Solution manual financial accounting 9th harrison ch06

Find more at www.downloadslide.com Chapter Inventory & Cost of Goods Sold Short Exercises (10 min.) S 6-1 Billions 4.5 4.5 a Inventory Cash b Accounts Receivable Sales Revenue 18.9 Cost of Goods Sold Inventory 3.9 Cash Accounts Receivable 18.7 c d Chapter 18.9 3.9 18.7 Inventory & Cost of Goods Sold 6-1 Find more at www.downloadslide.com (10-15 min.) S 6-2 (Journal entries) Inventory………………………………… Accounts Payable…………………… 125,000 Accounts Receivable…………………… Sales Revenue……………………… 190,000 Cost of Goods Sold…………………… Inventory ($125,000 × 80)………… 100,000 Cash ($190,000 × 25)………………… Accounts Receivable……………… 47,500 125,000 190,000 100,000 47,500 (Financial statements) BALANCE SHEET Current assets: Inventory ($125,000 − $100,000)……………… $ 25,000 INCOME STATEMENT 6-2 Sales revenue……………………………………… $190,000 Cost of goods sold………………………………… 100,000 Gross profit…………………………………………… $ 90,000 Financial Accounting 9/e Solutions Manual Find more at www.downloadslide.com (15-20 min.) S 6-3 a Average Cost b c FIFO LIFO Cost of goods sold: Average (28 × $157.50) $4,410 FIFO [$1,350 + (19 × $160)] $4,390 LIFO [$4,320 + (1 × $150)] $4,470 Ending inventory: Average (8 × $157.50) $ 1,260 FIFO (8 × $160) $1,280 LIFO (8 × $150) $1,200 Computations: Units sold = 28 (9 + 27 − 8) Average cost per unit = $157.50 ($1,350 + $4,320) ÷ (9 + 27) Cost per unit: Beginning inventory= $150 ($1,350 ÷ = $150) March purchase = $160 ($4,320 ÷ 27 = $160) Chapter Inventory & Cost of Goods Sold 6-3 Find more at www.downloadslide.com (10-15 min.) S 6-4 Jonah’s Copy Center Income Statement Year Ended December 31 Average Sales revenue (600 × $20.50) Cost of goods sold (600 × $9.85*) $12,300 FIFO LIFO $12,300 $12,300 5,910 (100 × $8.40) + (500 × $9.90) 5,790 (600 × $9.90) 5,940 Gross profit 6,390 6,510 6,360 Operating expenses 3,900 3,900 3,900 $ 2,490 $ 2,610 $ 2,460 Net income _ *Average cost per unit: 6-4 Beginning inventory (100 @ $9.50)…………… $ 950 Purchases (700 @ $9.90)………………………… 6,930 Goods available…………………….……………… $7,880 Average cost per unit $7,880 / 800 units…… $ 9.85 Financial Accounting 9/e Solutions Manual Find more at www.downloadslide.com (10-15 min.) S 6-5 Jonah’s Copy Center Income Statement Year Ended December 31 Average Sales revenue (600 × $20.50) Cost of goods sold (600 × $9.85*) $12,300 $12,300 LIFO $12,300 5,910 (100 × $8.40) + (500 × $9.90) (600 × $9.90) FIFO 5,790 5,940 Gross profit 6,390 6,510 6,360 Operating expenses 3,900 3,900 3,900 Income before income tax $ 2,490 $ 2,610 $ 2,460 Income tax expense (40%) $ 996 $ 1,044 $ 984 *From S 6-4 Method to maximize reported income (before tax) Chapter Method to minimize income tax expense Inventory & Cost of Goods Sold 6-5 Find more at www.downloadslide.com (5 min.) S 6-6 Macrovision.com managers can purchase a large amount of inventory before year end Under LIFO, these high inventory costs go directly to cost of goods sold in the current year Higher cost of goods sold creates lower net income, and lower net income results in lower income taxes Saving on taxes is one reason companies want to decrease their income Student responses may vary (5-10 min.) S 6-7 BALANCE SHEET Current assets: Inventories, at market (which is lower than cost)…… $ 49,000 INCOME STATEMENT Cost of goods sold [$420,000 + ($65,000 − $49,000)]…… 6-6 Financial Accounting 9/e Solutions Manual $436,000 Find more at www.downloadslide.com (15-20 min.) S 6-8 DATE: _ TO: Jim Tolbert, President of Tolbert Trumpet Company FROM: Student Name SUBJECT: Proposal for Increasing Net Income We can increase net income by not buying below-normal quantities of inventory as we make sales Inventory costs are rising, and the company uses the LIFO inventory method Under LIFO, the high cost of our inventory purchases goes straight into cost of goods sold By decreasing our purchases of inventory, we can keep those high costs out of cost of goods sold this year That will keep net income from going lower and will help net income be as high as possible Also, our inventory quantities are above normal, so we don’t need to buy a lot of inventory before year end Student responses will vary Chapter Inventory & Cost of Goods Sold 6-7 Find more at www.downloadslide.com (10-15 min.) S 6-9 LIFO Specific unit cost Used to account for automobiles, jewelry, and art objects FIFO Results in a cost of ending inventory that is close to the current cost of replacing the inventory FIFO Maximizes reported income LIFO Enables a company to buy high-cost inventory at year end and thereby to decrease reported income and income tax LIFO Results in an old measure of the cost of ending inventory Average Provides a middle-ground measure of ending inventory and cost of goods sold LIFO Enables a company to keep reported income from dropping lower by liquidating older layers of inventory All Writes inventory down when replacement cost drops below historical cost LIFO 6-8 Generally associated with saving income taxes 10 Matches the most current cost of goods sold against sales revenue Financial Accounting 9/e Solutions Manual Find more at www.downloadslide.com (5-10 min.) S 6-10 Dollars in Millions Gross profit percentage = $35,376 − $15,437 $35,376 Inventory turnover = $15,437 ($1,672 + $1,908) / = 56.4% = 8.6 times (5-10 min.) S 6-11 Beginning inventory…………………………… $ 315,000 + Purchases……………………………………….… 1,820,000 = Goods available………………………………… 2,135,000 − Cost of goods sold: Sales revenue………………………… $3,920,000 Less estimated gross profit (60%)… (2,352,000) Estimated cost of goods sold……………… = Estimated cost of ending inventory………… Chapter (1,568,000) $ 567,000 Inventory & Cost of Goods Sold 6-9 Find more at www.downloadslide.com (5 min.) S 6-12 Correct Amount (Millions) a Net sales (unchanged)……………………………… $2,500 b Inventory ($480 − $13)……………………………… $ 467 c Cost of goods sold ($1,160 + $13)………………… $1,173 d Gross profit ($2,500 − $1,173)……………………… $1,327 (5 min.) S 6-13 Last year’s reported gross profit was understated Correct gross profit last year was $5.1 million ($3.7 + $1.4) This year’s gross profit is overstated Correct gross profit for this year is $3.2 million ($4.6 − $1.4) 6-10 Financial Accounting 9/e Solutions Manual Find more at www.downloadslide.com Focus on Analysis: RadioShack, Corp (30-40 min.) Req a b c Inventory on hand at fiscal 2010 year end, $723.7 million Cost of sales, $2,462.1 million Purchases = + − = Ending inventory………………… Cost of goods sold……………… Beginning inventory………….… Purchases………………………… Millions $ 723.7 2,462.1 (670.6) $2,515.2 Req Purchases are most directly related to cash flow because RadioShack, Corp must pay for the inventory it purchases Req Millions + − = Accounts payable, beginning of 2010 (ending balance for fiscal 2009)………………… Purchases 2010 (Req 1)………………………… Cash payments on account 2010…….