chapter 6 hw

Topics: Inventory, FIFO and LIFO accounting, Revenue Pages: 118 (6035 words) Published: April 21, 2014
Chapter 6

Inventory & Cost of Goods Sold

Short Exercises

(10 min.) S 6-1

Billions

Inventory…………………………
3.8

Cash…………………………...

3.8

Accounts Receivable………….
19.7

Sales Revenue……………….

19.7

Cost of Goods Sold……………
4.5

Inventory……………………...

4.5

Cash………………………………
18.8

Accounts Receivable……….

18.8

(10-15 min.) S 6-2

1.(Journal entries)

Inventory…………………………………..
120,000

Accounts Payable…………………….

120,000

Amounts Receivable……………………
150,000

Sales Revenue………………………...

150,000

Cost of Goods Sold……………………..
90,000

Inventory ($120,000 × .75)…………..

90,000

Cash ($150,000 × .30)…………………...
45,000

Accounts Receivable………………...

45,000

2.(Financial statements)

BALANCE SHEET

Current assets:

Inventory ($120,000 − $90,000)……………….
$ 30,000

INCOME STATEMENT

Sales revenue………………………………………
$150,000
Cost of goods sold………………………………..
90,000
Gross profit………………………………………… $60,000

(15-20 min.) S 6-3

a
b
c

Average Cost
FIFO
LIFO
Cost of goods sold:

Average (26 × $154.71)
$4,022.46

FIFO $1,260 + (17 × $160)

$3,980

LIFO $4,000 + (1 × $140)

$4,140

Ending inventory:

Average (8 × $154.71)
$ 1,237.68

FIFO (8 × $160)

$1,280

LIFO (8 × $140)

$1,120

Computations:
Units sold = 26 (9 + 25 − 8)
Units in ending inventory = 8
Average cost per unit = $154.71 ($1,260 + $4,000) ÷ (9 + 25)

Cost per unit:
First purchase = $140 ($1,260 ÷ 9 = $140)
Second purchase= $160 ($4,000 ÷ 25 = $160)

(10-15 min.) S 6-4

Jefferson’s Copy Center
Income Statement
Year Ended December 31, 2010

Average
FIFO
LIFO
Sales revenue (580 × $20.25)
$11,745
$11,745
$11,745
Cost of goods sold (580 × $9.70*)
5,626

(92 × $8.90) + (488 × $9.80)

5,601

(580 × $9.80)
             
             
5,684
Gross profit
6,119
6,144
6,061
Operating expenses
3,750
3,750
3,750
Net income
$ 2,369
$2,394
$ 2,311
_____
*
Average cost per unit:

Beginning inventory (92 @ $9.00)……………..
$ 828
Purchases (680 @ $9.80)…………………………
6,664
Goods available…………………….………………
$7,492
Average cost per unit $7,492 / 772 units……
$ 9.70

(10-15 min.) S 6-5

Jefferson Copy Center
Income Statement
Year Ended December 31, 2010

Average
FIFO
LIFO
Sales revenue (580 × $20.25)
$11,745
$11,745
$11,745
Cost of goods sold (580 × $9.70*)
5,626

(92 × $8.90) + (488 × $9.80)

5,601

(580 × $9.80)
______
______
5,684
Gross profit
6,119
6,144
6,061
Operating expenses
3,750
3,750
3,750
Income before income tax
$2,369
$ 2,394
$ 2,311
Income tax expense (30%)
$ 711
$ 718
$ 693

*From S 6-4

(5 min.) S 6-6

Microdata managers can purchase lots of inventory before year end. Under LIFO, these high inventory costs go directly to cost of goods sold in the current year. As a result, the current year’s net income drops and that saves on income tax. Saving on taxes is one reason companies want to decrease their income.

Student responses may vary.

(5-10 min.) S 6-7

BALANCE SHEET

Current assets:

Inventories, at market (which is lower than cost)…….
$ 42,000

INCOME STATEMENT

Cost of goods sold [$440,000 + ($57,000 − $42,000)]…… $455,000

(15-20 min.) S 6-8

DATE:_____________

TO:Joe Smith, President of Saxophone Company

FROM:Student Name

SUBJECT:Proposal for Increasing Net Income

We can increase net income by not buying our normal quantities of inventory as we make sales. Inventory costs are rising, and the company uses the LIFO inventory method. Under LIFO, the high cost of our inventory purchases goes straight into cost of goods sold. By...
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