2 fifo 3 lifo b how can companies use a cost flow

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Accounting Using Excel for Success
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Chapter 26 / Exercise 26-6
Accounting Using Excel for Success
Reeve/Warren
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(2) FIFO.(3) LIFO.(b) How can companies use a cost flow method to justify price increases? Which cost flowmethod would best support an argument to increase prices?P6-7CThe management of Ponderosa Co. asks your help in determining the comparativeeffects of the FIFO and LIFO inventory cost flow methods. For 2014, the accountingrecords provide the data shown below.Inventory, January 1 (5,000 units)$ 24,000Cost of 100,000 units purchased532,000Selling price of 80,000 units sold704,000Operating expenses140,000Units purchased consisted of 35,000 units at $5.10 on May 10; 35,000 units at $5.30 onAugust 15; and 30,000 units at $5.60 on November 20. Income taxes are 35%.Instructions(a) Prepare comparative condensed income statements for 2014 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 inventoryamount 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 physicalflow of the goods? Why?(4)How much additional cash will be available for management under LIFO than underFIFO? Why?(5)How much of the gross profit under FIFO is illusory in comparison with the grossprofit under LIFO?*P6-8CCalgary Inc. is a retailer operating in Alberta. Calgary uses the perpetual inventorymethod. All sales returns from customers result in the goods being returned to inventory;the inventory is not damaged. Assume that there are no credit transactions; all amountsare settled in cash. You are provided with the following information for Calgary Inc. forthe month of January 2014.Unit Cost orDateDescriptionQuantitySelling PriceJanuary 1Beginning inventory100$16January 5Purchase15018January 8Sale11028January 10Sale return1028January 15Purchase5520January 16Purchase return520January 20Sale10032January 25Purchase3022Instructions(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.(2) FIFO$3,836(3) LIFO$3,305Compute ending inventory,prepare income statements,and answer questions usingFIFO and LIFO.(LO 2, 3)(a) Net incomeFIFO$96,200LIFO$87,100Calculate cost of goods soldand ending inventory underLIFO, FIFO, and moving-average cost under the perpetual system; comparegross profit under each assumption.(LO 7)Gross profit:LIFO$2,300FIFO$2,600Average$2,49086Inventories(a) (1) Gross profit:Specific identification$3,675
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Accounting Using Excel for Success
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Chapter 26 / Exercise 26-6
Accounting Using Excel for Success
Reeve/Warren
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*P6-9CMendez Co. began operations on July 1. It uses a perpetual inventory system.During July, the company had the following purchases and sales.PurchasesDateUnitsUnit CostSales UnitsJuly 15$120July 64July 117$136July 145July 218$147July 276Instructions(a) Determine the ending inventory under a perpetual inventory system using (1) FIFO,(2) moving-average cost, and (3) LIFO.

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