Financial Accounting
3rd Edition
ISBN: 9780133791129
Author: Jane L. Reimers
Publisher: Pearson Higher Ed
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Textbook Question
Chapter 5, Problem 63PB
The following information is for Falling Numbers Computers for the year ended December 31, 2010.
At January 1, 2010:
- Cash amounted to $20,000.
- Beginning inventory was $35,000 (1,400 units at $25 each).
- Contributed capital was $25,000.
Retained earnings was $45,000.
Transactions during 2010:
- Purchased 1,250 units for cash at $30 each
- Purchased 750 more units for cash at $20 each
- Cash sales of 2,400 units at $50 each
- Paid $10,000 cash for operating expenses
- Paid cash for income taxes at a rate of 40% of net income
Requirements
- 1. Compute the cost of goods sold and ending inventory at December 31, 2010, using each of the following cost flow methods:
- a. FIFO periodic
- b. LIFO periodic
- c. Weighted average cost periodic
- 2. For each method, prepare the
balance sheet at December 31, 2010, a multistep income statement, and statement ofcash flows for the fiscal year ended December 31, 2010. - 3. What is income before taxes and net income after taxes under each of the three inventory cost flow assumptions? What observations can you make about net income from the analysis of the three methods?
- 4. For each method, calculate the inventory turnover ratio and average days in inventory for the fiscal year ended December 31, 2010.
- 5. At the end of the year, the current replacement cost of the inventory is $33,000. 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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The following figures appear on LaGrange’s financial statements for the most recent fiscalyear:
Cost of Goods Sold $1,960,000
Beginning Inventory 238,000
Ending Inventory 278,000
Accounts Payable 182,000
What is the age of this company’s accounts payable?
Responses
33.2 days
35.3 days
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33.9 days
The following data were extracted from the income statement of Keever Inc.:
Current Year
Previous Year
Sales
$18,500,000
$20,000,000
Beginning inventories
940,000
860,000
Cost of goods sold
9,270,000
10,800,000
Ending inventories
1,120,000
940,000
a. Determine for each year (1) the inventory turnover and (2) the number of days' sales in inventory. Round interim calculations to the nearest dollar and final answers to one decimal place. Assume 365 days a year.
Current Year
Previous Year
1. Inventory turnover
fill in the blank 1
fill in the blank 2
2. Number of days' sales in inventory
fill in the blank 3 days
fill in the blank 4 days
It is NOT 44 or 31 dayas\ys
The following data were extracted from the income statement of Keever Inc.:
Current Year
Previous Year
Sales
$18,500,000
$20,000,000
Beginning inventories
940,000
860,000
Cost of goods sold
9,270,000
10,800,000
Ending inventories
1,120,000
940,000
a. Determine for each year (1) the inventory turnover and (2) the number of days' sales in inventory. Round interim calculations to the nearest dollar and final answers to one decimal place. Assume 365 days a year.
Current Year
Previous Year
1. Inventory turnover
fill in the blank 1
fill in the blank 2
2. Number of days' sales in inventory
fill in the blank 3 days
fill in the blank 4 days
b. The inventory position of the business has . The inventory turnover has , while the number of days' sales in inventory has . The sales volume has faster than the inventory, resulting in a inventory position.
Chapter 5 Solutions
Financial Accounting
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