Inventory: Inventory refers to the stock or goods which will be sold in the near future and thus is an asset for the company. It comprises of the raw materials which are yet to be processed, the stock which is still going through the process of production and it also includes completed products that are ready for sale. Thus inventory is the biggest and the important source of income and profit for the business. Perpetual Inventory System: In perpetual inventory system there is a continuous recording of transactions as and when they take place that is purchase and sale transactions are recorded whenever they occur. Cost of Goods Available for Sale: It basically includes the cost of inventory which is ready for sale within an accounting period. It mainly includes the cost of beginning inventory as well as the stock purchased in that year and the production within that period (if any). Cost of Goods Sold: Cost of goods sold is the total expenses or the cost incurred by the business during the process of manufacturing of goods and is directly related to the production. It generally includes the cost of raw material, labor and other manufacturing support costs. Gross Profit: The profit made after subtracting or debiting the costs related to the goods sold from the total revenue earned or made through sales in a fiscal year is the gross profit. First in First out: In case of first in, first out method, also known as FIFO method, the inventory which was bought first will also be the first one to be taken out. Last in First out: In case of last in, first out, also known as LIFO method, the inventory which was bought in the last will be taken out first. Weighted Average Cost Method: In this method the weighted average cost is evaluated after any purchases have been made and transactions are recorded as when purchase or sales take place. Specific Identification Method: Under this method, there is a continuous tracking of the inventory and the inventory cost at the time of purchase on the basis of unique identity which thus helps in the valuation of the ending inventory as well as the cost of goods sold. This method is used generally when the company is involved in limited expensive goods which are easily identifiable. To compute: 1. Cost of goods available for sale and number of units available for sale. 2. Number of units in ending inventory. 3. Cost of ending inventory under the following methods (a) FIFO (b)LIFO (c) Weighted average (d) Specific identification 4. Gross profit for each of the four methods in part 5. The inventory costing method suitable incase of bonus earned on gross profit.

Question

Want to see the full answer?

Answer 1

Question

Chapter 5, Problem 3PSA

To determine

Inventory:

Inventory refers to the stock or goods which will be sold in the near future and thus is an asset for the company. It comprises of the raw materials which are yet to be processed, the stock which is still going through the process of production and it also includes completed products that are ready for sale. Thus inventory is the biggest and the important source of income and profit for the business.

Perpetual Inventory System:

In perpetual inventory system there is a continuous recording of transactions as and when they take place that is purchase and sale transactions are recorded whenever they occur.

Cost of Goods Available for Sale:

It basically includes the cost of inventory which is ready for sale within an accounting period. It mainly includes the cost of beginning inventory as well as the stock purchased in that year and the production within that period (if any).

Cost of Goods Sold:

Cost of goods sold is the total expenses or the cost incurred by the business during the process of manufacturing of goods and is directly related to the production. It generally includes the cost of raw material, labor and other manufacturing support costs.

Gross Profit:

The profit made after subtracting or debiting the costs related to the goods sold from the total revenue earned or made through sales in a fiscal year is the gross profit.

First in First out:

In case of first in, first out method, also known as FIFO method, the inventory which was bought first will also be the first one to be taken out.

Last in First out:

In case of last in, first out, also known as LIFO method, the inventory which was bought in the last will be taken out first.

Weighted Average Cost Method:

In this method the weighted average cost is evaluated after any purchases have been made and transactions are recorded as when purchase or sales take place.

Specific Identification Method:

Under this method, there is a continuous tracking of the inventory and the inventory cost at the time of purchase on the basis of unique identity which thus helps in the valuation of the ending inventory as well as the cost of goods sold. This method is used generally when the company is involved in limited expensive goods which are easily identifiable.

To compute: 1. Cost of goods available for sale and number of units available for sale.
2. Number of units in ending inventory.
3. Cost of ending inventory under the following methods

(a) FIFO
(b)LIFO
(c) Weighted average
(d) Specific identification

4. Gross profit for each of the four methods in part
5. The inventory costing method suitable incase of bonus earned on gross profit.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Please help me solve this general accounting question using the right accounting principles.

Assets Martinez Company Comparative Balance Sheets December 31 2025 2024 Cash $91,000 $52,000 Accounts receivable 52,000 36,400 Inventory 72,800 52,000 Property, plant, and equipment 156,000 202,800 Accumulated depreciation Total (83,200) [62,400) $288,600 $290,800 Liabilities and Stockholders' Equity Accounts payable $49,400 $ 39,000 Income taxes payable 18,200 20,800 Bonds payable 44,200 85,800 Common stock 46,900 36,400 Retained earnings 130,000 98,800 Total $288,600 $280,800 Martinez Company Income Statement For the Year Ended December 31, 2025 Sales revenue $629,200 Cost of goods sold 455,000 Gross profit 174,200 Selling expenses $46,800 Administrative expenses 15,600 62,400 Income from operations 111,800 Interest expense 7,800 Income before income taxes 104,000 Income tax expense 20,800 Net income $83,200 Additional data: 1. Depreciation expense was $45,500. 2. Dividends declared and paid were $52,000. 3. During the year, equipment was sold for $22,100 cash. This equipment…

agree or disagree with post The Stockholders' Equity section of a corporate balance sheet fundamentally differs from that of a single-owner business due to the inherent structure of a corporation versus a sole proprietorship. In a single-owner business, you'll usually see a single "Owner's Equity" account, which reflects the owner's investment, withdrawals, and accumulated profits or losses. Conversely, a corporation's Stockholders' Equity is more intricate, reflecting the contributions of multiple owners (stockholders) and the legal framework governing corporate capital. It's divided into contributed capital, which includes common and preferred stock, and retained earnings, which represents accumulated profits not yet distributed as dividends. Additionally, corporations may have accounts like "Additional Paid-in Capital" to capture amounts received above the par value of stock, and "Treasury Stock" to account for shares repurchased by the company. This detailed breakdown highlights…