You are provided with the following information for Geo Inc., which purchases its inventory from a supplier on account. All sales are also on account. Geo uses the FIFO cost formula in a perpetual inventory system. Increased competition has recently decreased the price of the product. Date Explanation Oct. 1 Beginning inventory 5 Purchases 8 Sales Purchases Sales Purchases 15 20 26 Units Unit Cost Price 60 $140 100 130 (120) 200 35 120 (60) 160 15 110 Instructions (a) Prepare all journal entries for the month of October for Geo, the buyer. (b) Determine the cost of goods sold and ending inventory amount for Geo. (c) On October 31, Geo learns that the product has a net realizable value of $108 per unit. What amount should ending inventory be valued at on the October 31 statement of financial position? (d) Now assume that Geo uses the average cost formula in a perpetual inventory system. Determine the cost of goods sold and ending inventory amount for Geo, ignoring the effect of (c). (e) Assume that GEO Inc. CEO's annual compensation is determined based on net income for the year. Which of the cost formulas would GEO Inc.'s CEO prefer and why?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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You are provided with the following information for Geo Inc., which purchases its inventory
from a supplier on account. All sales are also on account. Geo uses the FIFO cost formula in a
perpetual inventory system. Increased competition has recently decreased the price of the
product.
Date
Explanation
Oct. 1 Beginning inventory
5
Purchases
8
Sales
Purchases
15
20 Sales
26
Purchases
Units
60
100
(120)
35
(60)
15
Unit Cost Price
$140
130
200
120
160
110
Instructions
(a) Prepare all journal entries for the month of October for Geo, the buyer.
(b) Determine the cost of goods sold and ending inventory amount for Geo.
(c) On October 31, Geo learns that the product has a net realizable value of $108 per unit. What
amount should ending inventory be valued at on the October 31 statement of financial
position?
(d) Now assume that Geo uses the average cost formula in a perpetual inventory system.
Determine the cost of goods sold and ending inventory amount for Geo, ignoring the effect of
(c).
(e) Assume that GEO Inc. CEO's annual compensation is determined based on net income for
the year. Which of the cost formulas would GEO Inc.'s CEO prefer and why?
Transcribed Image Text:You are provided with the following information for Geo Inc., which purchases its inventory from a supplier on account. All sales are also on account. Geo uses the FIFO cost formula in a perpetual inventory system. Increased competition has recently decreased the price of the product. Date Explanation Oct. 1 Beginning inventory 5 Purchases 8 Sales Purchases 15 20 Sales 26 Purchases Units 60 100 (120) 35 (60) 15 Unit Cost Price $140 130 200 120 160 110 Instructions (a) Prepare all journal entries for the month of October for Geo, the buyer. (b) Determine the cost of goods sold and ending inventory amount for Geo. (c) On October 31, Geo learns that the product has a net realizable value of $108 per unit. What amount should ending inventory be valued at on the October 31 statement of financial position? (d) Now assume that Geo uses the average cost formula in a perpetual inventory system. Determine the cost of goods sold and ending inventory amount for Geo, ignoring the effect of (c). (e) Assume that GEO Inc. CEO's annual compensation is determined based on net income for the year. Which of the cost formulas would GEO Inc.'s CEO prefer and why?
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