Financial Accounting
3rd Edition
ISBN: 9780078025549
Author: J. David Spiceland, Wayne M Thomas, Don Herrmann
Publisher: McGraw-Hill Education
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Chapter 6, Problem 7RQ
Cheryl believes that companies report cost of goods sold and ending inventory based on actual units sold and not sold. Her accounting instructor explains that most companies account for cost of goods sold and ending inventory based on assumed units sold and not sold. Help her understand why companies are allowed to do this.
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Companies that sell products and goods will have inventory and cost of goods sold accounts. The basic cost of goods sold equation is:
Beginning Inventory + Purchases – Ending Inventory = Cost of Goods Sold
The ending inventory of one period is the beginning inventory of the next period. Businesses that offer services do not normally sell products as their primary business activity but may sell them to supplement their services.
What additional accounts would you expect to find in a manufacturing firm and how do they relate to the cost of goods sold?
(Inventoriable Goods and Costs) Clay Mattews, an inventory control specialist, is interested in better understanding the accounting for inventories. Although Clay understands the more sophisticated computer inventory control systems, he has little knowledge of how inventory cost is determined. In studying the records of Strider Enterprises, which sells normal brand-name goods from its own store and on consignment through Chavez Inc., he asks you to answer the following questions.Instructions(a) Should Strider Enterprises include in its inventory normal brand-name goods purchased from its suppliers but not yet received if the terms of purchase are f.o.b. shipping point (manufacturer’s plant)? Why?(b) Should Strider Enterprises include freight-in expenditures as an inventory cost? Why?(c) If Strider Enterprises purchases its goods on terms 2/10, net 30, should the purchases be recorded gross or net? Why?(d) What are products on consignment? How should they be reported in the financial…
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Chapter 6 Solutions
Financial Accounting
Ch. 6 - Prob. 1RQCh. 6 - Prob. 2RQCh. 6 - What is the difference among raw materials...Ch. 6 - Prob. 4RQCh. 6 - Prob. 5RQCh. 6 - What is a multiple-step income statement? What...Ch. 6 - Cheryl believes that companies report cost of...Ch. 6 - What are the three primary cost flow assumptions?...Ch. 6 - 9.Which cost flow assumption generally results in...Ch. 6 - Prob. 10RQ
Ch. 6 - Prob. 11RQCh. 6 - 12.Explain how LIFO generally results in lower...Ch. 6 - Prob. 13RQCh. 6 - Explain how freight charges, purchase returns, and...Ch. 6 - Prob. 15RQCh. 6 - Prob. 16RQCh. 6 - Prob. 17RQCh. 6 - Prob. 18RQCh. 6 - Prob. 19RQCh. 6 - How is gross profit calculated? What is the gross...Ch. 6 - 21.Explain how the sale of inventory on account is...Ch. 6 - Prob. 22RQCh. 6 - Prob. 23RQCh. 6 - Prob. 24RQCh. 6 - Prob. 6.1BECh. 6 - Prob. 6.2BECh. 6 - Calculate cost of goods sold (LO62) At the...Ch. 6 - Prob. 6.4BECh. 6 - Calculate ending inventory and cost of goods sold...Ch. 6 - Calculate ending inventory and cost of goods sold...Ch. 6 - Calculate ending inventory and cost of goods sold...Ch. 6 - Prob. 6.8BECh. 6 - Identify financial statement effects of FIFO and...Ch. 6 - Prob. 6.10BECh. 6 - Prob. 6.11BECh. 6 - Prob. 6.12BECh. 6 - Prob. 6.13BECh. 6 - Prob. 6.14BECh. 6 - Prob. 6.15BECh. 6 - Prob. 6.16BECh. 6 - Prob. 6.17BECh. 6 - Prob. 6.18BECh. 6 - Prob. 6.19BECh. 6 - Prob. 6.20BECh. 6 - Prob. 6.21BECh. 6 - Prob. 6.22BECh. 6 - Calculate cost of goods sold (LO62) Russell Retail...Ch. 6 - Prob. 6.2ECh. 6 - Prob. 6.3ECh. 6 - Calculate inventory amounts when costs are rising...Ch. 6 - Calculate inventory amounts when costs are...Ch. 6 - Record Inventory transactions using o perpetual...Ch. 6 - Record inventory purchase and purchase return...Ch. 6 - Prob. 6.8ECh. 6 - Prob. 6.9ECh. 6 - Prob. 6.10ECh. 6 - Record transactions using a perpetual system...Ch. 6 - Record transactions using a perpetual system...Ch. 6 - Prob. 6.13ECh. 6 - Prob. 6.14ECh. 6 - Calculate cost of goods sold, the inventory...Ch. 6 - Prob. 6.16ECh. 6 - Prob. 6.17ECh. 6 - Prob. 6.18ECh. 6 - Record inventory purchases and sales using a...Ch. 6 - Prob. 6.20ECh. 6 - Calculate ending inventory and cost of goods sold...Ch. 6 - Prob. 6.2APCh. 6 - Prob. 6.3APCh. 6 - Prob. 6.4APCh. 6 - Prob. 6.5APCh. 6 - Prob. 6.6APCh. 6 - Prob. 6.7APCh. 6 - Prob. 6.8APCh. 6 - Record transactions and prepare a partial income...Ch. 6 - Prob. 6.10APCh. 6 - Calculate ending inventory and cost of goods sold...Ch. 6 - Prob. 6.2BPCh. 6 - Prob. 6.3BPCh. 6 - Prob. 6.4BPCh. 6 - Prob. 6.5BPCh. 6 - Prob. 6.6BPCh. 6 - Prob. 6.7BPCh. 6 - Use the inventory turnover retio end gross profit...Ch. 6 - Record transactions and prepare a partial income...Ch. 6 - Prob. 6.10BPCh. 6 - Prob. 6.1APCPCh. 6 - Prob. 6.2APFACh. 6 - Prob. 6.3APFACh. 6 - Prob. 6.4APCACh. 6 - Prob. 6.5APECh. 6 - Prob. 6.6APIRCh. 6 - Written Communication You have just been hired as...Ch. 6 - Prob. 6.8APEM
