Calculate cost of goods sold and ending inventory; analyze effects of each method on financial…


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P5-11A. Calculate cost of goods sold and ending inventory; analyze effects of each method on financial statements; apply lower-of-cost-or-market rule; calculate inventory turnover ratio. (LO 3,4,5,6) The following information is for Manuel’s Pharmacy Supply Inc. for the year ending December 31, 2010. At January 1, 2010: . Cash amounted to $19.375. . Beginning inventory was $16,000 (160 units at 9100 each). . Contributed capital was $15,000. . Retained earnings was $20,375 Transactions during 2010: . purchased 150 units at 9110 each . purchased 190 more units at $120 each . Cash sales of 390 units at $200 each . Paid $11,500 cash for operating expenses . Paid cash for income tax at a rate of 30Vo of net income Required a. Compute the cost of goods sold for the year and ending inventory at December 31, 2010, using each of the following cost flow methods: 1. FIFO periodic 2. LIFO periodic 3. Weighted average cost periodic b. For each method, prepare the balance sheet at December 31, 2010, a multistep income statements, statement cash flows, and statement of changes in shareholder’s equity for Manuel for the year ended December 31, 2010. c. What is income before taxes and net income after taxes under each of the three inventory cost flow assumptions? What observation scan you make about net income from the analysis of the three methods? d. At the end of the year, the current replacement cost of the inventory is $ 12,750. Indicate at what amount the company’s inventory will be reported using the lower of-cost-or-market rule for each method (FIFO, LIFO, and weighted average cost). e. For each method, calculate the inventory turnover ratio and average days in inventory for the year ended December 3I,2010.

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