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MGAB01H3 Midterm: FSG MGBA01 week 10

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peachturtle345
6 Jan 2016
School
UTSC
Department
Financial Accounting
Course
MGAB01H3
Professor
Douglas Kong

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MGAB01H3 Full Course Notes
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MGAB01H3 Full Course Notes
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Document Summary

Chapter 8 - reporting and interpreting cost of sales and inventory (part 2) Cost of each item is known exact match of cost and revenue. Wac = cost of goods available for sale / number units available for sale. Ei = units in ei x wac per unit. Cogs = units sold x wac per unit. Smooths effects of price changes by assigning all units same average cost. For commoditized inventory, hard to assign cost to an individual unit. Contrast fifo and wa: prices are rising. Valuation at lower of cost or net realizable value: Nrv = expected sales price selling costs. Direct/cost of goods sold method = reduce ei to lcm. Allowance/loss method = contra inventory account (loss due to market decline of inventory) Can reverse up to amount of inventory written off. Compare against industry average; low inventory means poor sales, excess inventory show inventory liquidity.

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Related Questions

10.

Ferris Company began 2016 with 6,000 units of its principalproduct. The cost of each unit is $6. Merchandise transactions forthe month of January 2016 are as follows:

Purchases
Date ofPurchase Units Unit Cost* Total Cost
Jan. 10 5,000 $ 7 $ 35,000
Jan. 18 6,000 8 48,000
Totals 11,000 $ 83,000
*Includes purchase price andcost of freight.
Sales
Date of Sale Units
Jan. 5 3,000
Jan. 12 2,000
Jan. 20 4,000
Total 9,000
8,000 units were on hand at theend of the month.
Required:

Calculate January's ending inventory and cost of goods sold forthe month using each of the following alternatives:

FIFO Cost of Goods Available for Sale Cost of Goods Sold - Periodic FIFO Ending Inventory - Periodic FIFO
# of units Cost per unit Cost of Goods Available for Sale # of units sold Cost perunit Cost of Goods Sold # of units in ending inventory Cost per unit Ending Inventory
BeginningInventory 6,000 $6.00 $36,000 6,000 $6.00 $36,000 $6.00 $0
Purchases:
January 10 5,000 $7.00 35,000 $7.00 0 $7.00 0
January 18 6,000 $8.00 48,000 $8.00 0 $8.00 0
Total 17,000 $119,000 6,000 $36,000 $0
LIFO Cost of Goods Available for Sale Cost of Goods Sold - Periodic LIFO Ending Inventory - Periodic LIFO
# ofunits Cost perunit Cost ofGoods Available for Sale # of unitssold Cost perunit Cost ofGoods Sold # of unitsin ending inventory Cost perunit EndingInventory
Beginning Inventory
Purchases:
January 10
January 18
Total
AverageCost Cost ofGoods Available for Sale Cost ofGoods Sold - Average Cost EndingInventory - Average Cost
# of units Average Cost per unit Cost of Goods Available for Sale # of units sold Average Cost per Unit Cost of Goods Sold # of units in ending inventory Average Cost per unit Ending Inventory
Beginning Inventory 6,000 $36,000
Purchases:
January 10 5,000 35,000
January 18 6,000 48,000
Total 17,000 $119,000
PerpetualLIFO: Cost of Goods Available for Sale Cost of Goods Sold - January 5 Cost of Goods Sold - January 12 Cost ofGoods Sold - January 20 Inventory Balance
# of units Cost per unit Cost of Goods Available for Sale # of units sold Cost per unit Cost of Goods Sold # of units sold Cost per unit Cost of Goods Sold # of unitssold Cost perunit Cost ofGoods Sold # of units in ending inventory Cost per unit Ending Inventory
Beg. Inventory
Purchases:
January 10
January 18
Total
Perpetual Average Inventory on hand Cost of Goods Sold
# of units Cost per unit Inventory Value # of units sold Avg.Cost per unit Cost of Goods Sold
Beginning Inventory
Sale - January5
Subtotal Average Cost
Purchase - January 10
Subtotal Average Cost
Sale - January12
Subtotal Average Cost
Purchase - January18
SubtotalAverage Cost
Sale - January 20
Total
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?

21. Altira Corporation uses a periodic inventory system. Thefollowing information related to its merchandise inventory duringthe month of August 2016 is available:

Aug.1 Inventory onhand—2,000 units; cost $6.10 each.
8 Purchased 10,000units for $5.50 each.
14 Sold 8,000 units for$12.00 each.
18 Purchased 6,000units for $5.00 each.
25 Sold 7,000 units for$11.00 each.
31 Inventory onhand—3,000 units.
Required:

Determine the inventory balance Altira would report in itsAugust 31, 2016, balance sheet and the cost of goods sold it wouldreport in its August 2016 income statement using each of thefollowing cost flow methods: (Round "Average Cost per Unit"to 2 decimal places.)

FIFO Cost of Goods Available for Sale Cost of Goods Sold - Periodic FIFO Ending Inventory - Periodic FIFO
# of units Cost per unit Cost of Goods Available for Sale # of units sold Cost perunit Cost of Goods Sold # of units in ending inventory Cost per unit Ending Inventory
BeginningInventory 2,000 $6.10 $12,200 2,000 $6.10 $12,200 $6.10 $0
Purchases:
August 8 10,000 $5.50 55,000 $5.50 $5.50 0
August 18 6,000 $5.00 30,000 3,000 $5.00 15,000 $5.00
Total 18,000 $97,200 5,000 $27,200 0 $0
AverageCost Cost ofGoods Available for Sale Cost ofGoods Sold - Average Cost EndingInventory - Average Cost
# of units Average Cost per unit Cost of Goods Available for Sale # of units sold Average Cost per Unit Cost of Goods Sold # of units in ending inventory Average Cost per unit Ending Inventory
Beginning Inventory
Purchases:
August 8
August 18
Total 0 $0 $0 $0
LIFO Cost of Goods Available for Sale Cost of Goods Sold - Periodic LIFO Ending Inventory - Periodic LIFO
# ofunits Cost perunit Cost ofGoods Available for Sale # of unitssold Cost perunit Cost ofGoods Sold # of unitsin ending inventory Cost perunit EndingInventory
Beginning Inventory 2,000 $6.10 $12,200 $6.10 $0 $6.10
Purchases:
August 8 10,000 $5.50 55,000 $5.50 $5.50
August 18 6,000 $5.00 30,000 $5.00 $5.00 0
Total 18,000 $97,200 0 $0 0 $0