………… Accounts payable, end of 2010… ……………… 2010 Cash payments (X) = $2,505.7 million 6-72 Financial Accounting 9/e Solutions Manual $ 262.9 2,515.2 (X) $ 272.4 Find more at www.downloadslide.com (continued) Focus on Analysis: RadioShack, Corp Req Note (Summary of Significant Accounting Policies), Inventories, states that RadioShack, Corp values inventories “at the lower of cost (principally based on average cost, which approximates FIFO) or market value.” Req (Dollars in millions) Gross profit percentage 2010 2009 = $4,473 − $2,460 $4,473 $4,276 − $2,314 $4,276 = 45.0% 45.9% This represents a slight decline in gross profit, largely due to a $197 million increase in sales accompanied by an increase ($148 million) in cost of sales Inventory turnover = $2,462 ($723.7 + $670.6) / = 3.52 $2,314 ($670.6 + $636.3) / 3.54 Inventory turnover declined slightly Overall, RadioShack’s combination of (a) gross profit percent and (b) rate of inventory turnover deteriorated slightly during 2010 However, these declines were offset by a moderate increase in sales This information helps to explain how income from operations increased slightly in fiscal 2010 Chapter Inventory and Cost of Goods Sold 6-73 Find more at www.downloadslide.com Group Project Student responses will vary 6-74 Financial Accounting 9/e Solutions Manual Find more at www.downloadslide.com Chapter Appendix Appendix Short Exercises (10-15 min.) S6A-1 (Journal entries) General Journal Purchases Accounts Payable Purchased inventory on account 1,190 Accounts Receivable Sales Revenue Sold inventory on account 2,900 1,190 2,900 End-of-period entries to update inventory and record Cost of Goods sold: a Cost of Goods Sold Inventory (beginning balance) Transfer beginning inventory to COGS 580 Inventory (ending balance) Cost of Goods Sold Set up ending inventory based on physical count 650 b c Cost of Goods Sold Purchases Transfer purchases to COGS 580 650 1,190 1,190 Chapter Inventory and Cost of Goods Sold 6-75 Find more at www.downloadslide.com (10-15 min.) S6A-2 Req Posting general journal entries Inventory 580* 580 650 650 * Beginning inventory was $580 Cost of Goods Sold 580 1,190 1,120 650 Req Cost-of-Goods-Sold Model Beginning inventory $ 580 + Purchases 1,190 = Goods available 1,770 - Ending inventory 650 = Cost of goods sold $1,120 Req Flexon Technologies Income Statement (Partial) Sales revenue $2,900 Cost of goods sold: Beginning inventory Purchases 1,190 Goods available 1,770 Ending inventory (650) Cost of goods sold Gross profit 6-76 $ 580 Financial Accounting 9/e Solutions Manual 1,120 $1,780 Find more at www.downloadslide.com Appendix Exercises (10-15 min.) E6A-3A Begin Bal Purchases Oct 15 26 Ending Bal (5 units @ $60) Inventory 300 (4 units @ $60) (10 units @ $70) (1 unit @ $80) (7 units @ $?) 240 700 80 ? Cost of goods sold (13 units @ $?) Cost of Goods Sold Ending Inventory (1) Specific unit cost (6 @ $60) + (6 @ $70) + (1 @ $80) = (2) Average cost (13 × $66*) = _ *Average cost per unit (3) FIFO (4) LIFO = ? $860 (3 @ $60) + (4 @ $70) = $460 $858 (7 × $66*) = $462 ($300 + $240 + $700 + $80) = $66.00 (5 + + 10 + 1) (9 @ $60) + (4 @ $70) = (1 @ $80) + (10 @ $70) + (2 @ $60) = $820 (6 @ $70) + (1 @ 80) = $500 $900 Chapter (7 @ $60) = $420 Inventory and Cost of Goods Sold 6-77 Find more at www.downloadslide.com (10-15 min.) E6A-4A Reqs & (Journal entries) General Journal Purchases Accounts Payable Purchased inventory on account 1,020 