ACC 113 Lecture Notes - Lecture 14: Income Statement, Wells Fargo, Public Company Accounting Oversight Board

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tealmammoth179

25 Jul 2020

School

Tunxis Community College

Department

Accounting

Course

ACC 113

Professor

Muccino

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Document Summary

Specific identification method - record item at physical cost. An actual physical-flow costing method in which particular items sold and items still in inventory are specifically costed to arrive at cost of goods sold and ending inventory easily manipulated. 3 assumed cost flow methods all gaap, always periodic inventory system. First-in, first-out (fifo) inventory costing method that assumes that the earliest goods purchased are the first to be sold. Usually parallels the actual flow of merchandise. Last-in, first-out (lifo) inventory costing method that assumes that the latest units purchased are the first to be sold. Results in highest net cash from operating activities and quality of earnings. Lifo reserve companies using lifo must report the difference between inventory using lifo and inventory using fifo. Average cost inventory costing method that uses the weighted-average unit cost to allocate the cost of goods available for sale to ending inventory and cost of goods sold always in between fifo and lifo.

Related Questions

Background: This is a continuation of the activities at TECHNOGYM in January, 2017. As in past activities, TECHNOGYM uses a Jan. 1 â Dec. 31 financial year.

Exercise for Inventory:

TECHNOGYM uses a periodic inventory system for its normal operations. Following are the unadjusted account balances as of Dec. 31, 2016 for all accounts related to sales and inventory of TechTone products.

Account Debit Credit

Accounts Receivable 17,607,500

Allowance for Doubtful Accounts 20,000

Purchases 85,832,500

Inventory 2,500,000

TechTone Sales Revenue 134,500,000

TechTone Sales Returns 2,017,500

Cost of TechTone Equipment Sold 0

Upper management is contemplating changing the method used to report the cost of goods sold. They will choose the method (either FIFO or DVLIFO) that maximizes operating cash flow. The general ledger has historically been kept on a FIFO basis. Following is the inventory purchases information for 2016:

Purchases for 2016 (normal operations)
Beginning:	5,000	units @	$500	each
Purchases:
Apr-May	40,000	units @	$500	each
Jun-Jul	35,000	units @	$505	each
Aug-Sep	48,500	units @	$515	each
Oct	24,000	units @	$520	each
Nov-Dec	20,000	units @	$535	each

Year-End Physical Inventory Count	38,000	units

Note: For full credit, you must show documentation for both DVLIFO and FIFO calculations, with indication and reasoning for your choice.

Requirement 1: Develop a detailed schedule showing the calculation of Ending Inventory and Cost of Goods Sold using FIFO for 2016.

Requirement 2: Show the adjusting journal entry(ies) (if any) that is/are needed on Dec. 31, 2016 related to FIFO inventory. Remember to show the journal entry in proper form!

Requirement 3: Develop a detailed schedule showing the calculation of Ending Inventory and Cost of Goods Sold using DVLIFO for 2016. Hint: DVLIFO adjustments are calculated at the end of the year, using annual layersânot based on each individual purchase. TECHNOGYM used 1.07 as its DVLIFO index.

DV LIFO	Ending Inventory at Year-End Cost	Index	Ending Inventory at Base-Yr Cost	Inventory Layers at Base-Yr Cost	Inventory Layers at Acq.-Yr Cost	Ending Inventory at DV LIFO Cost	LIFO Reserve Adjustment
2015

2016
2016

Requirement 4: Show the adjusting journal entry(ies) (if any) that would be needed on Dec. 31, 2016 if management decides to adopt the DVLIFO inventory method. Remember to show the journal entry in proper form!

Requirement 5: Using the table below, show the amounts that would appear on indicated line items of the Income Statement and Balance Sheet under the two methods.

		FIFO Method	DVLIFO Method
Income Statement	Cost of TechTone Equipment Sold

Balance Sheet	Inventory

Which method gives higher net income?

Which method gives higher assets?

limekangaroo380

ACC 3010

Project 2

Spring Summer 2018

This project will be submitted in 3 parts. The submission dates and Required parts to be completed for each submission are:

Submission 1 - due Saturday June 16 before 5pm - You must submit your completed March Journal entries, your completed Inventory Cards for all 3 Inventory costing methods, and the Worksheet complete through the Trial Balance. Your file must be named correctly - "Your name (first and last) Project 2 part 1. Failure to name your file correctly will result in a 1 point deduction

1. Complete the Perpetual Inventory card worksheets to reflect the March purchases and sales under the 3 different Inventory costing methods. For the weighted average computations, round unit cost to the nearest penny and total cost to the nearest dollar.

2. Complete the March Journal Entries to reflect the purchases and sales transactions (company uses the perpetual method) under the LIFO costing method and post.

3. Post the March entries to the worksheet columns for the March entries and complete the Trial Balance columns of the Worksheet.

