Scribd
Upload
90 views

Chap 6 Homework

This document discusses inventory valuation methods like LIFO and FIFO, and provides examples of their application: 1) A company using LIFO reports a $16,000 sales revenue, $12,000 cost of goods sold and $4,000 gross profit from selling 40 units that were purchased in prior periods. 2) Errors in prior year ending inventory amounts at a store affect its cost of goods sold, net income, assets and equity for those years when corrected. 3) US companies using LIFO must report the difference between LIFO and FIFO inventory valuations. 4) A company maintains decades-old unit costs in its LIFO perpetual inventory for tax purposes, but intends to use

Uploaded by

Taghi Mammadov
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
90 views

Chap 6 Homework

This document discusses inventory valuation methods like LIFO and FIFO, and provides examples of their application: 1) A company using LIFO reports a $16,000 sales revenue, $12,000 cost of goods sold and $4,000 gross profit from selling 40 units that were purchased in prior periods. 2) Errors in prior year ending inventory amounts at a store affect its cost of goods sold, net income, assets and equity for those years when corrected. 3) US companies using LIFO must report the difference between LIFO and FIFO inventory valuations. 4) A company maintains decades-old unit costs in its LIFO perpetual inventory for tax purposes, but intends to use

Uploaded by

Taghi Mammadov
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

Chap 6 Inventories and Cost of Sales

1. Use the information below to determine the sales revenue, cost of goods sold and gross
profit that would be reported for the company related to the March 16 sale assuming the
company uses LIFO inventory valuation and a perpetual inventory system.

January 1: Purchased 100 units at $10 per unit.


February 5: Purchased 60 units at $12 per unit.
March 16: Sold 40 units for $16 per unit.

2. The Community Store reported the following amounts on their financial statements for
Year 1, Year 2, and Year 3:
For the year ended
December 31
Year 1 Year 2 Year 3
Cost of goods sold $75,000 $87,000 $77,000
Net income 22,000 25,000 21,000
Total current assets 155,000 165,000 110,000
Equity 287,000 295,000 304,000

It was discovered early in Year 4 that the ending inventory on December 31, Year 1 was
overstated by $6,000, and the ending inventory on December 31, Year 2 was understated by
$2,500. The ending inventory on December 31, Year 3 was correct. Ignoring income taxes
determine the correct amounts of cost of goods sold, net income, total current assets, and
equity for each of the years，Year 1, Year 2, and Year 3.

3. U.S. public companies using LIFO also report the amount that inventory would
increase (or occasionally decrease) if the company had instead used FIFO.

If Harley-Davidson reported COGS of $500,000 thousand. How much COGS would be if it


used FIFO?

4. Jackson Specialties has been in business for more than 50 years. The company
1
maintains a perpetual inventory system, uses a LIFO flow assumption, and ends its fiscal year
at December 31. At year-end, the cost of goods sold and inventory are adjusted to reflect
periodic LIFO costing procedures.
A railroad strike has delayed the arrival of purchases ordered during the past several months
of 2011, and Jackson Specialties has not been able to replenish its inventories as merchandise
is sold. At December 22, one product appears in the company's perpetual inventory records
at the following unit costs:

Purchase Date Quantity Unit Cost Total Cost


Nov. 14, 1958 ................................ 3,000 $6 $18,000
Apr. 12, 1959 ................................ 2,000 8 16,000
Available for sale at Dec. 22, 2011 .... 5,000 $34,000

Jackson Specialties has another 8,000 units of this product on order at the current wholesale
cost of $30 per unit. Because of the railroad strike, however, these units have not yet arrived
(the terms of purchase are F.O.B. destination). Jackson Specialties also has an order from a
customer who wants to purchase 4,000 units of this product at the retail sales price of $47
per unit. Jackson Specialties intends to make this sale on December 30, regardless of whether
the 8,000 units on order arrive by this date. (The 4,000-unit sale will be shipped by truck,
F.O.B. shipping point.)
Instructions
a. Are the units in inventory really more than 50 years old? Explain.
b. Prepare a schedule showing the sales revenue, cost of goods sold, and gross profit that
will result from this sale on December 30, assuming that the 8,000 units currently on order (1)
arrive before year-end and (2) do not arrive until sometime in the following year. (In each
computation, show the number of units comprising the cost of goods sold and their related
per-unit costs.)
c. Comment on these results.
d. Might management be wise to delay this sale by a few days? Explain.

You might also like