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Exercise 6-4 Income effects of inventory methods L.O. A1 Park Company reported the following March purchases and sales data for its only product. Date Activities Units Acquired at Cost Units Sold at Retail 1 Beginning inventory 150 units @ $7.00 = $ 1,050 10 Sales 90 units @$15 20 Purchase 220 units @ $6.00 = 1,320 25 Sales 145 units @$15 30 Purchase 90 units @ $5.00 = 450 Totals 460 units $ 2,820 235 units Park uses a perpetual inventory system. For specific identification, ending inventory consists of 225 units, where 90 are from the March 30 purchase, 80 are from the March 20 purchase, and 55 are from beginning inventory. 1. Complete comparative income statements for the month of March for Park Company for the four inventory methods. Assume expenses are $1,600, and that the applicable income tax rate is 30%.(Round per unit costs to three decimal places. Round your answers to the nearest dollar amounts. Input all amounts as positive values. Omit the “”$”” sign in your response.) PARK COMPANY Income Statements For Month Ended March 31 Specific Identification Weighted Average FIFO LIFO Sales $ $ $ $ Cost of goods sold Gross profit Expenses Income before taxes Income tax expense Net income $ $ $ $ 2. Which method yields the highest net income? LIFO Weighted average FIFO Specific identification 2. Which method yields the highest net income? 3. Does net income using weighted average fall between that using FIFO and LIFO? Yes No 4. If costs were rising instead of falling, which method would yield the highest net income? LIFO Weighted average FIFO Specific identification problem 6-1A Alternative cost flows-perpetual L.O. P1 [The following information applies to the questions displayed below.] Anthony Company uses a perpetual inventory system. It entered into the following purchases and sales transactions for March. Date Activities Units Acquired at Cost Units Sold at Retail 1 Beginning inventory 50 units @ $50/unit 5 Purchase 200 units @ $55/unit 9 Sales 210 units @ $85/unit 18 Purchase 60 units @ $60/unit 25 Purchase 100 units @ $62/unit 29 Sales 80 units @ $95/unit Totals 410 units 290 units references 2. value: 3.00 points Problem 6-1A Part 1 Required: Compute cost of goods available for sale and the number of units available for sale. (Omit the “”$”” sign in your response.) Cost of goods available for sale $ Number of units available for sale units check my workeBook Linkreferences 3. value: 3.00 points Problem 6-1A Part 2 Compute the number of units in ending inventory. Ending inventory units check my workeBook Linkreferences 4. value: 3.00 points Problem 6-1A Part 3 3. Compute the cost assigned to ending inventory using (a) FIFO, (b) LIFO, (c) weighted average, and(d)specific identification. For specific identification, the March 9 sale consisted of 40 units from beginning inventory and 170 units from the March 5 purchase; the March 29 sale consisted of 20 units from the March 18 purchase and 60 units from the March 25 purchase. (Due to rounding, the sum of Cost of Goods Sold and Ending inventory may not equal the Cost of Good available for sales. Round your weighted average cost to 3 decimal places. Round your final answers to nearest whole dollar amount. Omit the “”$”” sign in your response.) Ending Inventory (a) FIFO $ (b) LIFO $ (c) Weighted average $ (d) Specific identification $ rev: 12_18_2012 check my workeBook Linkreferences 5. value: 3.00 points Problem 6-1A Part 4 Compute gross profit earned by the company for each of the four costing methods. (Round your per unit costs to 3 decimal places and inventory balances and final answer to the nearest dollar amount. Omit the “”$”” sign in your response.) Gross profit FIFO $ LIFO $ Weighted average $ Specific identification $ Problem 6-4A Analysis of inventory errors L.O. A2 Doubletree Company s financial statements show the following. The company recently discovered that in making physical counts of inventory, it had made the following errors: Inventory on December 31, 2010, is understated by $50,000, and inventory on December 31, 2011, is overstated by $20,000. For Year Ended December 31 2010 2011 2012 (a) Cost of goods sold $ 725,000 $ 955,000 $ 790,000 (b) Net income 268,000 275,000 250,000 (c) Total current assets 1,247,000 1,360,000 1,230,000 (d) Total equity 1,387,000 1,580,000 1,245,000 Required: For each key financial statement figure (a), (b), (c), and (d) above prepare a table to show the adjustments necessary to correct the reported amounts. (Amounts to be deducted should be indicated with a minus sign. Leave no cells blank – be certain to enter “”0″” wherever required. Omit the “”$”” sign in your response.) (a) Cost of goods sold: 2010 2011 2012 Reported amount $ $ $ Adjustments for: 12/31/2010 error 12/31/2011 error Corrected amount $ $ $ (b) Net income 2010 2011 2012 Reported amount $ $ $ Adjustments for: 12/31/2010 error 12/31/2011 error Corrected amount $ $ $ (c) Total current assets 2010 2011 2012 Reported amount $ $ $ Adjustments for: 12/31/2010 error 12/31/2011 error Corrected amount $ $ $ (d) Equity: 2010 2011 2012 Reported amount $ $ $ Adjustments for: 12/31/2010 error 12/31/2011 error Corrected amount $ $ $ What is the error in total net income for the combined three-year period resulting from the inventory errors(Leave no cells blank – be certain to enter “”0″” wherever required. Input your answer as a positive value. Omit the “”$”” sign in your response.) Error in total net income of three years $ Problem 6-5AA Alternative cost flows-periodic L.O. P3 [The following information applies to the questions displayed below.] Viper Company began year 2011 with 20,000 units of product in its January 1 inventory costing $15 each. It made successive purchases of its product in year 2011 as follows. The company uses a periodic inventory system. On December 31, 2011, a physical count reveals that 35,000 units of its product remain in inventory. 7 28,000 units @ $18 each 25 30,000 units @ $22 each 1 20,000 units @ $24 each 10 33,000 units @ $27 each eBook Linkreferences 7. value: 4.00 points Problem 6-5AA Part 1 Required: Compute the number and total cost of the units available for sale in year 2011. (Omit the “”$”” sign in your response.) Number of units available for sale units Cost of the units available for sale $ check my workreferences 8. value: 4.00 points Problem 6-5AA Part 2 Compute the amounts assigned to the 2011 ending inventory and the cost of goods sold. (Input all amounts as positive values. Round per unit costs to 3 decimal places. Round your final answers to the nearest dollar amount. Omit the “”$”” sign in your response.) (a) FIFO periodic Total cost of units available for sale $ Less ending inventory on a FIFO basis Cost of units sold $ (b) LIFO periodic Total cost of units available for sale $ Less ending inventory on a LIFO basis Cost of units sold $ (c) Weighted average periodic Total cost of units available for sale $ Less ending inventory on a weighted average Cost of units sold $

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