Financial Accounting (12th Edition) (What's New in Accounting)

12th Edition

ISBN: 9780134725987

Author: C. William Thomas, Wendy M. Tietz, Walter T. Harrison Jr.

Publisher: PEARSON

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Inventory Accounting

Inventory accounting is that branch of accounting that helps in determining the specific value of assets at different stages of production and development.

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Textbook Question

Chapter 6, Problem 6.5S

(Learning Objective 2: Compare income tax effects of the inventory costing methods) This exercise should be used in conjunction with S6-4. Carson Print Supplies, Inc. is a corporation subject to a 25% income tax. Compute the company’s income tax expense under the average-cost, FIFO, and LIFO inventory costing methods. Which method would you select to (a) maximize income before tax and (b) minimize income tax expense?

Short Exercises S6-6 through S6-8 use the following data of Sandy Corporation:

Chapter 6, Problem 6.5S, (Learning Objective 2: Compare income tax effects of the inventory costing methods) This exercise

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Chapter 6, Problem 6.4S

Chapter 6, Problem 6.6S

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. (Learning Objectives 1, 3: Apply GAAP for proper revenue recognition; accountfor sales discounts) Preston Industrial Supply offers terms of 2/10, n/30 to its wholesalecustomers. Preston’s cost of goods sold is 25% of sales. The company had the followingtransactions during October:October 1 Sold $6,000 of merchandise to Penzey Co. on account.Sold $2,000 of merchandise to Brownlee Corporation, who paid by credit card.The credit card company charges Preston a fee of 2% on credit card sales.October 3October 12 Sold $13,000 of merchandise to Wolf Enterprises on account.October 16 Marigold paid the balance of what it owed for the purchase on October 7.October 31 Wolf paid the balance of what it owed for the purchase on October 12.October 7 Sold $23,000 of merchandise to Marigold Company on account.October 8 Penzey paid the balance of what it owed for the purchase on October 1.Requirements1. Record Preston’s transactions, including the cost of goods sold entry for each sale.2. Calculate the…

(Learning Objectives 4, 5: Compute gross profit; estimate inventory using the grossprofit method) Cleveland Company, a camera store, lost some inventory in a fire on October15. To file an insurance claim, the company must estimate its October 15 inventory using thegross profit method. For the past two years, Cleveland Company’s gross profit has averaged41% of net sales. Its inventory records reveal the following data:Inventory, October 1................ $ 57,700Transactions October 1–15:Purchases ................................. 490,800Purchase discounts................... 17,000Purchase returns....................... 70,900Sales......................................... 660,000Requirements1. Estimate the cost of the lost inventory using the gross profit method.2. Prepare the income statement for October 1 to October 15 for this product through grossprofit. Show the detailed computations of cost of goods sold in a separate schedule.

(Learning Objective 2: Calculate purchases by analyzing inventory account activity)On Willow Grove Department Stores’ most recent balance sheet, the balance of its inventory at the beginning of the year was $12,000. At the end of the year, the inventory balancewas $14,500. During that year, its cost of goods sold was $55,000. All purchases of inventorythroughout the year were on account. What was the total of Willow Grove’s purchases duringthe year?

Chapter 6 Solutions

Financial Accounting (12th Edition) (What's New in Accounting)

Ch. 6 - Ravenna Candles recently purchased candleholders...Ch. 6 - Which inventory system maintains a running record...Ch. 6 - How is cost of goods sold classified in the...Ch. 6 - Snyders total cost of goods available for sale...Ch. 6 - Snyders cost of goods sold using the average-cost...Ch. 6 - Snyders ending inventory using the FIFO method...Ch. 6 - Snyders cost of goods sold using the LIFO method...Ch. 6 - Which U.S. GAAP principle or rule would apply if...Ch. 6 - Corrigan Corporation had beginning inventory of...Ch. 6 - Corrigans gross profit for the period is a.79,000....

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Solution Summary: The author explains the three inventory costing methods used to maximize income before tax.

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