Financial Accounting
3rd Edition
ISBN: 9780133791129
Author: Jane L. Reimers
Publisher: Pearson Higher Ed
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Textbook Question
Chapter 5, Problem 60PB
Calculate cost of goods sold and ending inventory; analyze effects of each method on financial statements; apply lower-of-cost-or-market rule; calculate inventory turnover ratio.
Kami’s Pink Purses buys and then resells a special type of pink purse. Here is some information concerning Kami’s inventory activity during the month of August 2010:
August 2 860 units on hand at a total cost of $51,600
August 6 Sold 400 units at $120 per unit
August 8 Purchased 640 units at $55 per unit
August 12 Purchased 425 units at $50 per unit
August 15 Sold 600 units at $120 per unit
August 21 Purchased 300 units at $50 per unit
August 24 Sold 800 units at $115 per unit
August 31 Purchased 100 units at $45 per unit
Requirements
- 1. Calculate the value of the ending inventory and cost of goods sold, assuming the company uses a periodic inventory system and the FIFO cost flow assumption.
- 2. Calculate the value of the ending inventory and cost of goods sold, assuming the company uses a periodic inventory system and the LIFO cost flow assumption.
- 3. Calculate the value of the ending inventory and cost of goods sold, assuming the company uses a periodic inventory system and the weighted average cost flow assumption.
- 4. Which of the three methods will result in the highest cost of goods sold for August?
- 5. Which of the three methods will provide the most current ending inventory value for Kami’s
balance sheet at August 31, 2010? - 6. How would the differences between the methods affect Kami’s income statement for August and balance sheet at August 31, 2010?
- 7. Calculate the company’s inventory turnover ratio and average days in inventory for the month for each method in items (1), (2), and (3).
- 8. At the end of the month, the current replacement cost of the inventory is $32,000. Indicate at what amount the company’s inventory will be reported using the lower-of-cost-or-market rule for each method (FIFO, LIFO, and weighted average cost).
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Chapter 5 Solutions
Financial Accounting
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