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ACCT 2001 Lecture Notes - Lecture 23: Income Statement, Accrual, Operating Expense

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olivepanda916
14 Nov 2018
School
UConn
Department
Accounting
Course
ACCT 2001
Professor
Leanne Adams

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ACCT 2001 Lecture Notes - Lecture 22: Intangible Asset, Cedar Fair, Financial Statement

23

ACCT 2001 Lecture Notes - Lecture 23: Income Statement, Accrual, Operating Expense

24

ACCT 2001 Lecture Notes - Lecture 24: Promissory Note, Weighted Arithmetic Mean, Current Asset

Document Summary

The oldest costs are in cost of goods sold and the newest costs are in. The oldest costs are in inventory and the newest costs are in cost of goods sold using the lifo method. Now that you"ve seen how these cost flow assumptions work and that they actually make a difference in a company"s balance sheet and income statement, we are ready for a more complex example. So, let"s assume that during the first week of october american eagle entered into the following transactions for its henley t-shirt product line. All sales were made at a selling price of per unit. American eagle made two batches of t-shirt purchases, which were added to beginning inventory. The costing methods differ only in the way they split the cost of goods available for sale between ending inventory and cost of goods sold. Inventory, it doesn"t go into cost of goods sold.

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Related Questions

During July 2014, Micanopy, sold 500 units of its productsEmpire for $8,000. The following units were available.

Units Cost

BeginningInventory 200 $2

Purchase1 80 $4

Purchase2 120 $6

Purchase3 300 $9

Purchase4 180 $12

A sale of 500 units was made after purchase 3. Of the unitssold, 200 came from beginning inventory and 300 came from purchase3.

Determine the costs of goods available for sale and endinginventory in units. Then determine the costs that should beassigned to cost of goods sold and ending inventory under ach ofthe following assumptions. (For each alternative, show the grossmargin. Round unit costs to cents and totals to dollars.)

Costs are assigned under the periodic inventory system using a.)the specific identification method, b) the average-cost method, c.)FIFO method and d.) LIFO method

Costs are assigned under the perpetual inventory system usinga.) the average-cost method, b.) the FIFO method, and c) the LIFOmethod

E7A. Periodic and PerpetualSystems and Inventory Costing Methods

Cost of goods available forsale and ending inventory in units

Units

Cost

Total

Beginninginventory

200

$ 2

$ 400

Purchase 1

80

4

320

Purchase 2

120

6

720

Purchase 3

300

9

2,700

Purchase 4

180

12

2,160

Cost of goods available forsale

880

$6,300

Sale in units

500

Ending inventory inunits

380

1.

Periodic inventorysystem

a.

Specific identificationmethod:

Sales

$8,000

Cost of goods available forsale

Less endinginventory*

Cost of goodssold

Gross margin

$4,900

*

Purchase 1

80

units

The information below representsthe beginning and ending inventory amounts along with theproduction and sales for the month in umbrella units

Beginning Inventory: 0 Umbrellas

Production: 80,000 Umbrellas

Sales: 60,000 Umbrellas

Ending Inventory: 20,000 Umbrellas

The Hampshire Company manufactures umbrellas that sell for$12.50 each. In 2014, the company made and sold 60,000 umbrellas.The company had fixed manufacturing costs of $216,000. It also hadfixed costs for administration of $79,525. The per-unit costs ofeach umbrella are as follows:

Using the information

Prepare a variable costing income statement.

Prepare an absorption costing income statement.

Direct Materials: $3.00

Direct Labor: $1.50

Variable Manufacturing Overhead:$0.40

Variable Selling Expenses: $1.10

Requirement 1
Hampshire Company
Variable Costing IncomeStatement
Units $
Sales X $ $
Variable Cost of Goods Sold:
Beginning Inventory $
Direct Materials X $ $
Direct Labor X $ $
Manufacturing Overhead X $ $
Total Variable Costs $
Cost of Good Available for Sale $
Deduct Ending Inventory X $ $
Variable Costs of GoodsSold $
Variable Selling Costs X $ $ $
Contribution Margin $
Fixed Costs:
Fixed Manufacturing Costs $
Fixed Administrative Costs $
Operating Income $
Requirement 2
Hampshire Company
Absorption Costing IncomeStatement
Units $
Sales X $ $
Variable Cost of Goods Sold:
Beginning Inventory $
Direct Materials X $ $
Direct Labor X $ $
Manufacturing Overhead X $ $
Total Variable Costs $
Allocated Fixed Manufacturing Costs X $ $
Cost of Good Available for Sale $
Deduct Ending Inventory X $ $
Costs of GoodsSold $
Gross Margin $
Fixed Costs:
Variable Selling Costs X $ $
Fixed Administrative Costs $
Operating Income $

The costs listed in the following related to the factory were incurred during the period. (Hint: Record these items in one entry with one debit to manufacturing overhead and four separate credits):

Building depreciation $580,000
Insurance (prepaid during 2016, now expired) $220,000
Utilities (on account) $ 80,000
Maintenance (paid cash) $440,000

-Manufacturing overhead was applied at a rate of $20 per machine hour, and 90,000 machine hours were utilized during the year. (Hint: No need to calculate the predetermined overhead rate since it is already given to you here.)
-Miscellaneous selling costs totaling $430,000 were paid. These costs were recorded in an account called selling expenses.
-Miscellaneous general and administrative costs totaling $265,000 were paid. These costs were recorded in an account called G&A expenses.
-Goods costing $2,030,000 (per the job cost sheets) were completed and transferred out of work-in-process inventory.
-Goods were sold on account for $3,800,000.
-The goods sold in transaction 12 had a cost of $2,570,000 (per the job cost sheets).
-Payments totaling $3,300,000 from credit customers related to transaction 12 were received

Required:

Prepare T-accounts for raw materials inventory, work-in-process inventory, finished goods inventory, manufacturing overhead, and cost of goods sold. Enter the beginning balances for the inventory accounts. (Manufacturing overhead and cost of goods sold are temporary accounts and thus do not have a beginning balance.)

Prepare a journal entry for each transaction from 1 through 14 in a format like the one in Figure 2.7, and where appropriate, post each entry to the T-accounts set up in requirement a. Note that these entries reflect the flow of costs through the inventory and cost of goods sold accounts for the year, so you are only posting the dollar amounts related to the T-accounts set up in requirement a. Label each entry in the T-accounts by transaction number, include a short description (e.g., direct materials and manufacturing overhead applied), and total each T-account.

Based on the balance in the manufacturing overhead account prepared in requirement b, prepare a journal entry to close the manufacturing overhead account to cost of goods sold.

Prepare an income statement for the year ended December 31, 2016. Remember to adjust cost of goods sold for any underapplied or overapplied overhead from requirement c.

Why is cost of goods sold adjusted upward on the income statement?