Describe how costs flow from inventory to cost of goods sold for the following methods: (a) FIFO and (b) LIFO.

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Answer 1

Textbook Question

Chapter 5, Problem 1DQ

Describe how costs flow from inventory to cost of goods sold for the following methods: (a) FIFO and (b) LIFO.

a.

Expert Solution

Summary Introduction

Inventory is a record of finished goods of a company which the can be sold to the customer, work in progress which can be transformed into finished goods and raw material which is a means of production. Inventory is also classified as current asset in the balance sheet and it is valued by FIFO, LIFO and weighted average method.

To determine: FIFO method of inventory accounting.

Answer to Problem 1DQ

FIFO method, the earliest inventories are documented as sold first

Explanation of Solution

FIFO method of inventory management stands for ‘first in first out’, means that the earliest inventory are documented as sold first but it does not mean that the same inventory has been sold first. At the time of sale the cost of earliest good acquired are reported in the financial statement. It will result in rest of the articles in the inventory being recorded for most latest incurred cost. It also result in the historical cost peered against current revenue. This mean profit margin does not reflect the proper matching of cost and revenue. As the costs of goods are increasing continuously the cost of earliest inventory will be of lower value. Lower cost of goods sold will result in higher net income. Higher net income will increase the profit margin ratio as profit margin ratio is calculated by dividing Net income by Net sales.

Expert Solution

Summary Introduction

Introduction:

Inventory is a record of finished goods of a company which the can be sold to the customer, work in progress which can be transformed into finished goods and raw material which is a means of production. Inventory is also classified as current asset in the balance sheet and it is valued by FIFO, LIFO and weighted average method.

To determine: LIFO method of inventory accounting.

Answer to Problem 1DQ

LIFO method, the earliest inventories are documented as sold first

Explanation of Solution

LIFO method used to record inventory in the manner that the latest item is sold first. The cost of the most recent purchased item will be reported as cost of goods sold. So the older purchased item which has lower cost is reported in the inventory while the latest item which has highest cost is matched with sales in the financial statement. Issue with LIFO method is that it will use the cost of good from lasted purchase which will be highest so the net income will reduce. And lowest valued item will be recorded in current asset thus decreasing the current ratio.

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Accounting Question

REQUIRED Study the information given below and answer the following questions. Where discount factors are required use only the four decimals present value tables that appear after the formula sheet or in the module guide. Ignore taxes. 5.1 Calculate the Accounting Rate of Return on average investment of the second alternative (expressed to two decimal places). 5.2 Determine which of the two investment opportunities the company should choose by calculating the Net Present Value of each alternative. Your answer must include the calculation of the present values and NPV. 5.3 Calculate the Internal Rate of Return of the first alterative (expressed to two decimal places). Your answer must include two net present value calculations (using consecutive rates/percentages) and interpolation. INFORMATION The management of Bentall Incorporated is considering two investment opportunities: (5 marks) (9 marks) (6 marks) The first alternative involves the purchase of a new machine for R900 000 which…

Answer 2

Textbook Question

Chapter 5, Problem 1DQ

Describe how costs flow from inventory to cost of goods sold for the following methods: (a) FIFO and (b) LIFO.

a.

Expert Solution

Summary Introduction

Inventory is a record of finished goods of a company which the can be sold to the customer, work in progress which can be transformed into finished goods and raw material which is a means of production. Inventory is also classified as current asset in the balance sheet and it is valued by FIFO, LIFO and weighted average method.

To determine: FIFO method of inventory accounting.

Answer to Problem 1DQ

FIFO method, the earliest inventories are documented as sold first

Explanation of Solution

FIFO method of inventory management stands for ‘first in first out’, means that the earliest inventory are documented as sold first but it does not mean that the same inventory has been sold first. At the time of sale the cost of earliest good acquired are reported in the financial statement. It will result in rest of the articles in the inventory being recorded for most latest incurred cost. It also result in the historical cost peered against current revenue. This mean profit margin does not reflect the proper matching of cost and revenue. As the costs of goods are increasing continuously the cost of earliest inventory will be of lower value. Lower cost of goods sold will result in higher net income. Higher net income will increase the profit margin ratio as profit margin ratio is calculated by dividing Net income by Net sales.

