Fundamental Accounting Principles
Fundamental Accounting Principles
24th Edition
ISBN: 9781259916960
Author: Wild, John J., Shaw, Ken W.
Publisher: Mcgraw-hill Education,
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Chapter 6, Problem 8BPSB
To determine

Concept Introduction:

Income Statement:

Income statement is a financial summary about company's revenues, expenses, profits or losses over a period of time.

Periodic Inventory System:

It updates the closing inventory in the ledger after the physical count is done.

Last in first out (LIFO):

It is the inventory valuation method in which inventory purchased at the end is first sold out. Hence the closing inventory count is done from beginning.

First in first out (FIFO):

It is the inventory valuation method in which inventory purchased in the beginning of the year is first sold out. Hence the closing inventory count is done from end.

Weighted Average:

It is the inventory valuation in which total value of inventory is divided by the total inventory.

To prepare:

Comparative Income statement using three methods when a company uses periodic inventory system.

Expert Solution
Check Mark

Answer to Problem 8BPSB

    ParticularsFIFOLIFOWeighted Average
    Sales
    $400,000
    $400,000
    $400,000
    Less: Cost of goods sold
    ($245,000)
    ($251,840)
    ($248,000)
    Gross profit
    $155,000
    $148,160
    $152,000
    Less: Expenses
    ($60,000)
    ($60,000)
    ($60,000)
    Income before taxes
    $95,000
    $88,160
    $92,000
    Income tax expense(40%)
    ($38,000)
    ($35,264)
    ($36,800)
    Net Income$57,000$52,896$55,200

Explanation of Solution

  Sales = units sold × selling price per unit

  sales=4,000*$100

  Closing stock units = total units  units soldClosing stock units = 6,000  5,000 = 1,000

Valuation of Closing stock is done as:

Under FIFO:

  1,000*$65=$65,000

Under LIFO:

  (840*$58+160*$59)=$58,160

Under weighted average:

  1,000*$62=$62,000

Price in weighted average is calculated as:

  840*$58+600*$59+1,205*$61+700*$64+1,655*$65840+600+1,205+700+1,655=$62

    ParticularsFIFOLIFOWeighted Average
    Total Sales
    $310,000
    $310,000
    $310,000
    Less: Closing stock
    $65,000
    $58,160
    $62,000
    Cost of goods sold$245,000$251,840$248,000

Total sales is calculated as:

    DateParticularsQuantityRateValue
    Beginning Inventory
    840
    $58
    $48,720
    2-Apr
    Purchase
    600
    $59
    $35,400
    14-Jun
    Purchase
    1,205
    $61
    $73,505
    29-Aug
    Purchase
    700
    $64
    $44,800
    18-Nov
    Purchase
    1,655
    $65
    $107,575
    $310,000

Calculation of Net Income is as follows-FIFO-

  Gross profit =SalesCost of goods soldGross profit =$400,000$245,000Gross profit =155,000Income before taxes = Gross profit  ExpensesIncome before taxes =155,00060,000Income before taxes =95,000Income tax expense = Income before tax *Tax rateIncome tax expense =95,000*40%Income tax expense =38,000 Net income= Income before taxesIncome tax expenseNet income=95,00038,000Net income=57,000

LIFO-

  Gross profit =SalesCost of goods soldGross profit =$400,000$251,840Gross profit =148,160Income before taxes = Gross profit  ExpensesIncome before taxes =148,16060,000Income before taxes =88,160Income tax expense = Income before tax *Tax rateIncome tax expense =88,160*40%Income tax expense =35,264 Net income= Income before taxesIncome tax expenseNet income=88,16035,264Net income=52,896

Weighted Average-

  Gross profit =SalesCost of goods soldGross profit =$400,000$248,000Gross profit =152,000Income before taxes = Gross profit  ExpensesIncome before taxes =152,00060,000Income before taxes =92,000Income tax expense = Income before tax *Tax rateIncome tax expense =92,000*40%Income tax expense =36,800 Net income= Income before taxesIncome tax expenseNet income=92,00036,800Net income=55,200

Conclusion-Thus, Income statement is prepared.

To determine

Concept Introduction:

Last in first out (LIFO):

It is the inventory valuation method in which inventory purchased at the end is first sold out. Hence the closing inventory count is done from beginning.

First in first out (FIFO):

It is the inventory valuation method in which inventory purchased in the beginning of the year is first sold out. Hence the closing inventory count is done from end.

Weighted Average:

It is the inventory valuation in which total value of inventory is divided by the total inventory.

To Explain:

To explain the changes in financial results by using inventory costing methods.

Expert Solution
Check Mark

Answer to Problem 8BPSB

As the purchase price of the inventory decresaes, the closing stock will be lower in case of FIFO method of inventory costing. The decrease in closing stockincreases cost of goods sold. The more cost of goods sold decreases gross profit under FIFO than LIFO. So, the net income will be lower under FIFO costing method.

Explanation of Solution

The requirement is explained in the answer.