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- Please answer all. Thankyouarrow_forwardCurrent Attempt in Progress You have the following information for Blossom Company Blossom uses the periodic method of accounting for its inventory transactions, Blossom only carries one brand and size of diamonds-all are identical Each hatch of diamonds purchased is carefully coded and marked with its purchase cost March 1 March 3 March 5 March 10 March 25 ✓ Your answer is correct Beginning inventory 140 diamonds at a cost of $300 perdiamond Purchased 190 diamonds at a cost of $340 each Sold 170 diamonds for $600 each. Purchased 320 diamonds at a cost of $365 each Sold 300 damonds for $650 each. Assume that Blossom uses the specific identification cost flow method. Demonstrate how Blossom could maximize its gross profit for the month by specifically selecting which diamonds to sell on March 5 and March 25 (1) (2) To maximize gross profit, Blossom should sell the diamonds with the lowest cost Demonstrate how Blossom could minimize its gross profit for the month by selecting which…arrow_forward• Explain why there isn't there a "Cost of merchandise sold" expense for a service business. describe the difference between "Gross Profit" and "Net Income". If a company used a computerized accounting system (rather than a manual), are they more likely to use a perpetual OR periodic inventory system?arrow_forward
- Analyze the truth of this statement. The income statements for merchandising and manufacturing businesses differ primarily in the reporting of the cost of merchandise (goods) available for sale and sold during the period. Group of answer choices This statement is true. This statement is false. There is not enough information to determine the truth of this statement. There is no difference in the income statements for merchandising and manufacturing businesses.arrow_forwardThe Rider Company uses the gross profit method to estimate ending inventory and cost of goods sold. The cost percentage is determined based on historical data. What factors could cause the estimate of ending inventory to be overstated?arrow_forwardInventory accounting Manufacturing/Merchandising. How would a company record freight-out expenses of inventory (already made/produced) sold to its buyer. I am thinking operating expenses, but could these costs be capatalized to the inventory account? I do not recall this being the way to record these expenses (taught in university)arrow_forward
- Really not undertsanding LIFO, thank you ahead of timearrow_forwardSelect all that apply Determine which of the following statements are correct regarding the difference between physical flow and the cost flow of inventory (Check all that apply.) A business may adopt any cost flow assumption when accounting for perishable items. ↓ Perishable items usually have an actual physical flow of FIFO. Perishable items have an actual physical flow of LIFO Cost flow is an assumption about which goods/items are sold. Physical flow refers to the actual movement of goods.arrow_forwardA merchandising business purchases goods for resale. A merchandiser makes a profit by selling goods at a price higher than the cost of the goods sold. While the underlying business transaction is straightforward, determining of the cost of the merchandise sold often requires an inventory cost flow assumption when similar units are purchased at different units costs during the period. Identify cost flow assumptions to their description: Cost Flow Assumption (choose between FIFO,LIFO, weighted average, or specific identication) Description Cost flow is the reverse order in which the costs were incurred. Cost flow is the order in which the costs were incurred. Cost flow is an average of the purchase costs. Unit cost is identified with a specific purchase Often, specification identification may not be practical, so one of the other three cost flow assumptions is assumed. The cost flow assumption can be applied under either the perpetual or periodic inventory system.arrow_forward
- How does the income statement and balance sheet of a merchandising company differs from a service company? What are the two inventory control systems? How one inventory control system is different from the other?arrow_forwardI need help determining the cost assigned to inventory and the cost of goods sold using FIFO. Some of my answers are correct some are not. I have provided images of the assignmentarrow_forwardNote:- • Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. • Answer completely. • You will get up vote for sure.arrow_forward
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