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FIN 3310 Lecture Notes - Lecture 3: Net Income, Income Statement, Financial Statement

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apricotclam40
13 Feb 2017
School
Baylor University
Department
Finance
Course
FIN 3310
Professor
Ernest Fletcher

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Document Summary

Three common types of inventory valuation methods used in business are: first-in first-out (fifo), last-in first-out (lifo) and average cost. Under fifo, the first units of inventory received by a company are the first units sold. Lifo is the opposite--the last units received are the first units sold. The average cost method calculates the average cost of all units in the inventory irrespective of which units are sold first. Fifo inventory valuation may increase the company"s balance sheet inventory amount due to increasing inflation. Economic inflation causes prices to rise on the most recent inventory purchases, which is reflected under the fifo method. Lifo may result in lower inventory amounts reported on the balance sheet since the cheapest inventory remains in the account and the higher priced goods are sold first. The average cost method attempts to smooth out these variances on the balance sheet accounts by averaging the cost of all units held in inventory.

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Related Questions

P7-3 Evaluating Four Alternative Inventory Methods Based on Income and Cash Flow LO7-2, 7-3
At the end of January 2014, the records of Donner Company showed the following for a particular item that sold at $16 per unit:
Transactions Units Amount
Inventory, January 1, 2014 500 $ 2,365
Purchase, January 12 600 3,600
Purchase, January 26 160 1,280
Sale (370)
Sale (250)
Required:
1a. Compute Cost of Goods Sold under each method of inventory: average cost, FIFO, LIFO, and specific identification. For specific
identification, assume that the first sale was selected from the beginning inventory and the second sale was selected from the
January 12 purchase. (Round unit price to 2 decimal places. Input all amounts as positive values.)
Input areas are shaded.
Average Cost Cost of Good Available for Sale Cost of Goods Sold
# of Units Cost per Unit Cost of Goods Available for Sale # of Units Sold Cost per Unit Cost of Goods Sold
Beginning inventory
Purchases:
January 12, 2014
January 26, 2014
Total
FIFO Cost of Goods Available for Sale Cost of Goods Sold
# of Units Cost per Unit Cost of Goods Available for Sale # of Units Sold Cost per Unit Cost of Goods Sold
Beginning inventory 500 $0
Purchases:
January 12, 2014 600 $0
January 26, 2014 160 $0
Total 1,260 $0 0
LIFO Cost of Goods Available for Sale Cost of Goods Sold
# of Units Cost per Unit Cost of Goods Available for Sale # of Units Sold Cost per Unit Cost of Goods Sold
Beginning inventory 500
Purchases:
January 12, 2014 600
January 26, 2014 160
Total 1,260 $ - 0 $ 4,040
Specific Identification Cost of Goods Available for Sale Cost of Goods Sold
# of Units Cost per Unit Cost of Goods Available for Sale # of Units Sold Cost per Unit Cost of Goods Sold
Beginning inventory 500
Purchases:
January 12, 2014 600
January 26, 2014 160
Total 1,260 $ - 0
Required:
2a. FIFO and LIFO, which method would result in the higher pretax income?
2b. FIFO and LIFO, which would result in the higher EPS?
3 FIFO and LIFO, which method would result in the lower income tax expense? Assume a 30 percent average tax rate.
4 FIFO and LIFO, which method would produce the more favorable cash flow?

please answer all!

A sneaker outlet has made the following wholesale purchases of new running shoes: 12 pairs at $45.20, 18 pairs at $40.20, and 20 pairs at $50.20. An inventory taken last week indicates that 25 pairs are still in stock. Calculate the cost of this inventory by FIFO.
Cost of ending inventory $

Comcast lost 135,000 customers in the last quarter of 2010 due to the economic challenges presented by the recession. Business improved in the last quarter of 2011 when it lost only 17,000 customers and things are looking up for 2012. Assume Comcast is upgrading its cable boxes and has 570 obsolete boxes in ending inventory.
Beginning inventory and purchases Boxes Box cost Total cost
Beginning inventory: January 1 16,200 $ 22 $ 356,400
March 1 7,200 23 165,600
June 1 3,200 27 86,400
September 1 1,850 30 55,500
December 1 1,100 39 42,900
29,550 $ 706,800
What is the cost of ending inventory using FIFO, LIFO, and the weighted-average method? (Round your intermediate calculations to 2 decimal places and final answers to the nearest dollar amount.)
Ending inventory
FIFO $
LIFO $
Weighted-average $

c.

BillFloat, based in San Francisco, California, will pay any of your qualifying bills and then automatically deduct the amount of the bill plus fees and interest from your bank account within 30 days. The company registered 190,000 users in 2011 and made 80,000 loans averaging $160 each with rates up to 36% APR, not including fees. Assume BillFloat wants to distribute $57,000 worth of overhead by sales.
New customer sales (NCS) $ 5,600,000
Current customer new sales (CCNS) 4,900,000
Current customer loan extension sales (CCLES) 3,500,000
$ 14,000,000
Calculate the overhead expense for each department.
Overhead expense
New customer sales $
Current customer new sales $
Current customer loan extension sales $

Marvin Company has a beginning inventory of 12 sets of paints at a cost of $2.00 each. During the year, the store purchased 4 sets at $2.10, 6 sets at $2.70, 6 sets at $3.00, and 10 sets at $3.50. By the end of the year, 25 sets were sold.
a. Calculate the number of paint sets in ending inventory.
Number of paint sets
b.

Calculate the cost of ending inventory under LIFO, FIFO, and the weighted average methods. (Round your answers to the nearest cent.)
Cost of ending inventory under LIFO $
Cost of ending inventory under FIFO $
Cost of ending inventory under Weighted Average $

1. What are the characteristics of a company that would be more likely to use process costing than job order costing?

2. How do the weighted average and first- in, first- out methods of process costing differ in their treatment of beginning Work in Process Inventory units?

3. What is an ‘‘ equivalent unit of production,’’ and why is it a necessary concept to employ in a process costing system?

4. Is one equivalent unit computation sufficient for all cost components? Explain your answer.

5. What is meant by the phrase units started and completed? Why is this phrase more closely associated with the first- in, first- out method of process costing than with the weighted average method?

6. What is meant by the phrase transferred out cost? Why does the transferred out cost under the WA method include only one computation, but the FIFO method includes multiple computations?