Accounts Receivable Sales Revenue Sold inventory on account 3,900 1,020 3,900 End-of-period entries to update inventory and record Cost of Goods Sold: a Cost of Goods Sold Inventory (beginning balance) Transfer beginning inventory to COGS 300 Inventory (ending balance) Cost of Goods Sold Set up ending inventory based on physical count 420 b c 300 420 Cost of Goods Sold Purchases Transfer purchases to COGS Req.3 1,020 1,020 Posting general journal entries Cost of Goods Sold Purchases 1,020 Ending Inventory Beginning Inventory 300 Cost of goods sold 900 420 Req Cost-of-Goods-Sold Model + = = 6-78 Beginning inventory Purchases Goods available Ending inventory Cost of goods sold Financial Accounting 9/e Solutions Manual $ 300 1,020 1,320 420 $ 900 Find more at www.downloadslide.com (10-15 min.) E6A-5B Begin Bal Purchases Dec 15 26 Ending Bal (6 units @ $59) Inventory 354 (4 units @ $59) (10 units @ $69) (5 units @ $79) (7 units @ $?) 236 690 395 ? Cost of goods sold (18 units @ $?) Cost of Goods Sold Ending Inventory (1) Specific unit (8 @ $59) + (5 @ cost $69) + (5 @ $79) = $1,212 (2) Average cost (18 × $67*) _ *Average cost per unit (3) FIFO (4) LIFO = ? = $1,206 (2 @ $59) + (5 @ $69) = $463 (7 × $67*) = $469 ($354 + $236 + $690 +$395) = $67.00 (6 + + 10 + 5) (10 @ $59) + (8 @ $69) = $1,142 (5 @ $79) + (10 @ $69) + (3 @ $59) (5 @ $79) + (2@ $69) = $533 = $1,262 Chapter (7 @ $59) = $413 Inventory and Cost of Goods Sold 6-79 Find more at www.downloadslide.com (10-15 min.) E6A-6B Reqs & (Journal entries) General Journal Purchases Accounts Payable Purchased inventory on account 1,321 Accounts Receivable Sales Revenue Sold inventory on account 5,670 1,321 5,670 End-of-period entries to update inventory and record Cost of Goods Sold: a Cost of Goods Sold Inventory (beginning balance) Transfer beginning inventory to COGS 354 Inventory (ending balance) Cost of Goods Sold Set up ending inventory based on physical count 413 b c 354 413 Cost of Goods Sold Purchases Transfer purchases to COGS Req.3 1,321 1,321 Posting general journal entries Cost of Goods Sold Purchases 1,321 Ending Inventory Beginning Inventory 354 Cost of goods sold 1,262 413 Req Cost-of-Goods-Sold Model + = = 6-80 Beginning inventory Purchases Goods available Ending inventory Cost of goods sold Financial Accounting 9/e Solutions Manual $ 354 1,321 1,675 413 $1,262 Find more at www.downloadslide.com Appendix Problems (20-25 min.) P6A-7A Req Begin Bal Purchases Aug 30 Ending Bal (52 units @ $13) (78 units @ $14) (20 units @ $15) (50 units @ $?) Inventory 676 1,092 300 ? Cost of goods sold (100 units @ $?) Cost of Goods Sold FIFO ? Ending Inventory (52 @ $13) + (48 @$14) = $1,348 (20 @ $15) + (3 @ $14) = $720 Req Date Aug Aug 11 Aug 19 Aug 24 Aug 31 Total Units Sold 14 38 32 100 Selling Price $67 $67 $69 $69 $69 Total Revenue $ 938 2,546 483 2,208 621 $6,796 Waverly Outlet Income Statement (Partial) Sales revenue Cost of goods sold: Beginning inventory Purchases Goods available Ending inventory Cost of goods sold Gross profit $6,796 $ 676 1,392 2,068 (720) 1,348 $5,448 Chapter Inventory and Cost of Goods Sold 6-81 Find more at www.downloadslide.com (20-30 min.) P6A-8A Req (Journal entries) General Journal Purchases Accounts Payable Purchased inventory on account Accounts Receivable Cash Sales Revenue Sold inventory for cash and on account 2,550 850 3,400 End-of-period entries to update inventory and record Cost of