (1) LIFO. (2) FIFO. (3) Average-cost. (b) Compare results for the three cost flow assumptions.
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