Expert Solution

Summary Introduction

Introduction:

Inventory is a record of finished goods of a company which the can be sold to the customer, work in progress which can be transformed into finished goods and raw material which is a means of production. Inventory is also classified as current asset in the balance sheet and it is valued by FIFO, LIFO and weighted average method.

To determine: LIFO method of inventory accounting.

Answer to Problem 1DQ

LIFO method, the earliest inventories are documented as sold first

Explanation of Solution

LIFO method used to record inventory in the manner that the latest item is sold first. The cost of the most recent purchased item will be reported as cost of goods sold. So the older purchased item which has lower cost is reported in the inventory while the latest item which has highest cost is matched with sales in the financial statement. Issue with LIFO method is that it will use the cost of good from lasted purchase which will be highest so the net income will reduce. And lowest valued item will be recorded in current asset thus decreasing the current ratio.

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Answer 3

Textbook Question

Chapter 5, Problem 1DQ

Describe how costs flow from inventory to cost of goods sold for the following methods: (a) FIFO and (b) LIFO.

a.

Expert Solution

Summary Introduction

Inventory is a record of finished goods of a company which the can be sold to the customer, work in progress which can be transformed into finished goods and raw material which is a means of production. Inventory is also classified as current asset in the balance sheet and it is valued by FIFO, LIFO and weighted average method.

To determine: FIFO method of inventory accounting.

Answer to Problem 1DQ

FIFO method, the earliest inventories are documented as sold first

Explanation of Solution

FIFO method of inventory management stands for ‘first in first out’, means that the earliest inventory are documented as sold first but it does not mean that the same inventory has been sold first. At the time of sale the cost of earliest good acquired are reported in the financial statement. It will result in rest of the articles in the inventory being recorded for most latest incurred cost. It also result in the historical cost peered against current revenue. This mean profit margin does not reflect the proper matching of cost and revenue. As the costs of goods are increasing continuously the cost of earliest inventory will be of lower value. Lower cost of goods sold will result in higher net income. Higher net income will increase the profit margin ratio as profit margin ratio is calculated by dividing Net income by Net sales.

Expert Solution

Summary Introduction

Introduction:

Inventory is a record of finished goods of a company which the can be sold to the customer, work in progress which can be transformed into finished goods and raw material which is a means of production. Inventory is also classified as current asset in the balance sheet and it is valued by FIFO, LIFO and weighted average method.

To determine: LIFO method of inventory accounting.

Answer to Problem 1DQ

LIFO method, the earliest inventories are documented as sold first

Explanation of Solution

LIFO method used to record inventory in the manner that the latest item is sold first. The cost of the most recent purchased item will be reported as cost of goods sold. So the older purchased item which has lower cost is reported in the inventory while the latest item which has highest cost is matched with sales in the financial statement. Issue with LIFO method is that it will use the cost of good from lasted purchase which will be highest so the net income will reduce. And lowest valued item will be recorded in current asset thus decreasing the current ratio.

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Answer 4

Textbook Question

Chapter 5, Problem 1DQ

Describe how costs flow from inventory to cost of goods sold for the following methods: (a) FIFO and (b) LIFO.

a.

Expert Solution

Summary Introduction

Inventory is a record of finished goods of a company which the can be sold to the customer, work in progress which can be transformed into finished goods and raw material which is a means of production. Inventory is also classified as current asset in the balance sheet and it is valued by FIFO, LIFO and weighted average method.

To determine: FIFO method of inventory accounting.