Goods Sold: a Cost of Goods Sold Inventory (beginning balance) Transfer beginning inventory to COGS 490 Inventory (ending balance) Cost of Goods Sold Set up ending inventory based on physical count 620 b c 6-82 (thousands) 2,000 2,000 Cost of Goods Sold Purchases Transfer purchases to COGS Financial Accounting 9/e Solutions Manual 490 620 2,000 2,000 Find more at www.downloadslide.com (continued) P6A-8A Req Total Desserts, Inc Income Statement (Partial) Sales revenue Cost of goods sold: Beginning inventory Purchases Goods available Ending inventory Cost of goods sold Gross profit $3,400 $ 490 2,000 2,490 (620) 1,870 $1,530 Cost-of-Goods-Sold Model + = = Beginning inventory Purchases Goods available Ending inventory Cost of goods sold $ 490 2,000 2,490 620 $1,870 Current asset section of the balance sheet reports: Inventory, $620 Chapter Inventory and Cost of Goods Sold 6-83 Find more at www.downloadslide.com (20-25 min.) P6A-9B Req Begin Bal Purchases May 30 Ending Bal Inventory 864 (48 units @ $18) (83 units @ $19) (17 units @ $20) (51 units @ $?) 1,577 340 ? Cost of goods sold (97 units @ $?) Cost of Goods Sold FIFO (48 @ $18) + (49 @ $19) Ending Inventory = $1,795 (17 @ $20) + (34 @ $19) Req Date May May 11 May 19 May 24 May 31 Total Units Sold 18 30 32 11 97 Selling Price $73 $73 $75 $75 $75 Total Revenue $1,314 2,190 450 2,400 825 $7,179 Whitewater Outlet Income Statement (Partial) Sales revenue Cost of goods sold: Beginning inventory Purchases Goods available Ending inventory Cost of goods sold Gross profit 6-84 ? Financial Accounting 9/e Solutions Manual $7,179 $ 864 1,917 2,718 (986) 1,795 $5,384 = $986 Find more at www.downloadslide.com (20-30 min.) P6A-10B Req (Journal entries) General Journal (thousands) Purchases Accounts Payable Purchased inventory on account 1,180 Accounts Receivable Cash Sales Revenue Sold inventory for cash and on account 2,480 620 1,180 3,100 End-of-period entries to update inventory and record Cost of Goods Sold: a Cost of Goods Sold Inventory (beginning balance) Transfer beginning inventory to COGS 520 Inventory (ending balance) Cost of Goods Sold Set up ending inventory based on physical count 620 b c Cost of Goods Sold Purchases Transfer purchases to COGS 520 620 1,180 1,180 Chapter Inventory and Cost of Goods Sold 6-85 Find more at www.downloadslide.com (continued) P6A-10B Req Parkland Pastries, Inc Income Statement (Partial) Sales revenue Cost of goods sold: Beginning inventory Purchases Goods available Ending inventory Cost of goods sold Gross profit $ 3,100 $ 520 1,180 1,700 (620) 1,080 $ 2,020 Cost-of-Goods-Sold Model + = = Beginning inventory Purchases Goods available Ending inventory Cost of goods sold $ 520 1,180 1,700 620 $1,080 Current asset section of the balance sheet reports: Inventory, $620 6-86 Financial Accounting 9/e Solutions Manual ... Cost of goods sold………………………………… 100,000 Gross profit…………………………………………… $ 90,000 Financial Accounting 9/e Solutions Manual Find more at www.downloadslide.com (15-20 min.) S 6-3 a Average Cost b... available…………………….……………… $7,880 Average cost per unit $7,880 / 800 units…… $ 9.85 Financial Accounting 9/e Solutions Manual Find more at www.downloadslide.com (10-15 min.) S 6-5 Jonah’s Copy Center... 49,000 INCOME STATEMENT Cost of goods sold [$420,000 + ($65,000 − $49,000)]…… 6-6 Financial Accounting 9/e Solutions Manual $436,000 Find more at www.downloadslide.com (15-20 min.) S 6-8 DATE: