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Page 378 Speed World Cycles sells high-performance motorcycles and motocross racers. One of Speed World's most popular models is the Kazomma 900 dirt bike. During the current year, Speed World Cycles purchased eight of these bikes at the following costs. Units Unit Total Purchase Date Purchased Cost Cost July 1 July 22 Aug. 3 2 $4,950 $ 9,900 3 5,000 15,000 5,100 15,300 $40,200 On July 28, Speed World Cycles sold four Kazomma 900 dirt bikes to the Vince Wilson racing team. The remaining four bikes remained in inventory at September 30, the end of Speed World's fiscal year.

Page 378 Speed World Cycles sells high-performance motorcycles and motocross racers. One of Speed World's most popular models is the Kazomma 900 dirt bike. During the current year, Speed World Cycles purchased eight of these bikes at the following costs. Units Unit Total Purchase Date Purchased Cost Cost July 1 July 22 Aug. 3 2 $4,950 $ 9,900 3 5,000 15,000 5,100 15,300 $40,200 On July 28, Speed World Cycles sold four Kazomma 900 dirt bikes to the Vince Wilson racing team. The remaining four bikes remained in inventory at September 30, the end of Speed World's fiscal year.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Please complate part b of this question

PROBLEM 8.2A Alternative Cost Flow Assumptions in a Perpetual System LO8-1 Assume that Speed World Cycles uses a perpetual inventory system. (See the data provided.) Instructions a. Compute the cost of goods sold relating to the sale on July 28 and the ending inventory of Kazomma 900 dirt bikes at September 30, using the following cost flow assumptions. 1. Average cost. 2. FIFO. 3. LIFO. Show the number of units and the unit costs of each layer comprising the cost of goods sold and ending inventory. b. Using the cost figures computed in part a, answer the following questions: 1. Which of the three cost flow assumptions will result in Speed World Cycles reporting the highest net income for the current year? Would this always be the case? Explain. 2. Which of the three cost flow assumptions minimizes the income taxes owed by Speed World Cycles for the year? Would you expect this usually to be the case? Explain. 3. May Speed World Cycles use the cost flow assumption that results in the highest net income for the current year in its financial statements, but use the cost flow assumption that minimizes taxable income for the current year in its income tax return? Explain.
Transcribed Image Text:PROBLEM 8.2A Alternative Cost Flow Assumptions in a Perpetual System LO8-1 Assume that Speed World Cycles uses a perpetual inventory system. (See the data provided.) Instructions a. Compute the cost of goods sold relating to the sale on July 28 and the ending inventory of Kazomma 900 dirt bikes at September 30, using the following cost flow assumptions. 1. Average cost. 2. FIFO. 3. LIFO. Show the number of units and the unit costs of each layer comprising the cost of goods sold and ending inventory. b. Using the cost figures computed in part a, answer the following questions: 1. Which of the three cost flow assumptions will result in Speed World Cycles reporting the highest net income for the current year? Would this always be the case? Explain. 2. Which of the three cost flow assumptions minimizes the income taxes owed by Speed World Cycles for the year? Would you expect this usually to be the case? Explain. 3. May Speed World Cycles use the cost flow assumption that results in the highest net income for the current year in its financial statements, but use the cost flow assumption that minimizes taxable income for the current year in its income tax return? Explain.
Page 378 Speed World Cycles sells high-performance motorcycles and motocross racers. One of Speed World's most popular models is the Kazomma 900 dirt bike. During the current year, Speed World Cycles purchased eight of these bikes at the following costs. Units Unit Total Purchase Date Purchased Cost Cost July 1 July 22 2 $4,950 $ 9.900 3 5,000 15,000 Aug. 3 5,100 15,300 $40,200 On July 28, Speed World Cycles sold four Kazomma 900 dirt bikes to the Vince Wilson racing team. The remaining four bikes remained in inventory at September 30, the end of Speed World's fiscal year.
Transcribed Image Text:Page 378 Speed World Cycles sells high-performance motorcycles and motocross racers. One of Speed World's most popular models is the Kazomma 900 dirt bike. During the current year, Speed World Cycles purchased eight of these bikes at the following costs. Units Unit Total Purchase Date Purchased Cost Cost July 1 July 22 2 $4,950 $ 9.900 3 5,000 15,000 Aug. 3 5,100 15,300 $40,200 On July 28, Speed World Cycles sold four Kazomma 900 dirt bikes to the Vince Wilson racing team. The remaining four bikes remained in inventory at September 30, the end of Speed World's fiscal year.
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