To determine

Concept Introduction:

Last in first out (LIFO):

It is the inventory valuation method in which inventory purchased at the end is first sold out. Hence the closing inventory count is done from beginning.

First in first out (FIFO):

It is the inventory valuation method in which inventory purchased in the beginning of the year is first sold out. Hence the closing inventory count is done from end.

To Explain:

The advantages and disadvantages of LIFO and FIFO method.

Expert Solution
Check Mark

Answer to Problem 8BPSB

    ParticularsFIFOLIFO
    AdvantagesIt assigns the lower amount to cost of goods sold.
    It assigns the highest amount to cost of goods sold.
    DisadvantagesThe net income is higher.
    The net income is lower.

Explanation of Solution

The requirement is explained in the answer.

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Chapter 6 Solutions

Fundamental Accounting Principles

Ch. 6 - Prob. 11DQCh. 6 - Prob. 12DQCh. 6 - Inventory ownership Homestead Crafts, a...Ch. 6 - QS 6-2 Inventory costs C2 A car dealer acquires a...Ch. 6 - Prob. 3QSCh. 6 - Perpetual: Inventory costing with FIFO P1 A...Ch. 6 - Perpetual: Inventory costing with LIFO Refer to...Ch. 6 - Perpetual Inventory costing with weighted average...Ch. 6 - Periodic: Inventory costing with FIFO P3 Refer to...Ch. 6 - Periodic: Inventory costing with LIFO Refer to the...Ch. 6 - Periodic: Inventory costing with weighted average...Ch. 6 - Perpetual: Assigning costs with FIFO Trey Monson...Ch. 6 - QS6-11 Perpetual Inventory costing with LIFO Refer...Ch. 6 - QS 6-12 Perpetual: Inventory costing with weighted...Ch. 6 - QS6.13 Perpetual Inventory costing with specific...Ch. 6 - Periodic: Inventory costing with FIFO P3 Refer to...Ch. 6 - Periodic Inventory costing with LIFO P3 Refer to...Ch. 6 - Periodic: Inventory costing with weighted average...Ch. 6 - Periodic: Inventory costing with specific...Ch. 6 - QS 6-18 Contrasting inventory costing methods...Ch. 6 - Prob. 19QSCh. 6 - Inventory errors A2 In taking a physical inventory...Ch. 6 - Analyzing inventory A3 Endor Company begins the...Ch. 6 - Prob. 22QSCh. 6 - Inventory costs C2 A solar panel dealer acquires a...Ch. 6 - Exercise 6-1 Inventory ownership C1 1. At...Ch. 6 - Exercise 6-2 Inventory costs C2 Walberg...Ch. 6 - Exercise 6-3 Perpetual Inventory costing methods...Ch. 6 - Exercise 6-4 Perpetual: Income effects of...Ch. 6 - Exercise 6-5A Periodic: Inventory costing P3 Refer...Ch. 6 - Exercise 6-6A Periodic: Income effects of...Ch. 6 - Exercise 6-7 Perpetual Inventory costing...Ch. 6 - Exercise 6.8 Specific identification Refer to the...Ch. 6 - Prob. 9ECh. 6 - Prob. 10ECh. 6 - Prob. 11ECh. 6 - Prob. 12ECh. 6 - Exercise 6-13 Inventory turnover and days' sales...Ch. 6 - Prob. 14ECh. 6 - Prob. 15ECh. 6 - Prob. 16ECh. 6 - Prob. 17ECh. 6 - Exercise 6-1E Perpetual inventory costing P1 Tree...Ch. 6 - Exercise 6-19APeriodic inventory costing P3 I...Ch. 6 - Problem 6-1A Perpetual: Alternative cost...Ch. 6 - Prob. 2APSACh. 6 - Prob. 3APSACh. 6 - Prob. 4APSACh. 6 - Problem 6-5A Lower of cost or market P2 A physical...Ch. 6 - Prob. 6APSACh. 6 - Prob. 7APSACh. 6 - Prob. 8APSACh. 6 - Prob. 9APSACh. 6 - Prob. 10APSACh. 6 - Prob. 1BPSBCh. 6 - Prob. 2BPSBCh. 6 - Prob. 3BPSBCh. 6 - Prob. 4BPSBCh. 6 - Prob. 5BPSBCh. 6 - Prob. 6BPSBCh. 6 - Prob. 7BPSBCh. 6 - Prob. 8BPSBCh. 6 - Prob. 9BPSBCh. 6 - Prob. 10BPSBCh. 6 - Prob. 6SPCh. 6 - AA 6-1 Use Apple's financial statements in...Ch. 6 - AA 6-2 Comparative figures for Apple and Google...Ch. 6 - Prob. 3AACh. 6 - BTN 6-3 Golf Challenge Corp. is a retail sports...Ch. 6 - Prob. 2BTNCh. 6 - Prob. 3BTNCh. 6 - Prob. 4BTNCh. 6 - Prob. 5BTNCh. 6 - Prob. 6BTN
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