Financial accounting

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Exercise 5-3A Allocating product cost between cost of goods sold and ending inventory: multiple purchases

Suggs Company sells coffee makers used in business offices.  Its beginning inventory of coffee makers was 400 units at $50 per unit.  During the year, Suggs made two batch purchases of coffee makers.  The first was a 500-unit purchase at $55 per unit; the second was a 600-unit purchase a $58 per unit.  During the period, Suggs sold 1,200 coffee makers.

Required

Determine the amount of product costs that would be allocated to cost of goods sold and ending inventory, assuming that Suggs uses

a. FIFO

b. LIFO

c. Weighted average

Exercise 5-4A Effect of inventory cost flow (FIFO, LIFO, and weighted average) on gross margin.

The following information pertains to Baxter Company for 2013:

  Beginning inventory  90 units @ $15

  Units purchased  320 units @ $19

Ending inventory consisted of 40 units.  Baxter sold 370 units at $30 each.  All purchases and sales were made with cash. 

Require

a. Compute the gross margin for Baxter Company using the following cost flow assumptions:

(1) FIFO, (2) LIFO, and (3) weighted average.

b. What is the dollar amount of difference in net income between using FIFO versus LIFO?

c.  Determine the cash flow from operating activities, using each of the three cost flow assumptions listed in Requirement a.  Ignore the effect of income taxes.  Explain why these cash flows have no differences.

Exercise 5-5A Effect of inventory cost flow on ending inventory balance and gross margin

Dugan Sales had the following transactions for jackets in 2013, its first year of operations:

  Jan. 20  Purchased  80 units @ $15  =  $ 1,200

  Apr. 21  Purchased 420 units @ $16  =  6,720

  July.  25  Purchased 250 units @ $20  =  5,000

  Sept. 19  Purchased  150 units @ $22  =  3,300

During the year, Dugan Sales sold 830 jackets for $40 each.

Required

a. Compute the amount of ending inventory Dugan would report on the balance sheet, assuming the following cost flow assumptions: (1) FIFO, (2) LIFO, and (3) weighted average.

b. Record the above transactions in general journal form and post to T-accounts using (1) FIFO, (2) LIFO, and (3) weighted average.  Use a separate set of journal entries and T-accounts for each method.  Assume all transactions are cash transactions. 

c. Compute the difference in gross margin between the FIFO and LIFO cost flow assumptions.


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