Fundamentals Of Financial Accounting
Fundamentals Of Financial Accounting
6th Edition
ISBN: 9781259864230
Author: PHILLIPS, Fred, Libby, Robert, Patricia A.
Publisher: Mcgraw-hill Education,
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Chapter 7, Problem 1PB
To determine

The cost of goods available for sale.

Expert Solution
Check Mark

Explanation of Solution

Determine cost of goods available for sale.

Date Particulars Units ($) Unit cost ($) Total cost ($)
(a) (b) (c = a × b)
January 1 Beginning inventory 250 2.50 625
January 12 Purchased 300 3.00 900
January 26 Purchased 80 4.00 320
  Total 630 $1,845
  Less: Goods sold 350
  Ending inventory 280

Table (1)

Conclusion

Therefore, the cost of goods sold available for sale for 630 units of inventory is $1,845.

Requirement 1.(a)

To determine

The ending inventory and the cost of goods sold under weighted average-cost method.

Requirement 1.(a)

Expert Solution
Check Mark

Explanation of Solution

In Average Cost Method the cost of inventory is priced at the average rate of the goods available for sale. Following is the mathematical representation:

Weighted-average Cost=Total Cost of Goods Available For SaleTotal Number of Units Available For Sale

Determine cost of ending inventory under average-cost method.

Date Particulars Units Unit cost ($) Total cost ($)
  (a) (b) (c = a × b)
January 1 Beginning inventory 250 2.50 625
January 12 Purchased 300 3.00 900
January 26 Purchased 80 4.00 320
  Cost of goods available for sale 630 $1,845
  Less: Ending inventory 280 2.93 820
  Cost of goods sold 350   $1,025

Table (2)

Working note:

Determine weighted average unit cost.

Weightedaverageunitcost}=(Costofgoodsavailableforsale)(Totalunitsavailableforsales)=$1,845630=$2.92per unit

Conclusion

Hence, the cost of goods sold under weighted average-cost method is $1,025 and the value of ending inventory is $820.

Requirement 1.(b)

To determine

The ending inventory and the cost of goods sold under FIFO.

Requirement 1.(b)

Expert Solution
Check Mark

Explanation of Solution

In First-in-First-Out method, the cost of initial purchased items is sold first. The value of the ending inventory consists the recent purchased items.

Determine the amount of cost of goods sold.

Date Particulars Units Unit cost ($) Total cost ($)
  (a) (b) (c = a × b)
January 1 Beginning inventory 250 2.50 625
January 12 Purchased 100 3.00 300
  Cost of goods sold 350 $925

Table (3)

Determine ending inventory under FIFO method.

Date Particulars Units Unit cost ($) Total cost ($)
  (a) (b) (c = a × b)
January 12 Purchased 200 3.00 600
January 26 Purchased 80 4.00 320
  Ending inventory 280   $920

Table (4)

Conclusion

Hence, the cost of goods sold under FIFO is $925 and the value of ending inventory is $920.

Requirement 1.(c)

To determine

The ending inventory and the cost of goods sold under LIFO.

Requirement 1.(c)

Expert Solution
Check Mark

Explanation of Solution

In Last-in-First-Out method, the cost of last purchased items is sold first. The value of the closing stock consists the initial purchased items.

Determine the amount of cost of goods sold.

Date Particulars Units Unit cost ($) Total cost ($)
  (a) (b) (c = a × b)
January 26 Purchased 80 4.00 320
January 12 Purchased 270 3.00 810
  Cost of goods sold 350   $1,130

Table (5)

Determine ending inventory under LIFO method.

Date Particulars Units Unit cost ($) Total cost ($)
  (a) (b) (c = a × b)
January 1 Beginning inventory 250 2.50 625
January 12 Purchased 30 3.00 90
  Ending inventory 2,150   $715

Table (6)

Conclusion

Hence, the cost of goods sold under LIFO is $1,130 and the value of ending inventory is $715.

Requirement 1.(d)

To determine

The ending inventory and the cost of goods sold under specific identification method.

Requirement 1.(d)

Expert Solution
Check Mark

Explanation of Solution

Specific identification method can be said as identifying the items precisely which are being sold and those which are being stored as closing inventory. The companies are required to keep perfect records of the original cost of each and every individual items of the inventory.

Determine the amount of cost of goods sold.

Date Particulars Units Unit cost ($) Total cost ($)
  (a) (b) (c = a × b)
January 1 Beginning inventory 200 2.50 500
January 12 Purchased 150 3.00 450
  Cost of goods sold 3,350 $950

Table (7)

Determine ending inventory under FIFO method.

Date Particulars Units Unit cost ($) Total cost ($)
  (a) (b) (c = a × b)
January 1 Beginning inventory 50 2.50 125
January 12 Purchased 150 3.00 450
January 26 Purchased 80 4.00 320
  Ending inventory 280   $895

Table (8)

Conclusion

Hence, the cost of goods sold under specific identification method is $950 and the value of ending inventory is $895.

Requirement 2.

To determine

The method of inventory costing results highest in gross profit and minimizes income taxes.

Requirement 2.

