| 18. |
d |
Cost
of ending inventory consists of the first layer of 700 units @
$4 plus 300 units from the
next layer @ $6, for a total of $4,600. LIFO inventory consists
of the oldest cost layers because
the most recent costs have gone into cost of goods sold. |
| 19. |
a |
$24,100
cost of goods available divided by 4,100 units available = $5.878
per unit. 1,000 units |
| 20. |
d |
|
|
|
|
 |
| |
|
Discussion
Questions and Brief Exercises
|
|
1.
|
System
(a) is a description of the perpetual inventory system.
The calculation is done
continuously during an accounting period. Each time there
is a sale, the cost of the merchandise
sold is identified and becomes cost of goods sold. Then
the cost of goods sold is subtracted from
the inventory to determine the new balance of remaining
inventory. (b) is a description of the
periodic inventory system. This calculation is done at
the end of an accounting period for all
inventory items. The result is the ending inventory at
the end of the period and the cost of
goods sold for the entire period. Using the same data,
these methods result in different answers
except for the FIFO method. |
|
2.
|
Your
choices are between using a periodic or perpetual system,
and applying the FIFO, LIFO,
average, or possibly specific-identification methods.
The periodic system is less expensive to
operate; however, it does not provide up-to-date financial
information or good inventory
control as does the perpetual system. |
|
|
In an environment of increasing costs, FIFO results
in lower cost of goods sold and greater
reported income because older (cheaper) costs are the
first to flow into cost of goods sold. The
balance sheet will report greater current assets because
the most recent (highest) costs are still
in ending inventory. As well, higher reported net income
results in higher taxes. LIFO gives the
opposite result from FIFO. In addition, LIFO is also
subject to more potential manipulation
and the possibility of LIFO liquidation. Averaging methods
are a compromise between FIFO
and LIFO and are easier to calculate because there are
no cost layers to track. Specific
identification can only be used in limited cases in
which specific inventory items are easy to
identify and are preferably high-value items.
|
|
3.
|
Using
the formula BI + net P – EI = C of GS: 120,000 +
200,000 – EI = 275,000 |
| |
EI
= 45,000 |
|
4.
|
| Effect |
Error
in Beginning
Inventory and Purchases |
Error
in Ending Inventory |
|
Periods
affected
|
One
period: only the current
period in which the error is made.
|
Two
periods: the current period in which
the error is made and the next
period
|
Effect
on cost
of goods sold |
If
the items are overstated, cost of
goods sold is overstated. If the
items are understated, cost of
goods sold is understated. |
Current period: If ending
inventory is
overstated,
cost of goods sold is under-
stated.
If ending inventory is
under-
stated, cost of
goods sold is overstated.
Next period: The effect on cost of goods
sold will
be the opposite of the current period.
The error in ending inventory carries
over to beginning inventory
next period.
|
|
|
|
Learning
Goal 27, continued
| |
S2 |
|
Section
V · Analysis of Key Accounts
|
| |