Chapter 6 Question 1 ABC Company had the following inventory information available : Units 1/1 1/20 7/25 Beginning

inventory Purchase Purchase 100 100 200 300 700 Unit Cost $4 $5 $7 $8 Total Cost $ 400 500 1,400 2,400 $ 4,700

10/20 Purchase

A physical count of inventory on December 31 revealed that there were 200 units on hand. Method FIFO Average Cost CGS Ending Inventory

Question Which method will result in the highest CGS? Which method will result in the highest ending inventory? Which method will resultin the highest CG available for sale? Which method will result in the highest tax expense? Which method will result in the lowest net income? Which method willresult in the highest total assets?

Answer (Method)

NOTICE : When prices are rising FIFO always will have the highest net income When prices are decreasing average cost always will have the highest net income

Question 2

Item Sales revenues Cost of goods sold Beginning inventory Cost of goods purchased Cost of goods available for sale Ending inventory Cost of goods sold Gross profit Selling and administrative expenses Net income

2008 Incorrect 300,000 20,000 150,000 170,000 30,000 ? 10,000

2008 Correct

2009 Incorrect 350,000 30,000 175,000 205,000 35,000 ? 10,000

2009 Correct

A company has thje data above , but the accountant of the company madethe error 2008 ending inventory was overstated $2,000 Required : Computed the correct CGS for 2008 and 2009

Question 3

Item Sales revenues Cost of goods sold Beginning inventory Cost of goods purchased Cost of goods available for sale Ending inventory Cost of goods sold Gross profit Selling and administrative expenses Net income

2008 Incorrect 300,000 20,000 150,000 170,000 30,000 ? 10,000

2008 Correct

2009 Incorrect 350,000 30,000 175,000 205,000 35,000 ? 10,000

2009 Correct

A company has the data above, but the accountant of the company made two errors : 1. 2008 ending inventory was overstated $ 2m000 2. 2009 ending inventory was understated $ 6,000 Required : Compute the correct CGS for 2008 and 2009