FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Question
Please just answer question 3
**Inventory Principles**

1. **Shepherd Cycles used the FIFO inventory method in 2010. Shepherd Cycles plans to continue using the FIFO method in future years.**

   A. Which inventory principle is most relevant to Shepherd’s decision?

   *Enter answer here.*

2. **Shepherd Cycles does not expect prices to change dramatically and wants to use a method that averages price changes.**

   B. Which inventory method would best meet Shepherd’s goal?

   *Enter answer here.*

   C. What if Shepherd wanted to expense out the newer purchases of goods instead? Which inventory would best meet that need?

   *Enter answer here.*

3. **Refer to the information below that shows Boston Cycles’ inventory data for the year ending December 31, 2011. Answer the following questions:**

   - Assume that the ending inventory was accidentally overstated by $2,200.

     *Enter answer here.*

   - What are the correct amounts for cost of goods sold and gross profit?

     *Enter answer here.*

---

**Inventory Data for Boston Cycles**

- **Sales Revenue:** $46,000

- **Cost of Goods Sold:**
  - Beginning Inventory: $5,400
  - Net Purchases: $26,700
  - **Cost of Goods Available:** $32,100
  - Less: Ending Inventory: ($3,600)
  - **Cost of Goods Sold:** $28,500

- **Gross Profit:** $17,500
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Transcribed Image Text:**Inventory Principles** 1. **Shepherd Cycles used the FIFO inventory method in 2010. Shepherd Cycles plans to continue using the FIFO method in future years.** A. Which inventory principle is most relevant to Shepherd’s decision? *Enter answer here.* 2. **Shepherd Cycles does not expect prices to change dramatically and wants to use a method that averages price changes.** B. Which inventory method would best meet Shepherd’s goal? *Enter answer here.* C. What if Shepherd wanted to expense out the newer purchases of goods instead? Which inventory would best meet that need? *Enter answer here.* 3. **Refer to the information below that shows Boston Cycles’ inventory data for the year ending December 31, 2011. Answer the following questions:** - Assume that the ending inventory was accidentally overstated by $2,200. *Enter answer here.* - What are the correct amounts for cost of goods sold and gross profit? *Enter answer here.* --- **Inventory Data for Boston Cycles** - **Sales Revenue:** $46,000 - **Cost of Goods Sold:** - Beginning Inventory: $5,400 - Net Purchases: $26,700 - **Cost of Goods Available:** $32,100 - Less: Ending Inventory: ($3,600) - **Cost of Goods Sold:** $28,500 - **Gross Profit:** $17,500
Expert Solution
Check Mark
Step 1

Overstatement of ending inventory will decrease cost of goods sold and will increase gross profit in the business.

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