Answer to Problem 1DQ

FIFO method, the earliest inventories are documented as sold first

Explanation of Solution

FIFO method of inventory management stands for ‘first in first out’, means that the earliest inventory are documented as sold first but it does not mean that the same inventory has been sold first. At the time of sale the cost of earliest good acquired are reported in the financial statement. It will result in rest of the articles in the inventory being recorded for most latest incurred cost. It also result in the historical cost peered against current revenue. This mean profit margin does not reflect the proper matching of cost and revenue. As the costs of goods are increasing continuously the cost of earliest inventory will be of lower value. Lower cost of goods sold will result in higher net income. Higher net income will increase the profit margin ratio as profit margin ratio is calculated by dividing Net income by Net sales.

Expert Solution

Summary Introduction

Introduction:

Inventory is a record of finished goods of a company which the can be sold to the customer, work in progress which can be transformed into finished goods and raw material which is a means of production. Inventory is also classified as current asset in the balance sheet and it is valued by FIFO, LIFO and weighted average method.

To determine: LIFO method of inventory accounting.

Answer to Problem 1DQ

LIFO method, the earliest inventories are documented as sold first

Explanation of Solution

LIFO method used to record inventory in the manner that the latest item is sold first. The cost of the most recent purchased item will be reported as cost of goods sold. So the older purchased item which has lower cost is reported in the inventory while the latest item which has highest cost is matched with sales in the financial statement. Issue with LIFO method is that it will use the cost of good from lasted purchase which will be highest so the net income will reduce. And lowest valued item will be recorded in current asset thus decreasing the current ratio.

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Answer 5

Textbook Question

Answer 6

Textbook Question

Answer 7

a.

Expert Solution

Summary Introduction

Inventory is a record of finished goods of a company which the can be sold to the customer, work in progress which can be transformed into finished goods and raw material which is a means of production. Inventory is also classified as current asset in the balance sheet and it is valued by FIFO, LIFO and weighted average method.

To determine: FIFO method of inventory accounting.

Answer to Problem 1DQ

FIFO method, the earliest inventories are documented as sold first

Explanation of Solution

FIFO method of inventory management stands for ‘first in first out’, means that the earliest inventory are documented as sold first but it does not mean that the same inventory has been sold first. At the time of sale the cost of earliest good acquired are reported in the financial statement. It will result in rest of the articles in the inventory being recorded for most latest incurred cost. It also result in the historical cost peered against current revenue. This mean profit margin does not reflect the proper matching of cost and revenue. As the costs of goods are increasing continuously the cost of earliest inventory will be of lower value. Lower cost of goods sold will result in higher net income. Higher net income will increase the profit margin ratio as profit margin ratio is calculated by dividing Net income by Net sales.

Expert Solution

Summary Introduction

Introduction:

Inventory is a record of finished goods of a company which the can be sold to the customer, work in progress which can be transformed into finished goods and raw material which is a means of production. Inventory is also classified as current asset in the balance sheet and it is valued by FIFO, LIFO and weighted average method.

To determine: LIFO method of inventory accounting.

Answer to Problem 1DQ

LIFO method, the earliest inventories are documented as sold first

Explanation of Solution

LIFO method used to record inventory in the manner that the latest item is sold first. The cost of the most recent purchased item will be reported as cost of goods sold. So the older purchased item which has lower cost is reported in the inventory while the latest item which has highest cost is matched with sales in the financial statement. Issue with LIFO method is that it will use the cost of good from lasted purchase which will be highest so the net income will reduce. And lowest valued item will be recorded in current asset thus decreasing the current ratio.

Answer 8

a.

Expert Solution

Summary Introduction

Inventory is a record of finished goods of a company which the can be sold to the customer, work in progress which can be transformed into finished goods and raw material which is a means of production. Inventory is also classified as current asset in the balance sheet and it is valued by FIFO, LIFO and weighted average method.

To determine: FIFO method of inventory accounting.

Answer to Problem 1DQ

FIFO method, the earliest inventories are documented as sold first

Explanation of Solution

FIFO method of inventory management stands for ‘first in first out’, means that the earliest inventory are documented as sold first but it does not mean that the same inventory has been sold first. At the time of sale the cost of earliest good acquired are reported in the financial statement. It will result in rest of the articles in the inventory being recorded for most latest incurred cost. It also result in the historical cost peered against current revenue. This mean profit margin does not reflect the proper matching of cost and revenue. As the costs of goods are increasing continuously the cost of earliest inventory will be of lower value. Lower cost of goods sold will result in higher net income. Higher net income will increase the profit margin ratio as profit margin ratio is calculated by dividing Net income by Net sales.