Expert Solution
Check Mark

Explanation of Solution

  • FIFO method provides a lower cost of goods sold and a higher gross profit than in LIFO.
  • By comparing the three inventory method, it is found that the use of LIFO method will minimizes the income taxes because it reports less taxable income as a result of using higher unit costs (in this case) to calculate cost of goods sold.
  • A higher Cost of Goods Sold means less Income from Operations. Therefore it reduce tax amount.

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Chapter 7 Solutions

Fundamentals Of Financial Accounting

Ch. 7 - You work for a made-to-order clothing company,...Ch. 7 - Prob. 12QCh. 7 - (Supplement 7B) Explain why an error in ending...Ch. 7 - Which of the following statements are true...Ch. 7 - The inventory costing method selected by a company...Ch. 7 - Which of the following is not a name for a...Ch. 7 - Which of the following correctly expresses the...Ch. 7 - A New York bridal dress designer that makes...Ch. 7 - If costs are rising, which of the following will...Ch. 7 - Which inventory method provides a better matching...Ch. 7 - Which of the following regarding the lower of cost...Ch. 7 - An increasing inventory turnover ratio a....Ch. 7 - In which of the following situations is an LCM/NRV...Ch. 7 - Matching Inventory Items to Type of Business Match...Ch. 7 - Reporting Goods in Transit Abercrombie Fitch Co....Ch. 7 - Prob. 3MECh. 7 - Reporting Inventory-Related Accounts in the...Ch. 7 - Matching Financial Statement Effects to Inventory...Ch. 7 - Matching Inventory Costing Method Choices to...Ch. 7 - Calculating Cost of Goods Available for Sale,...Ch. 7 - Calculating Cost of Goods Available for Sale,...Ch. 7 - Calculating Cost of Goods Available for Sale,...Ch. 7 - Prob. 10MECh. 7 - Calculating Cost of Goods Available for Sale, Cost...Ch. 7 - Calculating Cost of Goods Available for Sale, Cost...Ch. 7 - Calculating Cost of Goods Available for Sale, Cost...Ch. 7 - Reporting Inventory under Lower of Cost or...Ch. 7 - Preparing the Journal Entry to Record Lower of...Ch. 7 - Determining the Effects of Inventory Management...Ch. 7 - Interpreting LCM Financial Statement Note...Ch. 7 - Calculating the Inventory Turnover Ratio and Days...Ch. 7 - Prob. 19MECh. 7 - Prob. 20MECh. 7 - Prob. 21MECh. 7 - (Supplement 7A) Calculating Cost of Goods Sold and...Ch. 7 - (Supplement 7B) Determining the Financial...Ch. 7 - Prob. 24MECh. 7 - Reporting Goods in Transit and Consignment...Ch. 7 - Determining the Correct Inventory Balance Seemore...Ch. 7 - Determining the Correct Inventory Balance Seemore...Ch. 7 - Calculating Cost of Ending Inventory and Cost of...Ch. 7 - Calculating Cost of Ending Inventory and Cost of...Ch. 7 - Prob. 6ECh. 7 - Analyzing and Interpreting the Financial Statement...Ch. 7 - Evaluating the Effects of Inventory Methods on...Ch. 7 - Choosing LIFO versus FIFO When Costs Are Rising...Ch. 7 - Using FIFO for Multiproduct Inventory Transactions...Ch. 7 - Reporting Inventory at Lower of Cost or Market/Net...Ch. 7 - Reporting Inventory at Lower of Cost or Market/Net...Ch. 7 - Analyzing and Interpreting the Inventory Turnover...Ch. 7 - Analyzing and Interpreting the Effects of the...Ch. 7 - Prob. 15ECh. 7 - Analyzing and Interpreting the Financial Statement...Ch. 7 - Prob. 17ECh. 7 - Analyzing the Effects of Four Alternative...Ch. 7 - Evaluating the Income Statement and Income Tax...Ch. 7 - Calculating and Interpreting the Inventory...Ch. 7 - Prob. 4CPCh. 7 - (Supplement 7B) Analyzing and Interpreting the...Ch. 7 - Analyzing the Effects of Four Alternative...Ch. 7 - Evaluating the Income Statement and Income Tax...Ch. 7 - Prob. 3PACh. 7 - Prob. 4PACh. 7 - (Supplement 7B) Analyzing and Interpreting the...Ch. 7 - Prob. 1PBCh. 7 - Prob. 2PBCh. 7 - Prob. 3PBCh. 7 - Prob. 4PBCh. 7 - (Supplement 7B) Analyzing and Interpreting the...Ch. 7 - Prob. 1COPCh. 7 - (Supplement 7A) Recording Inventory Transactions,...Ch. 7 - (Supplement 7A) Recording Inventory Purchases,...Ch. 7 - (Supplement 7A) Recording Inventory Purchases,...Ch. 7 - Prob. 5COPCh. 7 - Prob. 6COPCh. 7 - Prob. 7COPCh. 7 - Prob. 8COPCh. 7 - Prob. 9COPCh. 7 - Prob. 10COPCh. 7 - Prob. 11COPCh. 7 - Prob. 12COPCh. 7 - Prob. 1SDCCh. 7 - Prob. 2SDCCh. 7 - Critical Thinking: Income Manipulation under the...Ch. 7 - Accounting for Changing Inventory Costs In...
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