Inventory Information

Inventory on hand at the beginning of October:

Units Cost / unit Total Cost

Purchase # 1 10 50 $500

Purchase # 2 35 60 2,100

45 $2,600

March 2018 transactions related to buying and selling doodad inventory

1-Mar Sold 25 doodads at $115 each on credit

3-Mar Purchased 40 doodads at a cost of $70 per doodad on credit

15-Mar Sold 30 doodads at $125 each on credit

20-Mar Purchased 25 doodads at a cost of $80 per doodad on credit

24-Mar Sold 35 doodads at $140 each on credit

The PHYSICAL count of doodad inventory on hand at March 31, 2018 shows 18 doodads at a LIFO cost of $980.

#NAME?
PARTIALLY ADJUSTED TRIAL BALANCE
March 31 2018							Adjusting
	Part Adj T/B		March Jes		Trial	Balance	& Bank Rec	Jes	Adusted TB
	DR	CR	DR	CR	DR	CR	DR	CR	DR	CR
Cash	$253,560
Accounts Receivable	146,800
Allowance for Uncollectible Accounts		$2,569
Supplies	85,650
Inventory	2,600
Prepaid Insurance	16,800
Land	50,000
Building	125,500
Accumulated Depr â Building		5,670
Computer equipment	52,950
Accumulated Depr â Comp Equip		1,750
Office Furniture	85,960
Accumulated Depr - Office Furniture		890
Accounts Payable		48,526
Interest Payable		3,200
Utilities Payable		8,952
Wages Payable		98,505
Long term Note Payable		90,000
Mortgage Payable		60,000
Common Stock		400,000
Retained Earnings		106,468
Dividends	4,000
Service Revenue		345,650
Tablet Sales Revenue		210,250
Cost of Goods Sold	165,850
Bad Debt Expense
Depreciation Expense â Building	1,350
Depreciation Expense - Computer Equip	890
Depreciation Expense - Office Furn	650
Interest Expense	3560
Insurance Expense	38,950
Supplies expense	72,860
Bank fee (expense)
Utilities Expense	75,900
Wage Expense	198,600


TOTALS	$1,382,430	$1,382,430	$0

amaranthreindeer392

Travis Company has just completed a physical inventory count at year-end, December 31 of the current year. Only the items on the shelves, in storage, and in the receiving area were counted and costed on a FIFO basis. The inventory amounted to $66,500. During the audit, the independent CPA developed the following additional information: Goods costing $910 were being used by a customer on a trial basis and were excluded from the inventory count at December 31 of the current year. Goods in transit on December 31 of the current year, from a supplier, with terms FOB destination (explained in the âRequiredâ section), cost $1,400. Because these goods had not yet arrived, they were excluded from the physical inventory count. On December 31 of the current year, goods in transit to customers, with terms FOB shipping point, amounted to $1,800 (expected delivery date January 10 of next year). Because the goods had been shipped, they were excluded from the physical inventory count. On December 28 of the current year, a customer purchased goods for cash amounting to $3,050 and left them âfor pickup on January 3 of next year.â Travis Company had paid $1,720 for the goods and, because they were on hand, included the latter amount in the physical inventory count. On the date of the inventory count, the company received notice from a supplier that goods ordered earlier at a cost of $4,000 had been delivered to the transportation company on December 27 of the current year; the terms were FOB shipping point. Because the shipment had not arrived by December 31 of the current year, it was excluded from the physical inventory count. On December 31 current year, the company shipped $1,700 worth of goods to a customer, FOB destination. The goods are expected to arrive at their destination no earlier than January 8 of next year. Because the goods were not on hand, they were not included in the physical inventory count. One of the items sold by the company has such a low volume that management planned to drop it last year. To induce Travis Company to continue carrying the item, the manufacturer-supplier provided the item on a âconsignment basis.â This means that the manufacturer-supplier retains ownership of the item, and Travis Company (the consignee) has no responsibility to pay for the items until they are sold to a customer. Each month, Travis Company sends a report to the manufacturer on the number sold and remits cash for the cost. At the end of December of the current year, Travis Company had seven of these items on hand; therefore, they were included in the physical inventory count at $780 each. Required: Assume that Travisâs accounting policy requires including in inventory all goods for which it has title. Note that the point where title (ownership) changes hands is determined by the shipping terms in the sales contract. When goods are shipped âFOB shipping point,â title changes hands at shipment and the buyer normally pays for shipping. When they are shipped âFOB destination,â title changes hands on delivery, and the seller normally pays for shipping. Begin with the $66,500 inventory amount and compute the correct amount for the ending inventory. (Deductible amounts should be entered with a minus sign. If no adjustment is necessary, enter a 0 in the cell.)

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ACC 113 Lecture Notes - Lecture 14: Income Statement, Wells Fargo, Public Company Accounting Oversight Board

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