Answer 9

a.

Expert Solution

Answer 10

a.

Expert Solution

Answer 11

Expert Solution

Answer 12

Summary Introduction

Inventory is a record of finished goods of a company which the can be sold to the customer, work in progress which can be transformed into finished goods and raw material which is a means of production. Inventory is also classified as current asset in the balance sheet and it is valued by FIFO, LIFO and weighted average method.

To determine: FIFO method of inventory accounting.

Answer 13

Answer to Problem 1DQ

FIFO method, the earliest inventories are documented as sold first

Answer 14

Explanation of Solution

FIFO method of inventory management stands for ‘first in first out’, means that the earliest inventory are documented as sold first but it does not mean that the same inventory has been sold first. At the time of sale the cost of earliest good acquired are reported in the financial statement. It will result in rest of the articles in the inventory being recorded for most latest incurred cost. It also result in the historical cost peered against current revenue. This mean profit margin does not reflect the proper matching of cost and revenue. As the costs of goods are increasing continuously the cost of earliest inventory will be of lower value. Lower cost of goods sold will result in higher net income. Higher net income will increase the profit margin ratio as profit margin ratio is calculated by dividing Net income by Net sales.

Answer 15

Expert Solution

Summary Introduction

Introduction:

Inventory is a record of finished goods of a company which the can be sold to the customer, work in progress which can be transformed into finished goods and raw material which is a means of production. Inventory is also classified as current asset in the balance sheet and it is valued by FIFO, LIFO and weighted average method.

To determine: LIFO method of inventory accounting.

Answer to Problem 1DQ

LIFO method, the earliest inventories are documented as sold first

Explanation of Solution

LIFO method used to record inventory in the manner that the latest item is sold first. The cost of the most recent purchased item will be reported as cost of goods sold. So the older purchased item which has lower cost is reported in the inventory while the latest item which has highest cost is matched with sales in the financial statement. Issue with LIFO method is that it will use the cost of good from lasted purchase which will be highest so the net income will reduce. And lowest valued item will be recorded in current asset thus decreasing the current ratio.

Answer 16

Expert Solution

Answer 17

Expert Solution

Answer 18

Expert Solution

Answer 19

Summary Introduction

Introduction:

Inventory is a record of finished goods of a company which the can be sold to the customer, work in progress which can be transformed into finished goods and raw material which is a means of production. Inventory is also classified as current asset in the balance sheet and it is valued by FIFO, LIFO and weighted average method.

To determine: LIFO method of inventory accounting.

Answer 20

Answer to Problem 1DQ

LIFO method, the earliest inventories are documented as sold first

Answer 21

Explanation of Solution

LIFO method used to record inventory in the manner that the latest item is sold first. The cost of the most recent purchased item will be reported as cost of goods sold. So the older purchased item which has lower cost is reported in the inventory while the latest item which has highest cost is matched with sales in the financial statement. Issue with LIFO method is that it will use the cost of good from lasted purchase which will be highest so the net income will reduce. And lowest valued item will be recorded in current asset thus decreasing the current ratio.

Answer 22

Ch. 5 - Describe how costs flow from inventory to cost of...Ch. 5 - Prob. 2DQ Ch. 5 - Prob. 3DQ Ch. 5 - If inventory errors are said to correct...Ch. 5 - Prob. 5DQ Ch. 5 - Prob. 6DQ Ch. 5 - Prob. 7DQ Ch. 5 - When preparing interim financial statements, what...Ch. 5 - Prob. 9DQ Ch. 5 - Prob. 10DQ

Describe how costs flow from inventory to cost of goods sold for the following methods: (a) FIFO and (b) LIFO.

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Answer to Problem 1DQ

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Answer to Problem 1DQ

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